The company stated, "The limited controls and the lack of definitive processes for stock option granting and approval allowed for abuse, including on three separate occasions the apparent use of hindsight in the establishment of more favorable grant dates and exercise prices
for options." OI will restate its financial statements, reducing retained earnings and increasing additional paid in capital by $371,000.
* No options may ever be granted or modified with an exercise price
less than the fair market value (FMV) as of the grant date (32);
CEO Steve Jobs voluntarily turned in 55 million stock options, with a weighted average exercise price
of $18.31, in exchange for 10 million restricted shares worth $74.5 million (based on a $7.45 share price).
Re-pricing options to a lower exercise price
results in lower earnings, while failure to re-price could lead to the loss of talented employees.
The comparison of the two exercise prices
provides a better understanding of the nature of incentives provided through stock options.
Finally, Part V discusses the potential additional benefit of providing in the option plan for the use of previously acquired shares of employer stock to pay the exercise price
under an ISO, and explores other means of facilitating the exercise of ISOs by employees.
The final piece of the incentive-equation puzzle is determining the exercise price
at which the LSOs will be in-the-money.
offered restricted stock or cash (if less than $3,125) in exchange for stock options, vested or not vested, with exercise prices
equal to or greater than $44.
Moreover, assuming that the company's stock price increases over time, subsequent grants will be at higher exercise prices
. This should keep stock option grantees focused on continuous performance improvement.
For example, if the exercise prices
of the options in the above examples were raised to $30 from $25, the value of the options using Black-Scholes would fall to $4.56 and $1.57, versus $5.75 and $2.80, for the small and large companies, respectively.