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IV. THE BASIC THEORIES
  A. Introduction
    1. Most courts faced with the issue of how to properly value stock options as an element of damages look to two basic damage theories, the conversion loss measure of damages or the breach of contract measure.
      (a) Both theories presume the ability to "cover", or mitigate damages by protecting prospective profit by entering the market to purchase the lost shares. As discussed in more detail below, however, the theories differ markedly as to when the ability to cover is relevant.
      (b) The Third Circuit Court of Appeals recently stated that "[d]epending upon the circumstances of the case, the blurring between conversion and breach of contract remedies may be justified." Scully v. U.S. Wats, Inc., supra, 238 F.3d at 512.
      (c) For a discussion of damages relating to stock options in cases involving securities fraud, which is beyond the scope of these materials, see Sowell v. Butcher & Singer, Inc., 926 F.2d 289, 296-97 (3d Cir. 1991) and cases cited therein.

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