BEA Systems told the SEC in a filing on Friday that it finalized the repayment of $2.45 million from its chief executive, Alfred Chuang, to cover the amount of improper gain he received exercising and selling shares from three mis-priced option grants in 1998 and 1999.

The board’s audit committee investigating the mispricing of option grants, made up of Dean Morton, Stewart Gross and L. Dale Crandall, found that there was “insufficient evidence to determine” that the shares were granted to Chuang as originally stated on March 19, 1998, March 17, 1999 and May 17, 1999.

Chuang, who “was not responsible for mispricing of these grants,” agreed on Feb. 8 to repay the $2.45 million, but it took until this past Labor Day for him to settle up by agreeing to cancel 423,605, or about 41 percent, of the remaining shares from the last of three of the mispriced grants, given to him in May 1999.

In trying to figure out the correct dates of the grants, the committee relied on, “”the dates the options were entered into the Company’s stock option database,” for the first two grants, which changed the dates to March 25, 1998, six days later for the first grant, and April 6, 1999, twenty days later for the second.

But for the third grant, the one being used by Chuang to repay his mispriced gains, the committee took a different tack. It decided in that case to use the date the the grant was “approved at a meeting of the Company’s Compensation Committee held on July 14, 1999,” which was 58 dates after the event.

But what about using the date that last grant was entered into the stock option database? Well, for undisclosed reasons, the grant was entered until December 8 of that year, more than six months later than the originally published date, and more than four months after the grant was approved.

Hmmmm. Let’s see.

The price of the 2 million shares in Chuang’s option grant first reported as being awarded on May 17, 1999, was $4.33. On July 14, the new pricing date set for Chuang, would be $6.88. And on Dec. 8, the price on the date the grant was officially recorded in the company’s stock option database? $30.34.

For 2 million shares, the difference between the original mispriced date and the day the grant was officially recorded comes out to $52 million.
However, “for purposes of remediation” on Chuang’s part, the July 14 price is deemed good enough. And the increased accounting charge for the company based on that date would be considerably lower: $5.1 million.

Win-win for everybody, right? Well, no. It seems the audit board isn’t so sure that federal regulators like the SEC might accept the lack of consistency in the re-dating methodology between the three grants in question, and will instead use the data-entry date for all three grants in figuring the accounting charge it will take against earnings when it restates results, including the price on Dec. 8, 1999.

But did anyone talk to the IRS?

Bay Area News Group blog editor (1223 Posts)