How CEOs can cash in quietly

He held a sizable number of shares in the company he founded, an information technology consulting service called Ciber (CBR), and was looking for a way to unload a portion of his stake--without diluting the holdings of his existing shareholders and putting pressure on the company's stock price.

But rather than take a traditional approach, such as bundling his shares for sale in a secondary offering or seeking an investor to purchase his shares through a private placement, Stevenson turned to a little-known form of securities called "structured yield products exchangeable for stock," or STRYPES.

STRYPES are notes that pay a quarterly cash coupon, much like a dividend. After a predetermined period, the selling shareholder can either convert the note into shares of common stock or pay the cash equivalent of those shares to investors.

Merrill Lynch developed STRYPES two years ago, and Ciber marks the first technology company to take advantage of this method of cashing in shares. Others are likely to follow in short order as the high-tech industry leaves an increasing number of start-up founders looking for ways to cash in a portion of their hard work.

"Technology has a lot of founders who are executives of the company and have retained a significant size [of the shares]," said Matt Pendo, managing director of technology investment banking for Merrill Lynch. "The offering needs to be at least $75 million, so most of the selling shareholders have owned shares since the company was a start-up."

STRYPES hold a number of advantages for top executives looking to cash in without causing major disruption to their companies. For example, selling shareholders are able to defer capital gains and retain their voting rights until the notes are exchanged.

Additionally, pressure on a company's stock price is likely to be buffered compared with a secondary offering, because the number of the company's shares out on the market likely would be larger by the time the notes expire.

On the downside, however, selling shareholders may have to turn over more than one share per STRYPES if the company's stock price falls when the notes expire. However, a cap is set on the high end of the share exchange when setting the terms of the offering.

Stevenson, for example, raised $105.7 million through the issuance of STRYPES. He issued 2 million in 7-7/8 percent STRYPES at 54-1/8 each.

When the notes mature on February 1, 2001, Stevenson will convert them based on a ratio ranging from 1.05 to 0.77 share of common stock per STRYPES holding, depending on Ciber's share price at the maturity date.