What is an option cancellation agreement
The vast majority of stock options granted to startups have a vesting period, typically four what is an option cancellation agreement, with chunks of those options becoming vested during that four year or whatever period.
If options are vested you can exercise them, pay for the stock and own that stock. Skype did things differently. With Skype stock options the company has the right to not only terminate unvested options, but also vested what is an option cancellation agreement.
I actually worked for a company once that used the same mechanism. I dug up the clause from that agreement, which I kept because it was so audacious. Such offer will be irrevocable until the day that is days from the Termination Date. The Company shall have the option but not the obligation to purchase such Common Shares.
If the offer to sell Common Shares is accepted by the Company, the Company shall purchase such Common Shares for cash consideration. If there was a liquidity event, fine, employees got the stock upside. But if they left or were fired before a liquidity event, they got nothing. There are only two real reasons for doing this. Since they can take back the options of anyone who leaves, they can give equity more freely to employees coming on board. Because they know the likelihood what is an option cancellation agreement payout is so small.
Or any other kind of billionaire. First it appears that employees had no idea what they were signing and they probably expected it would be a normal stock option type deal that everyone in Silicon Valley has done for decades. Skype had an incentive to make things unclear, because employees would demand far more compensation if they had understood. This is what lawyers call fraud. The second thing Skype did wrong was not to waive this clause with the looming acquisition.
The company can deny all day long that they fired these employees for cause, not to save a few dollars on stock options. But the appearance is the exact opposite. These employees should simply hire a lawyer to sue Skype. Also, Skype has to wrap up this deal. We should do that. But it gets worse.
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