Risk Management

Maxim Backdating-Case Deal Involves ex-CFO, ex-CEO

Delaware Chancery Court must approve the broad $28.5m arrangement.
Stephen Taub and Roy HarrisSeptember 23, 2008

Former Maxim Integrated Products CFO Carl Jasper, along with ex-CEO Jack Gifford, apparently are participating in a broad tentative company agreement to settle litigation related to the semiconductor concern’s backdating of stock options.

The two were not identified by name in the Maxim news release describing the terms. But the San Jose, Calif., Mercury News said that Gifford will cancel his vested but unexercised stock options for about 3.1 million shares of common he holds, and that Jasper will drop any claims against Maxim relating to about 97,000 vested in-the-money stock options that expired during the mandatory stock option exercise suspension period.

The proposed settlement of the lawsuit, which was filed in June 2006, is subject to approval by the Delaware State Court of Chancery, and is contingent upon the dismissal with prejudice of all other shareholder derivative actions pending in State and Federal Court in California.

In December 2007, the Securities and Exchange Commission accused Maxim, Gifford, and Jasper of reporting false financial information to investors by improperly backdating stock-option grants. The company and Gifford agreed to settle the civil charges, but Jasper did not.

Attempts by CFO.com to reach the two men today were unsuccessful.

Terms call for a settlement fund of $28.5 million, less attorney fees to plaintiff counsel in an amount the court will determine. Current Maxim CEO Tunc Doluca called the tentative settlement “an important milestone in Maxim’s efforts to resolve all outstanding issues related to the company’s past stock option practices.”

Under the settlement in the latest case — which included no admission of wrongdoing by Maxim, the Maxim board and its executive officers, along with the other individual defendants — $21 million will be paid by the directors-and-officers liability insurers of Maxim, with $6 million being paid by the former Maxim CEO, and a total of $1.5 million being paid by James Bergman, Kipling Hagopian, and A.R. Frank Wazzan. Each is a current member of the Maxim board.

The contributions from Bergman, Hagopian, and Wazzan are “to remediate excess gains each such director incorrectly received due to allegedly misdated stock options that were issued to them,” the news release said.

Last year, Maxim said that it would restate its results for fiscal years 2000 through 2005 and quarterly periods through March 25, 2006. It explained at the time that the adjustments would reflect that accounting-measurement dates for stock-option grants differed from the historical grant dates. The company said, however, that a special committee had determined that all stock-option grants were properly awarded and that no evidence indicated that any outside directors engaged in wrongdoing or malfeasance with respect to any grants.

The company also said at the time that the committee found no evidence that any member of current or former management or the board of directors took any action involving the grant of a stock option in order to enrich themselves.

Gifford, without admitting to or denying any allegations, agreed to disgorge a portion of his bonuses, totaling $652,681 with prejudgment interest. He also agreed to pay a $150,000 civil penalty. Maxim, also with no admission or denial, consented to a permanent injunction against violations of the federal securities laws.

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