Option repricing

[Guest ToddieBear]

Hypothetical:

1) A company will be spinning off a subsidiary

2) The company has outstanding options

3) The company believes it's fair market value (it is publicly traded) will go down as a result of the spin-off

4) The company's option plans permit a repricing of options after corporate activity like a spin-off

5) The company wants to re-price the options so that optionholders aren't hurt by the spin-off, so: i) the company would like to reduce the exercise price if the FMV goes down, but not raise the exercise price if it goes up.

6) Assume the spread and ratio tests of 424(a) will be met

Any potential issues with this? Is it a modification, assuming the rules of Section 424(a) are met?

[Guest Harry O]

Of course the company's market value will decrease after a spin-off. That is an economic fact, not a belief. How will the spread and ratio tests be met if the exercise price is lowered?