Cirrus Logic Announces Results of Special Committee's Stock Option Grant Investigation
March 07 2007 - 4:01PM
Business Wire
Cirrus Logic Inc. (Nasdaq:CRUS) today announced the principal
findings of a Special Committee of the Company�s Board of Directors
relating to its investigation into the Company�s historical stock
option granting practices and related accounting. The Company
further announced certain actions it is taking in response to the
principal findings of the Special Committee, including changes to
its executive management. As previously announced on March 2, 2007,
the Board of Directors concluded that the accounting measurement
dates for certain stock options granted between January 1, 1997,
and December 31, 2005 differ from the recorded measurement dates
previously used for such awards. The Company expects to record
material non-cash charges for stock-based compensation expenses in
certain reporting periods and expects to restate its financial
statements for fiscal years 2001 through 2006 and for the first
quarter of fiscal year 2007. The Company currently estimates that
the cumulative additional non-cash stock-based compensation expense
to be recorded is likely to be in the range of $22 to $24 million.
Background of the Review In September 2006, the Company, at the
direction of its Audit Committee, performed an internal review of
selected stock option grants. In the course of that review, the
Company discovered information that raised potential questions
about the measurement dates used to account for certain stock
option grants. In October 2006, at the recommendation of the Audit
Committee, a Special Committee of the Board of Directors was formed
to investigate the historical stock option grants, the timing of
those grants and related accounting matters. During the five month
investigation, the Special Committee reviewed all stock option
grants from 1997 through 2006, encompassing approximately 42.3
million stock options granted to employees and non-employee
directors on 148 different grant dates. The Special Committee�s
legal and accounting advisors identified, preserved, collected and
reviewed over 104 gigabytes of electronic information, including
approximately 1.6 million pages of electronic and hard copy files,
and conducted 25 interviews of current and former employees and
members of the Board of Directors. Summary of Findings The Special
Committee has arrived at the following principal findings with
respect to the stock option grant practices of the Company: The
Company�s stock plan administrative deficiencies between 1997 and
2006 led to a number of misdated option grants. New hire and other
promotion and retention option grants were generally made the first
Wednesday of each month through the use of unanimous written
consents (�UWCs�) of the Company�s Compensation Committee. However,
prior to 2006, many of these monthly grants were misdated, as grant
dates were routinely established before the receipt of all the
signed UWCs authorizing those grants. Many other off-cycle and
broad-based annual option grants that were granted through Board or
Compensation Committee resolutions were also misdated due to
administrative issues in that grant dates were sometimes
established before the list of option award recipients had been
finalized. Beginning in late 2002, the Company formally documented
and updated its existing processes and procedures with respect to
the granting of options. In 2005, the Company further refined the
process and, in 2006, a formal written policy was approved by the
Compensation Committee. Approximately 97% of the potential
stock-based compensation charges identified as a result of the
Special Committee investigation resulted from grants that were made
prior to December 31, 2002. Prior to 2003, the limited controls and
the lack of definitive processes for stock option granting and
approval allowed for potential abuse, including the use of
hindsight, in the establishment of more favorable grant dates for
certain options. The Special Committee identified three grant dates
prior to 2003 on which three management-level employees received
new-hire option grants on dates other than when they began
rendering services to the Company. The grant date for one grant in
2000 is different from the date the grant appears to have been
approved by the Board. While no definitive evidence has been
identified to clarify this inconsistency, the selected grant date
was at a lower closing stock price than the price on the date of
apparent board approval. The Special Committee believes based on
the evidence developed in the investigation that certain executive
officers had knowledge of and participated in the selection of
three grant dates for broad-based employee option grants in the
2000 through 2002 timeframe, either with hindsight or prior to
completing the formal approval process. The executive officers
involved in the option grant process prior to 2003, and in
particular the grants described above in the 2000 through 2002
timeframe, are no longer with the Company with the exception of
David D. French, the Company�s President and Chief Executive
Officer. The Special Committee believes that Mr. French was
significantly involved in the grant approval process for certain
grants and that he influenced the grant process with a view toward
the stock price, and therefore the selection of grant dates,
through his control over how quickly or slowly the process was
completed. However, the Special Committee does not believe that Mr.
French appreciated the significance of the procedural inadequacies
or the accounting implications of the grant approval process or
grant date selections, or that he was advised by his executive
staff of any such inadequacies or implications. The Special
Committee did not find any irregularities associated with any
grants to independent directors or the Company�s two broad-based
options exchanges during the relevant period. The Special Committee
found no documentary or testimonial evidence that the Company�s
independent directors were aware of any attempts by the Company�s
executive officers to backdate or to otherwise select a favorable
grant date, and consequently, had no reason to and did not believe
that the accounting or other disclosures were inaccurate.
Resignation of President and Chief Executive Officer In light of
the findings of the Special Committee, Mr. David D. French has
resigned as President and Chief Executive Officer and as a director
of the Company. The Company has entered into a resignation
agreement with Mr. French, which is included as an exhibit to the
Company�s Form 8-K filed today with the Securities and Exchange
Commission. Appointment of Acting President and Chief Executive
Officer The Board of Directors has appointed Michael L. Hackworth
as the Company�s Acting President and CEO. He will continue to
serve as Chairman of the Board � a position he has held since 1997
Mr.�Hackworth, age 66, who co-founded the Company, previously
served as President and Chief Executive Officer of Cirrus Logic
from January�1985 to June�1998, and continued to serve as Chief
Executive Officer until February�1999. Under his leadership, Cirrus
Logic grew from a start-up venture to become a major fabless
semiconductor supplier. Mr.�Hackworth is also the Chief Executive
Officer of Tymphany Corporation, as well as a director of Virage
Logic Corporation, a provider of semiconductor intellectual
property platforms and development tools. Other Remedial Actions
and Recommendations Based on the results of its investigation, the
Special Committee has recommended a number of remedial actions. The
Company is currently reviewing these recommendations and developing
and implementing a remediation plan associated with historical
option grants and the grant of future equity awards. Based on its
initial review of the Special Committee�s findings, the Company
does not believe that in the few instances when stock option grant
dates were selected by management either with hindsight or prior to
receiving all required approvals, that any employee, who at the
time of the grant was an executive officer, has exercised or made
any profit from those grants. The Company is committed to remedying
any internal control or reporting deficiencies or weaknesses that
may exist. In addition, the Company has informed the staff of the
Division of Enforcement of the Securities and Exchange Commission
of the Special Committee�s investigation and will continue to
cooperate fully in the event of any further inquiry. Safe Harbor
Statement: Except for historical information contained herein, the
matters set forth in this news release contain forward-looking
statements. In some cases, forward-looking statements are
identified by words such as we "expect," "anticipate," "target,"
"project," "believe," "goals," "estimates," and "intend,"
variations of these types of words and similar expressions are
intended to identify these forward-looking statements. In
particular ,statements regarding the status of the Special
Committee�s investigation, the timing of the filing of any required
restated financial statements or whether the Company will be able
to file all delinquent reports and restatements by the deadlines
prescribed by Nasdaq, our estimates for the non-cash stock-based
compensation expense associated with the results of the Special
Committee�s review, and the timing and effect of remedial actions
or any remediation plan associated with the grant of future equity
awards are forward-looking statements. These forward-looking
statements are based on our current expectations, estimates and
assumptions and are subject to certain risks and uncertainties that
could cause actual results to differ materially. These risks and
uncertainties include, but are not limited to, the final timing and
outcome Ernst & Young�s audit or review of the Special
Committee�s findings, any additional findings by the Special
Committee, the impact of any adverse tax or accounting adjustments
resulting from the review, our ability to file required reports
with the SEC on a timely basis, our ability to meet the
requirements of Nasdaq for continued listing of our stock, future
rule-making, pronouncements, decisions, interpretations or guidance
by the SEC, the PCAOB, Nasdaq or other regulatory agencies, the
on-going SEC inquiry relating to the Company�s historical stock
option grants and practices, and the risk factors listed in our
Form 10-K for the year ended March 25, 2006, and in our other
filings with the SEC, which are available at www.sec.gov Cirrus
Logic, Inc. Cirrus Logic develops high-precision, analog and
mixed-signal integrated circuits for a broad range of consumer and
industrial markets. Building on its diverse analog mixed-signal
patent portfolio, Cirrus Logic delivers highly optimized products
for consumer and commercial audio, automotive entertainment and
industrial applications. The company operates from headquarters in
Austin, Texas, with offices in Europe, Japan and Asia. More
information about Cirrus Logic is available at www.cirrus.com.
Cirrus Logic and Cirrus are trademarks of Cirrus Logic Inc.
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