Stock Option Plan Plus Exhibits and Q&A

By Jennifer Carpenter,2014-11-26 17:28
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Stock Option Plan Plus Exhibits and Q&A

    Disclaimer: This template is provided with the understanding that the publisher is not in the business of rendering legal or professional advice. Consult with a reputable professional before signing an agreement, sending one to another party, or using this material.





1. What is a stock option?

     A stock option gives you the right, for a fixed period of time, to purchase a specified number of shares of the

    Company's Common Stock at the price (the "option price") that was in effect on the day the option was

    granted. When you purchase the stock, you "exercise" your option.

2. What is the Plan?

     The [Date] Stock Option/Stock Issuance Plan (the "Plan") is the document that sets forth the general terms and

    conditions that apply to the stock options granted by the Company. It is important to read your copy of the

    Plan and understand the terms of your Stock Option Agreement. If you have questions, please consult with

    the Company.

3. How are Options granted?

     Only the Board of Directors, or a committee composed of members of the Board of Directors, can grant stock

    options. Shortly after the Board approves a grant, a Notice of Grant of Stock Option ("Notice of Grant")

    will be prepared and forwarded, together with a copy of the Plan and a Stock Option Agreement, to an

    employee to whom such grant was made.

4. Are there different types of Stock Options?

     The Company's stock option plans offer two different types of options: nonstatutory stock options (NSOs)

    and incentive stock options (ISOs). ISOs are "qualified," which means they conform to certain regulations of

    the Internal Revenue Service that provide for special tax treatment. NSOs are "not qualified" and are subject

    only to the terms and conditions of the Plan. Specific differences between the two types of options will be

    discussed below.

5. How do I know how many Options I have?

     Shortly after the Board grants your option, you will receive the Notice of Grant and Stock Option Agreement

    referred to above, which will describe the kind of option you are to receive and its exact terms, including

    (i) the number of shares available to you, (ii) the price per share (typically, the "fair market value" of the stock

    on the day you are granted the option), and (iii) your vesting schedule. You should sign all copies of the

    Notice of Grant and return them to the Company. The Stock Purchase Agreement attached to your Option

    Agreement is an exhibit for your information; you will not sign this form of document until you actually

    decide to exercise your option and purchase shares of Common Stock. An execution copy of this document

    will be prepared for you at the time you elect to make such purchase.

     After an officer of the Company signs the Notice of Grant, a copy will be returned to you for your files

    together with the exhibits thereto. Please be aware that this package of documents is valuable and should be

    kept in a safe place with your other important papers. If you should lose your copy of any of these documents,

    however, notify the Company and request a duplicate.

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    Disclaimer: This template is provided with the understanding that the publisher is not in the business of rendering legal or professional advice. Consult with a reputable professional before signing an agreement, sending one to another party, or using this material.

6. How is the Option Price determined?

     Because of legal and tax restrictions, the option price of an ISO issued may not be less than the "fair market

    value" of the shares on the day the option is granted. You will be told what the "option price" is for your

    options at the time the option is granted. This will be fixed for the life of the option even if the Company's

    stock can be sold for a higher amount.

     7. What is the Fair Market Value?

     The "fair market value" of the Company's Common Stock is the price that a reasonable person could be

    expected to pay for the stock. Currently, because the Company does not have an established public market for

    its securities (e.g., a listing on NASDAQ with brokers acting as market makers), the fair market value is

    determined by the Board of Directors.

8. What does "exercise" mean?

     When you "exercise" an option, you purchase from the Company all or a portion of the stock subject to your


9. When may I exercise the Option and purchase the shares?

     If you are granted an installment option, you may purchase the shares as they become vested in accordance

    with the vesting schedule set out in your Notice of Grant.

     If you are granted an immediately exercisable option, you may purchase your shares at any time before the

    expiration date of your option, but if you purchase your shares before they have vested, the shares will be

    subject to repurchase by the Company at the option price paid per share, should you leave the Company

    (whether as an employee, consultant or director) before the shares vest.

10. What is vesting?

     The shares purchasable under your Options are subject to vesting provisions. This means you have to remain

    in the Company's employ or service for a certain period of time before you may purchase the shares covered

    by the option, or in the case of immediately exercisable options, before you fully own the shares purchased

    under your option. The shares subject to your option will vest periodically over a period of several years.

     If you have an immediately exercisable option, remember that while you may at any time exercise your option

    for unvested shares, those shares will be subject to repurchase by the Company if you leave before you vest in

    those shares; or you may wait until your shares vest before you exercise your option for those shares. The

    choice is yours.

11. An example illustrating vesting:

     Jane Doe is granted an option on June 1, [Date] to purchase 4,800 shares of the Company's stock at $1.00 per

    share (the fair market value on that date). Her Option Agreement states the option is immediately exercisable

    for all 4,800 shares, but that the shares purchasable under the option are to vest as follows: 25% of the shares

    will vest one year after the grant date and the balance will vest in equal annual installments over the 3 years

    thereafter during which she remains with the Company. Accordingly, the vesting schedule would be as


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     # of Shares Vested On or After

     1,200 June 1, [Date]

     1,200 June 1, 2000

     1,200 June 1, 2001

     1,200 June 1, 2002

     If Jane purchases all 4,800 shares on September 1, [Date] and then leaves the Company on October 15, 2001,

    the Company would have the right to repurchase the 1,200 unvested shares held by Jane at that time at a price

    of $1.00 per share, the amount she previously paid for those shares. The 3,600 vested shares would not be

    subject to such repurchase.

12. How do I exercise an Option?

     If you want to exercise an option, provide the Company with a letter stating your intent to exercise. Since

    some employees may have been granted more than one Option, please specify:

     * the date of the option grant notice

     * the option price

     * the number of shares you want to buy

     * where to send shares (if other than the Company)

     The Company will send you an execution copy of the Stock Purchase Agreement for you to sign. Return the

    signed Stock Purchase Agreement to the Company with a check made out to the Company for the purchase

    price. (The Company will inform you if it ever becomes registered as a public company subject to the

    reporting requirements of the Securities Exchange Act of 1934, which is not presently the case, but in which

    case you might be able to exercise your option without the payment of cash). If your option is immediately

    exercisable and you are purchasing unvested shares, the Stock Purchase Agreement contains the Company's

    repurchase right for any such shares.

13. What is the effective date of exercise?

     The effective date will be the date you deliver to the Company your check for the purchase price of your

    option shares and your signed Stock Purchase Agreement.

14. When will I receive the certificate?

     Within a few weeks after the date of exercise, a stock certificate for any vested shares you purchase will be

    prepared by our attorneys in their capacity as our stock transfer agent and sent to you.

     If you purchase any unvested shares, the Company will hold the certificates for those shares until your

    vesting date.