Stockholders Should Read the Entire Proxy Statement
Carefully Prior to Returning Their Proxies
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS OF
CYANOTECH CORPORATION
To Be Held September 17, 1998
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of CYANOTECH CORPORATION ("Cyanotech" or the
"Company") of proxies to be voted at the Annual Meeting of Stockholders (the
"Annual Meeting") which will be held at 7:00 p.m., local time, on Thursday
September 17, 1998 at the Ala Moana Hotel, 410 Atkinson Drive, Honolulu, Hawaii,
or at any adjournment or postponement thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. This Proxy Statement and
the proxy card were first mailed to stockholders on or about July 31, 1998.
The Company's principal executive offices are located at 73-4460 Queen
Kaahumanu Highway, Suite 102, Kailua-Kona, HI 96740.
VOTING RIGHTS AND SOLICITATION
The enclosed proxy is being solicited on behalf of the Board of
Directors of Cyanotech for use at the 1998 Annual Meeting.
The close of business on July 22, 1998 is the record date for
stockholders entitled to notice of and to vote at the Annual Meeting. All
holders of the Company's Common Stock outstanding on the record date are
entitled to vote at the Annual Meeting. Such stockholders have one (1) vote for
each share so held on the matters to be voted on. Holders of 8% Cumulative
Convertible Preferred Shares - Series C ("Series C Preferred Stock") of record
at the close of business on July 22, 1998 are entitled to five votes for each
share of such stock on all matters to be voted on. At July 22, 1998, Cyanotech
had 13,599,572 shares of Common Stock, $.005 par value per share (the "Common
Stock"), issued and outstanding; and 595,031 shares of 8% Series C Preferred
Stock, each convertible into five shares of Common Stock. The presence in person
or by proxy of the holders of record of a majority of the voting power of the
outstanding shares entitled to vote constitutes a quorum. A plurality of votes
cast by the holders of Common Stock and Series C Preferred Stock, voting as a
single class, present at the meeting at which a quorum is present, is required
for election of each of the six directors. A majority of the voting power of
stockholders holding the Common Stock and Series C Preferred Stock, voting as a
single class, present at the meeting at which a quorum is present, is required
for approval of all other matters to be voted on. Abstentions are counted only
for purposes of determining whether a quorum is present. Broker non-votes are
not treated as votes nor are they counted in determining the existence of a
quorum.
Shares of the Company's Stock represented by proxies in the
accompanying form which are properly executed and returned to Cyanotech will be
voted at the Annual Meeting in accordance with the stockholders' instructions
contained therein. In the absence of contrary instructions, shares represented
by such proxies will be voted FOR the election of each of the directors as
described herein under "Proposal One - Election of Directors," and FOR
ratification of the selection of accountants as described herein under "Proposal
Two Ratification of Selection of Independent Public Accountants." Management
does not know of any matters to be presented at this Annual Meeting other than
those set forth in this Proxy Statement and in the Notice
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<PAGE>
accompanying this Proxy Statement. If other matters should properly come before
the meeting, the proxy holders will vote on such matters in accordance with
their best judgment.
The entire cost of soliciting proxies will be borne by Cyanotech.
Proxies will be solicited principally through the use of the mails, but, if
deemed desirable, may be solicited personally or by telephone, e-mail, or
facsimile or special letter by officers and regular Cyanotech employees who will
receive no additional compensation. Arrangements may be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxies and proxy
material to the beneficial owners of the Company's Common Stock, and such
persons may be reimbursed for their expenses.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office,
73-4460 Queen Kaahumanu Hwy, Suite 102, Kailua-Kona, HI 96740, a written notice
of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the meeting
will not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be considered at the 1999 Annual
Meeting of Stockholders must be received by Cyanotech no later than March 29,
1999. The proposal must be mailed to the Company's principal executive offices,
73-4460 Queen Kaahumanu Hwy., Suite 102, Kailua-Kona, Hawaii 96740, Attention:
Corporate Secretary. Such proposals may be included in next year's proxy
statement if they comply with certain rules and regulations promulgated by the
Securities and Exchange Commission.
PROPOSAL ONE:
ELECTION OF DIRECTORS
Nominees
A board of six (6) directors are to be elected at the meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
FOR the election of the six nominees named below, all of whom are presently
directors of the Company, except Eric H. Reichl. Each nominee has consented to
be named a nominee in this Proxy Statement and to continue to serve as a
director if elected. If any nominee becomes unable or declines to serve as a
director or if additional persons are nominated at the meeting, the proxy
holders intend to vote all proxies received by them in such a manner as will
assure the election of as many nominees listed below as possible (or, if new
nominees have been designated by the Board of Directors, in such a manner as to
elect such nominees) and the specific nominees to be voted for will be
determined by the proxy holders. The Company is not aware of any reason that any
nominee will be unable or will decline to serve as a director. Each director
elected at this Annual Meeting will serve until the next Annual Meeting or until
such director's successor has been elected and qualified. Voting for the
election of directors is non-cumulative.
In connection with the purchase by Eva R. Reichl (the late wife of Eric
H. Reichl) in 1993 of 1,800,000 shares of the Company's Common Stock, certain
holders of Common Stock, including Gerald R. Cysewski (the "Holders"), the
Company and Ms. Reichl entered into a Stockholders Agreement dated as of May 17,
1993 (the "Stockholders Agreement"). Under the Stockholders Agreement, the
parties agreed that without approval of a majority of the Holders' and Ms.
Reichl's shares, the Company would not propose, and the Holders and Ms. Reichl
would not vote for, any resolution, Bylaw change or other proposal that would
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<PAGE>
increase the Company's Board of Directors to more than six members. In addition,
the Company agreed under the Stockholders Agreement to notify Ms. Reichl of any
Board elections so that she may nominate one person for election as a director.
Ms. Reichl died in July, 1998. Her husband, as successor in interest to her
rights, has nominated himself at this election. At any Board election, the
Holders and Mr. Reichl have agreed to vote their shares to elect such nominee.
The Stockholders Agreement terminates when Mr. Reichl sells, transfers or
disposes of any of the 1,800,000 shares acquired, other than by will, the laws
of descent, or to an entity controlled by Mr. Reichl.
The following table sets forth certain information regarding the
nominees for election by holders of Common and Series C Preferred Stock to the
Board of Directors, all of whom were elected at the last annual meeting except
Mr. Reichl and Mr. Waldron.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Director
Name Principal Occupation Since Age
- ---- -------------------- ----- ---
Julian C. Baker Portfolio Manager for 1995 32
Laurence A. Tisch and
Preston R. Tisch
Gerald R. Cysewski, Ph.D. Chairman of the Board, 1983 49
President and Chief
Executive Officer,
Cyanotech Corporation
Eric H. Reichl Private investor -- 84
Ronald P. Scott Executive Vice President, 1995 43
Finance and Administration,
Cyanotech Corporation
John T. Waldron Executive Vice President, 1998 46
Takeda U.S.A.
(Bulk vitamin and fine
chemical products)
Paul C. Yuen, Ph.D. Dean, College of Engineering 1993 70
University of Hawaii at Manoa
(public university)
</TABLE>
Mr. Baker has served as a director of the Company since November 1995.
Mr. Baker has been a portfolio manager for Laurence A. Tisch and Preston R.
Tisch and for members of their family since 1994. From 1988 to 1993, Mr. Baker
was a member of The Clipper Group and its predecessors, CS First Boston Merchant
Bank and First Boston Venture Capital. Mr. Baker is a graduate of Harvard
University. Laurence A. Tisch and Preston R. Tisch are Co-Chairmen and Co-Chief
Executive Officers of Loews Corporation and own approximately 32% of the
outstanding shares of that corporation. Loews Corporation owns approximately
84% of the outstanding shares of CNA Financial Corporation. CNA Financial
Corporation, through a wholly owned subsidiary, is a major stockholder of
Cyanotech. See "Security Ownership of Certain Beneficial Owners and Management."
Dr. Cysewski co-founded the Company in 1983 and has ser ved as a
director of the Company since that time. Until June 1996, he also served as
Scientific Director. Since March 1990, Dr. Cysewski has served as President
and Chief Executive Officer of the Company and in October 1990 was also
appointed to the position of Chairman of the Board. From 1988 to November 1990,
he served as Vice Chairman of the Company. From 1980 to 1982, Dr. Cysewski was
group leader of microalgae research and development at
4
<PAGE>
Battelle Northwest, a major contract research and development firm. From 1976 to
1980, Dr. Cysewski was an assistant professor in the Department of Chemical and
Nuclear Engineering at the University of California, Santa Barbara, where he
received a two-year grant from the National Science Foundation to develop a
culture system for blue-green algae. Dr. Cysewski received his doctorate in
Chemical Engineering from the University of California at Berkeley.
Mr. Reichl is a private investor who has been involved with the Company
through his late wife, Eva R. Reichl, since her election as a director of the
Company in 1993. Before retiring in 1978, Mr. Reichl was Vice President,
Research & Development for Conoco Coal (now owned by DuPont). Mr. Reichl holds a
Masters Degree in Chemical Engineering from the Technical University in Vienna
and is a member of the National Academy of Engineering.
Mr. Scott was appointed to the Board of Directors of the Company in
November 1995, has served as Executive Vice President - Finance and
Administration since August 1995, and has served as Secretary and Treasurer
since November 1990 and June 1990, respectively. From December 1990 until August
1995, Mr. Scott served as Vice President - Finance and Administration. From
September 1990 to December 1990, Mr. Scott served as Controller. From 1989 to
1990, he was Assistant Controller for PRIAM Corporation, a manufacturer of
Winchester disk drives. From 1980 to 1989, he served in various accounting
management positions with Measurex Corporation, a manufacturer of industrial
process control systems. Mr. Scott holds a B.S. degree in Finance and Management
from California State University, San Jose, and an M.B.A. degree from the
University of Santa Clara.
Mr. Waldron is currently Executive Vice President for Takeda U.S.A.
(Orangeburg, New York) and is responsible for the sales and marketing of
Takeda's bulk vitamin and fine chemical products in the North American market.
From 1986 until 1995, Mr. Waldron was Vice President, Sales and Marketing for
Takeda U.S.A. and Senior Vice President, Sales and Marketing from 1996 until
June, 1997, when he was appointed to his current position. Mr. Waldron was also
appointed to the Board of Directors of Takeda U.S.A. in 1993 and serves as a
member of their Executive Committee and Compensation Committee. Mr. Walron holds
a Master of Management degree from Northwestern University's J. L. Kellogg
Graduate School of Management. He was elected a Director of the Company on July
15, 1998, filling the vacancy caused by the resignation of John T. Ushijima.
Dr. Yuen has served as a director of the Company since August 1993.
Dr. Yuen currently serves as Dean, College of Engineering for the University of
Hawaii at Manoa. From July 1992 to March 1993, Dr. Yuen was Acting President of
the University of Hawaii. From 1989 to 1992, Dr. Yuen was Interim Senior Vice
President for Academic Affairs, University of Hawaii at Manoa. Dr. Yuen holds
M.S. and Ph.D degrees in Electrical Engineering from the Illinois Institute of
Technology. Dr. Yuen is also a director of Hawaiian Electric Company, Inc., a
wholly owned subsidiary of Hawaiian Electric Industries, Inc.
The Board of Directors recommends that holders of Common Stock and
Series C Preferred Stock vote FOR all of the above named director nominees.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held seven regular meetings in
fiscal 1998. No incumbent director nominee attended less than 75% of all
meetings of the Board of Directors and of the committees, if any, upon which
such director served, except Mr. Yuen who did not attend two Board meetings.
5
<PAGE>
The Board of Directors of the Company has an Audit Committee and a
Compensation and Stock Option Committee. The Board of Directors does not have a
standing nominating committee.
The Audit Committee, which consisted of independent non-employee
directors Dr. Yuen (chair), the late Ms. Reichl, and Mr. Ushijima (who resigned
as a Director of the Company on July 15, 1998) held one regularly scheduled
meeting during fiscal year 1998. The principal functions of the Audit Committee
are to recommend engagement of the Company's independent auditors, to review and
approve the services performed by the Company's independent auditors and to
review the Company's accounting principles, its internal control structure,
policies and procedures.
The Compensation and Stock Option Committee, which also consisted of
independent non-employee directors Mr. Baker (chair), the late Ms. Reichl, and
Mr. Ushijima (who resigned as a director of the Company on July 15, 1998) held
one regularly scheduled meeting during fiscal year 1998. The Compensation and
Stock Option Committee reviews and makes recommendations to the Board concerning
the Company's executive compensation policy, bonus plans and incentive option
plans, and approves the grants of stock options to officers and employees.
DIRECTOR REMUNERATION
Each non-employee director is entitled to receive $500 per Board
meeting attended and is reimbursed for all out-of-pocket costs incurred in
connection with attendance at such meetings. In addition, each non-employee
director receives on first election to the Board, pursuant to the Company's 1994
Non-Employee Directors Stock Option and Stock Grant Plan (the "Non-Employee
Directors Plan"), an initial 10-year option to purchase 3,000 shares of the
Company's Common Stock. On the date of each Annual Meeting of stockholders, each
incumbent non-employee director nominee receives an automatic grant of 2,000
shares of Common Stock. All such options are non-transferable for six months
following the date of grant and are exercisable at the fair market value on the
date of grant.
PROPOSAL TWO:
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of KPMG Peat Marwick LLP has served as independent public
accountants for the Company since 1987. The Board of Directors has selected the
firm to continue in this capacity for the current fiscal year ending March 31,
1999. A representative of KPMG Peat Marwick LLP is expected to attend the annual
meeting with the opportunity to make a statement and to respond to appropriate
questions from stockholders present at the meeting.
Although it is not required to do so, the Company wishes to provide
stockholders with the opportunity to indicate their approval of the selection of
auditors and accordingly is submitting a proposal to ratify the selection of
KPMG Peat Marwick LLP. If the stockholders should fail to approve this proposal,
the Board of Directors will consider the selection of another auditing firm.
A majority of the voting power of the Common Stock and Series C
Preferred Shares, voting as a single class, present at a meeting at which a
quorum is present, is required for approval of the proposal.
The Board of Directors recommends that you vote FOR ratification of
KPMG Peat Marwick LLP to serve as the Company's auditors for the year ending
March 31, 1999.
6
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of July 22, 1998 by (i) each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of the Common Stock of the Company and Common Stock equivalents, (ii)
each of the Company's executive officers named in the Summary Compensation Table
appearing herein, (iii) each director and (iv) all directors and executive
officers as a group. Holders of Common Stock have one vote per share; holders
of Series C Preferred Stock have five votes per share. The following table sets
forth what such persons' beneficial security ownership position would be
assuming the conversion of all Series C Preferred Stock and the exercise of all
outstanding stock options and warrants, exercisable on the date hereof or within
60 days of July 22, 1998. All shares shown are subject to the named person's
sole voting and investment power, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
<S> <C> <C>
Number of Shares
Beneficially Approximate
Name and Address Owned Percent Owned (1)
- --------------------------------------------------- ---------------- ------------------
CNA Financial Corporation....................... 3,408,641 (2) 20.6
CNA Plaza
Chicago, IL 60685
American Cyanamid Company....................... 699,730 4.2
(A wholly owned subsidiary of
American Home Products Corporation)
5 Giralda Farms
Madison, NJ 07940
Julian C. Baker (3)............................. 5,000 (4) *
Gerald R. Cysewski (3).......................... 478,158 (5) 2.9
Eric H. Reichl (3).............................. 1,809,000 10.9
Ronald P. Scott (3)............................. 42,750 (6) *
John T. Waldron (3)............................. 0
Paul C. Yuen (3)................................ 17,100 *
All directors and executive officers as a group
(8 persons)(4)......................... 2,455,758 (7) 14.7
- ------------------------------
* Less than 1.0%
(1) Approximate percentage owned assumes full conversion of all 595,031 outstanding shares of Series C Preferred Stock into
shares of Common Stock (for a total of 16,574,727 shares of Common Stock and Common Stock equivalents at July 22, 1998.)
(2) Includes 250,000 shares of Common Stock held by Fireman's Insurance Company of Newark, NJ ("Fireman's Insurance"), 183,486
shares of Common Stock held by National-Ben Franklin Company of Illinois ("National-Ben Franklin"), and 2,975,155 shares of Common
Stock issuable upon conversion of 595,031 shares of Series C Preferred tock held by Fireman's Insurance. National-Ben Franklin
and Fireman's Insurance are indirect wholly owned subsidiaries of CNA Financial Corporation. Fireman's Insurance holds 100% of the
Series C Preferred Stock.
(3) Address is c/o Cyanotech Corporation, 73-4460 Queen Kaahumanu Hwy., Suite 102, Kailua-Kona, HI 96740.
(4) Includes options exercisable within 60 days of July 22, 1998 for 3,000 shares of Common Stock. Does not include 250,000
shares of Common Stock held by Fireman's Insurance, 183,486 shares of Common Stock held by National-Ben Franklin, and 2,975,155
shares of Common Stock issuable upon conversion of 595,031 shares of Series C Preferred Stock held by Fireman's Insurance. Mr.
7
<PAGE>
Baker is a representative of CNA Financial Corporation, the parent company of Fireman's Insurance and National Ben-Franklin, and he
disclaims beneficial ownership of such shares.
(5) Includes options exercisable within 60 days of July 22, 1998 for 32,250 shares of Common Stock.
(6) Includes options exercisable within 60 days of July 22, 1998 for 26,750 shares of Common Stock.
(7) Includes 120,250 shares issuable under option to purchase shares of Common Stock exercisable within 60 days of July 22, 1998
to: Julian C. Baker (3,000 shares); Gerald R. Cysewski (32,250 shares); Glenn D. Jensen (28,500 shares); Kelly J. Moorhead (29,750
shares); Ronald P. Scott (26,750 shares).
</TABLE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), requires the Company's directors, executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities, to file with the Securities and Exchange Commission (the
"SEC") and the National Association of Securities Dealers, Inc. initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and any written representations that no
other reports were required, all Section 16(a) filing requirements for the
fiscal year ended March 31, 1998, applicable to its officers, directors and
greater than ten percent stockholders were complied with.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table sets forth the compensation paid or accrued by the
Company to the Chief Executive Officer and all executive officers of the Company
who earned more than $100,000 for services rendered in all capacities to the
Company (hereinafter referred to as the "named executive officers") for the
fiscal years ended March 31, 1998, 1997, and 1996. No executive officers who
would have otherwise been includable in such tables on the basis of salary and
bonus earned for fiscal 1998 have resigned or terminated employment during the
fiscal year.
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<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C>
Long-Term
Compensation
Annual Compensation Awards
------------------- --------
Name and Securities
Principal Fiscal underlying
Position Year Salary ($) Bonus ($) Options (#)
- -------- ------ ---------- --------- -----------
Gerald R. Cysewski 1998 $ 106,808 $ 0 12,500
Chairman of the Board, 1997 99,352 7,427 14,500
President and Chief 1996 94,640 37,500 14,500
Executive Officer
</TABLE>
Stock Options
The following table contains information concerning the grant of stock
options made under the Company's 1995 Stock Option Plan ("1995 Plan") for the
1998 fiscal year to the named executive officer. No stock appreciation rights
("SARs") have been granted under the 1995 Plan.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
<S> <C> <C> <C> <C> <C>
Potential
Number of % of Total Realized Value at
Securities Options Assumed Annual
Underlying Granted to Exercise Rates of Stock Price
Options Employees in Price Expiration Appreciation
Name Granted (1) Fiscal Year Per Share Date For Option Term
- ---- ------------- ------------ --------- ------- ----------------
5% 10%
Gerald R. Cysewski 12,500 10.0% $6.313 5/22/02 $21,780 $48,216
</TABLE>
(1) The options were granted under the 1995 Plan on May 22, 1997, and
are exercisable in four equal and cumulative annual installments over the
optionee's period of service with the Company, beginning one year after the
grant date. The option has a term of five (5) years.
Option Exercises and Holdings
The following table provides information with respect to the above
named executive officer concerning the exercise of options during the 1998
fiscal year and unexercised options held as of the end of the 1998 fiscal year.
No SARs have been granted under the 1995 Plan.
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<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
--------------------------------------------------------------------------
Shares
Acquired Number of Securities Value of Unexercised
on Value Underlying Unexercised In-the-Money
Exercise Realized Options at FY-End (#) Options at FY-End ($)(1)
-------- -------- ------------------------------------ ------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------ ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gerald R.
Cysewski 11,000 $24,750 15,500 20,875 $20,629 $ 6,876
(1) Based on the market value of shares covered by in-the-money options on March 31, 1998 ($3.438 per share), less the option
exercise price. Options are in-the-money if the market value of the shares covered thereby is greater than the option
exercise price.
</TABLE>
Reports of the Compensation and Stock Option Committee of the Board of
Directors on Executive Compensation
The Compensation and Stock Option Committee of the Board of Directors (the
"Committee") is composed of a minimum of two non-employee directors. During
fiscal 1998 the Committee was composed of Mr. Baker (chair), the late Ms.
Reichl, and Mr. Ushijima.
The Committee is responsible for setting and administering the
compensation policies, annual executive officer compensation, making
recommendations on potential bonus and stock option plans, granting bonuses and
recommending to the Board of Directors grants of stock options to executive
officers.
Compensation Philosophy
The goals of the compensation program are to align compensation with
business objectives and performance, and to enable the Company to attract,
motivate and retain executives of outstanding ability, potential, and drive
commensurate with the size and business requirements of the Company. Key
elements of this philosophy are:
- The Company pays competitively with comparable small companies
with which the Company competes for talent, both in Hawaii and
on the U.S. Mainland. To ensure that pay is competitive, the
Company compares its pay practices with these companies and
sets its pay parameters based in part on this review.
- The Company maintains annual incentive opportunities
sufficient to provide motivation to achieve specific operating
goals and to generate rewards that bring total compensation to
competitive levels.
- The Company provides significant equity-based incentives for
executives to ensure that they are motivated over the long
term to respond to the Company's business challenges.
The Committee endeavors to balance Company needs and values with the
employees' needs and believes that it is important that the Committee maintain
this relationship.
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<PAGE>
Cash Compensation
Base Salary. The base salaries of the executive officers are determined
initially on the basis of one or more salary surveys conducted by third parties
as well as surveys of biopharmaceutical companies both nationally and more
specifically in the Western United States obtained from public information such
as filings with the Securities and Exchange Commission. Based on such surveys,
the executive officer salaries are set within the ranges of the surveys targeted
at the median; the exact level is determined after the Committee considers the
experience and capability of the executive officer, the level of responsibility,
and the needs of the Company.
Incentive Bonus Compensation. The Committee believes that, as a general
rule, annual compensation in excess of base salaries should be dependent on the
employee's performance and the Company's performance, and should be awarded
based on recommendations of the Committee, and in the discretion of the Board.
Accordingly, at the beginning of each fiscal year, the Committee establishes a
Management Incentive Plan for executive officers and other key management
personnel under which executive officers and other key management personnel may
earn bonuses, in amounts ranging up to 100% of the annual salaries, provided the
Company achieves or exceeds the pre-tax net income goal established for the
year.
The net income goal is established in part on the basis of an annual
operating plan developed by management and approved by the Board of Directors.
The annual operating plan is designed to maximize profitability, within the
constraints of economic and competitive conditions, some of which are outside
the control of the Company, and is developed on the basis of: (i) the Company's
performance in the prior year; (ii) estimates of sales revenue for the plan year
based upon recent market conditions and trends and other factors which, based on
historical experience, are expected to affect the level of sales that can be
achieved; (iii) historical operating cost and cost savings that management
believes can be achieved; and (iv) competitive conditions faced by the Company.
Taking all of these factors into account, as part of the operating plan, bonus
awards are determined under the Management Incentive Plan, and are fixed at what
is believed to be a realistic level so as to make the incentives meaningful to
executives and to avoid penalizing executives and other key management personnel
for conditions outside of their control.
In certain instances, bonuses under the Management Incentive Plan are
awarded not only on the basis of the Company's overall profitability, but also
on the achievement by an executive of specific objectives within his or her area
of responsibility. For example, a bonus may be awarded for an executive's
efforts in achieving greater than anticipated cost savings, or establishing new
or expanded markets for the Company's products. Typically, the maximum bonus
that may be awarded for achievement of specific objectives is determined at the
beginning of the year to provide the requisite incentive for such performance.
As a result of this performance-based Management Incentive Plan,
executive compensation, and the proportion of each executive's total cash
compensation that is represented by incentive or bonus income, increases in
those years in which the Company achieves the anticipated level of growth and
profitability. On the other hand, in years in which the Company experiences less
than anticipated profit growth, bonuses, and therefore also total executive
compensation, should tend to be lower.
Long-term Equity-based Compensation
The Committee intends to make stock option grants on an annual basis.
Each grant is designed to align the interests of the executive officers with
those of the stockholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an equity
stake in the business. Each grant generally allows the executive officer to
acquire shares of the Company's Common Stock at
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<PAGE>
a fixed price per share (generally the market price on the grant date) over a
specified period of time (up to 10 years), thus providing a return to the
executive officer only if he or she remains in the employ of the Company and the
market price of the shares appreciate over the option term. The size of the
option grant to each executive officer generally is set at a level that is
intended to create a meaningful opportunity for stock ownership based upon the
individual's current position with the Company, but also taken into account are
the size of comparable awards made to individuals in similar positions in the
industry as reflected in external surveys, the individual's potential for future
responsibility and promotion over the option term, the individual's personal
performance in recent periods and the number of options held by the individual
at the time of grant. Generally, as an executive officer's level of
responsibility increases, a greater portion of his or her total compensation
will be dependent upon Company performance and stock price appreciation rather
than base salary. The relative weight given to these factors varies with each
individual, in the sole discretion of the Committee.
Chief Executive Officer's Compensation
The Committee uses the same philosophy and procedures described above
with respect to the other executive officers in setting the cash compensation
and equity incentives for the Chief Executive Officer.
The compensation payable to Dr. Cysewski, the Company's Chief Executive
Officer, was determined by the Compensation Committee. Dr. Cysewski's base
salary was set at a level which the Board felt would be competitive with the
base salary levels in effect for chief executive officers at similarly-sized
companies within the industry. Based on Dr. Cysewski's performance and on the
compensation policy summarized in this report, the Compensation Committee
decided that Dr. Cysewski's salary would remain unchanged at $110,000.
Dr. Cysewski was a participant in the Company's 1998 Management Incentive
Plan as described above. During fiscal 1998, the Company did not achieve the
annual operating plan targets. As a result, no cash bonuses were awarded to Dr.
Cysewski.
Dr. Cysewski received a grant of an option to purchase 12,500 shares of
Common Stock in 1998 based on his position as Chief Executive Officer, and the
desire to provide him with a continuing economic interest in the long term
appreciation of the Company's Common Stock.
Submitted by the Compensation and Stock Option Committee of the
Company's Board of Directors.
Julian C. Baker, Chairman
John T. Ushijima
The material in this report and in the Stockholder Return Performance
Graph is not "soliciting material," is not deemed filed with the SEC and is not
to be incorporated by reference in any filing of the Company under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended, whether made before or after the date hereof and irrespective of any
general incorporation language in such filing.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No current member of the Company's Compensation Committee is a current
or former officer or employee of the Company or its subsidiaries and no
executive officer of the Company was a member of the Compensation Committee of
any corporation of which a member of the Company's Compensation Committee is an
executive officer.
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph sets forth the Corporation's total cumulative
stockholder return as compared to the NASDAQ Composite Index and the NASDAQ
Pharmaceutical index for the period beginning March 31, 1993 and ending March
31, 1998. Total stockholder return assumes $100.00 invested at the beginning of
the period in the Common Stock of the Corporation, the stocks represented in the
NASDAQ Composite - US Index and the NASDAQ Pharmaceutical Index, respectively.
Total return assumes reinvestment of dividends; the Corporation has paid no
dividends on its Common Stock. Historical price performance should not be relied
upon as indicative of future performance.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Nasdaq
Cyanotech Nasdaq Pharmaceutical
Corporation Composite Index
<C> <C> <C> <C>
3/93. . . . . . . . . . . . . . . . . $ 100 $ 100 $ 100
3/94. . . . . . . . . . . . . . . . . 71 108 101
3/95. . . . . . . . . . . . . . . . . 92 120 101
3/96. . . . . . . . . . . . . . . . . 475 163 177
3/97. . . . . . . . . . . . . . . . . 371 181 162
3/98. . . . . . . . . . . . . . . . . 229 275 194
</TABLE>
13
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CERTAIN TRANSACTIONS
In connection with the purchase by Eva R. Reichl in 1993 of 1,800,000
shares of the Company's Common Stock, certain holders of Common Stock, including
Gerald R. Cysewski (the "Holders"), the Company and Ms. Reichl entered into a
Stockholders Agreement dated as of May 17, 1993 (the "Stockholders Agreement").
See " Security Ownership of Certain Beneficial Owners and Management."
OTHER MATTERS
At the date of this Proxy Statement, the Board of Directors does not
know of any business to be presented for consideration at the meeting other than
those set forth herein and in the Notice accompanying this Proxy Statement. If
any other business should properly come before the meeting, the shares
represented by Proxies will be voted in accordance with the judgment of the
persons named in such proxies.
The Company will provide, without charge, to each person whose proxy is
solicited by this Proxy Statement, on the written request of such person, a copy
of the Company's most recent Annual Report on Form 10-K, including the exhibits
thereto, as filed by the Company with the Securities and Exchange Commission.
Requests should be directed to: Secretary, Cyanotech Corporation, 73-4460 Queen
Kaahumanu Hwy., Suite 102, Kailua-Kona, HI 96740.
The Annual Report to the Stockholders of the Company, for the fiscal
year ended March 31, 1998, including financial statements, is enclosed with this
proxy statement.
You are most cordially invited to attend this meeting in person.
However, whether or not you plan to attend the meeting, please sign, date and
return the enclosed proxy as promptly as possible in the envelope provided. This
will not prevent you from voting in person at the meeting if you so desire.
By Order of the Board of Directors
Ronald P. Scott
Secretary
Kailua-Kona, Hawaii
July 27, 1998
14
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