Under long-standing rules (the status of which, as discussed below, is not clear), the tax treatment provided for incentive stock options has been available for the combination of an incentive stock option (ISO) and a stock appreciation right (SAR) even though the right to exercise one affects the right to exercise the other, provided the SAR, by its terms, meets certain requirements:
(1) The SAR will expire no later than the expiration of the underlying ISO.
(2) The SAR may be for no more than 100 percent of the spread (i.e., the difference between the exercise price of the underlying option and the market price of the stock subject to the underlying option at the time the SAR is exercised).
(3) The SAR is transferable only when the underlying ISO is transferable, and under the same conditions.