Re: Contract Compensation

Subject: Re: Contract Compensation
From: Andrew Plato <intrepid_es -at- yahoo -dot- com>
To: techwr-l -at- lists -dot- raycomm -dot- com
Date: Wed, 8 Dec 1999 22:31:32 -0800 (PST)

> I've been asked by my client if I would like to be compensated in part with
> stock options. I am curious if other contractors have negotiated such an
> arrangement. I have no precedent, so I am not quite sure what to demand in
> terms of numbers.


Stock is NOT money. When dealing in these types of things, always deal in true
money and THEN convert to stock or options. A $5 option is not the same as a
$5 bill. You can spend cash, you can't spend an option.

Here is what I would do:

POST IPO:

A) Set an option price, typically this is the closing BID price at the time of
contracting.

B) Get a vesting schedule. Since you're contracting, the options should vest
immediately upon the conclusion of the contract. Don't let them vest over more
than a few months to a year. You're not an employee.

C) Get this all in writing, signed by both parties.

D) Take at least 1/2 stock and 1/2 cash. That way if their stock tanks, you at
least get SOME compensation. Pure stock deal are not a good idea. A company
should have to cough up SOME money for your work.

PRE IPO

If the company has not IPO'ed then they MUST be valued before they can issue
options. Typically, an outside source values the company. This value is turned
over to the SEC. Ask to see the valuation papers. (They are going to file them
with the SEC and then they're public - these aren't any big secret.) No
valuation - don't take options. Lot's of crooks will tell you "we're going to
get valued when we get some VC funding." Yeah right.

All the post IPO things apply as well.

HOW TO BILL

You should invoice straight time and materials and agree to a percentage in
stock. For example, you bill them $50.00 an hour, but 1/2 of each invoice will
be paid in cash and the other 1/2 in stock. You keep a running balance with
the client. At the end, you settle on a DOLLAR value they owe you. Then
convert that DOLLAR value into options. For example, if you had racked up
$10,000 in charges, and you settled on a $1.00 per share price, then the
company owes you 10000 shares. Don't try and convert to stock right away. Keep
all your billing in DOLLARS not stock.

Make sure you settle on the stock price BEFORE you start working. Otherwise,
they can just say - "oh, we owe you $10,000, okay, the stock price is 10,000
per share."

Good luck with the job.

Andrew Plato
President / Principal Consultant
Anitian Consulting, Inc.




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