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What to do with Underwater Stock Options

November 14, 2008

By Mark Poerio and Sean Honeywill

As a result of the stock markets plummet in 2008, the executives of many public and private companies now hold stock options that have little retention or incentive value because their exercise price far exceeds the current fair market value of the underlying shares. These options are commonly referred to as being out of the money or underwater and the time is right for attention to them. This is partly because shareholder approval is required or desired for most replacement programs, and it makes sense to start the planning process early in order to assure full consideration of the many issues noted below.