Share Option and Appreciation Rights (SOAR) Agreement
What is the SOAR?
The SOAR Agreement is a contract for equity in a Company. It does two things: (1) it grants the holder a non-qualified stock option for stock in the Company, and (2) it grants the holder a right to the value of the underlying shares, realized on exit of the Company (acquisition or IPO). (see example)
What Can a Recipient Do with a SOAR?
A holder can either (i) exercise the SOAR by paying the exercise price, and then receive actual shares of stock of the Company, or (ii) do nothing and get the value of the underlying shares at the Company’s exit (sale or IPO).
How Does it Work?
A SOAR recipient is granted a certain number of shares and is given a strike price (based on either (i) an existing Company valuation, (ii) an imminent third party valuation of the Company, or (ii) if the Company doesn’t get a third party valuation within 3 months of grant, then the Company’s estimate of value at the time of grant. If the SOAR recipient exercises the SOAR (i.e. pays the exercise price for the vest shares) he/she will be entitled to shares of stock in the Company. If the SOAR recipient holds the SOAR until the Company sells or goes public (an “Exit”) , he/she will be entitled to the proceeds from that Exit, minus his/her exercise price per share.
Where Did the SOAR Come From?
The SOAR was developed with top corporate, tax, and compensation and benefit specialist at some of the top law firms in the U.S. It is designed to give early stage companies a flexible tool to grant equity to advisors and service providers even before going through the costly steps of setting up an option plan or getting a costly 409(A) valuation.