MOUNTAIN VIEW, Calif. (AFX) - Mercury Interactive Corp. on Tuesday said that its former CEO has agreed not to exercise his options for nearly half-million shares as part of a settlement for his part in stock option manipulation that caused the maker of business management software to overstate previous years' earnings.
In November, Mercury ousted its longtime CEO, Amnon Landan, as well as two other top executives after concluding they participated in stock 'backdating,' in which stock options are issued retroactively to coincide with low points in a company's share price.
According to documents it filed with the Securities and Exchange Commission Tuesday, the company entered into an agreement with Landan where he will not exercise his options to acquire 437,500 common shares granted with a record grant date of Jan. 3, 2003.
If, on or before a cutoff date of March 15, 2007, the company and Landan reach a settlement, then he will receive a credit of the lesser of either the settlement amount or about $2.8 million, which represents the difference between the exercise price of the 2003 options and the closing price of the company's common stock on July 14.
Despite the ongoing investigation, Hewlett-Packard Co. last week announced its intention to buy Mercury Interactive for $4.5 billion, the biggest acquisition the Palo Alto, Calif.-based computer and printer maker has made since it paid $19 billion for Compaq Computer Corp. in 2002.
Mercury was among the first companies to acknowledge its top executives improperly manipulated the timing of stock option awards to increase their potential windfalls.
The company last month erased $525 million in profits dating back to 1992.
More than 60 public companies -- many of them in Silicon Valley -- have disclosed that their options granting practices are being investigated by the SEC, the Justice Department or both. The SEC itself says it has at least 80 companies under scrutiny.
While it investigated, Mercury wasn't able to meet regulatory deadlines for reporting its financial results -- a delay that caused its shares to be de-listed from the Nasdaq Stock Market.
The company still faces lawsuits from shareholders alleging management misled them. The SEC investigation also could culminate in substantial penalties.
Hewlett-Packard's acquisition of the company is expected to close late this year.
Shares of Hewlett-Packard fell 24 cents to close at $31.67 Tuesday on the New York Stock Exchange. Mercury Interactive shares closed up 20 cents at $50.40 on the Bulletin Board.
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