SiliconBeat

On Friday, Sigma Designs filed a settlement it has reached of litigation filed against it over claims of stock option backdating, which the company completely denies. Then why is it settling?

“Defendants are entering into this Stipulation solely because the proposed settlement would eliminate the burden and expense of further litigation, and without admitting any wrongdoing or liability whatsoever.”

The agreement, which is subject to court approval, includes the cancellation of an option granted to Sigma’s chief executive in January for 100,000 shares originally granted in November with a strike price of more than $58 that were repriced in January at $45.83. In the short run, Trin’s sacrifice is minimal since the option is several feet underwater: Sigma shares closed Friday at $14.71.

Sigma is also set to receive from its insurance carrier a payment of $2 million , which will help reimburse it for most of the $2.25 million Sigma has agreed to pay to the plaintiffs lawyers in the case.

The company has also agreed to institute certain measures to make sure that what it claims never happened will be unable to happen ever again. Among the steps:

• Eliminating the use of “unanimous written consents” for the approval of stock option grants. From now on Sigma will require approval of option grants at actual meetings of the whole board or its compensation committee.
• Requiring that the paperwork surrounding option grants be prepared by the grant date and signed by the secretary to the committee or board the same day the grant is approved.
• Designating a company officer responsible for making sure option grantees comply with all applicable laws and regulation, such as the “” timely and accurate filing of SEC Forms 3, 4 and 5.
• Maintaining all records relating to stock option grants until at least seven years after the expiration of the pertinent stock options.
• Guaranteeing that the board’s compensation committee shall retain an independent consultant to study the company’s executive compensation policies and measure them against other public companies “at least once every three years”.
• Having the board’s audit committee meet “at least annually” with its auditors to review the accounting for stock-based compensation
• Within a year of the settlement, chief financial officer will see to it that Sigma has put in place “cross-functional training for personnel in all areas associated with the stock option granting process,” including the CEO.