CTIX and Ashcroft valued the options to buy CTIX a
Post# of 72445
Posted On: 08/22/2016 3:19:53 PM
Re: Loose Lips #26636
CTIX and Ashcroft valued the options to buy CTIX at 1.70 as being worth $432,000. Options have 2 types of value, "premium" and intrinsic value. For instance, if CTIX had been trading at 2.00 at the time the options were issued, there would have been a value of .30/share as intrinsic value. Plus, there is the "premium" value -- the gambling-money part of it -- the amount that someone is willing to pay on the assumption that the stock will be trading above the price that it is at the moment of option issuance.
Because CTIX was trading under 1.20 at the time the options were issued, there is no intrinsic value, because 1.20 was below the option-exercise price of 1.70. That means that the $432,000 figure was entirely the premium.
Now, what happens when a stock's price goes up? In this case, the higher up CTIX goes, the more premium it should have -- the option is worth more because it's gotten closer to the exercise price. CTIX is now at least 15 cents closer to the exercise price of 1.70 than it was the day that the option was issued. So, the option is now worth MORE than $432,000. Except, there is no secondary market for this option because the options are issued by the company and they are not publicly traded.
So. This presents a valuation problem for the judge, assuming she decides to award legal fees to CTIX. Attorneys talk about "making [the injured party] whole." Is CTIX made whole by having their legal fees paid ($432,000)? By paying off the Ashcroft firm so that CTIX will not have to sell them one million shares down the road (and thus diluting very slightly the stock, in return for 1.7 million in cash)? But then what about Ashcroft Firm, which took this deal on the assumption that CTIX was going to be much, much higher eventually, so they don't get the advantage of having the options in the future?
She would have several choices (and I'm sure we can think of more):
1) She could award $432,000 (the value of the options on the day they were issued);
2) She could decide what the options are worth on the day of her judgment -- which, assuming CTIX is at this level or higher, would be somewhere around .15/share (or more if CTIX is higher) in addition to the $432,000
3) She could ask the Ashcroft firm for an accounting of their billable hours and all expenses, determine the market rate for such services, and assess the Rosen asses that amount.
Because CTIX was trading under 1.20 at the time the options were issued, there is no intrinsic value, because 1.20 was below the option-exercise price of 1.70. That means that the $432,000 figure was entirely the premium.
Now, what happens when a stock's price goes up? In this case, the higher up CTIX goes, the more premium it should have -- the option is worth more because it's gotten closer to the exercise price. CTIX is now at least 15 cents closer to the exercise price of 1.70 than it was the day that the option was issued. So, the option is now worth MORE than $432,000. Except, there is no secondary market for this option because the options are issued by the company and they are not publicly traded.
So. This presents a valuation problem for the judge, assuming she decides to award legal fees to CTIX. Attorneys talk about "making [the injured party] whole." Is CTIX made whole by having their legal fees paid ($432,000)? By paying off the Ashcroft firm so that CTIX will not have to sell them one million shares down the road (and thus diluting very slightly the stock, in return for 1.7 million in cash)? But then what about Ashcroft Firm, which took this deal on the assumption that CTIX was going to be much, much higher eventually, so they don't get the advantage of having the options in the future?
She would have several choices (and I'm sure we can think of more):
1) She could award $432,000 (the value of the options on the day they were issued);
2) She could decide what the options are worth on the day of her judgment -- which, assuming CTIX is at this level or higher, would be somewhere around .15/share (or more if CTIX is higher) in addition to the $432,000
3) She could ask the Ashcroft firm for an accounting of their billable hours and all expenses, determine the market rate for such services, and assess the Rosen asses that amount.
(3)
(0)