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280G Values of Restricted Stock under Q/A 24(c).


Guest jwbryson
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Guest jwbryson

For 280G valuation purposes, let's assume restricted shares vest on the closing date of change in control, but participants are entitled to elect cash, stock or cash/stock combination of merger consideration for their vesting restricted shares.

Shares of Company ABC vest at value $X, but are then automatically exchanged for merger consideration valued at higher value $Y.

Which value do you use for (i) W-2 reporting, and (ii) purposes of Q/A 24© calculations? $X? $Y?

It seems reasonable to use value $X for W-2 reporting but if the participant is guaranteed a higher economic value of $Y for the shares, then for 280G purposes it seems reasonable and conservative to use the higher value of $Y.

Thoughts?

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Guest jwbryson
Please explain why the value at vesting is X but the merger consideration is Y.

Target company stock will be valued at $x per share based on the closing price of the stock on the date of vesting. The effective date of the merger will fall on a weekend, so the closing value will be at the close of the market on the prior Friday.

The merger consideration consists of an election to receive cash or a combination of cash and stock, but in any event 50% will be cash and 50% will be stock so there will be some shifting of merger consideration elections. The cash merger consideration will likely be higher than the target closing price on the prior Friday and the stock consideration portion will likely be valued lower.

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  • 2 weeks later...
Guest jwbryson

No thoughts?

Let me toss this out there: Can you use the value of target stock for W-2 purposes and a different value for 280G purposes? For example, assume the restricted shares vest at $10 (value of target stock on date of accelerated vesting) but are then automatically converted into 60% stock merger consideration valued at $7 per share and 40% cash merger consideration valued at $12 per share. Which value do you use for 280G? $10? $7 with respect to the stock converted shares and $12 on the cash converted shares?

Tough question.

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