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parties involved in cost-sharing arrangements. Yet, the size of
the spread is affected by a variety of factors, many of which are
not within the control of the contracting parties. More
specifically, the size of the spread is based on the exercise
price and the stock price on the exercise date. It is
indisputable that changes in stock prices are frequent and
unpredictable, and that a wide variety of external factors may
influence such prices. In fact, the entire market, or stock in
individual companies, may move up or down based on market and
industry trends and a myriad of factors including, but not
limited to, inflation, interest and unemployment rates, consumer
demand, energy prices, programmed trading, etc. As a result,
petitioner’s stock price may move in response to such trends and
be affected by these factors. For example, respondent concedes
that he does not know whether the rises in petitioner’s stock
price were attributable to increases in the market as a whole or
the semiconductor industry in particular.
Stock prices are also sometimes affected by investor trading
based on erroneous information. In such cases, a temporary
change in stock price may be based on transient misperceptions of
value among investors.
The spread is also significantly affected by an employee’s
investment decision regarding when to exercise the option.
Indeed, the timing of the ESO-holder’s decision to exercise the
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