Stock Option question in PE deal

Hello,

I have a question regarding a stock option plan in a SME (pe backed) in an exit simulation:

• Options for management: 2% of post money equity value

• Strike price @ 40m equity valuation (100% of equity value pre-money that is also the entry equity for the sponsor)

• It is a private company with a share capital of 10k owned by 2 shareholders, 60% Sponsor ,40% family.

I have confusion regarding the calculation of exit proceeds if the option gets exercised by management.

Please let me know if you agree with the following: 

Let's say the Equity Value @ Exit is 100m and management does exercise the 2% option.

If the strike price is @ 40m equity value the management would have to pay the 2% = 40m / (1 - 2%) - 40m = c. 816k in a capital increase right ? At closing the 2% will be worth 2m (100m * 2%). So basically the mgmt would have to do a cap increase @ 40m pre money valuation to have a 2% post money by paying 816k and selling that 2% at exit for 2m for a total net proceed of c. 1.2m.

So the total proceeds should be splitted:

• Mgmt = 2m 

• Sponsor = 60% * 0.98 * 100m = 58.8m

• Family = 40% * 0.98 * 100m = 39.2m

My question is: should the capital increase of 816k be calculated as part of the total exit proceeds given that technically is in cash in the company ? ie: should the exit equity value be worth 100.816m now instead of 100m ?

Any comments and considerations are welcomed