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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: John Curtis who wrote (7170)	1/17/1999 11:57:00 PM
From: kolo55	Read Replies (4) \| Respond to of 27311

Read the annual report(10K) a little closer. I agree with your general assessment of Lev's motivations. But regarding the options: On page 25 the filing shows the 1,000,000 options. On page 26 it shows he had already exercised 960,494 options by the end of last March. This is in spite of the fact that they didn't expire until 12/31/07. Why did he exercise his options early? By exercising early, he gave up the time premium value (probably worth about $4 a share or so, but that is unrealizable- he can't sell the options). He also pays interest on the company loan he took to pay for the shares (the first payment on this loan was due in December 98). I suggest he exercised early, expecting a big run-up in the price above the exercise price of $5.06 per share. Since the market price at the time of the exercise was $5.06, he escapes ordinary income taxation of the difference between the option exercise price and actual market value at the time of the exercise. If he exercised when the stock price was $8.06, he would see 960,494 x (8.06-5.06) = $2,881,482 show up on his W-2 as ordinary income. By exercising when the market price was the same as the exercise price, he avoids having to report ordinary income. When he does sell the shares, the difference between the sales price and the exercise price will be reported as capital gains. By March 99, the holding period will exceed 12 months, and the gain will be long term. The difference in federal taxes between ordinary income tax on $2.88M and LT capital gains for Lev is $560k. If the stock goes to $20.06, then the difference is $2.81M in taxes. Lev clearly exercised early because he expects a big run-up in the stock price at some point. He left only 39,506 options left unexercised. Regards the compensation listed on page 24, this was only for one quarter prior to filing the report. His annual compensation is listed at $280,000 on the bottom of page 26. Paul