The Employee Stock Option Agreement serves as a crucial tool for companies to attract, retain, and motivate employees by offering them equity ownership opportunities. Commonly used in both public and private companies across the United States, this agreement defines the terms under which employees can purchase company stock at a predetermined price, typically subject to a vesting schedule. The document must comply with federal securities laws, IRC regulations (particularly regarding ISOs and NSOs), and state-specific corporate laws. It's particularly prevalent in high-growth companies and startups where equity compensation forms a significant part of the total compensation package.
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1. Parties: Identification of the company and the employee receiving options
2. Background: Context of the option grant and reference to any equity incentive plan
3. Definitions: Key terms including Exercise Price, Grant Date, Vesting Schedule, Option Shares
4. Grant of Option: Specific terms of the option grant including number of shares and exercise price
5. Vesting Schedule: Details of when and how options become exercisable
6. Exercise Provisions: Mechanics of exercising options and payment methods
7. Term and Termination: Duration of options and circumstances causing termination
1. Change in Control Provisions: Special terms applying in case of company sale/merger - recommended for companies considering potential exit events
2. Lock-up Agreement: Restrictions on sale of shares post-IPO - recommended for companies planning public offering
3. Right of First Refusal: Company's right to purchase shares before sale to third party - recommended for private companies
1. Notice of Exercise: Form for employee to use when exercising options
2. Tax Election Form: Section 83(b) election form if applicable
3. Equity Incentive Plan: Copy or summary of the underlying plan governing the options
4. Stockholder Agreements: Any applicable shareholder agreements that option holders must join
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