+ The new final regulations clearly indicate that Section 83 does NOT apply to a transaction to which Section 421 applies. Thus, for example, no valid Code 83(b) election (except for AMT purposes) may be made with respect to restricted stock received upon exercise of an ISO option. Thus, companies may want to reconsider their approach if they are using "reverse vesting" with incentive stock options.

+ The new final regulations provide that an offer to change the terms of an option will not constitute a modification of an option IF and only if the offer to change remains outstanding for less than 30 days.

+ The new final regulations provide that any inadvertent modification of an option will not be treated as a modification of an option if the inadvertent modification is reversed by the earlier of the date the option is exercised or the last day of the calendar year during which the inadvertent modification occurred.

+ The new final regulations provide that an ISO plan must specify a separate maximum aggregate number of shares available for issuance pursuant to the exercise of incentive stock options if the plan also allows other equity incentive awards. This will no doubt require changes to many existing ISO plans. Good thing there is a transitional rule for options granted prior to the end of this year!

The new regulations are generally effective as of August 3, 2004.