Stock option exercisability question

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Young Fellow
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Stock option exercisability question

Post by Young Fellow » Tue Apr 18, 2017 9:14 pm

Hi, I have a question and any help is appreciated.

I am about to be leaving the company. I am given stock options of which majority of them are vested but excercisability dates are in future. Yet I also have small amount of unvested options and some Restricted units via ESPP. Do I loose all these because they are not exercisable now?

I was reading company policy documents. There is wording that, modification of awards and substitution of options can be done by a committee, that may accelerate the vesting or excercisability an award. Who is this committee, do employees while leaving ask vesting and acceleration of excercisability dates, how often employer agrees, how to approach them to get favorable decission, anybody can chime in.

I am confused because in yet another place in the document, there is wording that employee must have excercisability with in 90 days after separation and for disabled and when partispant dies, they will extend this for 1 year. Also it says committee can modify award in the case of disability or death. My question when does this is a discretion? Is it applied only in disability or death or can it applied for any employee.

rolandtorres
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Re: Stock option exercisability question

Post by rolandtorres » Tue Apr 18, 2017 9:58 pm

You will have to ask your company about the committee and how often they meet and under what circumstances do they look at individual situations. I suspect this language is for legal flexibility and is rarely used and if it were, it would be more like a change of corporate control like an acquisition or for a senior executive and or an unusual circumstance like sudden death.

You will need to exercise options within 90 days of departure and anything vested should be exercisable. ESPP is already purchased so they are portable after your departure, subject to whatever closed trading windows you currently have. Everything else you leave behind.

Young Fellow
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Re: Stock option exercisability question

Post by Young Fellow » Tue Apr 18, 2017 10:12 pm

rolandtorres wrote:You will have to ask your company about the committee and how often they meet and under what circumstances do they look at individual situations. I suspect this language is for legal flexibility and is rarely used and if it were, it would be more like a change of corporate control like an acquisition or for a senior executive and or an unusual circumstance like sudden death.

You will need to exercise options within 90 days of departure and anything vested should be exercisable. ESPP is already purchased so they are portable after your departure, subject to whatever closed trading windows you currently have. Everything else you leave behind.


Thanks for reply. Understand what is vesting, but unfortunately they are exercisable only in 2020, if I leave now, would I loose those, it is bulk of my stock options and loosing that would be a big disappointment. Again my restricted stock through ESPP is unvested, would these be vested at separation?

AlohaJoe
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Re: Stock option exercisability question

Post by AlohaJoe » Tue Apr 18, 2017 10:25 pm

Young Fellow wrote:Understand what is vesting, but unfortunately they are exercisable only in 2020, if I leave now, would I loose those, it is bulk of my stock options and loosing that would be a big disappointment.


It sounds like you probably lose them. Not being able to exercise something that you have vested is pretty uncommon. I've never seen it with options before. (Not that that means much, since I've only seen a handful of plans.) But I guess that was a risk you took when you signed up and saw how the option plan worked. Presumably they are doing it to try to keep people from leaving (i.e. to prevent exactly what you are doing).

Again my restricted stock through ESPP is unvested, would these be vested at separation?


Probably not. It would be weird if people who quit got accelerated vesting but loyal employees who stay don't.

As the previous poster said, usually the committee consists of Board Members, the CEO, and probably the Chief People Officer and the Head of Compensation/Total Rewards. They don't change things for individual employees just because they are leaving the company.

VaR
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Re: Stock option exercisability question

Post by VaR » Wed Apr 19, 2017 12:02 am

What does it mean for an option to be vested but not exercisable? I thought vesting of stock options meant that they were exercisable?

OP, how long have you been with the company? Are you sure you're not mixing up the exercisability with the expiry of the options?

AlohaJoe
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Re: Stock option exercisability question

Post by AlohaJoe » Wed Apr 19, 2017 2:28 am

VaR wrote:What does it mean for an option to be vested but not exercisable? I thought vesting of stock options meant that they were exercisable?


I've had RSUs that had dual vesting triggers: one based on time ("after 12 months") and one based on an event. Both had to happen before they were "really" vested.

I assumed that the OP meant something like that -- that there were actually dual triggers and he had satisfied one but not the other.

But maybe I was wrong! :)

OP, how long have you been with the company? Are you sure you're not mixing up the exercisability with the expiry of the options?


Good question.

Longdog
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Re: Stock option exercisability question

Post by Longdog » Wed Apr 19, 2017 4:03 am

I always thought the term "vesting" means you have an unforfeitable right to something, such as 401k match, RSUs, or stock options. If that isn't the case here, I wouldn't really think they are vested. Is it possible that the exercise date you mention is actually the expiration date of the options?
Steve

Young Fellow
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Re: Stock option exercisability question

Post by Young Fellow » Wed Apr 19, 2017 10:58 am

Young Fellow wrote:
rolandtorres wrote:You will have to ask your company about the committee and how often they meet and under what circumstances do they look at individual situations. I suspect this language is for legal flexibility and is rarely used and if it were, it would be more like a change of corporate control like an acquisition or for a senior executive and or an unusual circumstance like sudden death.

You will need to exercise options within 90 days of departure and anything vested should be exercisable. ESPP is already purchased so they are portable after your departure, subject to whatever closed trading windows you currently have. Everything else you leave behind.


Thanks for reply. Understand what is vesting, but unfortunately they are exercisable only in 2020, if I leave now, would I loose those, it is bulk of my stock options and loosing that would be a big disappointment. Again my restricted stock through ESPP is unvested, would these be vested at separation?


Yes, Rolandtorres, change of control is also mentioned there.

Young Fellow
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Re: Stock option exercisability question

Post by Young Fellow » Wed Apr 19, 2017 11:06 am

VaR wrote:What does it mean for an option to be vested but not exercisable? I thought vesting of stock options meant that they were exercisable?

OP, how long have you been with the company? Are you sure you're not mixing up the exercisability with the expiry of the options?


Thank you for your response. I have worked for 6 years, no I did not confuse with the expiry, the expiry of the options is several years beyond exercisable date.

Young Fellow
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Re: Stock option exercisability question

Post by Young Fellow » Wed Apr 19, 2017 11:09 am

AlohaJoe wrote:
VaR wrote:What does it mean for an option to be vested but not exercisable? I thought vesting of stock options meant that they were exercisable?


I've had RSUs that had dual vesting triggers: one based on time ("after 12 months") and one based on an event. Both had to happen before they were "really" vested.

I assumed that the OP meant something like that -- that there were actually dual triggers and he had satisfied one but not the other.

But maybe I was wrong! :)

OP, how long have you been with the company? Are you sure you're not mixing up the exercisability with the expiry of the options?


Good question.


My stock option account as shown by vendor has dollar value only in future, that means their exercisable in those years.

Young Fellow
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Re: Stock option exercisability question

Post by Young Fellow » Wed Apr 19, 2017 11:15 am

AlohaJoe wrote:
Young Fellow wrote:Understand what is vesting, but unfortunately they are exercisable only in 2020, if I leave now, would I loose those, it is bulk of my stock options and loosing that would be a big disappointment.


It sounds like you probably lose them. Not being able to exercise something that you have vested is pretty uncommon. I've never seen it with options before. (Not that that means much, since I've only seen a handful of plans.) But I guess that was a risk you took when you signed up and saw how the option plan worked. Presumably they are doing it to try to keep people from leaving (i.e. to prevent exactly what you are doing).

Again my restricted stock through ESPP is unvested, would these be vested at separation?


Probably not. It would be weird if people who quit got accelerated vesting but loyal employees who stay don't.

As the previous poster said, usually the committee consists of Board Members, the CEO, and probably the Chief People Officer and the Head of Compensation/Total Rewards. They don't change things for individual employees just because they are leaving the company.


Obviously, there is not much help coming from the employer in doing the vesting acceleration, would I get help, such as from an attorney, what kind of attorney would do that. Anybody specialized in Stock options or HR fims working outside of the employers, or any HR blogs that I could go and read, thanks for any tips,
Regards

Capsu78
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Re: Stock option exercisability question

Post by Capsu78 » Wed Apr 19, 2017 1:51 pm

Assuming you are leaving for a new employer, you could have used the SO as a negotiation point. DW was leaving low 6 figures of RSU's to take a new position. Told them what she was leaving behind and the new employer agreed to grant her shares in the new company in a like value to make her whole.

jebmke
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Re: Stock option exercisability question

Post by jebmke » Wed Apr 19, 2017 4:17 pm

Young Fellow wrote:Obviously, there is not much help coming from the employer in doing the vesting acceleration, would I get help, such as from an attorney, what kind of attorney would do that. Anybody specialized in Stock options or HR fims working outside of the employers, or any HR blogs that I could go and read, thanks for any tips,
Regards

My guess is that the company would conform with the stock option agreement. You would have signed this when you accepted the options. If that is the situation, I don't see where you have a case to make that you have been harmed. You knew what the agreement was when you signed it [you read it, right?].

I would think it would be quite unusual for a stock option agreement to provide for accelerated vesting when the employee voluntarily leaves. The whole purpose is to promote retention and provide incentive for the employee to contribute to the value of the company. As part of an involuntary separation agreement, the company might provide for accelerated vesting and an extended window for exercising if they thought it made sense under the circumstances (e.g. a restructuring) and the agreement may provide for accelerated vesting in cases where there is a change of ownership.
When you discover that you are riding a dead horse, the best strategy is to dismount.

MikeG62
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Re: Stock option exercisability question

Post by MikeG62 » Wed Apr 19, 2017 4:58 pm

Young Fellow wrote:...I was reading company policy documents. There is wording that, modification of awards and substitution of options can be done by a committee, that may accelerate the vesting or exercisability an award. Who is this committee, do employees while leaving ask vesting and acceleration of exercisability dates, how often employer agrees, how to approach them to get favorable decision, anybody can chime in.


I would not count on nor expect any modification of your award. One big reason is there are usually nasty accounting consequences to modifying the terms of outstanding options (things like increasing the amount of expense the company is currently taking - which companies obviously hate - the potential to affect the accounting for all future grants, among others). This is likely boilerplate language that exists for some very unusual circumstances, and rarely if ever done.

We had similar language in the option plan at my former employer, but can't remember a single instance where a modification was done. I would have known as I was on the executive committee and was the chief accountant for a dozen years.

jebmke
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Re: Stock option exercisability question

Post by jebmke » Wed Apr 19, 2017 8:20 pm

MikeG62 wrote:We had similar language in the option plan at my former employer, but can't remember a single instance where a modification was done. I would have known as I was on the executive committee and was the chief accountant for a dozen years.

It would be hard to make a case to change an option agreement. What I did was to negotiate the definition of my departure in advance as part of an ex-pat agreement. Prior to accepting the assignment I had the company agree that any departure at the end of the assignment (except for cause) would be considered "retirement" no matter who initiated the separation. Our option program had a 5 year run off for retirees. Five years to exercise and any granted but unvested options would continue to vest during the runoff period.
When you discover that you are riding a dead horse, the best strategy is to dismount.

MikeG62
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Re: Stock option exercisability question

Post by MikeG62 » Thu Apr 20, 2017 6:35 am

jebmke wrote:...It would be hard to make a case to change an option agreement. What I did was to negotiate the definition of my departure in advance as part of an ex-pat agreement. Prior to accepting the assignment I had the company agree that any departure at the end of the assignment (except for cause) would be considered "retirement" no matter who initiated the separation. Our option program had a 5 year run off for retirees. Five years to exercise and any granted but unvested options would continue to vest during the runoff period.


Yes that works and does not disturb the original or subsequent accounting for the option. It's the accounting consequences which pretty much prevent a company from modifying outstanding option grants. Plus, companies with real independent Boards won't do it - or I should say the Board won't approve it and management will get scalped for even bringing it up for discussion.

Young Fellow
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Re: Stock option exercisability question

Post by Young Fellow » Thu Apr 20, 2017 9:22 am

jebmke wrote:
MikeG62 wrote:We had similar language in the option plan at my former employer, but can't remember a single instance where a modification was done. I would have known as I was on the executive committee and was the chief accountant for a dozen years.

It would be hard to make a case to change an option agreement. What I did was to negotiate the definition of my departure in advance as part of an ex-pat agreement. Prior to accepting the assignment I had the company agree that any departure at the end of the assignment (except for cause) would be considered "retirement" no matter who initiated the separation. Our option program had a 5 year run off for retirees. Five years to exercise and any granted but unvested options would continue to vest during the runoff period.


What is runoff period, does it mean option would continue to vest until exercisable date in the future?

Young Fellow
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Re: Stock option exercisability question

Post by Young Fellow » Thu Apr 20, 2017 9:24 am

Capsu78 wrote:Assuming you are leaving for a new employer, you could have used the SO as a negotiation point. DW was leaving low 6 figures of RSU's to take a new position. Told them what she was leaving behind and the new employer agreed to grant her shares in the new company in a like value to make her whole.

Unfortunately, thus far I have not lined up anything to negotiate.

jebmke
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Re: Stock option exercisability question

Post by jebmke » Thu Apr 20, 2017 3:22 pm

Young Fellow wrote:What is runoff period, does it mean option would continue to vest until exercisable date in the future?

It all depends on what is written in the agreement you signed. Don't expect to get the company to alter the terms of your stock option agreement. As others have pointed out, the approval hurdles are simply too onerous.

In my case, the original stock option agreement ("the plan") allowed for retirees to continue to vest for five years options that were granted prior to retirement and allowed retirees five years to exercise vested options. This was built into the plan. My negotiation was around the terms of my employment and I used that to make sure that if I returned to the US and chose not to stay with the company (or if the company chose not to retain me) that it would be deemed a retirement and therefor meet the terms of the option agreement.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Young Fellow
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Re: Stock option exercisability question

Post by Young Fellow » Thu Apr 20, 2017 5:17 pm

jebmke wrote:
Young Fellow wrote:What is runoff period, does it mean option would continue to vest until exercisable date in the future?

It all depends on what is written in the agreement you signed. Don't expect to get the company to alter the terms of your stock option agreement. As others have pointed out, the approval hurdles are simply too onerous.

In my case, the original stock option agreement ("the plan") allowed for retirees to continue to vest for five years options that were granted prior to retirement and allowed retirees five years to exercise vested options. This was built into the plan. My negotiation was around the terms of my employment and I used that to make sure that if I returned to the US and chose not to stay with the company (or if the company chose not to retain me) that it would be deemed a retirement and therefor meet the terms of the option agreement.

Thanks jebmke for the explanation.

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