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To: Peter J Hudson who wrote (119256)	5/23/2002 2:54:02 PM
From: Stock Farmer	Read Replies (1) \| Respond to of 152472

Hi Peter, Ok, so we have identified at least one hot spot. Whether or not the market price of a company is a fair price. Good enough. Let's skip that and come back to it. We will have to make any determination of "cost" independent of market price. Let's be very careful to use only things we can count on, and nothing to do with market price. Then let's try to work out this "percent dilution", shall we? And I will not be careless with my terms. Start from where you and I agree and focus the debate. When stock options are exercised, there is a benefit to the employee in the amount of n * (P-S) where P is some market price that may or may not be fair and S is the striking price of the option. My silly Shannon computation assumes that this is the price that shareholders actually bear. Which is in doubt. Instead, there is merely dilution. The moment before the options are exercised, individual shares have a value (not price) which is the expected present value of its future assets (A) divided by the number of shares outstanding (N). In the instant after the options are exercised, we now have n+N shares. And in return for exercising the shares, employees gave us nS in cash, so assets increased by nS. That makes the new "fair" price of a share (A + nS)/(N+n) and the old "fair" price of a share A/N. So if we take a look at the "cost of dilution" it would be the subtraction of these two fair prices. Which is to say Cost = A/N - (A+Sn)/(N+n), and in the limit where S is zero and/or n is small compared to N, we see a "percentage dilution here, by factor n / (N+n) It's certainly not the Shannon Computation, but at least we could agree that this represents the way to compute the cost of dilution? John

To: Peter J Hudson who wrote (119256)	5/23/2002 5:03:58 PM
From: Ruffian	Read Replies (1) \| Respond to of 152472

A man, while playing on the front nine of a complicated golf course, became confused as to where he was on the course. Looking around, he saw a lady playing ahead of him. He walked up to her, explained his confusion and asked her if she knew what hole he was playing. “I’m on the 7th hole,” she replied, “and you are a hole behind me. So you must be on the 6th hole.” He thanked her and went back to his golf. On the back nine, the same thing happened and he approached her again with the same request. “I’m on number 14, and you’re still a hole behind, so you must be on the 13th hole.” Once again he thanked her and returned to his play. He finished his round and went to the clubhouse where he saw the same lady sitting at the end of the bar. He asked the bartender if he knew the lady. The bartender said that she was a sales lady and played the course often. He approached her and said, “Let me buy you a drink in appreciation for your help. I understand that you’re in the sales profession. I’m in sales also. What do you sell?” “I’ll tell you, but you’re going to laugh,” she replied. “No, I won’t” he replied. “Well, if you must know,” she answered, “I work for Tampax.” With that, he laughed so hard he almost fell off the bar stool. “See,” she said. “I knew you’d laugh !” “That’s not what I’m laughing at,” he replied, “I’m a salesman for Preparation H, so I’m still a hole behind you!”