Stock Option Exercise Period

[jpod]

The 409A regulations providing an exemption for stock options define a "stock option" as meaning an offer of the corporation for "a stated period of time" (i.e., the exercise period). Can you meet this requirement if the option exercise period expires 10 years from the date of grant or 3 years from the vesting date, whichever occurs FIRST? I don't think anyone would ever question that you still have a good "stock option" if it expires short of the stated expiration date on account of termination of employment. Does the "stated period of time" requirement mean a maximum period of time, subject to earlier termination for whatever reason stated?

[401 Chaos]

Not sure I've ever seen particular guidance under 409A on that particular question but it seems to me that approach would work. As you note, options are routinely cut short of the maximum option period due to forced exercise / forfeiture following separation from service. I'm guessing here the vesting must be tied to some performance milestone that may occur before the 7th anniversary of the date of grant and so cut short the regular 10-year period? Seems to me as long as the option provides that the period will not go beyond a set number of years then the possiblity of earlier termination should not be a 409A compliance issue.