NEW YORK (GenomeWeb News) – Affymetrix disclosed in a filing with the US Securities and Exchange Commission today that it has entered into a settlement agreement regarding litigation with shareholders who had sued certain executives of the company for allegedly back-dating stock options and pocketing "hundreds of millions of dollars of corporate assets."
Initially, two lawsuits were filed against former and current Affy executives, including Executive Chairman Stephen Fodor, in August and September 2006. A couple of months later, those suits were consolidated in the US District Court for the Northern District of California.
The suits accused Affy and more than a dozen of its current and former officials of backdating grants of stock options; taking tax deductions based on those stock options; and making false statements related to the granting of those options. The litigation also alleged that 12 Affy officials had diverted "hundreds of millions of dollars of corporate assets to themselves via the manipulation of grant dates associated with hundreds of thousands of stock options granted to Affymetrix insiders."
The plaintiffs demanded that the accused officials "disgorge" all proceeds of the back-dated grants received as a result of their alleged misconduct; that Affymetrix reform its internal control procedures, including a proposal that the position of chairman of Affy's board and the position of CEO be held by different, "independent," individuals; that the company rotate independent auditing firms every five years; that the defendants pay damages equaling plaintiffs' attorney fees and other costs associated with the case; and other relief as the court "deems just and proper."
As part of the settlement, Affymetrix officials denied any wrongdoing or liability and also denied shareholders had suffered any damages as a result of the alleged conduct. Affy acknowledged in the settlement that the commencement and prosecution of the litigation was "a material factor in the decision to cancel certain options" and adopt certain corporate governance reforms.
The stipulated settlement calls for the cancellation of more than 700,000 stock options held Affymetrix's officers; the implementation of a variety of corporate governence measures related to director independence, officer and director compensation, board membership and election procedures, stock option granting procedures, and accounting procedures; and for Affy to pay $3.5 million in attorney's fees and expenses.
The court issued an order on May 6 granting preliminary approval of the settlement, the company said. A hearing on the settlement is now scheduled for June 29.