Shareholders led by New York-based hedge fund Metropolitan Capital Advisors Wednesday asked a U.S. court to force troubled medical device maker Cyberonics to hold its 2006 annual meeting.
The hedge fund said the move, made via an application in a Delware court, was also on behalf of the Committee for Concerned Cyberonics Sharholders.
The hedge fund also said it was putting up its fourth company board nominee. Among its nominations is the hedge fund’s CEO Jeffrey Schwarz.
Over the past year, Cyberonics shares have fallen 41.5 percent to $17.48 from $29.87.
The SEC launched an inquiry relating to the company’s stock option grants in June (see Drugs & Devices: Trial Stopped andDrugs & Devices: SEC Probe).
The probe came after a Wall Street analyst raised a red flag over the way the company issued stock options to key executives in June 2004. The options were issued just hours after the FDA recommended approval of Cyberonics’ device for treating drug-resistant depression (see Cyberonics Denies Impropriety).
The investigation has in turn stymied the company’s ability to file financial statements. Metropolitan Capital Advisors speculate that this could be a reason why Cyberonics hasn’t set the meeting date, as the company would not be able to distribute its proxy statement under federal securities laws.
“This would be deeply disturbing because it would represent a direct outgrowth of the company's ill-conceived 2004 option grant,” said Mr. Schwarz and the fund’s president Karen Finerman in a letter to Cyberonic’s board of directors.
Cyberonics did not respond to requests for comment.
But this is not the first time Metropolitan Capital Advisors picked a fight with Cyberonics. In September the fund wrote a letter to the board, again calling for change, and stating that their nominees would be a catalyst for governance reforms at the company.
“The Cyberonics board is comprised of seasoned industry leaders who are actively engaged in building shareholder value and positioning Cyberonics for profitable growth and continued success,” the company said response to the letter from Metropolitan Capital Advisors in September.
Cyberonics also said that in June it met with representatives from Metropolitan Capital in an effort to reach a cooperative solution. Shortly after the meeting, the Cyberonics board told Metropolitan Capital to submit their nominees’ credentials to an outside firm hired to identify qualified board members.
“This review is ongoing,” said Cyberonics. “Rather than proceeding in a cooperative fashion to the benefit of the company and its shareholders, however, Metropolitan Capital has decided to pursue a potentially costly and disruptive proxy contest.”
As of September, Metropolitan Capital Advisors owned about 7.33 percent of Cyberonics.
Contact the writer: RBarron@RedHerring.com