If my ISOs are converted to NSOs, do I still have 90 days to exercise my vested options as ISOs?

Question

Let's say I have a bunch of incentive stock options (ISOs) in a company that have vested but I have not exercised yet. If I were to leave the company, I have 90 days to exercise them with ISO tax treatment. But let's say I switch from a regular employee to contractor instead, and my stock option agreement specifies that my ISOs convert to non-qualified stock options (NSOs). Do I still have 90 days to exercise my vested options as ISOs, or do they immediately become NSOs?

Rick · Answer

FWIW, I was recently laid off, and I had 90 days to exercise my ISOs. As part of the severance package, the company offered a 3-year extension to the options, but they would immediately convert to NSOs, and I’d lose the 90-day window to exercise. So I had to come up with the cash to exercise shares before signing the extension agreement (they wouldn’t even just agree to apply the extension to a subset of shares).

It’s not clear to me how much of this was dictated by IRS regulations, and how much was just the company being lazy.

If my ISOs are converted to NSOs, do I still have 90 days to exercise my vested options as ISOs?

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