North Dakota Stock Option Plan is a comprehensive program that allows employers in the state of North Dakota to grant various types of stock options and stock appreciation rights (SARS) to their employees. This plan is designed to incentivize employee performance and align their interests with the success of the company. The plan provides for the grant of three types of stock options: Incentive Stock Options (SOS), Nonqualified Stock Options (Nests), and Stock Appreciation Rights (SARS). 1. Incentive Stock Options (SOS): SOS are a type of stock option that can only be granted to employees and must adhere to specific rules outlined by the Internal Revenue Code (IRC). SOS offer certain tax advantages to employees if certain holding period and other requirements are met. They provide employees the right to purchase company stock at a predetermined exercise price, usually lower than the market value at the time of grant. SOS often have a longer vesting period and are subject to stricter regulations. 2. Nonqualified Stock Options (Nests): Nests, also known as Nonstatutory Stock Options (SOS), are not subject to the same restrictions as SOS. They can be granted to employees, directors, and consultants, and they do not have to adhere to specific IRC requirements. Nests allow the recipient the flexibility to exercise options at any time. Unlike SOS, Nests are subject to ordinary income tax on the difference between the exercise price and the fair market value of the stock at the time of exercise. They are typically granted with a shorter vesting schedule and can be more flexible in terms of exercise and taxation. 3. Stock Appreciation Rights (SARS): SARS are a form of stock-based compensation that does not involve granting actual stock options. Instead, SARS provide employees with the right to receive the appreciation in the value of a specified number of shares over a set period. Upon exercise, the participant receives the difference between the fair market value of the stock on the exercise date and the grant price. SARS can be granted alongside stock options or independently. They provide a cash-equivalent benefit to employees without requiring them to purchase company stock. These three types of stock options and stock appreciation rights offer different advantages and considerations for both employers and employees. It is crucial for employers to carefully design and administer their stock option plans according to applicable laws, regulations, and the specific needs and goals of their company and workforce.