CYANOTECH CORPORATION
73-4460 Queen Kaahumanu Hwy., Suite 102
Kailua-Kona, HI 96740
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS To
be held Thursday, August 26, 1999 at 2:00 P.M.
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
of Cyanotech Corporation (the "Company") to be held on Thursday, August 26, 1999
at 2:00 P.M., local time, at the King Kamehameha's Kona Beach Hotel, 75-5660
Palani Road, Kailua-Kona, Hawaii, for the following purposes:
1. To elect five directors to serve until the next Annual
Meeting or until their successors are elected, by vote of
holders of Common Stock and Series C Preferred Stock;
2. To ratify the election of KPMG LLP as the Company's
independent auditors for the fiscal year ending March 31,
2000; and
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
These matters are more fully described in the Proxy Statement
accompanying this notice.
The Board of Directors has fixed the close of business on June 28, 1999
as the record date for Stockholders entitled to notice of and to vote at this
meeting and any adjournment thereof. The stock transfer books will not be closed
between the record date and the date of the meeting. Only stockholders of record
at the close of business on June 28, 1999 are entitled to notice of and to vote
at the Annual Meeting; however all stockholders are cordially invited to attend
the meeting.
By Order of the Board of Directors
Ronald P. Scott
Secretary
Kailua-Kona, Hawaii
July 16, 1999
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE PAID ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE VOTED IN ACCORDANCE
WITH YOUR WISHES AND SAVE THE EXPENSE OF FURTHER COMMUNICATION. IF YOU ATTEND
THE MEETING AND WISH TO VOTE IN PERSON, YOU MAY DO SO, BECAUSE YOU MAY REVOKE
YOUR PROXY AT ANY TIME PRIOR TO ITS USE.
<PAGE>
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 Thursday August 26, 1999
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 2:00 p.m., local time, on Thursday August 26,
1999 at the King Kamehameha's Kona Beach Hotel, 75-5660 Palani Road,
Kailua-Kona, 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 16, 1999.
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 Annual Meeting.
The close of business on June 28, 1999 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 June 28, 1999 are entitled to five votes for each share of such
stock on all matters to be voted on. At June 28, 1999, Cyanotech had 13,715,722
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 five 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
2
<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
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
Information about stockholder proposals intended to be considered at the
2000 Annual Meeting of Stockholders must be received by Cyanotech no later than
March 7, 2000. In addition, if a stockholder proposal is not submitted to the
Company prior to May 25, 2000, the proxy to be solicited by the Board of
Directors for the 2000 Annual Meeting of Stockholders will confer authority on
the holders of the proxy to vote the shares in accordance with their best
judgment and discretion when such proposal is presented at the 2000 Annual
Meeting of Stockholders without any discussion of the proposal in the proxy
statement for such meeting. 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 five (5) 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 five nominees named below, all of whom are presently
directors of the Company. 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.
3
<PAGE>
In connection with the purchase by Eva R. Reichl (the late wife of director
Eric H. Reichl) 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
increase the Company's Board of Directors to more than six members. In addition,
the Company is obligated under the Stockholders Agreement to notify Ms. Reichl
of any Board elections so that she may nominate one person for election as a
director. Mr. Reichl has succeeded to Ms. Reichl's rights under this agreement.
Mr. Reichl 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.
<TABLE>
<CAPTION>
Director
Name Principal Occupation Since Age
<S> <C> <C> <C>
Gerald R. Cysewski, Ph.D. Chairman of the Board, 1983 50
President and Chief
Executive Officer,
Cyanotech Corporation
Eric H. Reichl Private investor 1998 85
Ronald P. Scott Executive Vice President, 1995 44
Finance and Administration,
Cyanotech Corporation
John T. Waldron Adjunct Professor of Marketing 1998 47
Lake Forest Graduate School of Management
(private college)
Paul C. Yuen, Ph.D. Dean, College of Engineering 1993 71
University of Hawaii at Manoa
(public university)
</TABLE>
Dr. Cysewski co-founded the Company in 1983 and has served 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 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.
4
<PAGE>
Mr. Reichl is a private investor who has been involved with the Company
through his late wife, Eva R. Reichl, since 1993. Before retiring in 1978, Mr.
Reichl was President of Conoco Coal Development Company (a subsidiary of Conoco,
Inc.). Mr. Reichl holds a Masters Degree in Chemical Engineering from the
Technical University in Vienna, Austria and is a member of the U.S. 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 Adjunct Professor of Marketing at the Lake Forest
Graduate School of Management in Lake Forest, Illinois. Prior to his resignation
in May 1999, Mr. Waldron was Executive Vice President for Takeda U.S.A. and was
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 the position of Executive Vice President. Mr. Waldron was also
appointed to the Board of Directors of Takeda U.S.A. in 1993 and served as a
member of their Executive Committee and Compensation Committee. Mr. Waldron
holds a Master of Management degree from Northwestern University's J. L. Kellogg
Graduate School of Management.
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 six regular meetings in fiscal
1999. No incumbent director attended less than 75% of all meetings of the Board
of Directors and of the committees, if any, upon which such director served.
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
Yuen (chair), Reichl, and Waldron held two regularly scheduled meetings during
fiscal year 1999. 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.
5
<PAGE>
The Compensation and Stock Option Committee, which consisted of independent
non-employee directors Julian C. Baker (chair), Eva R. Reichl, and John T.
Ushijima held one regularly scheduled meeting during fiscal year 1999. 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. Julian C. Baker, resigned from the Board of Directors on December 18,
1998. Eva R. Reichl passed away on July 15, 1998. John T. Ushijima resigned from
the Board of Directors on July 27, 1998. The Compensation and Stock Option
Committee currently consists of Eric H. Reichl (chair), Paul C. Yuen, and John
T. Waldron.
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 is
entitled at first election, pursuant to the Company's 1994 Non-Employee
Directors Stock Option and Stock Grant Plan (the "Non-Employee Directors Plan"),
to receive a 10-year option to purchase 3,000 shares of the Company's Common
Stock, and thereafter a grant of 2,000 shares each year. On the date of the 1998
Annual Meeting of Stockholders, Eric H. Reichl and John T. Waldron received a
10- year option to purchase 3,000 shares of the Company's Common Stock. During
the fiscal year ended March 31, 1999, the current director nominee Paul C. Yuen
and former director Julian C. Baker each received grants of 2,000 shares of
Common Stock. On the date of the 1999 Annual Meeting of Stockholders, each
non-employee director continuing as a director will receive, under the
Non-Employee Directors Plan, an automatic grant of 2,000 shares of fully paid
and non-assessable shares of Common Stock that are non-transferable for six
months following the date of such grant.
PROPOSAL TWO:
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The firm of KPMG 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, 2000. A
representative of KPMG 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 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
LLP to serve as the Company's auditors for the year ending March 31, 2000.
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 June 28, 1999 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
June 28, 1999. All shares shown are subject to the named person's sole voting
and investment power, subject to community property laws where applicable.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Approximate
Name and Address Owned Percent Owned (1)
- ----------------------------------------------------------------------------------------------- ------------------
<S> <C> <C> <C>
CNA Financial Corporation....................... 3,408,641 (2) 20.4
CNA Plaza
Chicago, IL 60685
Gerald R. Cysewski (3).......................... 492,283 (4) 2.9
Eric H. Reichl (3).............................. 1,812,000 (5) 10.9
Ronald P. Scott (3)............................. 60,075 (6) *
John T. Waldron (3)............................. 3,000 (7) *
Paul C. Yuen (3)................................ 19,100 *
All directors and executive officers as a group
(8 persons)............................ 2,531,908 (8) 15.1
- ------------------------------------
* Less than 1.0%
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
(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 16,690,877 shares of Common Stock and Common
Stock equivalents at June 28, 1999.)
(2) Represents 250,000 shares held by Fireman's Insurance Company of
Newark, NJ ("Fireman's Insurance"), 183,486 shares 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 Stock 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 June 28, 1999 for 46,375 shares of Common Stock.
(5) Includes options exercisable within 60 days of June 28, 1999 for 3,000 shares of Common Stock.
(6) Includes options exercisable within 60 days of June 28, 1999 for 40,875 shares of Common Stock.
(7) Includes options exercisable within 60 days of June 28, 1999 for 3,000 shares of Common Stock.
(8) Includes 181,500 shares issuable under option to purchase shares of Common Stock exercisable
within 60 days of June 28, 1999 to: Gerald R. Cysewski (46,375 shares); Glenn D. Jensen (40,125
shares); Larry L. Line (6,250 shares); Kelly J. Moorhead (41,875 shares); Eric H. Reichl (3,000
shares); Ronald P. Scott (40,875 shares); John T. Waldron (3,000 shares).
</TABLE>
7
<PAGE>
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, 1999, applicable to its officers, directors and greater than ten
percent stockholders were complied with, except for one Form 5 report for each
of the following persons, each covering one transaction, each filed twelve days
late by Julian C. Baker, a former director; Gerald. R. Cysewski, the Company's
Chairman of the Board, President and Chief Executive Officer; Glenn D. Jensen,
the Company's Vice President - Operations; Kelly J. Moorhead, the Company's Vice
President - Production Development; Ronald P. Scott, a director and the
Company's Executive Vice President, Finance and Administration; and Paul C.
Yuen, a director.
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 $100,000 for services rendered in all capacities to the
Company (hereinafter referred to as the "named executive officers") for the
fiscal years ended March 31, 1999, 1998, and 1997. No executive officers who
would have otherwise been includable in such tables on the basis of salary and
bonus earned for fiscal 1999 have resigned or terminated employment during the
fiscal year.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
Name and Securities
Principal Fiscal underlying
Position Year Salary ($) Bonus ($) Options (#)
- -------- ------ ----------- --------- -----------
<S> <C> <C> <C> <C>
Gerald R. Cysewski 1999 $107,561 $ 0 15,000
Chairman of the Board, 1998 106,808 0 12,500
President and Chief 1997 99,352 7,427 14,500
Executive Officer
</TABLE>
8
<PAGE>
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
1999 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
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%
<S> <C> <C> <C> <C> <C> <C>
Gerald R. Cysewski 15,000 8.2% $3.125 5/27/03 $12,938 $28,641
</TABLE>
(1) The options were granted under the 1995 Plan on May 27, 1998, and are
exercisable in four equal and cumulative annual installments over the optionee's
period of service with the Company, beginning one year after the grant date. The
option has a term of five (5) years.
Option Exercises and Holdings
The following table provides information with respect to the above
named executive officer concerning the exercise of options during the 1999
fiscal year and unexercised options held as of the end of the 1999 fiscal year.
No SARs have been granted under the 1995 Plan.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Shares
Acquired Number of Securities Value of Unexercised
on Value Underlying Unexercised In-the-Money
Exercise Realized Options at FY-End (#) Options at FY-End ($)(1)
-------- -------- -------------------------------- ------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------ -------- -------------- ----------- ------------- ------------ -------------
Gerald R.
<S> <C> <C> <C> <C> <C> <C>
Cysewski 0 $ 0 32,250 35,250 $ 688 $ 0
</TABLE>
(1) Market value of shares covered by in-the-money options on March 31,
1999 ($1.00), 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.
9
<PAGE>
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 1999 the Committee was composed of Julian C. Baker (chair), the late Eva
R. Reichl, and John T. Ushijima. Since December 1998, Mr. Reichl has been
chairman of the Committee, replacing Mr. Baker. The Committee currently consists
of Mr. Reichl (chair), Mr. Yuen and Mr. Waldron.
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 development 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. To ensure
that pay is competitive, the Company compares its pay practices with these
companies and sets it 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.
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.
10
<PAGE>
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 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.
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<PAGE>
The compensation payable to Dr. Cysewski, the Company's Chief Executive
Officer in fiscal 1999, 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 1999 Management Incentive
Plan as described above. During fiscal 1999, 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 15,000 shares of
Common Stock in 1999 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.
Eric H. Reichl, Chairman
Paul C. Yuen
John T. Waldron
The material in this report and the accompanying Stockholder Return
Performance Table 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.
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.
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STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph sets forth the Corporation's total cumulative
stockholder return as compared to the NASDAQ Composite U.S. Index and the NASDAQ
Pharmaceutical index for the period beginning March 31, 1994 and ending March
31, 1999. 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 - U.S. 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.
Stock Performance Graph
<TABLE>
<CAPTION>
Nasdaq
Cyanotech Nasdaq Pharmaceutical
Corporation Composite Index
<C> <C> <C> <C>
3/94................................ $ 100 $ 100 $ 100
3/95................................ 129 111 100
3/96................................ 671 151 176
3/97................................ 524 168 161
3/98................................ 324 254 193
3/99................................ 94 342 245
</TABLE>
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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, 1999, 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 16, 1999
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