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In litigation that could rekindle concerns about runaway CEO pay, parallel shareholder lawsuits filed Wednesday allege that executives at Cisco Systems Inc. and Tyson Foods Inc. illegally granted themselves stock options in advance of issuing favorable company news. The suits were filed by New York-based Amalgamated Bank, a trustee for Tyson investor LongView MidCap 400 Index Fund and Cisco investor LongView Collective Investment Fund. According to Cisco’s derivative action, which was filed in the California Superior Court for Santa Clara County, the networking technology company delayed issuing positive news to keep its stock price stable until after completing an options grant to “several top executives.” Specifically, the suit points to options awarded on Sept. 2, 2003, at a strike price of $19.59. Cisco subsequently announced positive company news, the nature of which the suit did not describe, helping to boost the value of Cisco’s stock to $29.13 by Jan. 16. “The options grants were clearly orchestrated by insiders to coincide with, or in anticipation of, the happening of a material corporate event that was known to insiders making or accepting the grants, but not to the shareholding public,” the complaint said. Despite the allegations, corporate governance experts gave the Cisco and Tyson suits long odds of prevailing in court. “Large companies like Cisco or Tyson have strong internal legal staff and outside advisers and are as aware of the regulatory environment as anybody,” said Paul Lapides, director of the Corporate Governance Center at Kennesaw State University. “It’s pretty hard these days to make the mistake of buying or selling stock or granting options with inside information.” Yet the complaints could revive concerns with a potentially serious insider-trading problem, added Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “The award of any kind of option that is at a price that hasn’t factored in good news not known to the market raises questions,” he said. “We’ll just have to see what facts come out in court.” A Cisco spokeswoman reached Wednesday afternoon declined to comment, saying the company had not been served with the suit. Tyson also declined comment. Amalgamated’s lawyer, Jay Eisenhofer of Wilmington, Del.-based Grant & Eisenhofer PA, couched the Cisco suit as a broader critique of the rich compensation paid to Cisco chief executive John Chambers and the company’s other top executives. “The overriding reason why Amalgamated wanted to do this is that Cisco is engaged in a massive transfer of wealth from shareholders to executives,” Eisenhofer said. “It is just unbelievable.” Amalgamated has been active in pushing corporate governance reforms. Last month, for example, it announced the success of a proposal to require shareholder approval for executive salaries at CSX Corp., a Jacksonville, Fla., rail company, above certain levels. Amalgamated also has won shareholder backing for similar proposals at six other corporations, it said. Amalgamated’s suit against Tyson and a number of its directors and officers depicts the company as a family fiefdom run by and for the benefit of Don Tyson, the son of the company’s founder and a board member since 1952, and his own son John. The Amalgamated complaint referred to John Tyson, now chairman of Tyson’s board, as the company’s “crown prince.” The plaintiffs charge that between 2001 and 2003 the Tyson family was paid $51 million in transactions with the company “that were unfair to the corporation and served to enrich corporate insiders to the detriment of Tyson.” Amalgamated also alleges that “fortuitously timed stock options grants” to members of the Tyson family and company executives cost the company’s shareholders at least $2.8 billion. In at least four cases since 1999, the plaintiffs say, the compensation committee of Tyson’s board awarded stock options only days before the company issued news that drove up the price of Tyson’s stock. For instance, the committee awarded 350,000 options just a day before Tyson announced it was walking away from the IBP deal, news that drove Tyson’s stock from $11.50 to $13.47 a share. That bump increased the value of the options by almost $700,000, the plaintiffs say. Copyright �2005 TDD, LLC. All rights reserved.

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