VC Option Shenanigans


5

My company is being acquired by a public company (both US based). When we were all hired, our employment contracts stated we'd be granted x number of stock options. I'll say 250,000. That was 3 years ago for me. Also both the company and employee signed these documents.

Now they never actually got around to granting those options to us, setting up a plan, or giving us a strike price. Our contracts only say we'll be given those options nothing about vesting, strike etc.

The acquiring company is buying us for a little less than our investors put in lets say $50M. So the VC's take is that our options are underwater. What's weird is they sent around a letter asking us to give up our rights to the options in return they'd give us $500. They seem "very" intent on getting all of us to sign this document to the point of sending people here to make sure we understand it and should sign it.

My take is that they think there's a liability here or they're trying to squirm their way out of paying us any money based on the sale. It was never written down but we were told the strike price would be less than $0.10 a share and I'm sure they're selling for higher.

So my question is, does anyone out there with more experience have any idea why they'd be so intent on getting us to sign these documents?

Venture Capital Acquisition Stock Options

asked Jan 15 '13 at 03:53
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User23535
28 points
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  • Options are "options to purchase shares" not shares themselves. @ .10 / share 250,000 is worth more than $500. – Jim Galley 7 years ago

2 Answers


5

So there's no strike price, is there a vesting schedule? It may be that you were automatically granted them without having to do anything.. if that's the case, I'd wager there are tax implications.

Regardless, usually when a company is acquired, the acquirer wants to own 100%. When it comes down to it, each of you has a (small?) claim on a chunk of the company and your options complicate that. 100% ownership may even be a requirement of the deal.

You need to talk to an attorney on the terms of your contract asap.

Generally, investors will have some form of preferred shares which means they get their money back before anyone with common shares (aka employees). If the acquisition price is for less than the investors put in, they're very unhappy but happier than if they completely lost the investment.

answered Jan 15 '13 at 04:45
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Casey Software
1,638 points

0

The answer to your question ....to get you out of the to ownership, 100 percent.

The real issue is the value of the options upon grant and the share value upon grant. In many instances the value of the options is recognized on grant under Code Sec 83 ...recognize the value of he shares at fair market value on grant, enabling cap gain treatment later. Usually great in instances where value is low.

The issue for the VC/investor is that they cannot provide control of the enterprise until contingent claims -yours -are settled...you have bargaining power!
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answered Jan 16 '13 at 11:28
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Ed Pratesi
41 points

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