-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S1WK0xZkU8ZBpLbmanyhsic8/dbl1TL3xM0fK9A6lNJL0c9goiW4kRr55M+FEhiF USvNtT+ETM+T8d9CX+mHvQ== 0001157523-07-002445.txt : 20070307 0001157523-07-002445.hdr.sgml : 20070307 20070307170320 ACCESSION NUMBER: 0001157523-07-002445 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070305 ITEM INFORMATION: Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070307 DATE AS OF CHANGE: 20070307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CIRRUS LOGIC INC CENTRAL INDEX KEY: 0000772406 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 770024818 STATE OF INCORPORATION: DE FISCAL YEAR END: 0330 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17795 FILM NUMBER: 07678486 BUSINESS ADDRESS: STREET 1: 2901 VIA FORTUNA CITY: AUSTIN STATE: TX ZIP: 78746 BUSINESS PHONE: 512-851-4000 MAIL ADDRESS: STREET 1: 2901 VIA FORTUNA CITY: AUSTIN STATE: TX ZIP: 78746 8-K 1 a5350659.txt CIRRUS LOGIC 8K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): MARCH 5, 2007 CIRRUS LOGIC, INC. (Exact name of Registrant as specified in its charter) DELAWARE 0-17795 77-0024818 - ------------------ ----------------- --------------------- (State or Other Jurisdiction of (Commission (IRS Employer Incorporation or Organization) File Number) Identification No.) 2901 VIA FORTUNA, AUSTIN, TX 78746 - ----------------------------------- -------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (512) 851-4000 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 5.02 DEPARTURE OF DIRECTORS OR CERTAIN OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF CERTAIN OFFICERS; COMPENSATORY ARRANGEMENTS OF CERTAIN OFFICERS Mr. David D. French resigned his position as President and Chief Executive Officer and as a director of Cirrus Logic, Inc. (the "Company") on March 5, 2007. In connection with his resignation, the Company and Mr. French entered into a Resignation Agreement on March 5, 2007. Under the terms of the Resignation Agreement, Mr. French agreed to cancel and not exercise certain option grants that the Special Committee of the Company's Board of Directors investigating stock option granting practices identified as having favorable grant dates that were selected with the participation of Company executives. Additional information regarding the principal findings of the Special Committee is provided under Item 8.01 below. Mr. French also agreed to re-price certain options and pay the Company the difference between the exercise price paid upon the exercise of any of his option grants and the exercise price as determined to be appropriate upon the correct accounting measurement date as determined in the Company's restatement of its historical financial statements. The Resignation Agreement also provides that Mr. French will repay any bonus or incentive compensation that would not have been earned had the Company's restated financial statements been used to calculate such bonus or incentive compensation, but in no event will such payment be in excess of $100,000. Mr. French will receive a one-time severance payment of $477,600, to be paid six months following the date of his resignation. The Company will also immediately accelerate the vesting of a portion of certain option grants and he will be provided a post-employment period to exercise his vested options. A copy of the Resignation Agreement is attached as Exhibit 10.1 and incorporated herein by reference. On March 7, 2007, Mr. Michael L. Hackworth was appointed by the Board of Directors of the Company as Acting President and Chief Executive Officer of the Company. 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 from January 1985 to June 1998, and continued to serve as Chief Executive Officer until February 1999. Mr. Hackworth is also the Chief Executive Officer of Tymphany Corporation, a provider of audio transducers and acoustical engineering customization services. He also serves as a director of Virage Logic Corporation, a provider of semiconductor intellectual property platforms and development tools. The independent directors of the Company have approved a salary for Mr. Hackworth at an annual rate of $184,320, payable on a bi-weekly basis for the period that he serves in the role of Acting President and Chief Executive Officer. ITEM 7.01 REGULATION FD DISCLOSURE. On March 7, 2007, the Company issued a press release announcing 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 resignation of Mr. French as President and Chief Executive Officer and as a director of the Company and the appointment of Mr. Hackworth as Acting President and Chief Executive Officer of the Company. A copy of the press release is attached as Exhibit 99.1 and incorporated herein by reference. Please see the disclosure under Item 5.02 above for additional information regarding Mr. French's resignation. The Company believes that the terms and conditions associated with the one-time severance payment to Mr. French and the accelerated vesting of certain of his option grants are more favorable to the Company than the payment and other terms that would have applied if the Company had terminated Mr. French's employment without cause under his February 2002 employment agreement with the Company. Additional information regarding Mr. Hackworth's appointment is also provided under Item 5.02 above. ITEM 8.01 OTHER EVENTS On March 7, 2007, the Company 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: o The Company's stock plan administrative deficiencies between 1997 and 2006 led to a number of misdated option grants. o 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. o 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. o 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. o 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. o 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. o 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. o 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. o 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. o 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. o 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. o 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. o 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 favorable grant dates, 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 resigned as President and Chief Executive Officer and as a director of the Company. Please see the disclosure in Item 5.02 above for additional information regarding Mr. French's resignation. APPOINTMENT OF ACTING PRESIDENT AND CHIEF EXECUTIVE OFFICER The Board of Directors has appointed Mr. Michael L. Hackworth as the Company's Acting President and Chief Executive Officer. Please see the disclosure in Item 5.02 above for additional information regarding Mr. Hackworth's appointment. 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. 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. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (d) Exhibits. 10.1 Resignation Agreement between David D. French and Cirrus Logic, Inc. dated March 5, 2007 99.1 Cirrus Logic, Inc. press release dated March 7, 2007 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CIRRUS LOGIC, INC. Date: March 7, 2007 By: /s/ Thurman K. Case ---------------------------------- Name: Thurman K. Case Title: Chief Financial Officer EXHIBIT INDEX Exhibit Number Description 10.1 Resignation Agreement between David D. French and Cirrus Logic, Inc. dated March 5, 2007 99.1 Cirrus Logic, Inc. press release dated March 7, 2007 EX-10.1 2 a5350659ex101.txt EXHIBIT 10.1 Exhibit 10.1 RESIGNATION AGREEMENT This Agreement by and between David D. French ("Mr. French") a resident of Austin, Texas, and Cirrus Logic, Inc. ("Cirrus" or "Company"), a Delaware corporation, is made and effective this 5 day of March, 2007 ("Effective Date"). Whereas, Mr. French is employed by Cirrus as President and Chief Executive Officer pursuant to an Employment Agreement dated February 27, 2002 ("Employment Agreement"); Whereas, Mr. French is a member of the Board of Directors of Cirrus ("Board"); Whereas, Cirrus has granted Mr. French restricted stock pursuant to an agreement providing a grant date of June 25 ("Restricted Stock Agreement") and stock options pursuant to agreements providing grant dates of June 25, 1998; October 8, 1998; June 3, 1999; July 29, 1999; May 25, 2000; October 3, 2000; August 15, 2001; February 27, 2002; April 4, 2002; February 26, 2003; March 31, 2003; March 26, 2004; July 29, 2004; March 2, 2005; and March 1, 2006 (collectively, "Stock Option Agreements"); Whereas, effective immediately, Mr. French desires voluntarily to resign as President and Chief Executive Officer, as a member of the Board and all other positions he may have with Cirrus or any affiliated company, and Cirrus desires to accept such resignations effective immediately; Whereas, in connection with Mr. French's resignation, the parties desire to amend and restate their rights and obligations with respect to each other; Now, therefore, for good and valuable consideration, the sufficiency of which is hereby acknowledged, Mr. French and Cirrus agree: 1. To be effective immediately, Mr. French hereby resigns as President and Chief Executive Officer, as a member of the Board, and from all other positions he may hold with Cirrus or any affiliated company, and Cirrus hereby accepts Mr. French's resignation from all such positions. Mr. French further agrees to execute such documents and take such acts as the Company determines necessary to affect his resignation from all such positions. 2. On the date that is six months following the Effective Date, Cirrus shall pay Mr. French in cash four hundred seventy-seven thousand six hundred dollars ($477,600) and such payment, except as otherwise specifically provided herein, shall be full and complete accord and satisfaction of all obligations under his Employment Agreement or any severance plan or program of any kind or character Cirrus or any affiliated company may have to Mr. French. Payments under this section shall not be subject to offset; provided, however, the amount to be repaid as provided in Section 7 may be offset from this payment if not previously paid by Mr. French. 3. The stock options granted to Mr. French with Date of Grant on October 3, 2000 (which consist of options to purchase 150,000 shares) and August 15, 2001 (which consist of options to purchase 150,000 shares) are hereby cancelled and are not exercisable by Mr. French. 4. Fifty percent (50%) of those stock options granted Mr. French pursuant to the Stock Option Agreements with Date of Grant after February 27, 2002, which have not previously vested, shall vest on the Effective Date. All such options shall become fully exercisable subject to the terms and conditions of the Cirrus Logic, Inc. 1996 Stock Option Plan ("1996 Plan"), the individual Stock Option Agreements, and such restrictions, if any, as required by federal law or regulation or the regulation of any stock exchange. The remaining fifty percent (50%) of stock options granted Mr. French pursuant to the Stock Option Agreements with Date of Grant after February 27, 2002, which have not previously vested, shall terminate and no longer be exercisable. 5. All stock options granted to Mr. French which shall have vested on or before the Effective Date shall remain exercisable for three months following the Effective Date, after which date such stock options shall terminate and shall no longer be exercisable. Provided, however, in the event the Company is prohibited from issuing common stock pursuant to the Company's stock option plans during the three month period following the Effective Date, the period during which Mr. French may exercise his vested options shall be extended until the later of (i) 30 days following the prohibited period, (ii) 90 days from the Effective Date, or (iii) on the same terms and conditions as non-executive employees rights to exercise vested stock options are extended, if an extension is granted as a result of the prohibition on Company's issuing common stock during the three months following the Effective Date; but in no event under (i), (ii) or (iii) greater than 180 days from the Effective Date. In the event Mr. French exercises on or after the Effective Date stock options previously vested or vested as provided herein, any such exercise shall be according to the terms and conditions of the 1996 Plan, the individual Stock Option Agreements and such restriction, if any, as required by federal law or regulation or the regulation of any stock exchange; provided, however, Mr. French hereby agrees (1) that he will not exercise any vested stock options until the prohibited period ends with the Company and its public accountants, in accordance with U.S. Generally Accepted Accounting Principles, restatement of such historical financial statements as the Company and its public accountants determine appropriate and such related financial statements are filed with the Securities and Exchange Commission ("SEC") and (2) that the exercise price for such options shall be adjusted as determined appropriate by the Administrator (as defined in the1996 Plan) to satisfy the fair market value requirements of the 1996 Stock Option Plan based upon the accounting measurement date for the grant of such options recognized by the Company in its restatement of historical financial statements. 6. To the extent Mr. French has prior to the Effective Date vested in restricted stock pursuant to the Restricted Stock Agreement or exercised stock options pursuant to the Stock Option Agreements, Mr. French hereby agrees (1) to amend any tax return and, if required, pay all applicable taxes, penalties, and interest to account for any adjustment to the grant date or stock option exercise price determined appropriate by the Administrator (as defined in the plan) pursuant to the 1996 Plan based upon the accounting measurement date for the grant of such restricted stock and options recognized by the Company in its restatement of historical financial statements, and (2) pay the Company the difference between the exercise price paid upon exercise and the exercise price as determined appropriate by the Administrator (as defined in the 1996 Plan) pursuant to the 1996 Plan based upon the accounting measurement date for the grant of such restricted stock and stock options recognized by the Company in its restatement of historical financial statements. Page 2 7. If the Company, in accordance with U.S. Generally Accepted Accounting Principles, determines restatement of the Company's historical financial statements filed with the SEC would have resulted in Mr. French not earning a bonus or incentive compensation for any such period or earning a reduced bonus or incentive compensation under either the Variable Compensation Plan or Executive Incentive Plan, then Mr. French shall within five (5) business days of receiving notice of such restatement repay to Cirrus that portion of any bonus or incentive compensation that would not have been earned had the restated financial statements been used to calculate such bonus or incentive compensation. The parties agree that the amount to be repaid pursuant to this section shall not exceed one hundred thousand dollars ($100,000). 8. Mr. French shall receive such benefits as he may have from the Company's retirement plan according to the terms and conditions of that plan pursuant to any elections made by Mr. French. 9. Sections 2(d), 9, and 14, relating to Relocation, Moving Expenses, Governing Law, and Arbitration, respectively, shall remain in full force and effect; otherwise, the Employment Agreement is hereby superseded and extinguished by this Agreement. 10. All prior agreements between Mr. French and Cirrus and all common law obligations of Mr. French to Cirrus relating to trade secrets, confidential and proprietary information; inventions and original works; competition against the Company; and solicitation of Company customers and employees shall remain in full force and effect. 11. The Indemnification Agreement between Mr. French and Cirrus dated June 25, 1998 shall remain in full force and effect. 12. On reasonable notice and request of Cirrus' General Counsel or such other person designated by the Board, Mr. French shall cooperate with Cirrus in all matters related to his employment with Cirrus or the winding up of any pending work and the orderly transfer of such work; any investigation or inquiry undertaken by Cirrus, its Board or any committee of the Board, or any governmental agency or stock exchange including without limitation the Securities and Exchange Commission, the Department of Justice and The Nasdaq Stock Market, Inc.; and with respect to any litigation or administrative proceeding against Cirrus or any employee, officer, or director of Cirrus. Mr. French's duty of cooperation includes but is not limited to taking such acts and executing such documents as the Company determines appropriate and are commercially and legally reasonable. 13. Mr. French will deliver to Cirrus immediately all business records in his possession, custody, or control, including without limitation all analyses, correspondence, data, or information, memoranda, notes, records, documents, or other materials (in whatever form maintained, whether electronic, hard copy or otherwise) composed or received by Mr. French, solely or jointly with others, related in any manner to the past, present, or anticipated business of Cirrus or any affiliated company and all property owned by Cirrus or any affiliated company. Mr. French represents and agrees that he has no claim or right, title or interest in any property designated on Cirrus' records as property or assets of Cirrus. Mr. French shall remove all property owned by him from Cirrus' premises immediately. Page 3 14. Should any provision of this Agreement be held to be invalid or wholly or partially unenforceable by a final, non-appealable judgment in a court of competent jurisdiction, such holding shall not invalidate or void the remainder of this Agreement, and those portions held to be invalid or unenforceable shall be revised and reduced in scope so as to be valid and enforceable or, if such is not possible, then such portions shall be deemed to have been wholly excluded with the same force and effect as if it had never been included herein. 15. The parties understand and agree that the terms of this Agreement are to compromise doubtful and disputed claims between them, avoid litigation, and buy peace, and that no statement or consideration herein shall be construed as an admission of any claim, such admissions being expressly denied. 16. This Agreement shall be governed by and construed and enforced, in all respects, in accordance with the laws of the State of Texas without regard to conflict of law principles unless preempted by federal law, in which case federal law shall govern. 17. Except as expressly provided herein, this Agreement supersedes, replaces, and merges all previous agreements and discussions relating to Mr. French' resignation from all positions with Cirrus and constitutes the entire agreement between Mr. French and Cirrus with respect to Mr. French's resignation. The parties execute this Agreement without reliance on any representation or promise, of any kind or character, not expressly set forth herein. This Agreement may not be changed or terminated orally, and no change, termination, or waiver of this Agreement or any of the provisions herein contained shall be binding unless made in writing and signed by all parties, and in the case of Cirrus, by an authorized officer. 18. Except for proceedings seeking injunctive relief, including, without limitation, allegations of misappropriation of trade secrets or other confidential and proprietary information, copyright or patent infringements, or breach of any anti-competition and no solicitation provisions of any agreement between Mr. French and Cirrus, any controversy or claim arising out of or in relation to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association ("AAA"), and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Arbitration of this Agreement shall include all claims, regardless of whether the dispute arises during the term of the Agreement, at the time of termination or thereafter. Either party may initiate the arbitration proceedings, for which the provision is herein made, by notifying the opposing party, in writing, of its demand to arbitrate. In any such arbitration, there shall be appointed one arbitrator who shall be selected in accordance with the AAA Commercial Arbitration Rules. The place of arbitration shall be Austin, Texas. The parties agree that the award of the arbitrator shall be the sole and exclusive remedy between them regarding any claims, counterclaims, issues or accountings presented or plead to the arbitrator; that the arbitrator shall be the final judge of both law and fact in arbitration of disputes arising out of or relating to this Agreement, including the interpretation of the terms of this Agreement. The parties further agree it shall be the sole and exclusive duty of the arbitrator to determine the arbitrability of issues in dispute and that neither party shall have recourse to the court of such a determination. Page 4 19. Any notices required or permitted to be given under this Agreement shall be properly made if delivered, in the case of Cirrus, to: 2901 Via Fortuna Austin, TX 78746 Attention: General Counsel In the case of Mr. French to: 8206 Tyndale Cove Austin, TX 78733 20. Mr. French shall be solely responsible for payment of all taxes incurred with respect to the payments set forth herein, including but not limited to federal income and excise taxes and shall indemnify the Company with respect to any liability arising from his failure to pay any and all applicable taxes. The Company shall, as required, withhold from any payment hereunder amounts required by any taxing authority. 21. This Agreement shall be for the benefit of and binding upon the parties and their respective heirs, personal representatives, legal representatives, successors and, as to Cirrus, assigns, including without limitation, any successor to Cirrus by merger, consolidation, sale of stock or assets, or otherwise. In witness whereof, the parties have caused this Agreement to be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument, at Austin, Travis County, Texas on the Effective Date. /s/ David D. French ------------------- David D. French Cirrus Logic, Inc. By: /s/ Michael L. Hackworth ---------------------------- Michael L. Hackworth Page 5 EX-99.1 3 a5350659ex991.txt EXHIBIT 99.1 Exhibit 99.1 Cirrus Logic Announces Results of Special Committee's Stock Option Grant Investigation Michael L. Hackworth, Co-founder and Former President and CEO, Named Acting President and CEO AUSTIN, Texas--(BUSINESS WIRE)--March 7, 2007--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. CONTACT: Cirrus Logic Inc., Austin Investor Contact: Thurman K. Case, 512-851-4000 Chief Financial Officer InvestorRelations@cirrus.com -----END PRIVACY-ENHANCED MESSAGE-----