VMware already lost 30 points at Wall Street and the upcoming earnings report may further impact the stock performance.
Despite the strong competition, so far VMware retained a lot of its employees because of its vision, of the cutting-edge technology, of the leadership position in the market, and of course the stock options granted after the IPO in August 2007 (depending on the level in the organization and the years of service).
But if the value of those stock options goes too down VMware may face an exodus, at least involving the newest employees.
Probably to avoid this, on July 17 VMware has filed a replacement program:
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.