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To: sal99 who wrote (121760)	7/19/2002 9:19:27 AM
From: Art Bechhoefer	Respond to of 152472

Sal, yes, at some point, the company must expense the options. The question under discussion by companies as well as Congress is when the expenses should be taken. Although I always favor transparency, which means that shareholders should be able to determine how much those options are worth, I also believe that options are a good strategy for smaller companies just starting out. Here is a specific example: A few years ago, a company with proprietary technology in the manufacture of solar photovoltaic material went public. The company (AstroPower) had only a pilot manufacturing plant and was in the process of buying a larger manufacturing facility. Most of its cash flow came from federal grants and from private investors. Until the new plant began production, the company was experiencing substantial losses. In this situation, the company CEO took 30 percent of his salary in options--to avoid forcing the company to pay him with cash that it didn't have. He later exercised those options (about two years later) when his company had achieved profitability. This use of options is in effect an IOU that defers cash payouts until a time when the company can better afford to pay its executives what they're worth. Without deferred payouts (which also means the ability to delay expensing options on the financial statements), a small company would find it far more difficult to compete with larger established companies in its particular field. In the case of AstroPower, its main competition comes from companies including Siemens, British Petroleum, and Kyocera. AstroPower, because of its proprietary technology, is the lowest cost producer (it makes crystaline silicon in sheet form rather than in wafers). This is a legitimate use of options. For larger, long established firms, the use of options is debatable, but as they say, one should not throw out the baby with the bath water. Art