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Stock Option Agreement

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TELOCITY, INC. IMMEDIATELY EXERCISABLE NONSTATUTORY STOCK OPTION AGREEMENT

This Immediately Exercisable Nonstatutory Stock Option Agreement (the "Option Agreement") is made and entered into as of the Date of Option Grant by and between Telocity, Inc. and (the "Optionee").

The Company has granted to the Optionee pursuant to the Telocity, Inc. 1998 Stock Option Plan (the "Plan") an option to purchase certain shares of Stock, upon the terms and conditions set forth in this Option Agreement (the "Option"). The Option shall in all respects be subject to the terms and conditions of the Plan, the provisions of which are incorporated herein by reference.

1. DEFINITIONS AND CONSTRUCTION.

1.1 DEFINITIONS. Unless otherwise defined herein, capitalized terms shall have the meanings assigned to such terms in the Plan. Whenever used herein, the following terms shall have their respective meanings set forth below:

(a) "DATE OF OPTION GRANT" means .

(b) "NUMBER OF OPTION SHARES" means shares of Stock, as adjusted from time to time pursuant to Section 9.

(c) "EXERCISE PRICE" means $ per share of Stock, as adjusted from time to time pursuant to Section 9.

(d) "INITIAL EXERCISE DATE" means the later of the Date of Option Grant or the date the Optionee's Service commences.

(e) "INITIAL VESTING DATE" means .

(f) "VESTED PERCENTAGE" means, on any relevant date, the percentage determined as follows:

Prior to Initial Vesting Date 0%

On Initial Vesting Date, provided the Optionee's Service has not terminated prior to such date %

Plus: For each full month of the Optionee's continuous Service from the Initial Vesting Date until the Vested Percentage equals 100%, an additional %

(g) "OPTION EXPIRATION DATE" means the date ten (10) years after the Date of Option Grant.

1.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of this Option Agreement. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise.

2. TAX CONSEQUENCES.

2.1 TAX STATUS OF OPTION. This Option is intended to be a Nonstatutory Stock Option and shall not be treated as an Incentive Stock Option within the meaning of Section 422(b) of the Code.

2.2 ELECTION UNDER SECTION 83(b) OF THE CODE. If the Optionee exercises this Option to purchase shares of Stock that are both nontransferable and subject to a substantial risk of forfeiture, the Optionee understands that the Optionee should consult with the Optionee's tax advisor regarding the advisability of filing with the Internal Revenue Service an election under Section 83(b) of the Code...

3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board. All determinations by the Board shall be final and binding upon all persons having an interest in the Option.

4. EXERCISE OF THE OPTION.

4.1 RIGHT TO EXERCISE. Except as otherwise provided herein, the Option shall be exercisable on and after the Initial Exercise Date and prior to the termination of the Option (as provided in Section 6) in an amount not to exceed the Number of Option Shares less the number of shares previously acquired upon exercise of the Option...

4.2 METHOD OF EXERCISE. Exercise of the Option shall be by written notice to the Company which must state the election to exercise the Option, the number of whole shares of Stock for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement.

4.3 PAYMENT OF EXERCISE PRICE.

(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the aggregate Exercise Price for the number of shares of Stock for which the Option is being exercised shall be made in cash, by check, cash equivalent, tender of stock, cashless exercise, or any combination of the foregoing.

(b) TENDER OF STOCK. Notwithstanding the foregoing, the Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender would constitute a violation of law or agreement restricting the redemption of the Company's stock.

(c) CASHLESS EXERCISE. A "Cashless Exercise" means the assignment in a form acceptable to the Company of the proceeds of a sale or loan with respect to some or all of the shares of Stock acquired upon exercise of the Option.

4.4 TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes withholding from payroll and any other amounts payable to the Optionee...

4.5 CERTIFICATE REGISTRATION. Except in the event the Exercise Price is paid by means of a Cashless Exercise, the certificate for the shares as to which the Option is exercised shall be registered in the name of the Optionee, or, if applicable, in the names of the heirs of the Optionee.

4.6 RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of shares of Stock upon exercise of the Option shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities.

4.7 FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option.

5. NONTRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee or the Optionee's guardian or legal representative and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution.

6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Expiration Date, (b) the last date for exercising the Option following termination of the Optionee's Service as described in Section 7, or (c) a Change in Control to the extent provided in Section 8.

7. EFFECT OF TERMINATION OF SERVICE.

7.1 OPTION EXERCISABILITY.

(a) DISABILITY. If the Optionee's Service is terminated because of Disability, the Option, to the extent unexercised and exercisable, may be exercised within six (6) months after termination.

(b) DEATH. If the Optionee's Service is terminated because of death, the Option may be exercised by the legal representative within six (6) months after termination.

(c) OTHER TERMINATION OF SERVICE. If the Optionee's Service terminates for any reason except Disability or death, the Option may be exercised within one (1) month after termination.

7.2 ADDITIONAL LIMITATIONS ON OPTION EXERCISE. Notwithstanding the provisions of Section 7.1, the Option may not be exercised after termination to the extent that the shares to be acquired would be subject to the Unvested Share Repurchase Option.

7.3 EXTENSION IF EXERCISE PREVENTED BY LAW. If exercise is prevented by law, the Option shall remain exercisable until one (1) month after notification by the Company.

7.4 EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). If sale would subject the Optionee to suit under Section 16(b), the Option shall remain exercisable until the earliest of the stated time periods.

8. CHANGE IN CONTROL.

8.1 DEFINITIONS.

(a) An "Ownership Change Event" shall be deemed to have occurred if any of the following occurs with respect to the Company:

(i) the direct or indirect sale or exchange in a single or series of related transactions by the shareholders of the Company of more than fifty percent (50%) of the voting stock of the Company;

(ii) a merger or consolidation in which the Company is a party;

(iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or

(iv) a liquidation or dissolution of the Company.

(b) A "Change in Control" shall mean an Ownership Change Event or a series of related Ownership Change Events wherein the shareholders of the Company immediately before the Transaction do not retain immediately after the Transaction direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock.

8.2 EFFECT OF CHANGE IN CONTROL ON OPTION. In the event of a Change in Control, the surviving or acquiring corporation may either assume the Company's rights and obligations under the Option or substitute for the Option a substantially equivalent option.

9. ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number, Exercise Price and class of shares of stock subject to the Option.

10. RIGHTS AS A SHAREHOLDER, EMPLOYEE OR CONSULTANT. The Optionee shall have no rights as a shareholder with respect to any shares covered by the Option until the date of the issuance of a certificate for the shares for which the Option has been exercised.

11. UNVESTED SHARE REPURCHASE OPTION.

11.1 GRANT OF UNVESTED SHARE REPURCHASE OPTION. If the Optionee's Service terminates, or if the Optionee attempts to sell or transfer any unvested shares, the Company shall have the right to repurchase the Unvested Shares.

11.2 VESTED SHARES AND UNVESTED SHARES DEFINED. "Vested Shares" shall mean the Number of Option Shares multiplied by the Vested Percentage and rounded down to the nearest whole share.

11.3 EXERCISE OF UNVESTED SHARE REPURCHASE OPTION. The Company may exercise the Unvested Share Repurchase Option by written notice within sixty (60) days after termination or notice of attempted disposition.

11.4 PAYMENT FOR SHARES AND RETURN OF SHARES TO COMPANY. The purchase price per share repurchased shall be the original cost per share, as adjusted pursuant to Section 9.

11.5 ASSIGNMENT OF UNVESTED SHARE REPURCHASE OPTION. The Company may assign the Unvested Share Repurchase Option at any time to one or more persons selected by the Company.

11.6 OWNERSHIP CHANGE EVENT. Upon the occurrence of an Ownership Change Event, any new, substituted or additional securities shall be subject to the Unvested Share Repurchase Option.

12. RIGHT OF FIRST REFUSAL.

12.1 GRANT OF RIGHT OF FIRST REFUSAL. In the event the Optionee proposes to sell, exchange, transfer, pledge, or otherwise dispose of any Vested Shares, the Company shall have the right to repurchase the Transfer Shares.

12.2 NOTICE OF PROPOSED TRANSFER. Prior to any proposed transfer, the Optionee shall deliver written notice to the Company describing fully the proposed transfer, including the number of Transfer Shares, the name and address of the proposed transferee, and the proposed transfer price.

12.3 BONA FIDE TRANSFER. If the Company determines that the information provided is insufficient to establish the bona fide nature of a proposed transfer, the Optionee shall have no right to transfer the Transfer Shares without first complying with the procedure described in this Section 12.

12.4 EXERCISE OF RIGHT OF FIRST REFUSAL. The Company shall have the right to purchase all, but not less than all, of the Transfer Shares by delivery of notice within thirty (30) days after the Transfer Notice is delivered.

12.5 FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company fails to exercise the Right of First Refusal, the Optionee may conclude a transfer to the Proposed Transferee on the terms described in the Transfer Notice.

12.6 TRANSFEREES OF TRANSFER SHARES. Any transferee shall receive and hold such Transfer Shares subject to all terms and conditions of this Option Agreement.

12.7 TRANSFERS NOT SUBJECT TO RIGHT OF FIRST REFUSAL. The Right of First Refusal shall not apply to any transfer or exchange in connection with an Ownership Change Event.

12.8 ASSIGNMENT OF RIGHT OF FIRST REFUSAL. The Company shall have the right to assign the Right of First Refusal at any time.

12.9 EARLY TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal shall terminate upon a Change in Control unless assumed or substituted, or upon the existence of a public market for the class of shares subject to the Right of First Refusal.

13. ESCROW.

13.1 ESTABLISHMENT OF ESCROW. To ensure that shares subject to the Unvested Share Repurchase Option will be available for repurchase, the Company may require the Optionee to deposit the certificate evidencing the shares with an agent designated by the Company under escrow and security agreements approved by the Company.

13.2 DELIVERY OF SHARES TO OPTIONEE. As soon as practicable after the expiration of the Unvested Share Repurchase Option, the escrow agent shall deliver to the Optionee the shares and any other property no longer subject to such restrictions.

13.3 NOTICES AND PAYMENTS. Any notices or payments required to be given to the Optionee shall be given to the escrow agent.

14. STOCK DISTRIBUTIONS SUBJECT TO OPTION AGREEMENT. Any new, substituted or additional securities shall be subject to the Unvested Share Repurchase Option and the Right of First Refusal with the same force and effect as the shares immediately before such event.

15. LEGENDS. The Company may at any time place legends referencing the Unvested Share Repurchase Option, the Right of First Refusal, and applicable securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement.

15.1 "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED..."

15.2 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN UNVESTED SHARE REPURCHASE OPTION..."

15.3 "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF FIRST REFUSAL OPTION..."

16. PUBLIC OFFERING. The Optionee hereby agrees that in the event of any underwritten public offering of stock, the Optionee shall not offer, sell, contract to sell, pledge, hypothecate, or otherwise dispose of any shares for such period as established by the underwriter, not to exceed one hundred eighty (180) days.

17. RESTRICTIONS ON TRANSFER OF SHARES. No shares acquired upon exercise of the Option may be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of in any manner which violates any provision of this Option Agreement and, except pursuant to an Ownership Change Event, until the date on which such shares become Vested Shares.

18. BINDING EFFECT. Subject to the restrictions on transfer set forth herein, this Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.

19. TERMINATION OR AMENDMENT. The Board may terminate or amend the Plan or the Option at any time; provided, however, that no such termination or amendment may adversely affect the Option without the consent of the Optionee unless necessary to comply with law or regulation.

20. NOTICES. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or by registered or certified mail, with postage prepaid.

21. INTEGRATED AGREEMENT. This Option Agreement and the Plan constitute the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained herein and therein.

22. APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of California.

TELOCITY, INC.

By:

Title:

Address: 10355 North DeAnza Boulevard
Cupertino, California 95014

OPTIONEE

Optionee:

Date:

Optionee Address:

Acknowledgment:

The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement, including the Unvested Share Repurchase Option and the Right of First Refusal, and hereby accepts the Option subject to all of the terms and provisions thereof.

The undersigned acknowledges receipt of a copy of the Plan.

Signature:

Date:

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What a Stock Option Agreement Is and What It Covers

A Stock Option Agreement is a legally binding contract that grants an individual the right to purchase a specified number of company shares at a fixed price under defined terms. The agreement typically sets the grant date, exercise price, vesting schedule, expiration date, exercise mechanics, and conditions such as termination, change in control, or repurchase rights. It may distinguish incentive stock options (ISOs) and nonqualified stock options (NQSOs) for tax treatment. Employers use these agreements to document equity awards and to set enforceable rights and obligations for both parties.

Why a Clear Stock Option Agreement Matters

Stock Option Agreements formalize ownership rights and clarify timing, vesting, and tax consequences, reducing disputes and ensuring plan administration consistency. Properly executed agreements are enforceable under ESIGN and UETA when signatures and records meet electronic-signature legal tests.

Why a Clear Stock Option Agreement Matters

Who Typically Prepares and Signs These Agreements

Employers, executives, HR administrators, outside counsel, and equity plan administrators commonly prepare and sign Stock Option Agreements.

  • Startups and private companies structure grants with vesting tied to performance or tenure.
  • Public companies use standardized agreements aligned to SEC disclosure and stock plan rules.
  • Service providers and consultants may receive options as part of compensation packages.

Understanding who completes each section speeds review and avoids administrative delays during grants, exercises, and post-termination reconciliation.

Key Roles Involved

Employee

The grantee signs to accept the grant, acknowledges receipt, and agrees to vesting, exercise mechanics, and any repurchase provisions. Accurate name and contact information are essential for tax reporting and to avoid later disputes about attribution and withholding obligations.

Company

The employer or issuing entity defines grant size, exercise price, and plan governance, and is responsible for issuing notices, maintaining cap table records, and complying with securities law and payroll withholding requirements when options are exercised.

Essential Data Fields at a Glance

Grant Date: Date option is granted.
Exercise Price: Strike price per share.
Vesting Schedule: Vesting milestones and cliff.
Expiration Date: Last date to exercise.
Number of Shares: Total shares underlying option.
Tax Classification: ISO or NQSO designation.

Primary Risks and Consequences of Errors

Tax Withholding: Possible underpayment penalties.
Misstated Date: Alters vesting and tax timing.
Unvested Exercise: May be voided or cancelled.
Securities Violations: Triggers SEC disclosure obligations.
Administrative Errors: Can delay funding or issuance.
Missing Signatures: Agreement may be unenforceable.

Common Drafting and Administrative Pitfalls

  • Using inconsistent names between agreement and payroll records causes tax reporting errors and can trigger backup withholding or delayed equity issuance.
  • Failing to specify vesting conditions or performance targets leads to disputes over entitlement, acceleration, and calculation of vested shares.
  • Neglecting to include tax treatment or withholding instructions for ISO versus NQSO options creates unexpected tax liabilities for grantees and employers.
  • Relying on handwritten amendments without documenting consent or updated execution dates can produce ambiguity in enforceability and timing.

Real-World Examples of Use

Two real examples illustrate how Stock Option Agreements work across private and public companies effectively.

Optica Ventures

Optica Ventures used a Stock Option Agreement template to standardize grants for new hires across multiple deals, ensuring consistent vesting terms and clear exercise procedures.

  • Result: faster onboarding and fewer disputes.
  • The documented terms reduced administrative follow-up, decreased errors in cap table updates, and provided audit evidence for investor reporting; the clear exercise mechanics simplified accounting for stock-based compensation and compliance.

Tech Data

Tech Data integrated standardized Stock Option Agreements with its HR and payroll systems to align vesting schedules and reporting across global subsidiaries.

  • This centralized approach improved accuracy.
  • Centralization reduced reconciliation time, ensured consistent tax withholding at exercise events, and supported compliance with securities filings; legal review cycles became shorter due to a single, managed template across jurisdictions.

Step-by-Step: Completing a Stock Option Agreement

Follow these steps to complete a Stock Option Agreement accurately and reduce downstream compliance issues.

  • 01
    Prepare: Confirm grantee details and plan approval.
  • 02
    Set Terms: Specify grant date, price, vesting, and expiration.
  • 03
    Sign: Obtain signatures and dates from all parties.
  • 04
    Record: Update cap table and inform payroll for tax.

Typical Electronic Execution Workflow

Typical electronic execution flow for a Stock Option Agreement in an e-signature platform and audit trail capture.

  • Upload: Upload finalized agreement to the signing workflow.
  • Place Fields: Add name, date, signature, and initial fields.
  • Authenticate: Verify signer identity via email or SMS code.
  • Store: Save signed PDF and audit log for records.

Key Elements a Professional Agreement Should Include

A professional Stock Option Agreement should define economic terms, vesting mechanics, tax treatment, transfer restrictions, corporate approvals, and remedies to reduce ambiguity and litigation risk.

Grant Terms

Specify number of shares, class of stock, exercise price per share, and method for adjusting grants in the event of stock splits or corporate reorganizations; clarity avoids future entitlement disputes.

Vesting

Describe vesting schedule, cliffs, acceleration triggers, and any performance conditions; include calculation methods for partial periods and rounding rules for shares to prevent interpretation gaps.

Exercise

Outline exercise procedures, payment methods, cashless exercise options, notice requirements, timelines for post-termination exercise, and tax withholding at exercise and stock transfer processing.

Restrictions

Include transfer restrictions, right of first refusal, lock-up periods, and legends required for compliance with securities laws including legend language and resale compliance procedures.

Approvals

Document board and shareholder approvals, any required committee resolutions, and corporate authorization evidence to validate issuance under state corporate law and the company charter and bylaws.

Tax Effects

State tax consequences, designation as ISO or NQSO, withholding responsibilities, and timing for 83(b) elections where applicable; include instructions and employer reporting obligations.

Practical Best Practices for Drafting and Administering

Best practices reduce legal risk and ease administration of Stock Option Agreements across hiring, payroll, and investor relations.

Use Standardized, Reviewed Agreement Templates
Adopt board-approved template language and have legal counsel review periodically to ensure compliance with securities laws, tax treatment updates, and plan amendments; consistent templates speed approvals, simplify audits, and reduce negotiation cycles with prospective hires and investors.
Keep Accurate Records and Cap Table
Maintain precise cap table entries reflecting issued and exercisable shares, update records immediately after exercises or cancellations, and preserve signed agreements and audit logs for statutory retention periods to support tax reporting and investor inquiries.
Clearly Communicate Tax Obligations to Grantees
Provide grantees with guidance on potential tax events, including ISO holding periods, NQSO withholding, and 83(b) election deadlines; include contact details for payroll and tax advisors to reduce late filings and unexpected liabilities.
Use Clear Amendment and Approval Procedures
Specify how amendments are approved, who can sign changes, and whether electronic countersignatures are acceptable; clarify retroactive effect, notification requirements, and how conflicting prior agreements are superseded to avoid ambiguity.

Milestone Timeline from Grant to Post-Exercise

Key milestones from grant through post-exercise obligations for a Stock Option Agreement lifecycle, including notices and reporting.

01

Grant Date

Effective date when rights are granted and exercise price fixed.

02

Vesting Checkpoints

Dates when shares vest or performance conditions are verified.

03

Exercise Window

Period during which options may be exercised before expiration.

04

Post-Exercise Reporting

Employer records exercise, withholdings, and equity issuance for tax compliance.

Important Dates and Filing Expectations

Dates and filing expectations related to Stock Option Agreement tax reporting and related elections and notices.

83(b) Election Deadline:

Must file with IRS within 30 days of grant.

Form W-2 Reporting:

Report option income and withholdings by Jan 31.

Form 3921 (ISOs):

Company must issue to grantee for ISO exercises per IRS rules.

Form 1099 Reporting:

Non-employee exercises require informational reporting by applicable deadlines.

State Tax Filings:

State withholding and filing vary; consult state revenue guidance.

Recommended E-sign Workflow Settings

Recommended online workflow settings when preparing a Stock Option Agreement for e-signature and recordkeeping platform.

Field Configuration
Reminder Schedule Email reminders at 3, 7, and 14 days.
Authentication Level Email plus SMS code for higher assurance.
Document Retention Store signed PDFs and audit trail indefinitely per policy.
Field Validation Use required and format validation for date and numeric fields.

Platform Capabilities to Verify

Ensure the platform supports e-signatures, secure storage, and audit trails when executing Stock Option Agreements electronically.

  • File Formats: PDF and DOCX supported.
  • Integrations: Connects with HRIS and cap table tools.
  • Authentication: Supports email, SMS, and SSO.

Comparing e-signature Vendors for Stock Option Agreements

Comparing common e-signature vendor pricing and key features relevant to Stock Option Agreement execution and compliance.

signNow DocuSign Adobe Sign PandaDoc HelloSign
Starting Price $8/user/mo $15/user/mo $14/user/mo $19/user/mo $15/user/mo
Free Trial 7-day free trial No No Yes, limited Yes, limited
Bulk Send Yes Yes Yes Yes No
Audit Trail Yes Yes Yes Yes Yes
HIPAA Compliant Yes Yes Yes No No

Frequently Asked Questions and Troubleshooting

Answers to common questions about executing, amending, and enforcing Stock Option Agreements, including electronic signature and tax concerns.


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