sdcurt 0 Posted January 15, 2020 Report Share Posted January 15, 2020 Can a company give a bonus to an employee to cover the exercise cost of a stock option or will that make it a discounted option subject to 409A provisions? Link to post Share on other sites
QDROphile 295 Posted January 15, 2020 Report Share Posted January 15, 2020 Is the bonus discretionary or committed contractually? 1 Link to post Share on other sites
sdcurt 0 Posted January 15, 2020 Author Report Share Posted January 15, 2020 It is not stated in the equity plan or the award agreement but they did put that a bonus would be available in a PowerPoint presentation when they rolled out the plan. Link to post Share on other sites
XTitan 35 Posted January 15, 2020 Report Share Posted January 15, 2020 When you look at it objectively as a single transaction, it looked discounted. 1 Link to post Share on other sites
EBECatty 65 Posted January 16, 2020 Report Share Posted January 16, 2020 For what it's worth, this is explicitly permitted for incentive stock options, which also need a FMV exercise price. See 1.422-5(c): (c) Additional compensation. An option does not fail to be an incentive stock option merely because the optionee has the right to receive additional compensation, in cash or property, when the option is exercised, provided such additional compensation is includible in income under section 61 or section 83. The amount of such additional compensation may be determined in any manner, including by reference to the fair market value of the stock at the time of exercise or to the option price. 1 Link to post Share on other sites
Luke Bailey 259 Posted January 16, 2020 Report Share Posted January 16, 2020 sdcurt, the rule you need to be worried about is 1.409A-1(b)(5)(C), second sentence. Note that it explicitly excepts ISOs and ESPP options, so EBECatty's point is pertinent, but doesn't help if not an ISO. Uncertainty regarding whether a PowerPoint + course of dealing + emails and whatever else = a "right" may give you wiggle room for the current transaction, but certainly whatever they are doing should be informed going forward (and, depending on facts and circumstances, maybe backward) by due consideration of the rule. Link to post Share on other sites
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