Prevented from seeing stock option plan


4

I've been working for large private software company (the last round of investment was very, very large) and my offer letter told me I would receive X number of options as long as the board approved it.

It's been a year and I've been stonewalled on the option plan, strike price, any information and also haven't been told how to exercise my options (assuming a 1 year cliff).

I've sent multiple emails to HR and the controller, culminating with an email to the CFO (forwarded the same email multiple times to show the amount of months that no one has answered me). HR has gotten back to me and told me everything they could and seem like they want it resolved, but their hands are tied.

Has anyone seen this behavior before? Since I've been ignored, I don't even know if the board approved my grant. If they have approved my grant, I'm really pissed that they've effectively blocked me from exercising.

Can I send a letter and a check to the CFO with $100 to force the issue of exercising some amount of shares and determining the strike price that way?

I left this position soon afterwards, but what I pieced together from (2nd hand) rumors and my own speculation is the idea that the executives that were brought in with the additional influx of a massive round of funding, don't want to assign a value to the options because I think they got a very high appraisal when getting that funding. I don't understand how they will be able to get a lower appraisal by waiting (since they are doing very well).

I came to this conclusion because some senior leadership told me they are in the same boat and aren't able to exercise their options. It will be interesting if any senior
leadership decides to leave and can't get their equity.

Legal Ethics Stock Options

asked Mar 16 '12 at 00:54
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Rox0r
125 points
  • Take a look at your job offer - all these details should be there or in a separate document, which will be mentioned in your job offer. If you don't have it and you did not sign anything after that - I'm afraid you won't get any stock options at all. – Salmon 8 years ago
  • The details aren't there, but the promise and amount of options are there (contingent on board approval). – Rox0r 8 years ago
  • Well, was it approved? You HAVE to have some sort of paperwork for that. – Salmon 8 years ago
  • That is a great question that I'd love to have answered. – Rox0r 8 years ago

5 Answers


7

If you haven't received paperwork for the options, you weren't granted them. If your offer letter says "subject to board approval," which it probably has to, then you probably don't have legal recourse.

There are a few things that might be going on here.

  1. The board has had trouble issuing options because they have been unable to get a solid valuation for the shares to use as a strike price. I've seen this hold up option grants for 1-6 months, but any longer than that doesn't make sense.
  2. The board and or management may have forgotten about you.
  3. Given the valuation you stated of this company, they may have decided that they can't issue options without running afoul of the SEC's limit on the total number of outside shareholders, so they are hemming and hawing.

At this point the options you DO have are:

  1. The option to quit (or threaten to quit) unless this is sorted out. It is reasonable to demand that the vesting for the options begin as of your start date, even if the options are granted now. Because the strike price today will likely be much higher than it was when you started, you would be economically justified in demanding a much larger grant to compensate you for this, or even a cash bonus equal to the increase in strike price (e.g. if you have 10,000 options that would have been priced at $1 but they are now priced at $2 they owe you $10,000)

    • Note that like all other threats to quit, you have to be willing to go through with it, because they really might not care.

  2. The option to do nothing and just live without stock.
  3. The option to find other people who started working about the same time you did, and ask if they are in the same situation.
  4. The option to contact a member of the board of directors who looks honest and reputable and point out the discrepancy between what you were promised by the company and what the company delivered. If, as you stated, the last round of investment was very very large, it's more likely than not that the board of directors consists of at least some people who want to do the right thing. I would pick the newest VC to join the board as the first person to contact.

If you DO care about getting the options, I would not wait too long before acting. As the company valuation increases, the price at which your options will be granted will continue to rise, and the options will be less valuable.

answered Mar 16 '12 at 15:44
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Joel Spolsky
13,472 points
  • That is very comprehensive. Thank you. The point of the decreasing value of the grant is taken, so isn't that working against them, also? If you think you are going to get a grant later, doesn't that align your interests with the company doing poorly until then? (speaking of motivations, not of being deliberately unethical) – Rox0r 8 years ago

6

That sounds like a really bad situation. You have to look around you and decide if this company is essentially dishonest ans runs like a scam, or if they are simply incompetent. You may be able to tell by looking at how they treat their customers for instance.

It looks like you already escalated the issue as much as you could. I assume you asked your direct manager, and the answer was that he didn't know either?

HR says their hands are tied? That's an amazing answer. First advice: save all those email exchanges somewhere outside the company's servers, so you can refer to them again should you ever get kicked out of the company. Based on your behavior, I'd guess you're close to the exit anyway. If I was an unscrupulous CEO, I would be thinking of ways to get rid of you or extract as much work as possible as quickly as possible before you are fired.

answered Mar 16 '12 at 01:13
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Alain Raynaud
10,927 points
  • HR only really gave me insight over the phone. They are very frustrated that finance won't tell them anything and what they do tell them they aren't allowed to release. I'll try to get an email reply from HR to keep offline. – Rox0r 8 years ago

5

Unfortunately, "subject to board approval" is a common contingency for stock option grants. At this point, I'm not sure there is much you can do about it.

Last year I represented two founders whose small company was purchased by a large software company. A sizable portion of the payment price was in stock options, which had a board approval contingency. I asked the acquirer's lawyer, "What happens if the stock option grant is not approved?" A couple of days later, he forwarded a copy of the board's resolution approving the grant. It appears, regrettably, that your situation does not nearly give you that much clout.

Disclaimer: This information does not constitute legal advice and does not establish an attorney-client relationship.

answered Mar 16 '12 at 04:44
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Dana Shultz
6,015 points

1

"As long as the board approved it" means you can't count on ever receiving this as part of your compensation. Yes, it sounds like a bait and switch, and an honest company would have followed through. But I would have held off on accepting an offer that had contingencies on the compensation if you were counting on it.

answered Mar 16 '12 at 04:26
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B Mitch
1,342 points
  • Luckily, I'm not counting on the shares, since I was able to strongly negotiate salary. My suspicions (and ire) have been raised because my emails have been downright ignored rather than being answered (even with unhelpful answers). – Rox0r 8 years ago

1

Try this angle on the finance folks - "I've got some tax issues and I really need to know how the stock options will affect it." (or wording that fits your country's tax laws) It might be enough to get a sympathetic response from Finance. (And you probably do need to know the details/pricing/schedule of the options to figure out any applicable taxes to pay or budget for.)

answered Mar 16 '12 at 11:40
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James
1,231 points
  • Yep. I tried that angle already. – Rox0r 8 years ago

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