If you own shares, then you own part of the company. If you own Options, then this gives you the opportunity to purchase Shares. Employee stock options give the holder the right, but not the obligation, to buy a certain number of shares of stock at a certain price within a certain time period.

Options have a language all their own, but it is not difficult if you have a guide:

• Grant — An options grant is the document that spells out the terms and conditions of the options.
• Exercise Price — This is the price you will pay for the stock under the grant terms. Depending on the option, it may be at, above, or below the current market price of the underlying stock. It is also known as the grant price.
• Term — The term is the length of time the option is valid. The term can be any length the company sets, but is seldom over 10 years long.
• Vesting (Accruing)— Most companies require a vesting or accrual period before you can exercise the option. In other words, you are required to work a certain number of years to "earn" the options. This period can be very short or up to four years or more. There are no set guidelines for the vesting period, so it is up to each employer to decide their own. A typical vesting period might cover a four-year period. At the end of each period, you would be vested in 25 percent of the options. This means you would be free to exercise the vested options.

Your Braxtel options grant gives you the following information:

• The option term is for xx years (in other words, the length of time the option is valid).
• The options vest at the rate of xx percent per year beginning on the date of the grant
• The exercise price is $xx per share.
• The grant is options for xxx shares.

There will be other information like what happens if you die and how long you have to exercise vested options if you leave the company or retire.

This question relates to Clause 8 of the Option Agreement. The company will issue Share Certificates to Participants who have exercised their options. Reddy Charlton McKnight’s company secretarial department will prepare the Share Certificates upon receiving instructions from Braxtel.

This question relates to Clause 13.1 and 13.2 of the Plan. Clause 13.1 provides that in the event of a Takeover, all options will be fully vested and exercisable.

Clause 13.2 recognises the fact that there may be vested options that have not been exercised, or which have been partially exercised. (This would include options deemed to have accrued under Clause 13.1.) Accordingly, Clause 13.2 provides that such unexercised options will fully vest in the event of a takeover.

In summary, any unexercised options, irrespective of when they were granted to the employee, automatically become eligible to be exercised by the employee in the event of a Takeover

The question of "unvested shares vesting" does not arise because any shares acquired or granted pursuant to an option under the Plan will be fully vested. It is the options themselves that accrue, or vest if you like.

The documentation does not provide for automatic accrual of options in the event of an IPO (unless the IPO also constitutes a Takeover). The options will continue to be held in the public company under the terms as they would have been held in the private company.

Again, there is no provision for a holding period where a Participant who has exercised his option would be barred from selling his shares after an IPO. As the documentation provides for the options accruing over a period of time, the limitation on the Participant would be that he would only be able to exercise options when the relevant time had passed. Once that Participant has exercised his option and acquired shares, then the only limitations on disposal of shares will apply and these are governed by the Articles of Association (that is, the new IPO Articles of Association, which will almost certainly have restrictions on how soon and how quickly an employee may sell his/her shares)

There is no provision for automatic accrual of options in the event of an existing member at the date of the Plan acquiring the whole of the capital of the company. Clause 13 of the Plan deals with the situation where a third party takes over the company.

A person who is not already a member of the company can become a member/shareholder by acquiring shares in the company. Outside parties, such as a new investor, can acquire shares in accordance with the Articles.

The value of the Company is set by Board whenever it issues an Option Agreement. The board decides how often it can be changed: it is probable that a valuation would take place after an investment

Under the terms of the Option Agreement, the options accrue monthly over a three-year period (see Clause 3).

If, for example, a Participant is granted options over 360 shares, then after 1 month of the Option Agreement, the Participant would be entitled to acquire 10 shares (i.e. 1/36^th of 360).

After 1 year, the Participant would be entitled to acquire 120 shares (ie 1/3^rd of 360).

There is no limit on the number of times that the options can be exercised, provided that the options have accrued.

There is no minimum number of options that must be exercised at a time.

At the time of writing (February 2001) the option price is IR£0.3775 for European employees and US$0.462 for American employees.

The company is not responsible for collecting the income tax. Thus, when exercising one’s options, the participant needs to pay the company the exercise amount, and needs to make his/her own arrangement to pay the required income tax.

Yes, Digicommcare Limited. It is wholly owned. This is a patent-holding company and does not trade.

The purpose of this clause is to ensure that the terms of the Option Plan will not conflict with the laws of the land. What we foresee is a situation where the purchase of shares by a Participant would require certain fiscal or regulatory approvals in a certain jurisdiction (or in a particular state, in the case of U.S. employees).

A Participant, having exercised an option and acquired shares in the company, will be bound by the Articles of Association if they wish to sell their shares in the company. (See also reply to Question 12). Essentially, the shares must be offered to existing shareholders first.

The Articles of Association provide for the procedure where a shareholder wishes to sell shares in the company.

With regard to the method of purchasing shares, in the context of the Plan, the procedure whereby Participants can acquire shares is as set out in the Plan and/or Option Agreement.

Unless shares are being transferred to a spouse or child of the employee, shares cannot be transferred without first being offered for sale to existing shareholders.

The easiest way to explain how the options accrue is by way of example:

Let us say that a Participant is granted options over 360 shares in the company. In accordance with the Option Agreement, these shares will vest monthly over a 3-year period. At the end of the first month, the Participant will be entitled to acquire 1/36^th of 360 shares, i.e. 10 shares. Similarly at the end of the second month, a Participant would entitled to acquire a further 10 shares. This will continue month by month until the end of the 3-year period, at which stage the options will be fully accrued and exercisable.

A Participant may chose to acquire – that is, buy – shares at any time, provided of course that the options have accrued. For example, a Participant might decide to acquire shares at the end of the first month, but then not acquire any further shares for a further 6 months. At the end of that subsequent 6 month period, the Participant will be entitled to acquire a further 60 shares

There may be confusion as some Participants will be familiar with the concept of unvested shares. However, in the case of the Plan, it is the options that "vest", or more properly "accrue". Once an option has accrued, any shares bought on foot of the option will be fully vested.

A Participant cannot sell unexercised options. In accordance with Clause 4 of the Option Agreement, options are exercisable only by Participants, or in the event of the Participant’s death by the Participant’s personal representative.

The procedure for exercising options is detailed in Clause 5 of the Option Agreement.

There is no set period of notice that must be given. It is sufficient for the Participant to give written notice to the Company Secretary at which stage the company will immediately initiate the process of issuing a share certificate to the Participant in respect of those shares, provided of course that the Participant has provided full payment to the company.

An employee is still an employee of the company during their period of notice. They may still exercise options during their period of notice, but once they have ceased to be an employee of the company, at the end of that notice period, any unexercised options shall expire in accordance with Clause 10 of the Plan.

As mentioned earlier, the option accrues evenly over a month-by-month basis over 36 months. A Participant is entitled, prior to leaving the company, to exercise options that have accrued. Once their employment with the company has ceased, other than in the event of death, mental incapacity, redundancy and disability, all options lapse

The 36-month period begins on the date that the Option Agreement is signed by the company and the Participant.

The Company has at its discretion the opportunity to insert different option prices into individual Option Agreements. At the time of writing (February 2001) the option price is IR£0.3775 for European employees and US$0.462 for American employees.

Shares can be acquired pursuant to an option once the option has accrued.

This question would seem to relate to Clauses 13.2 and 13.3 of the Plan. (See also reply to Question 2).

Clause 13.2 allows the Board to call on a Participant holding options under the Plan to exercise unexercised options in relation to the whole or a portion of the shares to which their options relate. The Board has discretion to call on the Participant to exercise unexercised options within a certain period of time, subject to any other conditions or limitations as the board may, at its discretion, determine with a view to ensuring that options held by Participants are exercised at a reasonable date prior to the completion of the takeover.

Clause 13.2 is intended to ensure that options are exercised in sufficient time before the completion of the takeover. If a Participant has not exercised options prior to the takeover, the Participant’s options lapse but the Participant will be compensated in accordance with Clause 13.3. The form of compensation will consist of (a) the grant of options in respect of shares in another company, or (b) payment in cash, or (c) partly (a) and partly (b). The Board acting in good faith will have discretion in determining the form of compensation.

Normally, when an employee exercises a share option, a charge to income tax will arise based on the excess of the value of the shares over the option price. The tax charge arises at the time of exercise even where the employee might actually retain the shares.

However, the provisions contained in the Finance bill 2001 now offer favourable tax treatment for options granted under a Revenue approved share option scheme.

Accompanying this FAQ is a briefing from PriceWaterhouseCoopers and it covers the tax implications in greater detail. In summary, options granted through an approved scheme will not be liable to income tax on grant or exercise provided the shares acquired on foot of the option are not sold before the third anniversary of grant. When sold after this period, a charge to CGT will arise on the excess of the net sale proceeds over the actual option price. This gain will be liable to CGT, currently 20%. An employee’s IR£1000 annual CGT exemption can be offset against the gain.

The Articles of Association fully describe what happens to shares when an employee resigns from the company. When an Employee Member resigns, they will be deemed to have given a Transfer Notice to the Board indicating that they desire to transfer the "Compulsory Transfer Shares" at the Compulsory Transfer Price. The Compulsory Transfer Price is the fair value of such a share as determined by the auditors (in accordance with various articles). If the company wants the departing employee to retain their shares (regardless whether these were bought under an option agreement or given as part of a bonus), it must apply for a Waiver to the nominated directors.

The Articles of Association of Braxtel Communications Limited is a document of public record. Any shareholder in the company is entitled to a full copy. Braxtel will provide each employee members with a copy of Articles of Association. Employees should address any such request to Braxtel’s solicitors, Ready, Charlton and McKnight

Auditors’ accounts will be presented at the annual AGM, which each shareholder is entitled to attend, and each shareholder will be entitled to a copy.

Clause 21 of the Plan clearly indicates that in the event of any conflict between the provisions of the Plan and the Articles of Association, the Articles shall prevail. There is no question of the company’s solicitor providing professional indemnity against any supposed loss suffered by Participants due to conflict between the Plan and the Articles. Employees should take their own legal advice - the company’s solicitors act for the company, not for the Participants.