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Stock options granted to employees at too low an exercise price relative to a planned IPO offering price. The SEC will require an IPO company to take an earnings charge as a compensation expense for part of the spread between the exercise price and the offering price. IPO companies routinely receive comments from (and negotiate with) the SEC on cheap-stock issues before the SEC approves the registration statement (i.e. S-1) and before the companies can go public. See a related FAQ.
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