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Timing is everything — especially if you’re a GC trying to decide when to cash out your stock options. Last year the U.S. economy soured, and the stock market plummeted. Some fortunate GCs sold shares before the carnage spread to their companies’ stocks. Was it prescience that made them call their brokers at the right moment? No, say two GCs who sold heaps of company stock. It was just luck. Michael Phillips, 51, wanted to diversify his holdings. More than $200 million of Phillips’ potential net worth was tied up in stock options with his company, JDS Uniphase Corp. He also planned to remarry in May of 2000 and needed some extra cash. So that spring and summer the GC sold $12.3 million worth of options in the San Francisco fiber optics manufacturer. Soon after he finished cashing out, JDS’ stock price started a long slide downward. Congratulations to Phillips and his bride. Peter Kreindler also wanted some ready cash. The GC planned to retire from his post at Honeywell International Inc. In 2000 he cashed out some stock options and made $15.2 million. Kreindler, like many people on Wall Street, assumed that Honeywell’s merger with the General Electric Company would go off without any problems. Then the European Commission’s antitrust regulators nixed the marriage. So Kreindler, 56, is staying as Honeywell’s top legal officer. But he’s still millions richer for having sold so much stock — before the failed deal and the economic downturn depressed Honeywell’s share price. Deciding when to cash out is always a gamble. Should an investor sell shares as soon as a stock starts to move lower, or sit tight until the equity regains its momentum? Timing the market was particularly tricky in 2000. After reaching stratospheric heights, on April 17 the tech-heavy Nasdaq index plunged. Even though corporate profits remained strong, by year’s end the blue-chip Dow Jones Industrial Average closed down 6.2 percent. Watching the market’s gyrations must have been particularly nerve-racking for the attorneys on our compensation roster. Only a quarter of the 349 GCs on our extended list sold company stock last year. The top 100 best-paid GCs (according to salary and bonus) spent a little more time with their brokers: 38 percent cashed out company shares in 2000. While GCs can afford the best financial advice available, even these bright legal minds couldn’t time the market. “There’s no magic here,” just “good financial planning sense,” admits Kreindler. He cashed in the bulk of his exercisable options last November, just after Honeywell’s stock shot above the $50 mark after months in the $30-$40 range. In July of 2001, the E.C. scuttled the merger with GE, sending Honeywell’s stock back down to the $30s. Other GCs took a more methodical, long-term approach to divesting their holdings. Drake Tempest, GC of the Denver-based Qwest Communications International Inc., did what many financial planners advise: He sold stock at regular intervals. After the stock market plummeted in April 2000, Tempest’s cash-outs picked up steam. He sold 10,000 shares of the telecom stock in July at $51.64 per share. By November 2000 he had cashed out a total of 107,000 shares in five consecutive sales as Qwest’s stock price fluctuated between $45 and $41. His gain in 2000: $9.8 million. (At press time, the company’s stock traded in the low $20s.) To be fair, GCs face another problem when selling their stock: blackout periods. In order to steer clear of Securities and Exchange Commission rules against trading based on nonpublic, material information, most companies prohibit insiders from exercising their options before quarterly earnings estimates and major acquisitions are announced. Cablevision Systems Corporation GC Robert Lemle had to maneuver around these blackout periods and the fluctuations in his company’s stock in 2000. When last August he turned over nearly half of his exercisable shares at $70 each, he managed to make a cool $17.6 million. Yet, had he been a bit more patient and held on to his options until January, when Cablevision stock topped out at $91.50 a share, he could have earned about $25 million. But cashing out when he did was “part of a planned diversification strategy,” says Lemle. And that’s the right approach, says financial planner Diahann Lassus. The president of New Providence, N.J.’s Lassus Wherley & Associates, P.C., advises clients: “Just set your target and move on.” Still, some GCs may have cause for regret. JDS Uniphase’s Phillips could have pocketed an additional $20.5 million if he had exercised 180,000 options in the summer of 2000. That’s when his company’s stock hovered at the dizzying height of $120 per share. Unfortunately, he held on to those options, and a year later they would have made Phillips practically nothing. With a strike price (the preset price at which an insider is permitted to exercise his options) of about $20 a share for some options and $6 for others, his options were “underwater.” At press time the telecom company’s stock had sunk as low as $7 a share. Still, Phillips says: “I feel fortunate to have gotten what I did when I did.” Benjamin Heineman Jr., general counsel and senior vice president of GE, has yet to cash out. He sat on the largest GC pot of exercisable options in 2000: 937,500 shares — valued at $34.5 million last year. GE employees have a reputation for being “exceptionally loyal,” says Sue Stevens, director of financial planning at Chicago’s Morningstar Inc. Whatever Heineman does with his options, though, he’s going to be just fine. He is number three on our list of the 100 best-paid GCs: His bonus and salary topped $3 million in 2000. (Heineman declined to comment.) Those who earn less may have to be more conservative. JDS Uniphase’s Phillips, who ranked 226 in our survey, with $380,000 in salary plus bonus, reports that he reinvested some of his option gains in Treasury bills, a safer bet than stocks. “I figured I had enough market exposure with the options,” says Phillips. “Being greedy never works. I just try to be prudent.” Michael Ravnitzky and Catherine Aman contributed to this story.

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