I'm glad you two brought this up, if this was a signal by management to tell us that they were expecting the share price to go to 75 cents then they royally botched it up.
For the math to work, they had to set the strike price at 10 cents with vesting occurring at 75 cents, then that would have been a powerful signal...not to mention that as the actual share price moved above 10 cents, ERHC's management would salivate at all that value that they couldn't touch without it first going to 75 cents...and they would have two years to do it in.
BUT that is not what they did!! A strike price of 20 cents makes the compensation package silly.
Again, let's say the compensation package is for 5 million shares to pick a round number.
If management/BOD goes the options route, then when the stock goes to 75 cents they must shell out 20 cents times 5 million shares or $1 million.
After shelling out $1 million, they get shares worth $3.75 million altogether for a net profit of $2.75 million in this example.
But if management/BOD borrowed $500,000 to buy 5 million shares now at 10 cents, and paid 2% interest for two years of $20,000 then when the shares hit 75 cents, their shares would still be worth $3.75 million, but they would net a much bigger profit of $3.73 million after subtracting out the 20 grand in interest costs at the bank.
WOW, they are willing to lose over a MILLION bucks in profit in order to go with the lower-risk stock options, which would only be worth zero if the stock tanks, whereas with the loan, they would be face with the risk of owing the bank money if the stock plunged...
...that's scary, because it suggests that they perceive ERHC's risk of falling below 10 cents to be so risky that they're willing to give up a MILLION just to play it safe??!?!?!
Or maybe they are just idiots over there when it comes to finance.
Krombacher - the above may be wrong.
