Exercising is the process of converting your options into real shares.
Once your options have vested and the exercise condition has also been fulfilled, you simply tell the company how many shares you wish to buy and pay them the exercise price. The company will then issue you your shares along with a share certificate.
The exercise condition may be set as either “Exercisable” or “Exit only.”
Exercisable means the options can be exercised as soon as they vest. For example, if your options vest every 12 months for 5 years, you will be able to exercise the portion of vested options each year.
“Exit only” means the options can be exercised if the company goes through an exit event. This could be a sale, merger, management buyout, company buyback, asset sale or IPO.
However, it is possible to make “Exit only” options “exercisable” after a certain period of time in case an exit doesn’t occur. This ensures you can still cash in your equity, so long as the other conditions of the scheme are met.
Your exercise condition will be detailed in your agreement summary. But for additional information, please read your option agreement itself or speak to the company that granted you the options.
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