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1. Does this mean that the options are still worthless but if the stock price goes north of $6.50, my wife can stand to gain.

I have one additional question for you, EasyChap. How long can your wife keep the options before she has to use them or lose them? In other words, when do they expire? I doubt she has to cash them in right away, and she may be able to hold them for years, even as long as she wants.

If it is longer than Aug 2006 (the longest term for regular, non-employer-granted options) the $13 and $11.50 options were definitely not worthless. I'm going to feel my way around a valuation based on traded calls, but maybe someone has a better methodology they'd like to share?

The Aug 18, 2006 $10 call trades around 30 cents each. If you can hold yours for years, they may be valued at twice or three times that. So with the previous higher strike prices, your wife's 4000 options might have been worth $1000.

Since you have a new strike price of $6.23 let's look at the Aug $5 call (trading at about $1.20 each) and the Aug $7.50 call (trading at about $.50 each). We can guess that if your wife's options were to expire in August they might be worth $.90 each ($3600 total), again with years to go maybe three times that, or $10000+.

Unfortunately since they are still "underwater", or unusable (stock is trading under $6.23) and untradable (yes?) right now you have to hold on to them. But they are definitely not worthless.

2. Does this mean that the company has decided to award my spouse 4,000 stocks for more than 5 years of service, which would be nice but seems unlikely to me.

Basically. I may be wrong here, but you will have to pony up the 4000*$6.23 ~ $25000 to buy them, but if the stock price has gone higher, you turn around and sell it to make a profit. If your wife holds them for 3 years and the stock doubles to $10, you'll make $40000-$25000 =$15000 minus taxes, trading costs, etc. Of course if you want you can hang on to the shares, that's your choice.
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