According to a press release , an internal investigation by the company found that all options granted before February 27, 2002 were accounted for incorrectly because Research In Motion did not apply variable accounting methods.
Specifically, the company failed to apply variable accounting for the awards as a result of the “net settlement” feature of its stock option plan. That feature meant that employees could – instead of paying the exercise price in cash – ask to receive fewer RIM common shares equal in value to the difference between the grant price and the market price at the time of the exercise multiplied by the number of options exercised, the company said.
The committee found that from February 28, 2002 to August 2006, there were incorrect measurement dates for approximately 321 grants in respect to options to acquire 4,581,000 common shares, which represents about 63% of the grants made by the company after February 28, 2002.
The three major accounting errors that the internal committee found were:
- The misapplication of U.S. GAAP as it relates to a “net settlement” feature contained in the company’s option plan until February 27, 2002,
- The accounting for certain share awards granted prior to the adoption of the company’s stock option plan; and
- The misapplication of the determination of an accounting measurement date for options issued after the “net settlement” feature was eliminated in February 2002.
The company also announced some changes to its hierarchy as a result of the findings. John Richardson was named lead director of the board, which will now have two additional directors, or a total of nine members.
The company said that it will split the roles of chairman and CEO, and that Jim Balsillie has voluntarily stepped down from the role of Chairman, but will keep a position as Co-CEO with Michael Laziridis and will also stay on as a director.
According to the press release, Balsillie was directly involved in approving grants following the company’s initial public offering in 1997, including grants that have been found to have been accounted for incorrectly; however, that role diminished overtime as the task was delegated to other employees.