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Incoming CEO will also see his options repriced downward and will have to let go of the value of certain options, with the two actions amounting to a drop in the value of past equity compensation worth $190 million.
Stephen Taub, CFO.com | US
November 8, 2006
Patrick Erlandson has resigned as CFO of UnitedHealth Group as part of sweeping compensation and governance changes announced by one of the largest companies to be caught up in the options backdating scandal.
The company said Erlandson, who has served as CFO since, 2001, will assume operational duties within the company.
He will be replaced by G. Mike Mikan, who has been senior vice president of finance of the company since February and has served as the finance chief for its UnitedHealthcare division.
The company also reported that it would reset the exercise prices of all exercised and unexercised options with recorded grant dates between 1994 and 2002 that had been received by senior executives.
For example, the exercise prices of all options held by outgoing chief executive officer William McGuire with recorded grant dates between 1994 and 2002 will be reset to the highest share price during the recorded grant year for each particular option. For options suspended in 1999 and reinstituted in 2000, the exercise prices will be reset to the highest share price in 2000.
The compensation of president and chief operating officer Stephen Hemsley, slated to replace McGuire on Dec. 1, will also be affected. Under a just-announced, four-year employment agreement with Hemsley, the company will reprice all options granted to him through 2002. Under the arrangement, Hemsley will also relinquish the value of grants suspended and then reinstituted in August 2000. Those actions would reduce the current value of Hemsley's past equity compensation by about $190 million, the company added.
UnitedHealth also warned that financial statements and similar communications for the years ended 1994 to 2005 and the interim quarters through September 30, 2006 shouldn't be relied upon any longer. The company will also delay filing its third quarter report. Non-cash charges for stock-based compensation expense and additional tax-based costs “will be significantly greater” than an estimate contained in its March 1-Q, the company stated.
UnitedHealth also contends that it has "substantially" repaired a material weakness in its internal controls relating to stock option plan administration that it has now concluded existed as of December 31, 2005.