Microtune Announces Principal Findings of Stock Option Investigation

Business Wire, Dec 29, 2006

PLANO, Texas -- Microtune([R]), Inc. (NASDAQ:TUNE) today announced that the Audit Committee of the Company's Board of Directors has reported the principal findings of its investigation into the Company's stock option grant practices to the Board of Directors. The Company also announced that its Board of Directors has accepted the Audit Committee's findings and recommendations, including certain remedial actions considered necessary to strengthen the Company's internal controls.

As a result of the investigation, Microtune's Audit Committee has concluded that there was no intentional wrongdoing by the Company's current Chief Executive Officer, Chief Financial Officer or General Counsel, or by its Board of Directors. The Audit Committee and the Board of Directors have further concluded that both Microtune's current Chief Executive Officer, Mr. James A. Fontaine, and current Chief Financial Officer, Mr. Jeffrey A. Kupp, have appropriately served and can continue to serve as certifying officers with respect to Microtune's financial statements and have expressed their full confidence in the integrity of Mr. Fontaine and Mr. Kupp. Finally, the Audit Committee believes that, with the implementation of certain remedial measures that were approved by the Board, the Company's equity award processes and procedures will be improved.

Background

In July 2006, the Company announced that the Audit Committee of its Board of Directors had self-initiated an internal review of the Company's stock option grant practices. The Audit Committee conducted its review with the assistance of independent legal counsel and independent accounting advisors. The review included all stock option grants from August 4, 2000 (the date of the Company's initial public offering, or IPO) through June 30, 2006.

The Audit Committee's legal and accounting advisors reviewed thousands of pages of hard copy and electronic documents, captured and analyzed over two million e-mail messages and conducted over 20 formal interviews with current and former employees, officers and directors of the Company. Current members of Company management cooperated fully with the Audit Committee's investigation.

Summary of Findings

The Audit Committee has arrived at the following findings with respect to the stock option grant practices of the Company:

1. Inappropriate Practices Prior to August 12, 2003

The Audit Committee has identified the following inappropriate practices, each of which occurred prior to the appointment of Mr. Fontaine as Chief Executive Officer on August 12, 2003:

* The Company followed a regular practice of backdating new hire option grants to the date corresponding to the lowest closing stock price during approximately a one to two week period after the new employee's start date. Once a favorable price was selected, other (non-new hire) grants planned during the same timeframe were also generally dated with the date selected to take advantage of the low exercise price.

* On several occasions, in order to select favorable exercise prices for certain newly hired executives or other senior personnel, the Company created employment records to establish start dates that preceded the date they actually began working for the Company. None of the personnel who benefited from this practice are currently employed by the Company.

* The Company backdated certain other stock option grants by selecting a grant date and corresponding exercise price that preceded the date that the Company actually determined to make such grants. In some cases, these stock option grants were backdated by several months.

* In two instances involving a large number of employees, stock options were granted and subsequently regranted using a lower exercise price.

* Until August 2004, conditions were in place to allow option holders to select an exercise date (and associated price for calculating any tax impact) up to three days earlier than the date the Company actually received the employees' notices of exercise and payment of the exercise price. Due to inconclusive evidence, the Audit Committee could not determine whether this was a widespread practice; however, it did confirm that exercise date manipulation occurred in several instances. In August 2004, the settlement of the Company's stock option exercises was transitioned to a third-party provider, which precluded the possibility of any further occurrences of exercise date manipulation.

In each of these instances, the Company failed to identify and record compensation expense (or apply variable accounting, where applicable) as required by the applicable accounting rules. Approximately 85% of the stock-based compensation charges identified as a result of the Audit Committee's investigation resulted from the above manipulative date selection techniques used in the period prior to August 12, 2003.

2. Stock Option Plan Administration Deficiencies

The Audit Committee also found that during the period from the Company's IPO until June 2004, when granting employee stock options, the Company incorrectly used the closing stock price from the day prior to the actual date of grant (to identify the fair market value of the Company's common stock and the exercise price of the stock option), rather than the closing stock price on the grant date as contemplated by the Company's stock option plan. The Audit Committee has determined that the Company must record a compensation charge as a result of this past practice. The Audit Committee believes, however, that this practice was not used to select favorable exercise prices.