M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, October 31, 2007

Maxim's Chutzpah

Maxim Integrate Products has problems.  Due to an options back-dating investigation, the company has not filed its financial reports with the SEC since May 2006.  This internal investigation ultimately concluded that stock option grants to employees and directors had been either back-dated or otherwise manipulated for a seven year period starting in 2000.  Then on Oct. 2, Nasdaq delisted Maxim for seven "deficiencies," including delinquent reports for three quarters, two missing annual reports, a late proxy filing and failure to hold its annual shareholder meeting.  The company now trades on the Pink Sheets.  It expects to restate and file its past due reports in the first quarter of 2008, when it has stated it will seek relisting in the Nasdaq.

So, it was with a bit of surprise that I ran across this tidbit from a Form 8-K filed by Maxim earlier this month:

Maxim Integrated Products, Inc. suspended stock option exercises starting September 23, 2006 . . . . The Company will continue to prohibit the exercise of stock options until the Company completes its financial restatement and becomes current in its reporting obligations with the Commission. During the period which the exercise of stock options has been and will be suspended, stock options held by current and former employees have expired and will expire due to the expiration of their 10-year terms.  The Company has implemented a program to provide cash payments to individuals who hold options granted from September 1996 through March 1998 that expire due to their maximum 10-year terms. . . . . . Approximately 525 individuals will be eligible for this program, and the aggregate payments are expected to total approximately $98 million . . . . .

So, does everyone get this?  Maxim is making whole employees who cannot exercise their about to expire options due to the imposed black-out period.  Maxim lists out the main beneficiaries of this program in this 8-K.  This includes, surprise, a $5.21 million dollar payment to the current CEO of Maxim Tunç Doluca who is actually the largest beneficiary of the program.  Now, I'm not against making whole employees who were not at fault or otherwise involved in this back-dating scandal.  This could be a reasonable and justified business expense.  But, to make-whole the CEO at a time when the failure to exit the black-out period is due to a restatement process he is driving and ultimately responsible for simply sends the wrong message.  I realize that Mr Doluca replaced the old CEO of Maxim who left allegedly in connection with this scandal.  But he is the one who now has responsibility to clean up this mess.  He should be penalized for his failure to do so on a timely basis -- as his shareholders have been.  Not made whole. 

So, it is not M&A, but I thought I would put my two cents in on this one. 


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