stock-option-grant

name	stock-option-grant
language	en
description	Drafts Stock Option Grant Agreements for ISOs or NQSOs under a company's equity incentive plan. Covers vesting, exercise mechanics, termination, tax (IRC §422/§409A), securities compliance, and change-in-control provisions. Use when drafting option grants, equity compensation agreements, or stock option award letters.

Stock Option Grant Agreement

Drafts a binding option grant agreement governing ISO or NQSO issuance, integrated with the company's equity incentive plan.

Prerequisites

Collect before drafting:

• Adopted equity incentive plan (with amendments)
• Board/committee resolution (grant date, share count, exercise price, recipient)
• Certificate of incorporation + bylaws (authorized shares, stock classes)
• Recipient's employment/consulting agreement (equity, acceleration, post-termination terms)
• Cap table context (stockholders' agreement, ROFR/co-sale/drag-along)
• 409A valuation (private) or closing price (public) establishing FMV at grant date
• Insider trading / equity admin policies (if any)

Quick Start

1. Confirm option type: ISO (§422) or NQSO — tax treatment diverges significantly
2. Verify exercise price meets FMV floor (100% FMV for ISO; 110% for >10% shareholders)
3. Draft agreement sections below in order
4. Cross-check acceleration terms against all existing agreements

Document Sections

1. Caption & Recitals

Include: grant date (from board resolution), company legal name + state, optionee name, plan title with adoption/amendment dates, "Subject to and governed by the Plan" incorporation clause.

2. Definitions

Term	Requirements
Option	ISO (§422) or NQSO; if ISO, savings clause converting excess to NQSO
Shares	Class of stock (typically common)
Continuous Service	Employee/director/consultant; parent/subsidiary service treatment
Exercise Price	Per-share price + FMV methodology
Vesting Commencement Date	Grant date, hire date, or specified date
Cause	Dishonesty, fraud, felony, fiduciary breach, material policy violation
Change in Control	Merger, asset sale, stock sale, board change — with threshold percentages

3. Grant Terms

• Number of shares and exercise price per share
• ISO: exercise price ≥ 100% FMV (110% for >10% shareholders)
• NQSO: exercise price ≥ FMV (§409A compliance)
• Maximum term: 10 years (5 years for >10% shareholder ISOs)

4. Vesting Schedule

Standard four-year structure:

Cliff:     12 months — 0% before first anniversary
Year 1:    25% on first anniversary of Vesting Commencement Date
Years 2–4: 75% in 36 equal monthly installments
Condition: Continued Service through each vesting date

For performance vesting: specify milestones, verification method, certification process.

Acceleration provisions:

Trigger	Type	Effect
Change in Control alone	Single-trigger	Specify % or full acceleration
CiC + qualifying termination (12–18 mo)	Double-trigger	Specify % or full acceleration
Death or Disability	Single-trigger	Per plan terms
Involuntary w/o Cause (no CiC)	If applicable	Per employment agreement

Confirm alignment with separate employment/severance/CiC agreements.

5. Exercise Procedures

Payment methods (include all that apply): cash/check, broker-assisted cashless, net exercise/share withholding, stock swap.

Post-exercise delivery: book-entry or certificate; private companies add securities law + stockholders' agreement legends; public companies add lock-up obligations.

6. Termination Matrix

Scenario	Unvested	Vested — Exercise Period
Cause	Immediate termination	Immediate termination
Voluntary resignation	Immediate termination	30–90 days (not beyond max term)
Involuntary w/o Cause	Terminate (unless acceleration)	90 days (or per agreement)
Death	Terminate (unless acceleration)	12 months; estate/beneficiary exercises
Disability	Terminate (unless acceleration)	12 months

Change in Control treatment:

1. Assumed/substituted → vesting continues (+ acceleration terms)
2. Not assumed → full vesting pre-closing; limited exercise window
3. Cash-out → cancellation for spread payment
4. All CiC provisions must comply with §409A

7. Tax Provisions

NQSO: Ordinary income at exercise (FMV − exercise price); income + employment tax withholding required; withholding is condition-precedent to exercise.

ISO: No ordinary income if holding periods met (2yr from grant + 1yr from exercise); AMT adjustment = spread at exercise; require disqualifying disposition notice to company.

Reporting: W-2 (employees), 1099 (consultants), Form 3921 (ISO exercises), Form 3922 (ESPP).

8. Securities Law Compliance

• Unregistered shares; issued under §4(a)(2), Rule 701, or Reg D
• Investment representations (acquiring for investment, not distribution)
• Transfer restriction (non-transferable except by will/intestacy)
• Reference stockholders'/ROFR/co-sale/drag-along agreements
• §16 officers/directors: Rule 16b-3 compliance

9. Administrative Provisions

• Governing law (state of incorporation)
• Severability; plan controls over agreement; administrator interpretations final
• Amendment requires written consent; company may amend unilaterally for §409A/securities/tax compliance
• Notice mechanics with delivery method + deemed-received timing
• At-will acknowledgment; data privacy consent
• International addendum placeholder for non-US optionees

10. Execution & Exhibits

Signatures: Company authorized officer + optionee, with dates.

Optionee acknowledgment: receipt of plan document, opportunity to consult advisors, understanding option is subject to agreement and plan.

Exhibit A — Grant Summary:

Grant Date:                [DATE]
Option Shares:             [NUMBER]
Exercise Price Per Share:  $[PRICE]
Option Type:               [ISO / NQSO]
Vesting Commencement:      [DATE]
Vesting Schedule:          [CLIFF + MONTHLY/QUARTERLY]
Expiration Date:           [DATE]

Critical Rules

• ISO $100K limit: Annual vesting cap of $100,000 FMV (measured at grant) first exercisable per year; excess auto-converts to NQSO [IRC §422(d)]
• §409A floor: NQSO exercise price must never be below FMV at grant — discounted options trigger immediate taxation + 20% penalty
• Private company valuation: Require current 409A valuation; safe harbor = independent appraisal within 12 months
• >10% shareholder ISOs: 110% FMV exercise price + 5-year max term [IRC §422(c)(5)]
• Tax disclaimer: Do not draft tax advice as legal advice — include disclaimer directing optionee to personal tax advisor
• Preferred stock check: If company has outstanding preferred, confirm common stock class and any anti-dilution or protective provisions affecting option shares
• Acceleration conflicts: Cross-check all acceleration terms against existing agreements