Repricing Overview

If the value of a company's stock declines such that the current fair market value of the stock is less than the option price of outstanding stock options, the option is considered to be underwater. The company may decide to reprice some or all of the options. Optionee's can choose not to participate in the repricing, and you might want to exclude individuals and groups, such as insiders or foreign offices.

When a stock is repriced, optionees surrender their higher-priced stock options in exchange for lower-priced options. Repricing affects stock options with option prices that exceed a specified break price. A repricing cancels the shares that remain outstanding on the original grant and creates a new grant for the outstanding shares at a new, lower option price on a specific date. The new stock option, granted as a result of the repricing, usually retains many of the characteristics of the old stock option.

The number of shares in the new stock option grant is equal to the number of outstanding shares in the old stock option grant as of the cancel date of the option. All transactions that occurred before the repricing remain with the repriced option.