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A incentive stock option trading question: After an employee…

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A incentive stock option trading...
A incentive stock option trading question:After an employee quits a job, he typically has a 90 day deadline to exercise his stock options. When he leaves the company, he may know information that may be considered material. How long after leaving the company can he be considered as “sanitized” enough for exercising the stock options (same day exercise & sale)?
Submitted: 1 month ago.Category: Employment Law
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Answered in 5 hours by:
3/12/2018
Employment Lawyer: N Cal Attorney, Lawyer replied 1 month ago
N Cal Attorney
Category: Employment Law
Satisfied Customers: 9,659
Experience: Since 1983
Verified

Thank you for your question.

I am sorry but the answer depends on several factors, which are discussed here, which states:

"There are several common ways in which an agent can pay for the exercise of stock options, and company policy might limit agents to use only certain methods:

• Cash Exercise: The option holder pays the option price per share in cash to the company in exchange for the appropriate quantity of shares. The employee then can decide to hold the shares in her portfolio, or make a separate decision to sell some or all of the shares into the market.

• Net Settled Exercise: The holder pays for the options exercise by giving enough shares back to the company (or the company retains those shares at the time of exercise) sufficient to compensate the company for the exercise price at the shares' current market value. The company may then choose to sell or retire the held-back shares.

• Broker-Assisted Cashless Exercise (also called a Same-Day Sale): At the time of exercise, some or all of the exercised shares are sold into the market and the requisite amount of the sale proceeds are used to pay the company for the exercise. The holder keeps the net proceeds and any unsold shares.

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Potential insider trading liability depends upon the method of the execution of the transaction, as well as on the timing of the transaction.

Under the first two methods (the intra-company exercises), a holder ultimately should not be held liable for insider trading based on the exercise of the stock options, even if the holder exercised while aware of yet-to-be-announced market-moving news, whether positive or negative. Why? Because any material non-public information about the company typically is known by both parties to the option exercise transaction. An intra-company exercise occurs entirely between the holder and the company and does not involve a sale to the market.

///

Importantly, a holder's subsequent decision to sell some or all of the new shares constitutes a new trading decision that is independent from the option exercise by which she obtained the shares. Once obtained, she may not sell the shares to the market while in possession of material non-public information."

I hope this information is helpful.

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Customer reply replied 1 month ago
Thx for the answer. I’m not sure whether the information I’ll be exposed to will be considered “material”. I work in a biotech company which is waiting for the FDA marketing approval of a drug candidate. In the next few months I’ll be exposed to the preliminary comments and inquiries from the FDA after they review our application. This may or may not give us a hint about the degree of probability of the eventual approval. Would such information be considered “material”? I may leave the company before the FDA approval date and probably sell my ISO options soon after my departure (the sale date may still be before the FDA decision date and I won’t know for sure whether the drug will be approved).
Employment Lawyer: N Cal Attorney, Lawyer replied 1 month ago

I think the FDA indicating whether or not it plans to approve the NDA would be considered material nonpublic information. You may want to exercise the options before FDA says anything.

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