While research indicates the market value for ESOARS is likely to stay below a Black-Scholes price, that will not always be the case, says Evan Hill, a vice president of Zions who helped develop the security.
Setting up a record-keeping system for these securities that is tied to the record-keeping system for existing options (recall the value of the ESOARS is tied to the vesting and exercise behavior of the underlying options).
An assessment of these costs needs to take into account that the ESOARS in this auction represented 10% of the total number of employee stock options.
He estimates legal costs for an ESOARS auction could be as low as $20,000 for smaller companies ($350 million to $750 million in market capitalization) and as much as $100,000 to $200,000 for larger companies ($2 billion to $20 billion market cap).
Hill counters these concerns by pointing out that an ESOARS auction "sells securities in an open auction that the company has to accept.
The SEC in its letter to Zions concluded that "the ESOARS instrument is sufficiently designed to be used as a market-based approach to valuing employee share-based awards under Statement 123(R).
The size of the ESOARS offering relative to market demand.
The letter implies that not all ESOARS will qualify, Who will make this determination?
Similarly, how will the use of ESOARS affect comparability?
If the ESOARS are classified as a liability, the company would credit the proceeds to a liability account, and under Accounting Principles Board Opinion no.