1. Why didn't the employees use the so-called "cashless"
method to exercise the options and sell the shares?
This requires no money up front. Of course, unless the
options were about to expire and the employees wanted to
hold the stocks longer.
2.
Feinstein explained.
``A lot of people had the option to buy (Microsoft stock) at $70 a share,'' Feinstein said. ``If you had the right
to buy 1,000 shares, you had to come up with $70,000'' -- not the kind of money a programmer at Microsoft
would have lying around.
So, he said, the programmer would go to Salomon Smith Barney and take out a loan for the $70,000. ``When
the stock went up to $110 or $120, he could sell the shares, pay off the loan and make $50,000 without ever
doing anything,'' Feinstein said.
But ``when the stock drops from $70 to $40,'' he added, ``the loan is called and the stock is sold to pay the
loan. But that's income. You have to pay 28 percent to government when you never got anything.
How can one have an income if one bought a stock for
$70/share and sold for $40/share? Wouldn't that be
considered a capital loss? |
