TSOs can either be exercised like traditional options, or they can be transferred sold. Why did Google create this program? With this program, employees will be able to realize not only the intrinsic value the difference between grant price and market price for Google stock , but also the time value of their options.
Financial institutions such as banks may be willing to pay a premium above the intrinsic value for many options because of the time value. What is time value? Time value is the value of the right to continue holding an option for potentially greater gains at a later date. Who can participate in this program? Only vested nonqualified stock options granted since Google went public post-IPO are eligible for this program. How many post-IPO options are still outstanding? Why did you exclude EMG?
Can employees participate in the program after their employment with Google is terminated? Once employment is terminated, an employee will no longer be eligible to participate in the TSO program, even if their options are still exercisable under the traditional program. Are employees required to participate in the program?
Employees are free to exercise their options or sell the options or not in any mix they choose. Although there is no guarantee that the bidding financial institutions will pay a premium for an in-the-money option, historical market data suggests that they typically do. However, this will not be true in all cases in the TSO program.
For example, for options that are very much in or out of the money i. In addition, options with a remaining term of less than six months cannot be sold in the TSO program because, upon transfer, the remaining life is rounded down to zero. Can you give me an example of what employee stock options would be worth under this program? Will this program be available in all countries? When can employees start using this program? Google employees will be able to log in to create and view their TSO account through an online system that Morgan Stanley has created for Google shortly before the program launches.
When Google has material, non-public information, we will shut down the TSO program until the information is no longer material or the second business day after the information has been made public. Google employees will not be given advance notice of these shutdowns. Information is material if a reasonable investor would consider it important in making a decision to buy, sell or hold Google securities, such a large acquisition or commercial deal.
Information is nonpublic until it has been widely disseminated to the public market and the public has had a chance to absorb and evaluate it.
No, with one exception. As discussed above, Google will shut down the TSO program when Google is in possession of material, non-public information. During such time periods, Google will also black out Google employees from selling shares issued upon the exercise of options in the traditional way. If Google did not impose this restriction, there is a risk that a Google employee could be deemed to be selling Google stock during a period when the Google employee knew that the TSO program is shut down, which could be deemed material, non-public information.
This restriction does not apply to sales of shares under a 10b plan but it does apply to sales of TSOs under a 10b plan. Who will buy the options? Pre-qualified institutional investors will be bidding on all options that Google employees put up for auction. No, employees may not sell options outside of the TSO program.
This income is of the same character as the income they would have received if they had exercised their options and immediately sold the underlying shares rather than sold their options through this new program. Google will withhold the same type of taxes on the compensation income they earn from the sale of TSOs as it would have if they had exercised their options and immediately sold the underlying shares rather than sold their options.
The discussion above does not constitute tax advice, nor does it address any tax consequences arising under the laws of any state, local or foreign jurisdiction. Also, tax laws may change, possibly retroactively, so you should consult your tax advisor.
What are the tax consequences for employees who work for a Google entity outside the U. Since TSOs are a new concept in every country, the tax implications associated with this new program are not entirely certain. We are working with outside tax counsel to identify the tax implications in every country that Google currently issues options; and in the countries where we do offer TSOs, we generally believe that the tax consequences will be similar to the tax consequences of exercising ordinary options.
However, this is subject to additional regulatory review. For Google employees subject to US taxes outside of the US, Google will provide additional tax information at a later time. Smith Barney will serve as the employee stock option administrator. Google is working with multiple financial institutions to participate as bidders in the auctions. Do I have to open a Morgan Stanley or other brokerage account?
What if others want to participate? Are there any financial institutions that are not eligible to be a part of the auction? Google anticipates allowing additional financial institutions to participate in the TSO program. All participants must be able to provide continuous, automated bids for all Google options in the TSO program, and must update their systems to interface with the TSO system. How are bid prices for options determined?
We expect that bid prices will change throughout the trading day just like bid prices for shares of stock on the NASDAQ change throughout the day to reflect changing valuation assumptions. Can an employee specify in advance the price at which they want to sell their options? The option will be sold at a minimum of that price as long as one of the bidders is willing to pay at least that much for the option s. Limits can be set to expire at the end of the trading day or at the end of a trading window.
A market or limit order can be made at any time during an open trading window, although the trade cannot be effected unless the auction is open. There is no guarantee that limit orders will be filled, and, as discussed above, the TSO program may shut down from time to time without prior notice. A 10b plan may be used to sell options through the TSO program. Here are important points regarding 10b plans and the TSO program: These limitations apply for all TSO trades, regardless of whether the trade is initiated by the Google employee directly or through a 10b plan.
It will be impossible to know in advance when the TSO program will be active because, even though the trading windows are predictable, it is impossible to know when Google will be in possession of material, non-public information. This means that employees cannot with certainty plan for a TSO sale to occur under a 10b plan. What is the benefit of a Rule 10b Trading Plan if Google will shut down the TSO program including trading under a 10b plan when Google in possession of material, non-public information?
First, a 10b plan will still permit you to exercise and sell your options the traditional way regardless of whether we are in our ordinary quarterly blackout periods or in a special blackout period during which the TSO Program has been suspended. Second, as discussed above, Google will shut down the TSO program when Google is in possession of material, non-public information. So, Google may be in possession of information that it deems not to be material and will continue to let the TSO program operate, even though another person might determine the information is material, especially if applying hindsight.
For this reason, a 10b plan even if it just contemplates sales under the TSO Program when the Program is active could be helpful to a Google employee in rebutting a claim that he or she fraudulently sold his options under the TSO Program while in possession of material non-public information.
Google cannot give any Google employee advice on whether to enter into, amend or terminate a 10b plan. We encourage you to consult your personal advisors and broker regarding the TSO program and 10b plans.
The remaining life is shortened to two years unless the remaining life is less than two years. If the remaining life is less than two years, then the transferable life is further reduced from two years in six-month increments e. For example, an option with a remaining life of 23 months will, upon sale in the TSO program, have an month life.
We anticipate the anti-dilution provisions will be changed to conform to market-standard provisions. Why did you reduce the length of the option life upon transfer? We shortened the term to adjust the time value of the transferred options so that they are, in our estimation, more closely aligned with our compensatory objectives when the option was originally granted. Because the value of the option is in part determined by its term, a shorter option term would decrease the time value that can be realized through the TSO program.
Our intent was to give employee options more tangible value. The TSO program is available to employees who are willing to forgo some of the potential future value in order to get some value today.
Because we expect that options will be outstanding longer, they will have a greater fair value on the date of grant which will result in more stock-based compensation for accounting purposes. As a result of this modification, we will take a stock-based compensation charge equal to the difference between the value of the modified stock options and their value immediately prior to modification.
We plan to disclose the expected amount of this charge in the first quarter of Is this program related to new accounting rules for stock options?
Will this affect earnings? The TSO program increases the efficiency of our equity usage. Under the TSO program, we expect that every option that is granted will be more highly valued by employees, while at the same time the TSO program will retain the advantage of leverage that stock options offer over other forms of equity compensation. We also believe this program enhances our ability to compete effectively for the best talent in the marketplace and therefore sustain our competitive advantage.
What will the financial institutions do with the options they purchase in the TSO program? The financial institutions will not be allowed to further transfer the options they purchase in the TSO program to the public. We believe that the financial institutions will enter into hedging transactions with respect to the options they purchase in the TSO program.
Specifically, the winning bidder in the TSO auction will likely hedge their position in the Google options by short selling Google shares, which is a typical way to hedge a position in an option. By short selling, the winning bidder offsets the exposure it has in the purchased option. This registration statement will cover, among other things, the expected short-selling activities of the participating financial institutions after they have purchased TSOs.
Google will not be a party to this short-selling activity. What advantage do these options have over restricted stock grants? Transferable stock options share some of the benefits of restricted stock by having immediate value at grant, but in addition have more upside potential since we typically grant options in higher amounts than we grant restricted stock.
In addition, based on current tax treatment in the U. Has anyone done this before? No, the TSO program is the first of its kind. How is this program different?More...