Biomet Announces Leadership Changes, Reports On Stock Option Investigation
July 28, 2016 at 4:25 p.m.
By -
It also announced the actions it is taking in response to the preliminary findings of the investigation, including changes in its executive management.[[In-content Ad]]Gregory D. Hartman, senior vice president - finance, chief financial officer and treasurer, and Daniel P. Hann, executive vice president of administration and a director, retired from the company Friday, but will serve as consultants to the company to ensure a smooth transition of business operations and financial matters. Additional information about the severance and consulting arrangements with Hartman and Hann is contained in Biomet's Current Report on Form 8-K filed with the Securities and Exchange Commission.
Biomet also announced the appointment of J. Pat Richardson as vice president - finance and interim chief financial officer and treasurer, effective April 11. The board has initiated an active search for a permanent chief financial officer and treasurer for the company with the assistance of an executive search firm.
Jeffrey R. Binder, president and chief executive officer of Biomet, said, "The transition of senior officers presents a significant challenge for any organization. However, we have a talented executive team in place and I am highly confident in our ability to move forward successfully."
Hann said, "I am leaving the company well-positioned in the market and in very capable hands. As a consultant to the company, I will ensure a smooth transition for our team members and shareholders. I am proud of the success that Biomet has achieved during my 18-year tenure, establishing itself as a leader in our market."
As previously disclosed in the Current Report on Form 8-K filed by Biomet Inc. on Dec. 18, following the publication of an analyst report suggesting that certain historical grants of stock options by the company took place on dates where Biomet's stock price was trading at relatively low prices, and the filing of two shareholder derivative lawsuits alleging improper "backdating" of stock options, Biomet's board of directors formed a special committee to conduct an independent investigation of Biomet's stock option grants. The committee was to determine whether Biomet had any claims arising out of any inappropriate stock option backdating and whether it was in the best interest of Biomet and its stakeholders to pursue any claim. The special committee retained independent counsel to advise it in connection with and to conduct its investigation. Counsel to the special committee also hired independent accountants.
Friday, Biomet announced an updated report from the special committee presented by counsel to the special committee and the independent accountants. Based upon an analysis of this report and accounting literature, the audit committee determined the company should amend its Annual Report on Form 10-K for the fiscal year ended May 31, 2006, and Quarterly Report on Form 10-Q for the fiscal quarter ended Aug. 31, 2006, to reflect the restatement of the consolidated financial statements and related disclosures. In light of the special committee's preliminary report, the company's previously issued financial statements and any related reports of its independent registered public accounting firm should not be relied upon. The company believes, based upon the special committee's preliminary report, that the impact of the restatement will not be quantitatively material to any prior period financial statements.
The audit committee has discussed these matters with Ernst & Young LLP, the company's independent registered public accounting firm.
Both the company and its independent accounting firm are communicating regularly and started the work that will be necessary for the restatement with the objective of completing the work required to file the restatement and Biomet's Quarterly Report on Form 10-Q for the fiscal quarter ended Nov. 30, 2006, as soon as possible.
While the investigation of the special committee is not complete, based upon the investigative team's review of an extensive collection of documents, interviews of more than two dozen individuals, and analysis of approximately 17,000 grants to purchase approximately 17 million Biomet common shares on more than 500 different grant dates over the 11-year period from 1996 through 2006, the special committee reported the following preliminary findings to the board of directors:
• The company's administration of its various stock option plans disregarded the terms of those option plans;
• Most of the options issued during the 11-year period from 1996 through 2006 were not priced at the fair market value on the date of their respective grants;
• There was opportunistic misdating and mispricing of options in order to take advantage of lower exercise prices;
• The company failed to maintain adequate books and records concerning its stock option grants;
• There were inadequate internal controls over the issuance and accounting for stock option grants;
• The relevant accounting and legal rules regarding option plans and their administration were not followed;
• Biomet failed to adequately staff and devote appropriate resources to the administration of its stock option plans; and
• As a result of these deficiencies, Biomet's public filings with regard to stock options were inaccurate.
The committee also reported that members of senior management were aware of the practice of dating options on a date other than the date on which final action regarding the option occurred. Certain members of senior management, namely the company's chief financial officer and general counsel during the period, were or should have been aware of certain accounting and legal ramifications, respectively, of issuing an option with an exercise price lower than the fair market value on the date of issuance.
The committee reported it had calculated, on a preliminary basis, that the collective difference between the exercise price at which the options in question should have been issued less the exercise price at which such options were improperly issued plus other non-employee option-related expenses were approximately $50 million over the 11-year period in question. The preliminary results indicate that the issuance spread in each year averaged less than $5 million per year, with nine out of the 11 periods under $5 million per year, and the other two periods at approximately $9 million (2001) and $12 million (2000). Biomet expects that a substantial portion of the additional compensation expense resulting from this issue will be non-cash in nature.
The company's reported income before income taxes, prior to any adjustments as a result of the investigation into historical stock option granting practices, for the 11-year period in question ranged from $149.7 million in fiscal 1996 to $611.2 million in fiscal 2006.
A significant component in the committee's estimate of issuance spread and potential additional compensation expenses is the appropriate "measurement date" ultimately used to determine the fair market value of Biomet's common shares on the grant date of each option award. Neither the committee, the company nor the company's independent accounting firm, has performed a "sensitivity analysis" to determine the impact of alternate measurement dates upon the special committee's preliminary estimate of potential additional compensation expense.
As a result, certain Biomet financial statements will be subject to changes and adjustments. These changes and adjustments may include:
In response to the special committee's preliminary report, all current members of the board agreed that, with respect to misdated or mispriced stock option awards to the current directors on or after Jan. 1, 1996, which had not yet been exercised, the exercise price of such unexercised stock option awards would be increased to the fair market value of the company's common shares on the measurement date applicable to such award. In addition, the current members of the board agreed that, with respect to misdated or mispriced stock option awards to the current directors on or after Jan. 1, 1996, which had previously been exercised, such directors would at a future date remit to the company an amount equal to the excess, if any, of the fair market value of the company's common shares on the measurement date for such award over the exercise price of such award.
The company and the special committee are continuing to consider various matters, including other potential remedial measures. The board will continue to be involved in reviewing information received from the special committee and determining the appropriate actions to be taken by the company with respect to this matter.
Additional issues may be identified for one or more of the periods under review.
The company has voluntarily updated the staff of the Securities and Exchange Commission on the special committee's preliminary findings.
For more information, visit www.biomet.com
It also announced the actions it is taking in response to the preliminary findings of the investigation, including changes in its executive management.[[In-content Ad]]Gregory D. Hartman, senior vice president - finance, chief financial officer and treasurer, and Daniel P. Hann, executive vice president of administration and a director, retired from the company Friday, but will serve as consultants to the company to ensure a smooth transition of business operations and financial matters. Additional information about the severance and consulting arrangements with Hartman and Hann is contained in Biomet's Current Report on Form 8-K filed with the Securities and Exchange Commission.
Biomet also announced the appointment of J. Pat Richardson as vice president - finance and interim chief financial officer and treasurer, effective April 11. The board has initiated an active search for a permanent chief financial officer and treasurer for the company with the assistance of an executive search firm.
Jeffrey R. Binder, president and chief executive officer of Biomet, said, "The transition of senior officers presents a significant challenge for any organization. However, we have a talented executive team in place and I am highly confident in our ability to move forward successfully."
Hann said, "I am leaving the company well-positioned in the market and in very capable hands. As a consultant to the company, I will ensure a smooth transition for our team members and shareholders. I am proud of the success that Biomet has achieved during my 18-year tenure, establishing itself as a leader in our market."
As previously disclosed in the Current Report on Form 8-K filed by Biomet Inc. on Dec. 18, following the publication of an analyst report suggesting that certain historical grants of stock options by the company took place on dates where Biomet's stock price was trading at relatively low prices, and the filing of two shareholder derivative lawsuits alleging improper "backdating" of stock options, Biomet's board of directors formed a special committee to conduct an independent investigation of Biomet's stock option grants. The committee was to determine whether Biomet had any claims arising out of any inappropriate stock option backdating and whether it was in the best interest of Biomet and its stakeholders to pursue any claim. The special committee retained independent counsel to advise it in connection with and to conduct its investigation. Counsel to the special committee also hired independent accountants.
Friday, Biomet announced an updated report from the special committee presented by counsel to the special committee and the independent accountants. Based upon an analysis of this report and accounting literature, the audit committee determined the company should amend its Annual Report on Form 10-K for the fiscal year ended May 31, 2006, and Quarterly Report on Form 10-Q for the fiscal quarter ended Aug. 31, 2006, to reflect the restatement of the consolidated financial statements and related disclosures. In light of the special committee's preliminary report, the company's previously issued financial statements and any related reports of its independent registered public accounting firm should not be relied upon. The company believes, based upon the special committee's preliminary report, that the impact of the restatement will not be quantitatively material to any prior period financial statements.
The audit committee has discussed these matters with Ernst & Young LLP, the company's independent registered public accounting firm.
Both the company and its independent accounting firm are communicating regularly and started the work that will be necessary for the restatement with the objective of completing the work required to file the restatement and Biomet's Quarterly Report on Form 10-Q for the fiscal quarter ended Nov. 30, 2006, as soon as possible.
While the investigation of the special committee is not complete, based upon the investigative team's review of an extensive collection of documents, interviews of more than two dozen individuals, and analysis of approximately 17,000 grants to purchase approximately 17 million Biomet common shares on more than 500 different grant dates over the 11-year period from 1996 through 2006, the special committee reported the following preliminary findings to the board of directors:
• The company's administration of its various stock option plans disregarded the terms of those option plans;
• Most of the options issued during the 11-year period from 1996 through 2006 were not priced at the fair market value on the date of their respective grants;
• There was opportunistic misdating and mispricing of options in order to take advantage of lower exercise prices;
• The company failed to maintain adequate books and records concerning its stock option grants;
• There were inadequate internal controls over the issuance and accounting for stock option grants;
• The relevant accounting and legal rules regarding option plans and their administration were not followed;
• Biomet failed to adequately staff and devote appropriate resources to the administration of its stock option plans; and
• As a result of these deficiencies, Biomet's public filings with regard to stock options were inaccurate.
The committee also reported that members of senior management were aware of the practice of dating options on a date other than the date on which final action regarding the option occurred. Certain members of senior management, namely the company's chief financial officer and general counsel during the period, were or should have been aware of certain accounting and legal ramifications, respectively, of issuing an option with an exercise price lower than the fair market value on the date of issuance.
The committee reported it had calculated, on a preliminary basis, that the collective difference between the exercise price at which the options in question should have been issued less the exercise price at which such options were improperly issued plus other non-employee option-related expenses were approximately $50 million over the 11-year period in question. The preliminary results indicate that the issuance spread in each year averaged less than $5 million per year, with nine out of the 11 periods under $5 million per year, and the other two periods at approximately $9 million (2001) and $12 million (2000). Biomet expects that a substantial portion of the additional compensation expense resulting from this issue will be non-cash in nature.
The company's reported income before income taxes, prior to any adjustments as a result of the investigation into historical stock option granting practices, for the 11-year period in question ranged from $149.7 million in fiscal 1996 to $611.2 million in fiscal 2006.
A significant component in the committee's estimate of issuance spread and potential additional compensation expenses is the appropriate "measurement date" ultimately used to determine the fair market value of Biomet's common shares on the grant date of each option award. Neither the committee, the company nor the company's independent accounting firm, has performed a "sensitivity analysis" to determine the impact of alternate measurement dates upon the special committee's preliminary estimate of potential additional compensation expense.
As a result, certain Biomet financial statements will be subject to changes and adjustments. These changes and adjustments may include:
In response to the special committee's preliminary report, all current members of the board agreed that, with respect to misdated or mispriced stock option awards to the current directors on or after Jan. 1, 1996, which had not yet been exercised, the exercise price of such unexercised stock option awards would be increased to the fair market value of the company's common shares on the measurement date applicable to such award. In addition, the current members of the board agreed that, with respect to misdated or mispriced stock option awards to the current directors on or after Jan. 1, 1996, which had previously been exercised, such directors would at a future date remit to the company an amount equal to the excess, if any, of the fair market value of the company's common shares on the measurement date for such award over the exercise price of such award.
The company and the special committee are continuing to consider various matters, including other potential remedial measures. The board will continue to be involved in reviewing information received from the special committee and determining the appropriate actions to be taken by the company with respect to this matter.
Additional issues may be identified for one or more of the periods under review.
The company has voluntarily updated the staff of the Securities and Exchange Commission on the special committee's preliminary findings.
For more information, visit www.biomet.com
Have a news tip? Email [email protected] or Call/Text 360-922-3092