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using mature shares (a stock for stock exercise), the employee is automatically granted a reload option for the same number of shares used to exercise the original option The exercise price of the reload option is the market price of the stock at the date the reload option is granted, and the term is equal to the remainder of the term of the original option Compensation cost related to options with reload features should be calculated separately for the initial option grant and each subsequent grant of a reload option In the Basis for Conclusions (Appendix A to FASB Statement No 123), the FASB states its belief that, ideally, the value of an option with a reload feature should be estimated at the grant date, taking into account all of its features However, the Board concluded that it is not feasible to do so because no reasonable method currently exists to estimate the value added by a reload feature Accordingly, the Board decided that compensation cost for an option with a reload feature should be calculated separately for the initial option grant and for each subsequent grant of a reload option as if it were a new grant (i) SETTLEMENT OF AWARDS Employers occasionally repurchase vested equity instruments issued to employees for cash or other assets Under FASB Statement No 123, amounts paid up to the fair value of the instrument at the date of repurchase should be charged to equity, and amounts paid in excess of fair value should be recognized as additional compensation cost For example, a company that repurchases a vested share of stock for its market price does not incur additional compensation cost A company that settles a nonvested award for cash has, in effect, vested the award, and the amount of compensation cost measured at the grant date and not yet recognized should be recognized at the repurchase date A repurchase of vested stock options would be treated in a manner similar to a modi cation of an option grant Incremental compensation cost, if any, to be recognized upon cash settlement should be determined as the excess of cash paid over the fair value of the option on the date the employee accepts the repurchase offer, determined based on the remainder of its original expected life at that date Additionally, if unvested stock options are repurchased, the amount of previously unrecognized compensation cost should be recognized at the repurchase date because the repurchase of the option effectively vests he award Exhibit 3912 illustrates the accounting for the repurchase of an award by the employer In certain circumstances, awards granted prior to adoption of FASB Statement No 123 may be settled in cash subsequent to adoption of FASB Statement No 123 Compensation cost would not have been recognized for the original award under APB Opinion No 25 if the exercise price equaled the market price on the grant date Because no cost was previously recognized for the original award, the cash settlement of the vested options is treated as a new grant and recognized as compensation cost on the repurchase date However, if the original options had been in-the-money and thus had intrinsic value immediately before the settlement, the intrinsic value is excluded from compensation cost, similar to the accounting for a grant modi cation (j) TANDEM PLANS AND COMBINATION PLANS Employers may have compensation plans that offer employees a choice of receiving either cash or shares of stock in settlement of their stock-based awards Such plans are considered tandem plans For example, an employee may be given an award consisting of a cash SARs and an SAR with the same terms except that it calls for settlement in shares of stock with an equivalent value The employee may demand settlement in either cash or in shares of stock and the election of one component of the plan (cash or stock) cancels the other Because the employee has the choice of receiving cash, this plan results in the company incurring a liability The amount of the liability will be adjusted each period to re ect the current stock price If employees subsequently choose to receive shares of stock rather than receive cash, the liability is settled by issuing stock If the terms of a stock-based compensation plan provide that settlement of awards to employees will be made in a combination of stock and cash, the plan is considered a combination plan In a combination plan, each part of the award is treated as a separate grant and accounted for separately The portion to be settled in stock is accounted for as an equity instrument and the cash portion is accrued as a liability and adjusted each period based on uctuations in the underlying stock price.

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