Worth $2b, inventor fighting to keep his job

Last August, Boston Scientific Corp. chief executive Jim Tobin sent a difficult letter to Alfred Mann , one of the company's division chiefs. After careful discussion with his top managers, Tobin wrote, he had concluded Mann must leave.

It was no ordinary decision, and Mann was no ordinary subordinate. At 81 years old and with an estimated personal fortune of $2 billion, he ranks among the most successful inventors and entrepreneurs in the history of the medical device industry. His most recent success was selling one of his companies in 2004 for $742 million to Boston Scientific, the Natick life-science giant.

The acquisition deal brought Boston Scientific not only the company, but Mann as well. By mutual agreement, he stayed aboard to run his firm as an independent subsidiary. But he ran into conflicts with his new bosses, and last summer they gave him three days to resign or be pushed out. Mann asked them to reconsider, and in a letter dated Aug. 4 , Tobin said he had held "numerous discussions" with members of his executive team and made a "good-faith effort" to ensure it was the right decision. He concluded it was, and Mann should go.

There was just one problem. Tobin's letter had been drafted and reviewed by the company's trial lawyers the previous week -- before the discussions it mentioned had taken place.

The letter has become a key piece of evidence in a bitter seven-month power struggle between Boston Scientific and one of the nation's most prominent medical inventors. A Globe examination of more than 800 pages of court documents and hearing transcripts from the ongoing case, in federal district court in New York, finds a detailed story rich with accusations of incompetence and backstabbing, offering a rare behind-the-scenes look at the gloves-off tactics used by corporate leaders when deals go sour.

Mann says Boston Scientific agreed to share control of his company, Advanced Bionics Corp., and then blindsided him, plotting behind his back to evict him and seize sole command. Boston Scientific says it has the right to fire Mann and approached the process of replacing him fairly. The company says he ran up increasing losses at Boston Scientific's expense, and that his ineptness as a manager was jeopardizing not just his division, but the entire corporation.

Judge Alvin Hellerstein, however, has agreed with Mann, saying that Tobin and his executives acted in bad faith by trying to force Mann out. Now Mann has dug in, refusing to leave his executive suite in California. The two sides currently have competing proposals before Hellerstein that dictate what happens next.

Boston Scientific, a $25 billion company built on more than two decades of acquisitions, has had another major case before Hellerstein. In 2005 the company paid $750 million to settle claims that it had set up a secret factory to steal the designs for heart stents made by its Israeli business partner, Medinol Ltd. , a deal brokered by the judge.

The Medinol dispute, too, had its roots in a relationship between Boston Scientific and a smaller firm run by a tough-minded medical inventor. The settlement wiped out half of Boston Scientific's 2005 profits.

Mann's suit is unlikely to lead to that kind of financial penalty. His primary demand is to keep control of the company he sold almost three years ago.

When Boston Scientific bought Advanced Bionics from Mann in 2004, it was the Natick company's biggest deal of the year. Its founder was already a billionaire and one of the best-known medical inventors in America. Among his previous inventions were an insulin pump for diabetes patients and an early generation of pacemakers, both considered spectacular successes in the lucrative medical-device industry. His new company, headquartered in the Los Angeles suburb of Sylmar , had more than 500 employees and an intriguing lineup of tiny electronic machines to control pain, deliver drugs, and overcome hearing loss. Boston Scientific saw it as a doorway into the young but expanding field of electronics that can be implanted in the body.

To persuade Mann to sell them the company, Boston Scientific executives promised to pay $742 million up-front, plus several years' worth of future payments based on the sales of Advanced Bionics products. If the goals were met, the package could be worth $3 billion or more. Advanced Bionics had roughly 800 shareholders at the time of the deal, but by far the biggest beneficiary is Mann, who owned the largest chunk of the company and gets 60 percent of the payments.

They also struck an unusual deal to run the company. Although Advanced Bionics would become a subsidiary of Boston Scientific, Mann would stay on and continue to manage it with his long-time lieutenant, "co-chief executive" Jeffrey Greiner . They reported not to Boston Scientific's chief, but to a six-member executive board chosen half by Advanced Bionics and half by Boston Scientific. Mann, Greiner, and another ally made up half the board; the other was drawn from Boston Scientific's executive suite. Under the deal, if the board were to deadlock on an issue, a lengthy appeals process would follow. Tobin, at the top of the Boston Scientific pyramid, still held the final say. But on day-to-day management of Advanced Bionics, his hands were tied.

When the deal was announced, the firms described their merger as a warm marriage of corporate cultures, and Tobin highlighted Mann's role in the new company.

"I am particularly pleased that the Advanced Bionics senior management team, led by founder, chairman, and co-CEO Al Mann . . . will continue to lead the company," he said in a prepared statement at the time. Boston Scientific chief financial officer Lawrence Best boasted in an investor conference call about the acquisition's "Al Mann factor."

But the good feelings wouldn't last. According to court filings, disagreements flared in less than a year, when Boston Scientific pressed Advanced Bionics to abandon research on a drug pump that Mann wanted to develop and sell.

Other issues arose: Mann's company, which like many young medical companies operated at a loss, was taking longer to become profitable than Boston Scientific had projected. It also struggled with quality-control problems -- an increasingly sensitive issue for Boston Scientific, which last year was hit with a corporate quality warning from the Food and Drug Administration for a wide array of problems at other facilities.

Behind the scenes, without telling Mann, Boston Scientific began planning to remove him and Greiner. Last spring, Boston Scientific's chief operating officer, Paul LaViolette , offered the job of running Advanced Bionics to a subordinate within Boston Scientific. In a June e-mail to a colleague, LaViolette said the company would need an ironclad legal plan for firing Greiner and Mann, including "binding authority to run the company" and "a termination of their executive roles that sticks."

"We want them out . . . with agreements to not disparage [Boston Scientific] going forward," he wrote.

According to his testimony in the lawsuit, however, Mann was unaware of any of this. And he was unprepared for what happened next. On July 11 of last year, Mann sat down with LaViolette and Best, the chief financial officer.

Best told Mann that he and Greiner had three days to resign. Advanced Bionics was losing too much money, he said, and its management was the problem. He handed Mann a draft severance agreement for Greiner; Mann, he said, must step down as chief executive but could stay on as an adviser. He showed a PowerPoint slide that detailed what would happen if they refused to leave: a schedule of meetings that would force them out within a few months.

Mann reacted by suing Boston Scientific six days later. The nominal plaintiffs, who sued on behalf of all Advanced Bionics shareholders, are his daughter and the general counsel of Advanced Bionics.

In abruptly pushing Mann out, the suit said, Boston Scientific's executives were trying to unilaterally scrap the co-management agreement they had signed just two years earlier, and evade the lengthy appeals process the agreement called for. They asked the court to block Mann's firing.

The situation quickly deteriorated. On July 18, Mann and Boston Scientific's executives met again, this time with Greiner and the other members of the executive board that, according to the contract, oversaw Advanced Bionics. The Boston Scientific members ran through a list of problems: a "lack of transparency" within Advanced Bionics, complaints from Advanced Bionics employees, and mounting losses. They proposed replacing Mann and Greiner. At one point, Best told Mann and Greiner, "There is an agreement. You will not incur losses in excess of $100 million. You failed big time."

Mann argued he should stay and said the board had no authority to replace him. The board took a vote. Split between the two sides, it deadlocked.

The next day, Mann spoke directly to Tobin, the parent company's chief executive. They met by videoconference, with Mann in California and Tobin in Natick. Tobin said that despite what his executives had said in the previous meetings, his mind was open about the terminations.

But subsequent events suggested that the decision had already been made. Soon afterward, on Aug. 3, Tobin hosted a meeting of Boston Scientific's top executive team in his office. The next day, Tobin sent Mann the letter saying he had conferred with the executives in a "good faith effort" to consider Mann's case, but ultimately concluded that he still wanted Mann and Greiner to leave.

Later, however, a Boston Scientific lawyer would testify the letter had been written and extensively reviewed by the company's trial lawyers the week before the meeting happened.

"This is just one of many examples of blatant bad faith" by Boston Scientific, Mann would later write to Tobin. "Shall I recount other examples?"

Neither side disputes that Tobin, as head of Boston Scientific, ultimately has the right to fire Mann. The case has boiled down to whether the parent company upheld its deal to share decision-making authority over Advanced Bionics -- or whether Boston Scientific's executives deliberately laid out a plan to render the joint executive board, and thus Mann's votes over the company he founded, an empty exercise.

A Boston Scientific spokesman last week said the company's leaders gave Mann and Greiner fair warning, and told them "on a number of occasions" that they had serious concerns.

"It was only after their failure to address them that we took action in a manner consistent with the agreement," said spokesman Paul Donovan , referring to the joint-management deal.

In a filing, Boston Scientific said its quick action in the summer to push Mann and Greiner out was "an attempt to avoid the turmoil and management distraction that sometimes results from involuntary terminations."

Last month, however, Judge Hellerstein rejected Boston Scientific's claims and blocked the company from firing the men. He ruled that "Boston Scientific breached the agreement with Bionics and acted in bad faith" by circumventing the process for replacing its leaders. He ordered the companies to agree on a preliminary injunction, an agreement to keep Mann in place and re start the process from the beginning.

Through his lawyer, Mark Samuels, Mann declined requests to be interviewed. Samuels says the company signed the deal setting up the executive board because it was the only way Mann would agree to let Boston Scientific buy Advanced Bionics, but when the firm tired of sharing control, it simply circumvented the contract.

"Boston Scientific wants to call Mann and Greiner, and Mann and Greiner say 'yes sir' and execute. But that's not the way the deal was written," Samuels said.

"Boston Scientific was used to calling the shots, and they don't like it, and that's what it's about."

Donovan said the parent company still thought Advanced Bionics had "enormous potential."

"We look forward to resolving our differences over the management of the business," he said.

Stephen Heuser can be reached at sheuser@globe.com