What happens to my incentive stock options when my company is purchased?
May 10, 2000
Subject: Company Purchase
Date: Thu, 6 Jan 2000
From: Scott
I have an ISO for 10,000 shares of a company that is not traded on the market. My purchase price is set +AEA-+ACQ-10 per share. I am vested but have not exercised.
The company is being purchased by a larger, publicly traded firm. The purchasing firm is traded +AEA-+ACQ-60 per share.
I have been told that the purchasing firm is to pay +ACQ-20 per share for my company stock.
My questions is: How does this effect me? and How do I figure my gains and losses?
Thanks,
Scott
Answer
Hello Scott,
You haven’t exercised your options yet.
Assuming that you exercise the options for $10 per share and immediately sell them for $20 per share, you will report additional compensation (W-2) income of $10 per share under salary and wages (total of $100,000). On Schedule D, you will report the sale proceeds of $200,000 less the tax basis of $200,000 for zero gain or loss. There may be some selling expenses, resulting in a small short-term capital loss.
Good luck!
Mike Gray