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Stock Option 101 Training Final

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Thank you for joining us for Stock Options 101, and introduction to Kabam's stock option program. What we're here discuss today, as the cartoon illustrates, "As you go through life, remember that money isn't everything, health benefits and stock options are also very important." And we're here to talk about the stock options' component. Stock options form a component of your total compensation package along with your base salary, your bonus and your benefits program. Put them together, and that's what commonly referred to is your total compensation. First of all, let's find a few terms. We are talking about stock options. But what are they? Well, between employer grants you, the employee, the right, but importanly not the obligation to buy up to an agreed number of shares of common stock of the company at a certain price. And that price is called the exercise or strike price. And you can buy that stock in the future at the exercise price. So again what it means is that the company is giving you a right at a price that is set today to buy shares of common stock after the vest at today's price at tomorrow's value? And obviously, if the value is higher than the price, then you make money. If the value is lower than today's price, then you won't necessarily lose money, but may be questionable whether you want to excessly exercise the option. So the exercise or strike price, are those two terms you'll use interchangeably, is the price you'll actually pay to exercise your options. When it is set according to the terms of our plan, it can't be less than Fair Market Value of the company. So typically, it is set to be the Fair Market Value on the date of the grant. There are two different types of stock options. In the U.S., we create incentive stock options or ISOs. Those are stock options that have special tax treatment in the U.S. only, which are only issued in the U.S. And the rest of the world, we grant what are called non-qualifed stock options, or NQSOs, and they do not have that special tax treatment in the U.S., so it doesn't matter outside the U.S. With stock options, there are some terms that are very important to know what they mean. One of which is the grant date. And the grant date represents the actual date that the Board of Directors approves the grant and at the same time sets the strike/exercise price. As important as the grant date is the expiration date And that is the date any unexercised options will expire. That means if you haven't exercised the vested options by that term, then they will go away. You can't do anything after the expiration date. The expiration date for most grants in Kabam is 10 years minus 1 day from the grant date. There are also some other terms that are important. Vesting is when you have non-affordable (non-forfitable?) right to exercise some or all of the shares granted to you. The vesting date is the date when that vesting occurs. So is the date you can actually exercise the right that is granted to you to buy virtually becoming an investor. It's important to know that your options will continue to vest as long as you are an employee at Kabam or until you have completely vested in your granted shares at which point vesting obviously stops. Vesting also stops immediately when you leave the company. To exercise, when you actually use that right to purchase some or all of your vested shares. Until that time, you have the right to exercise. After you exercise, those shares become yours. As an example, you make a decision to exercise your option, you should make act through our stock administration system to Kabam. Kabam says 'No problem, pay the exercise price.' You then pay the exerise price to Kabam. Kabam, in turn, will issue stock to you. Stock is generally held by our attorneys , OMM. They hold the actual stock certificate. There are laws in China that make it virtually impossible for Chinese nationals to own shares of any foreign company before the shares and/or the equity plan is registered in China. As a result , the provisions in our Kabam's plan that address these requirements, employees in China are not allowed to exercise and actually hold their shares. So neither active nor terminated employees are able to exercise their options in China until there is a liquidity event, such as an IPO or a Secondary Offering where they are eligible to participate. For active employees, this is generally not an issue, as the expection is that there will be a liquidity event at some future point of their employment. However, under our current plan rules, terminated employees only have 90 days from their date of termination to exercise their options. It is far less likely that a liquidity event will occur during this limited time period. As a result, in China, we will waive that 90-day exercise period for Chinese nationals. They will have the ablity to exercise, as long as their options have not expired. As you'd recall, the expiration date is generally 10 years after the grant date. In the case of a secondary offering or IPO, terminated employees must be eligible to participate in the secondary for there to be a liquidity event for them and for them to be able to exercise their options. As an example, let's assume that a pirate joins Kabam on July 1, 2014. As an employee, she was granted 1,000 options And grant date when the Board approved those options was August 20, 2014 So that represents the BOD approval date. And only the Board is authorized to approve grants of options. Our typical vesting is 4-year vesting and 25% are vested after one year and then 1/48, are vested at the end of the following 36 months. so that the 100% are vested after 4 years. The exercise price, which is the Fair Market Value as of the grant date of August 20, is $1.50. And the vesting start date for new employees will go back to the date of hire. So nothing is lost by the delay in submitting that grant for approval. In the case of a promotion or other things that grant date or vesting start date may be different. So if the grant date is August 20, 2014, the expiration date for these options would be August 19, 2024 or 10 years minus one day from the August 20, 2014, the grant date. A pirate vesting over 4 years, at the end of the 1 st year, she will be 25% vested. At the end of the second year, she will be 50% vested. Three years 75% and after four years, 100%. So the table below shows July 1, 2015, 25% of the options are vested. At the end of the following month, at the end of next 36 succeeding following months, 1/48 of the options are vested at the end of each month such that the full 1000 options are granted on August 1. The full 1000 options are vested as of August 1, 2018. So let's go back. On July 1, 2015, so that is one year after her date of hire. How many shares of her initial grant have vested? So she was granted 1,000 options, 25%(1/4) of them vested at the end of the first year. So effective on July 1, 2015, she is vested 250 shares. If she decides to exercise her vested options, what will it cost? Well, the strike price is $1.50, she has 250 vested options, so if she selects to exercise all of the vested options, it will cost her $375, to exercise all 250 options. Note that she doesn't have to exercise the full 250. She can exercise anything up to, and including the 250 shares. So once she exercises, she owns those 250 shares, they have a value to her as $375 that's what she paid for them. Now let's assume that she wants to sell them. or she is considering selling them. And the current market price for the share is $2. So if she sells the stock for $ 500, which is $2 for each of 250 shares, she has a spread, representing the cost difference between what she has paid and the value of each share of $0.50, difference between $2 current value and $1.50 exercise price. and the gain of 250 times that 0.50, or $125. So $125 represents her gain on the sell of those options. Generally, for non-qualified options, which again, all areas outside the U.S., is generally considered to be income and will be taxed at a point of time. When, and how, it will be specifically taxed will vary by the country that you are in as well as your specific income circumstances as controlled by the country's tax code. If you have any specific questions about how your gain might be taxed, we are not permitted to give you any tax advice or financial advice, so we highly recommend that you speak to your tax or financial advisor to see how taxes will apply in your specific case. Now, in the U.S., where we grant incentive stock options, ISOs. the gain of the exercise is not considered to be income at that point of time. There will be income when the shares are actually sold. So if you exercise and hold your shares, then you pay no-income commodity gain. When and how much it will be taxed will again vary by the country and your specific circumstances. and again we are percluded for offering tax or financial advice So we recommend you speak to your financial or tax advisor on those cases. Just a note, generally, the gain, when you sell if you meet the specific holding requirements, will be taxed, at capital gains rate which is typically lower than the normal tax rate. Now, what happens when you leave the company? If you are not fully vested, the vesting will stop on your last day of employment. So anything that is not vested on your last day at Kabam will never vest. You will then have 90 days from your termination date to exercise any vested options. except that if you are Chinese national where again we extend the time period which you have to exercise the options. In all, but China, if you do not exercise the options during those 90 days, then they disappear.And you 'll be never allowed to purchase them. How will you receive the notification that you receive the grant? Well, our stock plan option adminstrator is Certent. And you can access the system via the single sign on as an employee. Typically, you will receive an email about 4-6 weeks after the options are granted. And options are granted by our board when they meet which is typically once a quarter. So it could be as much as 4-6 months after you are hired before you receive a notification that your options have been uploaded to the system. After you receive your email, you can log into Certent from OKTA, where you can review and/ or exercise any vested options using this certain platform. If you have any questions, you can contact our stock plan adminstrator or Armanino at [email protected] or you can contact us here at Kabam at [email protected] Thank you for your attention! And welcome to the company!

Video Details

Duration: 13 minutes and 3 seconds
Country: United States
Language: English
License: Dotsub - Standard License
Views: 62
Posted by: libeilibeilibei on Dec 7, 2015

Stock Option 101 Training

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