Starboard Value, an activist hedge fund, called for the sacking of the CEO and an overhaul of the board of Tessera Technologies Inc , stepping up a long running battle with the technology patent firm over its governance.
Tessera revealed this week that Starboard had sent it a letter alleging CEO Bob Young had engaged in possible improper conduct involving "an inappropriate relationship with a female employee of the company".
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The board asked Starboard to provide evidence for the allegations and said it unanimously backed Young.
Wednesday's letter from Starboard comes a week after two independent directors of Tessera said Chairman Robert Boehlke was obstructing the smooth functioning of the board and they would resign unless he stepped down.
The company and Young could not be immediately reached for comment.
Starboard, which owns 7.4 percent of Tessera, is also the biggest shareholder in Office Depot , which it has urged to sell its Mexican joint venture.
The fund has been pushing for more than a year for changes at Tessera, which licenses technology used in microchip packaging.
In November, Tessera said it will close a plant in Tel Aviv and look to sell another in North Carolina to streamline operations at its unprofitable digital optics business that sells technology used in cellphone cameras.
The company recently settled a patent dispute with Advanced Micro Devices , but did not disclose financial terms of the agreement.
Tessera's stock, which was flat in midday trading on the Nasdaq, has climbed 14 percent in the past year.
But Starboard argues the company financial and stock price performance is dismal. Last month, the hedge fund said it had unsuccessfully run the digital optics business like a venture capital company and that margins at its patent business had slipped.
(Reporting by Sayantani Ghosh in Bangalore; Editing by Rodney Joyce and Saumyadeb Chakrabarty)