STOCK APPRECIATION RIGHTS (SAR) PLAN: REWARDING & RETAINING KEY STAFF IN CONNECTION WITH BUILDING A BUSINESS FOR VALUE OR SALE

Rewarding key personnel is an important element of many Middle Market M&A transactions. A Stock Appreciation Rights (SAR) Plan is a method for Companies to give their key employees a bonus if the Company performs well financially. Participants do not own stock nor are they required to purchase anything; however, their benefit from the SAR Plan is based on the increase in stock value. Owners/Sellers may use SAR Plans to accomplish the following with strategic employees:

• Aligning employee goals with Company goals
• Creating and increasing the Shareholder value
• Retaining premier employees

Among the biggest risks to a Buyer is that the critical mass of key employees will disappear between closing and the start of business. Negotiating non-compete and nonintervention agreements with key employees may best be addressed at the same time the Company’s SAR Plan is introduced. M&A advisors should ensure that all exit strategy-related incentive and reward plans with key employees are revisited, reaffirmed and documented before launching the sale of the Company.