The Stock Options Book - Softcover

Über die Autorin bzw. den Autor

Scott Rodrick is the publications director and webmaster at the National Center for Employee Ownership (NCEO). Ed Carberry is the NCEO's director of communications. Corey Rosen is the NCEO's executive director. Ryan Weeden, a former NCEO staffer, is the executive director of the Global Equity Organization. David R. Johanson is an attorney whose practice focuses on ESOPs, other equity incentive plans, and business succession planning. Mark A. Borges was formerly General Counsel for E*TRADE Business Solutions Group, a subsidiary of E*TRADE Group, Inc. Susan E. Thompson is a consultant with Hewitt Associates LLC, a compensation and employee benefits consulting firm, in the firm's compensation practice. Benjamin S. Neuhausen is a partner with the Professional Standards Group of Arthur Andersen LLP. Alan A. Nadel is the managing director of Arthur Andersen's Human Capital Services Consulting Group in New York. Gregory M. Kopp is a senior consultant with Arthur Andersen's! Human Capital Services Consulting Group. Emily Van Hoorickx is a vice president-investments and principal with the PaineWebber San Jose Corporate Services Consulting Group. Brian B. Snarr is a partner in the New York office of Morrison Cohen Singer & Weinstein LLP. Fred E. Whittlesey is the director of compensation for Broadcom Corporation. Jill Zidaritz, CEP, is the director of employee shareholder services for Sybase, Inc.

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From Chapter 2, "Administering an Employee Stock Option Plan":

A "same-day-sale" exercise is a means by which an employee can finance the exercise of a stock option by immediately selling through a securities brokerage firm that number of option shares from the stock option being exercised necessary to satisfy the payment of the total required option exercise price for the option shares being purchased plus any withholding taxes due to the company.

Generally to effect a "same-day-sale" transaction, an employee will first contact the plan administrator and indicate his or her decision to exercise a vested stock option. At that time, the employee will be advised of the securities brokerage firm or firms used by the company for these transactions and asked to select a broker (if the employee does not already use one of the brokerage firms included on the company's list). The employee will also complete the required forms for a standard stock option exercise (typically, a stock option exercise notice) and the additional forms necessary for a "same-day-sale" exercise (such as a set of irrevocable instructions to the company, a stock transfer power, a Form W-9, and, if a brokerage account needs to be established, a new account form and/or a margin agreement form).

Once the forms have been completed and the plan administrator has confirmed that the employee does, in fact, have sufficient option shares to cover the proposed transaction, the exercise notice and the irrevocable instructions (which may be integrated into a single document) will be immediately transmitted to the securities brokerage firm. The securities brokerage firm will also be instructed as to how many option shares are to be sold (either just enough to cover the total required option exercise price for the transaction and any associated withholding taxes or some greater number, up to all, of the option shares).

Following the sale, the company is notified of the sale price so that the required withholding taxes, if any, can be calculated. This figure is then transmitted to the securities brokerage firm so that it can divide the sales proceeds between the company and the employee.

Generally, within the settlement period (currently three business days), the securities brokerage firm will remit to the company the portion of the sales proceeds necessary to cover the total required option exercise price for the option shares being purchased and any applicable withholding taxes due to the company. This amount is usually paid by check, by wire transfer, or through a deposit into the company's account at the securities brokerage firm.

Typically, the company will not instruct its transfer agent to deliver a share certificate for the "same-day-sale" to the securities brokerage firm until payment of the option exercise price has been made. Upon receipt of the certificate, the transaction will be completed and the balance of the sale proceeds, less brokerage commissions, is remitted to the employee.

A company may make formal arrangements with one or more securities brokerage firms to facilitate "same-day-sale" exercises. Not only do such arrangements simplify the administration of these programs, they also enable the transactions to be completed more expeditiously. Sometimes referred to as "captive broker" programs, the company will keep the securities brokerage firm or firms updated on outstanding stock options and vested shares, thereby enabling the employee to contact the brokerage firm directly when he or she wants to exercise a stock option. To further simplify the administration of these transactions, some companies will establish an "omnibus" account with one or more securities brokerage firms and transfer a block of shares to the account for the purpose of ensuring that sufficient shares are available to deliver upon the settlement of the sale.

For income tax purposes, it is important for a company to satisfy itself as to when the option exercise is deemed to occur in the context of a "same-day-sale" transaction either the date that the stock option exercise notice is submitted or the date that payment of the total required option exercise price is received. To the extent that these are different dates, the amount of income realized from the exercise, if any, and the applicable withholding taxes may vary. In addition, the determination may result in a difference between the exercise date and the sale date, thereby resulting in variations between the amount of gain reported by the company and by the securities brokerage firm. Companies employ various techniques to ensure that payment of the option exercise price is received or credited for the employee's benefit on the earliest possible date, such as providing in their stock option plans that delivery of the appropriate paperwork for a "same-day-sale" exercise will be!
an acceptable payment method or by arranging for immediate payment by, or receipt of a short-term "loan" from, a securities brokerage firm. The resolution of this matter for an individual company generally will be based upon the provisions of the company's stock option plan and/or the grant agreement, as well as by any applicable provisions of state corporate law.

Directors and officers subject to section 16 of the Securities Exchange Act of 1934 may participate in these "same-day-sale" exercise programs. As affiliates of the company, however, they are subject to certain restrictions not imposed on regular employees. For example, such "same-day-sale" exercise transactions may be restricted to the company's trading "window period." In addition, as affiliates, their sales of company stock must be made in compliance with the conditions of Rule 144, the federal securities law resale exemption that imposes certain conditions on any sale of securities by a company's directors and officers.

For accounting purposes, the implementation of a broker's "same-day-sale" exercise program does not result in the recognition of a compensation expense, because the company receives the full option exercise price for the option shares purchased, the company actually issues the shares, and no payment related to the exercise originates with the company.