Cashless Exercise

Cashless Exercise

A method of exercising employee stock options in which the employee borrows enough money from a broker to buy the underlying stocks and immediately resells enough shares to pay the loan, in addition to taxes and commissions. This is a form of buying on margin; ordinarily, most brokers would not allow the employee to buy on margin, but, in cashless exercises, they receive repayment almost at once. This results in a profit for both the broker and usually for the employee as well.
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The warrants may at any time be exercised on a net or cashless basis in accordance with a customary formula but do not contain an alternate cashless exercise feature contained in our previously issued Series B common shares purchase warrants.
23 Common Shares per Series B Warrant in accordance with the alternate cashless exercise feature in such Series B Warrants.
The warrants are immediately exercisable, expire three years after issuance, have a cashless exercise feature, and may be exercised to purchase unregistered shares of the company's common stock at an exercise price of USD0.
The IRS held that a taxpayer's cashless exercise of stock options resulted in taxable income to the taxpayer and a compensation deduction for the company that issued the options.
While most employees choose the cashless exercise, whereby the underlying shares are sold in their entirety, some executives may wish to acquire all the shares in order to build ownership.
Because of the issues raised by the Act, companies should consult their securities counsel and carefully consider whether it is prudent to suspend their cashless exercise programs for directors and executive officers pending guidance from the Securities and Exchange Commission or other developments.
Cashless exercise is always available where the employee simultaneously exercises and sells NQ shares, the company withholds the appropriate taxes, and the employee is given cash for the net balance.
Finally, if the optionee elects a cashless exercise, the optionee exercises with respect to 1000 shares and acquires 950 shares {[($100 fair market value - $5 strike price) x 1,000 shares exercised] / $100 fair market value}(5) valued at $95,000.
Before discussing these techniques, however, it should be noted that some of the most popular measures for facilitating the exercise of options by employees with limited funds -- for example, so-called cashless exercise programs, often involving the financing of the exercise price through a broker and an immediate sale of the shares so purchased to the extent necessary to pay the loan -- do not work well in the ISO context because of the disqualifying disposition rules.
Under a cashless exercise, an arrangement is made between the company and a broker to sell an amount of stock equal to the exercise price and to deliver shares to their employee net of that price.
NASDAQ: AEZS; TSX: AEZ) (the "Company") announced today that The Toronto Stock Exchange ("TSX") has approved its previously announced amendment (the "Series B Warrant Amendment") to its outstanding Series B Common Share Purchase Warrants (the "Series B Warrants") agreed to with the holders of approximately 90% of the holders of the Series B Warrants intended to reduce the dilutive effect of the exercise of the Series B Warrants by establishing a cap on the number of shares issuable upon alternate net cashless exercise ("Net Cashless Exercise") of the Series B Warrants until the close of business on November 17, 2015 and by limiting the number of shares that the Consenting Holders may sell until the close of business on October 9, 2015.
422-5(b) provides for cashless exercise of incentive stock options under Sec.