September 20, 2003

Hurricane Takes Its Toll on

Isabel packed a wallop and knocked this blogger for a loop. Noteworthy is that even though the SEC was closed here in DC – EDGAR was open and accepting filings. Coming back to the blog, its amazing how much there is to report. Miss a few days and you have a dozen items worthy of mention. However, I will stick by my guns and not overwhelm the community by limiting myself to rolling out no more than a few tidbits per day.

Microsoft Announces New Details Re: Option Transfer Program

In his blog, good ole Mike O’Sullivan (safely ensconced on the West Coast) was able to nicely outline more details about Microsoft’s option exchange program as revealed in a recent S-3 filing. The shelf registration statement will be used to facilitate sales of Microsoft (including short sales) by JP Morgan to hedge their risk under the option transfer program.

As indicated in the S-3, Microsoft’s program contemplates that employees with options and SARs will have a 20 day period to elect to transfer their stock options or SARs to JP Morgan. In exchange for the options, JP Morgan will pay a cash amount to Microsoft. Microsoft will then pay 33% of the amount to the employees who transferred their options/SARs by 12/31/03 and the remaining amount over a period of time contingent on the optionee’s continued employment.

There are still a number of open questions about how the program will work, such as how the stock options/SARs became “transferable.” More might be gleaned when Microsoft files its proxy statement, which should occur any day now. Mike also notes that Microsoft has submitted two no-action letters confidentially on paper (and they likely relate to the terms of how the program will work).

GE Grants Performance Shares to CEO – and No Options

Picking up on a growing trend, General Electric announced that it will not grant options to its CEO. Instead, the CEO will receive performance shares, based on measures such as cash flow (which is harder to manipulate compared to earnings or revenue measures). This year, the CEO received a grant of 250,000 performance share units presently valued at $7.5 million (if the performance criteria are met). By comparison, his annual equity grant last year was 1 million stock options, with a present value of $8.4 million.

Here are some details of the CEO’s performance share units:

– half of the performance share units convert to shares of GE stock only if the company’s cash flow from operating activities has grown an average of 10 % or more per year over the period.

– the remaining half convert only if GE’s total shareholder return meets or exceeds the broader market.

– performance share units will be canceled if GE doesn’t meet the performance criteria.

– during the performance period, the CEO receives quarterly cash payments on each performance share unit equal to GE’s quarterly per-share dividend.