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It happened to me recently, here's a couple of snippets document I received: The TLDR is "The majority of the board has already approved the decision of elimin

It happened to me recently, here's a couple of snippets document I received: The TLDR is "The majority of the board has already approved the decision of eliminating common stock and distributing excess payments to two founders and the product lead" Each holder of Preferred Shares is entitled to receive cash merger consideration in exchange for the cancellation of his, her or its shares pursuant to the terms of the Merger Agreement. Each holder of Common Shares will not be entitled to receive any merger consideration in exchange for the cancellation of his, her or its Common Shares. In case interested, here's the full redacted disclosure -- docusigns followed very shortly after: https://pastebin.com/q6q7XMvF https://pastebin.com/q6q7XMvF

deanmoriarty 8y ago
Hold on a second (and thanks for this!). If I read your document right, it says: The Company expects that the proceeds available for distribution to the holders of Preferred Shares, including the full release of the Indemnity Escrow Fund, will be approximately $0.5816 for each Preferred Share (the “Estimated Per Share Consideration”). And in another portion, it says: before any distribution or payment of merger consideration is made to holders of Common Shares, the holders of Preferred Shares are entitled to receive $2.66 per Preferred Share (the “Liquidation Preference”). And The holders of Common Shares will not be entitled to receive any merger consideration in exchange for the cancellation of their Common Shares because the maximum potential merger consideration payable to the Stockholders pursuant to the Merger Agreement is less than the aggregate amount of the Liquidation Preference. Does this indicate that the company sold for an amount low enough that not even the investors recouped their original capital (selling shares at $0.5 instead of the $2.66 they were at least worth according to the liquidation preferences, so overall a significant "failure")? Because if that's the case, it seems completely normal to me that common shares were nullified and it's fundamentally different than saying that shares were extinguished for "no reason" (i.e. out of pure corporate greed), like I interpreted GP's comment. If not, this is instead a horror story.
- martin_ 8y ago
  Yes that’s correct, I don’t think anything nefarious happened. The big bummer, though, is I had $0.01 shares and paid AMT at a much higher valuation and expect it to take a few decades to claim back the loss. Was my first time working with ISOs and didn’t know about 83b’s
  - deanmoriarty 8y ago
    Yes, that indeed sucks. Out of curiosity, how much AMT credits are you able to recoup each year? I understand it completely depends on your tax situation since it's basically the spread between regular liability and AMT liability, but just to get an idea, is it to the tune of $1k/y, $5k/y, $10k/y? I, like you, have a good amount of AMT credits from a previous employer, and will just start next year to try to recoup them more seriously (since in the years before I was always affected by AMT even without ISOs, due to California income...).
    - martin_ 8y ago
      My CPA said the maximum I can do is $3,000/year, I'm also in CA :)
      - deanmoriarty 8y ago
        mmm, as far as I know $3,000/year is the maximum capital loss (from schedule D) that you can claim against your income. But that has nothing to do with your AMT tax credit, which you should have generated the year you exercised ISOs (form 8801). The AMT tax credit you can use every year should be limited to the difference between your regular income tax and AMT income tax each and every year (if positive). You keep going like this until you extinguish it. For example, for tax year 2018 I had ~$10,000 of capital loss carryover (from unrelated stock sale), and ~$40,000 of AMT tax credit carryover (from previous ISOs). When I filed my taxes, I was able to claim $3,000 of those capital losses against my income (thus generating a $7,000 capital loss carryover for 2019) and $5,500 AMT tax credit to offset my final tax liability (thus generating $34,500 of AMT tax credit carryover for 2019). As you can see, I used both the capital loss carryover AND the AMT tax credit, they're two different beasts. I didn't use any CPA and did all of this by myself (+ TurboTax) since it seemed straightforward (and admittedly I might have studied a bit too much how taxation of stock options works). If you find that I'm horribly wrong, please let me know, but it's not the first time I find a CPA being not informed in this kind of stuff (not saying yours is), which can be costly since, if you don't claim the credit in a timely fashion, is just lost from an IRS point of view (the forms are pretty mechanic and always refer to "last year carryover"). In particular, I don't understand how your company going belly up can generate capital loss for you, since you said you had an exercise price of $0.01 per share, so it seemed to me the money you lost was because of the AMT, hence the $3,000/year limitation is like apple and oranges and definitely not a ceiling of how much you can claim each year on the AMT credit.
icedchai 8y ago
Your common shares were worthless because after the preferred got paid, there was nothing left over. This is very, very common (no pun intended.)

deanmoriarty 8y ago

Hold on a second (and thanks for this!). If I read your document right, it says: The Company expects that the proceeds available for distribution to the holders of Preferred Shares, including the full release of the Indemnity Escrow Fund, will be approximately $0.5816 for each Preferred Share (the “Estimated Per Share Consideration”). And in another portion, it says: before any distribution or payment of merger consideration is made to holders of Common Shares, the holders of Preferred Shares are entitled to receive $2.66 per Preferred Share (the “Liquidation Preference”). And The holders of Common Shares will not be entitled to receive any merger consideration in exchange for the cancellation of their Common Shares because the maximum potential merger consideration payable to the Stockholders pursuant to the Merger Agreement is less than the aggregate amount of the Liquidation Preference. Does this indicate that the company sold for an amount low enough that not even the investors recouped their original capital (selling shares at $0.5 instead of the $2.66 they were at least worth according to the liquidation preferences, so overall a significant "failure")? Because if that's the case, it seems completely normal to me that common shares were nullified and it's fundamentally different than saying that shares were extinguished for "no reason" (i.e. out of pure corporate greed), like I interpreted GP's comment. If not, this is instead a horror story.

martin_ 8y ago
Yes that’s correct, I don’t think anything nefarious happened. The big bummer, though, is I had $0.01 shares and paid AMT at a much higher valuation and expect it to take a few decades to claim back the loss. Was my first time working with ISOs and didn’t know about 83b’s
- deanmoriarty 8y ago
  Yes, that indeed sucks. Out of curiosity, how much AMT credits are you able to recoup each year? I understand it completely depends on your tax situation since it's basically the spread between regular liability and AMT liability, but just to get an idea, is it to the tune of $1k/y, $5k/y, $10k/y? I, like you, have a good amount of AMT credits from a previous employer, and will just start next year to try to recoup them more seriously (since in the years before I was always affected by AMT even without ISOs, due to California income...).
  - martin_ 8y ago
    My CPA said the maximum I can do is $3,000/year, I'm also in CA :)
    - deanmoriarty 8y ago
      mmm, as far as I know $3,000/year is the maximum capital loss (from schedule D) that you can claim against your income. But that has nothing to do with your AMT tax credit, which you should have generated the year you exercised ISOs (form 8801). The AMT tax credit you can use every year should be limited to the difference between your regular income tax and AMT income tax each and every year (if positive). You keep going like this until you extinguish it. For example, for tax year 2018 I had ~$10,000 of capital loss carryover (from unrelated stock sale), and ~$40,000 of AMT tax credit carryover (from previous ISOs). When I filed my taxes, I was able to claim $3,000 of those capital losses against my income (thus generating a $7,000 capital loss carryover for 2019) and $5,500 AMT tax credit to offset my final tax liability (thus generating $34,500 of AMT tax credit carryover for 2019). As you can see, I used both the capital loss carryover AND the AMT tax credit, they're two different beasts. I didn't use any CPA and did all of this by myself (+ TurboTax) since it seemed straightforward (and admittedly I might have studied a bit too much how taxation of stock options works). If you find that I'm horribly wrong, please let me know, but it's not the first time I find a CPA being not informed in this kind of stuff (not saying yours is), which can be costly since, if you don't claim the credit in a timely fashion, is just lost from an IRS point of view (the forms are pretty mechanic and always refer to "last year carryover"). In particular, I don't understand how your company going belly up can generate capital loss for you, since you said you had an exercise price of $0.01 per share, so it seemed to me the money you lost was because of the AMT, hence the $3,000/year limitation is like apple and oranges and definitely not a ceiling of how much you can claim each year on the AMT credit.

icedchai 8y ago

Your common shares were worthless because after the preferred got paid, there was nothing left over. This is very, very common (no pun intended.)