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To: Perspective who wrote (26235)	10/10/2000 11:52:13 AM
From: LLCF	Read Replies (1) \| Respond to of 436258

Anyone have the link to that article about them paying no taxes?? DAK

To: Perspective who wrote (26235)	10/10/2000 12:31:58 PM
From: pater tenebrarum	Respond to of 436258

yep, the vendor financing issue is also part of the stock market pyramid scheme. again, with the stock market under pressure financing for IPO's won't be forthcoming as easily, so many of those warrants that have been used as 'payment' in lieu of cash for the initial downpayment on an equipment loan may turn out to be worthless.

To: Perspective who wrote (26235)	10/10/2000 2:45:52 PM
From: Don Lloyd	Respond to of 436258

BC - Option accounting... ...Talk about a money tree ... OK. Your posts seem to indicate that you would be a good person to ask to try to pick holes in the text below. Any thoughts would be appreciated. TIA, Don MTREE.TXT Assume a company whose only asset is a tree whose leaves are $100 bills. It produces and sheds 10,000 leaves per year for a total of $1M. The company has a single employee, who is paid $200K per year. The company has 80K shares outstanding and the entire $800K annual net cash flow is paid out in dividends of $10 per share. The tree has a remaining life of 10 years and the interest rate is 0%, meaning that present and future cash flow values are equivalent, and do not need to be discounted to present value. At the end of ten years, the company will have no remaining value. In each prior year, the value of the company will be equal to the total dividends remaining to be paid out. With ten years remaining the company value is $8M ($100/sh) and with one year remaining the company value will be $800K ($10/sh). Initial Summary : Company remaining lifetime = 10 years Share Count = 80K Annual Production = $1M/yr Employee Salary Expense = $200k/yr Dividend Payout = $800K/yr total, $10/yr/sh Original Shareholder dividends = $800K/yr Employee Shareholder dividends = $0/yr Interest Rate = 0% Initial Market Cap = $8M (total of unpaid dividends) Initial Share Price = $100/sh CASE I - As additional compensation, the single employee is given a one time upfront grant of 20K newly issued shares in the company, bringing the total shares to 100K. The entire unchanged $800K annual net cash flow is now paid out in dividends of $8 per share. ( $640K to the original shareholders and $160K to the new shareholder/employee ). The total company value at any time is the same as previously as the total dividend payouts are the same. ($8M with ten years remaining and $800K with one year remaining). Due to the higher share count, the per share value is now $80/sh with 10 years remaining and will be $8/sh with one year remaining. CASE I Summary (stock compensation): Company remaining lifetime = 10 years Share Count = 100K Annual Production = $1M/yr Employee Salary Expense = $200k/yr Dividend Payout = $800K/yr total, $8/yr/sh Original Shareholder dividends = $640K/yr Employee Shareholder dividends = $160K/yr Interest Rate = 0% Initial Market Cap = $8M (total of unpaid dividends) Initial Share Price = $80/sh CASE II - Instead of the 20K shares, let the additional compensation be paid as an equivalent amount of cash, $160K per year. CASE II Summary (cash compensation): Company remaining lifetime = 10 years Share Count = 80K Annual Production = $1M/yr Employee Salary Expense = $360k/yr Dividend Payout = $640K/yr total, $8/yr/sh Original Shareholder dividends = $640K/yr Employee Shareholder dividends = $0/yr Interest Rate = 0% Initial Market Cap = $6.4M (total of unpaid dividends) Initial Share Price = $80/sh Conclusions - For an example which eliminates all uncertainty as to company value and whose product is actual cash, the following conclusions can be drawn for the effects of employee share grants versus cash salary. In all cases the entire company value is exactly distributed to the shareholders over the ten year life of the company. Initial ---> Case I(stock compensation), Case II(cash compensation) Share count = 80K ---> 100K, 80K Annual Production = $1M/yr in all cases, no change Employee Salary Expense = $200k/yr ---> $200K, $360K Dividend Payout = $800K/yr total, $10/yr/sh ---> $800K/$8, $640K/$8 Original Shareholder dividends = $800K/yr ---> $640K, $640K Employee/New Shareholder dividends = $0/yr ---> $160K, $0 Interest Rate = 0% in all cases, no change Initial Market Cap = $8M (total of unpaid dividends)---> $8M, $6.4M Initial Share Price = $100/sh ---> $80, $80 1. Comparing cash compensation against share grant compensation, the original shareholders will receive the exact same annual dividends of $640K. Similarly, the employee will receive the exact same $360K annual total, if both salary and dividends are included. In both cases, the value of the company will be exactly zero after ten years. There can be no question that the share grant compensation is EXACTLY accounted for by the share dilution alone, and there is NO possibility of an additional expense income statement entry without double counting. 2. This example is meant to demonstrate that employee stock grants, and by extension option grants, cannot be allowed to be entered in a new compensation expense line entry on the income statement. (It is NOT meant to address any other issues). However, there is no longer a reason to do so as a careful inspection of the example shows that even the cash compensation expense in CASE II actually falls upon the shareholders, as does the dilution in CASE I. -end-