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With Falling Stock Prices, What Happens to VMware Employee Stock Options?

VMware (VMW) disclosed in an SEC filing this afternoon that it plans to offer employees a chance to swap their post-IPO underwater stock options for an equal number of options to price prices with an exercise price equal to the share price on the day immediately following the data the exchange is finished.

In the filing, new CEO Paul Maritz writes:

I am pleased to inform you that the VMware Board of Directors has approved a proposal to exchange your post-IPO out of the money (or “underwater”) stock options. This proposal must also be approved by our stockholders and we are currently scheduling a special meeting to gain that approval.

Under the proposal, all U.S.-based non-executive employees of VMware holding stock options granted after our IPO will be able to exchange their out of the money stock options for an equal number of new options. The exercise price of the new options will be the stock price at the close of trading on the New York Stock Exchange on the day immediately following the date that the exchange is completed. The exchange will restart your options’ vesting schedule. Executive officers of VMware will not be eligible to participate.

Participation in this option exchange is entirely voluntary. The exchange program will be highly regulated and subject to specific rules that we will provide to you when the exchange offer period commences. It will take some time to roll out the program, seek stockholder approval and grant new options. We appreciate your patience during this period.

For our employees in non-U.S. jurisdictions who hold post-IPO options that are underwater, instead of the option exchange, we plan to grant you a to-be-determined proportionate number of restricted stock units after the exchange offer for U.S. employees is completed. Non-U.S. employees will continue to hold their current stock option grants.

Although I can give no guarantees or assurances, by giving you an opportunity to receive options with an exercise price closer to our current market price, I hope to provide you with a greater opportunity to benefit from any future successes of the company.


Barron's Tech Trader Daily reports:

John DiFucci, software analyst with J.P. Morgan, notes this afternoon that the move will apply to all U.S.-based non-executive employees. He says it will affect about 3 million options. “Given the recent departure of CEO Diane Greene, we view this move as an effort to abate a brain drain from the company,” he writes. “While we consider this a modest positive for the stock, we also note that it act to slightly dilute current shareholders.”

Published Friday, July 18, 2008 6:33 AM by David Marshall
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Comments
Stock-Options » 20548. Anyone use Tax Loss Harvesting to offset stock options? - (Author's Link) - July 20, 2008 7:54 AM
Stock-Options » With Falling Stock Prices, What Happens to VMware Employee Stock ... - (Author's Link) - July 25, 2008 7:24 AM
Stock-Options » The dark side of stock options - (Author's Link) - July 26, 2008 7:24 AM
Stock-Options » With Falling Stock Prices, What Happens to VMware Employee Stock ... - (Author's Link) - July 28, 2008 7:34 AM
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