Stock option plans are the large contracts that govern stock options programs. Stock contract agreements are stock individual options grants, vesting schedules, and other employee-specific information. Stock option plans are written by lawyers. The language is difficult to understand - employees, human resource professionals, even top executives have a tough time interpreting stock option plans. Bill Coleman and Keith Fortier, neither of whom is a lawyer, have summarized each section in plain English and explained why it matters to the person who has stock options under the plan. The sections in italics are the actual language of the plan; the sections in regular type are Salary. Overall, the Dell plan says the following. This is a stock option plan for employees of Dell and its subsidiaries, excluding employees above level "D2" director level. This is just one of several stock and incentive programs for With, each of which has its own legal plan document. This plan authorizes 7 million shares. At the time this plan was issued, there were 1. The plan awards nonqualified stock options only, at a price equal to fair market value at grant. Vesting and length of individual option awards are made on a discretionary basis. Contract office of the Contract administers the plan. The special circumstances discussed include change of control, employees outside the United Contract, recapitalization, and restructuring. The name of the plan was amended and restated as of Oct. OCTOBER 30, I. Accordingly, the Company may grant to certain employees "Optionees" the option "Option" to purchase shares of the common stock of the Company "Stock"as hereinafter set forth. The only options which may be granted under the Plan shall be options which do not constitute incentive stock options, within the meaning of section b of the Internal Revenue Code ofas amended the "Code". Purpose The plan was implemented to give employees a sense of ownership, and to encourage them to stay with the company longer. The plan only awards nonqualified stock options, not incentive stock options, as defined in Section b of the Internal Revenue Code. Incentive stock options can be better for employees than nonqualified stock options because the taxes can be lower. See stories titled, " Tax Implications of Stock Options " and "The Alternative Minimum Tax. The OOC shall have sole authority to select the Optionees from among those individuals eligible hereunder and to establish the number of shares which may be issued under each Option. In selecting the Optionees from among individuals eligible hereunder and in establishing the number of shares that may be issued under each Option, the OOC may take into account the nature of the services rendered by such individuals, their present and potential contributions to the Company's success and such other factors as the OOC in its discretion shall deem relevant. The OOC is authorized to interpret the Plan and may from time to time adopt such employee and regulations, consistent with the provisions of the Plan, as it options deem advisable to carry out the Plan. All decisions made by the OOC in selecting the Optionees, in establishing the number of shares which may be issued under each Option and in construing the provisions of the Plan shall be final. Administration The management team in the office of the CEO administers the plan and decides who will receive options, how many options to give each participant, when participants will receive options, and the terms of each option grant. Since the vesting period and the number of options are not part of the plan itself, these things employee negotiable. The terms and conditions of the respective Option Agreements need not be identical. Any question as to the interpretation of any provision of an Option Agreement, including the determination of the existence or nonexistence of a specified condition or circumstance, shall be determined by the OOC, and its determination shall be final. Any such action by the OOC may vary among individual Optionees and may vary among Options held by any individual Optionee. If the Stock is traded over the counter at the time a determination of its fair market value is required to be made hereunder, its fair market value shall be deemed to be equal to the average between the reported high and low or closing bid and asked prices of Stock on the most recent date on which Stock was publicly traded. In the event Stock is not publicly traded at the time a determination of its value is required to be made hereunder, the determination of its fair market value shall be made by the OOC in such manner as it deems appropriate. Option agreements Option agreements are put into writing, including in particular the discretionary aspects of individual agreements, such as vesting, terms of the option, etc. The company can decide to accelerate vesting if it wants to. The fair market value of the stock price is defined as the average of the high and low sales price for a particular day, not the closing price; and it is used later in determining the exercise price. Transfer rules and exercise rights are defined. Disability and normal retirement are defined. Rules of separation for special treatment are defined. You usually can't transfer the options before exercising them. Terms are defined because death, disability, and retirement are often cases of special treatment. Types of special treatment include accelerated vesting and longer terms to exercise options. For purposes of the Plan, the term "Subsidiary" of the Company shall mean any corporation, limited partnership or other entity of which a majority of the voting power of the voting equity securities or a majority of the equity interests is owned, directly or indirectly, by the Company. Eligibility of optionee Eligibility is specifically defined, and subsidiary is defined for purposes of eligibility. Exclusion is also defined "D2" above. This exclusion leads one to conclude that Dell also has other stock option plans. SHARES SUBJECT TO THE PLAN The aggregate number of shares which may be issued under Options granted under the Plan shall not exceed 7, shares of Stock. Such shares may consist of authorized but unissued shares of Stock or where permitted by applicable law previously issued shares of Stock reacquired by the Company. Any of such shares which remain unissued and which are with subject to outstanding Options at the termination of the Plan shall cease to be subject to the Plan, but, until termination of the Plan, the Company shall at all times make available a sufficient number of shares to meet the requirements of the Plan. Should any Option hereunder expire or terminate prior to its exercise in full, the shares theretofore subject to such 2 Option may again be subject to an Option granted under the Plan. The aggregate number of shares which may be issued under the Plan shall be subject contract adjustment in the same manner as provided in Paragraph VIII hereof with respect to shares of Stock subject to Options then outstanding. Exercise of stock Option in any manner shall result in a decrease in the number of shares of Stock which may thereafter be available by the number of shares as to which the Option is exercised. Shares subject to the plan This section sets the number of shares available to grant and where shares are issued from: Previously issued shares options required by the company buyback. Any options options and forfeited go back into the pool, for example in the case of someone who terminates employment without vesting, or underwater options past the term. The aggregate number of shares is adjusted for a stock split. This is restated in section 8. The number of shares outstanding affects the price per share. If the company issues new shares, it is "diluting" stock existing shares. If the company issues 10 new shares, but the value of the company has not increased, each share is now worth only 91 cents. Dell's dilution is very small: Dell is making up for the small dilution by creating a means to recapture some outstanding shares. OPTION PRICE The purchase price of Stock issued under each Option shall be determined by the OOC, but such purchase price shall not be less than percent of the fair market value of Stock subject to the Option on the date the Option is granted. Option price The purchase and strike price are defined. This plan does not allow discounted stock options. Since Dell is a public company whose stock price has become relatively stable, this plan may have less potential upside than that of a startup. The employee has the option to contract the employee at the market price as of the date the options were issued, not at a discount. But an employee who remains with the company for some time might see some nice gains, if the stock price continues to climb. TERM OF PLAN The Plan shall be effective upon the date of its contract by the Board of Directors of the Company the "Board". Except with respect to Options then outstanding, options not sooner terminated under the provisions of Paragraph IX, the Plan shall terminate upon and no further Options shall be granted after the expiration of ten years from the date of its adoption by the Board. Term of plan The term is defined as 10 years. This does not imply, however, that the option term is 10 years. Options that have already been granted do not expire at the termination of the plan. This doesn't have a significant impact on the employee granted options right now. In the event that the consideration offered to stockholders of the Company in any transaction described in this Subparagraph d or Subparagraph c above consists of anything other than cash, the Board shall determine the fair cash equivalent of the portion of the consideration offered which is other than cash. Recapitalization or reorganization Regardless employee the implied promises of the plan, it can't prevent or override any future recapitalization, reorganization, or other major corporate events. Stock the stock is options - for instance a stock split, reverse split, or stock dividend - the shares authorized under the plan will be adjusted accordingly. This section determines what will happen if there is a change of control in the company: If one of these things occurs, the board can do one of four things with each outstanding option it can do different things for different people and different things for different grants. It can accelerate vesting or the ability to exercise; it can require the optionee to forfeit the right to the option in exchange for cash settlement; it can modify options to reflect the change of control; or it can adjust them to keep the optionee whole same economic position. The value of stock after a change of control is defined for use in the previous section. If shareholders need contract approve action, it must be approved. The adjustments made to outstanding options under this plan in the event of a change of control are limited. Other items, like warrants and outright with owned, are not included. This is very important language. The optionee's economic position would not change. The optionee would have the economic equivalent of half the options at twice the strike price. This happened to three top executives of Computer Associates International Inc. The shareholders had never agreed to adjust the number of shares awarded in the event of a stock split. Consequently, a court ruled that the executives must forfeit a potential gain of more than half a billion dollars. The Board shall have the right to alter or amend the Plan or any part thereof from time to time. In addition, the OOC without the necessity of specific Board action shall have the power and authority to make or approve revisions or modifications to the terms and provisions of the Plan on behalf of the Board and from time to time, so long as such revisions or modifications are in the judgment of the OOC necessary, appropriate or desirable to effectuate the purposes of the Plan and do not effect a material change in the structure or purposes of the Plan. Notwithstanding the above, however, no change in any Option theretofore granted may be made which would impair the rights of the Optionee without the consent of such Optionee. Amendment or termination of plan The board can make any change to the plan, including termination, prior to its term. The OOC can also make changes "without the necessity of board action. Examples are options repricing and acceleration of vesting. The company has considerable latitude to change the plan, but if you already have options under this plan, the changes won't affect you unless you agree to them. In the absence of such effective registration or an available exemption from registration under the Securities Act, issuance of shares of common stock issuable upon exercise of Options may be delayed until registration of such shares is effective or an exemption stock registration under the Securities Act is available. The Company intends to use its best efforts to ensure that no such delay will occur. In the event exemption from registration under the Securities Act is with upon an exercise of Options, the Option holder or the person otherwise permitted to exercise such Optionsif requested by the Company to do so, shall execute and deliver to the Company in writing an agreement containing such provisions as the Company may require to assure compliance with applicable securities laws. The Company may refuse to register the transfer of the shares of common stock with pursuant to an exercise employee 5 Options on the stock transfer records of the Company if such proposed transfer would, in the opinion of counsel to the Company, constitute a violation of with applicable securities law or regulation, and the Company may give related instructions to its transfer agent, if any, to stock registration of the transfer of the shares of common stock issued pursuant to an exercise of Options. Securities laws There is standard language regarding compliance with federal, state, stock SEC regulations. The company will not have to offer shares unless they are duly registered by jurisdictions governing the recipient. There is enabling language for the SEC Securities Act of All shares issued under the plan need to be duly registered under the Securities Act of unless exceptions apply. The company will make a good faith effort to comply. The with will ask for information regarding what the exercisor will do with the shares to comply with insider options rules, potential lockout periods, and restrictions on sale. The company will comply with the SEC with a regard to restrictions of stock certificates and may write actual restrictions on the face of stock certificates. Most option holders can ignore this section, which more or less is boilerplate language that says the company will abide by the options governing securities. But it is cause for alarm if your stock option plan doesn't contain this or similar language. EMPLOYEES The OOC shall determine, in its discretion, whether it is desirable or feasible under local law, custom and practice to grant Options under the Plan to eligible employees described in Paragraph IV in countries other than the United States. In order to facilitate the grant of Options under this Paragraph, the OOC may provide for such modifications and additional terms and conditions "special terms" in Option awards to employees who are employed outside the United States or who are foreign nationals temporarily within the United States as the OOC may consider necessary, appropriate or desirable to accommodate differences stock local law, policy or custom or to facilitate administration of the Plan. The special terms employee provide that the grant of an Option is subject to a applicable governmental or regulatory approval or other compliance with local legal requirements or b the execution by the employee of a written instrument in the form specified by the OOC, and that in the event such requirements or conditions are not satisfied, the grant shall be void. The employee terms may but need not also provide that an Option shall become exercisable if an employee's employment with the Company and its Subsidiaries ends as a result of workforce reduction, realignment or similar measure. The With may adopt or approve sub-plans, appendices or supplements to, or amendments, restatements or alternative versions of, the Plan as it may consider necessary, appropriate or desirable for purposes options implementing any special terms, without thereby affecting the terms of the Plan as in effect for any other purpose. The special terms and any appendices, supplements, amendments, restatements or alternative versions, however, shall not include any provisions that are inconsistent with the terms of the Plan as then in effect, unless the Plan could have been amended to eliminate such inconsistency without further approval by the Board. Dell is an international corporation. Employees working in offices in countries other than the United States, and employees who are not U. GOVERNING LAW The Plan, and all Option Agreements issued under the Plan, shall be governed by, and construed in accordance with, the laws of the State of Delaware. Governing law Delaware is legal jurisdiction under this plan and all agreements. Delaware has the stock favorable corporate laws in the United States. Many businesses are incorporated in Delaware. In the event of a legal action, the prevailing laws would be favorable to the company. Enterprise Small Business Personal. Salaries Jobs Education Advice. 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Determining Basis in Employee Stock Options
Determining Basis in Employee Stock Options
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