A "cashless exercise" is the exercise of an option by the option holder in a manner that does not require the option holder to deliver cash to exercise the option, but instead allows the option holder to use the equity built up in the option (in other words, the difference between the value of the underlying stock and the exercise price on the stock pursuant to the terms of the option) as a way to exercise the option. For example, if the option holder has options covering 1000 sharesof stock exercisable at $1 a share, and the fair market value of the stock is $2 a share at the time of exercise, then the option holder has built in gain of $1000, and can use that $1000 to buy 500 shares cash free (resulting in him holding 500 shares that are worth $1000 at the time of exercise).