iioftexas
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Joined: 30 Nov 2011
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Hello. First-time poster here, and I'm looking for advice on what I think is a unique situation.
I work for a private company. A coworker of mine is about to leave the company, and he mentioned to me that he isn't going to exercise all of his stock options upon leaving, which means they'd be forfeited and worthless. I'm high on the company, so I've offered to give him the money to buy them, and we'll split the profits. He is interested in doing this since it comes as no risk to him.
Although there are many issues here, including tax issues, I don't want to focus on those. I would simply like advice on what a fair deal would be in the profit split. What percentage should I get as the person ponying up the cash, and what percentage should my coworker get for bringing the opportunity to the table?
Any opinion on this would be much appreciated.
Last edited by iioftexas on Thu Dec 01, 2011 12:27 am; edited 1 time in total |
Wed Nov 30, 2011 6:07 pm |
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coaster
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Location: Wisconsin
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In my opinion, you are taking 100% of the risk of actual monetary loss. He is taking no actual monerary risk, only lost opportunity risk, for which he is not exercising his option to purchase that opportunity.
If these are marketable options, I suggest you obtain a market price for the options, and offer to divide the difference between the market price and the exercise price.
Example:
market $10
exercise $5
on a 50/50 split:
your cost $7.50
your profit $2.50
his cost $0
his profit $2.50
Oops, I just went back and re-read "private company" so you can scratch that idea, I guess. How about a 15% "finders fee"?
~Tim~
Eye Candy : Why Whimsy
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Wed Nov 30, 2011 11:36 pm |
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iioftexas
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Cash: $ 0.65
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Joined: 30 Nov 2011
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Thanks a bunch for the response.
So by "15% finders fee", do you mean that I should get 85% of the profits and my coworker should keep 15%, and therefore the following example holds?
market $15
exercise $5
on an 85/15 split:
my cost $5.00
my 85% of profits $8.50
his cost $0
his 15% of profits $1.50
Also, assuming I interpreted your "15% finders fee" comment correctly, what made you change your mind from 50/50 to 85/15 based on the fact that the company is currently private and not public?
And lastly, I think this goes without saying, but just in case... our company's goal is to eventually either go public or be acquired, so it's at that liquidation event when profit would finally be realized.
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Thu Dec 01, 2011 12:09 am |
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coaster
Senior Advisor
Cash: $ 1357.80
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Joined: 11 Oct 2005
Location: Wisconsin
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No, I didn't make that clear, and I realized that after I shut down last night. What I had in mind was more the likes of a 15% commission, although you don't want to call it that; might be sticky wrt securities regs. So, using the example of a $5 exercise, you pay him $5.75 per option, he walks away with $0.75 with no risk; you pay a 15% premium but own options you'd not have available to you to buy. You take 100% of the risk of loss, but also 100% of the opportunity to profit over your 15% premium, and with no further obligation to your friend.
I don't see where he should have any percentage of the profits at all since he's taking no risk. With one exception: if you're able to immediately turn around and sell the options for a profit. But I take it you can't do that, since it's not a publicly-traded security; and I suppose you probably have some vesting requirements?
And that explains my change of mind as well, ..... 
~Tim~
Eye Candy : Why Whimsy
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Fri Dec 02, 2011 7:20 am |
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iioftexas
New Member
Cash: $ 0.65
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Joined: 30 Nov 2011
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Tim, thanks a bunch for your input. This should help us reach a deal. 
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Sat Dec 03, 2011 2:05 pm |
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Abana
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Location: new york
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With tax season just passed, you may still be hurting from the results. If you requested an extension and haven't filed yet, this topic might be very helpful to you. Aside from the profit potential that you can realize from trading commodities, there are handsome tax benefits as well.
Best Junior ISA
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Fri Jan 27, 2012 9:03 am |
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