Repricing (Options)
Lowering the strike price of existing stock options, usually after a company's value has dropped.
Definition
Option repricing occurs when a company lowers the exercise price of outstanding stock options that are significantly underwater (strike price well above current FMV). This can involve cancelling existing options and issuing new ones at the current lower price, or directly amending the option terms. Repricing requires board and often shareholder approval and has accounting and tax implications. It is most common after severe down rounds.
Why it matters
If your options are deeply underwater (e.g., $10 strike but the 409A is now $3), repricing can restore their value as a retention tool. Without repricing, underwater options provide zero incentive to stay. Companies that do not reprice risk losing key employees.
Example
After a market downturn, employees hold options with a $15 strike but the 409A is $4. The company reprices all employee options to $4. An employee with 20,000 options goes from $0 in potential value to $0 immediately but regains upside potential.