The deadline for exercising any vested stock options after departing your company (commonly referred to as the “post-termination exercise window”) will be contained in the stock option agreement or similar documentation that provides the terms for your stock option grant. The actual post-termination exercise window can vary depending on the nature of your departure from your company. For example, a typical provision might provide the following as the window for your time to exercise:
- Three months if your departure is for any reason other than “cause,” as defined in your grant documents (e.g., if you leave voluntarily for another job); and
- No ability to exercise if you are terminated for cause.
Some companies have adopted “extended” post-termination exercise windows, which may permit employees to hold options for a much longer period (usually up to a maximum of ten years from grant), without exercising, after leaving the company. Additionally, if your option is an Incentive Stock Option (ISO), as opposed to a Nonqualified Stock Option (NSO), the timing of your exercise will impact your ability to retain ISO treatment, regardless of the company-prescribed exercise widows. For these reasons, among others, employees should always refer to their company’s documentation (including the company’s equity incentive plan) and to their individual option grant documentation to determine the applicable terms.