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Below, we set out the key terms a call option agreement typically includes between the grantee and the grantor. The company may grant the call option for the issue of new shares or a shareholder for the transfer of existing shares. A grantee option holder and grantor the company or existing shareholder are parties to the option agreement. The grantee may be an individual or corporate entity. Option shares may be either:. The agreement should clearly define the scope of the call option arrangement for example, the agreement should set out the exact number of option shares.

The option premium is the amount paid for the call option itself. Usually, this will be for a nominal amount since the option holder is typically required to pay the exercise price for the shares at the point of the exercise. The option premium is different to the exercise price discussed in further detail below. If an option premium is required, it will be paid to the grantor of the option when the agreement is established.

An option premium is not always provided for in a call option agreement, and whether one should be included depends on the commercial terms of the arrangement. The exercise price is the price payable for the option shares after the option holder has exercised the call option.

This price is usually a pre-determined amount and set out in the call option agreement as a fixed price per share. The option holder pays the exercise price to the grantor of the option upon completion of the issue or transfer of shares as the case may be.

In certain circumstances, there may be no exercise price because the option holder may need to achieve certain performance milestones as consideration. As the name implies, the effective date is when the call option becomes effective. This may be the day the grantee signs the call option agreement of another pre-determined date in the future.

The effective date should not be confused with the exercise date i. Often, the exercise of a call option will be conditional upon certain events occurring. For example, the option holder may only be eligible to exercise the call option after a fixed period or after it has satisfied pre-agreed performance milestones.

A call option can be structured so that the option holder can exercise the call option at any time. The expiry date is the last day of the option period, that is, the period in which the option holder may exercise the call option. Usually, the call option agreement will terminate on the expiry date. The call option agreement can also be structured so that it terminates upon the occurrence of other special circumstances as determined by the parties.

Call Option Agreement

A call option may be structured so that it is either fully or partially exercised. A fully exercised call option means that the option holder must subscribe or purchase all the option shares under the agreement upon exercise of the call option. For a grantor, this method creates more certainty.

For a partial option, parties typically agree on a minimum number of options that the option holder must exercise. The option holder has the right to exercise the call option until all the option shares have been subscribed for or acquired, or until the option period expires.

Put and Call Option Agreement

Before executing a call option agreement, parties must consider other company documents to determine whether additional approvals are required. The company constitution may also restrict the issuance of shares to new shareholders. A call option agreement will usually contain standard representations from each party that the execution and performance of the agreement does not contravene either:.

It is, therefore, important that all approvals are taken into account when considering entry into a call option agreement. Before entering into a call option agreement, ensure you are familiar with the concept of option shares, how they work and when you can exercise a right to buy or sell them. If you are interested in submitting an article to Lexology, please contact Andrew Teague at ateague GlobeBMG. There seems to be a broad analysis which is beneficial to us in analyzing various areas of law.

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Follow Please login to follow content. Register now for your free, tailored, daily legal newsfeed service. Australia January 20 Parties to the Agreement The company may grant the call option for the issue of new shares or a shareholder for the transfer of existing shares.

Option shares may be either: Option Premium The option premium is the amount paid for the call option itself. Exercise Price The exercise price is the price payable for the option shares after the option holder has exercised the call option. Effective Date As the name implies, the effective date is when the call option becomes effective. Conditions to Exercise Often, the exercise of a call option will be conditional upon certain events occurring.

Expiry Date The expiry date is the last day of the option period, that is, the period in which the option holder may exercise the call option. Full or Partial Exercise A call option may be structured so that it is either fully or partially exercised. Other Agreements Before executing a call option agreement, parties must consider other company documents to determine whether additional approvals are required.

A call option agreement will usually contain standard representations from each party that the execution and performance of the agreement does not contravene either: Key Takeaways Before entering into a call option agreement, ensure you are familiar with the concept of option shares, how they work and when you can exercise a right to buy or sell them.

Put and Call Option Agreement

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