In the past I have posted a conservative estimate of the amount of a settlement based on C&C's decision to convert to a 15% contingency fee and rebate the $8,433,388 to KK. You have seen this before:
Next, Cantor Colburn LLP ("Cantor") and the Company entered into an amended agreement pursuant to which Cantor agreed to accept 15% of any recoveries from the Company's pending patent litigation in excess of $3.6 million per year in exchange for all services rendered to date and moving forward. The Company recognized an $8,433,388 gain on extinguishment of debt upon the write-off of all accrued legal fees.
What follows is a less conservative but more likely estimate. Add into the $8.43 million a reasonable estimate of the billing fees they would have generated "moving forward". We know from previous older filings that these averaged $50,000/month. We are now 18 months out from the agreement -- therefore add another $900,000 (18 x $50,000). This brings the total to $9,333,388. But this is an underestimate as the pace of legal costs would have picked-up considerably during the last several months of negotiations. For convenience I am going to estimate the amount that C&C was risking on their decision to take contingency fee over the course of the litigation as $10 million.
A little algebra and we can estimate the amount that the settlement would have to be for C&C to just break even. Assume the settlement is paid out over only two years. Clearly the above anticipates at least that long (in excess of $3.6 million per year). Let X be the total settlement then 0.15 x (X - $7.2 million) = $10 million to just break even. X = $114.67 million. Now that is to just break even.
There is always a risk in these proceedings that GERS will get nothing; that risk must be built into the expected settlement to justify gambling with $10 million of C&C's treasury. What is that risk that they included in their calculus? Your guess is as good as mine -- I will assume 20%. If that is the case, C&C expected, at a minimum, the settlement to be 1.2 x $114.67 = $137.6 million. Again, just to break even, I expect C&C envisioned doing more than break even; let's estimate the total settlement as $150 million.
You estimate the OS count as 25 million. I believe that it is lower as the reason KK stated that they needed the R/S was to avoid penalties associated with selling stock near Par value -- NOT that the authorized share level (AS) was being met. My estimate is, at a maximum 20 million, up from the last reported OS count of 14.2 million. I think it is lower than this as we have seen little evidence of dilution, but 20 million is a safe estimate.
What is the purpose of this exercise? We can now make a reasonable estimate of the value of the total settlement per share (I still think it is conservative but it is defensible). That estimate is $150 million/20 million or $7.50/share.
Now, I ask you when KK gets on his mountain to crow about his HUGE WIN and vindication and the $7.50/share figure hits the news services, do you really think that the GERS' PPS will remain in the pennies?
If this estimate is any where near correct what would you expect to see for the PPS during the time delay between the announcement and receipt of the first installment of the funds (before KK gets his hands on the money)?
