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Usually companies have a clause where they have the first right to buy the stock options back before you offer them for sale to anyone else. Employee stock opti

by habitue 10y ago

Usually companies have a clause where they have the first right to buy the stock options back before you offer them for sale to anyone else. Employee stock options are sort of intended to be NODROP, and if they want to make shares available on like second market, they need to create a pool of shares specifically for that.

arjie 10y ago
And when they exercise that right, they'd be able to buy them back at the strike price?
- bofia 10y ago
  No, they would buy it back at the price that the buyer had offered. In your example, $10000 for the 15000 units.
  - arjie 10y ago
    Oh, so secondary markets are still beneficial to participate in if permitted. So this guy should participate if he can. But you work with the original company, etc., I suppose. Makes sense.
- shirleman 10y ago
  Yes. ROFR (right of first refusal) are almost always at the price of the shares purchased. This prevents people from just selling their shares on secondary markets without company permission. I don't love it but you are correct, that is how it works
cortesoft 10y ago
I would be curious about the legality of working around that restriction - like, what if the option holder creates a contract with someone who wants to buy the options, where they agree to hold onto them and then give them to the buyer once they are allowed to in return for a lump sum payment up front. Or, perhaps, they set up an agreement where they are given a lump sum payment up front, and agree to pay the buyer an amount equal to the current value of the stock once it becomes publicly available.
- EpicEng 10y ago
  I've looked into exactly this arrangement before. I couldn't find anything definitive, but I imagine that the second buyer will be in a very risky situation should the shareholder decide to break the contract down the road.
  - atishd 10y ago
    beware: https://www.sec.gov/news/pressrelease/2016-257.html https://www.sec.gov/news/pressrelease/2016-257.html
    - arjie 10y ago
      That seems to just be a regulatory operation they didn't fulfill. They were supposed to register the swaps and they didn't. Is that accurate or was there something nefarious going on?

by habitue 10y ago

arjie 10y ago

And when they exercise that right, they'd be able to buy them back at the strike price?

bofia 10y ago
No, they would buy it back at the price that the buyer had offered. In your example, $10000 for the 15000 units.
- arjie 10y ago
  Oh, so secondary markets are still beneficial to participate in if permitted. So this guy should participate if he can. But you work with the original company, etc., I suppose. Makes sense.
shirleman 10y ago
Yes. ROFR (right of first refusal) are almost always at the price of the shares purchased. This prevents people from just selling their shares on secondary markets without company permission. I don't love it but you are correct, that is how it works

cortesoft 10y ago

I would be curious about the legality of working around that restriction - like, what if the option holder creates a contract with someone who wants to buy the options, where they agree to hold onto them and then give them to the buyer once they are allowed to in return for a lump sum payment up front. Or, perhaps, they set up an agreement where they are given a lump sum payment up front, and agree to pay the buyer an amount equal to the current value of the stock once it becomes publicly available.

EpicEng 10y ago
I've looked into exactly this arrangement before. I couldn't find anything definitive, but I imagine that the second buyer will be in a very risky situation should the shareholder decide to break the contract down the road.
- atishd 10y ago
  beware: https://www.sec.gov/news/pressrelease/2016-257.html https://www.sec.gov/news/pressrelease/2016-257.html
  - arjie 10y ago
    That seems to just be a regulatory operation they didn't fulfill. They were supposed to register the swaps and they didn't. Is that accurate or was there something nefarious going on?