Private Company Stock Options: Determining Fair Market Value in ...

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The Law • For example, option granted at $2 when FMV is $3 • At vesting, FMV is $7 • Under Section 409A, the spread of $5 is taxed at ordinary income rates (a tax of $2 at 40% rate) on the vesting date • Plus an additional 20% tax on the spread of $5 (or $1) 8
Valuation Methods • To qualify for the exemption from 409A, the exercise price per share must not be lower than the FMV of the underlying stock at grant • Options granted before January 1, 2005 are exempt from 409A if FMV was determined in good faith 9
Page 1 and 2: Private Company Stock Options: Dete
Page 3 and 4: The Law • American Jobs Creation
Page 5 and 6: The Law • 409A penalizes: - Disco
Page 7: The Law • Penalty for non-complia
Page 11 and 12: Valuation Methods • Factors to co
Page 13 and 14: Valuation “Quasi” Safe Harbor
Page 15 and 16: Valuation “Quasi” Safe Harbor
Page 17 and 18: Case Study • Emerging technology
Page 19 and 20: Scenario 1 • IPO likely in 2006 o
Page 21 and 22: Scenario 3 • Neither IPO nor sale
Page 23 and 24: Modifications and Extensions • Mo
Page 25 and 26: Modifications and Extensions • Ex
Page 27 and 28: Remedial Measures • Alternative 1
Page 29 and 30: Accounting Considerations • AICPA
Page 31 and 32: GOODWIN PROCTER LLP Boston Exchange

Private Company Stock Options: Determining Fair Market Value in ...

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