Mercury Voids Former CEO’s Option Grants

The move is the latest instance in a drove of federal probes, internal investigations, and other developments related to the widening options-backd...
Stephen TaubJune 9, 2006

A special Mercury Interactive Corp. committee looking into past stock-option awards has voided more than 2.6 million vested and unexercised options granted to Amnon Landan, the company’s former CEO. The committee found that the options, granted between 1997 and 2002, were dated improperly, according to a Friday 8-K filing.

Mercury also stated it would pursue claims against Landan. In an earlier filing, the company reported that the special litigation committee found that “there was a material breach by Mr. Landan of his fiduciary obligations as an officer of the Company.” The grounds, according to the enterprise-software organization, are what he did and didn’t do in connection with option grants, option exercises, and personal loans while he was at Mercury.

Mercury’s move against its ex-CEO is the latest instance of what has turned into a daily drumbeat of federal probes, internal investigations, and other developments related to the widening option-backdating scandal.

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On Thursday afternoon, Michaels Stores announced it would delay the filing of its April 2006 quarterly results. The retailer explained that in light of media reports about stock-option practices at other publicly traded companies, its audit committee has launched an internal review into the company’s historical stock-option grant practices.

In its review, the audit committee is looking mainly into the time period of 1990 to 2001. Since October 2001, Michaels has used predetermined effective grant dates and generally predetermined grant levels for its stock-option program. Stock-option grants from October 2001 to the present have consistently followed these processes, the company noted.

The internal review at Michaels is being aided by outside legal and accounting experts. The audit committee hasn’t reached any final conclusions, the company stated in a press release, adding that the internal review is continuing.

Separately, Cyberonics Inc., a medical-device maker, went on the offensive a day after negative media reports about the company’s options practices. In an investor advisory, Amit Hazan, a Robinson Humphrey analyst, asserted that the Cyberonics board granted options just hours after the company received positive news about the regulatory prospects for a product, according to Reuters.

In an E-mail dated June 8 and made public in a regulatory filing on Friday, CFO Pam Westbrook asserted that the claims made by the analyst were “inaccurate and without merit.”

“As fully disclosed in all filings with the SEC, all stock options vest monthly over a 4–5 year period,” including the options mentioned in the report, which vested over 5 years, she stated. “In other words, options have no value to the recipient unless durable shareholder value above the fair market value at the date of grant is built over the 5 years following the grant.”

“Cyberonics has fully followed securities and accounting regulations in the administration of its stock option programs. Stock options are granted the day of approval and are priced at fair market value on the date of grant. Fair market value is considered to be the closing price of the stock on the trading day prior to the date of grant/approval,” stated Westbrook.

The finance exec also asserted that the accounting for all options “is compliant with Generally Accepted Accounting Principles and is disclosed in the annual and quarterly financial reports filed with the SEC.”

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