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As part of my employment offer, as well as in a year-end bonus package, I was provided options but in both cases only the quantity was specified. There was no mention of the strike price or the vesting period. I didn't ask for these details both because I was naive and because I didn't think the options would ultimately amount to much. I've worked for the company for ~1.5 years and we are now being acquired.

How do I go about capturing the value of these options as I either transition to the new company or am possibly let go? I'm afraid that if I ask the details about the options now, the employer will write the policies in their favor.

I work for a small (< 10 employees) tech startup in the US.

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As part of my employment offer, as well as in a year-end bonus package, I was provided options but in both cases only the quantity was specified. There was no mention of the strike price or the vesting period.

The document actually granting you the options would absolutely have specified both of those items and certainly would have required at least one, probably multiple, signatures. Sounds like you weren't actually granted anything.

I'm afraid that if I ask the details about the options now, the employer will write the policies in their favor.

The employer would have written those policies in whatever way they deemed appropriate to begin with so I'm not sure your hesitancy here has value. If the owner(s) actually created an Option Pool from which you were distributed a certain number of options then the documents around that option pool will state how many exist, what percentage of the company the options represent, who was granted what and the value at the time and the strike price. If this documentation exists then an owner would have no issues whatsoever with giving you that information.

On the other hand, if the owner had not created an option pool at that time then the likelihood of one being generated prior to closing a deal with a buyer that is already in negotiations is close to zero. UNLESS the buyer is intending on establishing something like that after purchase. But this is complicated.

If you have a document stating that you were given X number of options, then you need to talk to the company owners to get the details. Delaying it until the deal closes with the buyer won't help at all.

If the owners did not create an option pool but rather made written statements that were untrue, then you need to get legal representation and decide if attempting to force the owner to make good on that pool is worth the cost of a lawsuit. It might or might not be depending upon your position.

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    Note that going the lawsuit route will almost certainly cost you both your relationship with your employer, and your job as well. It's wise to have another job already lined up if you plan on following that path. – aroth Mar 23 '14 at 23:08
  • @aroth: I completely agree. Of course, the action the OP should take is really dependent on what was actually said by the owner. In my case I had an employee who for some reason absolutely believed that I gave him 50% of my company. We had written docs stating exactly what his options where and what they were worth; however for some weird reason thought I had verbally assigned him control of my company. This ended up escalating into lawyers for both sides and his subsequent termination. Point is, the OP better have a written statement of options that is looked over before going further. – NotMe Mar 24 '14 at 14:06
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How do I go about capturing the value of these options as I either transition to the new company or am possibly let go? I'm afraid that if I ask the details about the options now, the employer will write the policies in their favor.

The policies have already been written - you just don't know them yet. Asking about them now can't change anything.

Every company I've ever worked for in this situation has had a company meeting to explain the options/acquisition process, followed by individual documentation explain the pricing, etc. You will have lots of paperwork to sign; paperwork that is probably being crafted now.

You can either ask when that will all happen or just wait for it.

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Do you know where to go to exercise your options? That would be a good place to start, and would by necessity allow you to see what your strike price is.

Though generally speaking, the strike price should be whatever the share price was on the date your options were granted. That may be easy information to find out, or impossible, depending upon if we're talking about a startup here or a more established company. I'm assuming the latter, because typically a startup would issue shares rather than options.

Anyways, if your strike price is low enough the safest bet (if you're dead set on not discussing the matter with your employer) would simply be to 'exercise and hold' them. That would require you to put up enough cash to cover the value of the options at the strike price, but would leave you holding shares rather than options. Which in general means that you will be treated the same as any other shareholder in the acquisition process (required by law in many countries, though as always check with a local lawyer to confirm).

Although don't rule out discussing the subject with your employer entirely. In general, that is the best way to get clarity on this sort of issue. I assume that you're probably not the only employee who has questions on the subject of the acquisition, and also probably not the only employee who has been given unclear information about their own options/equity situation.

It may be worth gathering the people who fit into either of those categories and having a joint meeting with the CEO to sort out all the questions and concerns that people have. It's harder for a potentially unscrupulous CEO to come up with an arrangement that's entirely in their own favor if half the company is on hand to call them out on it. If you're in a location where it's legal to surreptitiously record a private conversation (again, check with a local lawyer) then by all means do so for the sake of posterity. Then you at least have some possibility of recourse if the company does something that's different than what's discussed.

Next time around, definitely make sure that you've got a written equity agreement that spells out things like your vesting schedule, the strike price (when dealing with options), what happens in the event of an acquisition, and similar matters. Reputable companies will provide all of that information up front as part of standard operating procedures. Companies that don't are either disorganized or unethical.

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    I disagree that a startup "normally" issues shares rather than options. The only time I've seen a startup issue actual shares (I'm in the US) is to the founders. Everyone else gets options with a vesting period to both encourage them to stay and to allow the shares go back into the pool if the employee decides to quit. – NotMe Mar 23 '14 at 22:11
  • Interesting, I guess every company does it differently. Of the 5 companies I've worked with (split between U.S. and Australia), 4 have been startups, three of which allocated shares with a 4-year vesting schedule and one of which promised to allocate shares but never actually did so (and got in trouble as a result). The non-startup was the only company that allocated options. I was a co-founder of one of the four startups, but just a regular employee at the other three. – aroth Mar 23 '14 at 23:05
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If you were already granted the stock options, then a vesting plan should already be written and, more or less, be set in stone. You really should have also received some documentation on the terms for those options. I would check with the investment bank, if applicable, that is managing the options on what your vesting plan is before checking with your employer, but if your employer is honest, they should say the same thing the bank says.

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  • That's the thing, I don't fully trust the employer to be totally honest. The CEO has never done anything shady outright. However, there are numerous red flags similar to my situation where you could interpret it as a simple oversight/ignorance, or as deliberate miscommunication. Over time, myself and others have started to think it's the latter in a lot of cases. – user17730 Mar 23 '14 at 5:40
  • That's worrying. Did you get a written agreement with respect to the options, that included at least a vesting schedule? If not then it's likely that that "oversight" is entirely intentional and that the CEO is not planning on actually granting any equity. Source: was in a similar situation once, had to get the courts involved to get what was owed to me. – aroth Mar 23 '14 at 10:04
  • @aroth is right, if you didn't get a written agreement, then you may not be guaranteed the options at all. It's a very hard lesson to learn, but next time, get it in writing. The only way out of that is to directly ask your employer (and possibly rethink about continuing to work with said employer). – panoptical Mar 23 '14 at 11:15

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