Cablevision Systems Corp. said Thursday that a settlement agreement has been reached in litigation regarding a past stock option back-dating scandal, with current and former executives agreeing to pay $24.4 million and the company pledging to adopt several corporate governance changes.
Cablevision itself will actually receive about $34.4 million (including $10 million from its directors and officers liability insurer) from the settlement. The litigation was a derivative lawsuit where shareholders file suit on behalf of the company.
The suit stemmed from an internal investigation by Cablevision in 2006 that found that the company back-dated stock options for two former executives—one a consultant who no longer works for the company and another who died prior to the option grants being awarded. Cablevision appointed a special committee to investigate the options discrepancies further and cooperated fully with investigators.
The internal investigation uncovered that stock options were granted to former Cablevision vice chairman Marc Lustgarten after his death in 1999 and improperly back-dated to make it appear that they had been issued while he was alive. A compensation consultant, Harvey Benenson, had also improperly been awarded stock options as payment, but the company said that award had been canceled in 2003.
The suit was filed in New York State Supreme Court in Nassau County in 2006 by Cablevision shareholders including the Teachers Retirement System of Louisiana, the Teamsters Local 456 Annuity Fund and two individual shareholders. New York law firm Grant & Eisenhofer served as lead counsel for the plaintiffs.
According to the Securities and Exchange Commission filing, among the 16 defendants who agreed to settle were Cablevision chairman Charles Dolan and CEO James Dolan.
“This is an extremely satisfying outcome for investors, not only for the significant financial recovery it represents, but because individual defendants are contributing more than two-thirds of the value of the settlement,” said Stuart Grant, managing director of Grant & Eisenhofer, in a statement. “Moreover, the company has agreed to upgrade its compensation processes to ensure that backdating will not recur in the future.”
In a document filed with the SEC Thursday, Cablevision said that the settling defendants would provide the company aggregate compensation of $24.4 million, in the form of cash, repricing the exercise price of outstanding options and stock appreciation rights (SARs), returning outstanding common stock, restricted stock units options and SARs (including rights to the $10 per share special dividend awarded in 2006) and the surrender of potential contractual claims. None of the current and former executives admitted any wrongdoing.
According to the settlement agreement, the Lustgarten estate will contribute $4.9 million in options, SARs and restricted shares. Former Cablevision director and co-executor of the Lustgarten estate Robert Lemle will contribute the most money—$2.5 million in cash and $4.5 million in options.
Among current Cablevision executives, Charles Dolan will pony up $1 million in cash, James Dolan will contribute $1.366 million, Rainbow Media CEO Josh Sapan will contribute $226,374, and vice chairman Hank Ratner will contribute about $450,000.
"This agreement is in the best interests of Cablevision and its shareholders,” Cablevision senior vice president Charles Schueler said in a statement. “None of the parties who entered into the settlement agreement has acknowledged any liability or wrongdoing and each made their contribution solely to facilitate a settlement.”
The statement went on to say “under the settlement, the company will adopt certain corporate governance reforms. The Special Litigation Committee has expressed confidence that these reforms will ensure the company's compliance with respect to the granting of stock options. We note that this matter was discovered and disclosed after a voluntary review by the company and we look forward to moving ahead without the potential prospect of costly and protracted litigation.”