Common Stock Options Value

Question

Definitely related to this: Job Offer - Explain Stock Options [US]

This is the language of the employment contract:

At the outset of your employment you will be provided with an initial grant of options to purchase [REDACTED] shares of Common Stock of $0.01 par value in [REDACTED] (hereinafter “Company”), the parent of the Company, [...]

I understand the vesting schedule, but I received no documentation stating the price of the options, should I choose to exercise them. Looking up par value didn't seem to clarify anything. Is this something I'd need to reach out to HR for?

Answer 1

Par value of common stock is essentially a historical artifact; it is a price at which the company will redeem shares directly. If common stock has any par value at all, it is always so low that no one would ever redeem, preferring to sell in the market at a better price. Par is obviously much more relevant to debt securities than equities.

So you do need a strike price. ljwobker's letter is a typical one, in that companies often make the strike price for granted options a formula based on the market price of the stock at the time of the grant, say 100% of market or 110% of market. But you will obviously need to find out what strike your company is offering.

Answer 2

Par value SHOULD mean that they are offering you the options with a strike price (exercise price) that is equivalent to the current valuation of the company. Note I said SHOULD. As long as you can confirm with HR (or if you're small enough, just ask the CEO) that your grant price is the same as the current valuation of the company's shares, then things are straight. And while it's very unlikely that someone is doing Something Sneaky, it's always possible.

As a reference, my recent grant letter said:

[Company] (the “Company”) hereby grants you the following Option to purchase shares of its common stock (“Shares”). The terms and conditions of this Option are set forth in the Stock Option Agreement and the [Company] 2013 Stock Incentive Plan (the “Plan”), both of which are attached to and made a part of this document.

• $[some value] (The Exercise Price per Share of an Option shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date of grant. If Optionee is a Ten-Percent Stockholder, the Exercise Price per Share of an ISO must be at least one hundred ten percent (110%) of Fair Market Value.)