In many recently drafted plans, express provision is made for repricing and the regrant approach will not be necessary. Usually, however, if a plan permits repricing, it will be expressly conditioned on shareholder approval. In such a case, repricing will not be possible by simple amendment to the exercise price of an outstanding option, but instead the board of directors will have to take the repricing proposal to the shareholders. Also, if a plan specifically contemplates repricing, other conditions may be imposed, including limits on the extent to which the exercise price may be reduced as well as other restrictions, such as vesting periods or specific restrictions on the underlying stock. Corporate Governance Issues.
Shareholders are usually opposed to the repricing of stock options.
As a result of this opposition, repricing presents a risk of, and has lead to, shareholder lawsuits. Such challenges will typically allege corporate waste or lack of appropriate shareholder approval. A charge of waste of corporate assets is based on the grounds that the corporation arguably has received no benefit from the repricing. If, however, an arrangement is found to have resulted in a waste of corporate assets, the directors would not be shielded by this presumption and may be held liable to shareholders. In the face of this potential legal opposition, a board of directors that is confronted with a repricing decision must carefully consider whether the repricing is necessary or desirable in light of the corporation's short and long term interests, as well as the interests of its employees and its shareholders.