
Ask HN: Why Are YC Stock Plans by Clerky So Employee-Hostile? - alexpetralia
I was reading the standard stock plans and agreements commonly adopted by YC companies which use Clerky, and I was surprised to read how employee-hostile they were.<p>Docs: https:&#x2F;&#x2F;www.clerky.com&#x2F;yc-stock-plan-forms<p>1. On page 12 of the Stock Plan, there is a &quot;Repurchase Option&quot; that allows the startup to repurchase &quot;at a purchase price for Shares equal to the original purchase price paid by the purchaser to the Company for such Shares&quot;.<p>This original grant price is likely to be far lower than any price paid by an acquirer.<p>2. On page 14 of the Stock Plan, there is a section on &quot;Corporate Transactions&quot;. In the event of an asset sale, merger or acquisition, the company may can perform the &quot;(E) the cancellation of any outstanding Options or an outstanding right to purchase Restricted Stock, in either case, for no consideration.&quot;<p>In other words, they can simply cancel your options.<p>Do employees regularly negotiate these terms out? They seem to give a startup incredible leverage in nullifying any stock option value you may have accrued during your tenure.
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ncadman
The Clerky plan is actually quite typical and aligns with the stock plans used
by most major Silicon Valley law firms. Some additional context may be
helpful:

1\. [Page 12 / Section 8(b) allows for the company to exercise a repurchase
option on restricted stock at the original purchase price. You'll note that at
the end of the paragraph it provides that "The repurchase option shall lapse
at such rate as the Administrator may determine." The restricted stock
purchase agreement that the employee actually signs in connection with their
stock will set out the terms of the repurchase option (aka _vesting_ ), and it
will allow the company to repurchase the unvested shares at the original
purchase price. Switching this to a repurchase option at the then-current FMV
isn't advisable because it results in de facto severance to the employee and
would require the company to pay significant amounts of money to repurchase
unvested shares if the FMV is high, even if the company doesn't have much
liquid cash.

2\. The full paragraph is below. The reason it's drafted this way is because
company can't know at the time of stock plan adoption how options/restricted
stock will be treated at the time of acquisition, so the stock plan has to
allow for the full range of outcomes to preserve maximum flexibility. It's not
atypical for unvested options/restricted stock to get no consideration in a
deal, and those employees may just get a cash bonus (and in some cases,
nothing).

Corporate Transactions. In the event of (i) a transfer of all or substantially
all of the Company’s assets, (ii) a merger, consolidation or other capital
reorganization or business combination transaction of the Company with or into
another corporation, entity or person, or (iii) the consummation of a
transaction, or series of related transactions, in which any “person” (as such
term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the
“beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or
indirectly, of more than 50% of the Company’s then outstanding capital stock
(a “Corporate Transaction”), each outstanding Award (vested or unvested) will
be treated as the Administrator determines, which determination may be made
without the consent of any Participant and need not treat all outstanding
Awards (or portion thereof) in an identical manner. Such determination,
without the consent of any Participant, may provide (without limitation) for
ONE OR MORE OF THE FOLLOWING in the event of a Corporate Transaction: (A) the
continuation of such outstanding Awards by the Company (if the Company is the
surviving corporation); (B) the assumption of such outstanding Awards by the
surviving corporation or its parent; (C) the substitution by the surviving
corporation or its parent of new options or equity awards for such Awards; (D)
the cancellation of such Awards in exchange for a payment to the Participants
equal to the excess of (1) the Fair Market Value of the Shares subject to such
Awards as of the closing date of such Corporate Transaction over (2) the
exercise price or purchase price paid or to be paid for the Shares subject to
the Awards; or (E) the cancellation of any outstanding Options or an
outstanding right to purchase Restricted Stock, in either case, for no
consideration.

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alexpetralia
Thanks for the detailed answer. In both (1) and (2), you mentioned "unvested"
stock. However, according to the language of the agreements, doesn't it apply
to vested stock as well?

In other words, a company can wipe you out (repurchase/cancel) for your
vested/unvested shares because it gives them flexibility in case of an
acquisition.

I understand why this is, and why it is quite typical, but it doesn't change
my opinion that it's employee-hostile.

