This excerpt taken from the GOOG 8-K filed Jan 22, 2009.
Announcing Googles Employee Option Exchange Program
Laszlo Bock, VP, People Operations
Today we announced our plans to do something more for the people who are responsible for Googles successour employees. Recognizing that about 85% of our employees have at least some stock options that are underwater (i.e., have an exercise price higher than the current market price of our common stock), we plan to offer our employees the opportunity to exchange those options. Our goal is to continue to reward our employees for their contributions and do everything we can to keep them engaged and focused on serving our users.
Heres how the employee option exchange program would work:
The number of Google shares subject to outstanding options will not change as a result of this employee-only option exchange. The total number of options expected to be exchanged in this program represents less than 3% of total shares currently outstanding.
We expect to take a modification charge estimated to be $460 million over the vesting periods of the new options. These vesting periods range from six months to approximately five years. This modification charge will be recorded as additional stock based compensation beginning in the first quarter of 2009. This estimate assumes an exchange price of approximately $300 per share and that all eligible underwater options will be exchanged under this program. As a result, this estimate is subject to change.
If youre interested in learning more about this employee-only stock option exchange, we encourage you to read our related SEC filings when they become available.
The option exchange described in this post has not launched. When the option exchange begins, Google will provide employees with written materials explaining the terms and timing. Eligible optionholders should read these materials carefully when they become available because they will contain important information about the option exchange. When the offer period begins, Google will file these materials with the Securities and Exchange Commission (SEC) as part of a tender offer statement. You will be able to obtain these written materials and other documents filed by Google with the SEC free of charge from the SECs website at www.sec.gov. The $300 exchange price provided above is intended as an example only. We expect that the actual modification charge we take as a result of the option exchange will be determined based on the exercise price and number of options exchanged as well as the closing price of our stock on March 2, 2009, unless Google is required or opts to extend the offer period.