Agreement:
Also called a “grant agreement” or “award agreement.” The RSU or stock option agreement is a legal document that sets forth the terms and conditions that apply to your grant.

Capital gain:
Occurs when an investment is sold at a higher price than originally paid.

Capital gains tax:
Tax on profits from the sale of capital assets. You pay capital gains tax when you sell shares of stock at a price higher than the price of the stock on the day you acquired the shares. Long-term capital gains tax rates are generally lower than ordinary income tax rates.

Cash purchase and hold the shares:
A type of exercise method for options. You pay for all exercise costs with cash and hold the shares until you decide to sell them in the future.

Cashless exercise and sell for cash:
A type of exercise method for options. You exercise your options and simultaneously sell all shares. After you pay the exercise costs (i.e., the exercise price, commissions, and any applicable income tax withholding and transaction fees), net cash is deposited to your Schwab account.

Cashless exercise and sell to cover:
A type of exercise method for options. You exercise your options and simultaneously sell enough shares to cover the exercise price, commissions, and any applicable income tax withholding and transaction fees.

Constructive receipt:
A tax term mandating that a taxpayer is liable for income, which has not been physically received but has been credited to the taxpayer’s account or otherwise becomes available for him or her to draw upon in the future.

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Employee stock option exercise and equity award agreement:
The document that gives Charles Schwab & Co., Inc. the authority to act as your broker as part of an equity award transaction.

Exercise:
The transaction in which you exercise your right under a stock option agreement to buy stock at the exercise price.

Exercise and hold:

The transaction in which you buy your company’s stock at the exercise price and hold shares. Also referred to as “cash purchase and hold the shares.”

Exercise and sell:

The transaction in which you buy and then immediately sell shares. There are two types of exercise-and-sell transactions. See also “cashless exercise and sell for cash” and “cashless exercise and sell to cover.”

Exercise date:

The date on which you exercise your options.

Exercise price:
Also referred to as the award price, grant price, option price, or strike price; the price you pay per share when you exercise your options. The exercise price is set by your company.

Fair market value (FMV):
The amount that a willing buyer would pay a willing seller for a share of company stock. The fair market value on the day stock options are granted typically determines the exercise price. In most cases, your company will determine the FMV.

Grant:

An award of stock options or RSUs.

Grant date:

The date your RSU or stock option was granted to you.

Grant ID:

The unique identifier for each equity award.

Grant price:

Also referred to as the award price, strike price, option price, or exercise price; the price you pay per share when you exercise your options. The grant price is set by your company.

Holding period:

For tax purposes, this refers to the period of time you hold ISO shares in order to get favorable tax treatment when the shares are ultimately sold. If you fail to meet the holding period, a “disqualifying disposition” occurs, changing the tax consequences. More generally, the holding period is the period of time a company requires that granted and/or exercised shares be held before they are sold.

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In the money:
Options with an exercise price below the current fair market value.

Incentive stock options (ISOs):
Also called “qualified” stock options, ISOs are considered tax-advantaged stock options. When you exercise, you are not liable for ordinary income tax, provided you hold the stock for at least one year after the exercise date and two years after the grant date (and that other qualifying conditions are met). You are liable for capital gains taxes if you sell the shares at a gain (that is, if the sale price is higher than the market price on the exercise date). Additional tax consequences may apply.

Market price:
The current price stock is trading at in the stock market.

Nonqualified stock options (NQSOs):
Stock options that do not meet the requirements of a qualified stock option under the Internal Revenue Code. Upon exercise of a nonqualified stock option, you realize compensation equal to the spread between the fair market value of the stock on the exercise date and the price paid to purchase the shares. Compensation is taxable income, for which the company is obligated to withhold taxes. Ordinary income and tax withholding will be reported through payroll. When shares acquired through the exercise of a nonqualified stock option are subsequently sold, any gain is subject to capital gains tax. If the price of the stock goes down after exercise, you would be eligible to take a capital loss (as you would with any other security you may own).

Option price:
Also referred to as the award price, strike price, exercise price, or grant price; the price you pay per share when you exercise your options. The option price is set by your company.

Restricted stock unit (RSU):
A form of equity compensation in which the company awards units that convert to company common stock at a future date when certain conditions are met. The restrictions may be based on the passage of time and/or other criteria. When restrictions lift and the award is no longer subject to a substantial risk of forfeiture, vesting occurs and units are converted to shares. RSUs are typically granted at zero cost. The value is, therefore, equal to the current market price of the company stock. Typically, taxable compensation is earned when RSUs vest and shares are issued. Certain circumstances, such as retirement eligibility, may trigger taxation before shares are issued. When shares are subsequently sold, any gain is subject to capital gains tax.

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Sale price:
The specific market price at which a security is sold.

Shares:

Shares of stock in a company, representing ownership.

Spread:

The difference between an equity award price and the fair market price of stock on a specific date.

Stock option:
The right to buy stock at a specific price in the future for a set period of time (or term). This right is subject to a vesting schedule that defines the time period over which you become entitled to exercise your options.

Strike price:
Also referred to as the option price, exercise price, or grant price; the price you pay per share when you exercise your options. The strike price is set by your company.

Underwater:
The exercise price of a stock option is greater than the current market price of the underlying stock.

Unvested grant:
The portion of a grant that has not yet met the vesting criteria as set forth in the grant agreement.

Vested grant:
A grant that has met the vesting criteria as set forth in the grant agreement. When an RSU vests, in most countries it is a taxable event and tax withholding is due. The most common method of funding this tax liability is to sell a portion of the now-vested shares.

Vesting period: The length of time or waiting period before RSAs or stock options vest.

Vesting schedule:
The number or percentage of RSAs or stock options that vest over a particular time period, and the dates on which they vest.

W-8BEN:
The form used by a foreign person to establish foreign status, to claim beneficial ownership of the income for which the form is being provided and, if applicable, to claim a reduced rate of, or exemption from, withholding as a resident of a foreign country with which the U.S. has an income tax treaty.

Read: Understanding W-8BEN Certification to learn more.

W-9:
The form used by U.S. persons, including resident aliens, to certify the person’s correct Taxpayer Identification Number (TIN) or Social Security number (SSN). A W-9 also either certifies that the person is not subject to backup withholding or, if the person is a U.S. exempt employee, claims exemption from backup withholding.

These Schwab forms are not substitutes for forms your company may require. It is your responsibility to find out whether or not your company requires internal forms.

IF YOU HAVE QUESTIONS ABOUT REQUIRED FORMS, PLEASE CONTACT YOUR COMPANY’S STOCK PLAN ADMINISTRATOR OR CALL SCHWAB STOCK PLAN SERVICES TOLL-FREE: 800-654-2593. International clients may access this toll-free number by first dialing an AT&T Direct^® dialing code. Representatives are available from 9:00 a.m. to 9:00 p.m. ET, Monday through Friday.

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