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Broadcom Founders Made $56 Million From Options

April 28, 2001|From Bloomberg News

Broadcom Corp.'s two top executives, Henry T. Nicholas III and Henry Samueli, each gained $56.4 million by exercising options last year, as shares of the communications chip maker topped out at $274.75 before slumping.

The actions by the two co-founders were described Friday in proxy material filed with the Securities and Exchange Commission.

The Irvine company's shares, which peaked at $274.75 on Aug. 25, ended the year at $84. They closed Friday at $37.40, up 40 cents a share, in Nasdaq trading.

Nicholas, the 41-year-old co-chairman, chief executive and president, exercised previously held options to buy 306,250 shares of Broadcom stock, the filing said. Samueli, 46, co-chairman and vice president, exercised 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 the two executives' stock options came from grants before the company went public, with a strike price of less than $1 a share. He said he didn't know when the two executives exercised their options but added that both had done so on a regular schedule since the company went public in May 1998.

"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."

Broadcom, which makes chips for computer-networking equipment, cable modems and digital cable TV set-top boxes, is having sluggish sales, along with its rivals. A major reason is that equipment makers such as Cisco Systems Inc. have an inventory glut and are ordering fewer chips. Broadcom's two largest customers, Motorola Inc. and 3Com Corp., face losses and declining sales.

In addition to the options exercised, both executives hold 506,250 "in-the-money" options apiece to buy shares with a value of $42.4 million, as of the end of the company's fiscal year in December.

The declining stock has reduced the value of those "in-the-money" options not yet exercised.

In addition to the option exercises, Nicholas and Samueli each received salaries of $110,000. Ruehle said the two co-founders have declined new option grants or bonuses because they own more than a third of the company.

The proxy also detailed Broadcom's offer to employees to exchange 45.1 million stock options that have become unprofitable as a result of the slumping stock.

Under the option exchange plan, employees will get new options and a new strike price after waiting six months plus one day, Ruehle said. By waiting six months to reissue the options, a company can avoid taking a charge under new accounting rules.

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