The Option Grant Agreement serves as a critical tool in U.S. corporate compensation strategies, particularly for companies seeking to attract and retain talent while conserving cash. This document establishes the legal framework for granting stock options, detailing crucial elements such as grant size, exercise price, vesting schedule, and exercise terms. It must conform to various regulatory requirements, including SEC regulations, IRS rules (especially 409A compliance), and state corporate laws. The agreement typically forms part of a broader equity incentive plan and requires careful drafting to ensure enforceability and tax efficiency.
Option Grant Agreement for the United States
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Key Requirements PROMPT example:
Option Grant Agreement
"I need an Option Grant Agreement for a Series B startup to grant 50,000 ISOs to our new CTO, with a 4-year vesting schedule and 1-year cliff starting March 1, 2025, including acceleration provisions for acquisition scenarios."
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1. Parties: Identification of the company granting options and the option recipient
2. Background: Context of the option grant and reference to the equity incentive plan
3. Definitions: Key terms including Option, Exercise Price, Grant Date, Expiration Date
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 the options become exercisable
6. Exercise Provisions: Procedures and requirements for exercising the options
7. Termination Provisions: What happens to options upon various termination scenarios
1. Change in Control Provisions: Treatment of options in merger or acquisition scenarios
2. Lock-up Agreement: Restrictions on sale of shares post-IPO
3. International Provisions: Special terms for non-US optionees
1. Notice of Exercise: Form to be completed when exercising options
2. Copy of Equity Incentive Plan: Full plan under which options are granted
3. Tax Election Forms: Including 83(b) election form if applicable
4. Spousal Consent: If required by state law or company policy
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