Pixar Options Draw Scrutiny
Troy Wolverton
08/08/06 - 02:11 PM EDT
Pixar, the animation studio formerly headed by
Apple Computer (AAPL Quote) CEO Steve Jobs, handed out favorably priced options to key employees between 1997 and 2001, according to published reports.
In several cases, the options handed out carried a strike price equivalent to the lowest market price of Pixar's stock in the year they were granted, according a
Bloomberg report.
In another case, Pixar, which was recently acquired by
Walt Disney (DIS Quote), granted options right before it announced a key deal with Disney that sent Pixar's stock up 49%, according to the report.
Among the beneficiaries of the low-priced options, according to
Bloomberg, were John Lasseter, the company's head of creative development; President Edwin Catmull; and Sarah McArthur, Pixar's vice president of production.
A Pixar representative did not return a call seeking comment on the report. Neither Disney nor Pixar has acknowledged any problems to date with Pixar's past options grants.
The report could serve to give further scrutiny to the role, if any, Jobs played in the granting of the options. Apple has already acknowledged certain "irregularities" in grants made during the same time period, including an outsized one to Jobs himself.
Jobs on Monday declined to comment about his knowledge of options problems at Apple.
Pixar granted Lasseter and Catmull split-adjusted 2 million and 1 million options, respectively, on Dec. 6, 2000. The options carried a strike price of a split-adjusted $13.25 at the time. According to
Bloomberg, that was the lowest price for Pixar's shares that year. The grant to Lasseter was the largest that Pixar ever made as a public company, according to the report.
Lasseter's grant was part of an employment contract he signed in March the next year, according to
Bloomberg. But Pixar didn't disclose the actual grant until April 30, at which time Pixar's shares had already risen to a split-adjusted $16.33 a share, according to the report.
And that wasn't the only time that Lasseter received some nicely priced shares, according to the report. Pixar gave him 250,000 split-adjusted options in February 1997. The options carried a strike price equivalent to the market price of the stock on the last business day before the company announced a new five-year production agreement with Disney.
Lasseter's options were priced at a split-adjusted $7.06 a share. Immediately after the announcement of the Disney deal, Pixar's stock rocketed up to more than $10.50 a share, according to
Bloomberg.
Pixar didn't disclose that Lasseter options grant until more than a month after the fact, according to
Bloomberg.
As part of Disney's acquisition of Pixar, Lasseter recently traded in 1.12 million Pixar options for 2.58 million options to buy Disney's stock.
In both 1997 and 1998, Pixar awarded McArthur 400,000 split-adjusted options. Those options carried split-adjusted strike prices of $6.38 a share in 1997 and $10.69 a share in 1998. Those prices were equivalent to the lowest price for Pixar's stock in those two years, according to
Bloomberg.
Pixar is only the latest company whose past stock options grants have come under scrutiny. The
Securities and Exchange Commission has announced that it is investigating more than 80 companies for options improprieties, and many more companies are doing their own internal probes or have been sued by shareholders over their grants.
To date, federal regulators have largely focused on the practice of options backdating.
Employee stock options typically grant insiders the right to buy their company's stock at a price equal to the market price of the stock on the day the options are granted. But with backdated options, companies are alleged to have assigned to the options a strike price equal to the market price on a date days or weeks before the grant date, which was known at the time of the grant to be a short-term low in the company's stock.
Pixar's practices, particularly with regard to the grants to McArthur and Lasseter's most recent grant, appear to have the marks of backdated options.
But companies have also drawn scrutiny for the practice of "spring-loading." With spring-loaded options, a company grants shares to an employee immediately before making an announcement it expects will boost its stock. Lasseter's 1997 grant has the marks of a spring-loaded grant -- as well as those of a backdated one.
Shares of Disney were off 24 cents, or 0.8%, to $29.15 in recent trading. Apple's stock was off $1.03, or 1.5%, to $66.18.
