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Stock Option advice

Discussion in 'Business, Careers & Education' started by antirabbit, Jun 6, 2011.

  1. calisanfran

    calisanfran Senior member

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    Has your company filed an S1? If not, what was the company valued at the last capital raise round (post-money)? Which public company do you feel is the best comparable for your company and what is its market cap?

    If you feel a liquidity event has a high probability at a good premium to $1 then I would find a way to borrow money at a low cost of capital (maybe 5% per year) and plough that into exercising the options. You could also look around for angel investors who might be interested in take the shares off your hands.
     
  2. stevent

    stevent Senior member

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    What was the reason for the layoffs?
     
  3. Lord-Barrington

    Lord-Barrington Senior member

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    What was the reason for the layoffs?

    That's what I'd be interested in knowing as well. Pre-IPO layoffs (depending for what reason) don't strike me as a sign that the business is headed in the right direction.

    I don't think anyone on here has a better idea of what you should do in this case than you do. Does the company appear healthy? Does an IPO look eminent or has it been "just around the corner" for awhile already? Have companies inquired about acquiring the company or is this all still hypothetical?
     
  4. antirabbit

    antirabbit Senior member

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    They lay off seemed very personal (Sr. VP hated me with passion)and had no real tangible cause, and I was the last one in the company with the title I had. I doubt it is likely to have a long term effect, short term, it has raised alot of fears as my performance last year was #1.
    Regardless, I have pretty much decided to go for it and try to capture as many shares as I can.
    Our founders were from Computer Motion, which merged with Intuitive Surgical, which was one of the most successful IPO's ever.
    However, they seem to be pushing to commoditize the products which were typically considered high end capitol and move to a faster, smaller sale in order to recognize revenue against TCV. In the past we would sign 7 figure deals that would recognize revenue over say a year or two (thus creating a nice backlog of revenue).
    Any one have experience in capturing future commissions after being let go? I have multiple 6 figure commissions on contracts I signed last year that are now gone.
    I hope to land on my feet, we shall see!
     
  5. Eason

    Eason Senior member

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    Did you ever sell your Sr. VP anything on StyleForum, then fail to deliver?
     
  6. A Y

    A Y Senior member

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    So this advice is based on my personal experience. Obviously, YMMV, consult your tax/legal/other professional before making a decision.

    First of all, sorry to hear about your situation. I hope you land on your feet.

    I think your choice depends on how your stock plan is structured. Some questions whose answers will affect the example given later:

    - Dividends? Getting dividends may make holding the stock a good investment depending on the numbers.

    - Are you allowed to sell the stock to someone else? Some stock plans don't allow this without permission of the company.

    - Tax filing hassle. You may have to file taxes in every state the company does business in if you hold stock in the company. This complication may or may not be a big hassle depending on the return.

    - Is there a minimum exercise amount? For example, you may be required to exercise at least $10K of stock.

    - There are probably other factors I haven't mentioned.

    I believe you will have to pay taxes on options that have increased in price. In your case, you will have to pay taxes on $3 (difference between your price and the current valuation) on however many options you exercise.

    To exercise all 30000 options, you will need to pay:

    $30000 for the $1 options
    taxes on $90000 for the $3 increase in their value

    This will be taxed as regular income, so let's say that's around 45 percent when you add up federal and state taxes. 45 percent is just for illustrative purposes --- your actual tax rate will vary depending on a bunch of other things. This is tax withholding, and different states have different rules for how much you need to withhold for these kinds of things.

    So you now need $30K + 0.45*$90K = $70.5K of cash to exercise all the options in this example.

    If you are allowed to sell off stock, and you can find buyers, you could either flip the whole thing or maybe sell enough to just pay off what you owe.

    - Flip at $4 nets you $4*30K-$70.5K = $49.5K

    - Assuming you don't put up any cash of your own, and you find a buyer at $4, you'd need to sell $70.5K/$4 = 17625 shares to hold the remaining 30k-17.625K = 12,375 shares. The more cash you can put in, the fewer shares you'd have to sell, and the more shares you'd own.

    If there are dividends, the second option may be attractive. For example, if the company pays $1/share/year, you'd get $12375 before taxes each year, and that may be a good investment for you, assuming the company continues that in the future.

    Anyway, I think you have many things to consider, but a lot of it will depend on your stock plan, your personal financial situation, your aversion to risk, etc. Good luck!

    --Andre
     

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