A person who directly or indirectly controls, or is controlled by, an issuing company. Control means the power to direct the management and policies of the company through ownership of voting securities, by contract or otherwise. Generally, officers, directors, 10% shareholders, and their immediate family members are considered to be affiliates.

Black-Scholes Model

Created by Fischer Black and Myron Scholes, this financial model is one of several used to value options. Such calculations are important to corporations, which are required to expense the value of options granted.

Blackout Period

A period during which companies prohibit employees and affiliates from purchasing or liquidating shares. Blackout periods often coincide with quarter-end, year-end, or other earnings reporting schedules.

83(b) Election

An election that recognizes compensation income on the acquisition of stock (either through a restricted stock grant or the early exercise of an option) prior to the actual vesting of the stock. The election must be made within 30 calendar days of the stock acquisition. When the stock is eventually sold after vesting requirements have been met, the difference between the acquisition price and the sale price is treated as a capital gain or loss. Often used by holders of private stock prior to an IPO, an 83(b) election can also be used where there is a public market for the underlying security. If the executive leaves before the vesting date, the stock is forfeited and no credit or deduction is available for the amount of taxes initially paid.

Exercise Price

The price at which the holder of an employee stock option can purchase company shares.

Form 144

A notice of the proposed sale of restricted securities or control securities under Rule 144 that must be filed with the SEC. The form is valid for 90 days.

Incentive Stock Option (ISO)

A type of employee stock option that offers an employee more favorable tax treatment than a non-qualified stock option. (See "Non-Qualified Stock Option.") No more than $100,000 of ISO option stock (shares times exercise price) can become exercisable in any one year. Upon exercise, the profit between the exercise price and stock price is not taxed as compensation income, provided the underlying stock is held for a period of not less than one year from the date of exercise and two years from the date of grant. After the stock is disposed, the difference between the sale price and exercise price would...

To continue reading