Introduction
As the equities markets continue to deteriorate, companies are taking proactive measures to put some value back into management and employee stock options made worthless by the recent declines in their share prices. These so-called “underwater options” are afflicted with an exercise price that is, in many cases, vastly in excess of the underlying stock’s current fair market value. One potentially effective solution to this problem is to reprice the options by lowering the exercise price. However, the rules governing option repricing have changed since the last significant wave of repricings in 2001- 2002, and companies must now be mindful of the new regulatory environment to properly effect an option repricing.
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