At the time of the option grant, the fair market value of each share is $50. The cap would apply in this case so that only 4,000 of the 100,000 options ($200,000 ÷ $50 = 4,000) would be eligible for the Stock Option Deduction, but the remaining 96,000 options would not be eligible for the Stock Option Deduction. Consistent with this, paragraphs 110(1)(d) and 6204(1)(b) [5] are designed to prevent stock option plans from becoming disguised remuneration, and to ensure that employees who exercise options bear a certain amount of risk. Since, until exercise, the employee runs no risk, the expectation that the shares will be held for at least two years introduces that missing element. Statutory Stock Option Plans require shareholder approval within 12 months before or after adoption by the board of directors. Statutory options include Incentive Stock Options (ISO’s) and options granted under an Employee Stock Purchase Plan (ESPP).