At first glance, three recent grants of restricted stock to executives at Avanex, the Fremont fiber-optics company, seemed unremarkable.
Interim Chief Executive Giovanni Barbarossa was awarded 42,000 restricted shares Aug. 18, according to a filing with the Securities and Exchange Commission. Bradley Kolb, senior vice president of operations, and Scott Parker, senior vice president of sales, were each given 28,000 shares. The restrictions on the shares are time-based: half vest a year after the grant date, while the rest vest on the two-year anniversary.
But consider this: Just days before the grants were made, Avanex reverse-split its stock by a 1-for-15 ratio. That means its shareholders at the time were given one new share in exchange for every 15 they held of old shares.
Why would a company do that? Usually, it’s a move taken to raise a company’s stock price back over $1, the minimum price required for listing on the Nasdaq market, where Avanex’s stock trades. In March, Nasdaq warned Avanex that it could be delisted if it failed to lift its stock price above a dollar by Sept. 2.
Prior to the split Avanex shares were trading around 67 cents each. After the split, that price rose by a corresponding factor of 15 to about $10 a share.
The awards given to the executives five days later were post split, making them seem much smaller. On a pre-split basis, Barbarossa’s grant would have been equal to 630,000 shares, while the grants for the two senior VPs would have totaled 420,000 each.
Either way, among them the three grants were equal to 43 percent of all shares awarded to employees in all of fiscal 2007, the most recent figure available.
But the decision to use restricted stock is not all that remarkable these days. When it comes to paying executives using company stock, the awarding of restricted shares has steadily gained in popularity in recent years while the granting of stock options has declined.
Stock options, which give the owner the right to buy shares of company stock at a certain price over a set number of years, contributed 41 percent of the total compensation given to Silicon Valley’s head honchos last year. But that was down from 65 percent in 2004.
Use of restricted stock awards, which retain value even if the share price falls from the time they were granted, more than doubled since 2004, making up more than a quarter of executive pay last year compared with 10 percent three years ago.
Since the split, Avanex stock has fallen by more than a third. Had the stock awards been options, they would now be worthless. As restricted shares, they still have value, albeit a lot less. Avanex closed Friday at $6.27.
A LITTLE INCENTIVE: Micrel, the San Jose chip maker that fought off a proxy challenge earlier this year from Obrem Capital Management, has proposed a change to its 2003 “Incentive Award Plan” that would automatically grant an option to purchase one share of its common stock to any independent director on its board for each share the director purchases on the open market, up to a maximum of 5,000 shares a year.
Presumably, the step is an inducement to get its independent directors to own more shares. The longest-serving of them, Michael Callahan, doesn’t currently own any shares, although he held options on 18,750 exercisable shares as of Aug. 6, despite having served since 2005. The two other independent directors, Neil Miotto and Frank Schneider, own 5,000 and 4,000 shares respectively.
