Can a company grant early exercise of Incentive Stock Options when they sell?
February 9, 2000
Subject: Incentive Stock Options
Date: Thu, 02 Dec 1999
If a business unit is sold from a public company to another public company, and the assets include the employees and related intellectual property, can the selling company grant early exercise of Incentive Stock Options to key employees that are integral to the sale of the business unit? What are the tax consequences to the company granting early exercise? I assume this early accelerated exercise would result in regular income to the employee?
Date: 20 Dec 1999
The company will receive a tax deduction for any ordinary income reported by the employees as a consequence of exercising their options.
Employees could have some of their incentive stock options converted to non-qualified options as a result of accelerated vesting. Exercising those non-qualified options will result in ordinary income for the employees.
For more details, consult with a tax advisor.