AMT and Equity Compensation
Alternative minimum tax, nonqualified stock options, incentive stock options and other forms of equity compensation.
$100,000 ISO Rule
Posted by: MaryL2016, March 25, 2016 05:24PM

Kaye,

How would you apply the rule if you modified a ISO grant to become early exercisable after grant date?

100,000 ISO option with $2 price. This grant vested in 25,000 in 2015, but in 2016, the board changed it to early exercisable.

I think the most logical application of the $100,000 rule is to have the below ISO/NQ split.

75,000 ISO shares. This includes the 25,000 shares that vested in 2015 and additional 50,000 that became early exercisable in 2016 ($100,000/$2 price).

25,000 NQ shares. This is all the shares remaining after subtracting the 25,000 ISOs that vest previously and the 50,000 additional ISOs that became early exercisable in 2016.

This above calculation would have to factor in any other ISO grants that would have vested in the same year.

Thanks!


Re: $100,000 ISO Rule
Posted by: Kaye Thomas, March 31, 2016 07:03PM
I agree with your interpretation. I've addressed this situation in my writing and applied the rule as you state.

Kaye Thomas
Fairmark.com

Re: $100,000 ISO Rule
Posted by: MaryL2016, March 31, 2016 08:36PM
Thanks Kaye! I appreciate your quick response.

Re: $100,000 ISO Rule
Posted by: MaryL2016, April 1, 2016 06:22PM
Hi Kaye,

One other question, we did a stock split, and now the ISO/NQ splits that were done previously aren't compliant. Would you recommend changing the ISO/NQ splits? Of course the option ledger reports an ISO/NQ error and I'm debating updating the split to get rid of these errors.

Re: $100,000 ISO Rule
Posted by: Kaye Thomas, April 5, 2016 06:03PM
I don't know what you mean. A stock split shouldn't affect this issue, as it changes the number of shares but not the aggregate amount of original fair market value.

Kaye Thomas
Fairmark.com



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