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To: peter grossman who wrote (3316)	6/23/1998 12:34:00 AM
From: Michael Greene	Respond to of 10309

These options may be in lieu of salary, but if I understand it correctly, the total value would amount to $11.2 M (28M x .40). This amounts to $20, 000 - $30,000 per employee typically vested over four years. This seems like a reasonable incentive to me. more so because its value is measured by the same yardstick my investment is. It seems unfair to "account" as if it were earnings because they can be exercised only once. Most likely, 1/10 of the options (equivalent of .04 per share) would be exercised per year. And they are not paid out of operating earnings. Peter, Although these options take four years to vest and are exercisable for up to ten years we have to remember that the granting of employee options is not a one time affair or even once every four years it is an annual event. If we are not going to value the options in total for a given year then to be fair we would have to somehow prorate the values of options granted for all prior years as they pertain to a given year and sum these values. Fortunately, the FAS standard does not require this and calls for recognizing the expense per the Black-Scholes calculated value of the options in a given year. The actual cost to the company will, of course, not be the theoretical cost per the B-S model and is not knowable except in hindsight. Should the price of WIND shares collapse and the options are never exercised there would be no cost. If the stock price soared so that the company was obligated to purchase the shares to cover the options at far above the exercise price then the cost would be high. Suppose that WIND granted options exercisable at the current market price and simultaneously purchased shares in the open market to cover the future exercise of these options. One might view this as a form of interest free loan to the employee to purchase stock at today's price for delivery in the future when he would repay the loan principle in the form of the exercise price. The company gets its capital back but has lost the time value of the money in the interim. In fact, WIND is doing something like this. They are repurchasing shares each quarter to cover part but not all of the options granted. During fiscal 1998 the company granted options on 1.99 million shares and repurchased 364,000 shares at a cost of $12.4 million ($34/share). One might view the actual cost to the owners of the company as the time value of the $12.4 million plus the difference of market price over exercise price to purchase the shares for the uncovered options at some future date. Alternatively, the company could issue new shares rather than purchase the shares. Although these costs are not paid out of operating earnings they are real costs that come out of the pocket of the shareholders in the form of a lower share price resulting from dilution and/or reduction of shareholders equity. Given the amount and growth rate of options being granted I am concerned about cumulative effect that they will have upon the price of the stock. The FAS 123 standard was introduced to highlight the low quality of some reported EPS and the markets may not be willing to just ignore this in the future. I welcome other views on the impact that these option grants will have on share price.