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WSJ.com - The Perfect Payday

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The Journal's analysis spotlighted an unusual pattern of grants to Kobi Alexander, chief executive of the New York maker of telecom systems and software. One grant was dated July 15, 1996, and carried an exercise price of $7.9167, adjusted for stock splits. It was priced at the bottom of a sharp one-day drop in the stock, which fell 13% the day of the grant and then rebounded 13% the next day.

Another grant, on Oct. 22, 2001, caught the second-lowest closing price of 2001. Others also corresponded to price dips. The odds of such a pattern occurring by chance are around 1 in six billion, according to the Journal's analysis.

Before Comverse announced its internal probe, John Friedman, a member of the board's compensation committee, said directors had noticed the scattered nature of the grants -- eight between 1994 and 2001 fell in six different months -- but management assured them there were valid reasons. Mr. Alexander, the CEO, didn't return phone calls.

This week, Comverse said that, as a result of the board's review of its options grants, it expects it will need to restate past financial results.

Propitious option timing can help build fortunes even at companies where the stock doesn't steadily rise. Shares of Vitesse Semiconductor Corp., although they zoomed in the late 1990s, now rest at about the level of a decade ago. But Louis R. Tomasetta, chief executive of the Camarillo, Calif., chip maker, reaped tens of millions of dollars from stock options.

Mr. Tomasetta got a grant in March 1997 that, adjusted for later stock splits, gave him the right to buy 600,000 shares at $5.625 each. The date they were priced coincided with a steep fall in Vitesse's stock, to what turned out to be its low for the year. He pocketed $23.1 million in profit when he exercised most of these options between 1998 and 2001. Had the grant come 10 days earlier, when the stock price was much stronger, he would have made $1.4 million less.

In eight of Mr. Tomasetta's nine option grants from 1994 to 2001, the grants were dated just before double-digit price surges in the next 20 trading days. The odds of such a pattern occurring by chance are about one in 26 billion.

Alex Daly, a member of the Vitesse board's compensation committee, said a review of the grants found "nothing extraordinary" about their timing, and "absolutely no grants have been made to anyone, least of all the CEO, that are out of sequence with our normal grant policy." Vitesse's finance chief, Yatin Mody, said the grants were "reviewed and approved" by the compensation committee, "and the exercise price set as of the date of the approval, as documented by the related minutes." He declined to provide a copy of those minutes. Mr. Tomasetta said the grants were "approved by the board and the price set at the close of the day of approval."

At ACS in Dallas, Mr. Rich helped turn a small technology firm into one with more than $4.4 billion in annual revenue and about 55,000 employees. ACS handles paperwork, accounting and data for businesses and government agencies. It is a major outsourcer, relying on global labor. "It is a pretty boring business," Mr. Rich told the University of Michigan business school in 2004, "but there is a lot of money in boring."

While most of Mr. Rich's stock-option gains were due to rises in ACS stock, the exceptional timing of grants enhanced his take. If his grants from 1995 through 2002 had come at each year's average share price, rather than the favorable dates, he'd have made about 15% less.

An especially well-timed grant, in which Mr. Rich received 500,000 options at $11.53, adjusted for stock splits, was dated Oct. 8, 1998. This happened to be the bottom of a steep plunge in the price. The shares fell 28% in the 20 trading days prior to Oct. 8, and rose 60% in the succeeding 20 trading days.

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3/19/2006 5:42 PM

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