CEO Resigns Under Backdating Cloud

Cirrus Logic executive "influenced the grant process with a view toward the stock price," says the company, though it does not believe he "appreciated the significance" of the procedural inadequacies or the accounting implications.

Cirrus Logic, a maker of audio and video chips, announced that David D. French has resigned as president and chief executive officer and as a director after an internal review determined that he was aware of possible backdating of stock option grants.

Co-founder and longtime chairman Michael L. Hackworth will assume French’s managerial duties on an interim basis. Hackworth previously served as president and CEO from January 1985 to June 1998 and continued as chief executive until February 1999.

Cirrus Logic also expects to restate its results for fiscal years 2001 through 2006 and for the first quarter of fiscal 2007. The company estimates that it will record material non-cash charges for stock-based compensation expense totaling $22 million to $24 million.

Earlier this month, a special committee determined 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 the awards.

The committee identified three instances on which a management-level employee received new-hire option grants on a date other than when they commenced employment. In the case of one grant, Cirrus Logic elaborated, “no definitive evidence has been identified to clarify this inconsistency, [but] the selected grant date was at a lower closing stock price than the price on the date of apparent board approval.”

The committee also asserted that certain executive officers had knowledge of and participated in the selection of three dates for broad-based employee option grants, either with hindsight or prior to completing the formal approval process.

Cirrus Logic noted that except for French, none of the executive officers involved in the option grant process prior to 2003 are still employed by the company.

According to the company, the committee determined that French was significantly involved in the approval process for certain grants and “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.”

Cirrus Logic also pointed out, however, that the committee did not believe he “appreciated the significance” of the procedural inadequacies or the accounting implications of the grant approval process or grant date selections. In addition, the committee found no evidence that independent directors were aware of any attempts by management to backdate or to otherwise select a favorable grant date.

Under his resignation agreement, stated Cirrus Logic, French agreed to cancel and not exercise certain option grants; to reprice other unexercised options; to return the gain on previously exercised, misdated options; and repay any bonus (up to $100,000) that would not have been earned under the company’s restated financials. French will also receive a one-time severance of $477,600, to be paid six
months following his resignation.

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