CSK Auto's Amendment of CEO Stock Options: 'Ridiculous and Irresponsible'

After the close Friday, CSK Auto Corporation filed a form 8-k, indicating they had changed the rules of their stock option grants.

For those of you that have followed the CSK situation over the last several years, you know the company has gone through a series of bumps in the road. The problems at CSK seemed to culminate at the end of September (of this year) when CSK announced that Martin Fraser (President and Chief Operating Officer), Don Watson (Chief Administrative Officer and former Chief Financial Officer), as well as several other individuals in the Company's finance organization were no longer employed by the Company.

The release of these officers came after the audit committee identified accounting errors and irregularities that materially and improperly impacted various inventory accounts, vendor allowances, other accrual accounts and related expense accounts. Mr. Jenkins (the CEO) is also only staying on until a new CEO can be found.

And this (history) is why today’s option grant amendment is so infuriating. According to the company’s filings, associates who had been awarded stock options under the Company's stock option plans will be unable to exercise any outstanding options until the Company becomes current in its financial reporting obligations. As a result, they say it is expected that a number of previously granted options, including those granted pursuant to a general grant on December 21, 1999, will expire during this blackout period.

So what did the Board of Directors do? Here's what the filing says:

On December 15, 2006, the Compensation Committee of the Company's Board of Directors determined that it is in the best interests of the Company to allow all active associates with outstanding options granted on December 21, 1999 the opportunity to exercise these options at such time that the trading blackout ends, rather than let the options lapse during the blackout period. Accordingly, all active associates with outstanding stock options that were granted on December 21, 1999 were provided the opportunity to elect to either exercise their amended options during the calendar year 2007 after the expiration of the blackout period (and subject to other applicable trading restrictions) or have their options expire unexercised on December 31, 2007. Notwithstanding the foregoing, such options may expire sooner than December 31, 2007 under certain circumstances (e.g., termination of employment) as provided in the governing stock option plan and contract.

As a result, Maynard Jenkins (the company’s current CEO) had 36,000 stock options extended. Shareholders do not have the option to “amend” their purchase price in the stock of CSK, even though they were buying the stock on earnings that were being incorrectly reported. As such, why in the world should the CEO be able to amend his stock option agreement when the accounting irregularities occurred under his watch? In my opinion, this was a ridiculous and irresponsible move by CSK’s Board of Directors.

Comments

[Paul Meisel:]

It would be interesting to hear the chain of events that led to the dismissal of the COO and CFO, while still retaining the CEO even if only temporarily.

2006 Dec 26 10:31 AM