03 Jul Merge execs step down following investigation
West Allis, Wis. – After conducting a lengthy financial investigation in response to litigation by shareholders, Merge Healthcare has announced the resignations of three executives, including the company founder, and the discovery of material errors in its financial statements.
The stock market fallout that was predicted by company officials came true as the value of Merge shares declined by 41 percent the day after the announcement.
Following a meeting of the company’s board of directors, Merge has accepted the resignation of its founder and interim chief executive officer William Mortimore, who also served as CEO from 1987 to 2000. Also resigning were chief financial officer Scott Veech and senior vice president of strategic business development David Noshay.
These resignations follow that of former company president and CEO Richard Linden, who left the company in May. Mortimore had been serving as CEO following Linden’s departure.
Michael Dunham, chairman of the Merge board of directors since May and former CEO of Effective Management Systems, was named interim CEO of Merge. Brian Pedlar, president of Cedara Software – a Merge healthcare company – was named interim co-president and interim co-CEO, as was Merge eMed president Robert White. Merge’s vice president and corporate controller Steve Oreskovich was appointed as the company’s chief accounting officer.
“Brian, Bob, and I will work collaboratively to strengthen relationships with our customers, ensure that Merge Technologies continues to be a compelling place for our employees to work, and to build value for our shareholders,” Dunham said in a statement.
The changes follow the completion of an investigation that uncovered improper accounting and financial reporting practices at Merge, a developer of medical imaging and patient management software. The investigation, conducted for Merge by the law firm Sidley Austin, LLP, and the forensic accounting firm Alvarez and Marshal, LLC, was undertaken following allegations that the company had improper revenue recognition practices, and the filing of seven class action lawsuits in March by people who bought shares of Merge between August 2, 2005, and March 16, 2006.
The lawsuits claim the company issued false statements in its purchase of Cedara, which Merge acquired in June 2005 for $325 million.
Merge also announced that in the course of the investigation, it discovered financial statements issued between the fiscal years of 2002 and 2005 can no longer be relied upon. The company had already determined financial statements for the quarters ended June 30, 2005, and September 30, 2005, were unreliable and would have to be adjusted.
The company acknowledged that the investigation would affect its position in the stock market. Merge has determined it will not be able to file annual reports for the fiscal year that ended December 31, 2005 and restatements for the quarter that ended March 31, 2006 to the NASDAQ Listing Qualifications Panel by the July 7 deadline. If the panel does not grant Merge an extension, then its stock will be traded on “Pink Sheets” beginning July 10.
In addition, the company’s shares fell $5.01 on the day after the announcement, closing at $7.30. Since February, when Merge announced there would be a delay in its year-end financial report, its stock has plummeted by 70 percent.
In a press release, Dunham said that while the investigation and its after effects will cause some disruption to Merge’s business operations, the company intends to push forward with the delivery of healthcare information technology. Dunham added that the company has $60 million in cash and cash equivalent on hand as of June 30, providing them with “sufficient liquidity.”
At press time, Merge representatives were unavailable for additional comment.
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