Ann: Application for quotation of securities - LTR, page-14

https://zajacgrp.com/insights/cash-vs-cashless-exercise-the-stock-option-conundrum/

Option 2 – Cashless Exercise

If the goal is to retain no shares or some shares post-exercise, but not all shares, then some sort of a cashless exercise may be a good alternative strategy. A cashless exercise is often the default option if you don’t have the cash to pay the cost readily available.

A few highlights of a cashless exercise:

1. You buy shares of the company stock via the employee stock option at the exercise price of the stock option grant.
2. The price you pay for your shares is the exercise price multiplied by the number of options you wish to exercise.
3. You will need to pay for the shares of stock. Instead of “writing a check” for the shares as you do with a cash exercise, you may be able to pay for your shares of stock with other shares of stock. To pay for the stock,
   1. You’ll immediately exercise and sell some (or all) of your shares. It’s possible that you will exercise and hold others.
   2. The amount you exercise and sell will be dependent on several factors, including the exercise price, the current stock price of your company stock, how many shares you want to own post-exercise, and your other personal financial goals and objectives.

A cashless exercise can be designed to cover only the exercise cost of the shares for which you need to purchase, the tax liability you will incur on the exercise of your shares, or both. The choice of how many shares you wish to buy and hold and how many shares to buy and sell might depend on the exercise price of your option and the current fair market price of the stock.

Now that you understand some of those details, let’s take a moment to understand what this all means:

• A cashless exercise is precisely what it sounds like – you do not use any cash to exercise your stock options. You use a portion of the value of your stock options to exercise some or all of the others.
• A cashless exercise may not maximize or minimize the number of shares you own outright. With a sell-to-cover cashless exercise, you can plan to end up “somewhere in the middle.”
• You may still own a concentrated position in the company’s stock, but it will not be as concentrated as it would be had you performed a cash exercise.
• If you have incentive stock options, then a cashless exercise may still lead to the alternative minimum tax, but that tax may be lower than that of a cash exercise.