News surfaced last night that John Roth, ex-CEO of Nortel Networks Corp. (NYSE/Toronto: NT), has sold a huge chunk of the remainder of his stock options in the company.

According to reports from Reuters, Roth sold 751,245 shares for a little less than US$1 apiece, generating about $738,000 at the start of August 2002. The filing was sent to the Ontario Securities Commission last week, according to Reuters, though Light Reading was unable to confirm. No corresponding filings have appeared in the online logs of the U.S. Securities and Exchange Commission (SEC), although they will eventually materialize there, since Nortel trades on the New York Stock Exchange as well as Toronto's.

Roth's entire stake in Nortel as of February 29, 2002, was 6,402,846 shares, according to SEC filings. But most of those shares are unexercised options that Roth still has time to act upon, and sources say the amount he cashed in last month probably represents the total of shares he actually owned, as opposed to ones that are "under water" at unknown strike prices.

Nortel's not commenting on the sale, saying Roth no longer has a role with the company. But the news was greeted with disdain in several quarters, since it appeared to signal a loss of faith by a key former insider.

"It's just one more sad statement in a long line of sad happenings at Nortel," says Timm Bechter, VP and broadband equipment analyst at Legg Mason Inc. In Bechter's opinion, Nortel shares will be worth at least $4 to $5 if the company can return to profitability.

Like most analysts, Bechtel isn't sure why Roth sold his shares. Some have speculated in the press that he was attempting to avoid tax liability by selling now. "No one person -- especially Roth -- has any great insight into where thisthing is going," says one analyst, who asked to remain anonymous. "I'm sure there is a host of personal/tax/diversificationreasons why he did it."

Whatever his motivation, the news appears to say as much about Roth himself as about the economic uncertainty Nortel faces.

Despite his company's ongoing struggles, including enormous layoffs and losses, Roth walked away in May 2001 with a raise in pay that brought him more than US$1.4 million in salary and bonuses for a year during which he was absent from Nortel for more than six months (see Nortel's Roth Rakes It In).

Indeed, while Roth sucked up the cash in 2001, Frank Dunn, the new CEO, was paid $564,833 in salary along with 1,750,000 options, with no bonus. Dunn was the highest-paid active executive at Nortel last year.

Meantime, the company continues to struggle and recently warned of an even greater revenue shortfall this quarter than initially expected (see Nortel's Bottom Sags). Nortel has cut over 55 percent of its staff since January 2001 and plans to cut more. In contrast with Roth's contract, Nortel's typical severance package includes 60 days notice plus four weeks of pay and an additional week of pay per year of service (see Got Severance? Count Your Blessings).

As the company teeters and totters, other top execs have chosen not to wash their hands of Nortel. Surprisingly, several top managers, including CEO Frank Dunn, CTO Greg Mumford, and division presidents Frank Plastina and Brian McFadden, as well as an array of Nortel directors, have all bought substantial shares in the company recently.

Since the start of June 2002, insiders have purchased more than 2 million shares of Nortel stock in ordinary and private buys, according to several online sources, including Quicken.com.

As ever, it may be perilous to read too much into these insider dealings. At the same time, it may be misguided to read too much into Roth's as well, given his apparent disconnect from the company he once led.

— Mary Jander, Senior Editor, Light Reading
www.lightreading.com