modify underwater stock options. Many companies have chosen a “value-for-value” exchange, trading employees’ underwater options for an equal value of at-the-money stock options, restricted stock, or cash. This avoids any additional compensation expense as a result of the transaction. The prolonged market downturn has sparked • Option for Option Exchange. Underwater options are cancelled and replaced with “at-the-money” options. • Option for Other Security Exchange. Underwater options are exchanged for a different type of equity-based award (e.g., restricted stock, restricted stock units or phantom stock). • Option Repricing. In a stock option-for-stock option exchange program, underwater stock options are cancelled and replaced with new stock options that have an exercise price that is equal to or greater than the stock price at the time of the new grant. A company determines the applicable exchange ratio to be utilized in the program Generally options that are "underwater" have a longer expected term that those that are at-the-money. Further, since most ("plain vanilla") exchanged awards are not at-the-money, they would not be eligible to apply the simplified approach of SEC Staff Accounting Bulletins 107 or 110. The value-neutral exchange rate for ABC Pharma’s underwater stock options is 3 to 1. That is, for every three underwater options exchanged, the award holder would receive one new at- the-money option. Assuming 100% participation, ABC Pharma could potentially reduce their issued overhang by 30%.
Generally options that are "underwater" have a longer expected term that those that are at-the-money. Further, since most ("plain vanilla") exchanged awards are not at-the-money, they would not be eligible to apply the simplified approach of SEC Staff Accounting Bulletins 107 or 110. The value-neutral exchange rate for ABC Pharma’s underwater stock options is 3 to 1. That is, for every three underwater options exchanged, the award holder would receive one new at- the-money option. Assuming 100% participation, ABC Pharma could potentially reduce their issued overhang by 30%. of the underwater options being canceled, have become more popular, as evidenced by ex-change programs recently insti-tuted or announced by several public companies. Stock option exchange pro-grams are often preferable to granting new options in addition to previous grants. First, under-water options exchanged for new options equal to closing stock price on day of exchange; replacement options have an estimated value equal to exchanged options; replacement options vest on same terms as underwater options Builders Firstsource, Inc. Options-for-Options 4/23/2008* All holders of stock options with an exercise price equal to or greater than $17.90
Any exchange program for underwater stock options that employers adopt in response to today’s financial downturn should be structured both to address business concerns — from finance to The standard option-for-option exchange is not taxable. When you exchange underwater options for restricted stock, the value of the shares For access to this answer, please sign in or register .
The big debate Stock options are widely used to incentivize managers and employees while aligning their interests with shareholder's. As of two months ago, executive compensation firm Equilar estimated that about three quarters of options held at Fortune 500 companies were underwater. Black-Scholes option-pricing model and working up all the same inputs (exercise price, market value, volatility, interest rate, dividend rate, expected term) for your underwater options. Let’s consider an example of an option-for-option exchange: the original option for 1,000 shares was granted in 2007 when the market value of the stock was $10. The stock option exchange is designed to offer employees new grants of RSUs that have an aggregate fair value that is equal to roughly 90% of the fair value of the underwater options. As the stock price has risen in recent months, the currently underwater options become less underwater (the stock price is closer to the exercise price), and thus the value of the options increases. Companies Move to Reprice Employees’ Stock Options Stock-option exchanges surged in popularity during market busts, when many options became underwater Option exchange programs, or repricings, typically involve the exchange of underwater options for new options with a lower exercise price or the exchange of existing options for other forms of equity awards or cash.
Generally options that are "underwater" have a longer expected term that those that are at-the-money. Further, since most ("plain vanilla") exchanged awards are not at-the-money, they would not be eligible to apply the simplified approach of SEC Staff Accounting Bulletins 107 or 110. The value-neutral exchange rate for ABC Pharma’s underwater stock options is 3 to 1. That is, for every three underwater options exchanged, the award holder would receive one new at- the-money option. Assuming 100% participation, ABC Pharma could potentially reduce their issued overhang by 30%. of the underwater options being canceled, have become more popular, as evidenced by ex-change programs recently insti-tuted or announced by several public companies. Stock option exchange pro-grams are often preferable to granting new options in addition to previous grants. First, under-water options exchanged for new options equal to closing stock price on day of exchange; replacement options have an estimated value equal to exchanged options; replacement options vest on same terms as underwater options Builders Firstsource, Inc. Options-for-Options 4/23/2008* All holders of stock options with an exercise price equal to or greater than $17.90 EXCHANGE • Exchange Ratio – Underwater options are typically divided into separate groupings based on their respective exercise prices – For each grouping a separate exchange ratio is established based on the highest-valued option in the grouping – Ratio would be tied to a value-for-value exchange, with Black