SiliconBeat

Remember back in August 2007, when VMware staged the most impressive initial public offering of a technology company since Google? The planned offering price for the 33 million shares it sold to the public for the first time was first estimated to be between $23 and $25, a range that was later raised to between $27 and $29. The shares finally went out at the top of the second range, and ended their first day at $51, up 76 percent.

In anticipation of the public offering, VMware directors authorized broad-based grants of options to employees totaling more than 35.6 million shares of stock with a price of $23.

Shares of VMware, which makes software to enhance the computing power and flexibility of servers, while controlling costs and energy consumption, soared to as high as $125 within less than three months of its debut. It was the best performing local IPO last year in the best year for initial offerings since 2000, the year the dot.com bubble burst.

That was then and this is now.

VMware shares have lost more than half their value so far this year. They dropped by a third in January when the company’s results first disappointed Wall Street. The got clobbered earlier this month when the company fired its chief executive and co-founder, Diane Greene, and replaced her with a former executive at Microsoft, which has stepped up its competition with the Palo Alto company. VMware closed Friday at $38.51.

On Thursday, in a move likely to help endear him to his workforce, especially those who may have joined the company sometime since its IPO, VMware’s new CEO, Paul Maritz, sent a letter to employees.

“I am pleased to inform you that the VMware Board of Directors has approved a proposal to exchange your post-IPO out of the money (or ‘underwater’) stock options. This proposal must also be approved by our stockholders and we are currently scheduling a special meeting to gain that approval.”

Under the proposal, all of the company’s non-executive employees holding stock options granted after the company’s IPO last August will be able to exchange their out-of-the-money stock options for an equal number of new options. That’s a desirable feature, as many such exchanges force employees to give up a greater number of higher-priced options in exchange for a lesser number with the lower strike price.

The exercise price of the new options will be the price at the close of trading on the New York Stock Exchange on the day immediately following the date that the exchange is completed. However, the vesting clock starts all over from the date of exchange.

Non-U.S. employees are to get a proportionate number of restricted shares in exchange for their underwater options. Nice.

One possible hitch: the plan must be approved by shareholders, a special meeting of which is currently being scheduled, according to the letter.