Insider! [Wealth Management for CEOs and Named Executive Officers]
Insider! [1] [Wealth Management for CEOs and Named Executive Officers]
We focus on presenting the utility of listed, exchange-traded options [LETOs], both puts and calls in corporate executive insider [CEI] wealth management [WM]. [2]?Three things stand in the way of successful WM for CEIs.?They are:
?1.????The singular, uni-disciplinary, siloed nature of WM for the CEI currently being practiced.
2.????A paradigm congestion [PC] in the the multi-disciplinary interaction of tax and financial reporting protocols of stock-based compensation [SBC], and
3.????Corporate governance [considered first]
The inertia of PC within the multi-disciplinary aspects of CEI SBC will work its way through a corporate governance fulcrum, ultimately providing a more efficient and effective WM planning platform for professionals and their CEI clients.
Governance
A backdrop in the WM for insiders of publicly-traded companies [PTCs] is the increasingly Rube Goldberg-esque contrivance of corporate governance besetting Boards of Directors [BODs] as it relates to important issues confronted by their Agent…the CEI. [3] ?Procter & Gamble’s [P&G] 2021 Proxy and its 18-page Compensation Discussion & Analysis [CD&A] section serves as an example.
As we are now seeing nationally, corporations may require many things from their employees including their abstaining from behavior or actions that are perfectly legal!
The Government’s CEI Regulations
There is no statutory prohibition against CEI LETO use.?There are speculative as well as conservative uses of LETOs and these are well established.?The speculative uses by insiders should be discouraged.?The conservative uses by insiders should be promoted, as a company would promote any other effort to encourage employer common stock [ECS] retention.?The two most conservative uses of LETOs for insiders, and the most beneficial, are the selling or writing of a covered call [cc] and the purchase of a married put [mp] i.e., the simultaneous purchase of stock with an equivalent purchase in protective puts. [4]
Understanding CEI usages of LETOs is important.?The Texas Gulf Sulphur case [401 Fed 2d. 833], established in part the implementation of…
“Congressional purpose that all investors should have equal access to rewards of participation in securities transactions and that all members of investing public should be subject to identical market risks, including risk that one’s evaluative capacity or one’s capital available to put at risk may exceed another’s capacity or capital.” [SEC Act of 1934, Section 10b, 15 U.S.C.A., Section 78j(b)].
In addressing Securities Act of 1934 [Act] considerations [§16c], neither of the above transactions are a short sale, where an insider selling the security does not own the security sold or is unable to deliver the security sold within 20 days [48 STAT 896 (1934), 15 U.S.C. Sec. 78p (c) (1958)].?In the above situations, ECS accompanies the LETO used, i.e., descriptive terms “covered” and “married.”?The May 1, 1991 changes to the Act have given LETO transactions the same weight as any other Section 16 reportable event, even though not of the issuer.?Exercises, whether from ESOs or LETOs, are no longer matchable events for purposes of short-swing profit recovery under §16(b) but are rather only reportable events.
In both cases above, where there is a simultaneous exercise of ESOs, the matchable event is the initial sale or write of the cc and the initial purchase of the mp.?The matchable events are the matching of buys and sells, or sells and buys, of employer securities, including issuer derivative securities, for a profit, within six months of one another.?There is no defense against violations of the short-swing profit rule which requires full disgorgement of any profits.
Both the cc and the mp are put equivalent positions [PEPs], i.e., ECS sales, each a matchable event for disgorgement purposes against ECS purchases such as non-exempt ESO grants or ECS / LETO / Warrant open market purchases.?With cc’s there is no Rule 10b-5 claim against the insider seller / writer after the initial sale / write as the transaction is outside the control of the insider seller / writer, i.e., if LETO exercise by Exchange assignment were to occur.?The LETO call buyer controls the contractual terms and exercises against the CEI seller / writer who may or may not be in possession of material, non-public information at the time.?
The above sets the stage for CEI conservative LETO use, legally and without liability.?The message these transactions send to the public and shareholders is they allow a CEI certainty in WM planning…while retaining ECS.
The P&G Incident [5]
In 1985, a P&G CEI trading policy memo dated March 12, 1984 to Non-Director Officers of the Procter & Gamble Company, subject – CEI Liability and Reports Under the Federal Securities Laws was found to be incorrect:
“Options Market–Trading in options for P&G stock in the so-called options market is not now available for Company officers. Amex is the only exchange carrying options in P&G stock and its rules prohibit participation by insiders of the company whose stock is involved in the option.In addition, the Company is concerned that option trading, which inherently involves betting or hedging on movements of the Company’s stock, could well appear questionable or unseemly in the eyes of shareholders.?Accordingly, the Company requests that you refrain from all forms of transactions in the “options market”, for your protection and that of the Company.” [6]
As stated earlier, corporations may employ any policies for their employees to follow but in P&G’s case it would have been helpful if the policies were factual as there was no such Amex rule prohibiting P&G CEI trading.?P&G Legal admitted to being “baffled” by a rule on which they relied possibly since LETO trading began on the Chicago Board of Options Exchange [CBOE] in 1973.?On April 23, 1985, P&G Legal averred on the legality of such transactions:
“We readily agree that the SEC does not have specific restrictions prohibiting the kind of option trading we are here discussing.” [7]
A number of P&G insiders believed that P&G Legal didn’t want the use of LETOs so they seized upon a nonexistent Amex rule to support this policy prohibition.??The comment on the “unseemly” nature of trading in the “options market” is more indicative of how the corporate legal community has also dealt with the issue since then.?It might be time for corporate counsel to finally step into the…20th Century.
The Siloed Nature of WM for the CEI
CEI “wealth” is based on an overconcentration in ECS ownership, a fact of which every WM professional should be aware.?In their defense, they may have been overwhelmed by tax, regulatory and investment events effecting CEIs.?In chronological order, those events are…
Changes to SEC §16(b)-3
The Securities and Exchange Commission [SEC], in 1996 enacted changes to §16(b)-3 of the Act allowing CEI ESO transfer for gift tax purposes to children or trusts for their benefit, establishing ESOs potentially as transferable stock options [TSOs].?The Internal Revenue Service [IRS], responding to requests from professionals for valuation guidance, issued IRS Revenue Procedure 98-34 [RP98-34].?Prior to RP98-34, only the 1953 Revenue Ruling 196,1953-2 CB 178 dealt with the issue of ESO valuation protocol. ?Lower ESO values meant unified credit leverage, i.e., more ESOs transferred with greater wealth creation potential…legally.
Traveler’s 1997 Petition for a Prohibited Transaction Exemption [PTE]
?The petition [https://www.dol.gov/ebsa/regs/fedreg/notices/97_33183.htm] allowing ESOs as in-kind 401(k) contributions in lieu of ECS was cancelled with the firm’s 2003 Citigroup merger.?The benefit would have meant ESO exercise within a tax-sheltered account and no individual income tax deduction, but also no employer compensation expense deduction.
SEC Release No. 34-60126 [Release]
The Release [https://www.sec.gov/rules/sro/cboe/2009/34-60126.pdf] allowed ESOs to serve as collateral in the write [sale] of LETOs.?Guidance from CBOE Regulatory Circular RG09-141 [https://www.cecouncil.com/media/2585/f0b0d88a-8bea-4f6c-908c-0996423d530a.pdf] was provided broker-dealers indicating client accounts now had covered call margin status from the ESO / LETO call sale, a creating a combined transaction or CT sans market risk.
Connecting the Dots!
The gradualism of events over the last 25 years, combined with the bullish quantitative easing opiate now sustaining equity markets, provides cushion for WM professionals’ complacency on CEI LETO use.?That time has past!?We suggest a default CEI trading protocol The Only Prudent Stock / Option Investment Law [TOPSOIL?] indicating that…
An ESO is a productive [equity] asset, and, as such, it has utility in its ability to secure a riskless investment return
TOPSOIL? redefines ESOs from their singular status as contingent claims on future ECS appreciation.?The CT secures an investment return apart from its direct ECS relationship and may be used by PTC CEIs as TSOs to a family limited partnership [FLP] as income [cash] generators possibly within a grantor retained annuity trust [GRAT].?In this manner, CTs enjoy valuation double discounts.?First, discounts may be applied to ESO value upon its FLP contribution with further discounts applied then to the FLP limited partnership interests in full compliance with the general business purpose test.?Why would a CEI do this?
The CEI Trading Trustee [CITT]
The CITT provides a simple answer to the last question…because they can!?In fact, as the CITT’s role is in managing a CEI’s ECS holdings on a risk vs. return basis, the answer would be…because they must!?The CEI’s §16(b) liability under the short-swing profit rule and Rule 10b-5 remains but the CITT would then be faced with the prospect of officially questioning obvious employer imprudence of established fiduciary protocols via their insider trading policies. ?The following default provisions in CITT client account management:
PC?
The CEI WM PC results from incongruities between SBC ownership issues and reconciliation with corporate / individual financial reporting and tax issues.
SBC Ownership
When are PTC ESOs, restricted stock / units [RS / RSUs], performance shares / units [PS / PSUs], actually “owned” by insiders??No less an authority than the IRS has suggested in IRC Regs. §1.83-3(d) Transferability of Property that…
“property is transferable if the person performing the services or receiving the property can sell, assign or pledge (as collateral for a loan, or as security for the performance of an obligation, or for any other purpose) his interest in the property to any person (emphasis applied where indicated).”
…with property status based on the person holding the property’s ability to transfer same to someone else indicating ownership.?Absent this capability, do transfer restrictions subject assets, e.g., various SBC items to a standard of value other than the minority interest fair market value [MIFMV] that identifies shares of exchange-traded PTCs enjoyed by non-insider P&G employees??Do P&G CEI shares have a value other than that.?What is it?
The application of lack of marketability [LOM] discounts, i.e., reductions in the MIFMV value standard, may inure to CEIs due to their status.?The P&G 2021 Proxy provides examples of the basis for LOM valuation adjustments.?Ownership issues attendant to SBC valuation has two parts, the first relating to SBC CEI policy and the second part relating to clawbacks resulting from financial reporting misstatements or other untoward events by the CEI.
P&G CEI Trading Policy Issues
P&G Corporate governance eschews the use of employment contracts by CEIs.?This from P&G’s 2021 Proxy in the CD&A as the C&LD Committee believes…
?…employment?contracts?for?executives?are?not?necessary?because?our?executives?have?developed?a?focus?on?the Company’s?long-term?success.[p.66]
P&G CEIs face the following restrictions on their P&G SBC property:
1.????Generally, all P&G CEIs have blackout periods limiting P&G SBC transactions to the four quarterly windows in the month following the release of quarterly earnings limiting their exercise of SBC ownership rights on only one-third of available trading days.
2.????The P&G Executive Share Ownership program requires CEO P&G shares equal to 8 times his or her annual salary or $14,400,000 in P&G stock or 103,000 shares for the current CEO.?Named executive officers [NEOs] have lesser multiple requirements of 4-5 times their annual salary.?These are amounts represented in P&G shares that may not be sold as long as the CEO / NEO is employed by the firm.
3.????P&G has an Equity Holding Requirement reinforced when the CEO or any of the NEOs have not met the Ownership Guidelines that require the CEO to hold P&G shares for at least 3 years after exercise or until such guidelines are met with a 1 year NEO “hold” requirement to which this applies.
4.????P&G company policy “Employee, Officer and Director Hedging” prohibits short sales, pledging, collars or any other derivative transaction in an attempt specifically to “manage the risk of price movements in Company stock or to leverage the potential return of a predicted move in Company stock.”
Clawbacks
The P&G policy on the clawback of compensation is shown below [also from P&G’s 2021 Proxy in the CD&A at p.49 ]:
“Clawback policy permits the C&LD Committee to recoup certain compensation payments in the event of a significant restatement of financial results for any reason [our emphasis applied]…”
Or in violating…
“...certain plan provisions such as taking actions that may damage the reputation, goodwill, or stability of the Company.”
In employing a chronology to this issue of clawbacks and the negative discretion employed by the P&G BODs could one conclude that CEO / NEO SBC amounts are not final numbers??PC enters the CEI SBC discussion with the issue of variable accounting treatment [VAT].?The P&G Chief Financial Officer [CFO] knows that VAT tolls, as it relates to ESO date of grant, for P&G CEIs, a mutual understanding of an ESO award’s key terms and conditions has not been established.??Financial Accounting Standards Board [FASB], Accounting Standards Code [ASC] §718-10-25 provides that a “mutual understanding” does exist of the award’s key terms and conditions on the approval date or within a “relatively short time period.”
P&G’s disallowance of CEI contracts shapes the Agency relationship of their CEIs as de facto rather than de jure.?Are “mutual understandings” for example, not one-sided??P&G’s 2021 Proxy discusses compensation-related risk [p.25]…
“Key program elements assessed relating to potential compensation risks were pay mix, performance metrics, performance goals and goals and payout curves, payment timing and adjustments, severance packages, equity incentives, stock ownership requirements, prohibitions on pledging and hedging and trading policies.”
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…as well as the performance metrics it employs in its incentive programs, with an emphasis on the “stick” rather than the “carrot” ?may make a case for a lack of clarity in such mutual understanding.?The lack of contractual specifics may also serve to enforce employment artifices designed to further retention policies at the expense of the CEI’s property rights, i.e., an expense borne by the CEI.
Theophilos
?This 9th Circuit case established executory contract parameters in the context of SBC, as property. [8] Theophilos concerned itself with a “binding obligation” to acquire employer stock secured by “valuable consideration.”?Does the non-contractual Agency relationship at P&G and a button-downed governance presence create a forbearance in CEIs of their property rights constituting valuable consideration??As the CEI’s performance requirement extends to all his SBC, is it the nexus of the executory contract that would need to be valued. [9]
Robinson
IRC §83, Property Transferred in Connection with Performance of Services considers the value of property used in compensating an individual for services rendered.?In Robinson v. U.S.A. the standard for parity between an employer’s compensation deduction and the employee’s income therein included on his or her income tax return was challenged, at least in the Federal Circuit. [10]?The employer’s IRC §83(h) compensation deduction is also governed by IRC §162.?IRS Notice 2018-68 Guidance on the Application of Section 162(m) allows negative discretion adjusting executive compensation by companies to reduce compensation to zero, even when meeting performance and service requirements. [11]?Treasury Regulation 1.83-6(a) also requires the deduction amount to be in the same year where such income amount is included in employee income. ?The question becomes the meaning of “included.”
The Robinson’s employee had filed an IRC §83(b) election claiming low employer stock value as income, i.e., low tax, while the Robinson’s as employer claimed the amount was high, i.e., large deduction and tax savings which the Court of Federal Claims denied. On appeal, the Federal Circuit reversed the Court of Federal Claims ruling inserting the use of the term includible [rather than “included”] in an employee’s income as a matter of law as controlling, also striking down Treasury Regulation 1.83-6(a) as inconsistent with IRC §83(h).?Separate responsibilities for the employer and the employee in recognizing expense deductions and income respectively now existed.?As the individual taxpayer is responsible for the filing of his or her income tax return, is it also that taxpayer’s responsibility to make determinations in SBC value as executory contracts?
Financial Reporting / Tax Reconciliation
The politico-economic backdrop is now an integral part of this entire discussion.?Even with tax receipts at record highs for several years now reflecting a plateauing economy, annual budget deficits and the pandemic have pushed the Nation’s deficit and annual debt service to unheard of levels. ?During this period, corporate tax SBC withholding has been a solid source of revenue for the Department of the Treasury [Treasury]. ?An underperforming equity market would significantly reduce those remissions to the Treasury.?This concern was first addressed with the initial draft of the Tax Cuts and Jobs Act of 2017 [TCJA] where SBC taxation would be changed to vesting rather than exercise or sale. [12]?Treasury would no longer need the economic event of market appreciation to generate tax receipts!?This vesting or grant-based taxation [GBT] proposal disappeared with the final version of the TCJA.
?A companion move in SBC GBT had occurred with the release of Accounting Standards Update [ASU] 2016-09, Improvements to Employee Share-Based Payment Accounting requiring an immediate quarterly tax reconciliation of ESO expense with the unpredictable discrete option exercise of ESOs.?What does this mean??PTCs do not know when ESO exercises are going to occur.?P&G reported that in both 2019 and 2020, SBC tax benefits reduced their taxable income by 1.6%!?ASU 2016-09 played a role in such tax savings as the P&G income tax provision matched the initial grant date value of P&G ESOs granted to the actual deductible amounts that occurred with ESO exercise, creating excess tax benefits that allowed for greater utilization of deferred tax assets shown on their balance sheet, maybe as much as $300 million!
The above calls into question the valuation protocol used by P&G in their ESO valuation at grant [expense] required by ASC §718 and the reconciliation protocol between that expense guess at grant and the ultimate financial reporting correct number upon ESO exercise that results in the ultimate Treasury remission.?Why not just have ESO grant serve for both purposes with remission to Treasury at that time??The cover answer was that the ESO could not be valued for tax purposes at grant, i.e., IRS, even though it was being done for financial reporting purposes, i.e., FASB.?The real answer was that the professional community didn’t think SBC would remain an incentive if employees had to pay a tax associated with the grant!?That has changed with the above.?If GBT does become law, then the CEI, with the potential for clawback, could file an IRC §83(b) election under the auspices of an executory contract. ?As was the case in Robinson, the CEI would post a value for his or her SBC on his or her return.
The CITT Trust Account
An investor implements a cc strategy with a LETO call sale or write against an underlying position in common stock receiving option premium income (OPI).?For CEIs, this sale / write is the matchable event tantamount to a sale of underlying ECS, creating a contractual obligation to deliver the underlying stock at the agreed upon price for the contract term, i.e., remember greater than six months!?If the underlying does not exceed the contract price it expires worthless.?The investor is free to write (sell) another LETO call.?If the underlying exceeds the contract price, the stock is “called” away at the contract price the investor receiving sale proceeds.
With what we now refer to as a CT, the underlying ECS exceeding the contract price results in the LETO call [CT component] assignment, requiring the employee to deliver shares in performance of the contract at the agreed upon price.?The account ESOs [CT component] are then exercised at their ESO grant price, delivering ECS against the assignment, all done within the same brokerage account, which administration is shared, for different reasons, by the account broker dealer and the stock plan administrators for his employer corporations stock option plan.?The account transactions could look like the following:
XYZ stock price = $35
XYZ LETO call [100 shares = 1 contract] and OPI = $35 / $3 per share [$300]
???????????????????????????????????????????? Brokerage Account
????????????????????????????????????????????Debit ????????????????????????????????Credit
Initial LETO Call “write” OPI????????????????????????????????????????????????????????????????????????????????$300
LETO “assignment” at $35 [sale]?????????????????[100 XYZ shrs owed]??????????????? $3500
Employee ESO “exercise” at $35???????????????????????????????$3500???????????????????100 XYZ shares [delivered]
Net Credit????????????????????????????????????????????????????????????????????????????????????????????????????????????????????$300
The proceeds of what is referred to as a same-day-sale [SDS] or cashless option exercise [COE] of XYZ ESOs is used to offset the shares required from the LETO “assignment.” ?This conjoined CT, i.e., ESO / LETO [call] viewed as individual financial instruments in the brokerage account provide a riskless return as no equity need be held during or after the transaction.
The “Math”
How does the CT’s investment potential compare to the traditional form of ESO as a contingent claim versus the appreciation potential of ECS??Financial information from P&G will help in the analysis.?The 2021 P&G Proxy shows existing P&G ESOs [[measured as to weighted average exercise price [WAEP] vs. P&G stock price as of 2020 year end, or $140]] and that internal rate of return [IRR] versus the IRR of a CT using a P&G LEAP with the most distant contract term, i.e., January of 2023 using a LEAP price of $12.00 and P&G stock at $144.05 as of a valuation date of September 3, 2021.?The LEAP contract price of $145 allows a gain of $.95 at contract term end should the stock be called away, i.e., assigned.
Internal Rate of Return Analysis
IRR WAEP vs. Current Price [Proxy]??????????????????????IRR LEAP Value vs. Current Px
9.98%??Date ????????????????????Price??????????????????????????????????7.52%??Date ????????????????????Price
??????????????7/1/2016*???????????? -$91.20????????????????????????????????????????????9/2/2021??????????? -$131.10
??????????????1/1/2021?????????????$140.00????????????????????????????????????????????1/23/2023?????????????$145.00?????????????
*The P&G ESOs shown in the 2021 Proxy had a weighted average remaining life of 5.4 years, indicating that their lives as of the Proxy date [for the 10 year P&G ESO grant] had been 4.6 years which is the beginning date of the IRR calculation, subtracted from the Proxy date, i.e., year-end 2020.
The timing of the respective cash flows is an issue as the “WAEP” approach considers cash flows received at period end while the “LEAP” approach considers cash flows received at the beginning, i.e., LEAP OPI is received and available to the investor at contract inception although no tax is due until contract end.?We have enhanced the LEAP result from 7.52% to 7.7% by 1% over the period involved and reduced the WAEP result by 1% over its analysis to 9.6%.?
The WAEP exceeds the LEAP approach 9.6% to 7.7% or by 1.9%!?However, one should consider three additional important elements not mentioned in the analysis:
1.????First, LEAP contract “term” structure analysis suggests that the furthest contract term, e.g., this LEAP, will have the lowest implied volatility [IV] and market price compared to earlier contract dates on a relative price basis i.e., rent-per-day, or OPI divided by the number of days in the LETO / LEAP contract.?With six contract dates [prices] available for each contract term price, several contracts with IVs greater than the LEAP selected would produce IRRs easily exceeding the 9.6% of the WAEP analysis.?
2.????Second, the WAEP analysis has income taxed at ordinary income tax rates of over 40% while CT tax would be capital gain in nature, taxed at 20% currently, relegating the 9.6% to 7.7% comparison a tossup, and
3.????The CT within a 401(k), would also be tax-deferred.
The above analysis also speaks to a comparison of the capital asset pricing model’s [CAPM] use of discounted cash flows [DCFs] in calculating asset values, with apparent virtual equanimity between the WAEP and the LEAP analysis as to P&G value…as a PTC security.?Can the LEAP DCF be used in an assessment of ESO GBT value?
Our paradigm congestion hypothesis places the multi-disciplinary aspects of CEI SBC in play in answering the above question.?We suggest first that the value of a CEI’s SBC is something less than the MIFMV.?In fact, ASC §805, Business Combinations, as well as EITF 03-17 in assessing the fair value of executory contracts in a variety of forms including that of employment contracts and compensation arrangements, posits that such contracts may have one or both of two components of value.?There may be an at-market component reflecting a true market value and an off-market component which could very well have been a negative adjustment to the at-market component of value, i.e., a LOM discount?
To summarize this effort, CEI / CITT would establish the elements of employer SBC on an at-market basis that constitute their executory contracts along with those elements that would establish the governance and other restrictions that encompass the off-market components.?This net amount would be the basis for an IRC §83(b) election as the CEI is clearly subject to a substantial risk of forfeiture in the amounts that h/she will include in taxable income in that tax year. This is premised by buy-in from the IRS via a Private Letter Ruling [PLR] skittish about letting the Courts decide the issue for them in a different way.
For the ESO / PSU SBC components, CEIs may select either the WAEP or LEAP valuation protocol in establishing at-market value.?As the two approaches yield virtually the same results, the latter might be preferred as it would provide cash flows that would help ameliorate the added tax liability due from including the executory contract in income…remembering that OPI, although immediately received is not taxable until the end of the LETO / LEAP contract.
The “How?”
The concept of a combined transaction or CT is advanced by establishment of a COntinuous Valuation Assessment / Linkage [COVAL ?] platform linking LETOs and their ESO compensation cousins.?The above analysis supports default CT and option valuation protocols, serving as the basis for new incentive protocols.?Corporate tax, financial reporting and governance issues are also addressed.
The suggestion then is for LETOs to produce option premium income or OPI by virtue of this conjoined financial instrument, ESO and LETO, in what we now refer to as a CT.?As the CT has value created by the discounted cash flows or DCFs it produces we refer to this storehouse of value as a CT_OPI that is a base value before the application of any lack of marketability or LOM discounts.?LOM will extend to the CT_OPI under two scenarios:
1.????CT_OPI value with LOM discounts for any employee.
2.????CT_OPI value as above enhanced by insider status LOM discounts.
?Any PTC with traded LETOs may establish a COVAL platform providing a continuous connection, i.e., a live “feed”, with actively traded LETO values, thereby allowing for extrapolated ESO values via a CT_ OPI default methodology against which traded market prices specific to reporting companies is utilized, net of LOM discounts established under the purview of all interested parties.
Singular professional practice disciplines, each in a dynamic but discrete state, will benefit from suggested, synchronized SBC / incentive protocols. ?Any PTC employee now has the ability for a riskless, market return, i.e., there is no chance of market loss by the plan participant that must be considered.?Certainly in an ERISA [13] context, such an investment avenue would at least need to be evaluated by any fiduciary reminded of the following from the Restatement 3rd of Trusts…
?“Fiduciaries have a duty to seek the highest return for a given level of risk, or conversely, the lowest cost or risk for a given level of return.” [Section 90, Comment F]
[1] The above taken, in part, from – The Employee Stock Option [ESO] Tax, Regulatory, Investment and Diversification [TRIAD ? ] Planning PRIMER [Advanced Version]
[2] The reader should familiarize him or herself with standardized put and call contracts at numerous sites available on the internet.
[3] The Agency relationship is one where one acts on behalf of another most often in a fiduciary capacity.
[4] We rely upon the Credit Suisse First Boston letter dated March 16, 2004 [Subject: “Section 16(c) of the Securities Exchange Act of 1934 Rule 16c-4”] and the Office of Chief Counsel’s response to same dated March 18, 2004 as supporting material. Pursuant to Rule 16c-4, corporate insiders engaging in covered call or married put transactions, either of which are deemed to be put equivalent positions, are deemed to own the shares of company common stock underlying the vested stock options.
[5] Tim’s corporate governance odyssey began in 1985 with his direct identification and remedying of an incorrect insider trading policy statement at P&G [documented here - see pp. 1-2 of SEC Comment Letter, 2/13/2015 entitled, “Disclosure of Hedging by Employees, Officers and Directors” at https://www.sec.gov/comments/s7-01-15/s70115-1.pdf].
[6] Id, at p. 4
[7] Id, at p. 4
[8] Theophilos v. Commissioner, 85 F3d 440, 444-445 (9th Cir. 1996.?Other examples include, but are not necessarily limited to, employment contracts, lease arrangements, service contracts, certain derivative contracts, purchase and sales commitments, insurance contracts, franchise agreements and compensation arrangements.
[9]Although a consensus on EITF 03-17 was not reached, the EITF 03-17 abstract defined an executory contract as “a contract that remains wholly unperformed or for which there remains something to be done by either or both parties of the contract.”
[10] James G. Robinson, et ux. v. Commissioner, 335 F.3d 1365 (Fed. Cir. 2003), No. 01-102T, Tax Analysts Doc. No. 2002-15273, 2002 TNT 126-10,
[11] Citation as indicated
[12] Public Law 115-97
[13] The Employee Retirement Income Security Act of 1974 (ERISA), September 2, 1974 as Pub Law 93-406, 88 Stat 829.