Cyberonics Ex-CEO Gets $1.7M Cash
Monday November 20, 6:58 pm ET
By Donna Borak and Matt Perrone, AP Business Writers
Cyberonics Ex-CEO Gets $1.7M Cash Plus Stock and Options in Wake of Stock Options Probe
WASHINGTON (AP) -- Cyberonics Inc. said Monday it will pay former CEO Robert P. Cummins $1.7 million in cash within five days of his resignation. He and another top executive quit the medical device maker Friday amidst a stock options scandal.
Shares of Cyberonics surged $2.59, or 12 percent, to $24.17 Monday on Nasdaq. Thomas Gunderson, an analyst at Piper Jaffray, says Cummins' departure has investors looking at the company as a potential acquisition target, given its patented and FDA-approved treatments for depression and epilepsy.
"The removal of the CEO opens the door for possible negotiations with potential buyers," says William J. Plovanic, analyst for First Albany Corp. St. Jude Hospital and Medtronic Inc. had made overtures in the past but were rebuffed, he added.
He forecast Cyberonics could bring a $1.2 billion bid, or more than $46 per share. But an ongoing Securities and Exchange Commission probe could have a negative effect on interested buyers, analysts cautioned.
Last week, billionaire investor Carl Icahn disclosed that he had purchased 606,688 shares of Cyberonics.
Cummins resigned as chief executive, president and chairman after the Houston-based company said an audit found it had used improper accounting on stock options. Federal regulators are investigating the company's stock option expense practices, and the company is moving to restate financial results for the past five years.
Cyberonics is the only company to have received Food & Drug Administration approval for an electronic device to treat major depression, a market estimated to be 4 million patients. The device, approved in July 2005, is implanted in the chest to stimulate nerves in the neck to alleviate symptoms untreatable with drug therapy.
The SEC began an investigation June 9 into the company's past stock option granting practices and the U.S. Attorney's Office for the Southern District of New York has subpoenaed the company.
According to an audit released Monday, the company is estimated to have misdated roughly $10 million in stock-based compensation expenses.
The audit, performed by independent law firm Morgan, Lewis & Bockius LLP and independent accountants, found that the company used "incorrect measuring dates with respect to financial reporting of certain option grants between 1999 and 2003," according to a company statement.
Financial statements for fiscal years ended June 30, 2000, through April 29, 2005, as well as fiscal periods ending July 29, 2005, Oct. 28, 2005, and Jan. 27, 2006, will be restated, Cyberonics said.
Despite the audit and the investigations Cummins, who resigned Friday, will receive $1.7 million cash, 75,000 unregistered shares of company stock and accelerated vesting for outstanding options, restricted stock grants and certain benefits payments, according to the terms of Cummins' employment agreement.
Metropolitan Capital Advisors Inc. and The Committee for Concerned Cyberonics Inc., which together owns 7.3% of the company's shares, said Monday that the board's decision "to lavishly reward him ... is inexplicable." They have also complained to federal securities regulators about the company not having an annual meeting in more than 14 months.
Terms of Cummins' payout were disclosed in an SEC filing. The company said it will also pay Cummins an amount equal to the cash value of 75,000 shares of the company's stock within one week of Cyberonics' filing its next annual report, says Eric Brielmann, a spokesman for the company.
The SEC or the Department of Justice is currently investigating 102 companies' stock option grant practices. The probes are focused on backdating, in which options are misdated to increase their value to the holder. The practice becomes illegal if the dating is not disclosed to shareholders.
More than 50 senior executives or directors have resigned because of backdating issues.
Cyberonics also disclosed Monday that it faces a conditional delisting notice from Nasdaq. Cyberonics had received two delisting notices from the exchange on Aug. 1 and Sept. 12 over its failure to file financial results for the year ended Apr. 28 and the quarter ended July 28.
Separately, the company said former vice president and chief financial officer Pamela B. Westbrook, who resigned Sunday, will receive $300,000 in cash within five days of her resignation, effective Sunday.
According to the SEC filing, Westbrook will also receive accelerated vesting for outstanding stock options and restricted stock.
Westbrook has signed a consulting agreement with the company to advise on financial matters. She will be paid $1,200 per day.
The company said John A. Riccardi will replace Westbrook as CFO, George E. Packer will serve as chief operating officer and company co-founder and former CEO Reese S. Terry Jr. will serve as CEO on an interim basis until the board completes an executive search. |
