4 firms raise exercise prices of past stock option awards

Broadcom Corp. of Irvine was among a handful of California companies that raised the exercise prices of some executives’ stock options Thursday to avoid tax penalties.

Broadcom, along with Marvell Technology Group, VeriSign Inc. and UTStarcom Inc., increased the exercise prices to make them equal the market value of shares on the dates options were granted, the companies said in regulatory filings.

An option is the right to buy stock at a set price, known as the exercise price, during a specific period.

All four companies cited section 409A of the Internal Revenue Code, which imposes tax penalties on options with an exercise price that’s less than the stock’s fair market value on the grant date.

“No one at risk of these penalties will leave the options unrepriced,” said Robert Salwen, an executive-compensation attorney in Scarsdale, N.Y. “You’ll see a flood of these in the coming months.”

The four companies are among more than 190 that have disclosed internal or federal investigations into backdating of option grants to inflate returns to the holders. The probes have led to at least $7.9 billion in earnings restatements and charges to reflect costs that should have been recorded.

“The question is, what happens to the executives?” said Ruben Roy, an analyst at Pacific Crest Securities in Portland, Ore. “If Marvell’s executives are replaced, then you have a big problem. These are the guys that are the visionaries and continue to manage that situation.”

Marvell, based in Santa Clara, Calif., is led by the husband-and-wife team of Sehat Sutardja and Pantas Sutardja. The company, which makes chips for Apple Computer Inc.’s iPod media players, said in October that it would restate results for the last six years to record costs for misdated grants to executives.

Roy doesn’t see a personnel risk at Broadcom, a semiconductor maker that is restating results to reflect $1.5 billion in costs from backdated option grants. That’s because the options involved were granted before Scott McGregor became chief executive officer in 2005 and Bill Ruehle resigned as chief financial officer in September, he said.

Alameda, Calif.-based UTStarcom, the biggest supplier of wireless telephone systems in China, said Dec. 22 that President and Chief Executive Hong Lu might be sued over alleged securities fraud by the Securities and Exchange Commission.

Mountain View, Calif.-based VeriSign, the main manager of the Internet-address database, said in November that it would restate earnings for 2001 through 2005 and might take charges totaling $250 million to correct accounting for misdated options.