Backdated Options Probe Leads to Exit of Biomet Execs 4294

BUSINESS NEWS

Following an internal probe that uncovered significant mismanagement of stock options practices at Biomet Inc. (Warsaw, IN), the company announced the resignation of CFO Gregory Hartman and executive vice president of administration Daniel Hann. The company said that a special committee formed to investigate the matter determined that Hartman and Hann "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."

Commenting on the departure of Hartman and Hann, Jeffrey R. Binder, president and CEO 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." Binder replaced Hann, who was interim CEO, only weeks before the fallout from the stock options probe.

Despite being shown the door, both executives will continue as consultants "to ensure a smooth transition of business operations," Biomet reports. Hartman will reportedly stay on at $29,166 per month for six months, while Hann will receive $41,666 monthly for a year of consulting work.

"I am leaving the company well positioned in the market and in very capable hands," Hann said in an issued statement. "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."

The special committee that Biomet set up to investigate the stock options matter found that most of the options issued during the 11-year period from 1996 through 2006 were not priced at fair market value.

As a result of the probe, Biomet said it will restate its most recent annual report to reflect the disparity between the recorded expenses for stock options grants and the actual expenses for the grants. Such disparity over the course of the 11 years in question is estimated at about $50 million, according to preliminary findings.

Biomet is not alone in its stock options problems. According to an Associated Press report, more than 200 companies have disclosed that they are involved in investigations into their stock options practices with the Securities and Exchange Commission, the Department of Justice, or their own internal audits.

Most industry observers don't expect Biomet's stock options problems to have much of a lasting effect on the company. Raj Denhoy, vice president and senior medtech research analyst with Piper Jaffray & Co. (Minneapolis), said the probe is not likely to cause any serious or lasting damage to the company. "When you consider Biomet's $2.1 billion in annual revenues and $10.5 billion market cap, the fact that there is a discrepancy of $50 million over 11 years is a relatively minor issue," he says. Denhoy notes that the investors in the private equity consortium that purchased Biomet for $10.9 billion last December were well aware of the stock options issue when they made their offer. If anything, Denhoy thinks the probe may actually expedite the closing of the deal, which is expected later this year.