Human Capital & Careers

Cyberonics Restates; CFO, CEO Out

The new chairman, a former U.S. Congressman, reportedly was awarded below-market options by the company in 1994.
David Katz and Stephen TaubNovember 21, 2006

Cyberonics, Inc., a maker of medical devices, announced the resignations of Robert Cummins as chairman, chief executive officer, and president, and Pamela Westbrook as CFO and vice president of finance and administration.

No reason was given for the departures. They were announced at the same time that the company reported that its audit committee had found that incorrect measurement dates were tied to the financial reporting of a number of option grants between 1999 and 2003. The incorrect measurements will cause Cyberonics to take an added non-cash, stock-based compensation expense of roughly $10 million and restate its results for the six fiscal years going back to 2000 and the first three fiscal quarters of 2006.

The company named John Riccardi as interim finance chief. Riccardi has served as the director of financial planning and analysis for the company since November 2005. Westbrook has agreed to serve as a consultant to the company until the company names a permanent finance chief.

Reese S. Terry, Jr., the company’s co-founder, former CEO, and a current director, was tapped as interim chief executive. The board also voted to separate the roles of CEO and chairman and elected Tony Coelho, a former U.S. representative and director of the Company since 1997, to the position of non-executive chairman.

A day later, however, USA Today, citing Securities and Exchange Commission filings, reported that Coelho was awarded below-market options from Cyberonics in early 1994, “at a much deeper discount to the market price than the company’s stock-option plan provided for at the time. could reach neither Coelho, Cummins, nor Westbrook for comment, and Cyberonics refused to comment.

Coelho thanked both Westbrook and Cummins for their service to the company. “We have benefited from Pam’s business acumen and appreciate the effort she put into building the Company’s strong finance organization,” he said. Cummins “helped to establish a deep bench of individuals with the management and financial expertise needed to ensure a smooth transition,” according to Coelho.

Cyberonics also announced a series of governance changes, including separating the roles of CEO and chairman. Among a number of actions concerning stock options, the company will limit option grants to specific limited time periods during the year; require approval all option grants at compensation committee meetings, rather than by written consent; and require that all internal approvals of award grants be obtained in writing before the board or compensation committee can grant an equity award.

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