This excerpt taken from the UNH 8-K filed Oct 16, 2006.
Grants to Section 16 Officers and Non-Section 16 Employees
The measurement dates used by the Company for most of the option grants issued to Section 16 Officers and non-section 16 employees under review were incorrect, and many of the option grants were likely backdated.
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Stock option grants to Section 16 officers were regularly approved by Written Actions. Sometimes, these Written Actions bear the typewritten word Date or Dated and a date that matches the measurement date used by the Company for such grant. At other times, the Written Actions bear the typewritten word Effective and a date that similarly matches such measurement date. For a substantial number of grants, we have determined that the Written Actions that were Date[d] on a specific date were executed subsequently.8 As commonly understood, the term Effective means that the document was executed on one date with an intended and different effective date.9 We have concluded that Written Actions that contain the word Effective, were executed on another, later date. A substantial proportion of the Written Actions for the 29 grants we reviewed were signed later than the date indicated on the document. These lags could have been weeks, and in some cases months, later than the date shown on the Written Action. While it is possible a measurement date could be earlier than the date the Written Actions were finally signed,10 it is likely that a substantial number of the measurement dates used by the Company for these grants are incorrect: either the number of shares granted to individual recipients and/or the exercise price was not known on the dates recited in the Written Actions.
CEO certificates were used to approve grants to non-Section 16 officer employees. The CEO certificates for the grants we reviewed bear the typewritten word Date or Dated and a particular date. In many instances, the date matches the measurement date used by the Company for such grant. We have determined that these CEO certificates were typically executed subsequent to the date on the certificate. Starting in mid-2000, the dates shown on the CEO certificates is later than the dates that the Company used for the measurement dates, but not necessarily the dates the certificates were actually signed. While it is possible that a measurement date could be earlier than the date the CEO certificate was signed, we believe that the measurement dates used by the Company for most of these grants are incorrect. In addition, employees were sometimes added to a grant, or allocations were adjusted, after Dr. McGuire signed the certificate.
Dr. McGuire maintains that he did not select the dates for option grants to Section 16 officers and to non-Section 16 employees with the benefit of hindsight. His recollections are important: he was central to the option grant process at the Company for Section 16 officers and for certain other executives and determined the broad parameters for the grants for other groups of employees. Mr. Hemsley played a more limited role in the option granting process. His focus
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was on the recipients of the grants among non-executive officers. He has stated that he was unaware of how grant dates were selected but understood that Dr. McGuire was generally in communication with Mr. Spears of the Compensation Committee.
Dr. McGuire states that grant dates typically coincided with a memorandum reflecting that some process was underway concerning a grant, or with a phone call, meeting, or discussion with at least one member of the Compensation Committee.11 On or around many of the grant dates there is evidence of phone calls or communications involving Dr. McGuire and a member of the Compensation Committee. The existence of these events is cited by Dr. McGuire as support for each of the grant dates. While Dr. McGuire acknowledges that it is now clear that all of the appropriate, formal, corporate actions necessary to authorize a grant were not taken on the grant date, in his view the grant dates were selected without the benefit of hindsight and an event occurred on the grant date that he then believed was sufficient to establish the grant date.12
Certain facts run contrary to this assertion. First, a number of documents and emails seem to be inconsistent with Dr. McGuires position. Several memoranda about option grants, written by Dr. McGuire, and dated on or after the claimed grant date, speak in tentative or prospective terms about a grant that should be awarded and include specific recommendations concerning the amount of grants to specific officers. Such memoranda say nothing about a specific grant date or exercise price. These contemporaneous documents and language undercut the notion that the grant dates were known on those dates.
Second, out of the 29 grants, there are relatively few instances in which there is either direct or circumstantial evidence to establish that a grant date was selected on that particular day. The first written mention of either the grant date or the corresponding price often appears weeks after the grant date, and in at least one instance, the first mention of a date or a price for a grant was almost one month after the grant date. Moreover, to the extent our inquiry found the existence of various events on or near the grant dates, there was no consistent pattern concerning which type of event supported the grant dates and there is no record of the subject matter or content of the events involving calls or oral communications.
Finally, the statistical data gathered with respect to all grants during the review period (excluding new hire, promotion, and Director grants) demonstrates that the option grant dates generally corresponded to prices at or near the lowest price for the quarter or the year (although not every grant fits that pattern). Between January 3, 1994 and August 28, 2002, the Company granted options on 16 separate dates that corresponded to the lowest, second lowest, or third lowest price for the quarter. The options granted on these 16 dates, prior to the passage of SoX, amounted to almost 80 percent of all options granted during this period.
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