How do I exercise vested stock options which expired due to founders intentional mistake?
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tldr; Early employee at a startup who couldn't exercise a part of my options as founder and HR intentionally didn't respond to my emails within 90-day expiration period. what are my options? I was an early engineer (<5) at a startup and joined them in the first 6 months of inception. I worked (hard) for over 5+ years and left them recently due to limited growth opportunities within the startup. I believe the startup will have a decent exit (nothing remarkable, but =~$50M to $100M) based on steady growth and its valuations in last few rounds. After leaving the startup recently, I sent an email to the founder and HR attaching executed exercise notice but without any payment (as I didn't know where to wire the money etc.). I didn't receive any response from them until 5 days after the vested options expired due to 90-day expiration rule of ISO options set by IRS. I followed up multiple times (before expiration) but didn't hear back. A week after expiration, I received a response from founder (who cc'ed the lawyers) saying that I could exercise the options and send them a check. Within few minutes of his emails (yeah, it was a setup), the lawyers replied saying I couldn't exercise them as I was past 90-days which IRS mandates. Now I understand that IRS has a 90-day rule here. but what are my options considering the startup founder/HR intentionally didn't let me exercise? Notes: 1. I took paycuts for the options early in the startup tenure (a mistake which I fixed later). so I hate to see the options just go away like this. 2. If options are part of compensation, why do vested options expire after 90-days? I understand ISO rule by IRS, but shouldn't startup employees opt for NSO's etc.? The vested options correspond to work that I already did in the past. I fail to understand this rationally. Are there any other favorable equity structures that startup employees should push for?
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Answer:
Do this now before any more money is invested. Have your lawyer contact them Give them 6-8 weeks of back and forth and slowly build up to a lawsuit. On the day of the lawsuit, have your lawyer contact them before actually filing any papers. 95% of cases resolve before going to court
Anonymous at Quora Visit the source
Other answers
Definitely get a lawyer, it sounds like it could go either way. Nearly all agreements have notice provisions, and most option grants come with form exercise notices and notice agreements saying how and where to sign the payments. If those instructions are there, and they're valid, and you ignored them, you're in a much weaker position. On the other hand if the agreement doesn't really specify where to send payment, or the instructions are dated and they never updated you, you're in a stronger position. There are probably a bunch of other factors. There are a bunch of ways of blowing ISO treatment but if somebody is an employee (as opposed to contractor) solidly from the day they got the options until the day they quit, they have an argument that you should receive ISO treatment but for the company's mistake, deliberate or otherwise. Many option agreements are written to disclaim any responsibility for your tax treatment though. Anyway, one claim your lawyer might make, strong or not, is that you deserve ISO treatment and if the company screwed it up that's their problem and they owe you for the additional tax you will incur, plus the tax on the tax payment. That's going to be pretty hard to figure out without a CPA because it involves alternative minimum tax, basis, and the particulars of your tax situation. True, if you missed the 90 day window, then depending on the plan the company may not have the power to let you exercise the options, or if it decided to do so it would blow ISO tax treatment either for you, or possibly for the entire plan. Again, the company's mistake not yours (so you argue) so if they can't make it happen they owe you the cash difference. In addition to being a big cash liability, a threatened lawsuit could interfere with their fundraising, IPO, and/or acquisition talks. That would be very painful for them, so it's in everybody's interest to make it happen. In situations like that where I've represented the stockholder I've urged the company to stop whining that the exercise is too late, and simply declare that your attempted exercise made before the deadline was in fact effective and done in exchange for personal indebtedness in the amount of the exercise price, which you are going to pay as part of the settlement. The stronger they argue that you can't exercise, the deeper the hole they are digging for themselves if that ever gets audited or challenged. On the other side of the fence companies often stonewall former employees trying to claim equity after they quit, and settle for a small cash payment or a fraction of the equity they deserve, depending on how aggressively the employee wants to fight it and how willing to sue. Your lawyer should be able to lay out the options, strength of different arguments, and possible outcomes. This doesn't sound like a case lawyers would take on contingency, so you'll likely have to put some money upfront to pursue this.
Anonymous
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