I have to agree with FMK that Lev's deal is a very positive development. If this stock does rocket upward then let's consider the consequences if Lev did nothing now. In the following calculations I am rounding the shares to 600,000 and today's price to $5/share. Let's say the stock goes to $50 per share and then Lev's option is vested. He is now taxed on $30,000,000 rather than $3,000,000. Now he might have to sell some assets to cover the 40% tax or $12,000,000. On the other hand , if he is paying taxes on 3,000,000 then tax liability would be 1,200,000. It might be a little easier to raise the 1,200,000 and he has saved 10,800,000. Now his trade date will probably be 3/16/98 on these 600,000 shares. So 18 months out he can use the long term capital gains tax rate if he chooses to sell. If he waits until the shares vests then that pushes the 18 month window out further.
I have made the following assumptions:
- Lev believes the shares will rise and that he used this tax strategy to significantly reduce his tax liability and that these shares are going to be treated as income to Lev with a basis of 5.125 per share. I am assuming the first post this morning was referring to this tax strategy. I have used a scenario which I think an earlier post was referring to.
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