Illustrates why holders of employee stock options should avoid early exercises of their ESOs and why companies and wealth managers promote early exercises of employee stock options. www.truthinoptions.net olagues@gmail.com 504-875-4825

1. .
Avoid Early Exercise, Sell and "Diversify".
This strategy is promoted by most advisers and wealth managers and the
companies. It has big penalties for the grantees, and little merit for the grantees
except in rare circumstances. The EESD strategy is designed to benefit the
company and the wealth managers and that is the only reason it is promoted.
1. The penalties to the grantee are forfeiture of the "time value" back to the
company and paying the compensation income tax prematurely.
2. The EESD strategy is essentially a bet against the stock of the company
because it terminates the alignment with the shareholders early and assumes a
market risk, loaded with fees and transaction costs which generally will result in
under-performing the market indexes. It defeats the purpose of the ESO grants and
is most prone to violations of SEC Rule 10 b-5 by the executive/grantees.
The promotion of the EESP strategy is a violation of the wealth managers fiduciary
duty to his client and because of the knowing deception, the wealth manager
violates SEC Rule 10 b-5.

2. .
3. The companies are large beneficiaries of the EESD strategy. They recover
the forfeited remaining "time value" and receive large cash flows from the
issuance and sale of stock to the grantee. The companies also receive a tax
credit from the deduction of the "intrinsic value" of the employee stock options
when the ESOs are exercised.
4. The companies receive another benefit, which is that their accounting
expenses against earnings from the future grants of options will be less,
because the early exercises reduce the "expected time to expiration".
5. The wealth managers also benefit from EESD strategy as they will get
Assets Under Manage earlier rather than having the grantees holding the ESOs
to near expiration and/or selling calls or buying puts
6. It can easily be proven that EESD is inefficient most of the times and will, in
most cases, be far inferior to either selling calls or buying puts to reduce risk.
EESD is even far inferior to just holding to near expiration and exercising if in -
the -money.

3. .
6. If the EESD strategy had any merit at all, why do the most well known CEOs, who
can pay for the best advice not recognize the merits of the EESH strategy?. Below
are the exercises of CEOs and other executives showing that they generally held
their deep in-the-money employee stock options to near expiration.
Steve Jobs exercised 120,000 on 8/12/07, ESOs expired 8/13/07
Apple's Tim Cook exercised 200,000 on 3/24/ 2012 ESOs expiring 3/24/12
Apple's R. Johnson exercised 200,000 on 12/1/ 09 ESOs expired 12/14/09
Paul Otellini of Intel exercised 800,000 on 11/9/07, ESOs expired 11/12/07
Larry Ellison of Oracle exercised 10,000,000 on 4/3/09, ESOs expi 6/4/9
John Chambers of Cisco exercised 2,000,000 on 2/8/10, ESOs expiring 5/14/10
John Chambers exercised 1,350,000 on 2/13/07, ESOs expiring 5/1/07
James Dimon J.P.M. exercised 462,000 on 3/2/2012 ESOs expired 4/16/12
James Dimon exercised 1,261,000 on 7/17/09, ESOs expiring 8/15/09
Sam Palmisano, IBM exercised 300,000 on 8/1/11, ESOs expiring 2/25/12
Lloyd Blankfein, Goldman Sachs exercised 90,681 on 8/11/2010 expired 11/26/10
Rex Tillerson CEO, XOM exercised 197,300 on 2/23/11 expired 11/28/11
Joshi Vyomesh HPQ, exercised 100,000 on 3/1/12 expired 3/18/12

4. .
Even companies like Apple Computer understand the benefits to the company.
And under pressure by the wealth managers the companies insert into the Insider
Trading Policy what appears to be attempts to prohibit call sales and put buys to
all employees, even when sales of stock are allowed.
The insertion into the Insider Trading Policies will have "zero" effect in reducing
violations of Rule 10 b-5 or Section 16b, since it is impossbile to violate Rule
10 b-5 or Section 16 b by call sales or put purchases, when selling stock is
permitted. The only reason for the insertion of the prohibition is to pretend that it is
necessary to have such a prohibition to be in compliance with SEC Rules and
Securities, when in fact it is entirely unnecessary.The consequence of the
insertion is a diminution of the equity grants value and a breach of the Employee
Stock Plan or the Grant Agreement.
If you are an employee of Apple or most other companies and have been told that
you can not sell calls or buy puts even when you can sell the stock, you generally
have a cause of action against Apple or other companies. I will be happy to refer
you to an attorney who understands these matters.
John Olagues
504-875-4825
olagues@gmail.com