HOUSTON, Jan. 16 /PRNewswire-FirstCall/ -- Cyberonics, Inc. today sent the following letter to stockholders urging them to vote to reelect the Board’s highly qualified nominees, Stanley H. Appel, M.D., Tony Coelho, Guy C. Jackson, Kevin S. Moore, Hugh M. Morrison, Alan J. Olsen, Michael J. Strauss, M.D., M.P.H., and Reese S. Terry, Jr.
January 16, 2007 Dear Cyberonics Stockholder,
Your vote at the February 1st Annual Meeting of Cyberonics stockholders will be critical to the future of your investment. We are writing to ensure that you have the real facts in hand as you consider the issues, and to seek your support on the WHITE proxy card FOR your Board’s nominees. Remember, your vote is important, no matter how many or how few shares you own.
We are concerned that you may have received materials from a dissident stockholder group styling itself as “The Committee for Concerned Cyberonics, Inc. Stockholders.” This special interest group wants you to elect its handpicked nominees to your Company’s Board of Directors in opposition to the highly qualified slate nominated by your Board. We urge you to discard any Gold proxy card you may receive from the dissidents and instead support your Board by signing, dating and returning the enclosed WHITE proxy card today.
DON’T ACCEPT THE DISSIDENTS’ FALSE AND MISLEADING ATTACKS ON YOUR BOARD
MEMBERS
The dissidents’ materials present no plan or vision for your Company, but they do repeat a series of false and misleading statements about three valued members of your Board -- Chairman Tony Coelho and directors Stanley Appel and Kevin Moore -- that we cannot allow to go unchallenged.
The dissidents are distorting the truth: you should know that any allegations that Mr. Coelho and Dr. Appel received below-market stock options prior to their board service are simply false, the result of the dissidents’ irresponsible reliance on a poorly researched and erroneous newspaper article written late last year. These claims were carefully examined by the independent counsel to the Audit Committee of the Board and were found to be completely without merit. We had informed the dissidents that the allegations are false, yet they chose to repeat them without bothering to ask us for an explanation. Now we’re telling you, our stockholders, the truth, so that you can make an informed choice regarding your Board.
Mr. Coelho suffers from epilepsy and has long been a tireless advocate for disabled Americans. During his tenure in the United States House of Representatives from 1979 to 1989, he authored the Americans with Disabilities Act. In 1994, he agreed to consult with Cyberonics regarding our unique and proprietary VNS Therapy System to treat pharmacoresistant epilepsy, still in clinical trials at the time. Under the terms of his consulting agreement, Mr. Coelho received stock options vesting over three years with an exercise price of $7.75, the market value on the date of the grant. In December 1994, the FDA required us to conduct a second double-blind study to confirm the statistically significant results of the first clinical study. As an incentive to employees and other optionees to remain employed and to continue to work diligently through this delay in approval to market our novel therapy, the Compensation Committee of our Board offered to reprice all outstanding options, including the options granted to Mr. Coelho, to $5.25, which was $1.75 above the market value of the stock on that date. Because Mr. Coelho was not a member of our Board until March 1997, these facts would not have been reported in public filings.
Dr. Appel is a distinguished neurologist who agreed in 1994 to serve as Chairman of our Scientific Advisory Board. Under the terms of his consulting agreement, Dr. Appel was granted stock options priced at $4.75, the fair market value of the stock on the date of the grant. In November 1996, after St. Jude Medical and Cyberonics determined to remain independent, our stock price had declined by 50% to $3.06, and in a move designed to retain employees and stabilize the Company, our Board offered to reprice all outstanding options to the price on that date, including the options granted to Dr. Appel. Because Dr. Appel was not a member of our Board until December 1996, these facts would not have been reported in public filings.
The dissidents also persist in misleading stockholders regarding another of our highly qualified directors, Kevin Moore. In 1997, The Clark Estates agreed to purchase our stock in a private placement at a time when we faced an uncertain future and had no access to other funding sources on similar terms. In connection with the private placement, our Board agreed that The Clark Estates could designate one member to serve as a director on our Board, subject to The Clark Estates retaining at least 600,000 aggregate shares of our stock. In 2004, The Clark Estates designated Kevin Moore, President of The Clark Estates, as its representative, and our Board duly elected Mr. Moore as a member of our Board. We acknowledge that Mr. Moore should have been nominated for election at our two most recent Annual Meetings and that, as a result of an error identified last year prior to receipt of the dissidents’ nominations, he was not. Nonetheless, under our bylaws, which provide that a director continues to serve until his successor is elected or until his earlier resignation or removal, Mr. Moore continued to serve and provide valuable service. Like all our other directors, and as we planned before we first received the dissidents’ nominations, Kevin Moore will stand for election this year.
THE DISSIDENTS’ NOMINEES ARE NOT QUALIFIED TO HELP CYBERONICS EXECUTE ON ITS BUSINESS PLAN
Our Board and management have been executing on a strategic plan designed to position your Company at a competitive advantage along a number of fronts. We believe that having an independent Board comprised of directors with relevant professional experience and industry expertise is vital to the successful implementation of this plan.
When the dissidents proposed new directors for the Board, in accordance with our duties, we retained The Directors’ Council, a respected, nationwide director search firm that seeks to bring increased independence and effectiveness to the governance process, to interview each of the candidates. We determined that, unlike the Board’s nominees, the dissident group’s nominees have little to no relevant experience managing public companies, serving on boards of public companies, commercializing single source implantable neurostimulation devices, or working in therapeutic indications relevant to Cyberonics’ business. They also lack relationships with key constituencies that are critical to our success, in particular, key contacts with lawmakers, regulators, providers and major payors -- our most important constituencies. Consequently, they are ill-prepared to contribute significant value as directors.
Until March 2006, one of the dissident’s nominees, Mr. Novak, was the President and Chief Executive Officer and a director of Novoste Corporation, a vascular brachytherapy (catheter) company. In March 2006, Novoste, having failed at its primary business and having seen its stock value decline 99% from mid-2000 to March 2006, sold substantially all the assets of its vascular brachytherapy business. Mr. Novak also served on the board of Sutura, Inc., which saw its stock price decline 56% during the months of Mr. Novak’s tenure as a director. You should ask yourself if this track record indicates that Mr. Novak will enhance value for Cyberonics stockholders.
Another dissident nominee, Dr. Rosenthal, has no experience running a public company or serving on the Board of a public company. You should wonder what kind of value Dr. Rosenthal would add to overseeing Cyberonics’ business.
Finally, the dissident group’s proxy statement indicates that its third nominee, Mr. Schwarz, previously served on the board of only a single public company, Bogen Communications International, Inc. Bogen is a provider of sound systems and telephone peripherals, not a medical technology company. Further, Bogen was delisted from the NASDAQ exchange in 2004. You should question the value of having Mr. Schwarz as a member of the Cyberonics Board, given his lack of experience in the field of medical technology and as a board member of a public company.
THE DISSIDENTS HAVE NO PLAN, NO VISION
Despite the fact that the dissident nominees lack appropriate qualifications, we have attempted on a number of occasions to talk with the dissidents about their concerns and thereby avoid a costly, divisive, and distracting proxy contest. The Board agreed to consider reasonable compromises related to the Board’s structure, but the dissidents refused to negotiate a reasonable solution. In fact, they literally walked out of our last meeting. Moreover, despite a number of opportunities, the dissidents have never suggested -- either to our Board or to our stockholders -- that they have any specific plan to maximize stockholder value. Instead they have chosen to wage this proxy contest and have even made it clear that, if elected, they plan to force our stockholders to cover the entire expense of their proxy solicitation, without ever seeking your approval. The dissidents would probably like you to think that it can’t hurt to elect their nominees to the Board, but we believe that the election of a self-serving slate of unqualified nominees who want to spend your money to get elected is directly harmful to your interests.
DON’T RISK YOUR INVESTMENT IN CYBERONICS: SUPPORT YOUR BOARD
The right team is now in place to grow the Company and to create value for all stockholders. Currently, the Company has an independent Board with relevant expertise comprised of proven business leaders. Furthermore, the interests of your Board members and management are closely aligned with those of all Cyberonics stockholders. Members of your Board and management are currently beneficial owners of more than 9% of the Company’s outstanding shares. Not only does your current Board have a plan underway to drive growth, but it has taken concrete action to enhance accountability and governance, evidenced by clear operational and financial progress. Your Board also has important relationships with constituencies, including lawmakers, regulators, providers and major payors, none of which could be matched by the dissidents’ nominees. The dissident slate would add no relevant experience, but it could destabilize the Company and the Board, and leave you saddled with the costs of the dissidents’ proxy solicitation.
We believe your Board’s nominees are crucial to the continued execution of Cyberonics’ strategy. We urge you to sign, date and return the enclosed WHITE proxy card today.
On behalf of your Board of Directors, thank you for your continued support. TONY COELHO REESE S. TERRY, JR. Chairman of the Board of Directors Interim Chief Executive Officer About VNS Therapy and Cyberonics
Information on Cyberonics, Inc. and VNS Therapy is available at http://www.cyberonics.com and http://www.vnstherapy.com.
Additional Informational and Forward-Looking Statements
These Definitive Additional Materials contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the use of forward-looking terminology, including “may,” “believe,” “will,” “expect,” “anticipate,” “estimate,” “plan,” “intend,” and “forecast,” or other similar words. Statements contained in these Definitive Additional Materials are based upon information presently available to the Company and assumptions that the Company believes to be reasonable. The Company is not assuming any duty to update this information should those facts change or should we no longer believe the assumptions to be reasonable. Investors are cautioned that all such statements involve risks and uncertainties, including without limitation, statements regarding financial performance, including positioning the Company at a competitive advantage and execution of our business plan. The Company’s actual decisions, performance and results may differ materially. Important factors that may cause actual results to differ include, but are not limited to: continued market acceptance of VNS Therapy and sales of the Company’s product; the development and satisfactory completion of clinical trials and/or market test and/or regulatory approval of VNS Therapy for the treatment of Alzheimer’s disease, anxiety, or other indications; adverse changes in coverage or reimbursement amounts by third-parties; intellectual property protection and potential infringement claims; maintaining compliance with government regulations and obtaining necessary government approvals for new applications; product liability claims and potential litigation; reliance on single suppliers and manufacturers for certain components; the accuracy of management’s estimates of future expenses and sales; the results of the previously disclosed governmental inquiries; the impact of the previously announced restatement of the Company’s financial statements or other actions that might be taken or required as a result of the review by the Audit Committee of the Company’s Board of Directors of the Company’s stock option grants, procedures, and practices, including a default under credit facilities or debt instruments; any litigation relating thereto or to the Company’s stock option grants, procedures, and practices (including the previously disclosed private litigation); uncertainties associated with compliance with the requirements of the NASDAQ Panel to avoid possible delisting of the Company’s stock from NASDAQ for failure to file timely periodic reports with the SEC; uncertainties associated with any appeal concerning any possible delisting by NASDAQ; uncertainties associated with stockholder litigation and other risks detailed from time to time in the Company’s filings with the SEC. For a detailed discussion of these and other cautionary statements, please refer to the Company’s most recent filings with the SEC, including its Form 10-K for the fiscal year ended April 28, 2006.
Cyberonics, Inc.
CONTACT: Eric Brielmann, or Jeremy Jacobs, both of Joele Frank, WilkinsonBrimmer Katcher, +1-212-355-4449
