The Arizona Court of Appeals, Division One, recently provided a roadmap to the rules concerning the specificity of an agreement required to obtain specific performance of an option to purchase real property. In Offerman v. Terms and Conditions to be stipulated by both parties at such time. The acceptable condition of the property when Tenant takes occupancy will be considered the condition Tenant agrees to accept at time of closing.
In order to operate effectively as incentive compensation, however, the stock option agreement must be executed well, to protect both the needs of the employer and the employee. Even when offered by an early-stage startup, stock options must be carefully drafted and relate to an underlying and properly approved equity compensation plan in place before offering employee stock options. If you are considering issuing stock options, a Priori employee benefits lawyer can help.
About Stock Option Agreements Stock options are a means to both attract good talent and keep those employees invested in the company over time. When a company offers employees stock options, they do so through a special contract called a stock option agreement.
The option agreement dictates all the terms of the offer -- including vesting schedule, time limits for exercise once vested and any other special conditions. Breaking Down the Stock Option Agreement The following are some of the key documents and provisions involved in granting stock options: Documents Generally, stock option agreements consist of four key documents.
Stock Option Plan. Generally, it is a standard document for all options issued to employees at the same time.
Individual Stock Option Agreement. This is the custom contract executed by the company and any particular optionee.
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This document specifies the number of options the employee is entitled to exercise, how much money did durov make of options granted, the vesting schedule and other employee-specific terms of issuance.
Exercise Agreement. This document details the terms under which options can be exercised by employees.
Notice of Stock Option Grant. While not always included, a notice of stock option grant is generally included in the stock option agreement, as well.
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This document includes a short summary of the material terms of the grant. It generally serves to fulfill SEC notice requirements, and in some cases includes disclosures. The date on which an employer grants an employee the option to buy a set number of shares at a specific exercise price.
Exercise or Strike Price. The price at which the employee can buy stock during the exercise period. The price must considered fair market value, but there are a range price can be calculated -- including by looking to the closing stock price for public companies and formal valuations for privately held companies.
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- Option Agreement
Expiration Date. The date on which the exercise period ends.
Thereafter, the option is no longer available to the employee. Exercise Date.
By William M. Flieshhacker In this case, the Fourth District Court of Appeal of California addressed the issue of the enforceability of an option contract that did not include essential terms regarding the time and manner of payment. The court found that these key terms could not be added by the trial court by implication, thus rendering the option contract unenforceable.
The date an employee purchases stock pursuant to the stock option agreement. Vesting Period. Generally, stock options are not immediately exercisable by an employee.
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Rather, there is a vesting schedule material terms of an option agreement to which portions of the stock option vests over time -- often over a period of years. A specific interval of time during the vesting period before any shares are available.
For example, a common pattern is that no shares vest during the first year following the option grant. Clawback Provisions. Generally, this provision includes corporate events, for example, a bankruptcy, as well as employee-related event, for example, a termination.
This means that all provisions of the option agreement must be compliant, and securities issued must be properly registered where applicable. In addition, employees issued stock must have the same disclosures and notices available to any other investor.
In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and receive free price quotes our lawyers. FAQ What is a reasonable vesting schedule for a stock option agreement? For startups, four- or five-year vesting schedules have become standard.
These vesting schedules often include a one- or two-year cliff.