Extract to table

The most critical of these conditions, and the one that is the focus of this memorandum, is that the exercise price of the stock option must not be less than the fair market value of the underlying stock on the date of grant

In addition to the exercise-price requirement, a stock option must satisfy the following conditions to be excluded from Section 409A: (1) the option must be granted with respect to "service recipient stock" (generally, common stock of the employer corporation or its direct or indirect parent); (2) the option must not include any feature for the deferral of compensation beyond the exercise of the option and transfer of the underlying stock; (3) the option must be granted by the service recipient (or a related entity) to a service provider in connection with the performance of services; and (4) the number of shares subject to the option and the exercise price must be fixed or determinable on the date of grant

Under this regulation, the FMV of stock of a privately held company must be determined by the "reasonable application of a reasonable valuation method

The appraiser must be a qualified individual or firm with significant experience in performing valuations of the type of property being valued

The formula must be used consistently for all purposes involving the transfer of stock (including regulatory filings, loan covenants, and other transactions)

Under ASC 718 (Stock Compensation), stock-based compensation expense must be measured based on the fair value of the award at the grant date