Chip Maker Offers Workers a New "Option"

September 27, 2002 (PLANSPONSOR.com) - Graphics chip maker Nvidia has unveiled a new options "swap" program that will let workers trade in worthless options for company stock.

The Santa Clara, California-based graphics chip maker said yesterday that it expects to take a charge of up to $66 million to pay for the option, which it believes will allow it to retain staff and “better align their interests with stockholders.”

Underwater “Option”

Nvidia’s new chief financial officer, Marvin Burkett, told Reuters that the move was intended to motivate employees whose options are deep “underwater” — a term for options that cost more to exercise than buying the stock outright — given the company’s stock drop.  

The move stands in some contrast with that taken by other technology firms that have chosen to simply reprice existing options to a level more in line with fallen stock prices. That practice makes the options more attractive, but does little to ensure that the options are ever translated into ownership in the firm.

At Nvidia any stock option held by employees that have an exercise price equal to or greater than $27.00 can be exchanged under the offer for fully vested shares of company stock. The employee will get common stock with a value equal to the number of shares underlying the stock option, multiplied by $3.20.

Shares of Nvidia closed yesterday down 5.3% at $8.87 on NASDAQ.   It had traded as high as $72 in January.

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