What is exercising?
In a typical ESOP scheme using call options the granted options move through 3 states:
Unvested -> Vested -> Exercised
Exercising is the process of converting your vested options into shares in the company - see this article for more details.
You can notify your company Administrator of your intention to exercise your options using Orchestra.
How to notify your company of your intention to exercise?
Login to Orchestra. Click into the company you have options in. Select ESOP & Options from your left side menu. Click on the 'Exercise options' button.
The total number of vested options that are available to be exercised will be displayed. Enter the number of options that you would like to exercise. Orchestra will calculate your exercise amount to pay based on your exercise price.
Click 'Confirm' to continue. A summary of your exercise request will pop up.
Click 'Confirm' to send the email notification to company Administrators (your email address will be on cc).
You will then need to:
- Fill out and sign your company's Exercise Notice. You may nominate a Nominee to take title of your shares (eg. a family trust).
- Pay the exercise price into your company's bank account.
- You may be required to sign a Deed of Accession which is a legal document used to get your agreement to become a party to the Shareholders' Agreement.
When these steps are complete the company will exercise your options and issue you shares. You will then be a shareholder in the company.
An email notification will be sent from Orchestra to let you know that some of your options have been exercised, and you will also be sent an email notification when the shares have been issued.
NOTE 1: Some companies may use a Nominee to hold your shares on your behalf to keep their share register compact and reduce the total number of shareholders in the company. While the shares will not be held directly in your name you will have beneficial ownership of the shares. As beneficial owner you will be entitled to all of the gains and benefits accruing to the shares, and you will decide on the sale or disposition of the shares.
NOTE 2: Tax laws vary by country. In New Zealand ESOP benefits are treated as income, which may affect an employee's student loan deductions, child support payments or Working for Families entitlements. Make yourself aware of your tax liabilities by consulting with an accountant or tax advisor.
Please see: When is a good time to exercise your options?