A day after repricing options, ISSI files settlement details of backdating charges
A day after repricing underwater options held by a couple hundred of its employees, Integrated Silicon Solutions filed details Tuesday of a proposed settlement of a lawsuit against the company and some of its current and past executives and members of its board over allegations of stock option backdating.
Although the defendants in the matter — including the company’s chief executive, Jimmy Lee — deny “each and every allegation” made in the complaint, they decided to the settlement in order to “to avoid the continuing additional expense, inconvenience,and distraction of this burdensome litigation and to avoid the risks inherent in any lawsuit.”
The shareholder lawsuit, first filed in July 2006, led to the formation a month later of a special committee of ISSI’s board “to review its historical stock option practices and related accounting.” Two months later, the company declared it would need to restate its financials going all the way back to its initial public offering in February 1995. The company filed restated results in May 2007, a month after settlement discussions began between the parties to the lawsuit.
As part of the settlement, CEO Jimmy Lee has “voluntarily” paid the company $257,329, the difference between the price he paid to exercise certain misdated options and the price the special committee later determined they should have had. He also agreed to the repricing of 157,962 unexercised options he held that forfeited $1.2 million of their value.
Former CFO Fischer settled a complaint filed against him directly by the SEC by paying the company $414,830, which was his pre-tax gain he realized exercising improperly priced stock options plus interest.
Two unnamed underlings who helped execute the paperwork related to the back-dated options also agreed to reprice options on 10,830 shares, giving up $177,585 in value.
The company also agreed to institute changes in the way options are granted in the future, including pre-established award dates and steps to provide greater transparency and immediacy in the paperwork surrounding them. It also agreed to a provision that would claw back bonus money paid to an executive who’s actions are found to have contributed to a restatement of financial results on which the bonus was based.
Among the other governance reforms called for by the settlement is a limit on the time directors may serve on the compensation committee to six years, and a requirement that board members attend the “Director’s College” held annually by Stanford’s law school, or other similar programs.
On Monday, the company reported that 208 employees availed themselves of its offer to reprice old options with exercise prices ranging from $6, turning in 2.1 million shares in exchange for 355,822 shares priced at $1.65. Executives and directors on the company’s board were not eligible to participate in the offer.
On Tuesday, ISS filed details of the settlement, which is to be finalized in a federal court room in San Jose on June 5, as part of its duty to notify shareholders of the terms of the proposed deal.
Oh, and did we mention the plaintiff’s lawyers, who have worked on the case without pay, are to be awarded $2.1 million for their efforts?