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To: Mike Fredericks who wrote (8223)	12/5/1999 11:25:00 PM
From: StaggerLee	Read Replies (3) \| Respond to of 13157

>> (the stock shares are valued less because of dilution, but the market cap should remain the same). That's my point. The price per share would drop by the same amount whether the company launched a SARS plan or and options plan. Under a SARS plan, the decrease reflects the anticipated cash payments (which, in a vacuum, has a linear impact on the market cap and share price, since a company's valuation is equal to the sum of net assets plus intangibles). Under an options plan, the decrease in share price reflects the imminent dilution. Both methods have a detrimental impact on existing shareholders. If the fair value of the benefit under the SARS plan is the same as the fair value of the benefit under an options plan, the stock price would be impacted identically. One way hurts shareholders by reducing net tangible assets. The other way hurts shareholders by dilution. Same result: Stock price drops by the economic value of the benefit. You can't simply create wealth by dishing out options instead of paying cash! Granted, under an options plan there is no change in total market cap, but who cares? The point is, share price suffers. Existing shareholders LOSE and the new shareholders (i.e., management) win, just as if the awards to management had been made in cash, as in a SARS plan. There's no free lunch here. Options cost existing shareholders just like equivalent payments of cash would (presuming no resultant change in the value of goodwill), and that cost is reflected in the share price.