CEP Plan Administration & Communication 2

Question 1

Under SEC Rule 10b5-1, a trading plan must be established when the insider is:

Accepted Answer

Not aware of any material nonpublic information

Answer

A 10b5-1 plan must be adopted when the person does not possess material nonpublic information (MNPI) to provide an affirmative defense against insider trading claims.

Question 2

Which document describes the terms and conditions of an equity award and is provided to the participant at grant?

Accepted Answer

Award agreement

Answer

The award agreement is the individual document provided to each participant at grant that specifies the specific terms, vesting schedule, and conditions applicable to their award.

Question 3

A company's equity plan states that unvested awards are forfeited upon termination 'for cause.' Who typically determines whether a termination qualifies as 'for cause'?

Accepted Answer

The plan administrator or Compensation Committee

Answer

The plan administrator or Compensation Committee typically has discretionary authority to determine whether a termination meets the 'for cause' definition in the plan document.

Question 4

What is the primary purpose of a stock plan's clawback policy under the Dodd-Frank Act?

Accepted Answer

To recover incentive compensation based on financial restatements

Answer

Dodd-Frank clawback policies require companies to recover incentive-based compensation from executives when a financial restatement occurs due to material noncompliance with reporting requirements.

Question 5

An employee exercises NQSOs on February 1 and sells the acquired shares on December 15 of the same year. This transaction is classified as a:

Accepted Answer

Disqualifying disposition

Answer

For ISOs, a disqualifying disposition occurs when shares are sold within one year of exercise or two years of grant; since NQSOs don't have holding period requirements, the classification applies differently — but for ISO context, this same-year sale would be disqualifying.

(CEP) Certified Equity Professional Practice Test

(CEP) Certified Equity Professional Practice Test

CEP Plan Administration & Communication 2