Accelerating Option Vesting in Corporate Focus
Accelerated vesting arises in one of two ways: (1) vesting of shares is to be accelerated due to an event such as a change of control or achievement of a milestone; (2) an error in calculating the vesting occurred outside Corporate Focus, and an adjustment to the system must be made to match a transaction that has already taken place. (This often happens when companies use Excel to calculate vesting instead of relying on the vesting numbers in Corporate Focus.)
In the second case, the difference is often only one share, or a fraction of a share; but Corporate Focus cannot process the exercise for the number of shares needed.
How to Manually Vest Shares
For any vesting schedule, the method for manually vesting the shares is the same.
- Edit the option grant that is to be manually accelerated.
- View the Vesting Schedule section of the grant and look at the vesting increments in the schedule.
- In the section below the list of vesting dates, click the Add Row button.
- Complete the details of the shares to be vested (even if it’s only one share) – Date, Shares, Comment – and then click Add (Figure 1). Under Comment, add text descriptive of why you are adding this vesting tranche. This could be a milestone criteria or some other descriptive text. This information will appear on certain reports and will be helpful later on.
Figure 1. Add a vesting row
- The new vesting increment now appears on the list.
- At the top of the Vesting Schedule section, under Total Shares note that there is now a Difference shown (Figure 2). This indicates that the number of shares vesting does not match the shares granted. The vesting schedule must be edited again to bring these numbers into balance. Shares inserted into the vesting schedule will be offset by reducing the number of shares vesting at the end of the schedule as follows:
Figure 2. Showing Difference in Vested vs Granted Shares
- Select the final vesting increment row by clicking the radio button to the left of its date. The information for that row is now displayed in the fields below.
- Click Edit Row and reduce the number of shares in the Shares field by the number of shares shown in the Difference field. In the example below, the difference is -5,000 shares; the final vesting increment is adjusted by subtracting 5,000 shares and typing in the shares left when the subtraction has been made. In the example, the final vesting increment is reduced from 10,000 shares to 5,000 shares.
- Click the Update button at the right of the Comments box. This saves the vesting row and the Difference shown is now zero. The grant is once again in balance. (Figure 3).
- If the shares being vested exceed the final vesting increment, you will need to adjust more than one vesting increment to capture all the shares that were added into the schedule above. This is common with time-based grants that have many vesting increments in the schedule. (Remember—shares added into the schedule come off the end of the schedule).
- Working from the final vesting date (all the way at the bottom of the vesting schedule) and backwards in time (working up the vesting schedule from the bottom), zero out the shares for as many vesting increments as necessary to cover the Difference by editing each row and setting the number of shares to zero.
- Watch the Difference field as you go to see whether you have zeroed out enough shares.
- The final adjustment will be some number of shares less than a full vesting increment.
- When finished with all the vesting adjustments, and the Difference is showing zero, save the grant using the Transaction Date equal to the date the acceleration took place (i.e., the termination date of the Participant, or the date of the event triggering the acceleration).
Figure 3. Adjusted vesting is completed
Important! The Transaction Date for the re-saved edited grant is NOT the original grant date. It is the date upon which the company determined that the Milestone was met, or the date that the acceleration took place. Reports run before the acceleration date will show the grant as it was before you made the change; reports run on or after the acceleration or Milestone date will show the new vesting.