Novell (NOVL) dirt cheap, good buy? Message Board

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Technology Stocks : Novell (NOVL) dirt cheap, good buy?

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To: Paul Fiondella who wrote (28017)	9/13/1999 12:04:00 AM
From: Scott C. Lemon	Read Replies (2) of 42771

Hello Paul, About your comments on stock options ... I just recently learned an interesting lesson. It seems that the scenario that you describe is one of many different types of plans ... but there are others. ;-) > If you exercise your option you establish a position in the stock. > There isn't anything to tax at that point. You haven't gotten > anything yet. You shouldn't have to pay any taxes until you sell > the stock. Perhaps then you are taxed as if the amount was employee > compensation. This is the way it used to be ... but now there are many companies with plans that operate quite differently ... For example, one such plan that I have recently learned about works like this: 1. You are granted options at, let's just say, $10/share. Maybe 1000 shares. Let's say that after 4 years+ you are fully vested. 2. On the day that you exercise, the price happens to be at $20. 3. What you find out is that the plan really says this: The company will pay you, on that day, the balance of the funds required to purchase the shares! In this case you pay $10,000 and the company puts up the other $10,000 - and then they add that amount to your W2, and oh yeah ... you have to pay the full taxes on that money (at 40%) that day - $4000 ... 4. Your cost basis on the shares is then at $20. If the stock price falls, you are left to deal with the losses, since you already paid the taxes ... if the price goes up, then you are only taxes for the gains above the $20 basis. This might sounds strange ... but it is very true and I have found that many companies restructured their employee options to work this way. I recently "learned" about this in person ... ;-) Scott C. Lemon

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