Blackberry 2008 Annual Report Download - page 27

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25
The Review identified three significant types of accounting
errors being: (1) the misapplication of U.S. GAAP as it relates
to a “net settlement” feature contained in the Stock Option
Plan until February 27, 2002, which resulted in variable
accounting treatment, (2) the misapplication of U.S. GAAP
in the accounting for certain share awards granted prior to
the adoption of the Stock Option Plan, which also resulted in
variable accounting treatment and (3) the misapplication
of U.S. GAAP in the determination of an accounting
measurement date for options granted after February 27, 2002.
The Special Committee determined that the Company failed
to maintain adequate internal and accounting controls with
respect to the issuance of options in compliance with the
Stock Option Plan, both in terms of how options were granted
and documented, and the measurement date used to account
for certain option grants. The grant process was characterized
by informality and a lack of definitive documentation as to
when the accounting measurement date for a stock option
occurred, and lacked safeguards to ensure compliance with
applicable accounting, regulatory and disclosure rules. The
Special Committee did not find intentional misconduct on the
part of any director, officer or employee responsible for the
administration of the Company’s stock option grant program.
Each of the SEC, the Ontario Securities Commission
(“OSC”) and the office of the United States Attorney for the
Southern District of New York (the “USAO”) has commenced
investigations in connection with the Company’s stock option
granting practices. The Company intends to continue to
cooperate with each of these agencies.
Actions Taken as a Result of the Review
As previously disclosed, the Board of Directors, based
on the recommendations of the Special Committee, has
implemented, or is in the process of implementing, a number
of measures in response to the findings of the Special
Committee, including measures that are designed to enhance
the oversight and corporate governance of the Company and
to strengthen the Company’s control over its stock option
granting process in particular. These measures include:
financial statements of the Company for the fiscal year ended
March 3, 2007, the Company restated its consolidated
balance sheet as of March 4, 2006 and its consolidated
statements of operations, consolidated statements of cash
flows and consolidated statements of shareholders’ equity
for the fiscal years ended March 4, 2006 and February 26, 2005,
and the related note disclosures (the “Restatement”), to
reflect additional non-cash stock compensation expense
relating to certain stock-based awards granted prior to the
adoption of the Company’s stock option plan on December 4,
1996 (as amended from time to time, the “Stock Option Plan”)
and certain stock option grants during the 1997 through 2006
fiscal periods, as well as certain adjustments related to the
tax accounting for deductible stock option expenses. The
Restatement did not result in a change in the Company’s
previously reported revenues, total cash and cash equivalents
or net cash provided from operating activities.
The Restatement is the result of a voluntary internal review
(the “Review”) by the Company of its stock option granting
practices, which was commenced under the direction of the
Audit Committee of the Company’s Board of Directors, at the
initiative of Dennis Kavelman, the Company’s former Chief
Financial Officer (now the Company’s Chief Operating Officer
— Administration and Operations), with the support of Jim
Balsillie, the Co-Chief Executive Officer of the Company,
and the executive management team of the Company.
Following the recusal of two Audit Committee members who
also served on the Compensation Committee, the Review
was completed by the remaining two members of the Audit
Committee as a special committee of independent directors
of the Board of Directors (the “Special Committee”). The
Special Committee was assisted in the Review by outside
legal counsel and outside accounting advisors in both
Canada and the United States. The Special Committee
reviewed the facts and circumstances surrounding the 3,231
grants of stock options to acquire common shares that
were made between December 1996 and August 2006 to
2,034 employees and directors of the Company. The Special
Committee also reviewed stock based awards granted prior
to the adoption of the Stock Option Plan.