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To: Chuzzlewit who wrote (52369)	7/20/1998 12:30:00 AM
From: rudedog	Respond to of 176387

Chuz - the Black-Shoales calculation I can say from experience that the Black-Shoales calculation does a poor job of predicting costs or returns of a 5 year option vesting program. It was designed for a more regular kind of option.

To: Chuzzlewit who wrote (52369)	7/20/1998 4:02:00 AM
From: pt	Respond to of 176387

Not quite sure what you mean by indeed, tax considerations encourage immediate sale of stock obtained through exercised options. I suppose you could say that assuming the option is exercised, the employee is often forced to sell the stock to cover the tax liability. But you have a huge lock-in effect also, where employees don't exercise, so they can put off the tax effect. If they can afford it and believe the stock will go up, best approach is to exercise and hold at least until LT capital gain rules apply to gain on eventual sale of stock. You also should look at the financial positives to the company: 1) they get a tax deduction equal to the spread between the exercise price and the stock value at time of exercise; 2) the amount received for the stock is not taxable; 3) there is no immediate cash outlay; 4) though the company likely has to buy shares on the open market to prevent excessive dilution, these cash outlays are often in lieu of dividends that would be paid if not for the stock repurchase plan. (Dividends are not deductible for tax purposes and are not charged against earnings for accounting purposes.) Paul