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CEO Chambers Selling Cisco Shares

Craig Matsumoto
News Analysis
Craig Matsumoto
12/21/2012
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CEO John Chambers has prepared a plan to sell 2.8 million shares of Cisco Systems Inc. stock by September 2014, according to a filing with the Securities and Exchange Commission (SEC) Friday afternoon.

Nearly half the shares, 1.3 million, will come from stock options granted in 2005 and set to expire in September 2014; Chambers will be exercising the options and selling the shares. The other 1.5 million will come from his own holdings.

Chambers owned 8.7 million shares of Cisco, 5.7 million of them in the form of unexercised options, as of July, according to a separate SEC filing.

Why this matters
Investors never like to hear that a CEO is selling shares. They'd prefer to see an executive buy shares, showing confidence in his company's future growth and all that. (See Infinera CEO Shows He's a Believer.)

That's probably why this filing was timed for the Friday before Christmas. That said, it's a standard plan under SEC Rule 10b5-1, where Chambers will sell pre-set numbers of shares at regular intervals, the idea being to prevent accusations of unfair inside trading. An executive is only allowed to start a 10b5-1 plan when not in possession of material, non-public information.

For more



— Craig Matsumoto, Managing Editor, Light Reading

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Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
1/5/2013 | 2:03:25 AM
re: CEO Chambers Selling Cisco Shares


Not a bad late-Friday catch, but I wonder if Phil's Overture scoop takes the prize as the bigger Friday news haul.


(Google also invested more in 23andme, for those who care about such things.)

paolo.franzoi
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paolo.franzoi,
User Rank: Light Beer
1/5/2013 | 2:03:24 AM
re: CEO Chambers Selling Cisco Shares


Craig,


You have one mistake.  A CEO is ALWAYS in possession of Material Non-Public Information.  Plans are set to start usually a quarter in the future and must be followed or stopped with a delay then to start another plan.  The idea of a selling plan is that it is mechanical.  It can be simple or complex (the formula for selling shares) but it can not be a choice.  So, most of the time a 1q delay before the start represents being out of touch with the material non-public information for 90 days in the future.


These plans are basically for all C level and other registered executives, who I said are ALWAYS in possession of material non-public information.


seven


 

paolo.franzoi
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paolo.franzoi,
User Rank: Light Beer
1/5/2013 | 2:03:24 AM
re: CEO Chambers Selling Cisco Shares


 


Craig,


You are missing the subtlety.  The idea is that a plan is put in place before it can be used so that Chambers does not theoretically have material non-public information today about Q2 next year.  He DOES have material non-public information about this quarter.  So, the idea is that the delay in the start of the plan makes the current set of information public by the time the plan goes into execution.


So, again the whole idea of the plan is file now - delay - execute plan.  The delay is supposed to either make public or non-material the information held today.  But both now and 2 quarters from now Chambers has material non-public information.  He just (theoretically) does not have material non public information that far in the future.


seven


 

Pete Baldwin
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Pete Baldwin,
User Rank: Light Beer
1/5/2013 | 2:03:24 AM
re: CEO Chambers Selling Cisco Shares


So true, Seven. Thanks. The part about "material non-public information" is the SEC's wording, not mine, so maybe I should have put quote marks around it. Whether such a thing is practical or not, well... talk to the SEC...  :)

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