Stock Option Plan Rule of Thumb No. 4

Stock Option Planning from The Startup Garage
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This article was contributed by William W Eigner, Esq. & Brian Headman of Procopio, Cory, Hargreaves & Savitch LLP.  

Set a Lenient Post-Termination Exercise Period When Possible

If a director or advisor’s term is discontinued, a lenient post-termination exercise period may be very valuable to an option holder. I advise clients to draft the option grant to permit exercise up to ten years after termination, depending on when the option was granted in relation to when the option plan was adopted. This is because most small companies do not have quick and easy exits, it is onerous to require directors and advisors to pay cash for shares in a company that is far from a liquidity event.

My argument for this method is that subjecting a director or advisor to the typical 30-day to 90-day post-termination exercise period used for an employee optionee holding Incentive Stock Options (ISOs) would be unduly harsh on directors and advisors. Employee optionees holding ISOs receive other forms of compensation, while directors and advisors of start-ups typically do not.

Check back Wednesday, October 3, for Rule of Thumb No. 5: Try Not To Jeopardize Relationships.


Whether you have a question about Stock Options, or you’d like to discuss our business plan writing services, feel free to contact us for a free consultation!
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About Tyler Jensen

I work with entrepreneurs who are looking to attract investment and get out of the "Garage". I am passionate about helping entrepreneurs start companies that matter. I helped launch over 100 Companies, Non-Profits and Social Enterprises. I consider myself a serial entrepreneur, startup coach & trusted advisor. * Launching New Companies (For Profit, Non-Profit and Social Enterprise) * Expert Business Plan Writer * Extensive Network of Business Relationships focused on Launch & Rapid Growth of New Companies * Startup, Growth, Marketing, Technology, Web, Business Systems * Trusted Advisor to CEO’s & Entrepreneurs * Capital Raising Strategy Development * Startup Team Development The first company I started and sold is VAVi Sport & Social Club which grew to over 25,000 members in six years, was recognized as San Diego’s 30th fastest growing private company in 2006 by the San Diego Business Journal and 32nd fastest in 2007, and sold for over 25X the capital investment.