A group of CoreStates Financial Corp. executives who are slated to lose their jobs when the banking company is scheduled to merge with First Union Corp. in April have something else to gripe about: They will not be able to cash in their unvested stock options.
In a memorandum last month to stock option plan participants, CoreStates chairman and chief executive officer Terrence A. Larsen said the company needed to alter the option plan to preserve tax-free accounting treatment for the pending deal.
That means plan participants who quit or are fired from Nov. 17, 1997, when the deal was announced, to Dec. 31, 1998, will not get to cash in options that remained unvested as of the merger announcement date.
The change could affect 7% of CoreStates employees-all of them executives-who participate in the stock option plan, said spokeswoman Laurel O'Brien. That group totaled 1,340 of Philadelphia-based CoreStates' 19,114 employees at the end of 1997.
But it was unclear which executives would keep their jobs in the combined entity, which would choose to leave, and which would lose their jobs.
Last week Charlotte, N.C.-based First Union revealed its plan to cut 7,480 jobs in connection with the merger. Taking into account a promise of 3,000 hirings and an expected 16% attrition rate, First Union put net job losses at 1,300.
CoreStates has long offered its executives stock options for which the vesting, or exercise, date would automatically accelerate if the company were bought.
"Regrettably, this is no longer true," Mr. Larsen said in his internal memo. "Our independent auditors have advised that accounting treatment of the merger as a pooling of interests would be prejudiced by accelerating vesting."
"This is becoming a common problem," said Rose Marie Orens, a partner in the compensation consulting practice at KPMG Peat Marwick in New York. "It gets especially messy with senior managers, many of whom don't stay on with the new organization."
Highly technical accounting rules forced CoreStates to change its options policy, Ms. Orens said.
To ensure that a potential merger will be treated as a tax-free pooling of interests, a company cannot grant options that allow acceleration of the exercise date in a merger scenario, particularly during the period between a deal's announcement and its official closing.
CoreStates shareholders voted last week to approve the deal.
CoreStates granted a new set of options to plan participants last month, Ms. O'Brien said.
The options have a one-year vesting period, she said. They can now be exercised only if the executive holding them is working for First Union in February 1999.
That group would include Mr. Larsen, who is slated to join First Union in Philadelphia as vice chairman and head of commercial banking. His CoreStates stock options have a present value of about $25 million.