Underwater Option Exchanges: Baseline Theory and Implementation Approaches

Takis Makridis

The economic recession in 2009 led to many companies implementing option exchange programs in an effort to restore lost value and broken incentives. These exchange programs differed markedly from the pure repricings seen after the dot.com bubble.

Companies contemplating an exchange program face numerous questions regarding the repercussions on employee incentive, motivation and retention, as well as corporate accounting and legal implications. This White Paper provides insights on why companies may choose to exchange underwater options for at-the-money stock options or restricted stock and the related implementation requirements.

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