Marvell Technologies Group Ltd. announced the resignation of its CFO and other management changes after completing an internal review of its stock-option practices.
The company, which makes microchips for hard-disk drives, announced that George Hervey resigned as CFO and will be replaced on an interim basis by corporate controller and treasurer Mike Tate. Marvell also announced that the general counsel of its U.S. operating subsidiary, Matthew Gloss, had earlier been terminated for cause.
Further, a special committee recommended that president and chief executive officer Sehat Sutardja step down as chairman after finding that he participated in grants with incorrect measurement dates. The company is searching for three independent directors to fill existing vacancies, one of whom would become chairman, though Sutardja will remain a director.
The company also announced that co-founder Weili Dai will no longer serve as executive vice president, chief operating officer, and a director but will continue with the company “in a significantly reduced role” as director of strategic marketing and business development, a non-management position.
The company also disclosed that it would record a total pre-tax charge estimated at between $325 million and $350 million, though Marvell stressed that this amount has not yet been reviewed by the company’s independent auditor.
Last October, Marvell warned that it would restate its results to record additional non-cash charges for stock-based compensation expense. The company also disclosed that its financial statements and earnings releases dating back to its June 2000 initial public offering should no longer be relied upon.
The special committee determined that on many occasions, the exercise prices of options were lower than the fair market value on the actual measurement dates. The committee also found “a systemic failure of internal controls” in the stock-option process, as well as a failure by certain current and former managers to exercise sufficient oversight, resulting in inaccuracies in the company’s books and records, financial statements, and public filings.
The special committee reported that several current and former members of management, including Harvey, Gloss, and Dai, “bear varying degrees of responsibility” for the deficiencies.
Last December, Sutardja, Dai, and Hervey each agreed to have their options repriced. Sutardja also agreed to a reduction of 500,000 pre-split shares that were mistakenly awarded in December 2003, according to the company. Dai also agreed to cancel options to purchase about 1.5 million post-split unvested shares and to limit the exercisability of vested options.
At the time, the company announced a number of remedial changes, including the creation of the position of vice president of compliance, who will report directly to the audit committee.