Syndicate Legal Advisory Services prepares the complete set of documents required for an option holder to exercise a stock option and for the company to issue the shares — the exercise notice and exercise agreement, the payment and withholding documents, the issuance approvals, the share records, and the tax reporting — in any U.S. state, for incentive stock options and nonqualified stock options granted under an equity incentive plan or as stand-alone awards. An exercise is the moment at which an option becomes stock: the holder commits the exercise price, the company confirms that the option is vested, in-the-money, and within its term, the tax consequences are fixed (ordinary income and withholding at exercise for an NSO; no regular income but an alternative-minimum-tax item and the start of the holding periods for an ISO), and the holder becomes a stockholder bound by the company’s stockholder agreements and transfer restrictions. The documentation has to get each of those right on the exercise date, because the tax treatment, the holding periods, and the capitalization record all run from it. Working from the option agreement, the plan, and the company’s capitalization and valuation records, we prepare the exercise package for the holder and the issuance package for the company, so that the exercise is valid, the shares are issued correctly, and both parties have the records they will need. State securities notice-filing fees, transfer-agent fees, and other third-party charges are not included in the flat fee and are the sole responsibility of the client.
Scope of work includes:
Exercise planning and intake — a structured intake and written summary confirming the holder and the option being exercised, the option type (ISO or NSO), the grant date, exercise price, term, and vesting status, the number of shares to be exercised (a full exercise, a partial exercise of vested shares, or an early exercise of unvested shares where the agreement permits), the fair market value on the exercise date and its support, the resulting spread and its tax consequences for the option type (NSO ordinary income and withholding; ISO alternative-minimum-tax preference, the holding periods for qualified treatment, and the disqualifying-disposition consequences of an early sale), the method of payment, whether the holder’s service has terminated and the post-termination exercise deadline that applies, and the stockholder agreements the holder must join on becoming a stockholder.
Review of the option and plan documents — review of the stock option agreement and notice of grant, the equity incentive plan, the option ledger and capitalization table, the fair market value determination, the holder’s employment or engagement status and any termination date, the stockholder, voting, and right-of-first-refusal and co-sale agreements that apply to exercised shares, and any lock-up or market-standoff in force, with a written summary confirming that the option is exercisable as to the shares requested, the deadline for exercise, the payment methods available, and the agreements to which the holder will be bound.
Exercise notice and exercise agreement — drafting of the notice of exercise in the form the plan and option agreement require, stating the option, the number of shares exercised, the exercise price and aggregate payment, the method of payment, and the exercise date; and the exercise agreement (or the acknowledgment incorporated in the notice) containing the holder’s representations — investment intent, the restricted nature of the shares, the holder’s understanding of the tax consequences and sole responsibility for them, and, for an ISO, the acknowledgment of the holding-period requirements and the obligation to notify the company of a disqualifying disposition — the holder’s agreement to the transfer restrictions, repurchase right, right of first refusal, market-standoff, and drag-along provisions, the joinder to the stockholders’, voting, and right-of-first-refusal and co-sale agreements, the spousal consent where community-property rules apply, and the acknowledgment of the legends.
Payment documents — the payment instructions for a cash exercise; the cashless or net-exercise election and the calculation of shares withheld where the plan permits; the promissory note and pledge agreement for a note exercise where the plan permits and the law allows; and the broker-assisted exercise instructions and the same-day-sale documentation for a public company.
Tax withholding and reporting documents — for an NSO exercise by an employee, the withholding calculation on the spread, the election of the withholding method (cash, share withholding, or sale to cover), and the payroll reporting documentation for Form W-2; for an NSO exercise by a non-employee, the Form 1099 reporting documentation; for an ISO exercise, the Form 3921 information statement the company must furnish to the holder and file with the IRS, the alternative-minimum-tax information for the holder, and the holding-period calendar; and, for an early exercise of unvested shares, the Section 83(b) election materials and the thirty-day filing package coordinated with the firm’s 83(b) service.
Early-exercise documents (where applicable) — the restricted stock purchase provisions of the early-exercise agreement, the stock power in blank, the escrow of the unvested shares with the company, the escrow receipt, and the repurchase-option schedule.
Company approval and issuance documents — the officer’s confirmation that the exercise is valid and complete, or the board or committee resolution where the plan requires one for an issuance, the instruction to the transfer agent or the stock ledger entry, the stock certificate with the legends or the uncertificated-share notice, the updated capitalization table and option ledger reflecting the exercise and the shares remaining under the option, the Rule 701 aggregate-sales update, and the state notice filing where the exercise or the aggregate exercises trigger one.
Post-exercise records and toolkit — the record book entry of the exercise and the issuance, the holder’s stockholder file (the executed exercise documents, the joinders, and the certificate or notice), the compliance calendar entries the exercise creates (the ISO holding-period dates, the Form 3921 deadline, the 83(b) deadline for an early exercise, the repurchase-option windows, and any lock-up expiration), and a one-page summary for the holder of what was exercised, what was paid and withheld, the tax reporting to expect, the holding periods that apply, and the restrictions on the shares.
Deliverable: a complete, indexed exercise file (electronic and hard copy) containing the written summary of the review, the executed notice of exercise and exercise agreement, the joinders and spousal consent, the payment and withholding documents, the early-exercise and escrow documents where applicable, the Section 83(b) election where applicable, the company approval and issuance documents, the stock certificate or uncertificated-share notice, the updated capitalization table and option ledger, the tax reporting documentation, and the compliance calendar, with a signature-ready version of each document for execution by the holder, the holder’s spouse where applicable, and the company.