Interpublic Group Accelerates Vesting of Stock Options

Action Announced in Dec. 23 SEC Filing

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LOS ANGELES ( -- Interpublic Group of Cos. gave its employees an unexpected Christmas gift, accelerating the vesting of stock options so that rights to buy 8.3 million shares of stock may be exercised immediately.

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Boosts net income
The move will give a boost to Interpublic's net income. That's because Interpublic expects the accelerated vesting of the stock options to reduce its non-cash compensation expenses by about $28.2 million through 2010, according to a Dec. 23 regulatory filing disclosing the action.

If Interpublic hadn't taken this action, a new accounting rule would have required it to begin recording expenses for these unvested options starting Jan. 1.

For employees, this gift doesn't have any immediate value. That's because all of the options in question are "underwater," meaning the price the employee would pay for a share using an option was above the current price of Interpublic stock.

All pre-2005 options
The immediate vesting applies to all outstanding Interpublic stock options except for options granted in 2005, those held by Chairman-CEO Michael Roth or Exec VP-Chief Financial Officer Frank Mergenthaler or those held by non-management directors. The board's compensation committee approved the action Dec. 20.

The average exercise price of the options now immediately exercisable is about $18 a share. That's nearly double Interpublic's Dec. 23 closing price -- $9.72 -- so the options have little value unless Interpublic stock rebounds.

"Since most of the options to be accelerated are considerably 'underwater,'" Interpublic said in the filing, "the company expects that the accelerated vesting of these stock options will have a positive effect on employee morale, retention and perception of stock option value."

Former CEOs
Among the employees getting the immediate vesting: former CEOs David Bell and John J. Dooner Jr. Mr. Bell, now co-chairman, as of Dec. 31, 2004, had 218,078 exercisable and 570,683 unexercisable options, according to Interpublic's October proxy statement. Mr. Dooner as of that date had 668,840 exercisable and 719,451 unexercisable options.

Interpublic's stock has been depressed since operating and accounting woes became apparent in 2002. The stock peaked at $58.38 on Dec. 17, 1999, traded around $20 before bookkeeping problems became public in early Aug. 2002 and bottomed at $7.20 in March 2003. Mr. Bell replaced Mr. Dooner as CEO in 2003; Mr. Roth succeeded Mr. Bell in 2005.

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