If you work for a company that offers employee stock options, it’s important to understand the terms and conditions of the agreement. This agreement can impact your financial future, so it’s essential to read it carefully before signing on the dotted line.
A sample employee stock option agreement typically includes the following sections:
1. Grant of Option: This section outlines the basics of the stock option – what it is, how many shares are being offered, and the exercise price.
2. Vesting Schedule: This section explains when the stock option becomes fully vested, or available for exercise. Vesting schedules can vary widely, but most companies use a four-year vesting schedule with a one-year cliff. This means that you won’t be able to exercise any of your options until you’ve worked for the company for at least one year. After that, your options will vest in equal increments over the next three years.
3. Exercise Period: This section outlines the timeframe during which you can exercise your options. Most companies allow you to exercise your options within 90 days of leaving the company, but this can vary.
4. Tax Consequences: This section explains the tax implications of exercising your options. Generally, you’ll owe taxes on the difference between the exercise price and the fair market value of the stock at the time you exercise your options.
5. Non-Transferability: This section explains that your options are non-transferable, which means you can’t sell or transfer them to another party.
6. Change of Control: This section outlines what happens to your options in the event of a merger, acquisition, or other major change in the company’s ownership.
7. Governing Law: This section specifies the state law that governs the agreement.
It’s important to note that every employee stock option agreement will be slightly different, so it’s crucial to read and understand the terms of your specific agreement. If you have questions or concerns about your agreement, it’s best to consult with a financial or legal advisor.
In summary, a sample employee stock option agreement lays out the terms and conditions of the stock option being offered. Understanding the agreement is essential for making informed decisions about your financial future.