SiliconBeat

If we suddenly seem obsessed with UTStarcom (ticker:UTSI) of Alameda, well, guilty as charged. But then, with filings this fun, what’s not love?

As we wrote last week, there’s been big layoffs, there are two federal investigations, including one for allegedly bribing a Mongolian official, and some funny business with its sales offices in Western China.

Now comes the proxy. UTStarcom filed its proxy on Tuesday for 2006, and as you’d expect, executives were rewarded for a job well done. CEO Hong Liang Lu got $3.34 million last year, including a $700,000 salary and some assorted stock and options. And CFO Francis Barton got $2.032 million package, including $85,624 for a car allowance.

The filing also notes this gem. In February, the board voted to raise the salary of Ying Wu, the executive vice president of the company’s China operations, from $500,000 to $550,000. In June, he was “terminated.”

If you look at a stock chart for Cardima, the Fremont maker of medical devices used to
diagnose and treat cardiac arrhythmias., you’ll see a line that resembles the heartbeat of one of the patients its products might be meant to help.

Its shares dropped 4 cents Tuesday, but that was 7 percent, the same day the company said in a filing that its auditor quit last week. According to the company, the former accountant’s reports on the company “did not contain an adverse opinion” except that they “expressed substantial doubt with respect to the Company’s ability to continue as a going concern for the last two years.”

Well, Cardima is still “going.” It’s board even announced welcoming a new chief medical
officer the same day it disclosed that its auditor had skedaddled. But earlier this month two of Cardima’s directors resigned from the board without offering the public even the merest fig-leaf of a reason why. Both were former employees of the accounting firm Deloitte & Touche. They were replaced by a physician and the company’s senior vice president of product development.

That came just days after Cardima settled an outstanding debt for some $20 million dollars plus warrants to buy its stock it owed Apix International by issuing 88 million shares. And in response to an SEC concern regarding the accounting for its debt, Cardima said it would need to restate results for its fiscal year ended Dec. 31, 2006.

Cardima fired its chief executive and acting chief financial officer, Gabriel Vegh, on Aug.
31. He was replaced that same day by Robert Cheney, a director on the board since February 2006 who is also an Apix shareholder. While Vegh was not deemed fit to continue as CEO, he will continue to serve as a director on Cardima’s board, allowing him more time to exercise options that are currently mostly under water.

On July 31 the company completed a one-for-ten reverse stock split to try and hike its stock price up. It closed that day at a split-adjusted 64 cents and hasn’t been higher since.

We found a new wrinkle in the stock-option mess after reading the long-delayed filing of Electronic for Imaging’s annual financial report Friday.

One-fifth of the $151.7 million worth of extra-value the company gave out in improperly handled stock option grants came from “modifications” of the terms made to certain executives’ existing stock option grants. The changes to the original option terms allowed for additional vesting and exercising of options beyond the plan’s standard three month period after termination.

The single largest charge — $30.6 million — was the result of a change made to option grants belonging to the company’s former chairman and chief executive — probably Dan Avida, who resigned on January 1, 2000.

Read the rest of this entry »

As UTStarcom (ticker: UTSI) of Alameda tries to dig its way out of various holes, it can at least say it’s caught up with its securities filings. So check that off the list.

However, that’s about as far as the good news runs. We noted last week that UTStarcom had announced big layoffs and various ongoing investigations from federal agencies. The company reported Thursday that it had lost $61 million in the second quarter ending June 30.

But in the 10-Q filed on Friday for those second quarter results, the company also disclosed the results of two investigations. One related to revenue recognition. And one related to stock options backdating. And neither came with good news.

On the revenue front, the company company had to reduce its sales from 2000 to 2006 by $270.8 million, and its profits by $96.7 million. Why? Apparently there was some funny business going on in its western China offices related to the way it was counting revenue. While the company’s investigations said there was no out and out fraud, there was a lack of control. As such, the company said: “certain members of management in China bear varying degrees of responsibility for inadequate oversight of activities. As a result, certain employees in China have either been terminated or placed on suspension for failure to provide adequate oversight of activities.”

On the stock options front, it turns out that yes, there was options backdating. And as such, the company will need to increase its compensation expenses between 1998 and 2006 by another $26.7 million. And that, of course, also comes off the bottom line.

And then, of course, there’s still the various governmental investigations. UTStarcom said it has “has received notice of a formal inquiry by the staff of the Securities & Exchange Commission into certain aspects of the Company’s financial disclosures.” And:

“In December 2005, the U.S. Embassy in Mongolia informed the Company that it had forwarded to the Department of Justice (“DOJ”) allegations that an agent of the Company’s Mongolia joint venture had offered payments to a Mongolian government official in possible violation of the Foreign Corrupt Practices Act (the “FCPA”). The Company through our Audit Committee, authorized an independent investigation into possible violations of the FCPA, and the Company has been in contact with the DOJ and SEC regarding the investigation. The investigation has identified possible FCPA violations in Mongolia, Southeast Asia, India, and China, as well as possible violations of U.S. immigration laws. The DOJ has requested that the Company voluntarily produce documents related to the investigation and the SEC has subpoenaed the Company for documents.”

Besides that, everything is fine. So let’s all get back to work.

In an era where there are plenty of executives who get paid no matter how their company performs, you can’t count Ashutosh Roy in that group. Back in October 2003, the chairman, CEO and president of Mountain View-based eGain (ticker: EGAN.OB) asked the board to cut his annual salary to $24 per year. Roy made the request as the company was restructuring to cut costs.

And according to a proxy filed by eGain on Thursday, Roy continued to receive only $24 through the fiscal year ending in June. He did get about $42,000 worth of stock options.

The company’s stock has been stuck under $2 per share for almost three years. And it hasn’t turned annual profit in the past three years.

Still, $24? It makes us wonder: Is there a public CEO in Silicon Valley working for less?

What does it take to win back the love of a dissident shareholder? Don’t ask the folks at PDL BioPharma (ticker:PDLI). The Fremont company hasn’t had much luck with all the warm fuzzies it’s thrown they way of shareholder activist Daniel Loeb.

Loeb and his Third Point funds have spent more than $180 million buying more than 8 percent of PDL’s stock. As you may recall from our past posts, Loeb has been sending some un-love letters to the board, accusing the CEO of unpleasantness. That CEO stepped down in August. And the company announced an asset sale and some layoffs.

In an 8-K filed Thursday, PDL said it had fired 104 employees, mostly in Minnesota, as part of plans to sell one its units. The company will take a $3.2 million charge. PDL originally said it might fire up to 250 employees.

So what sayeth Mr. Loeb? In an amendment to a 13-D filed on Thursday, Loeb gives some applause to PDL:

“On October 17, 2007, Third Point sent a letter to the members of the
Company’s Board of Directors in which it acknowledged positive developments
relating to the Company’s announced intentions to commence a sale process…”

But, he also …

“expressed concern that the Board does not include a Third Point representative
and that the Company is being led by L. Patrick Gage as Interim Chief Executive
Officer. In the letter, Third Point reiterated its belief that the shares remain
undervalued and stated that, as one of the Company’s largest shareholders, it
will be carefully tracking developments at the Company and assessing its
options.”

Keep trying, PDL. Keep trying. Or else.

Ultratech (ticker:UTEK) of San Jose has been having a bad year. In an 8-K filed Thursday, the company disclosed that revenue in the third quarter fell to $25.2 million from $33.9 million during the third quarter of 2006. Revenue for the first nine months was $82.6 million compared to revenue of $94.9 million in the first nine months of 2006.

But Ultratech is not taking this lying down. In fact, they sound mad. Fighting mad. Here’s the statement in the 8-K from Arthur W. Zafiropoulo, chairman, CEO, president:

“During the quarter, Ultratech continued to penetrate the marketplace with our Laser Spike Anneal (LSA) systems…”

We don’t know what that means. But we’re afraid. And we’re not coming out from under out desk until the carnage ends.

Here’s a fitting item to honor of the 20th anniversary of the stock crash of 1987.

It seems that peer pressure, that force teenagers are warned about in drug-prevention efforts, can also cause us to invest in things we shouldn’t, according to a study by professors at the Stanford Graduate School of Business.

It seems that what investor fear the most is not necessarily losing money but that they may do poorly in comparison to their peers. And investments in high-tech can be particularly risky because investors tend to cluster around such pie-in-the-sky opportunities to avoid being the only one in the neighborhood to miss out on the “next big thing.”

The researchers have found that investors tend to herd particularly around high-tech
investments that have the potential to revolutionize the entire market and promise a big
upside — technologies like fiber optics, Internet-related infrastructure, and so forth.

“These are typically high-risk stocks that, in seven out of eight cases, are likely to go bust. But people are willing to invest in them in the hopes that they’ll hit that one-in-eight jackpot,” according to Peter DeMarzo, one of the authors of the study.

Herding can also provide a kind of ego protection when the bubble bursts.

“If everyone loses his or her money together, it’s perceived as not as bad as if just you alone lose,” says DeMarzo.

Add Sybase (ticker:SY) to the list of Bay Area tech companies attracting the attention, and investment, of suitors who don’t love them for who they are, but want to change them into who they’d prefer them to be. (Think Carl Icahn and BEA, or ValueVest and Ampex).

On Friday the Dublin-based maker of database software found out that it had a new second-largest shareholder when funds associated with Sandell Asset Management (SAMC) revealed in an SEC filing that they owned 5.4 million shares of the company, or 6 percent.

In the Friday filing, SAMC said it’s chief executive, Thomas Sandell, had sent a letter to Sybase CEO John Chen “expressing concern for the discount at which the Issuer’s stock is currently trading,” which presumably helped facilitate SAMC’s current position in SY shares. The letter went on to cite “various reasons for the poor performance of the stock.” To be helpful the new Sybase investor included a PowerPoint demonstration in which it called the company’s main database infrastructure platform a “cash cow” that was generating too much money just sitting on its balance book. SAMC likes Sybase’s newer “mobility” line of products and think they could be spun off into their own IPO.

On Monday, Sybase filed its short-but-sweet reply to Sandell, saying “we appreciate your thoughts,” and reminding him that the Sybase board “regularly reviews the subjects in your letter, including use of cash” as it focuses on opportunities to “drive shareholder value.” It ended with the assurance that “Sybase welcomes the views of its shareholders, and the Board will consider your letter in that regard.” What, as opposed to some kind of do-something-or-else threat?

Sybase also filed a letter it sent to employees on Monday in which CEO Chen wished to “share some brief thoughts with you.” Bottom line was that everybody should stay focused on their work. Oh, and by the way, he reminded employees “about our procedures for responding to outside inquiries”: forward them to the proper channels in management.

Sybase may have reason to be particularly wary of its new beau.

Earlier this month SAMC, some of its employees and Sandell himself “settled an enforcement matter with the Securities and Exchange Commission” related to certain trades of shares in Hibernia Corporation in 2005. “Without admitting or denying the SEC allegations” the company agreed to pay a $650,000 civil fine, Sandell himself agreed to pay a $100,000 civil fine related to the SEC’s so-called Short Sale Rule, and the company agreed to “disgorge” $7.5 million in estimated losses it avoided by its tactics. Sandell and the employees were also “censured” under the SEC’s Advisers Act.

We wonder what Oracle (ticker:ORCL) CEO Larry Ellison’s to-do list looks like each day. Let’s see:

Number 1: Buy up every single software company whether they like it or not. Check.

Number 2: Sell a million shares of stock every day, just because I can. Check.

Both those items kept Big Larry busy last week. With one hand, he was making a friendly/hostile bid for BEA Systems (ticker: BEAS).

With the other hand, Ellison sold 1 million shares of stock every day for four straight days starting last Tuesday. In all, he pocketed $90,510,000. And he still holds 1.2 billion shares. Given his company’s current bid of $6.6 billion for BEA, Ellison would only need to sell one-quarter of his personal stock to pay the tab himself.