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Rentech, Inc. Message Board

  • Dooper55 Dooper55 Dec 14, 2006 11:46 AM Flag

    Very interesting "Form 4" ..... options exercised

    A 12/13/06 RTK Form 4 discloses that Ron Butz exercised 75,000 options at $2.53 on Monday.

    There are some interesting facts behind this.

    A couple of days ago I was digging through the options info at RTK and came across something that surprised me. Anyway, I hadn't tumbled to it before. When Yakobson and Butz got their separation packages in September of 2005, they got options to purchase shares at $2.53 ...... (mostly subject to shareholder approval of the 2006 awards plan, which happened). Yakobson got 570,000 options and Butz got 395,000.

    What I HADN'T noticed was that these options expire September 29, 2007.

    That means, while they're investing in their new venture, they also have to raise substantial cash to exercise those options in coming months ...... $1.44 million for Yakobson and $1 million for Butz.

    Anybody else think this offers a clue on why Yakobson and Butz instituted their programmed sales? Neither of them has been blessed with bonuses or salaries adequate to build the nest eggs needed to exercise those options. Hence, I'll bet a bunch that the 2007 expiration of those $2.53 options is a major factor behind their programmed sales.

    Also, I believe that when the options are exercised, they effectively earn ordinary income ..... the differential between the $2.53 and the share price on the day they're exercised. So they have to plan on how to cover the taxes on that income too.

    I'm not totally sure how all these factors play together but my gut feeling is that they're better off exercising the options at the lowest possible PPS and then hold the shares so the growth comes as long term capital gains, rather than as ordinary income on exercise day.

    Two bottom lines:

    1) Yakobson and Butz needed to sell shares to raise money to exercise these options.

    2) Butz spent $189,750 on Monday ..... IMO, an indication he believes the PPS is near a low.

    All JMHO, FWIW.

    PS This looks like the headwaters of Knobby's "River of Form 4's" :-)

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    • <<Also, I believe that when the options are exercised, they effectively earn ordinary income ..... the differential between the $2.53 and the share price on the day they're exercised. So they have to plan on how to cover the taxes on that income too.>>

      So what's the rush, why not wait until Sep.2007 to exercise the options? Also, they could cover taxes and the cost of the options by borrowing on margin from their broker. The could also swap stock they already own or sell stock, but this would be the most expensive options if they think the price is low.

      <<I'm not totally sure how all these factors play together but my gut feeling is that they're better off exercising the options at the lowest possible PPS and then hold the shares so the growth comes as long term capital gains, rather than as ordinary income on exercise day.>>

      Perhaps the easiest explanation is the most logical. They think the PPS will go down and are exercising the options as early as they can in order to sell the stock.

 
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