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Affiliated Computer Executives Exit

The company completes its stock options investigation.

Affiliated Computer Services


CEO Mark King and CFO Warren Edwards resigned Sunday after the company completed its stock options investigation and found that the two top executives intentionally manipulated options grant dates.

The company's board immediately appointed COO Lynn Blodgett as president and CEO, and named the head of corporate development, John Rexford, as vice president and CFO. Both have been with the company for more than 10 years.

Blodgett will continue to serve on the board, and Rexford was appointed to be a director.

In addition, ACS said it expects to pay $51 million plus additional taxes related to the incorrect measurement dates used to calculate its stock options grants in the years 1994 to 2005. The estimate is not final.

"The company has not yet determined the impact of these accounting adjustments on its historical and current period consolidated financial statements ... nor whether it will be required to restate its consolidated financial statements as a result of these adjustments," ACS said.

"The investigation concluded that in a significant number of cases

former CEO Jeffrey Rich, Mr. King and/or Mr. Edwards used hindsight to select favorable grant dates during the limited time periods after Mr. Deason

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the chairman of the board, and chairman of the compensation committee from 1994 to 2003 had given the officers his authorization to proceed," ACS said.

Notes related to the grants were "intentionally misdated" at the instruction of Rich, King and/or Edwards, ACS said, "to make it appear as if the memoranda had been created at or about the time of the chosen grant date, when in fact, they had been created afterwards."

Thus, the company said options were typically given at or near the quarterly low, so ACS "effectively granted 'in the money' options without recording the appropriate compensation expense."

In addition to Rich, King and Edwards, one other current member of management, who is a not an executive officer or director, was aware of the fudged document dates, ACS said.

When the company filed its 10-Q in May 2006, it said that it did not believe any director backdated options for financial gain. ACS said that this filing is now inaccurate.

ACS said it hopes to file its 10-K for the fiscal year ended June 2006 and 10-Q for the first quarter ended September 2006 by the end of this year.

Shares of ACS rose 32 cents to $51.06 in recent trading.

ACS said it continues to cooperate with the

Securities and Exchange Commission

and the U.S. attorney's office for the Southern District of New York in their investigations of the company.