Wednesday, November 22, 2006

Time the Options, Get a Check

Options-timing investigations triggered the resignations of two more CEOs, one of whom will receive a nice chunk of change for leaving his job.  Cyberonics, Inc. CEO Robert "Skip" Cummins left the medical device maker after the disclosure in its 8-K (here) that the "Audit Committee has concluded that incorrect measurement dates were used for certain stock option grants made principally during the period from 1999 through 2003."  The board announced that its "consolidated financial statements and all earnings and press releases and similar communications issued by the Company relating to periods beginning on or after June 30 1999, should no longer be relied upon.  What does that get the former CEO?  The company entered into a severance agreement containing the following terms:

[T]he payment of approximately $1.7 million in cash within five days, the issuance of 75,000 unregistered shares of the Company’s common stock to Mr. Cummins, and the acceleration of vesting for outstanding options and restricted stock grants and the payment of certain benefits. The Cummins Resignation Agreement also provides for the payment to Mr. Cummins of an amount equal to the cash value of 75,000 shares of the Company’s common stock within one week of the filing of the Company’s next Annual Report on Form 10-K and for the payment of cash for certain tax payments that will be incurred by Mr. Cummins as provided in Paragraph 6(f) of his Employment Agreement.

With my limited math skills, I think the cash and stock payments are worth at least $5.3 million based on a stock price of $24.50 per share: $1.7 million up front, 75,000 shares worth over $1.8 million, and another payment of about $1.8 million -- depending on the stock price -- when Cyberonics files its 10-K.  The company's CFO also resigned, and only received a consulting contract that will pay her $1,200 per day.

Trident Microsystems, Inc. founder and CEO Frank Lin resigned because of options-timing issues uncovered in an investigation by a special board committee.  According to the company's 8-K (here):

While the investigation is not yet complete, on November 14, 2006 the Special Committee provided a preliminary report to the Board of Directors. The Special Committee found that the Company previously used incorrect measurement dates when accounting for stock option grants made to new hires, existing employees and officers.  The Company will restate its financial statements to correct the accounting for its historical stock option grants. Based on the preliminary results of the Special Committee’s investigation, the Company currently expects to record non-cash charges for stock based compensation expense in a range of approximately $40 million to $50 million, which the Company expects to recognize in periods between 1994 and 2006.

No word yet on Lin's severance package. (ph)

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