In a blog post series published on our WilmerHale Launch site, Partners Ciara Baker and Kim Wethly take a close look at startup stock options. Part III delves into the complexities of extending the post-termination exercise period for stock options, examining tax implications, administrative challenges, share recycling issues, impact on retention efforts, considerations for a release of claims and questions of fairness.
Excerpt: “...Unlike the complexities involved in granting early exercisable stock options (see Part II of the series), an apparently straightforward enhancement to any option program is to provide option holders with a longer-than-typical period of time in which to exercise their vested options after they leave the company. However, even here, the potential benefits to the option holder must be weighed against the consequences to the company.
As we described in Part I, stock options are typically granted with a term of 10 years (or five years in the case of an incentive stock option (ISO) granted to a 10% stockholder). However, that term is cut short when the option holder terminates employment (or otherwise ceases to provide services to the company). Typically, the option holder has three months to exercise the vested portion of the option (or 12 months if the termination was the result of the option holder’s death or disability) and if the option is not exercised during that post-termination exercise period, the option is forfeited....”
