2 Broadcom Execs Made $113 Million Off Options

Broadcom Corp.’s two top executives gained about $113 million by exercising options last year, as shares for the largest maker of cable modem chips soared to as high as $274.75 before ending the year at $84.

The option exercises by co-founders Henry Nicholas and Henry Samueli were described Friday in a proxy filing with the Securities and Exchange Commission.

The proxy also detailed Broadcom’s offer to employees to exchange 45.1 million stock options that have become unprofitable. The plan aims to boost morale and help retain valuable engineering talent at a time when the company faces its first significant downturn since it went public three years ago.

The Irvine-based company’s shares have fallen about 86% since reaching $274.75 on Aug. 25. The shares rose 40 cents to close at $37.40 on Nasdaq.

Sales at Broadcom and its rivals are slowing as customers cut orders because of an inventory glut.

Nicholas, the 41-year-old chief executive and president, exercised previously held options to buy 306,250 shares for a gain of $56.4 million, the filing said. Vice President and Co-Chairman Samueli, 46, gained $56.4 million on a similar number of shares.

The gain is the difference between the exercise price of the options and the market price of the shares on the date of exercise. Any actual cash gain would depend on the market price when the shares are sold.

Chief Financial Officer William Ruehle said he didn’t know when the two executives exercised the options. Both had exercised options on a regular schedule since the company went public in May 1998, he said.

“They’re permitted to exercise options whenever they choose, although they typically follow a regular quarterly pattern,” Ruehle said. “Both men have left large amounts of money on the table because of this approach.”

In addition to the options exercised, the executives each hold 506,250 “in-the-money” options to buy shares worth $42.4 million as of the end of the company’s fiscal year in December.

The stock has declined 55% this year, depressing the value of those options. Ruehle said that because the options--granted before the company’s initial public offering--have a strike price of less than $1, they are still above water.

Options held by Nicholas and Samueli aren’t eligible for the option exchange, Ruehle said. Ruehle and other executives will be eligible for the exchange.

Under the option-exchange plan, employees will get new options and a new strike price after waiting six months plus one day, Ruehle said.