So upon leaving SUN, the beginning of the end of the stock options I received while working there happens. For those who don’t know … stock options work in four phases… grant, vest, purchase and expire. An option is granted on a particular date, at a particular price, on a particular vesting schedule, and will expire at a particular time.

Let’s take one example of a grant I received while there. On 4/28/05, I was granted 600 shares at the grant price of $18.58. A ‘normal’ vesting schedule was given, which basically means that after 1 year (from the grant date), 1/4 of the shares become ‘vested’. After that, 1/4 of the remaining shares are vested each year after that. So in this case, on 4/28/06, one fourth (150) of those shares are vested, or purchaseable. Every year, one fourth more vest, until 4/28/09, at which point all 600 shares are vested, and purchaseable.

Furthermore, there is almost always an expire date. In most cases, the expire date is either set 7 or 11 years after the grant date. So let’s use 4/28/12 as the expire date. Anywhere between the stock being vested and expiration, I’m allowed to purchase the vested shares at the grant price. So the hope is that when you do purchase the shares, they are worth more than the initial grant price. That way, you can simply use the profit from the sale of those shares to pay for the purchase, and you walk away with whatever the delta is.

So in example above, let’s say the stock was worth $20 now. If I purchased the vested shares (150 vested so far!) and turned them around immediately in a sale, I would pay (150*$18.58) $2787.00 for the shares, and immediately sell them for (150 * $20) $3000, making a quick tidy profit of $213. Pay the associated commissions and trade fees, and you make slightly less than that. Its usually not much. So thats the principle. However, let’s consider reality now. Of those initial 600 shares, 360 have vested so far. All good so far, right? Well, what if the current sale price of the stock is $3.96? Let’s do the math again.

Purchase ( 360 * $18.58 ) = $6688.80. If I turn around and sell immediately, I get ( 360 * $3.96 ) = $1425.60. Uh oh. I immediately lose over $5000. Not cool. This is what is known as having your options be ‘underwater’. This is the inevitable result of a company not doing so well and having the overall stock price trend be a negative one. This is unfortunately the situation I’m in. After over 4 years of steadfast service with SUN, I have almost 4000 shares vested. Of those, only 300 are not underwater, with a net profit of $79.00. I’d probably end up paying more in trading fees than the money I’d make.

So after you leave a company, all stock options have their expire dates adjusted to a set period after your leaving date. In my case, that date is 6/15/05. Anything I want to do with the shares has to happen before that date, or the shares revert back to the company, and are no longer considered mine. So between now and then, I need SUN stock to shoot up to astronomical values! Over $19.00 please!

Heh, I dream.

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