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Washington, D.C. –A bipartisan group of more than 300 House members voted for legislation this summer that would protect companies' ability to offer stock options to their employees. Now, by the dozen, senators are telling the Security and Exchange Commission that a thorough evaluation is needed as it moves forward with the Financial Accounting Standards Board proposal to expense stock options.

"At a minimum, the SEC should: conduct comprehensive, cross-industry field testing of the various valuation proposals that have been submitted to FASB, as called for by a wide range of organizations; issue guidance on the use and liability associated with each of the various valuation models; and grant appropriate relief or safe harbors for small companies," Senate Republican Conference Chairman Senator Rick Santorum, R-Penn., Sen. Mike Enzi, R-Wyo., and 32 other senators wrote in an Oct. 5 letter to SEC Chair William Donaldson. "We are extremely concerned that without additional field-testing of the various valuation models and implementation guidance from the SEC, U.S. companies will be subject to unending lawsuits if they choose the ‘wrong' valuation model."

The letter requests guidance from the SEC, authority the SEC already possesses and has used on other accounting standards in the past.

Senate Majority Leader Bill Frist, R-Tenn., wrote in a Sept. 29 letter to Donaldson that the SEC should ". . . conduct appropriate testing and determine the best method or methods to value employee stock options." Appropriations Committee Chairman Ted Stevens, R-Alaska, said Tuesday he would support a study.

A recent letter written by Minority Whip Harry Reid, D-Nev., and Sen. Patty Murray, D-Wash., and 13 other senators echoed the sentiments of the Santorum/Enzi letter. Senators Jon Kyl, R-Ariz., Chris Dodd, D-Conn. and Kay Bailey Hutchison, R-Texas, have written or are in the process of writing individual letters expressing concern about FASB's proposal.

"The overwhelming majority of the House and now the Senate believe the SEC should take a closer look at the FASB standard. The senators who have expressed concern include leadership from both parties, most of the members of the Appropriations Committee and Banking Committee. This speaks volumes about the flaws with the FASB rule," Enzi said. "There is growing concern about the FASB proposal's effect on small businesses and their ability to compete in the global market."

Senators who signed the Santorum/Enzi letter include Senators Santorum, Enzi, Judd Gregg, R-N.H., George Allen, R-Va., James Talent, R-Mo., John Warner, R-Va., Robert Bennett, R-Utah, Michael Crapo, R-Idaho., Conrad Burns, R-Mont., Don Nickles, R-Okla., Saxby Chambliss, R-Ga., Lamar Alexander, R-Tenn., Lisa Murkowski, R-Alaska, Thad Cochran, R-Miss., James Inhofe, R-Okla., Mike DeWine, R-Ohio, Larry Craig, R-Idaho, Mitch McConnell, R-Ky., Pete Domenici, R-N.M., John Cornyn, R-Texas, John Ensign, R-Nev., Trent Lott, R-Miss., Gordon Smith, R-Ore., Ben Campbell, R-Colo., Christopher Bond, R-Mo., Wayne Allard, R-Colo., Chuck Hagel, R-Neb., Elizabeth Dole, R-N.C., Norm Coleman, R-Minn., Jim Bunning, R-Ky., Craig Thomas, R-Wyo., Ted Stevens, R-Alaska, Sam Brownback, R-Kan., and Orrin Hatch, R-Utah.

"It is crucial to get the right answer on this complex and contentious subject, no matter how much time it takes," the senators wrote.

The letter text follows.

October 5, 2004

The Honorable William H. Donaldson
Chairman
U.S. Securities and Exchange Commission
Washington, DC 20549

Dear Mr. Chairman:

We write regarding a recent decision by the Financial Accounting Standards Board (FASB) on its proposal to require stock option expensing. Earlier this month, FASB decided not to require companies to use a specific valuation model to calculate stock options. In their opinion, companies should choose a stock option valuation model that is appropriate to each individual company. We are extremely concerned that without additional field-testing of the various valuation models and implementation guidance from the SEC, U.S. companies will be subject to unending lawsuits if they choose the "wrong" valuation model.

While many studies have found that current valuation models are highly inaccurate for large companies' stock option grants, the lack of accuracy is an even greater concern for entrepreneurial and start-up companies. Virtually no research has been conducted regarding the accuracy of valuation models to be used by small companies.

At a minimum, the SEC should: conduct comprehensive, cross-industry field testing of the various valuation proposals that have been submitted to FASB, as called for by a wide range of organizations; issue guidance on the use and liability associated with each of the various valuation models; and grant appropriate relief or safe harbors for small companies. It is crucial to get the right answer on this complex and contentious subject, no matter how much time it takes.

In addition, companies should be given an ample amount of time to implement current accounting and corporate governance reforms before embarking on new accounting standards. The 14 million American workers who hold stock options, our business community, the investing public, and our economy depend upon accurate and reliable financial statements and information.

Thank you for your attention to this important issue. We look forward to your response.

Sincerely,

Senators Rick Santorum, R-Penn. Mike Enzi, R-Wyo., Judd Gregg, R-N.H., George Allen, R-Va., James Talent, R-Mo., John Warner, R-Va., Robert Bennett, R-Utah, Michael Crapo, R-Idaho., Conrad Burns, R-Mont., Don Nickles, R-Okla., Saxby Chambliss, R-Ga., Lamar Alexander, R-Tenn., Lisa Murkowski, R-Alaska, Thad Cochran, R-Miss., James Inhofe, R-Okla., Mike DeWine, R-Ohio, Larry Craig, R-Idaho, Mitch McConnell, R-Ky., Pete Domenici, R-N.M., John Cornyn, R-Texas, John Ensign, R-Nev., Trent Lott, R-Miss., Gordon Smith, R-Ore., Ben Campbell, R-Colo., Christopher Bond, R-Mo., Wayne Allard, R-Colo., Chuck Hagel, R-Neb., Elizabeth Dole, R-N.C., Norm Coleman, R-Minn., Jim Bunning, R-Ky., Craig Thomas, R-Wyo., Ted Stevens, R-Alaska, Sam Brownback, R-Kan., and Orrin Hatch, R-Utah.