Exercise

The word exercise, in the context of business law, means the act of giving notice by the holder of a stock option or warrant to the issuing company of that stock option or warrant that the holder wishes to execute the purchase of the underlying security. In other words, to exercise means to take the action that causes the stock under the stock option or warrant to vest in the hands of the holder. Stock options often are giving to certain key employees in startups as part of their compensation package, and in lieu of providing solely cash compensation, because startups are often starved for cash. Stock options require the holder to pay a price upon exercise, which is often referred to as the strike price. When the holder of a stock option exercises his or her option, the holder provides the company with an official notice, which sets forth certain representations by the stock holder that are often akin to the representations that would be made by a stockholder signing a stock purchase agreement. Warrants are less common than stock options, but also require an exercise for the vesting to occur. Until stock options and warrants are exercised, they remain unvested and therefore are not yet the property of the holder of the option or warrant.