Foundry Networks announced a set of key conclusions following its internal investigation of past stock option grants at the company.
Based on its investigation, the Foundry’s Special Committee has concluded, among other things, that the company lacks contemporaneous evidence supporting a substantial number of the recorded option grants. The company said that some option grants were prepared or finalized days or, in some cases, weeks after the option grant date recorded in its books. The affected grants include grants to existing employees, newly-hired employees, officers and directors.
Foundry’s Special Committee also found that in a substantial number of cases, the company’s Chairman of the Board, President and Chief Executive Officer, Mr. Bobby Johnson, Jr., selected the grant dates for and approved option awards after the grant dates recorded in the company’s books. According to the investigators, Mr. Johnson did not receive any options in connection with these grants. Foundry’s Vice President, Finance and Administration and Chief Financial Officer, Timothy D. Heffner, did not select grant dates, but he was involved in the granting process by, among other things, communicating option grants determined by Mr. Johnson to the company’s stock option administrators and human resources group. Heffner was a recipient of a limited number of stock options for which the measurement dates will be modified.
To remediate the situation, Foundry currently expects to record a pre-tax charge of approximately $185 million to $205 million for fiscal years 1999 through 2005. The tax benefit associated with this charge is expected to be approximately $65 million to $70 million for a total net charge of approximately $120 million to $135 million.
Other actions include splitting the positions of the Chairman of the Board and Chief Executive Officer so that they are held by different persons. Accordingly, Mr. Johnson has resigned as Chairman of the Board, and the Board elected director Alfred J. Amoroso as Chairman. Johnson will continue as a member of the Board and as President and CEO. Heffner will transition from CFO to Vice President of Corporate Development. Daniel W. Fairfax, has been named Vice President, Finance and Administration and Chief Financial Officer.
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