Repricing Options for Private Companies

This guide discusses the repricing options available to private companies, particularly focusing on stock options as a critical component for recruiting and retaining talent. It outlines the challenges faced when stock options become underwater, meaning their exercise prices exceed the fair market value of the underlying stock. The document details the common structure of repricing, specifically the options-for-options approach, which is favored for its simplicity and avoidance of tax complications. Various considerations for repricing are presented, including terms of repricing, eligibility of participants, and compliance with tax and securities laws. The guide emphasizes that the extent of changes to repriced options may necessitate obtaining consent from option holders, particularly for incentive stock options (ISOs). Additionally, it addresses tax implications and the importance of adhering to Section 409A of the Internal Revenue Code. Overall, the document serves as a comprehensive resource for private companies navigating the complexities of stock option repricing.