CaseMark 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
- Confirm option type: ISO (§422) or NQSO — tax treatment diverges significantly
- Verify exercise price meets FMV floor (100% FMV for ISO; 110% for >10% shareholders)
- Draft agreement sections below in order
- 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:
- Assumed/substituted → vesting continues (+ acceleration terms)
- Not assumed → full vesting pre-closing; limited exercise window
- Cash-out → cancellation for spread payment
- 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