Stock Option Agreements
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When you are negotiating a job offer, or considering separation and severance, you may be offered stock options. Company stock can provide you with an additional financial benefit as the company grows. But it’s important to understand the terms and conditions of your stock option agreement. That’s why it’s important to have an experienced employment attorney on your side.
The lawyers at Gibson Law, LLC used to represent employers for a national law firm. We understand the considerations that go into these legally and financially complicated contracts from the employer’s point of view. Now, we help employees ensure that these agreements benefit their interests.
A stock option gives you the opportunity to buy a specific number of shares in the company at a certain price – the “exercise price” or “strike price.” Stock option can help companies attract talented people and give employees additional compensation. But it’s important for the stock option agreement to be written clearly to avoid confusion and potential disputes.
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There are a number of things to consider before signing a stock option agreement:
- The number of shares – The size of the initial option grant should be made clear. Typically, shares will vest over four years. There is also usually a one-year “cliff” – if you leave the company within the first year, none of the shares will vest.
- The exercise price – This is the price at which you will be able to purchase the stock.
- The company’s total capitalization – A fully diluted view of the company’s capitalization can give you a clearer view of the economic value of the stock and your potential ownership percentage.
- Other authorized options (granted and ungranted) – It’s important to know the maximum number of shares the company is allowed to issue according to its articles of incorporation.
- Additional shares that may be issued – A company should be able to determine the amount of investor capital it will need in the future to achieve its goals.
- Potential future options – There may be an opportunity in the future for you to purchase other stock, based on tenure or performance, for example.
- Vesting schedule – For example, in a vesting schedule of four years with a one-year cliff, you would vest 25 percent of the shares after the first year with additional options vesting monthly.
- Early exercise of options – If allowed, this provides a potential tax benefit as you would have gains taxed at long-term capital gains rates.
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It should also be clear what happens to vested shares if you leave the company. You may be able to keep shares that you vested. Or the agreement may give the company the right to buy back vested shares under certain conditions. If you have been terminated, our experienced attorneys can ensure that the terms of the agreement are honored.
If you are negotiating a job offer, we can review your stock option agreement to help you determine if it is a fair offer. We may also be able to negotiate more favorable terms. Contact us for a consultation with a member of our legal team at our Cincinnati or Dayton office.