These plans are contracts between a company and its employees that give employees the right to buy a specific number of the company s shares at a fixed price within a certain period of time. Employees who are granted stock options hope to profit by exercising their options at a higher price than when they were granted. Plans allow employees to exercise their options after a certain number of years or when the company s stock reaches a certain price. Companies sometimes revalue the price at which the options can be exercised. This may happen, for example, when a company s stock price has fallen below the original exercise price.
Companies revalue the exercise price as a way to retain their employees.
If a dispute arises about whether an employee is entitled to a stock option, the SEC will not intervene. State law, not federal law, covers such disputes. Unless the offering qualifies for an exemption, companies generally use Form S-8 to register the securities being offered under the plan. For more information about employee stock options plans, visit the website of The National Center for Employee Ownership.