When an in-the-money option
is exercised, the holder discards the time value.
since the option is profitable if the holder
's future expected return, which resembles
Some of these backdating practices are associated with ISOs that are in-the-money option
grants worth a strike price below market value.
* In-the-money option
grants that vest after January 1, 2005, are treated as deferred compensation and are subject to [section] 409(A).
Some traders refer to in-the-money option
strike prices as on the money and out of the money as off the money.
If a stock transaction would have created a constructive sale, the in-the-money option
will also create a constructive sale.
The problem with this approach is that standard option models assume efficient exercise (i.e., upon expiration, an in-the-money option
will be fully exercised and an out-of-the-money option will not be exercised at all).
The Code itself does not specify the meaning of performance-based compensation beyond the language "payable solely on account of the attainment of one or more performance goals." (31) Conceptually, an in-the-money option
might still be considered performance-based because its value depends on maintaining the stock price above a certain number.
The extra $5 million received then goes to the investment banker to settle the in-the-money option
that the corporation had previously been short.
Pursuant to the agreement, Liberty common shareholders will receive USD42.00 in cash for each share of Liberty common stock they hold and option holders will receive cash equal to the difference between USD42.00 per share and the exercise price of their in-the-money options
Liberty option holders will also receive cash equal to the difference between USD42.00 per share and the exercise price of their in-the-money options
. The transaction has been valued at USD103.7m.