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Microsoft releases option exchange details

The software giant discloses more details about its unconventional plan to allow company employees to sell their underwater stock options to Wall Street broker J.P. Morgan Chase.

Microsoft on Tuesday disclosed more details about its unconventional plan to allow company employees to sell their underwater stock options to Wall Street broker J.P. Morgan Chase.

In a registration statement filed with the U.S. Securities and Exchange Commission, the company registered for J.P. Morgan to sell up to 635 million shares--a number equal to the maximum number of options that Microsoft expects to be eligible for the exchange program. The brokerage may choose to sell Microsoft shares as a means of hedging the risks associated with acquiring the Microsoft options.

Microsoft did not disclose in Tuesday's filing the exact formula for determining how much options would be worth. However, Microsoft said the price would be calculated in reference to the average share price of Microsoft stock during a 15-day period that will start at the end of the period of time given to employees to decide whether to take part in the program.

The software giant announced its intent to allow employees to trade their options for cash in July, at the same time it unveiled plans to switch from giving stock options to employees to instead granting actual shares of stock. At the time, Microsoft said it was still working out the details of the option exchange program.

Microsoft said that in countries where it is allowed to do so, it will give its employees one-third of the amount paid by J.P. Morgan for their options immediately, with the remainder being paid in one or more later installments, subject to the worker's continued employment by Microsoft.

Tuesday's filing is another step in the process toward launching the program, but the program has yet to receive a final approval from regulators. A Microsoft representative said Tuesday that the company hopes to have the program approved and in place by the end of the year.

Microsoft said the exercise price of the options will remain the same when they are transferred to J.P. Morgan, but that other terms will be changed to more closely match the restrictions typical of options granted to financial institutions. The filing indicates Microsoft will pay a fee to J.P. Morgan, although the amount of that fee was not specified.