VMWare employees to receive new pricing on underwater stock options

The last thing any employee wants is stock options that are "under water." But that's exactly what some VMWare employees who were issued options after the August IPO are stuck with. After the IPO, VMWare's stock climbed and climbed - from $57.71 on its first day to about $125 in late October. You could almost hears the "woo-hoo" cheers coming from the company's Palo Alto headquarters. But, as the saying goes, "What goes up, must come down." And that's exactly what has been happening since then. Today, the stock closed at $38.89 in regular trading and was down a few more pennies after hours.

Now, the company says it will re-price those post-IPO, underwater options for U.S. employees. Non-U.S. employees will be granted  a "to-be-determined proportionate number of restricted stock units after the exchange offer for U.S. employees is completed," president and CEO Paul Maritz wrote in an e-mail to employees, which was filed with the Securities and Exchange Commission today.

U.S. employees will get the same number of options - but at a price based on the close of the stock the day after the exchange is completed. In addition, the clock on the options vesting schedule will start over. The exchange is voluntary and company executives are not eligible.

"Although I can give you no guarantees or assurances, by giving you an opportunity to receive options with an exercise price closer to our current market price, I hope to provide you with a greater opportunity to benefit from any future successes of the company," Maritz wrote.

So is this just a case of a new CEO - who replaced ousted CEO Diane last week -  being a nice guy? John DiFucci, a software analyst with J.P. Morgan was quoted as saying that this is more of "an effort to abate a brain drain from the company... While we consider this a modest positive for the stock, we also note that it acts to slightly dilute current shareholders."