Carta Collective

What do you do if options expire as per the options plan?

Our plan has options with a 10-year expiry, which will affect many team members. Our lawyer suggested giving a bonus pegged to the exercise price of the expired stock options on change in control. 

The bonus amount = the deal value minus the strike price.

Are there any other suggestions?

What do you do if options expire as per the options plan?

Our plan has options with a 10-year expiry, which will affect many team members. Our lawyer suggested giving a bonus pegged to the exercise price of the expired stock options on change in control. 

The bonus amount = the deal value minus the strike price.

Are there any other suggestions?

You can obviously re-issue the options once they expire but I imagine that the downside to that would be if the shares FMV have increased alot in the interim.  Also consider issuing RSUs that only vest upon a liquidity event.

If the exercise price is low enough, the employees can just exercise those options now and then they will hold the shares outright.  The Company can consider allowing them to exercise with a note which is payable upon the earlier of the sale of the underlying shares or the termination of the employee, too.  Alot of this will depend on the interplay between the options current strike price, current FMV and the realistic schedule towards a liquidity event.  

The issue with the bonus is that from a tax perspective they will pay full income tax on the proceeds instead of capital gains tax.  

What do you do if options expire as per the options plan?

Our plan has options with a 10-year expiry, which will affect many team members. Our lawyer suggested giving a bonus pegged to the exercise price of the expired stock options on change in control. 

The bonus amount = the deal value minus the strike price.

Are there any other suggestions?

What do you do if options expire as per the options plan?

Our plan has options with a 10-year expiry, which will affect many team members. Our lawyer suggested giving a bonus pegged to the exercise price of the expired stock options on change in control. 

The bonus amount = the deal value minus the strike price.

Are there any other suggestions?

@Chaim Cohen is spot on here re: "A lot of this will depend on the interplay between the options current strike price, current FMV and the realistic schedule towards a liquidity event."  The easiest thing would be to grant new options with the existing vesting schedule, but if the strike price is wildly different, that obviously isn't ideal.

The Note route is becoming increasingly popular among my clients - essentially loaning the employee the funds to exercise - but I've seen it most commonly among key employees (e.g., C-Suite).  It can be burdensome to extend that benefit to everyone, but if they're been there for 10 years, sounds like they are key employees.

One thing to look at is your Plan's expiration date.  If you have optionees coming up on 10-year expiration, there's a good chance your Plan is coming up on expiration too.

What do you do if options expire as per the options plan?

Our plan has options with a 10-year expiry, which will affect many team members. Our lawyer suggested giving a bonus pegged to the exercise price of the expired stock options on change in control. 

The bonus amount = the deal value minus the strike price.

Are there any other suggestions?