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Once upon a time, stock options were a general counsel’s best friend. As recently as 1999, the average stock option cash-out for companies’ top lawyers was close to $1.3 million, according to our 2000 GC Compensation Survey. In 1999 three lawyers alone � IBM Corporation’s Lawrence Ricciardi, Cablevision Systems Corp.’s Robert Lemle, and Qualcomm Inc.’s Steven Altman � exercised a combined total of slightly over $50 million in stock options. But just three years later, the love affair between GCs and their options has cooled. Of the 100 top-paid GCs on our 2003 compensation list, only 32 exercised options in 2002, a 22 percent drop from 1999. The average cash-out is down 62 percent, to a comparatively meager $476,272. While there were a few big cash-outs last year � and likely many more to follow this year and next � the $48 million realized in 2002 by the 100 GCs on our list didn’t come anywhere close to the $127 million reaped three years ago. You don’t need Alan Greenspan to explain why so few GCs cashed in their chips: The stock market was miserable. “It doesn’t surprise me at all that [stock option activity] was relatively [quiet] last year,” says Ivan Meyerson, GC at San Francisco�based medical supply distributor McKesson Corporation. “Unless there are extenuating circumstances, decisions whether or not to cash out are almost always market-driven.” Meyerson exercised $1.3 million worth of his company’s options in 2002 only because they were about to expire. Ka-Ching, Ka-Ching Still, plenty of GCs made good money from cashing in their options last year. Anheuser-Busch Companies, Inc.’s general counsel, Stephen Lambright, topped our stock options list, pocketing more than $9 million in cashed-out options in 2002. Two health care industry GCs � HealthNet Inc.’s B. Curtis Westen and UnitedHealth Group, Inc.’s David Lubben � also grabbed big chunks of change, pulling down $5.2 million and $4.2 million, respectively. And SLM Corporation’s Marianne Keler supplemented her salary with $4.2 million in exercised options. But overall, fewer GCs sold options last year than in 2000 or 2001. In both those years, the markets had bullish runs that provided good opportunities to cash out. In early 2000, for example, both the Nasdaq and the Dow Jones Industrial Average hit all-time highs before falling later in the year. And both indexes ran way up in early 2001 before crashing in the wake of the events of September 11. But last year was different; both the Nasdaq and the Dow started low and marched lower, bottoming out in October at levels that hadn’t been seen for the better part of a decade. That downward slope, plus company blackout periods, left few ideal moments to cash-out in 2002. “For a lot of GCs, there really was no right moment to bite last year,” says Dee Summers, a Los Angeles�based executive recruiter. “Most of them just watched the [value of their options] go lower and lower, and realized that the best thing to do was to just stay the course.” At least those GCs had a decision. Summers says that of the dozen or so GCs she placed in the late 1990s, she doesn’t know of any “whose stock isn’t [now] underwater, hovering around $1 or $2 [a share].” Time to Hatch So what possessed that group of 32 to cash out last year? For one thing, several of them were sitting on “Old Economy” stocks that performed well over the past three years. Anheuser-Busch shares, for example, have nearly doubled in price since early 1999. HealthNet’s have tripled in that time, and UnitedHealth Group’s have quadrupled. Says Joseph Bachelder, a leading New York�based executive compensation specialist: “These folks are the lucky ones. When you’re sitting on stock that does nothing but grow steadily over a long period of time, it takes a lot of the guessing game out of it.” Bachelder is right, at least judging from some GCs’ strategies, which seem to have less to do with reading the stock market’s tea leaves than with sticking to methodical, long-term divesting plans. For example, Lambright, who has been with Anheuser-Busch for more than 25 years, periodically cashes out in order to diversify his holdings. “[I] have been granted options over the years, and I exercise some each year,” he said in an e-mail to Corporate Counsel. He wrote that he’s been “fortunate” to own a stock that has performed so well. Lambright’s good luck will likely continue: As of the end of 2002, he still held $11 million in exercisable options. Since the beginning of 1999, Lehman Brothers Holdings Inc.’s stock has also climbed threefold. So it’s no surprise that Thomas Russo, the investment bank’s chief legal officer, has been able to stick to a Lambright-like diversification plan. “I periodically liquidate a portion of what I own for diversity purposes,” he says. “I do it in the normal course of business, as do a lot of executives.” Last year, Russo netted more than $2.1 million. Others exercised options because they had to, such as United Parcel Service, Inc.’s GC Joseph Moderow, who cashed out close to $1.4 million less than a month before his options expired. Sitting Pretty Rick Harrington, ConocoPhillips’s GC, plans to retire later this year. He cashed out more than $1.8 million so that he could take advantage of the favorable tax treatment given to options when they’re exercised prior to retirement. “It was preretirement financial planning,” he says. “There was nothing mysterious about [why I exercised my options].” Still, he didn’t cash out completely. As of the end of 2002, Harrington still had options worth just over $700,000. It’s no mystery why others didn’t take the money and run. “Quite simply, the market was down,” says Bachelder. “You hate to cash out when your shares are barely above the strike price.” Waterlogged Shares Dry Out For some, it’s also about company loyalty, too. Cashing out “is a highly personal decision,” says Thomas Geiser, the GC at Thousand Oaks, California-based WellPoint Health Networks Inc. “But I strongly believe in this company, and I believe the economy’s going to get better. It just wasn’t the right time for me to sell.” Will 2003 be any less sluggish? It’s too soon to tell, although one thing’s for sure: If the markets continue to rebound, millions of waterlogged shares will start drying out. “The decision to wait is a no-brainer for a lot of these [GCs],” says June Eichbaum, an executive recruiter in the New York office of Chicago’s Heidrick & Struggles. “As soon as the market goes up, you’ll see a lot more cashing out.” And if that happens, she says, “watch out. The cash will start rolling in.”

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