Well I think what James said would be correct. I've said the...

Well I think what James said would be correct. I've said the same about these options before, when ADN was trading just above 4c with less than a month to go.

At 6.4c they are worthless on expiry day.

Rest assured however, that James, Shearer and Grivas don't have 2.75M in cash. Instead they will look to use cashless conversion, a mechanism where a holder forfeits some options in order to raise funds to exercise the premium.

Put this in context, 43M options

43M shares exercisiable at 6.4
At ADN 6.4, you are paying exercise 6.4c to convert each option to get a share- the option brings no benefit, its worthless - they expire
At ADN 7.4, this time you exercise at 6.4c but get a share worth 7.4c, once exercised you can sell these on market a 1c profit

Normal Scenario:

Employee exercises at 0.064c and pays $2.75M (cough cough)
Employer receives $2.5M, and issues 43M shares
These 43M shares are worth 7.4c, or a grand total of $3.18M
Employee sells $2.75M worth to repay loan to exercise and keeps the remaining $430K worth of ADN

Alternatively, what ADN (and all other companies) will do is offer Cashless Conversion

At 0.074c, each option is worth 1c profit on expiry. 43M options @1c is $430K profit (same as previous example).
ADN says OK, you'll be $430K better off once you exercise and sell, but if you wish you can forfeit some options, and use the missed profit on those to convert the remaining.
So, $430K profit only exercises $430K / 0.064 = 6.7M options, so no cash required, you will be issued 6.7M shares, but you loose the remaining 36.3M shares. (43-6.7)

Along comes Cashless Scenario:

43M Options conversion deemed $430K profit
430/0.064 = 6.7M
Employee pays $0 instead of $2.7M, Employer receives $0
ADN only issues 6.7 shares, - a whopping 36.3M less dilution - good for us.
Employee does what he wants with the 6.7M free shares
---------------

Of course these all split betrween Grivas, Marsh, and Shearer. Shearer has 8M. I would doubt ADN would offer cashless conversion to Shearer and Grivas as they are x employee/director.

So the reason James' comments are correct, is that even if we at 7.4c in a week (a 25+% gain), most of these options will be written off and ADN won't be diluted. at 7.4c - if that is reached 85% of options will be lost

Imagine if price is only 0.5c higher (0.069), profit on 43M shares would be $215K, exercising only 3.35M options and 39.65 out of 43M will be forfeited.

at ADN 8.4, a 2c profit they could exercise $$680 worth, around 10.6M cashless, still below 1/4

so yes, james is correct - most of these will expire worthless. Even over 10c well more than half will be lost.

Another reason: Will Shearer/Grivas exercise anything is cashless conversion is not offered? I highly doubt it.

So for every 0.1c profit at end of November above 6.4c, a max of 671K ADN shares will be issued, and half of those likely not as they belong to SHearer/Grivas

---------------------

My apologies for the long winded post - this stuff is hard to explain - best done in simple steps. Hope this helps a couple of people out there understand cashless conversion

EvenUnless ADN is like 13c in 6 days more than half will be lost (unless exercised using normal means - mmm $2.75m)