ESOs are usually granted at-the-money, i.e., the exercise price of the options is set to equal the market price of the underlying stock on the grant date.Because the option value is higher if the exercise price is lower, executives prefer to be granted options when the stock price is at its lowest.In comparison, had the options been granted at the year-end price when the decision to grant to options actually might have been made, the year-end intrinsic value would have been zero.Backdating does not violate shareholder-approved option plans."I'm not going to justify Broadcom's actions, but this is what tech companies did back then," he said, adding that Broadcom's size seemed to be a target to federal authorities."They're trying to make a point."For more Anaheim Ducks news, including up to date analysis on possible players given up to free up cap room check out The Puck Drop: Your Source for Everything Anaheim Ducks.Most shareholder approved option plans prohibit in-the-money option grants (and thus, backdating to create in-the-money grants) by requiring that option exercise prices must be no less than the fair market value of the stock on the date when the grant decision is made. For example, because backdating is used to choose a grant date with a lower price than on the actual decision date, the options are effectively in-the-money on the decision date, and the reported earnings should be reduced for the fiscal year of the grant.(Under APB 25, the accounting rule that was in effect until 2005, firms did not have to expense options at all unless they were in-the-money.
The burgeoning company was hiring most of its employees on the same terms: few dollars but lots of options. “Two individuals could start a week apart and each have their options priced at their respective start dates. When they hear of some businessman denounced by the media and indicted by a U. Attorney, they are likely to say to themselves: “Well, there certainly seems to be something to it.His good luck was that—having lost his job, three years of his life, and millions of dollars—he was ultimately vindicated. Twelve years later, in 2006, revenues were .7 billion—a thousand-fold increase.The Wall Street Journal (see discussion of article below) pointed out a CEO option grant dated October 1998.The number of shares subject to option was 250,000 and the exercise price was (the trough in the stock price graph below.) Given a year-end price of , the intrinsic value of the options at the end of the year was (-) x 250,000 = ,750,000.