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Nortel offers option exchange

The telecommunications-equipment supplier is the latest tech company to allow employees to swap "underwater" stock options.

Nortel Networks is the latest tech company to allow employees to swap "underwater" stock options, the company said Monday.

The option exchange will allow employees to voluntarily turn in existing options, and be granted new ones six months and one day after the orders are cancelled. The program applies to options that were granted on or after November 12, 1999.

For options granted between November 12, 1999 and February 12, 2001, employees will get two new options for every three cancelled options. For options granted after February 12, employees will get three new options for every four cancelled. The exercise price of the new options will be the market price on the day of the grant.

As of May 31, 2001, Nortel had around 333 million options to purchase stock outstanding; roughly 33 percent of those options will be eligible for the exchange.

Options are usually granted at market value, or at a lower value than the stock is currently trading, with the idea that the price will rise by the time an employee exercises the options. But as high-tech stocks wilt in the economic downturn, many tech workers have seen their options go "underwater"--where the employee's purchase price is higher than the current value of the stock.

Option exchange programs have become more popular with companies after accounting changes made it more expensive to simply reprice existing programs. But some critics have charged that the six-month-and-one-day program effectively sends a signal that the company anticipates a plateau in its stock price.

Nortel shares have plunged almost 85 percent over the last year; the stock was recently trading up 15 cents at $13.56, down from a 52-week high of $89. The company recently posted a loss of $385 million for the first quarter and announced plans to lay off as many as 10,000 employees as part of a cost-cutting program.

The Toronto, Canada, company, one of the largest suppliers of telecommunications equipment, has been hurt along with the rest of its sector by significant cutbacks in spending by telecom carriers. Nortel recently hired a headhunting firm to help it find a new CEO; Chief Operating Officer Clarence Chandran had been in line to take over the top spot from retiring CEO John Roth, but he left the company for medical reasons.