>f you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires.
Why is this relevant.
Wouldnt they still be ahead?
Why is this relevant.
Wouldnt they still be ahead?
on paper, yes, you'd be ahead, but owning stock doesn't equate to cash, you'd have to liquidate by selling... in the interim, you'd still owe the tax bill, even though you haven't sold yet, and for some without the means to pay that bill, it can be a problem.
Essentially the company is going to intermediate that sale by selling shares to external investors and buying shares from you.
Together they have a 3.5 billion tax bill, but don't have the cash to pay it and cant sell the stock.
It is like if I gave you a magic bean worth 1 billion this year, but the only magic bean buyer will come to town next year (hopefully). how will you pay your taxes.
I get why a buyback makes more sense here.
What I don't understand is why they didn't just let the current options expire and issue new ones with a fresh 10 year expiry, an IPO vesting trigger, and no employment contingency.