McAfee Amends Options Amid Backdating Scandal

The security software company corrects its stock option pricing to account for inappropriate backdating carried out by former executives, including its departed president and CEO.

McAfee announced amendments to its stock option granting process on Jan. 2 in an effort to clear up internal finances after firing its president and chief executive in late 2006 over a share price backdating scandal .

The security software maker reported that it has recalculated stock options awarded to former president Kevin Weiss, who was dismissed in mid-October 2006 for allegedly backdating some of his options to inflate their value.

McAfee also re-priced options given to former chief executive George Samenuk, who was accused of participating in the backdating incident and subsequently announced his retirement from the company.

The practice of stock options backdating, or the assignment of options at a price other than their worth on the date they are granted, has become a controversial issue with investors and regulators worldwide. The United States Securities and Exchange Commission is believed to be investigating as many as 135 U.S. companies for using the practice, which is typically employed to allow option recipients to claim options at a more lucrative rate than their companys current stock price.

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As a result of the executive backdating scandal, McAfee named Charles Robel, the chief operating officer at venture capital company Hummer Winblad Venture Partners, as its new chairman. The company appointed former Borland Software chief Dale Fuller as its interim CEO and president.

McAfee said that it specifically increased the exercise price of a stock option covering 250,000 shares that were granted to Weiss in October 2002, raising the cost to exercise the shares from $13.30 to $15.89 to reflect the stocks price at the time the executive was hired.

The company said it had also reduced the value of 100,000 shares granted to Weiss in July 2003, increasing the price tag of the option to $14.60 per share from its original figure of $12.20 per share to match the price of the stock at the time that the options were originally approved.

Another 100,000 shares of common stock granted to Weiss in December 2003 with an exercise price of $13.41 per share were adjusted to $17.00 per share to indicate their value at the time of assignment, while a fourth stock option covering 100,000 shares awarded to the former McAfee president in May 2004 had its exercise price of $16.57 per share increased to $16.75 per share.

Weiss had been with McAfee since October 2002 and was appointed president of the company in March 2006.

Samenuk, who served as the companys chairman and CEO for just over six years before being forced into retirement by the backdating scandal, had the price of 300,000 shares of common stock awarded in May 2004 increased to $16.75 from $16.57 to more accurately reflect the price of the companys stock at the time the options were granted.

A second batch of 420,000 shares of common stock granted to Samenuk in January 2002 with an exercise price of $25.43 per share was amended to increase their cost to $27.19 per share to match the price of McAfees shares at the time the options were awarded.

The software maker also announced corrections made to options granted to three of its current directors, Leslie Denend, Denis OLeary and Liane Wilson, but attributed those adjustments to clerical errors rather than malfeasance.

The changes were largely insignificant compared to the alterations made to the Weiss and Samenuk options, however, and in some cases slightly lowered the price of the shares given to the executives.

The only major shift in the directors options was linked to OLeary, who saw the price tag of 45,000 options awarded in July 2003 increase from $11.83 to $14.60.

McAfee said that it may also report additional options pricing adjustments at some point as its investigation into the matter remains ongoing.

On the same day as McAfees original announcement of the backdating problem in October 2006, IT media company CNET Networks announced that its CEO, Shelby Bonnie, had stepped down as the result of a similar investigation into pricing of company options.

Other high-profile executives who have lost their jobs based on accusations of backdating include Amnon Landan, former CEO of software maker Mercury Interactive, and Jacob Alexander, former CEO of software maker Comverse Technology.

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