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MCLE Test and Answer Sheet

Test No. 88: Stock in Trade (October 2000 LA Lawyer)

Instructions for Obtaining MCLE Credits
The Los Angeles County Bar Association certifies that this activity has been approved for Minimum Continuing Legal Education credit by the State Bar of California in the amount of 1 hour.


1.Study the CLE article in this issue.


2.Answer the test questions by marking the appropriate boxes. Each question has only one answer. Photocopies of this answer sheet may be submitted; however, this form should not be enlarged or reduced.


3.Mail the answer sheet and the $15 testing fee ($20 for non-LACBA members) to:

Los Angeles Lawyer
MCLE Test
P.O. Box 55020
Los Angeles, CA 90055 
Make checks payable to Los Angeles Lawyer.

4.You can also fill in the test form and submit it directly to LACBA by clicking "Submit." To submit your test answers online you will need to pay by credit card. After submitting your answers you will be presented with a screen requesting payment information. This information will be submitted in a secure mode which will allow you to safely transmit your credit card number over the Internet. If you prefer not to pay by credit card, please print this answer sheet and submit your responses by regular mail.


5.Within six weeks, Los Angeles Lawyer will return your test with the correct answers, a rationale for the correct answers, and a certificate verifying the CLE credit you earned through this self-assessment activity.


6.For future reference, please retain the CLE test materials returned to you.
Test Sheet 
Mark your answers to the test by clicking next to your choice.  All questions must be answered.  Each question has only one answer. This test is worth 1 hour of credit.*

1. The primary function of equity compensation arrangements is the retention and motivation of valued service providers.
True.
False.

2. Which one of the following requirements does a stock incentive plan not have to meet in order to be exempted from registration requirements imposed by federal securities laws?
A. The plan must state the persons eligible to receive stock pursuant to the plan.
B. The plan must terminate no later than five years from the date the plan is adopted or approved by the shareholders, whichever is earlier.
C. The plan must be approved by the shareholders within 12 months before or after the date the plan is adopted.
D. The plan must be written.

3. Under federal securities law limitations, the aggregate value of the securities granted pursuant to the stock incentive plan may not exceed the lesser of 1) $1 million dollars, 2) 15 percent of the total assets of the issuer, or 3) 15 percent of the outstanding amount of the class of securities being offered and sold in reliance on the compensatory transaction registration exemption.
True.
False.

4. California securities laws require that options issued pursuant to a qualified stock incentive plan generally must have a minimum exercise price equal to:
A. 100 percent of the fair market value of the underlying security at the time of grant.
B. 100 percent of the fair market value of the underlying security at the time of exercise.
C. 85 percent of the fair market value of the underlying security at the time of grant.
85 percent of the fair market value of the underlying security at the time of exercise.

5. Issuances of stock options or restricted stock to individuals owning more than 10 percent of the total combined voting power of all classes of stock of the issuing corporation or its parent or subsidiary corporations are subject to certain modifications of the general securities provisions affecting compensatory stock.
True.
False.

6. Stock options granted to officers, directors, and consultants are exempted from the California securities law requirement that options issued pursuant to a qualified plan vest at a minimum rate of 20 percent per year over a period of five years.
A. True.
B. False.

7. Another name for a nonqualified stock option is a statutory option.
True.
False.

8. Incentive stock options (ISOs) have favorable tax consequences for the employer.
True.
False.

9. According to obligations imposed by Internal Revenue Code (IRC) Section 422, ISOs may only be granted to:
A. Directors.
B. Officers.
C. Consultants
D. Employees.

10. What are the consequences if an option that was intended to be an ISO fails to meet any of the IRC requirements imposed on ISOs?
A. The option will be treated as a nonqualified stock option.
B. The option fails to receive special tax treatment.
C. Both of the above.
D. None of the above.

11. The maximum fair market value of stock, determined at the time of grant, for which ISOs granted to any individual may be exercised during any calendar year is $100,000.
True.
False.

12. Nonqualified stock options and restricted stock may not be granted to:
A. Employees.
B. Employees' dependents.
C. Directors.
D. Officers.

13. A holder of an ISO is first taxed upon the option at the time of:
A. Grant.
B. Vesting.
C. Exercise.
D. Disposition of the underlying security.

14. A holder of a nonqualified stock option is first taxed upon the option at the time of:
A. Grant.
B. Vesting.
C. Exercise.
D. Disposition of the underlying security.

15. A holder of restricted stock is first taxed upon the stock at the time of:
A. Grant.
B. Lapse of substantial risk of forfeiture.
C. Disposition.
D. Never.

16. A holder of restricted stock that makes an election pursuant to IRC Section 83(b) is first taxed upon the stock at the time of:
A. Grant.
B. Lapse of substantial risk of forfeiture.
C. Disposition.
D. Never.

17. A holder of restricted stock who has made a Section 83(b) election and forfeits his or her rights to the stock may take a deduction in an amount equal to the amount of income the holder recognized pursuant to the Section 83(b) election.
True.
False.

18. In order for an option to be treated as an ISO, the stock must not be disposed of prior to:
A. One year from the date the option was exercised.
B. Two years from the date the option was granted.
C. Two years from the date the option was exercised.
D. A and B.
E. B and C.

19. Individuals who receive nonqualified stock options generally are subject to ordinary income tax on a portion of the total gain they recognize as a result of the options. The portion of the gain taxed at ordinary income rates is that portion of the gain deemed to be compensatory in nature. The amount of ordinary income recognized with respect to a nonqualified stock option is:
A. The amount by which the fair market value of the stock at the time the option was exercised exceeds the exercise price.
B. The excess of the amount received upon the disposition of the stock over the exercise price.
C. Zero.
D. An arbitrary amount chosen to confuse the taxpayer.

20. In order to make a Section 83(b) election, a taxpayer must file a written statement with the Internal Revenue Service that includes all of the following except:
A. The name, address, and taxpayer identification number of the taxpayer.
B. A description of the property for which the election is being made.
C. The date of the lapse of the restriction to which the property is subject.
D. A description of the nature of the restriction on the property.

Address and Billing 
After submitting your answers you will be asked to enter your name, address, and payment information on the next screen. Once you have submitted the current form, you will be switched to a secure mode which will allow you to safely transmit your credit card number over the Internet.

If you do not wish to complete this transaction over the Internet you should print this page and send it to the address listed in Step 3 of the instructions at the top of this page.

Before hitting the "Submit" button please verify that all questions have been answered.


*The Los Angeles County Bar Association has been approved as a continuing legal education provider of Minimum Continuing Legal Education credit by The State Bar of California. This self-assessment activity will qualify for Minimum Continuing Legal Education credit by The State Bar of California in the amount of one hour.

   
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