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Subject:   Pre IPO Stock Option Grans and Reverse Splits
Date:   Wed, 02 Feb 2005
From:   Jon

Mike,

The company I work for is privately owned. It issued ISOs for 150,000 shares at $.15 per share. Later, the company had 1:25 reverse split, repricing the ISOs for 6,000 shares at $3.75 each.

Then the company made an additional grant of an option for 200,000 shares at $ .06.

How can they have an option price of $3.75 per share for one grant and $ .06 for the other?

Best regards,
Jon

Answer

Date:   Wed, 09 Feb 2005

Hello Jon,

I don't have enough details to answer your question. The option price is supposed to represent the fair market value of the stock on the date the option is granted. The value of a company's stock changes all of the time because of its experience of profits or losses and whether additional investors become involved. Your situation may not be as unusual as you think.

Remember you can exercise the second option first.

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.