Subject:   An ISO Question
Date:   Thu, 3 May 2001
From:   Celeste

Hi,

Great website – thanks for all the info.

I read the question and answer at www.stockoptionadvisors.com/isofaq/isolimits.shtml . I wound up with 2 different interpretations of your answer and don’t know which of the 2 (or neither) is correct:

My interpretation #1: Assume I currently have 2000 ISO’s and I want to exercise them when the FMV is $100/share which means I would wind up with 2000 shares worth $200,000. Are you saying that I would be limited to exercising 1000 shares because the FMV of 1000 shares is $100,000 and there’s a $100,000 per calendar year cap? (However, I could exercise all 2000 options but 1000 would be reclassified as NQOs?)

My interpretation #2: Assume that today my company wants to grant me 2000 options but the FMV is $100/share. Are you saying that my company would be limited to granting me 1000 shares with a FMV of $100,000 because that is the per calendar year cap? (However, they could grant me 2000 options but 1000 would be reclassified as NQOs?)

Is either one of my interpretations correct?

Regards,
Celeste

Answer

Date:   11 May 2001

Hello Celeste,

Thanks for writing.

The limitation is based on the fair market value of stock when the option is granted.

Therefore, your interpretation # 2 is correct.

Good luck!

Mike Gray

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