Former Qwest chief executive Joe Nacchio asked the board of directors to extend his 12 million stock options, which were set to expire in June 2003, and the board declined because it would have hurt the company’s earnings, according to testimony this afternoon in Nacchio’s insider-trading criminal trial.
“I was very frustrated by it,” said Craig Slater, a former Qwest board member, who is testifying against Nacchio.
“He didn’t want to sell or execute all of these options, did he?” asked Herbert Stern, Nacchio’s lawyer.
“That’s correct,” Slater said.
Nacchio’s exercising and selling of some of those stock options in early 2001 is part of the governments illegal insider trading indictment against him.
Under direct examination from lead prosecutor Cliff Stricklin, Slater said the board of directors had a problem with the expiration date on Nacchio’s stock options. The options, granted in 1997 when Qwest went public, had expiration dates of about 6 years – expiring in the middle of 2003.
“The normal stock options have 10 years to exercise,” Slater said.
The concern was that when Nacchio exercised the options and sold the shares, they would be too bunched up.
In response to an earlier question from Stricklin, Slater said the board of directors never forced or required Nacchio to sell any stock.
Slater, an employee of Anschutz Co. for 19 years, served on Qwest’s compensation committee during the time Nacchio was CEO and co-chairman of Qwest. Slater sold $31.5 million in Qwest stock, in three separate sales, between October 2000 and April 2001, while he was a member of the Qwest board.
Earlier this morning, Qwest’s former investor relations director Lee Wolfe wrapped up his testimony, acknowledging that he did not know that secret government contracts were not part of Qwest’s so-called “one-timer” revenue.
Nacchio’s attorneys have contended that he had a rosy outlook for Qwest because he believed the company was in line to receive hundreds of millions of dollars in top secret government contracts.
During cross-examination of Wolfe, defense attorney John Richilano asked if he was aware that “those secret government contracts were the very type of contracts that you call one-timers?”
Wolfe said he wasn’t aware of it.
“One-timers” is the government’s term for Qwest’s non-recurring revenue. Wolfe said on Wednesday that Qwest was becoming too dependent on one-time transactions to meet its revenue targets.
