Equity vesting is a common concept in the world of employee compensation, particularly in startups and growing companies. It's a mechanism that aligns your interests as a team member with the long-term success of Filmhub by granting you ownership rights in the form of company shares or stock options.

This write-up is a small start in helping you understand how Stock Options work. Please research further to educate yourself fully!

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Disclaimer: Filmhub has not and does not provide any specific financial or tax advice to participants regarding equity compensation. Filmhub makes no representations concerning the financial or tax consequences of equity compensation. Participants will consult with their own financial and tax advisors regarding the tax consequences of equity compensation.

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In addition to consulting with your own tax advisors, Filmhub now offers additional equity-related resources through its partnership with Carta's Equity Advisory services!

This includes:

• Two live webinars per year tailored to Filmhub, covering equity basics and mechanics.
• Unlimited 1:1 tax consultations that employees can book directly through their personal Carta accounts.
• Calculated pro formas for U.S. employees on exercise costs and their potential impacts.
• A comprehensive equity learning center with training videos and resources on equity topics. </aside>

What are Stock Options?

Stock options are an employee benefit that grants employees the right to buy shares of the company at a set price after a certain period of time. Employees and employers agree ahead of time on how many shares they can purchase and how long the vesting period will be before they can buy the stock. All of this information is included in a contract that both parties sign. Employees are not obligated to purchase company stock, even if they have stock options.

What are the essential elements of a Stock Option?

(a) The Strike/Exercise Price:

The Strike Price is the price per share at which you may purchase shares on or after the specified vesting dates. This is sometimes referred to as the option price or strike price.

Employee stock options typically have a strike price that is equal to the current market price of the company’s stock on the day the option is granted. This is known as the “strike price.” It is the price that you, as an option holder, can purchase company stock. How is the strike price determined? An option’s strike price is directly related to the company’s value at the time of the issue date. This is done by an independent valuation provider, also known as the 409A valuation.

(b) The Vesting Schedule:

The vesting process is governed by a vesting schedule. This schedule outlines the timeline over which you will gradually earn your equity. Common vesting schedules include:

• Cliff Period: A specific period (usually one year) at the beginning of your employment during which no equity vests. After the cliff, a certain portion of your equity will vest on a regular basis.
• Gradual Vesting: After the cliff period, equity vests incrementally, often on a monthly or quarterly basis. For example, you might vest 1/48th (if there’s a four-year vesting period) of your equity every month.

(c) Vesting Commencement Date: The date your option starts vesting. This is typically your new hire date or the grant date.

(d) The Expiration Date: The expiration date is when your stock option expires and after which you may no longer exercise the stock option. The stock option typically expires ten years after it was issued or earlier if employment terminates.

Vesting Example: Here is an overview of how stock options work in a business, using Filmhub as an example:

• Filmhub hires John as a manager and includes terms in his employment contract that offer him the option to purchase 25,000 shares of Filmhub stock at a strike price of $1.00 per share.