Stock Options Revisited: A Renewed Focus On Net Exercise Provisions

Returning To The Good Old Days

Recent changes in the tax laws and accounting pronouncements have spawned a renewed interest in equity grants that are settled in stock. Until the issuance of Accounting Principles Board Opinion No. 25, most stock options provided optionees with the choice of exercising the option by making a cash payment equal to the exercise amount (the exercise price multiplied by the number of shares subject to the option) by surrendering shares with a value equal to the exercise amount. However, FAS 123(R) has renewed the viability of net exercise provisions in stock options as well as other cashless equity awards, such as stock-settled stock appreciation rights (SSARs).