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To: Raymond Duray who wrote (19228)	5/21/2002 7:23:32 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 74559

Raymond, ...But I'll suggest that there's a case to be made for the opposite opinion, that in fact what is created by options grants is a tax dodge, and a mis-statement of actual cash flows from the point of view of the passive shareholder. ... If dilution were completely accounted for in share count, the existing shareholders would be fully exposed to every penny of salary expense, independent of the actual form the expenses takes. What has to be remembered is that a corporation is a fictitious entity. It is not complete without including its shareholder owners in the picture. In theory, there is no reason to separate option grants in lieu of salary from every other form of mutually beneficial economic exchange. If the stock of the company is judged sufficiently valuable by the employees, there is a range of options granted and salary forgone that is beneficial to both the employee and the shareholder owners. The problem is how to balance the conflicts of interest that relate to the setting of option grants by and for the management. As far as taxes go, there are questions that clearly exist, but the management must deal with the tax rules in place. Since both cash and option compensation are real expenses to the existing shareholders, it doesn't make sense to deduct taxes for one and not the other. Of course, the fact that companies pay taxes at all is a political decision, not an economic one. All taxes are paid by people in the end. I don't know whether actual cash flows are accurate or not, but option compensation in lieu of cash, in and of itself, is not the issue. Regards, Don