Print This Page

Subject:   adding early exercise option to existing ISO plan
Date:   Fri, 04 Jun 2004
From:   Scott

Dear Mr. Gray:

I currently work for a pre-IPO company. I have received an initial grant of ISO stock options. The current plan does not include a clause allowing early exercise of unvested options.

Is it possible and/or legal for a company to add such a clause to its stock option plan retroactively for previously-granted options? Is there any precedent for this sort of addendum?

Best Regards,
Scott

Answer

Date:   Fri, 02 Jul 2004

Hello Scott,

I believe a change like this is permissible. Your company's counsel should refer to Internal Revenue Code Section 424(h)(3)(C).

Remember that accelerating the ability to exercise ISOs can result in the $100,000 per year limit being exceeded, converting some of the ISOs to NQOs.

Good luck!

Mike Gray

For more information about incentive stock options, request our free report, Incentive Stock Options - Executive Tax and Financial Planning Strategies.

IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.