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Am I reading this option agreement correctly?
November 4, 2021 at
05:29 PM
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I work for a private firm that goes through private equity sales every 5-6 years or so which is usual for PE. As such, I have no way to value the firm, know how many "shares" it has or the value of the shares (although I WAS offered to buy shares at the time of the changing of hands, I elected not to). About 18 months ago they offered me options (NSO) which have a 5 year vesting schedule. The company was sold (again.... actually we were held for quite a bit longer than the usual term) and the deal will close shortly.
As an options holder, I will be paid out (if there is value in the options obviously, however all options and share holders were invited to a zoom call to discuss the deal, ask questions etc, so it would be kind of odd IMHO to invite options holders if there wasn't a foreseen value in the options) when the deal closes, automagically.
What I am trying to do is make sense of the options agreement - as I said I have no idea what the final value of a share will be (not being public and all), but we've grown leaps and bounds since the last PE sale, and my options were granted to me about a month after covid hit (odd timing), and business has absolutely exploded since.
Here are the details of the agreement:
The company grants to the participant on March 31, 2020, 20,000 options to acquire 0.1264 shares of stock at an exercise price per share and subject to an additional amount as set forth in the schedule below:
0.02572 (20%) per year for 5 years (1st, 2nd, 3rd, etc anniversary of grant data) with an exercise price per share of $122k [I consolidated this, it's a 5 year vestment with each year 1/5 of the above with the same exercise price and premium ($0), kind of dumb to write out a whole table with the same info]
The rest of the text doesn't really relate to the deal but talks about the options expiring after 10 years, stuff about IRS codes blah blah blah.
SO the way I read that, 20,000 options of 0.12864 shares @ $122k, vesting over 5 years. To figure out how much I'd get based on share differential (that is, the current share value whatever that is, minus the $122k exercise price):
= 20,000 * (0.12864)/5 ~ 514.56 (I'm 1 year vested, thus the 20% or 1/5)
Or, if I knew the current value of a share, I'd subtract $122k, then multiply by 514 to get an idea of how much I'll be getting.
That seems high to me, frankly, but the math is pretty simple. One question - why lay it out like 20,000 options to buy 0.12864 shares..... why not just 2572.8 options to buy 1 share (same math)?
As an options holder, I will be paid out (if there is value in the options obviously, however all options and share holders were invited to a zoom call to discuss the deal, ask questions etc, so it would be kind of odd IMHO to invite options holders if there wasn't a foreseen value in the options) when the deal closes, automagically.
What I am trying to do is make sense of the options agreement - as I said I have no idea what the final value of a share will be (not being public and all), but we've grown leaps and bounds since the last PE sale, and my options were granted to me about a month after covid hit (odd timing), and business has absolutely exploded since.
Here are the details of the agreement:
The company grants to the participant on March 31, 2020, 20,000 options to acquire 0.1264 shares of stock at an exercise price per share and subject to an additional amount as set forth in the schedule below:
0.02572 (20%) per year for 5 years (1st, 2nd, 3rd, etc anniversary of grant data) with an exercise price per share of $122k [I consolidated this, it's a 5 year vestment with each year 1/5 of the above with the same exercise price and premium ($0), kind of dumb to write out a whole table with the same info]
The rest of the text doesn't really relate to the deal but talks about the options expiring after 10 years, stuff about IRS codes blah blah blah.
SO the way I read that, 20,000 options of 0.12864 shares @ $122k, vesting over 5 years. To figure out how much I'd get based on share differential (that is, the current share value whatever that is, minus the $122k exercise price):
= 20,000 * (0.12864)/5 ~ 514.56 (I'm 1 year vested, thus the 20% or 1/5)
Or, if I knew the current value of a share, I'd subtract $122k, then multiply by 514 to get an idea of how much I'll be getting.
That seems high to me, frankly, but the math is pretty simple. One question - why lay it out like 20,000 options to buy 0.12864 shares..... why not just 2572.8 options to buy 1 share (same math)?
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As an options holder, I will be paid out (if there is value in the options obviously, however all options and share holders were invited to a zoom call to discuss the deal, ask questions etc, so it would be kind of odd IMHO to invite options holders if there wasn't a foreseen value in the options) when the deal closes, automagically.
What I am trying to do is make sense of the options agreement - as I said I have no idea what the final value of a share will be (not being public and all), but we've grown leaps and bounds since the last PE sale, and my options were granted to me about a month after covid hit (odd timing), and business has absolutely exploded since.
Here are the details of the agreement:
The company grants to the participant on March 31, 2020, 20,000 options to acquire 0.1264 shares of stock at an exercise price per share and subject to an additional amount as set forth in the schedule below:
0.02572 (20%) per year for 5 years (1st, 2nd, 3rd, etc anniversary of grant data) with an exercise price per share of $122k [I consolidated this, it's a 5 year vestment with each year 1/5 of the above with the same exercise price and premium ($0), kind of dumb to write out a whole table with the same info]
The rest of the text doesn't really relate to the deal but talks about the options expiring after 10 years, stuff about IRS codes blah blah blah.
SO the way I read that, 20,000 options of 0.12864 shares @ $122k, vesting over 5 years. To figure out how much I'd get based on share differential (that is, the current share value whatever that is, minus the $122k exercise price):
= 20,000 * (0.12864)/5 ~ 514.56 (I'm 1 year vested, thus the 20% or 1/5)
Or, if I knew the current value of a share, I'd subtract $122k, then multiply by 514 to get an idea of how much I'll be getting.
That seems high to me, frankly, but the math is pretty simple. One question - why lay it out like 20,000 options to buy 0.12864 shares..... why not just 2572.8 options to buy 1 share (same math)?
Since it is private, their by-laws or operating agreement may limit the number of "shares" that are available or they may have some rules for such they have to stay within or have to go through the trouble of passing new resolutions\amending new ones. No way to know imo, but I am hardly an expert.
2) The share breakdown might be limited by prior rounds of negotiations with investors and executives. While there are technically infinite theoretical shares (hence, fractional shares as a concept are kinda silly), you still need to ensure that majority stakeholders remain majority stakeholders.