Atmel said Monday it uncovered 93 stock-option grants that were backdated over the past nine years and claimed internal documents show former chief executive George Perlegos – who is trying to regain control of the company – was aware of and often directed the backdating.
The San Jose chip maker said the misdated options grants were issued between January 1997 and August 2006 and will result in a $125 million charge to earnings. The company said it would restate its earnings from 1993 to 2005.
Atmel said an investigation by its audit committee found that Perlegos, who co-founded the company and served as its CEO and board chairman from 1984 to 2006, circumvented board procedures for granting options. At the same time, the report found that Perlegos did not hold any of the backdated options or benefit from them.
The disclosure could prove to be a setback to Perlegos’ campaign to win control of the company. He was dismissed last year for misusing corporate travel funds, but he hopes to elect a slate of five directors at a special shareholders meeting May 18 to comprise a majority of the six-member board.
A spokeswoman for Atmel said in an e-mail that she was confident investors would take the committee report into consideration when they vote on May 18.
“The findings of the independent investigation make it clear that George Perlegos was responsible for directing widespread and intentional options backdating,” said the spokeswoman, who works for Joele Frank, Wilkinson Brimmer Katcher, a New York public relations firm. “We are confident that our stockholders will take these facts into account, as well as the actions Atmel’s board and new management team are taking to create stockholder value and restore the right tone at the top.”
Atmel’s current management announced a restructuring plan in December that calls for selling two chip manufacturing plants in Europe and reducing about 16 percent of the company’s workforce.
Andrew Cole, a spokesman for Perlegos, declined to discuss the specifics of Atmel’s accusations against Perlegos. He described the company’s claims as “irrelevant” when compared with the more important issue of how to restructure the company and increase its value to shareholders. In his appeal to stockholders, Perlegos has submitted a plan for spinning off one division and selling one or two others.
“Clearly this press release was written to try to smear George as much as possible,” said Cole, who works for Sard Verbinnen & Co., a public relations firm with offices in San Francisco. “This is a board that is fighting for its life.”
The evidence of Perlegos’ involvement in backdating options includes “handwritten notations” directing employees when to date the grants, according to the statement Atmel filed Monday with the Securities and Exchange Commission.
The company said its audit committee also found that Mike Ross, Atmel’s general counsel from 1989 to 2006, was aware of and participated in the backdating of options grants.
Ross, who left the company in August 2006, could not be reached for comment.
The audit committee said in the SEC filing that “it was unable to reach a conclusion as to whether Mr. Perlegos understood the accounting principles that apply to stock options or whether he intended to manipulate the financial statements of the company.”
Atmel is one of more than 200 U.S. companies to have found evidence of options backdating. Typically, options are backdated to a time when a company’s stock is low, giving an employee greater opportunity for a gain. Backdating is not necessarily illegal, but companies need to follow appropriate accounting and disclosure rules.
Robert Burleson, an analyst at ThinkEquity Partners, said it is hard to know how Atmel’s disclosures will affect Perlegos’ proxy campaign. “It certainly doesn’t help,” Burleson said. Atmel shares fell 3 cents, or 0.6 percent, to $5.32 Monday.
The company reports first-quarter financial results today and is expected to release a restatement of financial results in early June incorporating the $125 million charge.
The audit committee report said evidence of Ross’ involvement includes documents showing he directed changes to grant lists months after the lists were approved, the company said.
In addition, Ross benefited from backdated options that were not approved by the board, the report said.
Ross and Perlegos did not cooperate with the investigation, according to the company’s filing. After January 2004, Atmel “has generally granted stock options in accordance with the company’s stock option plans and approval procedures,” Atmel said in its filing.
Contact Mark Boslet at mboslet@mercurynews.com or (408) 920-5425.
