Frequently Asked Questions (FAQ)

Vesting is a legal term that means that the employee is entitled to the incentive shares, depositary receipt or options over a period of time (Time based vesting) or once the goals are met (Milestone based vesting). Every calendar year or once a goal is met, a part of the asset is ‘vested'. An common example in a four years vesting scheme, is that the employee will vest 25% of the asset per year.

In most circumstances, vesting is combined with a cliff and once the cliff has passed the allocation of the assets occurs. Typically vesting schemes are four years, but depending on the employees who will benefit from the vesting, the vesting period can ramp up to ten years.

Time-based vesting is a specific form of vesting through which an employee earns its assets over a predefined period of time. This predefined vesting period can be set on a monthly, quarterly or yearly basis.

Milestone vesting, is a specific form of vesting through which the employee earns its assets based on specific milestones, such as achieving specific (individual) objectives (KPI's) or (successfully) finalising a project that has been assigned to the employee.

Reverse vesting can be considered as a practical solution for Time based vesting. With Reverse vesting, assets (in this case depositary receipts or shares) will be issued or transferred to the employee all at once. In a separate agreement - shareholders or certificaathouders overeenkomst - employees and the employer agrees that rights attached to these assets will vest over time, despite the fact that the already own the underlying assets. During a vesting period of four years, rights such as dividend will vest gradually (i.e. 25% per year) according to the agreed vesting scheme. Reverse vesting is often used in the Dutch situations where employees are incentivized with depositary receipts or shares, in order to avoid costs for transferring these assets to the employee.

If the employee will leave the company before the complete vesting period is completed, the employee has the obligation to transfer all non vested assets back to the company, or in other words: the company has the right to repurchase the assets if the employee has not been fully vested. The price for the assets will be determined by the underlying agreement and the fact if a good or bad leaver will apply and the event

All ESOP plans contain a clause which defines a liquidity event. A liquidity event is an event that is triggered once all or a substantial part (>50%) of the company's shares is sold. In some occasions this will be a private acquisition and in some occasions this will be an initial public offering (IPO). In most ESOP, a liquidity event triggers the vesting period, in such a way that all shares or depositary receipts are considered to be fully vested and/or options can be exercised immediately in order to fully participate in the liquidity event. By connecting the liquidity event to the fully vested definition, the employee can benefit in full from this event.

The aforementioned liquidity event is also referred to as single trigger acceleration, as there is basically one event that triggers the liquidity event followed by the conversion. In some cases employers choose for a so-called double trigger conversion, which means that besides the first trigger, a second trigger has to occur before the employee may exercise his right to benefit from the liquidity event. It is noted that a double trigger conversion is considered not employee friendly.

depositary receipts are issued to employees (normally by a STAK) after the STAK receives shares in the company that enable the employees to benefit from an ESOP. The specific thing about this situation is, that the most important rights connected to shares - legal rights (such as: voting rights, attending the meeting, inspection of the annual accounts et cetera) and economic rights (dividend rights) - are separated from each other with this construction. The STAK is the legal entity that holds the shares in the company and is therefore entitled to all legal rights (such as voting rights and attending rights). The economic rights (dividends) on the other hand, are transferred to the employee. If the company issues proceeds, the STAK has the obligation to distribute the proceeds directly to the employees who are eligible for the proceeds.

In this paragraph is still mentioned the voting rights, but nowadays you often see that shares held by the STAK are non voting rights in order to avoid issues with voting in the (general) meeting of the shareholders.

Bad leaver clauses are included in ESOP to avoid that, when an employee misbehaves, the employee receives the full amount of his incentive, regardless if the employee is fully vested. One of the most striking examples of a bad leaver, is the employee breaching a competition clause or committing fraudulent acts.

The catch of the bad leaver is that, once the employee is considered to be a bad leaver, the employee has the obligation to offer his shares to the other shareholders or depositary receipt holders against the nominal value or a predefined discount of the market value of the company.

STAK stands for “Stichting Administratie Kantoor”, and is according to Dutch law a legal entity (a foundation) which is incorporated with one purpose: collect and distribute dividends to holders of depositary receipts. Once the STAK is incorporated, the company will transfer a part of its shares - most often non voting shares - to the STAK.

Legal rights (such as meeting and voting rights) - one of the essential rights attached to shares - will remain with the STAK, the economic rights are transferred to the employee.

If the company distributes dividend, the STAK has the obligation to distribute the proceeds directly to the employees who are eligible for the proceeds.