Risk Management

No Penalty: Jabil Settles Options Suit

The components maker won't face fines or penalties, but is ready to shell out attorneys' fees.
Stephen TaubSeptember 21, 2007

Jabil Circuit said it has settled a derivative lawsuit stemming from the backdating of stock option grants to certain members of senior management. The proposed settlement does not entail payment of any fines or penalties, the company said in a press release.

However, the company also noted that it is prepared to pay the plaintiffs up to $800,000 in attorney’s fees. Officials said that $600,000 of the total award will be covered by Jabil’s directors and officers insurance.

Under the settlement agreement, which is still subject to the approval of Jabil’s board and the courts, Jabil will adopt several new policies and procedures to improve the process through which equity awards are determined, approved, and accounted for. The maker of electronic components for mobile phones and computers also pointed out that the settlement of the derivative suits does not affect pending class-action suits in federal court.

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In May 2006, Jabil disclosed that it was the target of derivative and securities class-action lawsuits and received inquiries from the government regarding certain historical stock option grants. Government inquires were made by the Securities and Exchange Commission and the Justice Department.

A special internal review committee concluded that there was no merit to allegations that the company’s officers, or anyone else, issued themselves backdated stock options or attempted to cause others to issue them, the company noted. In November 2006, however, Jabil said it would need to restate its 2005 financials and related disclosures.

In a regulatory filing issued at the time, the company said that the issues under review mostly reflect “changes in the company’s understanding” of three primary issues: the accounting-related requirements for identifying appropriate measurement dates for option grants; errors in interpreting the guidance; and administrative and logistical errors made in effecting the options program.

The company also conceded in the same filing that other time periods may need to be restated.