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Ciena moves options goal-post

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Ciena, the optical telecoms equipment manufacturer, has repriced employee share options, following the recent 85 per cent collapse in its share price. The company, spurned last week by suitor Tellab, has approved a new exercise price of $12.375, CIENA’s closing price as of September 16,1998. The repricing applies to all employee stock options which had an exercise price above $12.375. It justifies the option repricing as a “critical element in in helping us retain and re-incentivize our team, which is an important step toward maintaining and enhancing shareholder value over the long term." So much for rebuilding shareholder value. Repricing share options means that management are in a no-lose situation: employees take the gain in a bull market, while shareholders take the pain in a bear market, or when stock values fall. Another shareholder suit is the last thing CIENA needs right now. So the company has at least been open about its plan. Unlike Ascend Communication, which has come in for bitter criticism for shareholders, following a similar move which "shifted $1 billion in equity from investors to staff", the Sunday Times reports. "After its shares fell from $80 to $36 last October its board quietly slashed the price at which workers could vest options. A month later, as shareholder values fell below $23, it cut the price again". This wizard wheeze was announced six months later in the "12th foothnote to a series of financial tables announced with the Securities and Exchange Commission". Ascend's share price is of course on the march upwards again, on the back of persistent bid speculation linking it with telecoms equipment giant Lucent. Last week shares closed at $46.75. Shareholders are powerless to stop companies from repricing share options without consulting them if "20 per cent or more of the workforce is eligible for options and senior executives get no more than half the options", the Sunday Times reveals. But a proposed change in US accounting regulations could bring the practice to an end. The US Financial Accountings Standards Board last month ruled that companies must "report the difference between a repriced option and any share price as an operating expense".®

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