Medical equipment maker Biomet announced that its chief financial officer and another executive have “retired” and that it will restate 11 years of results — a total of about $50 million — after a special committee found irregularities in its stock-option grants.
The two outgoing executives are Gregory D. Hartman, senior vice president of finance, CFO, and treasurer, and Daniel P. Hann, executive vice president of administration and a director. The company also announced that J. Pat Richardson will handle Hartman’s duties, effective April 11, until it hires a permanent finance chief and treasurer.
Biomet did not specify which periods will need to be restated. The company conceded, however, that most options issued from 1996 through 2006 had “an exercise price lower than the fair market value on the date of issuance” and that “members of senior management were aware of the practice.”
The company also cited “opportunistic misdating and mispricing” of options to take advantage of lower exercise prices; failure to maintain adequate books and records concerning stock-option grants; inadequate internal controls over the issuance and accounting for stock option grants; failure to follow the relevant accounting and legal rules regarding option plans and their administration; and failure “to adequately staff and devote appropriate resources to the administration of its stock-option plans.”
The $50 million charge reflects “other non-employee option related expenses” as well as the addition options expense the company should have booked, Biomet stated. The company also warned that the restatement will decrease net income, increase paid-in capital, and decrease retained earnings.
Current board members agreed that the strike price of unexercised option grants would be increased to the fair market value as of the appropriate measurement date, and that they would refund to the company all gains from exercising misdated or mispriced options.