Draft Equity Incentive Plan

---
name: draft-equity-incentive-plan
task_id: capital-markets/draft-equity-incentive-plan
description: Equity incentive plan drafting where the baseline produces a plan document but omits a companion drafting memo resolving conflicts among multiple source documents and flagging statutory, governance, and capitalization nuances.
activates_for: [planner, solver, checker]
---

# Skill: Draft Equity Incentive Plan

## 2. Failure modes the skill is correcting

- Drafting follows the last-read source document instead of reconciling the term sheet, board materials, cap table, existing plan, investor-side restrictions, and valuation support, so the plan imports unresolved conflicts.
- The plan is produced without a companion drafting memorandum that explains source conflicts, open drafting points, and the recommended resolution for each.
- The draft overlooks plan mechanics that depend on the award mix, including option qualification rules, full-value award settlement timing, change-in-control treatment, amendment authority, and capitalization limits.
- The draft assumes the company can authorize the pool without first testing charter capacity and any contractual dilution caps reflected in the investor-side documents.
- The draft states conclusions about eligibility, pricing, vesting, or settlement without tying them to the governing authority or the source document that supports the position.
- The memorandum flags issues narratively but does not close each issue with the scale of the exposure, the interacting source provision, and the practical consequence for the company.

## 3. Legal frameworks / domain conventions that apply

- Reconcile the source set before drafting. Treat the term sheet, board approvals, cap table, existing plan, investor restrictions, and valuation materials as a single record set, then resolve internal inconsistencies by hierarchy, corporate authority, and drafting necessity.
- Equity incentive plan architecture should follow the standard corporate forms for definitions, administration, eligibility, award types, share reserve, adjustments, exercise or settlement mechanics, tax withholding, change in control, amendment, transfer restrictions, and termination.
- Incentive stock option design must comply with Internal Revenue Code Section 422, including employee-only eligibility, the per-employee annual exercisability value limit, the grant-order rule when multiple grants are outstanding, and the special ownership/pricing constraints for holders above the applicable voting-power threshold.
- Nonqualified options and full-value awards should be drafted with separate tax and settlement logic so that settlement timing, withholding, and deferral language do not inadvertently create unwanted compensation timing issues.
- Equity reserve mechanics must be checked against the charter’s authorized-but-unissued share capacity and against any plan or investor-side cap on the permissible pool size.
- If the plan uses an evergreen increase, the increase must be harmonized with the charter and any investor approval requirement before the increase can take effect.
- If the plan contains a fungible ratio or separate share counting for options versus full-value awards, define the ratio consistently in the operative plan text and in every pool calculation.
- If the company expects reporting-person awards or insider-trading sensitivity, the administration provisions should preserve the approval process needed for available exemptions and clean corporate records.
- Change-in-control, termination, and good-reason provisions should be drafted for internal consistency and for compliance with deferred-compensation and transition-timing considerations, where applicable.
- Any legal conclusion in the plan or memo should be stated with the governing authority or corporate document that supports it, not as an unsupported assertion.

## 4. Analytical scaffolds

- Start by enumerating the source documents and the discrete questions each one answers: pool size, award mix, vesting, exercise price methodology, transfer restrictions, settlement mechanics, amendment authority, and approval mechanics.
- For each source conflict, identify: the controlling document, the conflicting provision, the practical drafting choice, and whether the issue is resolved in the plan text or reserved for company confirmation.
- Test the reserve against the cap table and charter first, then test any investor-side dilution cap, then test any plan-specific pool increase mechanism.
- If the source set supports both incentive stock options and nonqualified options, draft for both while preserving the separate statutory constraints that apply only to incentive stock options.
- If the source set contemplates RSUs or other full-value awards, draft the settlement mechanics so the timing window, tax withholding, and discretionary acceleration language work together.
- Where a valuation is supplied, use it only as the support for fair market value-based drafting decisions; do not hard-code source-specific economics unless the task materials require them.
- For the memorandum, treat every issue entry as complete only when it states the source conflict or open point, explains the source interaction, and gives the downstream drafting or transaction consequence.
- Organize open items so the company can answer them efficiently: term, structure, cap, approval, tax, and administrative issues should be separated rather than blended.

## 5. Vertical / structural / temporal relationships (only if applicable)

- Sequence the drafting from authority to mechanics: corporate approval and share availability first, award eligibility and types second, economics and timing third, then administrative and amendment provisions.
- Within award provisions, separate grant conditions, vesting conditions, and settlement or exercise conditions so later provisions do not silently override earlier ones.
- Treat cap table, charter authorization, and contractual dilution caps as vertical constraints on the reserve; the plan should never assume the reserve exists before those constraints are cleared.
- Treat vesting, exercise, and settlement as temporal events that may diverge by award type; the drafting should preserve those differences instead of collapsing them into one generic timing rule.
- If multiple source documents address the same subject at different levels of specificity, draft the operative rule at the plan level and push detail into an appendix or memorandum only if the company needs a recorded choice.
- If an issue depends on a future approval or amendment, label it as pending and tie it to the relevant corporate milestone rather than implying immediate effectiveness.

## 6. Output structure conventions

- Produce two separate deliverables: the equity incentive plan and a drafting memorandum.
- Draft the plan in conventional plan form with operative clauses, not as a summary or annotated outline.
- The plan should read as a standalone agreement with definitions, administration, eligibility, award grants, share reserve, adjustments, option mechanics, full-value award mechanics if applicable, tax withholding, transfer limits, change-in-control treatment, amendment, and termination.
- The memorandum should be an issue-resolution document, not a general recap. For each item, state the source conflict or open issue, the analysis, and the recommended drafting position or company decision needed.
- Every memorandum entry should include a clear severity label using a consistent ordinal scale stated once at the beginning of the memo, and the label should be applied uniformly.
- Every memorandum entry should close with the practical consequence if the issue is left unresolved.
- End the memorandum with a short Recommended Actions block that assigns each next step to a role and ties it to the next company or transaction milestone.
- When multiple source documents speak to the same point, surface the conflict explicitly rather than harmonizing silently.
- Before concluding, confirm that both files are complete, non-empty, and contain operative drafting rather than commentary about what should be drafted.