As the underlying options are exercised, the issuer then will have to make payments to the holders of the ESOARS, which will involve additional transaction costs.
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?
Zions Bancorporation has broken innovative ground with ESOARS.
The SEC's Office of the Chief Accountant and Zions are still hashing out the proper accounting treatment for ESOARS.
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.
Thus, an expense would need to be recognized at the end of each period so the balance sheet liability equals the difference between the exercise price of the options and the current market price of the stock for the number of ESOARS that remain outstanding.