April 12, 2002 8:30 AM PDT

Big fund weighs in on Juniper stock plan

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One of the world's largest pension funds is proposing that Juniper Networks' shareholders, not its board of directors, have the final say on the company's stock options exchange program.

The New York State Common Retirement Fund, which owns less than 1 percent of Juniper shares, outlined its plan in Juniper's proxy statement filed with the Securities and Exchange Commission on Thursday. Juniper recommended in the filing that shareholders vote against the proposal.

Just after Juniper's stock had fallen from over $60 to under $15 in fall 2001, the company announced that as of Nov. 26, 2001 it would offer employees a chance to swap underwater, or worthless, options. Instead of repricing shares, Juniper, like other technology companies, allowed employees to trade them in under an exchange commonly known as a "six-and-one" plan.

Under the typical six-and-one plan, a company calls for employees to cancel all their existing options in order to get new ones granted at some point in six months. The hope is that the new exercise price, which will be the closing market price on that date, will be far lower than the current exercise prices on options held by most employees. Six-and-one exchanges became increasingly common last year after new accounting rules made it more difficult to simply reprice options.

When Juniper's plans for the options exchange first surfaced last year, some Wall Street analysts voiced opposition to the move. Shareholders argue that the options swaps and repricings reward lower stock prices, but the technology companies argue that the exchanges help them retain employees.

"This practice (repricing) undermines the goal of linking executive compensation to company performance," the Albany, N.Y.-based pension fund said. "Repricing essentially rewards poor performance and divides the interests of option holders from those of shareholders who cannot reprice their stock."

The proposal recommends that Juniper shall not reprice, or terminate and later re-grant options at a lower exercise price without the approval of the holders of a majority of Juniper's shares. The pension fund, which has assets of over $110 billion, holds just 932,490 shares, or less than 1 percent, but said it periodically introduces proposals to encourage companies to adopt better corporate governance procedures.

Juniper's board of directors unanimously recommended a vote "against" the proposal, citing the need to retain and attract employees with options, and the extra "time delay and expense" it would take to hold shareholder meetings to vote on options exchanges in the future.

Juniper also disclosed in its proxy filing that its top executives in 2001 received slightly higher salaries compared with the prior year, but they didn't get new option grants.

Chief Executive Scott Kriens made $275,000 in salary last year, with a $157,960 bonus, compared with a $250,000 salary and a $114,000 bonus in 2000. Chief Technology Officer Pradeep Sindhu's salary also rose to $185,000 in 2001 from $170,000 in 2000. His bonus went up to $62,600 from $48,936. Kriens and Sindhu own 5 percent and 4 percent of Juniper, respectively.

Juniper reported a first-quarter net loss of $46 million, or 17 cents a share, as sales fell 63 percent to $122.2 million. Excluding charges, the company broke even on a per share basis, on par with estimates. The company said it wasn't seeing any recovery in the market for telecommunications equipment and predicted revenue would be flat in its second quarter.

 

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