Adjustment Clause in a Stock Option Plan Allows Flexibility for Future Change

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Triton Emission Solutions appointed a new director and Chairman of the Board. His compensation included a stock option plan. The options were exercisable at $.50 per share.The stock option plan provided that: “The exercise price is subject to adjustment in the event that the Company subsequently issues any shares of its common stock or any options, warrants, convertible instruments or similar instruments at a purchase, exercise or conversion price less than $0.50 per share.”

This adjustment clause permits the exercise price of the options to be capped at $.50, but to be reduced should the share price fall. This acts as an incentive to the employee/executive to contribute to the profitability of the company (to enhance the share price). Without the adjustment clause, the ESOP would no longer act as an incentive for the employee to remain with the company, should the share price drop below the exercise price.

Read the article here.Take away:

• ESOP adjustment clauses maintain the effectiveness of the plan should share prices drop below the original exercise price.