at-the-money when issued. While maturities vary across
firms,theseoptions aretypically long-term,witha 10-year
maturityrepresenting thenorm, at issue. Naturally, atany
pointintime,theoptionsoutstandingatafirmwillrepresent
varyingmaturitiessincetheyweregrantedatdifferentpoints
intime.Firmsthatuseemployeeoptionsusuallyrestrictwhen
andwhethertheseoptionscanbeexercised.Itisstandard,for
instance,thattheoptionsgrantedtoanemployeecannotbe
exercised until they are vested. For this to occur, the
employeeusuallyhastoremainwiththefirmforaperiodthat
isspecifiedwiththecontract.Whilefirmsaddthisrestriction
tokeepemployeeturnoverlow,italsohasimplications for
option valuation that will be examined later. Figure 11.4
reports onvested andnonvested options atCisco in 2005,
broken down by exercise price.
FIGURE 11.4Vested and Nonvested Options—Cisco
Source:Cisco 10-K filings.