Human Capital & Careers

Defaults, But No Wrongdoing, at Landry’s

Botched options-dating procedures led to restatements and reported debt-covenant defaults at the seafood restaurant chain. But the board investigat...
Stephen TaubJuly 31, 2007

Officials at Landry’s Restaurants Inc. said a special board committee completed its investigation into the company’s historical stock option practices and found no intentional misconduct by current or former senior management or members of the compensation or stock option committees. However, the company did concede that an earlier announced $8.6 million restatement was too skimpy. Although the restaurant chain will need to increase the restatement amount, the company still did not disclose the new sum.

Landry’s also noted that some senior managers have volunteered to repay the difference between the exercise price and the intra-day low price on the revised measurement date from options they received. The company added that it “expects to shortly become current” with its financial reports. However, it still did not provide a firm date.

Landry’s has not filed its 2006 annual report and quarterlies for the first half of 2007. In addition, although the company has not issued any stock options since fiscal year 2004, it has amended its option granting practices and confirmed that the board will consider appropriate remedial measures “to enhance the process for equity based compensation awards in the future.”

In March, Landry’s disclosed that it would restate results over a 14-year period by between $6 million and $8 million after tax, and would need to delaying filing its annual report. The restatement was prompted by the internal board review which found incorrect measurement dates were used for stock-option grants. At the time, the casual dining company said that its yet to be completed review had not uncovered evidence of intentional backdating or other wrongdoing. Even so, Landry’s warned that it expected to become the target of an informal inquiry by the Securities and Exchange Commission.

Last week, Landry’s revealed that because it was unable to file its 2006 annual report, a majority of holders of its $400 million in senior unsecured notes declared the company in default of its debt covenant. As a result, the bondholders asserted that unpaid principal and accrued and unpaid interest was due and payable immediately under the indenture. The company said it is trying to refinance the 7.50-percent debt. However, it cautioned that due to the recent tightening of the credit markets, the terms of the refinancing may be less favorable then could have been obtained a few weeks earlier.

The company also said that it was not in compliance with the $450 million credit agreement with Wachovia Bank, National Association, and other financial institutions.