IRS Section 409-A, which was formed in 2004, requires all companies who wish to grant any kind of nonqualified deferred compensation plan to either their employees or advisors, to comply with specific requirements. 409A violation may result in severe penalties to the company and grantees. Companies who employ US-tax payers are required to make sure that no grant of Employee Stock Option (ESO) or other Non Qualified Stock Option (NSO) is granted in a strike price which is lower than the company's Common Stock Fair Market Value (FMV) on the grant date. In order to determine the stock FMV the company is required to rely on a valuation preformed not more than 12 months previous to the grant date.
This regulation impacts public companies as well as private companies.
DB Financial Department provides companies with comprehensive Independent analysis report with regard to FMV of the company's stock, in order to assist them in determining strike price for ESO Plans to comply with 409A requirements.
We deploy several methodologies in order to evaluate company's Fair Market Value (FMV) while allocating the value between different stock classes.
The Process:
- Reviewing the company's ESO plans
- Reviewing the company's business status
- Applying the most appropriate methodology in order to calculate company's valuation
- Allocating company's FMV between company's different stock classes
- Calculating ESO Fair Value using the process outline in the previous section
Download: ESO-Valuation-409A-Presentation (PDF)
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