College Funding With Stock Compensation:
myStockOptions.com Update No. 32

IN THIS ISSUE

Stock grants affect financial aid

Using Rule 10b5-1 trading plans to fund college tuition and expenses

Articles on college funding with stock compensation


Popularity of restricted stock v. RSUs; rules for setting exercise prices; differences between restricted stock and performance shares or units; how ESPPs are changing

AMT reform in Congress: an update

Have your say on our articles with our new comments feature

myStockOptions.com at upcoming NASPP annual conference

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SPONSORS OF THIS ISSUE

Think Twice insider trading prevention videos: educate, entertain, and jolt your employees and executives (see http://www.insidertradingvideos.com and information below)

Equity Focus: Get the straight talk on FAS 123(R) compliance for non-public companies; free on-demand webinar from Two Step Software at www.equityfocus.com/mso (see information below)

Secrets Of Tax Planning For Employee Stock Options, Stock Grants And ESOPs, by Michael Gray, CPA (see www.employeestockoptionsecrets.com and information below)

Net Worth Strategies: StockOpter Personalized Education (see http://www.networthstrategies.com and information below)

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EDITOR'S WELCOME

The academic year, along with university tuition payments, has begun. Your ability to pay for your children's higher education, and ultimately have more money for your retirement, may rest on your company's stock plan and related financial planning. As part of the expanding content in our section Life Events, we have added a new section on using stock compensation to pay for college. Below you will find the full text of two FAQs from this area.

We thank our users at all membership levels who continue to praise and preach the benefits of membership to fellow employees, to financial advisors, and to compensation/HR/finance professionals. In addition to the many users of our site who have become Premium Members and Pro Members, companies, stock plan providers, and financial advisors are also contacting us about:

• purchasing Premium Memberships in bulk at discounted subscription rates

• licensing our easy-to-integrate Knowledge Center of content for HR and compensation portals and stock plan service providers' websites (particularly useful for employees at year-end and during the tax season)

• creating custom websites that import grant data automatically, post stock plan documents, and match the look and feel of your company's site

For more information on these corporate services, please email inquiries to sales@mystockoptions.com.

Thanks again for all your support. Have a great autumn!

 ~ Bruce Brumberg, Editor-in-Chief
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SPECIAL FAQs ON USING STOCK GRANTS TO PAY FOR COLLEGE

Below are two frequently asked questions (FAQs) on paying for college with stock compensation. They are taken from the 700+ FAQs on myStockOptions.com. All of these are available for your company to license or by Premium or Pro Membership. Please do not copy or excerpt this information without our permission.

Question 1:

Answer:

As long as the student is considered a dependent of the parent for financial-aid purposes, the parent does have to report stock options on line 88 of the 2007–2008 FAFSA (http://www.fafsa.ed.gov). This line states: "As of today, what is the net worth of your parents' investments, including real estate (not your parents' home)? Net worth means current value minus debt." The definition of "investments" includes "stock options" and "other securities" but provides little guidance on whether this includes employee stock options and at what value.

From informal discussions with the Department of Education that we have heard about from other experts, we believe the value that should be reported is the net value (after fees, commissions, taxes, etc.) of all types of vested stock and options as if they were sold at market value on the day the form is completed. The same rules apply for employee stock purchase plans and restricted stock.

Troy Onink, a financial advisor with expertise in college funding and stock plans, contributed to this answer. To read more about strategies for using stock compensation to fund education, see his articles on myStockOptions.com.

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Question 2:

I want to set up a program with my company and broker in which I automatically exercise options and sell stock to pay a regularly expected bill as it's received, such as my child's tuition. Can this prearranged selling plan violate insider trading laws and my company's blackout rules?

Answer:

You are in luck. SEC Rule 10b5-1 now provides an affirmative defense from insider trading liability for executives, directors, and other company employees who sell stock under a trading program that was established at a time when they did not possess inside information. An additional requirement is a binding written contract to purchase or sell the security, specifying either the amount of shares or dollar value to sell automatically at specified dates, or a trade-price trigger (or some formula for determining it). The person for whom the shares are being sold cannot have any subsequent influence over the transaction.

We suggest that you contact company counsel and your lawyer, because the SEC rule adopted in the late summer of 2000 is still evolving, along with the practices under it. Other requirements under Rule 144 and Section 16 still apply, depending on your position in the company.

Alert: The SEC is also looking into abuses of these plans, according to remarks given by the SEC's Enforcement Director at the 2007 Corporate Counsel Institute.

For more details on Rule 10b5-1 trading plans, myStockOptions.com has a special section devoted to them under SEC Law

Straight Talk on FAS 123R Compliance for Non-Public Companies; Free On-Demand Webinar Are you concerned about your equity compensation expense numbers under FAS 123R?   Experts from FAS123 Solutions, iComp LLC, and Two Step Software recently shared their recommendations with hundreds of CFOs, financial executives, and controllers of venture-backed and other non-public companies who attended Two Step Software's webinar—Straight Talk on FAS 123R Compliance: Five Things Your Auditors Will Want to Know. It's the first webinar focused on how the new rules apply to non-public companies. And it's available on-demand. On-Demand Webinar: Click here to download the recorded version and the related slides and white papers. On-Demand and Live Demos: Would you like to find out how to reduce the time you spend on stock option administration and FAS 123R compliance? See how you can get rid of all those spreadsheets, easily calculate grant date valuations and amortize compensation expense, and have all the supporting documentation at your fingertips so you can avoid raising red flags with your auditors. Sign Up Now to take a look at Equity Focus, Two Step's hosted system for stock option administration and FAS 123R compliance. Free white papers, demonstrations, and 14-day trial available at www.equityfocus.com/mso. Contact: (800) 223-8900 or http://www.twostep.com, and please mention your referral by myStockOptions.com.

SPECIAL ARTICLES ON COLLEGE FUNDING

In the new section Life Events: College Funding, myStockOptions.com has a series of articles entitled Funding Your Child's College Education With Stock Options And Other Stock Grants. They were written by Troy Onink, the CEO of Stratagee, a financial-services firm.

Your ability to pay for your children's higher education, and ultimately have more money for your retirement, may rest on your company's stock plan and related financial planning.

Part 1 helps you understand the impact that equity grants have on financial aid eligibility.

Part 2 reviews the basics of gift tax and the tax treatment of stock compensation in your financial planning for higher education.

Part 3 focuses on methods to minimize capital gains at sale, planning for the kiddie tax and education credits, and strategies your children can use to pay for college.

For the rest of September these articles will be available free to all registered users at myStockOptions.com. This content is usually available only by Premium or Pro Membership to our website or through licensing by your company.

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MSO PRO MEMBERSHIP FOR FINANCIAL AND WEALTH ADVISORS

We are receiving high praise for the new membership level we call myStockOptions.com (MSO) Pro, specially designed for financial advisors, wealth managers, CPAs, and anyone who tracks and models equity grants for others. Introduced late last year, MSO Pro gives you the power to track and model grants for multiple clients with our award-winning record-keeper and tools, plus special features for proactive client communications and relationship-building. You can choose a membership level to track and model for 5, 10, 25, or more clients.

MSO Pro gives you access to all the features of Premium Membership, plus:

• Grant tracking and modeling for multiple clients
• Grants you have already entered in myStockOptions.com transfer seamlessly to MSO Pro
• Client portal where your clients have special access to a confidential, highly secure site to see their grants online
• Co-branding of your firm's identity in the client-accessible site
• Grant alerts reminding you of important dates and target values for each of your clients, plus the flexibility to send alerts to selected clients
• Create and save scenarios for you and your clients from any of the calculations you run in our tools
• All our exclusive articles by leading experts in financial planning, tax and securities law, and stock-based pay
• 700+ FAQs on all aspects of equity compensation
• PDF versions of articles, FAQs, and all tool results that you can send your clients, all co-branded with your name and firm
• Reports on your clients' investable stock compensation gains, individually and in aggregate

Track and communicate with multiple clients

Send grant alerts to yourself and to your clients

Create and save tool results as "scenarios" you can call again with one click

For more information on MSO Pro and to become a Pro Member, contact info@mystockoptions.com or click on myClients after signing into the site.

SELECTED HIGHLIGHTS OF NEW CONTENT ON MYSTOCKOPTIONS.COM

Below are selections from myStockOptions.com's newest award-winning educational content. All of these are available to our Premium and Pro Members and our licensees.

Are you more likely to receive a grant of restricted stock or restricted stock units? Which type of grant is more popular? Find the answers in the section on restricted stock units.

Does the IRS have rules on setting stock option exercise prices? Read about this in Basics: Grants.

How does your new grant of performance shares differ from your grant of restricted stock? See Restricted Stock: Advanced.

How are employee stock purchase plans (ESPPs) changing with mandatory expensing? Look in ESPPs: Rules.

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AMT REFORM IN CONGRESS: AN UPDATE

This year Congress has held several hearings on the alternative minimum tax (AMT). According to Charles Rangel (D–New York), the Chairman of the Ways and Means Committee in the House of Representatives, a broad tax bill that includes AMT reform is in preparation. He hopes it will be considered by the House before the end of 2007.

A committee staffer has told myStockOptions.com that the legislative goal is to come up with some type of fix that is more permanent or at least longer-term than the yearly patches that have been made to extend the AMT income exemptions. Any fix depends on finding tax revenues to replace what the government gets from current rules under the "pay as you go" budget rules adopted in early 2007. myStockOptions.com has also learned from its committee contacts that revising the AMT income calculation to remove the ISO spread at exercise/hold is not, apparently, under consideration.

For the background of the AMT and a detailed summary of developments in Congress about AMT reform during the past year, see the relevant FAQ on myStockOptions.com. Read about how the AMT works and related financial and tax planning in the sections ISOs: AMT and ISOs: AMT Advanced.

Equity Compensation Forfeit Value® A Crucial Metric for Employers, Employees, and Advisors Forfeit Value® is the value employees leave behind upon terminating their employment. It is the essential and sole metric that determines the ability of an equity compensation plan to retain key employees. Yet employees and even compensation professionals dramatically underestimate Forfeit Value®. Research conducted by business school professors at the University of Illinois and Michigan State University presents compelling evidence that: Employees on average underestimate their Forfeit Value® by 60%. This underestimation can be substantially eliminated with a personalized education program that explains the concepts and provides them with their specific Forfeit Value®. The data used in this study came from questionnaires administered before and after StockOpter® Personalized Education sessions from Net Worth Strategies, Inc. For the employer, StockOpter® Personalized Education is cost effective insurance against unnecessary loss of key personnel. For employees and their advisors, understanding Forfeit Value can prevent massive erosion of this critical asset. For more information on Forfeit Value® as well as other metrics essential to retention, motivation and timely decision making regarding equity compensation visit www.EquityCompensationEducation.com or contact Bill Dillhoefer at bdillhoefer@networthstrategies.com.

HAVE YOUR SAY ON ARTICLES AT MYSTOCKOPTIONS.COM

Have something to add to the discussion in an article on our website? Just want to say you found it useful? You can now leave comments at the foot of articles on myStockOptions.com. This new feature gives registered users a voice in our editorial content. Watch for further enhancements to our website in the next few months!

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MYSTOCKOPTIONS.COM AT NASPP ANNUAL CONFERENCE IN SAN FRANCISCO

myStockOptions.com will have a strong presence at the annual conference held by the National Association of Stock Plan Professionals (NASPP), taking place this year in San Francisco (October 9–12). If you attend, please stop at our exhibit booth to say hello. We will be there to answer any questions you have about myStockOptions.com and to discuss our various innovative services, including:

• corporate services
• individual memberships at our public website
• our award-winning record-keeper and tools for stock grants

Visit the website of the NASPP for information on the conference. We hope to see you in San Francisco!

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