Stock Options For Dummies

AvAlan R. Simon

Häftad, Engelska, 2001

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Confused by all the brouhaha surrounding stock options? Let expert Alan Simon demystify this often-confusing investment vehicle for you.If you’re like the majority of the estimated 12 million employees in the U.S. who have stock options as a key component to their compensation packages, you have a vague notion, at best, of how options work and what they can mean to your financial well being. What’s the vesting schedule for your shares and how will their strike price be set? What type of stock option grant will you receive, an ISO (incentive stock option) or an NQSO (non-qualified stock option)? What tax rules apply to your option program? Your financial future could depend on your knowing the answers to these and other questions regarding your company’s stock option plan. Featuring clear explanations of how your stock options might make you money—or not—this friendly guide fills you in on what you need to know to: Understand different types of stock optionsRead and find traps in your stock option agreementEvaluate the pros and cons of company investment vehiclesAssess vesting schedules and tax lawsTap Web resourcesSimon demystifies the jargon, rules, and tax consequences of stock options. He provides a realistic picture of what to expect from your options, and he helps you see past the hype to understand what your employer is really offering. Important topics covered include: What you need to know before accepting a compensation package that includes optionsDeveloping a stock option philosophy and clear-cut goalsKnowing whether you’re being treated fairly by your companyMaking sense of the language of stock options agreementsGetting a handle on key restrictions on how you exercise your optionsStock option valuationTax rules and how they apply to different types of optionsHow stock options can be affected by changes at your companyStock Options For Dummies is the only guide you’ll need to get the most out of this important investment vehicle.

Produktinformation

Utgivningsdatum:2001-07-01
Mått:188 x 234 x 18 mm
Vikt:508 g
Format:Häftad
Språk:Engelska
Antal sidor:336
Förlag:John Wiley & Sons Inc
ISBN:9780764553646

Utforska kategorier

Finansiering inom Ekonomi och Ledarskap

Mer om författaren

Alan R. Simon, author of Data Warehousing For Dummies, is a manager at Deloitte Consulting. Alan has experienced every side of stock options in public and pre-IPO companies, large Fortune 500 corporations, and small consulting firms.

Innehållsförteckning

Introduction 1Why I Wrote This Book: The Lessons of 1999 and 2000 1Who Needs to Read This Book? 3How to Use This Book 3How This Book Is Organized 4Part I: The Fundamentals of Stock Options 4Part II: Details, Details: What You Must KnowAbout Your Stock Options 5Part III: Money! 5Part IV: Pay Up! Taxes and Stock Options 6Part V: Changes and Special Circumstances 6Part VI: The Part of Tens 6Icons Used in This Book 7Part I: The Fundmentals of Stock Options 9Chapter 1: Stock Options: What YouNeed to Know Right Off the Bat 11Understanding Stock Option Basics 11Knowing what stock options are 12Knowing how stock options work 13Exercising Your Stock Option(s) 15Understanding the Right Nature of Your Stock Options 19Comparing Stock Options to Actual Shares of Stock 20Granting Stock Options: Why Do Companies Do It? 21Hard work equals great rewards 21Building (or trying to build) a stable workforce 22“Diverting” cash from salaries to other uses 23Comparing the Two Main Types of Stock Options 24Chapter 2: Taking Your Chances: Getting Rich or Going Broke 27Making Lots of Money: The Upside to Stock Options 28When Good Options Go Bad 30The sad story of underwater stock options 31Is getting in early the secret? 32Stock Options as Golden Handcuffs 34What are golden handcuffs? 34Conspiracy theory 35Why stock options go underwater 37Reading the Oxygen Meter on Your Underwater Stock Options 38Real companies versus fad companies 39Realizing failure isn’t just a fad 40Chapter 3: Knowing What Kind of Stock Option Situation Is Best for You 43Assessing Your Attitude: Entrepreneur, Investor, or Working Stiff? 43The entrepreneurial approach to stock options 44Stock options as an investment vehicle 47Job security and a steady paycheck — but with a “kicker” 48Considering Your Personal Situation 49The Two Different Types of Employment Situations 50High-risk, high-reward situations 50Risk-managed situations 50Putting It All Together 51Determining the Best Situation for You 52The risk-reward balance and your share of the ownership pie 52Considering the external environment and your personal qualifications 53Chapter 4: The Big Guys and The Big Picture 57Recognizing the Big Guys? 57Board members 59Identifying the big guys and watching their moves 60Understanding Other Big Guy Investment Vehicles 60Restricted stock 61Warrants 62Convertible debt 62Knowing How Much of Your Company the Big Guys Own 63The earliest stages of startup 63After the first few rounds of investment 64After going public 65The Fortune 500 stage 66The “Friends and Family” Stock Program 67Part II: Details, Details: What You Must Know about Your Stock Options 71Chapter 5: Deciphering the Legal Language of Stock Option Agreements 73Knowing What an Employee Stock Option Agreement Is 73Figuring Out What Kind of Stock Option(s) You Have: ISO or NQSO 74Trudging Through the Details of Your Stock Option Agreements 75The date of the agreement 76The number of shares 77What kind of stock 78The strike price 79The vesting schedule 80Split adjustment clause 82Knowing When Your Option Is Exercisable 84Exercising your stock options 84Conditions of employment 85Termination provisions 86Change of control clauses 87Blackout periods 88Replacement clause 88Restrictions on rights 89References to your employment agreement 90The rest of the legal language 91Signature blocks 92Chapter 6: Exercising Your Stock Options 93The Four Reasons to Exercise Stock Options 93“Show me the money” 94“Save the money!” 94Diversification 95Tax reasons 95Procrastinators, Beware! Getting All of Your Paperwork in Order 96The Mechanics of Exercising Stock Options 97Be sure to write (or call) 97What do you get when you exercise? 98Reading the tax forms when they arrive 99Exercising Pre-IPO Stock Options 99How Much Money Do You Need to Come Up With? 100The cashless exercise 100Paying for stock with real money 101Chapter 7: Differentiating Pre-IPO and Post-IPO Stock Options 105What Is an IPO? 105IPO basics 106How about your stock options? 107Receiving Pre-IPO Stock Options 109Pre-IPO option pricing 109What can you do with your stock options before your company goes public? 109What happens to your pre-IPO options when your company goes public? 110What happens to your pre-IPO options if your company doesn’t go public? 111Receiving Options When Your Company Is Already Publicly Traded 114Riding the waves: How your stock options are affected by normal peaks and valleys in your company’s stock 115The danger point: Joining a company right after a post-IPO stock price runup 116Chapter 8: No Trading Allowed! Lockups and Blackout Periods 119Understanding Post-IPO Lockups 119Getting Through Blackout Periods 121What is a blackout period? 121Who is subject to a blackout period? 122What is your blackout period strategy? 122Chapter 9: Finding Stock Option Information Online 125myStockOptions.com 125MyOptionValue.com 126StockOptionsCentral.com 127www.stock-options.com 127MyInternetOptions.com 128The National Center for Employee Ownership (NCEO) 128EDGAR? Who’s That? 129Part III: Money! 131Chapter 10: Determining What Your Stock Options Are Really Worth 133Valuing Stock Options 134Knowing your options’ value: Why it’s important 135Getting complicated: The Black Scholes Model 135The Value of Your Stock Options at Grant Time 136Determining What Your Stock Options Are Worth Now 138What Your Stock Options Should Be Worth 139Determining What Your Stock Options Might Be Worth in the Future 142Chapter 11: Stock Options and Your Overall Portfolio 147Counting the Baskets 147Understanding the Principles of Personal Financial Planning 149Considering Your Equity (Stock) Holdings 150Investing in Your Employer 151Buying additional stock in your company 151Your company’s Employee Stock Purchase Plan (ESPP) 153You’re Wealthy! But Is Your Wealth Real or Only on Paper? 157Two different kinds of paper wealth 157Protecting (or trying to protect) your unvested stock profits 160Sector Exposure 161Part IV: Pay Up! Taxes and Stock Options 163Chapter 12: Understanding the Basics of Taxes and Stock Options 165Deciding How Much You Want to Worry about a Tax Strategy for Your Stock Options 165Warnings and Possible Surprises Waiting for You 167Tax laws change frequently 167Owing taxes even if you haven’t received any cash 168Key Tax Concepts 168Ordinary income 169Short-term capital gains 169Long-term capital gains 169Alternative minimum tax (AMT) 170State Tax Considerations and Michael Jordan? 171International Tax Considerations 173Canada 174England (U.K.) 175Ireland 175France 176Chapter 13: Nonqualified Stock Options and Taxes 177What Is a Nonqualified Stock Option (NQSO)? 177Understanding the Basics: NQSOs and Taxes 178Grant-time tax consequences 178Exercise-time tax implications when you hold your shares 179Exercise-time tax implications when you do a cashless exercise 182Calculating taxes when you sell shares you acquire from exercising NQSOs 184Complicating the Situation 186Why you might owe taxes at grant time 186Exercising and no taxes: Delayed income recognition 187Understanding the Section 83(b) Election 187Section 83(b) basics 188Section 83(b) risks 189Section 83(b) mechanics 189Tax Withholding and Exercising NQSOs 190NQSOs and Your Tax Forms 191Your W-2 (and your pay stubs) 191Form 1040 191Schedule D 192Timing Troubles: When Should You Exercise NQSOs? 193As soon as possible 193As late as possible 194At regular intervals 195One more consideration 195Another Key Decision: Which Option(s) Should You Exercise? 195Chapter 14: Incentive Stock Options and Taxes 199What Is an Incentive Stock Option (ISO)? 199Talking Taxes and ISOs: The Basics 200Grant-time tax consequences 200Exercise-time tax consequences 201Tax consequences when you sell ISO shares 201Pleasant disposition or nasty disposition? 202Disqualifying Disposition of an ISO 202Scenario #1: You make money on the deal 203Scenario #2: You lose money on the deal 206More about disqualifying dispositions 206Nondisqualifying Disposition of an ISO 207Alternative minimum tax (AMT) considerations and exercising your ISOs: A preview 207The Stock Option Titanic Scenario 211Beware the Wash Sale Rules! 214Can Section 83(b) Help with the AMT Situation? 216Part V: Changes and Special Circumstances 217Chapter 15: The Alternative Minimum Tax and Stock Options 219Understanding the AMT 220Calculating AMT 220AMT rates 220AMT exemptions 220AMT deductions 221Combining the basic calculations and rates 221Getting Some of Your AMT Payments Back 222State Taxes and AMT Considerations 223Chapter 16: Acquiring or Being Acquired:Dealing with Corporate Change 225Understanding Why Companies Sell Out 225Seeking growth 226Time to do something else 226Receiving an unsolicited offer 227Selling out was the plan all along 227Dissecting the Deal 227Acquisitions 227Mergers 229Divestitures 229Additional outside investment 230Cash versus stock deals 230Private and Public Companies: The Mix-and-Match Combinations 233Public company acquired by another public company 233Private company acquired by a public company 234Private company acquired by another private company 234Public company acquired by a private company 235What Happens to Your Options After a Change of Control? 235The exchange rate means you get a new number of shares 235Accelerated vesting (maybe) 236Post-acquisition lockups 236Sweetening the pot (or the golden goodbye) 237Understanding the Tax Implications of a Change of Control 238A Final Word: It’s a Whole New Ballgame After a Change of Control 238Chapter 17: Trying to Predict What Will Happen to Your Stock Options 239Looking at What’s Going on Inside Your Company 240The retention and turnover picture 240What’s the latest buzz on the company’s sales picture? 242Watching the big guys and their (legal) insider trading activity 243Is company management out of touch with the real world? 244Cronyism 245What’s Going on Outside Your Company? 246It’s the economy, stupid! 246Is your company in the buggy whip industry? 247What the professionals are saying about your company 249What the amateurs are saying about your company (and whether it matters what they’re saying) 250Chapter 18: Leaving Your Job: What Happens to Your Stock Options? 251Does the Reason You’re Leaving Matter? 252Tick, Tock, Tick, Tock The Clock Is Running 252Should You Sign a Termination Agreement? 254Exercising Stock Options After You’ve Already Left 255Read Your Stock Option Agreements Now! 255What Happens to Pre-IPO Options If You Leave? 256What About Underwater Stock Options? 256Read Your Overall Employment Agreement 257Beware the Dreaded Clawback Provision! 258How Does Your Soon-to-be-Former Stock Option Package Affect Your New Job’s Compensation? 261Special Job Change Circumstances and What Happens to Your Stock Options 262Switching to part-time employment status 263Switching to contractor status 263Taking a leave of absence 264Get the Lawyers! Lost Stock Options and Lawsuits 265Part VI: The Part of Tens 267Chapter 19: Special Stock Option Circumstances 269Understanding the Three R’s: Repricing, Reissue, and Reload Options 269Repriced options 270Reissued options 274Reload Options 277Using Stock Options as Currency 281Chapter 20: Ten Signs That Your Stock Options Will Be Worth a Lot! 285A Steadily Growing Company 285A Stable and Highly Qualified Management Team 286A Very Active Board of Directors 286Relatively Low Turnover Among Employees 287Market-leading Products or Services 287Returning Customers 288Good Internal Systems and Infrastructure 288Employee Empowerment 288Thorough New-Employee Training Programs 289Chapter 21: Ten Signs That Your Stock Options Will Probably Be Worthless! 291The Serial-Entrepreneur Management Team 291A Disinterested Friends and Investors–Dominated Board of Directors 292A Revolving Door of Managers 292Last One Out, Please Turn Out the Lights! 293Rose-Colored Glasses Syndrome 293High Levels of Customer Dissatisfaction 294Poor Internal Systems and Infrastructure 294Open Talk Among Employees About Leaving 294Inconsistent Internal Communications from Management 295A Sense of Panic 295Chapter 22: Ten Things to Look for in Your Stock Option Agreement 297What Kind of Options Are You Receiving? 297Are the Dates Consistent and Logical? 298Are There Inconsistencies in Details? 298Is There a Clawback Provision? 298Is There a Provision for a Change of Control? 299Are the Expiration and Cancellation Details Clear? 299Are There References to the Company’s Stock Option Plan? 299What Is the Effect of a Stock Split? 300What Can You Do and Not Do with Pre-IPO Options? 300Are There Differences Among Stock Option Agreement Documents? 300Index 301