A Proxy and Stock Option Agreement is a legal document between a company and its shareholders that grants the shareholders the right to purchase stock at a predetermined price. This agreement outlines the conditions under which the shareholders may exercise their options and the terms of the option purchase. There are typically two types of Proxy and Stock Option Agreements: Non-Qualified Stock Options (Nests) and Incentive Stock Options (SOS). Nests are available to all shareholders, regardless of their financial status, and allow the shareholders to purchase stock at a pre-determined price on or before the expiration date. SOS are only available to certain qualified shareholders, such as executives, and provide special tax benefits. Both types of options must be exercised within the time frame established by the agreement and the option must be exercised at or before the expiration date.
Proxy and Stock Option Agreement
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FAQ
Holders of share purchase rights may or may not buy an agreed number of shares of stock at a pre-determined price, but only if they are an existing stockholder. Options, on the other hand, are the right to buy or sell stocks at a pre-set price called the strike price.
If you already own stock in a private or pre-IPO company Companies going public with a direct listing bypass the lockup period, meaning employees can sell their stock options right away if they choose. Companies going public via SPAC may have longer lockup periods. A lockup period can range from 90 to 180 days.
Until a company creates a public market for its stock, is acquired, or offers to buy the employees' options or stock, the options will not be the equivalent of cash benefits. And, if the company does not grow bigger, and its stock does not become more valuable, the options may ultimately prove worthless.
If you don't wait, and your company doesn't go public, your shares may become worth less than you paid ? or even worthless. Second, once your company has its initial public offering (IPO), you'll want to exercise your options only when the market price of the stock rises above your exercise price.
Stock options aren't actual shares of stock?they're the right to buy a set number of company shares at a fixed price, usually called a grant price, strike price, or exercise price. Because your purchase price stays the same, if the value of the stock goes up, you could make money on the difference.
By exercising your stock options when leaving, you'll have to pay upfront in the hopes that you'll be able to eventually sell your shares for more than the exercise price. If the startup ends up folding or its price per share drops below your exercise price, you could lose money.
At that time, trading in the options of the previous entities will cease and all options on that security that were out-of-the-money will become worthless. Generally, this is determined by the very last closing price on that stock.