Option clause: Copy, customize, and use instantly
Introduction
An option clause provides the right, but not the obligation, to purchase or sell an asset at a specified price within a specified timeframe. This clause is typically used in agreements to grant stock options, which allow employees, investors, or other parties to purchase shares in the company at a set price in the future. The clause outlines the terms and conditions under which the options can be exercised.
Below are templates for option clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
Standard stock option clause
This version grants a stock option with basic terms.
The [Investor/Employee] is hereby granted the option to purchase [X] shares of the [Company]’s common stock at an exercise price of [$X] per share. This option may be exercised at any time before [Date] or upon [specific event, e.g., acquisition of the company].
Stock option clause with vesting schedule
This version includes a vesting schedule.
The stock option granted under this Agreement shall vest in the [Investor/Employee] according to the following schedule: [X]% per year over [X] years, with the first vesting date being [Date]. Unvested options shall expire if not exercised within [X] years from the grant date.
Stock option clause with acceleration upon acquisition
This version includes acceleration provisions.
In the event of an acquisition or merger of the [Company], all unvested stock options granted under this Agreement shall immediately vest and become exercisable.
Stock option clause with expiration date
This version includes an expiration date.
The stock options granted under this Agreement shall expire [X] years from the grant date, unless exercised earlier in accordance with the terms of this Agreement. Any unexercised options shall automatically lapse at the expiration date.
Stock option clause with exercise price adjustment
This version includes an exercise price adjustment.
In the event of a stock split, reverse stock split, or any other corporate action affecting the [Company]’s stock, the exercise price of the options and the number of shares covered by this option shall be adjusted accordingly.
Stock option clause with right to transfer
This version includes a transfer right.
The [Investor/Employee] may transfer the options granted under this Agreement to a family member or trust, provided that the transfer complies with applicable securities laws and is done in writing.
Stock option clause with cashless exercise
This version includes a cashless exercise provision.
The [Investor/Employee] may exercise the stock options granted under this Agreement on a cashless basis, by surrendering shares of [Company] stock equivalent to the value of the exercise price, or by following any other procedure agreed upon by the [Company].
Stock option clause with automatic exercise
This version includes automatic exercise provisions.
If the [Investor/Employee] has not exercised the stock options within [X] days of the expiration date, the options will be automatically exercised by the [Company], and the [Investor/Employee] will receive the resulting shares.
Stock option clause with performance-based vesting
This version ties vesting to performance.
The stock options granted under this Agreement shall vest based on the achievement of performance milestones, including [specific milestones, e.g., revenue targets, product launches], as determined by the [Company] at its discretion.
Stock option clause with option to purchase additional shares
This version includes the option to purchase additional shares.
The [Investor/Employee] shall have the right to purchase up to an additional [X] shares of stock under the same terms and conditions if the [Company] issues additional options in the future.
Stock option clause with early exercise
This version allows for early exercise of stock options.
The [Investor/Employee] may exercise the stock options granted under this Agreement prior to vesting, subject to the following conditions: [include any conditions, e.g., repurchase rights by the company].
Stock option clause with tax withholding requirements
This version includes tax withholding provisions.
Upon exercise of the stock options, the [Company] shall withhold an amount sufficient to cover any federal, state, and local taxes required to be paid by the [Investor/Employee] as a result of the exercise, in accordance with applicable tax laws.
Stock option clause with limitation on exercise in certain circumstances
This version limits exercise in certain circumstances.
The [Investor/Employee] shall not exercise their stock options granted under this Agreement if such exercise would violate any applicable securities laws, or if the exercise would result in the [Investor/Employee] violating any contractual or legal obligations.
Stock option clause with repurchase right upon termination
This version includes a repurchase right upon termination.
In the event that the [Investor/Employee]’s employment or investment relationship with the [Company] is terminated for any reason, the [Company] shall have the right to repurchase any vested but unexercised stock options at the exercise price, within [X] days of the termination.
Stock option clause with non-transferability provision
This version prohibits the transfer of stock options.
The stock options granted under this Agreement are non-transferable and may not be sold, assigned, pledged, or otherwise transferred to any other person or entity, except as permitted under the terms of the Agreement.
Stock option clause with exercise window after termination
This version allows for an exercise window after termination.
If the [Investor/Employee]’s employment or investment relationship with the [Company] is terminated, they shall have [X] months to exercise their vested stock options, after which any unexercised options shall expire.
Stock option clause with cap on number of options
This version caps the number of stock options granted.
The total number of stock options granted to the [Investor/Employee] under this Agreement shall not exceed [X]% of the total outstanding shares of the [Company], subject to adjustments for stock splits or other corporate actions.
Stock option clause with requirement for board approval
This version requires board approval for exercise.
The exercise of stock options granted under this Agreement is subject to the prior approval of the Board of Directors, and the [Investor/Employee] agrees to comply with all internal procedures and policies in connection with the exercise.
Stock option clause with acceleration upon change of control
This version includes acceleration in the event of a change of control.
In the event of a change of control of the [Company], all unvested stock options granted under this Agreement shall immediately vest and become exercisable.
Stock option clause with post-exercise restrictions
This version includes restrictions after exercise.
The [Investor/Employee] agrees that any shares acquired through the exercise of stock options will be subject to restrictions on transfer for a period of [X] months following the exercise date, or until the shares are registered under applicable securities laws.
Stock option clause with right to cancel unexercised options
This version gives the [Company] the right to cancel unexercised options.
The [Company] shall have the right to cancel any vested but unexercised stock options granted under this Agreement if the [Investor/Employee] fails to exercise the options within [X] months of the expiration date.
Stock option clause with exercise price adjustment in case of stock split
This version adjusts the exercise price for stock splits.
In the event of a stock split, reverse stock split, or similar corporate action, the exercise price and the number of shares covered by the stock options shall be adjusted to reflect the change in the [Company]’s stock structure.
Stock option clause with annual option grants
This version includes annual option grants.
The [Investor/Employee] shall be eligible to receive annual stock option grants under this Agreement, with the number of options and terms to be determined by the [Company] based on performance or other criteria.
Stock option clause with rights upon failure to exercise
This version specifies rights if options are not exercised.
If the [Investor/Employee] does not exercise the stock options granted under this Agreement within the specified exercise period, any unexercised options shall automatically lapse and become void.
Stock option clause with adjustment for liquidation preference
This version adjusts for liquidation preference.
If the [Company] is liquidated or sold, the [Investor/Employee] shall have the right to receive a payout from the sale of the stock acquired through the options granted under this Agreement, prior to any distribution to common shareholders, in accordance with the terms of the liquidation preference.
Stock option clause with deferred exercise right
This version includes the right to defer exercise.
The [Investor/Employee] may defer the exercise of their stock options granted under this Agreement until such time as they are financially ready or until a specific event occurs, such as a liquidity event or acquisition.
Stock option clause with adjustment for future funding rounds
This version includes adjustments for future funding.
If the [Company] raises additional rounds of funding at a lower valuation, the exercise price of the stock options granted under this Agreement shall be adjusted to ensure the [Investor/Employee]’s equity stake is not diluted.
Stock option clause with exercisability in case of early retirement
This version allows for exercise upon early retirement.
If the [Investor/Employee] retires early from the [Company], they shall be permitted to exercise their vested stock options within [X] years following retirement, subject to the terms and conditions of this Agreement.
Stock option clause with sale of shares following exercise
This version includes provisions for the sale of shares after exercise.
Upon exercising the stock options granted under this Agreement, the [Investor/Employee] may sell the shares acquired in accordance with the [Company]’s internal policies and applicable securities laws.
Stock option clause with right of first refusal on sale of shares
This version includes a right of first refusal.
In the event that the [Investor/Employee] seeks to sell or transfer the shares acquired through the exercise of stock options, the [Company] shall have the right of first refusal to purchase the shares at the same price and terms offered by the third-party buyer.
Stock option clause with corporate governance restrictions
This version includes governance restrictions.
The [Investor/Employee] agrees to comply with all applicable corporate governance rules, including restrictions on voting and the ability to act as a director, in connection with the exercise of stock options granted under this Agreement.
Stock option clause with tax withholding obligation
This version includes a tax withholding obligation.
The [Company] shall withhold the appropriate amount of taxes at the time the stock options are exercised, based on the value of the shares at exercise, and remit such amounts to the applicable tax authorities.
Stock option clause with right to exercise upon bankruptcy
This version includes the right to exercise in case of bankruptcy.
If the [Company] files for bankruptcy, the [Investor/Employee] shall have the right to exercise any outstanding stock options granted under this Agreement, regardless of any vesting schedule.
Stock option clause with limits on exercise in certain jurisdictions
This version restricts exercise in specific jurisdictions.
The [Investor/Employee] may not exercise any stock options granted under this Agreement if such exercise would violate any applicable securities laws or regulations in the jurisdiction in which the [Investor/Employee] resides.
Stock option clause with exercise allowed during blackout periods
This version allows exercise during blackout periods.
The [Investor/Employee] shall be permitted to exercise stock options during a blackout period, provided the exercise does not violate the [Company]’s internal trading policies.
Stock option clause with cap on the number of exercisable options
This version limits the number of exercisable options.
The [Investor/Employee] shall not be permitted to exercise more than [X] shares of stock in any calendar year under this Agreement.
Stock option clause with adjustment for spin-offs
This version adjusts for spin-offs.
In the event of a spin-off of any part of the [Company]’s business, the stock options granted under this Agreement shall be adjusted to reflect the value and structure of the spin-off entity.
Stock option clause with option for exercise at market price
This version allows for exercise at market price.
The [Investor/Employee] may exercise their stock options at the current market price per share of the [Company]’s stock, rather than the original exercise price, in the event of a public offering.
Stock option clause with vesting acceleration for key events
This version accelerates vesting for certain events.
The stock options granted under this Agreement shall vest immediately upon the occurrence of a change of control, merger, or other significant corporate event.
Stock option clause with conditions for exercising in case of acquisition
This version includes conditions for exercising during an acquisition.
If the [Company] is acquired, the [Investor/Employee] shall be allowed to exercise any stock options granted under this Agreement, whether or not vested, within [X] days of the acquisition closing.
Stock option clause with adjustment for asset sales
This version adjusts for asset sales.
In the event of a significant asset sale by the [Company], the exercise price of any outstanding stock options shall be adjusted to reflect the fair market value of the remaining assets.
Stock option clause with restriction on the timing of exercise
This version restricts the timing of exercise.
The [Investor/Employee] may not exercise stock options granted under this Agreement during the first [X] months following the grant date, except as provided for in case of a corporate liquidity event.
Stock option clause with automatic transfer of options upon death
This version includes automatic transfer upon death.
In the event of the [Investor/Employee]’s death, any vested stock options shall automatically transfer to the beneficiary designated by the [Investor/Employee], who may exercise the options within [X] months of the [Investor/Employee]’s death.
Stock option clause with restriction on exercise due to fraud
This version includes restrictions in case of fraud.
If the [Investor/Employee] engages in fraudulent activities, the [Company] shall have the right to cancel any unexercised stock options granted under this Agreement, regardless of whether the options have vested.
Stock option clause with participation in future financings
This version allows participation in future financings.
The [Investor/Employee] shall have the right to participate in any future financing rounds or stock issuances, on a pro-rata basis, to maintain their equity stake in the [Company].
Stock option clause with obligation to exercise prior to change of control
This version requires exercise prior to a change of control.
In the event of a change of control, the [Investor/Employee] shall be required to exercise any vested stock options prior to the closing of the transaction, subject to the [Company]’s approval.
Stock option clause with option to repurchase upon termination
This version allows for repurchase if terminated.
If the [Investor/Employee]’s relationship with the [Company] is terminated for any reason, the [Company] shall have the right to repurchase any vested but unexercised stock options at the original purchase price.
Stock option clause with restriction on exercise during regulatory investigation
This version includes restrictions during an investigation.
The [Investor/Employee] shall not exercise stock options granted under this Agreement during any period in which the [Company] is subject to a regulatory investigation, unless authorized by the Board.
Stock option clause with transfer of options to affiliates
This version allows the transfer of options to affiliates.
The [Investor/Employee] may transfer stock options granted under this Agreement to an affiliate, provided that such transfer complies with applicable securities laws and the [Company]’s policies.
Stock option clause with termination of options on failure to meet performance criteria
This version terminates options if performance criteria are unmet.
If the [Investor/Employee] fails to meet specific performance criteria, including [list of performance criteria], the [Company] may terminate any unvested stock options granted under this Agreement.
Stock option clause with exercise price adjustment for certain corporate events
This version adjusts the exercise price for corporate events.
In the event of a merger, spin-off, or other corporate restructuring, the exercise price of any outstanding stock options shall be adjusted to reflect the transaction’s effect on the [Company]’s stock.
Stock option clause with automatic acceleration on IPO
This version includes acceleration upon an IPO.
All unvested stock options granted under this Agreement shall automatically vest upon the [Company]’s initial public offering (IPO) and become exercisable immediately thereafter.
Stock option clause with buyback upon voluntary resignation
This version includes buyback on resignation.
If the [Investor/Employee] voluntarily resigns from the [Company], the [Company] shall have the right to repurchase any vested but unexercised stock options at the exercise price, within [X] days of resignation.
Stock option clause with restriction on exercise for non-competition violation
This version restricts exercise due to non-compete violations.
The [Investor/Employee] shall not exercise stock options granted under this Agreement if they are in violation of any non-competition clause agreed to in their employment agreement with the [Company].
Stock option clause with specified notice period for exercise
This version includes a notice period for exercising options.
The [Investor/Employee] shall provide the [Company] with [X] days’ written notice of their intention to exercise any stock options granted under this Agreement.
Stock option clause with protection during capital restructuring
This version includes protection during capital restructuring.
If the [Company] undergoes a capital restructuring, including a change in equity classes or a reorganization, the exercise price and number of shares covered by any stock options granted under this Agreement shall be adjusted accordingly.
Stock option clause with adjustment for stock dividends
This version adjusts for stock dividends.
If the [Company] issues stock dividends or other equity-based compensation to shareholders, the number of shares subject to the stock options granted under this Agreement shall be adjusted proportionally.
Stock option clause with requirement for shareholder approval
This version includes shareholder approval.
The issuance of stock options granted under this Agreement is contingent upon the approval of the [Company]’s shareholders at the next annual general meeting.
Stock option clause with protection against stock dilution
This version includes protection against stock dilution.
The [Investor/Employee] shall receive additional stock options if the [Company] issues new shares that dilute the [Investor/Employee]’s ownership percentage below the level it would have been without the issuance.
Stock option clause with adjustment for spin-off stock allocation
This version adjusts for spin-offs.
In the event of a spin-off or division of the [Company] into separate entities, the [Investor/Employee] shall be entitled to receive a proportional allocation of stock options in the spin-off entity based on the number of shares they hold in the parent company.
Stock option clause with adjustment for stock consolidation
This version adjusts for stock consolidation.
If the [Company] consolidates its shares, the number of stock options granted to the [Investor/Employee] shall be adjusted accordingly, with the exercise price modified to reflect the new share structure.
Stock option clause with post-exercise voting rights
This version grants voting rights post-exercise.
Upon exercise of any stock options granted under this Agreement, the [Investor/Employee] shall be entitled to voting rights on the shares obtained through the exercise of the options, in accordance with the [Company]’s corporate governance policies.
Stock option clause with exercise restrictions for insiders
This version restricts exercise for insiders.
The [Investor/Employee] shall not be permitted to exercise any stock options granted under this Agreement if they are considered an insider under applicable securities laws, unless the exercise complies with the [Company]’s trading policies.
Stock option clause with acceleration upon death or disability
This version accelerates vesting in case of death or disability.
In the event of the [Investor/Employee]’s death or permanent disability, all unvested stock options shall immediately vest and become exercisable.
Stock option clause with buyback right for terminated options
This version includes a buyback right for terminated options.
In the event that the [Investor/Employee]’s stock options expire or are terminated for any reason, the [Company] shall have the right to repurchase any unexercised options at the original exercise price.
Stock option clause with rights to future grants
This version includes rights to future option grants.
The [Investor/Employee] shall be entitled to participate in future option grants or other equity compensation plans that the [Company] establishes, subject to the terms of those future plans.
Stock option clause with adjustment for sale of a majority interest
This version adjusts in case of a sale of the company.
If the [Company] sells a majority interest in the company, all unvested stock options shall immediately vest, and the [Investor/Employee] shall have the right to exercise those options.
Stock option clause with provision for a secondary market
This version includes a secondary market for shares.
The [Investor/Employee] may sell or transfer shares acquired through the exercise of stock options on a secondary market, provided that the [Company] complies with applicable securities laws and provides access to such a market.
Stock option clause with restriction on early exercise
This version restricts early exercise of stock options.
The [Investor/Employee] may not exercise any stock options granted under this Agreement prior to the completion of [X] years of service with the [Company], unless otherwise agreed by the [Board of Directors].
Stock option clause with waiver of anti-dilution rights
This version waives anti-dilution rights for the options.
The [Investor/Employee] acknowledges that the stock options granted under this Agreement shall not be subject to any anti-dilution provisions, and the [Company] may issue new shares without adjustment to the options.
Stock option clause with sale proceeds provision
This version includes a sale proceeds provision.
In the event of a sale of the [Company], any proceeds from the sale of shares acquired through the exercise of stock options shall be distributed to the [Investor/Employee] in proportion to the number of shares held.
Stock option clause with right to convert options to another class of stock
This version includes a right to convert options.
The [Investor/Employee] shall have the right to convert the stock options granted under this Agreement into options for another class of stock, as determined by the [Company], in the event of a corporate restructuring.
Stock option clause with restriction on exercise for competing entities
This version restricts exercise for competitors.
The [Investor/Employee] shall not be permitted to exercise any stock options granted under this Agreement if they are employed by or affiliated with any competitor of the [Company], unless the exercise occurs in accordance with the [Company]’s non-compete agreement.
Stock option clause with right of first refusal on stock option sale
This version includes a right of first refusal.
The [Company] shall have the right of first refusal to purchase any shares acquired through the exercise of stock options before the [Investor/Employee] can sell or transfer those shares to a third party.
Stock option clause with provision for tax gross-up
This version includes a tax gross-up provision.
If the exercise of stock options results in any tax liability for the [Investor/Employee], the [Company] shall provide a tax gross-up to ensure that the [Investor/Employee] is fully reimbursed for any tax burden incurred as a result of the exercise.
Stock option clause with adjustment for stock dividends
This version adjusts for stock dividends.
If the [Company] issues a stock dividend, the number of stock options granted under this Agreement shall be adjusted accordingly, with the [Investor/Employee] receiving additional options to preserve their equity interest.
Stock option clause with early termination of options upon violation of agreement
This version includes termination for agreement violations.
If the [Investor/Employee] violates any provision of this Agreement, including a non-compete or confidentiality agreement, any unexercised stock options shall immediately terminate, and the [Investor/Employee] shall lose all rights to those options.
Stock option clause with automatic cancellation for transfer to third parties
This version cancels options for transfers.
If the [Investor/Employee] transfers any stock options granted under this Agreement to a third party without the prior written consent of the [Company], such options shall automatically be canceled.
Stock option clause with option to exchange options for shares
This version includes an option exchange.
The [Investor/Employee] may exchange their vested stock options for shares of common stock, at the discretion of the [Company], under the terms of this Agreement.
Stock option clause with partial acceleration upon departure
This version allows partial acceleration.
In the event that the [Investor/Employee] leaves the [Company] voluntarily or involuntarily, [X]% of their unvested stock options shall immediately vest and become exercisable.
Stock option clause with option to purchase additional shares in case of future rounds
This version includes an option for future purchases.
In the event that the [Company] conducts future rounds of equity financing, the [Investor/Employee] shall have the right to purchase additional shares at the same price and terms offered to new investors.
Stock option clause with adjustment for reverse stock splits
This version adjusts for reverse stock splits.
In the event that the [Company] conducts a reverse stock split, the number of shares underlying the stock options granted under this Agreement shall be adjusted, and the exercise price will be adjusted accordingly.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.