offered to reprice certain out-of-the-money options held by its employees, a move that often strikes shareholders as reprehensible but which the company tried to leaven by cutting the number of shares it stands to issue.
The offer will let Broadcom employees who hold a total of 57 million options exercisable at $23.58 or more the chance to exchange them for lower-priced options. The company's shares currently trade for about $13.
Under the plan, employees whose options have vested can exchange them for a lesser number of Broadcom Class A common, while unvested options can be exchanged for an equal or lesser number of new options. "In general, the higher the exercise price of the old options, the fewer new shares that will be issued and the fewer new options that will be granted."
The 57 million eligible options includes 35 million that are vested and potentially could be exchanged for up to 13 million new Broadcom common shares. There are also 22 million unvested options which could eventually be exchanged for 21 million new options. "Thus, if employees exchange all eligible options, the net option overhang would be reduced by 23 million shares," Broadcom noted.
"Our employees, who have a significant equity interest in Broadcom, win through immediate and potentially long-term financial reward for their hard work and competitive drive," the company said. "We believe the combination of employee retention and reduced overhang provide our shareholders with the greatest potential value in the long run."
The company will take a noncash charge of up to $238 million in the current quarter, reflecting roughly $163 million of stock-based compensation for the issuance of the vested shares and $75 million for accelerated amortization of deferred compensation.