Substituting discounted options --409A Remedy

[Steelerfan]

Does anyone know where the SEC stands regarding the remedy under 409A to replace discounted options with non-discounted options? It appears that you would be granting a new option that is backdated--is there any SEC exemption for doing this in order to fix a tax problem? Any idea is appreciated.

[namealreadyinuse]

I understood that the replacement option has to be a new grant essentially with a FMV on the the replacement date. Are you suggesting that it can be a backdated option as long as the grant date is = FMV on the retro date? I do not believe that is possible.

[Steelerfan]

I understood that the replacement option has to be a new grant essentially with a FMV on the the replacement date. Are you suggesting that it can be a backdated option as long as the grant date is = FMV on the retro date? I do not believe that is possible.

The example in the proposed regs is basically a repricing of the discounted option with an exercise price = FMV on the date of the original grant, as if the option had not been discounted at that time. the way I look it, you get to pretend that the stock was issued on the original grant date at the non-discounted price. But the SEC could look at that and say you issued a new option on the replacement date with a backdated exercise price (i.e. the price the option should have been if, for example, it was granted in 2004. Basically, you want a "pass" from SEC that you can do this, but my feeling is to fix the tax problem and worry about SEC rules later.