PeopleSoft Enterprise Stock Administration 9.1 PeopleBook

Administering Exercises

This chapter provides an overview of administering exercises and discusses how to:

View exercise information for stock options.
Enter exercise information for stock options.

Understanding Administering Exercises

This section lists prerequisites and common elements and provides an overview of administering exercises.

Prerequisites

Before you begin administering exercise transactions, you should:

Set up the various stock tax types and default tax rates.
Grant options to the optionees.
Establish issuance instructions for your optionees.
Make sure that the grants are active and not pending.
Make sure that daily prices are current.

Common Elements Used in This Chapter

83b Election	This field is only available for a restricted exercise. Use if the optionee files an IRC 83(b) tax election.
Employee Information	This group box displays employee information as of the exercise date.
Exercise Before Vest	Selected if exercising before vesting is allowed for the option.
Exercise Number	The system displays NEW when you enter an exercise. When you save, the system generates a sequential exercise number from the last exercise number stored on the Stock table.
ID	Click to access the Employee Information page to view employee information.
Restricted Exercise	Selected if the exercised shares are unvested.

Exercise Administration

Optionees may exercise stock options on or after the vesting date; prior to the vesting date if exercise before vesting is allowed; or at any time during the life of the stock option, depending on the terms of your stock option plan.

When an optionee exercises a grant, you record the number of shares exercised, the funds and any applicable taxes due from the optionee, and issue the shares.

Depending on the type of option being exercised and the exercise method selected, you can issue the shares in a stock certificate, electronically deposit them with a stock broker, or hold the shares in escrow until the optionee meets restrictions, such as vesting.

Viewing Exercise Information

This section lists the pages that you use to:

Select an exercise to view.
View exercise transactions.

Pages Used to View Exercise Information

Page Name	Definition Name	Navigation	Usage
Exercise Options	ST_EXER_SRCH1	Stock, Grant Transactions, Exercise Options	Select the grant for which you want to view exercises. Also view an optionee's active and pending stock grants and number of exercisable shares.
Exercise Transactions	ST_EXER_SRCH2	Stock, Grant Transactions, Exercise Options Click a grant number.	View exercise transactions for a grant and access the Exercise component.

Page Name

Definition Name

Navigation

Usage

Exercise Options

ST_EXER_SRCH1

Stock, Grant Transactions, Exercise Options

Select the grant for which you want to view exercises. Also view an optionee's active and pending stock grants and number of exercisable shares.

Exercise Transactions

ST_EXER_SRCH2

Stock, Grant Transactions, Exercise Options

Click a grant number.

View exercise transactions for a grant and access the Exercise component.

Entering Exercise Information

This section discusses how to:

Enter general exercise information.
Calculate taxes for an exercise.
Calculate costs for an exercise.
Enter issuance instructions for exercised shares.
Enter certificate information for an exercise.
Add escrow information for an exercise.
Enter brokerage instructions for an exercise.
Select legends to display on issuance instructions.
Enter payment information.

Pages Used to Enter Exercise Information

Page Name	Definition Name	Navigation	Usage
Exercises - General	ST_GRANT_EXER	Stock, Grant Transactions, Exercise Options Click a grant number on the Exercise Options page, then click the Add an Exercise button on the Exercise Transactions page.	Enter general exercise information, including the number of shares exercised and the methods for calculating the costs and taxes due.
Exercise Comments	ST_GRANT_EXER_SEC	Click the Comments link on the Exercises - General page.	Enter comments for an exercise.
Exercises - Taxes	ST_EXER_TAXES	Access the Exercises − General page and select the Taxes tab.	Calculate the taxes for an exercise
Exercises - Cost	ST_EXER_COST	Access the Exercises − General page and select the Cost tab.	Calculate the total cost due to the company for the exercised shares and related taxes. Enter swap and trade information.
Exercises - Issuance	ST_EXER_ISSUE	Access the Exercises − General page and select the Issuance tab.	Enter issuance instructions for the transfer agent.
Escrow Information	ST_EXER_CERT_SEC	Click Escrow on the Exercises - Issuance page.	Enter escrow and address information.
Certificate Information	ST_EXER_CERT_SEC	Click Certificate on the Exercises - Issuance page.	Enter registration and address information for certificates.
Broker/Branch Information	ST_EXER_BROKER_SEC	Click Broker on the Exercises - Issuance page.	Add brokerage information.
Legend	ST_EXER_LEGEND_SEC	Click Legend on the Exercises - Issuance page.	Select the legends to display on the issuance instructions.
Exercises - Payment	ST_EXER_PAYMENT	Access the Exercises - General page and select the Payment tab.	Record payments made to the company on the exercise and view outstanding balances.

Entering General Exercise Information

Access the Exercises - General page (Stock, Grant Transactions, Exercise Options, then click a grant number on the Exercise Options page, then click the Add an Exercise button on the Exercise Transactions page).

Remaining Shares

Vested Exercisable	Displays the number of vested shares remaining that are exercisable as of the exercise date entered.
Unvested Exercisable	If the plan allows exercise before vesting, the system displays the number of unvested shares remaining that are exercisable as of the exercise date entered.

Exercise Information

Exercise Status	Select the exercise status. Valid values are Pending, Void, and Active, which is the default.
Status Date	Displays the date that the status was last changed and saved.
Exercise Date	Enter the exercise date.
Replace Exercise Number	If this is a replacement exercise, select a replacement exercise number from the available choices. You must first void the original exercise before you can create a new, replacement exercise. You associate the two exercises with the Replace Exercise Number for audit purposes.
Shares Exercised	Enter the number of shares to be exercised. If exercise before vesting is allowed all vested shares must be exercised before unvested shares are exercised. The system will not allow shares exercised to include both vested and unvested amounts.
Exercise FMV	The default value is the exercise FMV calculated from the Daily Prices table as of the exercise date that you entered according to your Exercise FMV Rule. You can change this number.
Exercise Method	Select a method to pay for the exercise cost. If you select a value not defined on the Stock Option Plan Rules component, you get an error. Cash is the default.
Trade For Taxes	Select to enable shares to be traded for the amount of taxes to be withheld on the Exercises - Cost page. The check box is unavailable if: The Trade For Taxes check box is not selected on the Payment/Income Method page. The ISO or ISO/SAR is selected as an option type on the Maintain Grants - General page except when a terminated employee exercises the ISO after the regulatory period for preferential tax treatment. The Exercise Method field equals SAR or Same Day Sale. When exercising unvested shares and 83b Election is not selected.
Shares Sold	If the exercise method is Sell to Cover, this field is available. Enter the number of shares sold. If the exercise method is Same Day Sale, the system displays the total shares exercised as shares sold.
Sale Price	If the exercise method is Same Day Sale or Sell to Cover, this field is available. The exercise FMV is the default, but you can enter a different number.
83b Election Date	If you select the 83b Election check box, this field becomes available. Enter the date that the optionee filed the 83b election.
Receipt Date	Displays the date that the exercise receipt was run.

Calculating Taxes for an Exercise

Access the Exercises - Taxes page (access the Exercises − General page and select the Taxes tab).

Calculate the taxes by integrating with PeopleSoft Enterprise Payroll for North America, using the stock tax tables, or entering taxes manually. If you use Payroll for North America, you can send the tax information to that system. To reverse a payroll transaction that you sent, void the exercise and send the information to payroll as a reversal.

Grant Information

Exercise Number	Displays NEW when you enter an exercise. When you save, the system generates a sequential exercise number from the last exercise number stored on the Stock table.
Restricted Exercise	If this is a restricted exercise, this check box is selected.

Tax Detail

The system populates these fields when you click any of the Load Default Taxes, Copy Previous Taxes, or Calculate Taxes buttons. You can change the values until you send the transaction to payroll.

Tax Type	Select the type of tax to calculate.
Default Percentage	The system enters the default tax percentage based on the tax type. You can change the default percentage to modify the current tax amount.
Tax YTD	Enter the year to date tax amounts to have the system to use these values when calculating taxes with limits.
Current Tax	The system calculates the current tax based on the ordinary income amount displayed on the page and the default percentage. You can change the current tax amount and the default percentage changes accordingly.
Tax Override	If you overrode the default taxes or inserted the tax amounts the system displays Manual. The default is None, which means no tax override.
Maximum Tax	Displays the maximum tax limit if the tax type has a maximum tax limit.

Default Tax Calculation

You can load the default tax information or copy the tax information from the previous exercise. Use these methods if you don't use Payroll for North America or for exception processing.

Load Default Taxes	Click to load the default tax rates based upon the country and state associated with the optionee's tax location and the tax rates that you entered on the tax setup pages. The taxes are calculated based upon the ordinary income from the exercise.
Copy Previous Taxes	Click to copy the tax percentages used in the last exercise within the last calendar year. If there are no exercises for the current year, the system copies the percentages from the previous year and gives a warning message.

North American Payroll

If you use Payroll for North America, you can calculate the taxes owed and send them directly to payroll.

Calculate Taxes	Click to have Payroll for North America calculate the taxes due on the ordinary income from the exercise. The system determines the YTD taxes paid and monitors any limit that might be met.
Update Payroll	Click to send the tax and ordinary income data to payroll. Once the transaction is saved, you receive confirmation that the transaction was sent. If you don't save the exercise, Payroll is not updated.
Sent to Payroll Date	Displays the date the payroll taxes were sent to payroll either through Update Payroll or when the payroll report is run. Click the date to access the Exercise Payroll Data page to display how the transaction was sent to the payee (through Payroll for North America or a manual report) and the paycheck number, if applicable.
Reversal Date	Displays the date, if any, that the Payroll Reversal Report was run.

Calculated Values

Tax Preference Income	Displays the alternative minimum tax value, if any, when the option type is ISO. Otherwise, it is ordinary income, which is the difference between the option price and the fair market value of the company's stock on the exercise date.
Total Taxes	Displays the sum of all taxes displayed. These are the taxes that are due on exercise.
Net Due Optionee	If this is a SAR exercise, the system displays the net due to the optionee. This amount is the difference between the ordinary income and the total taxes.

Reversing Taxes Sent to Payroll

To reverse taxes that you've already sent to payroll, change the Exercise Status to Void on the Exercises - General page and save. If the transaction has not been processed by payroll the system deletes the transaction.

If the transaction has already been processed by payroll you receive a message that the transaction wasn't found. You can print the Options Income/Taxes Reversals report to notify your payroll administrator that the transaction should be reversed.

Calculating the Costs for an Exercise

Access the Exercises - Cost page (access the Exercises − General page and select the Cost tab).

Swap/Trade Information

If a payment method is Swap for Shares or Trade for Taxes, these fields become available.

Swap/Trade FMV	The swap trade FMV as defined on the Stock Option Plan Rules - FMV Rules page.
Swapped	The number of shares required for the swap by dividing the total cost of shares by the swap/trade FMV. You can change the number, if necessary.
Traded	If the tax payment method is Trade and taxes were calculated, the system displays the number of shares required for the trade by dividing the Total Tax Due field by the Swap/Trade FMV field. You can change the number, if necessary.
Swap/Trade Total	The total number of shares required for the swap or trade.

Swap Detail

If a payment method is Swap for Shares or Trade for Taxes, these fields become available. You can make multiple entries to record the various shares used for the swap or trade, and whether the shares are being surrendered or are to be netted from the exercise.

Source	Select Constructive Delivery if the shares surrendered for the swap/trade are to be netted from the exercise and a physical certificate is not delivered. Select Physical Delivery if a physical certificate is surrendered for cancellation.
Number of Shares	Enter the number of shares that were surrendered. Constructive delivery will reduce the number of shares to be issued by the number of shares that were swapped and/or traded.
Certificate Number	Enter the certificate number of the shares that were surrendered for the swap or trade, if any.
Date Acquired	Enter the date that the swapped or traded shares were acquired.

Calculated Values

The system displays the following amounts.

Cost of Shares	Option price multiplied by number of shares exercised.
Total Tax Due	Total taxes due calculated on the Administer Exercises - Exercise Taxes page.
Total Cost	Cost of shares plus total taxes due.
Swap Value	Number of shares swapped multiplied by the swap/trade FMV. Displayed if the exercise method is swap.
Trade Value	Number of shares traded multiplied by the swap/trade FMV. Displayed if Trade for Taxes is selected.
Due to Company	Total Cost minus the Swap Value, or the Trade Value , if any.

Entering Issuance Instructions for Exercised Shares

Access the Exercises - Issuance page (access the Exercises − General page and select the Issuance tab).

Shares Swapped/Traded

If shares are swapped or traded as part of the exercise, the system displays these amounts.

Constructive	The total number of constructively swapped/traded shares.
Physical	The total number of physically swapped/traded shares.
Shares Issued	The number of shares exercised less the total number of constructive shares swapped or traded.
Shares Returned	The total number of shares that were returned from the swap when a certificate is physically delivered for more shares than required for the swap or trade.

Agent Notification

Transfer Control Number	Displays the transfer control number assigned by the Issuance Instructions report.
Escrow Control Number	Displays the control number assigned by the Issuance Instructions report.
Transfer Issue Date	Displays the date that the Issuance Instructions report was run. This field is populated after you run the Agent Issuance Instructions report.

Issuance Detail

To enter multiple issuance instructions, enter the number of shares for each issuance requirement, select the issuance type, and select the brokerage information or the address where you want the certificate sent. After you save the release, you can generate the required transfer agent instructions, broker deposit instructions, and broker invoices.

Issuance Number	Displays 1 when you first add an exercise. For each subsequent issuance that you create, the system generates a sequential number.
Issuance Type	If the exercised shares are unvested, Escrow is the default. If the exercise is a same day sale or sell to cover, Broker is the default. If the exercise is any other type, the information on the optionee's Maintain Issuance Instructions page defaults. If issuance instructions are not set up for an optionee, Certificate is the default. You can change the default value.
Shares Issued	Enter the number of shares equal to the total number of shares being issued less any swapped or traded shares. The number of shares exercised defaults.
Broker, Escrow, Certificate, and Legend	Click to access the Broker page, Escrow Information page, or Certificate page, respectively.
Legend	Click to access the Legend page.

Entering Certificate Information

Access the Certificate page (click Certificate on the Exercises - Issuance page).

The information from the Maintain Issuance Instructions page is the default.

Registration Name	Enter the name that is to appear on the stock certificate.
Tax ID	Enter the tax ID of the individual or organization to whom the stock is being issued, if not the optionee.

Entering Escrow Information

Access the Escrow Information page (click Escrow on the Exercises - Issuance page).

Registration Name

Enter the name that is to appear on the escrow account.

Entering Broker Instructions

Access the Broker page (click Broker on the Exercises - Issuance page).

Registration Name	Enter the name that is to appear on the brokerage account.
Tax ID	Enter the tax ID of the individual or organization to whom the stock is being issued, if not the optionee.
Branch Control Number	The system displays the branch control number after you run the Option Broker Deposits report.
Branch Issue Date	The system displays the branch issue date after you run the Option Broker Deposits report.

Selecting Legends to Display on Issuance Instructions

Access the Legend page (click Legend on the Exercises - Issuance page).

Legend ID

By selecting a legend ID, you can communicate further instructions to a transfer or escrow agent. The details of the legend ID print on the issuance instructions. You can use it, for example, to notify the transfer agent how to cancel swapped shares or place a specific legend on the back of a certificate. You can select multiple legends.

Recording Payments for Exercised Shares

Access the Exercises - Payment page (access the Exercises − General page and select the Issuance tab).

Record each payment on a separate line.

Payment Date	Enter the date that you received the payment. The payment date must be greater than or equal to the exercise date.
Sequence	If more than one payment is made in a single day, the system enters a sequence number.
Payment Type	Select Adjustment, Cash, Check, Loan, Pay Ded, or Wire.
Payment Amount	You can enter a negative amount to reflect an overpayment.

Payment Totals

Due to Company	Displays the amount due to the company as calculated on the Administer Exercises - Cost page.
Total Payments	Displays the sum of payment amounts.
Remaining Due	This field is calculated by subtracting the Total Payments field from the Due to Company field.

Deferring Tax Assets

This section provides an overview of actual tax benefits and deferred tax assets and discusses how to run the Options Shares Exercised report.

Actual Tax Benefits and Deferred Tax Assets

Since the adoption of FAS 123R in December, 2004, when an option is exercised, the actual tax benefit realized at the time of exercise (typically the spread or gain realized by the participant at exercise) must be compared to the deferred tax asset originally recorded for the option (typically the fair value of the option determined at grant).

If the actual tax benefit exceeds the deferred tax asset, the excess is treated as additional paid-in capital. If the tax deduction realized on exercise is less than the expense record for the option, the shortfall reduces paid-in-capital. By comparing the values of the actual tax benefit and deferred tax benefit, you can determine whether your company has a reserve of paid-in-capital or a shortfall. A shortfall of paid-in-capital is deducted from reserve paid-in-capital. If no reserve of paid-in-capital exists then you must report the shortfall as additional tax expense.

Page Used to Run the Options Shares Exercised Report

Page Name	Definition Name	Navigation	Usage
Shares Exercised	ST_RUNCTL_STOP003	Stock, Option Reports, Grant Transactions, Shares Exercised	Run this report to show the options exercised during a specific date range.

Running the Options Shares Exercised Report

Access the Shares Exercised page (Stock, Option Reports, Grant Transactions, Shares Exercised).

From Date

Enter the beginning date for the period to be examined.

End Date

Enter the ending date for the period to be examined.

Exercise Status

Select the exercise status: Active, Pending, or Void.

Option Type

Choose the option type: ISO, ISO/SAR, NQ, NQ/SAR, or RSA.

From Date	Enter the beginning date for the period to be examined.
End Date	Enter the ending date for the period to be examined.
Exercise Status	Select the exercise status: Active, Pending, or Void.
Option Type	Choose the option type: ISO, ISO/SAR, NQ, NQ/SAR, or RSA.