> If [an ex-employee] knows (as a result of having been at the company) that the prospects of the business are looking grim or a product launch is significantly delayed, that’s important information a buyer would deserve to know in evaluating whether to buy the stock, and failure to disclose that information creates real legal jeopardy for the seller. This risk exists in a 90-day exercise program as well, but it becomes a lot more acute when you move to 10-year exercise periods.
It seems to me there would be a lower risk under the 10-year exercise window scenario. Under the 90-day window, the ex-employee would be forced to exercise or lose all of their equity and thus liable for a large AMT bill. To mitigate this, that ex-employee, with recent inside knowledge of the company's operations, would look to the secondary market to unload some of those shares and ease the tax burden unless their are strict transfer restrictions in place, increasing the divide between cash-rich and cash-poor employees.
Under a 10-year exercise plan, the ex-employee would be less likely to exercise (better to wait until the company's outcome is more certain) and wouldn't need the cash to buy the shares and cover those AMT taxes.
> ISOs have better tax treatment for employees because the employee does not have to pay taxes at the time of exercise on the difference between the exercise price of the option and the fair market value of the stock
This doesn't seem to count AMT taxes which is the big elephant in the room. In California and most high tax states, employees will have to pay AMT taxes on the difference.
It seems to me there would be a lower risk under the 10-year exercise window scenario. Under the 90-day window, the ex-employee would be forced to exercise or lose all of their equity and thus liable for a large AMT bill. To mitigate this, that ex-employee, with recent inside knowledge of the company's operations, would look to the secondary market to unload some of those shares and ease the tax burden unless their are strict transfer restrictions in place, increasing the divide between cash-rich and cash-poor employees.
Under a 10-year exercise plan, the ex-employee would be less likely to exercise (better to wait until the company's outcome is more certain) and wouldn't need the cash to buy the shares and cover those AMT taxes.
> ISOs have better tax treatment for employees because the employee does not have to pay taxes at the time of exercise on the difference between the exercise price of the option and the fair market value of the stock
This doesn't seem to count AMT taxes which is the big elephant in the room. In California and most high tax states, employees will have to pay AMT taxes on the difference.