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OWW » Topics » The Proposed Exchange Offer and Consideration of Alternatives

This excerpt taken from the OWW DEF 14A filed Apr 22, 2009.
The Proposed Exchange Offer and Consideration of Alternatives
 
We have designed the terms of the proposed exchange offer with the objective of increasing the retentive and motivational value of outstanding equity awards for our employees. We considered a number of alternatives before concluding that a stock option exchange program is the most effective vehicle to retain and incentivize our employees who have deeply underwater stock options. We considered the payment of cash for underwater stock


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options; however, the payment of cash for underwater stock options would consume cash needed for other operational needs of the business.
 
We concluded a stock option exchange program will effectively retain and motivate our employees, and benefit our shareholders for the following reasons:
 
  •  Improved retention will enhance long-term shareholder value.  Because all of our outstanding stock options are underwater and most of our employees view their underwater stock options as having little or no value, the majority of our outstanding stock options are ineffective as incentives. We believe that we need to offer new ways to motivate and retain our employees to enhance long-term shareholder value. Eligible employees who choose to participate in the exchange offer will receive new stock options with an exercise price based on the market value of our common stock at the time of the exchange and will have an opportunity to benefit from future increases in the price of our common stock. The new stock options will also provide an ongoing performance incentive for our employees to work toward improving our business because the new stock options will only have value if our stock price increases.
 
  •  Dilution will be reduced.  The exchange offer is expected to reduce our equity overhang, particularly that portion consisting of stock options having the highest exercise prices with the least employee retention value, as we would cancel a large number of underwater stock options and issue a fewer number of new stock options in their place. If approved, the exchange offer will be open to eligible employees holding stock options with an exercise price of $6.28 or above, which represented approximately three million shares at March 31, 2009. We currently record a substantial charge to earnings for the underwater stock options, which is adverse to the best interest of our shareholders since these underwater stock options have no value in retaining the employees who are key to our success.
 
  •  The proposed exchange ratios are intended to make the option exchange neutral to our financial results.  The exchange ratios that will be used to determine the number of new stock options that will be issued for surrendered stock options will be calculated to provide as near as possible an equal exchange of value. Eligible options and the new stock options will be valued using the Black-Scholes option pricing model, which uses several variables to determine fair value, including the market price of our common stock on the grant date. If the stock option exchange program is approved and implemented, the exchange ratios will result in fewer shares being subject to the new stock options than were subject to the underwater stock options tendered in the exchange offer. Although the actual financial impact of the proposed exchange will depend on the final results of any exchange offer and actual exchange ratios, we believe the proposed exchange offer will result in a nominal amount of incremental compensation expense, if any, for financial accounting purposes.
 
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