Biotech Values

[mouton29]

<<Exercise and hold is an odd thing to do under most circumstances. For instance, under these circumstances (exercising options with a strike price of less than 1 and exercise price of 15) he'll have to pay somewhere in the neighborhood of $200K of AMT. If he had, instead, invested it in MNTA shares and left the options untouched he'd actually make more money assuming the stock goes up. >>

Only incentive stock options or ISO's create AMTI when exercised. I took a quick look at the proxy statement and did not see any indication the options are ISO's but that is not dispositive. On the other hand, there are significant limitations on issuance of ISOs and it would be mildly surprising for these to be ISOs. It is worth noting that the AMT paid in one year is not necessarily a real cost because it is available in following years as a credit to the extent regular tax liability exceeds AMT liability.

Nonqualified options, on the other hand, produce ordinary income when excised to the extent of the difference between the fair market value of the stock when exercised and the exercise price. So the immediate tax cost is much greater. One inference that can be drawn is that the option holder believes there will be future appreciation and is trying to effectively convert that appreciation in capital gains, as opposed to ordinary income. But before drawing that inference here, we would need to confirm that the options don't expire at some point in the near future given Brugger's resignation. Also, it is possible that one might exercise this year simply because one judges that ordinary income rates will be higher next year given the scheduled expiration of the Bush tax cuts.