Human Capital & Careers

Rambus Says CFO, CEO Are in the Clear

Company will restate three years of financials over misdated options, but emphasizes the board's faith in current management. A director who was on...
Stephen TaubOctober 20, 2006

Rambus said Thursday afternoon that a probe by its audit committee found that “a significant number” of stock option grants were not correctly dated or accounted for, forcing it to take pre-tax, non-cash stock-based compensation charges in excess of $200 million. The chip-maker also reaffirmed a prior determination that it would restate its financials for the three years ending 2005 and the first quarter of 2006.

However, in its press release, the company went out of its way to give a vote of confidence to its CFO and CEO, assuring that their jobs are safe. The move stands out in an environment in which backdating investigations continue to exact a heavy toll on the executive suite.

In its announcement Thursday, Rambus noted that the board of directors and audit committee “have full faith in the integrity” of CEO Harold Hughes and CFO Satish Rishi. Hughes has been CEO since January 2005; Rishi has been CFO since April 2006. The findings of the investigation, the company’s statement noted, “do not implicate them in any misconduct.”

Back in August, reported that Geoff Tate, who headed the Rambus from 1990 through 2005, had resigned from the company’s board because of his past role in the company’s issuance of apparently misdated stock option grants. On July 19, the company’s audit committee had reached a preliminary conclusion that the actual measurement dates for a number of stock option grants issued during his tenure differ from the recorded grant dates for the awards.

In its latest announcement, Rambus said the vast majority of incorrectly dated grants, both in terms of number of shares of common stock and financial accounting impact, occurred between 1998 and 2001. It added that the majority of the non-cash compensation expense associated with its restatement will relate to grants on five dates within this time period.

The Audit Committee also found that from 1999 through 2003, Rambus had a regular practice for grants to new hire non-executive employees of selecting the lowest price of the quarter between the employee’s start date and the end of the quarter. In fact, on certain occasions, individual employees had a formal employment start date which preceded the date on which they actually began working for Rambus, the company added.

“The result of this practice was that an employee would receive the new hire grant at a grant price that was lower than the price of the stock on the employee’s actual start date,” it explained.

Rambus also said that the Board appointed a special litigation committee to evaluate potential claims or other actions arising from the stock option granting activities.

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