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Call Option
Practical Law Glossary Item 3-382-3296 (Approx. 3 pages)
Glossary
Call Option
A call can refer to both an issuer's right to redeem outstanding bonds before the stated maturity, or in the case of a call option, the right to acquire a specified asset at a set price or a price to be calculated in accordance with a set formula. A call option is the opposite of a put option.
The call option is usually triggered by:
- A default by the stockholder under the stockholders agreement or a related agreement.
- In the case of a management or employee stockholder, a termination of such employee's employment with the company.
Often, the purchase price on the exercise of a call option is lower than the fair market value.
For an example of a call option provision, see Standard Clause, Stockholders Agreement: Management Stockholders Call Rights.