When negotiating or signing an employment contract, you may be offered an equity agreement or compensation from company stock options. Understanding the terms of an equity agreement is crucial to being able to monitor your investment. It will also help to prepare you if ever a breach is made in the agreement.
An equity agreement is the part of a contract that sets out the terms and conditions of equity compensation. This compensation may take the form of stock options, restricted stock, or phantom stock. The agreement will also state the time period for payment of equity compensation and earnings, also known as the vesting period. The terms of compensation and vesting can vary widely and be affected by many different events. If you are not sure about what you are signing, you should enlist the help of an experienced employment contract lawyer.
Understanding the Terms of an Equity Agreement
The first issue to consider is the type of equity provided and the method for valuing it. It is important to understand what percentage of equity compensation you are being offered and what kind of stock, whether issued and outstanding stock, or fully diluted. You may also be offered different kinds of stock options, restricted stock units or stock appreciation rights. Stock options will be attached to a strike price, or the price at which you are allowed to sell them.
The vesting period is an important part of your equity agreement. You cannot exercise your stock options if you are not yet vested. Typically, the vesting period is between 3 to 5 years. Sometimes the vesting period can be accelerated and those terms should be clear. Reasons for accelerated vesting include termination without cause, an initial public offering of the company, sale of the company, employee retirement, and employee death. In the event of corporate restructuring, some agreements also require that your position be terminated before you are eligible for accelerated vesting. If your employment is terminated, you should know how long you have to exercise your options. This can vary depending on whether you left the company voluntarily or if there was cause/no cause for ending your employment, but the usual period is 90 days.
Often included in an equity agreement are conditions for non–competition and non–solicitation. These prevent an employee from working for competitors during the length of his or her contract and usually afterwards for a specified period of time. Non-solicitation means you are not allowed to solicit your former colleagues or business associates, customers or clients after you leave your job. Some non-solicitation provisions are so restrictive that they prohibit employees from leaving their job to start a new company. Like other terms of employment contracts, non-compete and non-solicitation clauses are often negotiable. Prospective employees are wise to consult with a reputable employment contract lawyer before agreeing to the terms of their employment contract.
Chester County Employment Lawyers at Sidney L. Gold & Associates, P.C. Are Highly Skilled Negotiators of Equity Agreements
Equity agreements can be a significant source of income for employees. They are also extremely complex and mistakes can be costly. If you need help reviewing your employment contract, or suspect your agreement has been breached, call Sidney L. Gold & Associates, P.C. at 215-569-1999 to schedule an appointment with one of our skilled and knowledgeable Chester County employment lawyers. You can also fill out our online contact form. There is no fee for an initial consultation.