An Article on how companies may deal with a situation where stock options granted to incentivize employees are "underwater" because they have an exercise price greater than the market price of the underlying stock as a result of a decline in stock prices. The Article discusses stock option repricing and exchange programs, practices which include reducing the exercise price of the underwater options and exchanging underwater options for new options based on current market levels, for restricted stock, for a payment of cash or for a combination of options and cash. The Article outlines applicable US federal securities laws, stockholder approval requirements and accounting and tax issues to consider when determining whether to effect option repricing or exchanges. The advantages and disadvantages of option repricing and exchanges to a company and its stockholders are also examined.