Jerry, the cost of options totalling 10% of shares outstanding can never equal 10% of the share price unless the options have a $0 strike price.
There is no correlation between options issued as % of outstanding share and % cost to shareholders - no matter what the CPAs want you to believe.
I stand 100% behind my post calculating the cost of options. I'd love for Ronny or D_dweller or Corp_Buyer to take it apart.
Here it is again (note that the cost of the new 5,000,000 options is less than 1% of the share price at $50 per share):
Posted by: Dishfan
In reply to: None Date:5/14/2003 2:37:55 PM
Post #of 25510
The actual cost of the proposed new options:
Ronny and others have provided numbers that exagerate the effects of prop 2, here are the facts:
The new options will cost nothing (zero dilution) unless the value of the company increases. So, we must assume a higher market capitalization to determine the cost (dilution).
Let's assume InterDig grows to a market cap of $3b OK? (The higher the number, the greater the dilution.)
At a $3b market cap the PPS is $50 assuming 60m shares outstanding.
If 5m options are exercised there would be 65m shares outstanding and the PPS would be $46.14.
The 5m exercised options would have cost us $3.86 per share.
However, the optionees would have paid cash for their options equal to the strike price. If the average strike price was $35 per share, there would have been $175,000,000 added to InterDig's capital (and, presumably, to its market cap). So the cost to us is reduced by $2.91 ($175m/60m). Also, InterDig gets a tax break for the options - I don't know what that's worth.
Bottom line - the CPA's are in a tizzy over a net cost of less than $1.00 per share.
Don't be fooled - as long as the law allows, options are good for your InterDigital investment
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