This article is bullshit. The CEO of a company cannot "take back" or "wipe out" your right to purchase stock, aka stock options.
More likely what happened is that the company sold for equal or less than the outstanding preferred stock overhang. Another way of saying this: OnLive's investors got all the money (they raised $56MM) and the founders and employees got ZERO for their common stock.
A stock option is a binding CONTRACT to purchase stock (typically common stock when you're dealing w/ employee stock options) at a set price. If a company is acquired and the price of common stock is below the "strike price" of the employee stock options then the employee has a valueless option to buy stock for more than it's worth.
Oftentimes in an "exit" that's just shy of bankruptcy, common stock holders will get nothing and investors will get all the proceeds, often at pennies or nickels on the dollar.
So... Did OnLive screw its employees? Highly unlikely.
From what I understand the legal corporate entity that employees had options in essentially ceased to exist before employees had a chance to exercise their options. And, that corporation ceased to exist because it built no effective value, so employees had underwater options with no logical incentive to exercise in the first place.
If the company ceased to exist, then it died in an asset sale and the founders got nothing while investors got cents on the dollar.
If the company was acquired and common stock holders cashed out in a positive way, then it was a proper acquisition and OnLive was required to disclose its stock optionees and the buyer would have been required to set aside cash/stock in escrow to pay them out. Otherwise yes they would be subject to liability and lawsuits, which would be dumb to expose yourself to.
Employment contacts can have a buyback option for any stock you own as soon as you leave the company at the original price or private 'fair market value' valuation price to avoid the '500 shareholders' problem as you churn through employees. If the '500 shareholders' problem doesn't exist in this case actually (I don't know myself), then they'll definitely use it as an excuse as to why they have it.
You effectively don't own your stock, and it doesn't let you move on after a year or two to something else and still keep the stock if you think the company will go somewhere.
I think skype did this to screw their employees out of their stock.
Before you start with a company, ask if they have this kind of clause!
That's a pretty rare clause in startups, which is why people wanted to hang Skype (and Silver Lake Partners) so much over it. It's apparently fairly common for management in PE-led turnaround deals, but I've never heard of it in startups except for the Skype deal.
(What shocked me was that a16z was in on the deal as well, and as far as I can tell, had no problem with it. I would have expected better.)
I think it is exceedingly unlikely such a clause is in OnLive employment agreements. Steve Perlman is a particularly honorable entrepreneur who has been involved in startups longer than a lot of HN users have been alive. He has nothing to gain by tarnishing his reputation like that.
Much more likely this was just a company which ran out of money, has debts and liquidity preference far in excess of assets, and thus all common stockholders, including optionholders, are wiped out. Those who continue in a successor entity might get new options for future work.
> The CEO of a company cannot "take back" or "wipe out" your right to purchase stock, aka stock options.
The folks who thought they had options at Skype found out that there were secret addenda to the option grant that let them swindle you out of your options when you leave.
We don't know enough yet. A company cannot take back options, but laying off all employees would save them from having to give the unvested portion. This could easily halve their stock liability to employees, depending on a bunch of factors of course. Now of course if they are being sold for a low price the options are likely useless regardless due to VC liquidation preferences.
Minority stock owners can easily be wiped out by bastard moves of insiders. The management can issue 8 zillion new shares of stock.
It's probably illegal, but once things are going down the tubes at a small company the stakes are usually too small for it to be worth it to the minority shareholders to bother with lawyers.
More likely what happened is that the company sold for equal or less than the outstanding preferred stock overhang. Another way of saying this: OnLive's investors got all the money (they raised $56MM) and the founders and employees got ZERO for their common stock.
A stock option is a binding CONTRACT to purchase stock (typically common stock when you're dealing w/ employee stock options) at a set price. If a company is acquired and the price of common stock is below the "strike price" of the employee stock options then the employee has a valueless option to buy stock for more than it's worth.
Oftentimes in an "exit" that's just shy of bankruptcy, common stock holders will get nothing and investors will get all the proceeds, often at pennies or nickels on the dollar.
So... Did OnLive screw its employees? Highly unlikely.