Can my company change their policy about early exercise of ISOs?

July 12, 2004

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

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