From CB's Reload-defined Post...
Enter Mr. Cook. In 1988, he came up with a new type of stock option — the reload — that put him and his firm on the map. Mr. Cook became the ambassador of reloads, selling them to corporate clients interested in pleasing executives. As he explained them, reload stock options were “enhancements” that allowed executives to increase their stock ownership, aligning their interests with those of shareholders.
IN reality, reloads were awards that were automatically replaced each time they were exercised. For example, if an executive received a grant of 1,000 options carrying a strike price of $10 a share, and later exercised them for $20 a share, he or she instantly got 1,000 more options with a new strike price of $20. Some reloads even had a special feature that covered the tax bills generated by option exercises. In these cases, the replacement option covered a larger number of shares than the original award to pay for taxes due, further diluting the equity stakes of existing shareholders.
Mr. Cook designed the first reload stock option plan for executives at the Norwest Corporation, a Minneapolis bank holding company. The plans soon spread through corporate America like wildfire. In a 1998 analysis of reloads, Mr. Cook noted one reason for their increased popularity. “As executives who have experienced the opportunities of reloads move to other companies or join boards of directors,” he wrote, “they are likely to influence the spread of reloads as a tool to obtain the benefits it provides.”
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