Biotech Values

[mouton29]

<<Their only cost for the complete purchase would have their LT tax liability for the sold shares.>>

You are assuming that all options exercised were incentive stock options. The prospectus indicates that both qualified (ISO) and nonqualified options are authorized under their 1995 and 2012 plans but does not indicate what the mix of grants was. Even companies that can issue ISO's sometimes choose not to since they may not obtain the compensation deduction that they would obtain for an nonqualified option. Also, if all of Luly's options had become exercisable in one year, they would have exceeded the $100,000 cap and could not have qualifed entirely as ISO's but I did not see that level of detail in the prospectus, so I don't see how we can know with certainty what type of options Luly exercised.

I did review Luly's five Form 4's that he filed in 2013. The one in which he reported the sale of 5800 shares (for $163,000) had this footnote: "The sales reported in this Form 4 were effected pursuant to a Rule 10b5-1 trading plan adopted by the reporting person in June 2013 to provide liquidity for tax payments due on account of options exercised in 2013."

However, I did not see any filing in 2013 reporting an exercise, unlike the recent 2014 filing. In any event, the footnote suggests that he exercised some nonqualified options in 2013. It is possible that we will see a report of a sale to fund the tax liability resulting from the 2014 exercise, as that would have been a liability of several $million, if all of the options exercised were nonqualified.