Under SFAS R paragraph 51a company must recognize the unrecognized value of the original stock option grant and the incremental cost incurred as a result of a stock option exchange program.
A company can make the stock option exchange accounting neutral by decreasing the number of shares received in the exchange to a level that makes the fair value of the repriced options equal to the fair value of the options received on the original grant date.
Often, the most important consequence for a company considering a stock option exchange is the accounting treatment. Duringseveral high-profile companies decided to complete stock option exchange programs for employee stock options that were severely underwater.
For example, CNET Communications, which offered an option exchange in Juneused these ratios for each new option: With increased scrutiny of executive compensation, companies have restricted the eligibility for option exchange offers. Many employee stock option exchange offers do not meet these rules because they are not offered to all holders, not offered at the same price, or both.
The staff has granted exemptions from these rules when the option exchange offer did not organization of exchange options trading a concern about discrimination among the security holders that these rules were intended to address. Determining whether an issuer's stock option exchange constitutes a tender offer is a legal matter that should be discussed with legal counsel.