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Linear Tech slapped with shareholders suits over options grants

Posted: 30 May 2006 ?? ?Print Version ?Bookmark and Share

Keywords:Dylan McGrath? analog IC? Linear Technology? lawsuit?

Analog IC provider Linear Technology Corp. said last week that two stockholder derivative lawsuits have been filed in federal court against members of its board of directors and various executive officers alleging improper backdating of stock options granted to those executive officers between 1995 and 2002.

"The company grants its stock options on a quarterly basis in connection with its regularly scheduled board meetings, except for infrequent board-approved option grants for certain new hires," said Robert Swanson, Jr., Linear Tech's executive chairman, in a statement. "Board meetings are scheduled far in advance to coincide with the company's quarterly earnings releases. The company does not use a look back in connection with its stock option grants."

Linear Tech said it intends to defend itself "vigorously" against the suits, both of which were both filed in U.S. District Court for the Northern District of California. The company said it does not anticipate that the resolution of these matters will have a material effect on its results of operation or financial condition.

A spokesperson for Linear Technology, reached by EE Times Thursday, could not comment on the shareholder suits, except to say that the announcement was made in the interest of full disclosure.

Linear Technology was reportedly downgraded to "hold" from "buy" by American Technology Research analyst Doug Freedman Wednesday, according to an online report by Freedman reduced Linear Technology's target price to $36 from $42, according to the report. The downgrade appears to be unrelated to the shareholder suits. Freedman could not immediately be reached for comment.

Linear Technology was implicated by a May 22 Merrill Lynch study as one of a handful of companies that saw "excess" returns during the 20-day period following options grants from 1997 to 2002. Also among the companies implicated by the Merrill Lynch study were KLA-Tencor Corp., Marvell Technology Group Ltd., Novellus Systems Inc., Broadcom Corp. and Maxim Integrated Products Inc.

KLA-Tencor said Wednesday that its historical stock options granting practices are being investigated by two U.S. Attorney's offices and that it has formed a special committee to investigate the issue internally.

After reviewing the Merrill Lynch report, Novellus said it reviewed its process of granting options to the named executive officers in the report and found no irregularities.

Broadcom was also found to be among 17 companies at risk of having backdated stock options grants by a recent study by the Center for Financial Research and Analysis (CFRA). A Broadcom spokesperson told EE Times that the company had reviewed the CFRA report and is confident in the integrity of its options granting practices. CFRA has failed to return EE Times calls seeking comment.

About a dozen electronics companies have now been implicated in the controversy over historical stock options granting practices, either through self-reporting or independent analysis. Many of these companies are now being investigated by the U.S. Attorney's Office and/or the U.S. Securities and Exchange Commission (SEC). Several also have endured management shakeups, and several face possible the prospect of having their securities de-listed as an indirect result of the controversy.

Bloomberg reported Thursday that, overall, at least 22 companies are being investigated by the Justice Department, the SEC or the Internal Revenue Service over stock options grants. The SEC, as a matter of policy, does not comment on ongoing investigations.

The controversy centers largely on the practice of backdating stock optionsretroactively dating stock option grants to market value on a date when a company's stock value was relatively lowthus increasing the option holder's potential profit.

- Dylan McGrath
EE Times

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