What is an exit (liquidity event)?
An exit (liquidity event) is an event in which company owners and investors (and option holders) can cash in their shares. Examples include:
Acquisition: The company is acquired by another corporation.
Initial public offering (IPO): The company lists on a publicly traded stock exchange.
What happens to my options if the company has an 'exit' (liquidity event)?
If you have an active grant of call options and the company experiences an exit (liquidity event), the company's ESOP Rules (or Deed) will specify what happens to your options. Check the option rules for the scheme you're a part of to find out what applies to you. A copy of the ESOP Rules can be found under Supporting Documents on your option grant in Orchestra. If not, contact your company ESOP administrator for a copy of the rules.
Common scenarios at exit:
Single trigger:
Vesting is accelerated: All unvested options immediately vest.
Exercise options: Employees can exercise all of their options and receive shares in the company.
Benefit: This style of agreement can reward employees for their contribution to building the company.
Double trigger:
Two events need to occur before an employee gets to exercise all of their options:
The company has a liquidity event, and
The company or acquirer terminates the employee in close proximity to the liquidity event (e.g., within a year).
Protection: This style of agreement protects employees who may be made redundant involuntarily through the sales process (all of their options are vested so they can be exercised).
Incentive: It incentivises employees that are retained, who may be important to the company's ongoing success, to stay on while their options continue to vest.