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To: Seeker of Truth who wrote (341)	8/8/2002 9:56:24 AM
From: Uncle Frank	Read Replies (2) \| Respond to of 562

>> One day the company sells shares at a certain price to the optionholder. On that same day he/she can sell them into the market at three times the price. That is a loss to the company. By the same reasoning, if a company were to write a long term contract to supply a customer with a component at $10, and if the spot market was $15 at the time of a particular shipment, the company should apply a $5 offset to any profit they made on the transaction. >> Nowadays, we all know, engineers are happy to keep their jobs and get normal progression through the ranks salaries, forget options. Probably true; engineers are in a weak position at the moment. Perhaps companies convert all their engineers to contract worker status. Then shareholders wouldn't have the unnecessary drain of health insurance and vacation benefits against earnings. uf

To: Seeker of Truth who wrote (341)	8/8/2002 11:00:06 AM
From: Uncle Frank	Read Replies (1) \| Respond to of 562

Note: The paragraph about switching to contract workers was made tongue-in-cheek. >> I think it's a great shame that Intel, MSFT etc. don't see the point. They can't fool Buffett and I think they mustn't fool us. Before you promote him to sainthood, remember that this is the guru who popularized the philosophy of ltb&h. Goeff Moore borrowed heavily from Buffett when he wrote the GG. Buffett's conclusions don't necessarily apply to the dynamics of high tech companies. Chamber's has the advantage in that arena, and his position is opposed to Buffett's. People have a tendency to give too much weight to the utterances of successful people and celebrities, even if they are wandering far afield from their areas of core competency.

To: Seeker of Truth who wrote (341)	8/8/2002 3:16:38 PM
From: GraceZ	Respond to of 562

One day the company sells shares at a certain price to the optionholder. On that same day he/she can sell them into the market at three times the price. That is a loss to the company. The fact that the option can be sold for more than the employee paid for them is irrelevant. Does the company lose when an outside shareholder sells stock they acquired at a third of the cost on the same day? Do they lose when an IPO share gets flipped at three times the IPO price the same day? The option could also become worthless after its grant and never be exercised, the option carries the same risk as the common of becoming worthless. You could argue, but they never paid for the option....but this isn't true, they paid by accepting less cash compensation. What is the company getting back in benefit for those options? Use of the cash, lower salary expense and something almost completely intangible...an employee who has a vested interest in growing the business. Those shares are not just promises to pay; Debt is a promise to pay, options are the right to buy equity, equity is ownership, not debt, not a promise to pay but a right to share in the benefits of future free cash flows. The shares have been diluted and each of our shares are worth less than they were before this happened. The same could be said about secondary offerings, do you think they should expense the shares created during secondary offerings? After all both exercised options and shares created by secondary offerings are both included on the income statement when you are looking at per share earnings, correct? If options again become necessary Options were never necessary but they were used as a tool for a fast growing company to retain more cash to grow in exchange for giving its employees part ownership. This was done in much the same way an owner would forgo paying themselves a large salary in the early stages of a business, they retain earnings in exchange for a higher equity value. Its done in the same way someone accepts a partnership (and a share in the dividend payments) instead of remaining simply a salaried employee. Nowadays, we all know, engineers are happy to keep their jobs and get normal progression through the ranks salaries, forget options. So everyone is still content to work 80 hour weeks in Silicon Valley? Or are they willing to work 40 hour weeks for salary without options?