kpf, thanks, I am reading & making notes here as I go along.
From the summary,
• Amend our stock option plans to prohibit any “repricing” of stock options or any issuance of new options in exchange for outstanding options without stockholder preapproval and to allow a one-time exchange of options having an exercise price greater than $10.00 for a lesser number of new options to be granted at least six months and one day from the cancellation of the surrendered options.
This indicates that anyone who received options at a price of $10 or less would not be able to participate. That will protect a whole lot of employees who already have low price options - example, if your strike price is $8 and this offer was consider when the stock price was $6, then you are not included (and protected from an upside surprise in the new strike price). Still leaves a lot of unprotected employees, so I am reading on...
P. 31:
Under the proposed Option Exchange, participating employees would surrender unexercised options they currently hold with an exercise price greater than $10.00 per share (or, approximately two times the closing price of our common stock on February 20, 2003) and in return receive new stock option grants to purchase fewer shares, in accordance with a specified exchange ratio. The new options would have an exercise price equal to the fair market value of our common stock on the new option grant date. The ratios of surrendered options to new options would vary from 1.5 to 1, to 2.4 to 1, depending upon the exercise price of the surrendered options, as further described below. The exchange ratios and the minimum eligible exercise price for the exchange will be re-calculated before any Option Exchange begins using then-current data. The minimum eligible exercise price will be approximately two times the then-current price of our common stock, but in no event less than $10.01.
This confused me at first, but now I see they are talking about who may be eligable, not the new exercise price.
P.32
The AMD Board of Directors authorized the Option Exchange in February 2003, upon the recommendation of the Compensation Committee and subject to stockholder approval. If this proposal is approved, this one-time offer to exchange options may commence at any time after the annual meeting at the discretion of AMD’s Compensation Committee.
That would be starting back in late spring, I believe.
If you approve the Option Exchange and the Compensation Committee decides to commence the Option Exchange, eligible employees will be offered the opportunity to participate in the Option Exchange under a Tender Offer Statement to be filed with the SEC and distributed to all eligible employees. Employees will be given at least twenty (20) business days in which to accept the offer of the new options in exchange for the surrender of their eligible options. The surrendered options will be cancelled on the first business day following this election period. The new options will be granted no earlier than six months and one day following the cancellation of the old options. Surrendered options will be returned to the plans under which they were granted and will be available for grant under the terms of the plan. However, approximately 3 million shares eligible for exchange were granted from our 1992 Stock Incentive Plan, which has expired by its terms. Any of these options that are surrendered will therefore be retired.
It is unclear from this when the new strike price is determined. Reading further, there seems to be three important dates - cancellation date, grant date and vesting date.
All new options will be granted with an exercise price equal to the fair market value of our common stock the date of the new grant.
OK, so the employee has a six month gap between surrender and the new grant date. This is where things get questionable - the employee is being offered to give up something tangible in exchange for an intangible, an unknown strike price for the new shares. Also, the number of shares under the new grant will be a lot less than the old grant (per sections I didn't copy here). For employees with old strike prices between $10 and the current level, they would have given up good options (which were underwater back then) for new options which are now underwater.
When you combine the runup in share price during the six month period between cancellation and new grant with the reduced number of shares, and the delay in new vesting, the only employees who benefit really are the ones who had old strike prices above about $25. In other words, those employees who have shares which would likely still be underwater when they are eligable for exercising a year from now (25% vested after a full year)!
This really affects employees who had very recent grants. Any employee who had a couple years' vesting already would be better off waiting for secondary grants as the initial grants complete vesting - heck, it take 18 months to get any new vesting under the exchange, you get less shares and the price is, well, who knows? By then your original 4-year vesting is almost completed and you know what you're getting!
