SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CNS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(2) or Item 22(a)(2) of
Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11. (Set forth the amount on which the
filing fee is calculated and state how it was determined.)
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
CNS, INC
4400 WEST 78TH ST.
BLOOMINGTON, MINNESOTA 55435
(612) 820-6696
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 23, 1997
To the Stockholders of CNS, Inc:
Notice is hereby given that the Annual Meeting of Stockholders of CNS, Inc. (the
"Company") will be held Wednesday, April 23, 1997 at 3:30 p.m., local time, in
the auditorium of the Lutheran Brotherhood Building, 625 Fourth Avenue South,
Minneapolis, Minnesota for the following purposes:
1. To elect six (6) directors to serve until the next annual meeting of
Stockholders;
2. To ratify and approve amendments to the CNS, Inc. 1994 Stock Plan to
(i) increase the total number of shares of Common Stock available for
issuance under such Plan from 1,000,000 to 1,750,000 shares and (ii)
bring such Plan into compliance with Section 162(m) of the Internal
Revenue Code of 1986, as amended;
3. To approve the appointment of KPMG Peat Marwick LLP as independent
auditors for the fiscal year ending December 31, 1997; and
4. To act upon any other matters that may properly be presented at the
meeting.
Accompanying this Notice of Annual Meeting is a Proxy Statement, form of Proxy
and the Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1996.
The Board of Directors has fixed the close of business on March 3, 1997 as the
record date for the determination of Stockholders entitled to notice of, and to
vote at, the meeting.
By Order of the Board of Directors
/s/ Daniel E. Cohen
Daniel E. Cohen, M.D.
CHAIRMAN OF THE BOARD
Dated: March 21, 1997.
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING, PLEASE SIGN, DATE, AND RETURN YOUR PROXY IN THE REPLY
ENVELOPE PROVIDED SO THAT YOUR SHARES MAY BE VOTED AT THE MEETING. THE PROXY IS
SOLICITED BY MANAGEMENT AND MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
CNS, INC.
4400 WEST 78TH ST.
BLOOMINGTON, MINNESOTA 55435
(612)820-6696
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 23, 1997
GENERAL MATTERS
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of CNS, Inc. (the "Company") from holders of Common Stock of
proxies in the accompanying form to be voted at the Annual Meeting of
Stockholders on Wednesday, April 23, 1997 at 3:30 p.m., local time, and at all
adjournments thereof. This Proxy Statement is first being sent to Stockholders
on or about March 21, 1997.
Any shareholder giving a proxy will have the right to revoke it by written
notice to the Secretary of the Company or by filing with the Secretary another
proxy bearing a later date at any time before it is voted at the meeting. A
shareholder wishing to vote in person after giving his or her proxy must first
give written notice of revocation to the Secretary. All shares represented by
valid, unrevoked proxies will be voted at the meeting and any adjournment
thereof.
OUTSTANDING VOTING SECURITIES
Stockholders of record as of the close of business on March 3, 1997, will be
entitled to vote at the meeting. On that date, the Company had outstanding
19,256,243 shares of common stock, $.01 par value ("Common Stock"), each of
which is entitled to one vote per share on each matter to be voted upon at the
meeting. As provided in the Certificate of Incorporation of the Company, there
is no cumulative voting. The Company has no class of voting securities
outstanding other than the Common Stock.
SECURITY OWNERSHIP OF PRINCIPAL
STOCKHOLDERS AND MANAGEMENT
The following table sets forth, as of March 3, 1997 the number and percentage of
outstanding shares of Common Stock of the Company beneficially owned by each
person who is known to the Company to beneficially own more than five percent
(5%) of the Common Stock of the Company, by each director of the Company, by
each executive officer named in the Summary Compensation Table below, and by all
directors and executive officers of the Company as a group:
NUMBER OF SHARES PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2) OF CLASS
- ------------------------------------ ------------------------ --------
Richard W. Perkins(3)(4) 1,376,458 7.1%
Perkins Capital Management, Inc.
730 East Lake Street
Wayzata, MN 55391
Daniel E. Cohen, M.D.(3)(5)(6) 780,664 4.0%
Richard E. Jahnke(3)(5) 170,250 *
Patrick Delaney(3) 80,066 *
R. Hunt Greene(3) 60,000 *
Andrew J. Greenshields(3)(7) 54,000 *
Kirk P. Hodgdon(5) 57,500 *
David J. Byrd(5) 20,550 *
Rihab Fitzgerald(5)(8) 92,584 *
William Doubek(5)(9) 129,976 *
All directors and officers 2,958,596 14.7%
as a group (12 persons)(10)
- ------------------------------
*Indicates ownership of less than one percent.
(1) Except as noted, all shares beneficially owned by each owner were owned of
record, and each owner held sole voting power and sole investment power for
all shares held.
(2) Includes the following number of shares which could be purchased under
stock options exercisable within sixty (60) days of the date hereof: Mr.
Perkins, 60,000 shares; Dr. Cohen, 150,000 shares; Mr. Jahnke, 170,250
shares; Mr. Delaney, 60,000 shares; Mr. Greene, 60,000 shares; Mr.
Greenshields, 50,000 shares; Mr. Hodgdon, 57,500 shares; Mr. Byrd, 20,000
shares; Ms. Fitzgerald, 30,000 shares; Mr. Doubek, 107,000 shares; and all
directors and officers as a group, 878,500 shares. Does not include stock
options to purchase 20,000 shares of Common Stock held by each of Messrs.
Perkins, Delaney, Greene and Greenshields which will vest if such
individuals are re-elected to the Company's Board of Directors at the
Annual Meeting of Stockholders.
(3) Serves as a director of the Company and has been nominated for re-election.
(4) Includes 1,191,110 shares of Common Stock held for the accounts of clients
of Perkins Capital Management, Inc., a registered investment advisor of
which Mr. Perkins is the controlling shareholder, a director and President.
Perkins Capital Management has the right to sell the shares but does not
have power to vote the shares. Mr. Perkins and Perkins Capital Management
disclaim beneficial ownership of such shares. This total also includes
47,500 shares held in trusts for which Mr. Perkins is the sole trustee,
4,000 shares held by a corporation of which Mr. Perkins is sole shareholder
and 73,848 shares held by a partnership of which Mr. Perkins is a general
partner.
(5) Served as an executive officer of the Company during 1996 and is named in
the Summary Compensation Table below.
(6) Includes 327,332 shares of Common Stock owned of record by Dr. Cohen's
spouse, for which he has no voting or investment power.
(7) Includes 4,000 shares held by Mr. Greenshields jointly with his spouse for
which he has shared voting and dispositive power.
(8) Includes 1,442 shares of Common Stock held by Ms. FitzGerald jointly with
her spouse for which she has shared voting and dispositive power.
(9) Includes 11,680 shares of Common Stock owned of record by Mr. Doubek's
spouse.
(10) Includes 339,012 shares of Common Stock owned by spouses and 5,442 shares
owned jointly with spouses.
ELECTION OF DIRECTORS
(PROPOSAL #1)
Although the Company's Bylaws currently provide for a Board of Directors
consisting of seven members, only six directors will be elected at the Annual
Meeting. It is intended that proxies solicited by the Board of Directors will be
voted FOR (unless otherwise directed) the election of the nominees for director
named below. Each of the nominees named below is a present director of the
Company and upon election will serve until the next annual meeting or until his
successor has been elected and qualified. Dr. Cohen has been a director of the
Company since its formation in 1982; Mr. Delaney has been a director since 1983;
Mr. Greene has been a director since 1985; Mr. Greenshields has been a director
since 1986; and Messrs. Jahnke and Perkins have been directors since 1993. If
for any reason any of the nominees becomes unavailable for election, the proxies
solicited by the Board of Directors will be voted for such nominee as is
selected by the Board of Directors. The Board of Directors has no reason to
believe that any of the nominees is not available or will not serve if elected.
The nominees named below have been nominated by the Board of Directors of the
Company. They are all the Directors who served during 1996. The nominees are
listed below with their ages, their present positions with the Company, their
present principal occupations or employment and their principal occupations or
employment for at least the past five years. Dr. Cohen and Mr. Jahnke devote
their full working time to the business of the Company. Messrs. Delaney, Greene,
Perkins and Greenshields devote such time as is necessary to fulfill their
duties as directors.
DANIEL E. COHEN, M.D., 44, has served as the Company's Chairman of the Board
since 1993, its Chief Executive Officer since 1989 and the Treasurer since
1982. Dr. Cohen was a founder of the Company and is a board-certified
neurologist.
RICHARD E. JAHNKE, 48, has served as the Company's President and Chief Operating
Officer since 1993. From 1991 to 1993, he was Executive Vice President and Chief
Operating Officer of Lemna Corporation, which manufactures and sells waste water
treatment systems. From 1986 to 1991, Mr. Jahnke was general manager of the
government operations division of ADC Telecommunications, an electronic
communications systems manufacturer. From 1982 to 1986, he was Director of
Marketing and Business and Technical Development at BMC Industries, Inc. From
1972 to 1982, he held various positions of increasing responsibility in
engineering, sales and marketing management at 3M Company. He is also a director
of Rehabilicare Inc., a manufacturer of medical devices.
PATRICK DELANEY, 54, has served as the Company's Secretary since 1995. Mr.
Delaney is a partner in the Minneapolis law firm of Lindquist & Vennum P.L.L.P.,
counsel to the Company. He has been in the private practice of law since 1967.
He is also a director of Community First Bankshares, Inc., a multi-bank holding
company, the secretary of MTS Systems Corporation, a manufacturer of systems for
materials testing, simulation, measurement and controls, and a director and the
secretary of Applied Biometrics, Inc, a manufacturer of medical devices.
R. HUNT GREENE, 46, has been an investment banker for over fifteen years. He is
presently Managing Director of Greene Holcomb & Lannin LLC, a Minneapolis
investment bank that provided investment banking services to the Company in 1996
and that will provide investment banking services to the Company in 1997. Mr.
Greene was a Managing Director of Piper Jaffray Inc., a Minneapolis based
investment bank and general broker-dealer in investment securities, from 1979 to
1995.
ANDREW J. GREENSHIELDS, 59, has been President of Pathfinder Ventures, Inc.,
Minneapolis, Minnesota, since 1980. He is also a general partner of Pathfinder
Venture Capital Funds I, II and III, Minneapolis based venture capital limited
partnerships. Mr. Greenshields is also a director of Aetrium, Inc., a
manufacturer of semiconductor handling equipment.
RICHARD W. PERKINS, 66, has been President, Chief Executive Officer and a
director of Perkins Capital Management, Inc. since 1985. He is also a director
of the following publicly-held companies: Bio-Vascular, Inc., a medical products
manufacturer; Children's Broadcasting Corporation, an operator of radio stations
with a children's format; Eagle Pacific Industries, Inc., a manufacturer of
plastic pipe; Lifecore Biomedical, Inc., a medical devices company; Nortech
Systems, Inc., a contract manufacturer for the electronics industry; Peerlees
Industrial Group, Inc., a manufacturer of metal products; and Quantech, Ltd.; a
development stage medical products company.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES LISTED.
OTHER INFORMATION REGARDING THE BOARD
BOARD MEETINGS
The Board of Directors met five times during the fiscal year 1996, which ended
December 31, 1996. Each director attended at least 75% of the aggregate of the
total number of Board meetings and Committee meetings on which he served during
the fiscal year ended December 31, 1996. The Board took action in writing in
lieu of a meeting three times during the fiscal year 1996.
COMMITTEES
The Audit Committee of the Board of Directors, which is comprised of Messrs.
Greene, Chairman, and Greenshields, met twice during 1996. The Audit Committee
reviews and evaluates significant matters relating to the audit and internal
controls of the Company, reviews the scope and results of audits by and the
recommendations of the Company's independent auditors, and approves services
provided by the auditors.
The Compensation Committee of the Board of Directors, which is comprised of
Messrs. Greenshields, Chairman, and Perkins, did not meet during 1996. Among
other duties, the Compensation Committee makes recommendations to the Board of
Directors regarding the employment practices and the policies of the Company and
the compensation paid to Company officers.
The Plan Committee of the Board of Directors, which was comprised of Messrs.
Greenshields, Greene and Delaney, did not meet during 1996. In 1996, the Plan
Committee had the authority to make awards under and adopt and alter
administrative rules and practices governing the Company's Stock Option Plans
and Employee Stock Purchase Plan (the "Plans") and interpret the terms and
provisions of the Plans and any award issued under those Plans. In February
1997, the Board transferred the duties and powers of the Plan Committee to the
Compensation Committee.
The Nominating Committee is comprised of Dr. Cohen and Messrs. Greenshields
and Delaney. The Nominating Committee met one time during 1996.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending December 31, 1996, 1995
and 1994, the cash compensation paid by the Company, as well as certain other
compensation paid or accrued for those years, to Daniel E. Cohen, M.D., the
Company's Chief Executive Officer, and each of the other five most highly
compensated executive officers of the Company as of December 31, 1996 (together
with Dr. Cohen, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ---------------------
SECURITIES UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY BONUS OPTIONS (#) COMPENSATION(1)
- ----------------- ---- ------ ----- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Daniel E. Cohen, M.D. 1996 $150,000 $150,000 -0- $300
Chief Executive Officer, 1995 141,400 141,400 200,000 300
Treasurer and Chairman 1994 115,600 -0- -0- 300
of the Board
Richard E. Jahnke 1996 150,000 150,000 -0- 300
President and 1995 140,500 140,500 75,000 300
Chief Operating Officer 1994 112,000 -0- -0- 300
Kirk P. Hodgdon 1996 127,000 76,200 -0- 300
Vice President of 1995 125,250 75,150 50,000 300
Consumer Marketing 1994 102,769(2) -0- 60,000 250
David J. Byrd 1996 118,750(3) 71,250 60,000 275
Vice President of 1995 -0- -0- -0- -0-
Finance and 1994 -0- -0- -0- -0-
Chief Financial Officer
Rihab Fitzgerald 1996 100,000 60,000 -0- 300
Vice President of 1995 96,250 57,750 50,000 300
Consumer Sales 1994 90,419 -0- -0- 264
William Doubek 1996 100,000 60,000 -0- 300
Vice President 1995 93,645 56,100 60,000 300
of Operations 1994 74,000 -0- -0- 238
</TABLE>
- -----------------------
(1) Represents the payment of life insurance premiums.
(2) Mr. Hodgdon became Vice President of Consumer Marketing in February 1994
and received a salary for the remainder of 1994.
(3) Mr. Byrd became Vice President of Finance and Chief Financial Officer in
February 1996 and received a salary for the remainder of 1996.
STOCK OPTIONS
The following table contains information concerning grants of stock options to
the Named Executives during 1996:
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996
INDIVIDUAL GRANTS
-----------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL
NUMBER % OF TOTAL RATE OF STOCK
OF SECURITIES OPTIONS EXERCISE OR PRICE APPRECIATION
UNDERLYING GRANTED TO BASE FOR OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED (#) IN 1996 ($/SH) DATE 5% 10%
- ---- ------------- ---------- ----------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Daniel E. Cohen -0- -- -- -- -- --
Richard E. Jahnke -0- -- -- -- -- --
Kirk P. Hodgdon -0- -- -- -- -- --
David J. Byrd 60,000(1) 80.0% $15.875 02/05/06 $599,022 $1,518,040
Rihab Fitzgerald -0- -- -- -- -- --
William Doubek -0- -- -- -- -- --
</TABLE>
- --------------------
(1) The options vest as follows: 10,000 shares on each of May 5, 1996 and
February 5, 1997, 1998, 1999, 2000 and 2001.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named Executives
concerning the exercise of options during 1996 and unexercised options held as
of December 31, 1996:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1996 AND
FISCAL YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY
SHARES AT FY-END(#) OPTIONS AT FY-END(1)
ACQUIRED ----------------------------- -----------------------------
ON
NAME EXERCISE(#) VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel E. Cohen -0- N/A 100,000 100,000 $ 887,500 $ 887,500
Richard E. Jahnke 40,000 $882,900 111,500 117,500 1,246,955 1,430,296
Kirk P. Hodgdon 10,000 198,850 33,000 61,000 308,875 613,375
David J. Byrd -0- N/A 10,000 50,000 (2) (2)
Rihab Fitzgerald 15,000 326,575 54,900 29,000 597,482 270,125
William Doubek -0- N/A 90,000 34,000 1,035,000 314,500
</TABLE>
- ---------------------
(1) Based on the closing sale price of $14.375 per share for the Common Stock
on December 31, 1996.
(2) The exercise price for these options was greater than the closing sale
price on December 31, 1996.
REPORT ON EXECUTIVE COMPENSATION
This is a joint report of the Compensation Committee and Plan Committee of the
Board of Directors of the Company, which are composed of the undersigned Board
members. This report shall not be deemed incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934
and shall not otherwise be deemed to be filed under either such Act.
COMPENSATION PHILOSOPHY. The compensation philosophy of the Company is to
provide competitive levels of compensation that are consistent with the
Company's annual and long-term performance goals, recognize individual
initiative and achievements and assist the Company in attracting and retaining
qualified executives. It is intended that, in judging appropriate levels of
compensation, the Committee will take into account internally set performance
goals and comparisons with the performance of other publicly held consumer
products companies which had rapidly growing revenues under $500 million.
BASE SALARY. Executive base salary is reviewed annually and adjustments, if any,
are based on levels of responsibility, experience, internal equity, external pay
practices and the rate of inflation. The Compensation Committee recommended to
the Board of Directors and the Board adopted a plan under which the base
salaries of the executive officers were set effective January 1, 1996.
CASH BONUS. Bonuses are awarded to executive officers in consideration of
contributions to the Company and the Company's overall performance. In 1996, the
Board of Directors adopted a plan under which Dr. Cohen, the Chairman and Chief
Executive Officer of the Company, and Mr. Jahnke, the President and Chief
Operating Officer of the Company, were eligible for cash bonuses equal to
amounts of between 15% and 100% of their base salaries depending on the
Company's level of net income for 1996, with net income of at least $10,000,000
required before any bonus amounts were earned. The level of net income required
for various bonus levels were set by the Board of Directors. Under the same
plan, Vice Presidents of the Company were eligible for cash bonuses of between
9% and 60% of their base salaries if the same level of net income was achieved.
The financial performance of the Company resulted in bonuses equal to either
100% or 60% of the base salary of each of the eligible officers of the Company.
STOCK OPTIONS. The Company's Stock Option Plans include executive officers.
Stock options are generally granted to executive officers at the time they are
elected. The Compensation and Plan Committees have adopted the position that
stock ownership by management and stock-based performance compensation
arrangements are beneficial in aligning management's and shareholder's interests
in enhancing shareholder value. During 1996, the Company granted options to one
executive officer of the Company to purchase 60,000 shares of common stock of
the Company at a price equal to the market price on the date of grant and
exercisable for ten years. The right to exercise the options vests over the
first five years of the term of the option.
CHIEF EXECUTIVE OFFICER COMPENSATION. Dr. Cohen's compensation for 1994-1996
is shown in the Summary Compensation Table above. Dr. Cohen managed the
Company well in a difficult economic climate for its sleep disorders
diagnostic devices, which business was sold in 1995, has successfully guided
the development and marketing of its Breathe Right(R) external nasal dilator,
and has made arrangements for the Company to test and possibly enter into
production and sale of new product lines. The Compensation Committee has
determined Dr. Cohen's compensation on these bases.
BOARD ACTION. All recommendations of the Compensation Committee have been and
are subject to Board of Director review and approval. Stock option grants by the
Plan Committee are not subject to Board of Director review and approval in order
to satisfy Rule 16b-3 under the Securities Exchange Act of 1934.
SUBMITTED BY THE COMPENSATION COMMITTEE AND PLAN COMMITTEE OF THE
COMPANY'S BOARD OF DIRECTORS:
Compensation Committee: Plan Committee:
Andrew J. Greenshields, Chairman Andrew J. Greenshields, Chairman
Richard W. Perkins R. Hunt Greene
Patrick Delaney
STOCK PERFORMANCE
The graph below sets forth a comparison of the cumulative shareholder return of
the Company's Common Stock over the last five fiscal years with the cumulative
total return over the same periods for the Nasdaq Market Index and the Surgical,
Medical and Dental Instruments and Supplies Index (the "Medical Instruments
Index") (SIC Code 384, which includes 242 companies). The graph below compares
with the two indicated indexes the cumulative total return of the Company's
Common Stock over the last five fiscal years assuming a $100 investment on
December 31, 1991 and assuming reinvestment of all dividends paid. The Company
did not pay any dividends during this period. This graph shall not be deemed
incorporated by reference into any filing under the Securities Act of 1933 or
the Securities Exchange Act of 1934.
[PLOT POINTS GRAPH]
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CNS, Inc. $100.00 $ 55.56 $183.33 $197.22 $672.22 $638.89
Medical Instruments Index 100.00 85.84 67.55 74.84 125.01 133.11
Nasdaq Market Index 100.00 100.98 121.13 127.17 164.96 204.98
</TABLE>
EMPLOYMENT AGREEMENTS
Dr. Cohen and Messrs. Jahnke, Byrd, Hodgdon and Doubek have employment
agreements with the Company. The employment agreements with Dr. Cohen and
Messrs. Jahnke, Byrd and Hodgdon provide that they are entitled to base
salaries, respectively, of $150,000, $150,000, $130,000 and $127,000 annually
plus they may earn cash bonuses as established by the Board from time to
time. Mr. Doubek's employment agreement does not provide for a compensation
structure but he received a base salary of $100,000 in 1996. Either the
Company or Dr. Cohen or Messrs. Jahnke, Byrd and Hodgdon may terminate their
respective agreements on 90 days' notice. Either the Company or Mr. Doubek
may terminate his agreement on 15 days' notice. Dr. Cohen's agreement
contains a noncompete obligation which remains in effect for a period of two
years after termination of employment. Each of the employment agreements with
Messrs. Jahnke, Byrd, Hodgdon and Doubek contains a noncompete obligation
which remains in effect for a period of one year after termination of
employment.
Each of the employment agreements with Messrs. Jahnke, Byrd and Hodgdon provides
that upon the termination of their employment with the Company during the
12-month period following a Change in Control of the Company (i) by the Company
other than for Cause, death or Disability, or (ii) by employee for Good Reason
(as such terms are defined in their employment agreements), then they shall be
entitled to a lump sum payment equal to two times the cash compensation paid to
them in the year prior to termination and all of their outstanding options to
purchase Common Stock of the Company shall immediately become fully vested and
exercisable. If such a termination had occurred in 1997, the amounts payable
pursuant to these employment agreements would have been as follows: Mr. Jahnke,
$600,000; Mr. Byrd, $380,000; and Mr. Hodgdon, $406,400.
DIRECTOR COMPENSATION
Non-employee directors were not paid any fees or remuneration for services as
members of the Board of Directors during fiscal year 1996. Fees were paid to Mr.
Delaney's law firm, Lindquist & Vennum P.L.L.P., for services rendered to the
Company.
On June 17, 1994, each non-employee director of the Company was granted a
ten-year, nonqualified option under the proposed 1994 Stock Plan to purchase
80,000 shares of Common Stock at $3.095 per share, the fair market value of the
Common Stock on the date of grant. The options vest as follows: 20,000 shares on
the date of grant and 20,000 shares on the date of each annual Stockholders'
meeting held during the succeeding three years at which the director is
re-elected to the Board of Directors.
APPROVAL OF AMENDMENT TO COMPANY'S 1994 STOCK PLAN
(PROPOSAL #2)
INTRODUCTION
On June 17, 1994, the Board of Directors adopted the CNS, Inc. 1994 Stock Plan
(the "Plan") and the Plan was ratified and approved by the Stockholders on May
11, 1995. The purpose of the Plan is to enable the Company and its subsidiaries
to retain and attract executives, other key employees and non-employee directors
who contribute to the Company's success by their ability, ingenuity and
industry, and to enable such individuals to participate in the long-term success
and growth of the Company by giving them a proprietary interest in the Company.
The Plan authorizes the granting of awards in the form of (i) stock options,
(ii) stock appreciation rights, (iii) restricted stock, (iv) deferred stock and
(v) other stock based and non-stock based awards.
PROPOSED PLAN AMENDMENTS
The proposed amendments to the Plan are as follows:
INCREASING NUMBER OF SHARES. The Plan originally authorized the issuance of
1,000,000 shares of common stock pursuant to awards granted under the Plan (as
adjusted to reflect a two-for-one stock split effected in June 1995). On January
10, 1997, the Board of Directors amended the Plan, subject to ratification and
approval of the stockholders, to increase the total number of shares available
under the Plan by 750,000 shares to a total of 1,750,000 shares. There were
outstanding on March 3, 1997 options to purchase an aggregate of 1,411,700
shares under the Company's stock option plans (including 847,800 under the Plan)
and an aggregate of 721,248 shares have been purchased through the exercise of
options granted under these stock option plans (including 148,450 under the
Plan). Therefore, absent shareholder approval of this amendment to the Plan, an
aggregate of 67,052 shares remain available for awards under the Company's stock
option plans (including 3,750 under the Plan). The Board of Directors has deemed
it prudent to increase the shares available for grant under the Plan by 750,000
shares in order to facilitate future grants of stock options, stock appreciation
rights, restricted stock awards, deferred stock awards and other stock based or
non-stock based awards.
COMPLIANCE WITH SECTION 162(m). Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), limits the Company's deduction for federal income
tax purposes of compensation in excess of $1 million per individual paid to the
Company's Chief Executive Officer and its four highest paid executive officers.
Compensation plans which are performance-based, approved by the Company's
stockholders, granted by a committee consisting solely of two or more outside
directors, and have an annual cap on the number of shares that may be granted to
any given individual will not be subject to the deduction limit. The Plan
currently does not have an annual cap on the amount of shares subject to an
option grant. On January 10, 1997, the Board of Directors amended the Plan,
subject to ratification and approval of the stockholders, to bring the Plan into
compliance with Section 162(m) of the Code by providing for an annual cap on the
number of shares granted to an individual to 150,000 shares. By adopting this
change, the Company may deduct any compensation expense resulting from the grant
or exercise of options issued under the Plan without regard to the limitations
under Code Section 162(m), including options to the individuals described above.
SUMMARY OF THE PLAN
NUMBER OF SHARES. The maximum number of shares of common stock reserved and
available for awards under the Plan, as amended by the Board, is currently
1,750,000 shares (subject to possible adjustment in the event of future stock
splits or similar changes in the common stock). Shares of common stock covered
by expired or terminated stock options and forfeited shares of restricted stock
or deferred stock may be used for subsequent awards under the Plan.
ELIGIBILITY AND ADMINISTRATION. Officers, other key employees of the Company and
subsidiaries and non-employee directors are eligible to be granted awards under
the Plan. Approximately 15 officers and other key employees and four
non-employee directors are currently eligible to participate in the Plan. The
Plan is administered by the Board of Directors of the Company or by a Committee
appointed by the Board, consisting of at least two directors, all of whom are
"Outside Directors" and "Non-Employee Directors" as defined in the Plan. The
Committee has the power to make awards, determine the number of shares covered
by each award and other terms and conditions of such awards, construe the Plan,
and prescribe, amend and rescind the rules and regulations with respect to the
administration of the Plan.
STOCK OPTIONS. The Committee may grant stock options that qualify either as
"incentive stock options" under the Internal Revenue Code or as "non-qualified
stock options" in such form and upon such terms as the Committee may approve
from time to time. Stock options granted under the Plan may be exercised during
their respective terms as determined by the Committee. The purchase price may be
paid by tendering a certified or bank check, or by any other form of legal
consideration deemed sufficient by the Committee and consistent with the Plan's
purpose and applicable law, including promissory notes and, under certain
circumstances, unrestricted stock already owned by the optionee. If the terms of
a stock option so permit, an optionee may elect to pay all or part of the
exercise price by having the Company withhold from the shares of stock that
would otherwise be issued upon exercise, that number of shares of stock having a
fair market value equal to the aggregate exercise price for the shares with
respect to which such election is made. No stock option shall be transferable by
the optionee or exercised by anyone else during the optionee's lifetime.
Stock options may be exercised during varying periods of time after an
optionee's termination of employment by the Company or any subsidiary or parent
corporation, depending upon the reason for the termination. Following an
optionee's death, the optionee's stock options may be immediately exercised to
the extent they were exercisable at the time of death by the legal
representative of the estate or the optionee's legatee for a period of three
months or until the expiration of the stated term of the option, whichever is
less. The same time periods apply if the optionee is terminated by reason of
disability. If an optionee retires, the optionee's vested stock options may be
exercised to the extent they were exercisable at the time of retirement, but may
not be exercised after three months from the date of retirement or the
expiration of the stated term of the option, whichever is less. If the
optionee's employment is terminated for cause, the optionee's stock options
immediately terminate. These exercise periods may be reduced by the Committee
for particular options. The Board may, in its discretion, accelerate the
exercisability of stock options which would not otherwise be exercisable upon
death, disability or retirement.
No incentive stock options shall be granted under the Plan after June 17, 2004.
The term of an incentive stock option may not exceed 10 years from the date the
stock option is granted (or 5 years if issued to an optionee who owns or is
deemed to own more than 10% of the combined voting power of all classes of stock
of the Company or any subsidiary or parent corporation). The aggregate fair
market value of the common stock with respect to which an incentive stock option
is exercisable for the first time by an optionee during any calendar year shall
not exceed $100,000. The option price per share of common stock purchasable
under a stock option shall be determined by the Committee at the time of grant.
In the event that the Committee does not determine the exercise price per share
of stock purchasable under a stock option, the exercise price shall be the fair
market value of the stock on the date the stock option is granted. In no event
shall the stock option price per share of stock purchasable under an incentive
stock option or non-qualified stock option be less than the fair market value of
the stock on the date the stock option is granted (or, in the event the optionee
owns more than 10% of the combined voting power of all classes of stock of the
Company, the option price shall not be less than 110% of the fair market value
of the stock on the date the option is granted).
STOCK APPRECIATION RIGHTS. The Committee may grant stock appreciation rights
("SARs") in connection with all or part of any stock option (with the exception
of options granted to non-employee directors), either at the time of the stock
option grant, or, in the case of no-qualified options, later during the term of
the stock option. SARs entitle the participant to receive from the Company the
same economic value that would have been derived from the exercise of an
underlying stock option and the immediate sale of the shares of common stock.
Such value is paid by the Company in cash, shares of common stock or a
combination of both, in the discretion of the Committee. SARs are exercisable or
transferable only at such times and to the extent stock options to which they
relate are exercisable or transferable. If a SAR is exercised, the underlying
stock option is terminated as to the number of shares covered by the SAR
exercise.
RESTRICTED STOCK. The Committee may grant restricted stock awards that result in
shares of common stock being issued to an optionee subject to restrictions
against disposition during a restricted period established by the Committee. The
Committee may condition the grant of restricted stock upon the attainment of
specified performance goals or service requirements. The provisions of
restricted stock awards need not be the same with respect to each recipient. The
restricted stock will be held in custody by the Company until the restrictions
thereon have lapsed. During the period of restrictions, a participant has the
right to vote the shares of restricted stock and receive dividends and
distributions unless the Board requires such dividends and distributions to be
held by the Company, subject to the same restrictions as the restricted stock.
Notwithstanding the foregoing, all restrictions with respect to restricted stock
lapse 60 days (or less, as determined by the Committee) prior to the occurrence
of a merger or other significant corporate change, as provided in the Plan.
If a participant terminates employment during the period of restrictions, all
shares still subject to restrictions will be forfeited and returned to the
Company, subject to the right of the Committee to waive such restrictions in the
event of an optionee's death, total disability, retirement or under special
circumstances approved by the Board.
DEFERRED STOCK. The Committee may grant deferred stock awards that result in
shares of common stock being issued to an optionee or group of optionees upon
the expiration of a deferral period. The Committee may condition the grant of
deferred stock upon the attainment of specified performance goals. The
provisions of deferred stock awards need not be the same with respect to each
recipient.
Upon termination of employment for any reason during the deferral period for a
given award, the deferred stock in question shall be forfeited by the
participant, subject to the Committee's ability to waive any remaining deferral
limitations with respect to a participant's deferred stock. During the deferral
period, deferred stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered and any dividends declared with respect to the number of
shares covered by a deferred stock award will either be immediately paid to the
participant or deferred and deemed to be reinvested in additional deferred
stock, as determined by the Committee. The Committee may allow a participant to
elect to further defer receipt of a deferred stock award for a specified period
or until a specified event.
OTHER AWARDS. The Committee may from time to time grant stock, other stock based
and non-stock based awards under the Plan including without limitations those
awards pursuant to which shares of stock are or may in the future be acquired,
awards denominated in stock units, securities convertible into stock, phantom
securities and dividend equivalents. The Committee shall determine the terms and
conditions of such other stock, stock based and non-stock based awards provided
that such awards shall not be inconsistent with the terms and purposes of the
Plan.
RIGHT OF REPURCHASE. The Committee may, at the time of any grant under the Plan,
provide that the shares of common stock received under the Plan shall be subject
to a repurchase right in favor of the Company in the event that a participant's
employment is terminated for any reason. Except as otherwise provided by the
Committee, the repurchase price will be the fair market value of the stock or,
in the case of a termination for cause, an amount equal to the consideration
paid for the stock. The Committee may also, at the time of grant, provide the
Company with similar repurchase rights, upon terms and conditions specified by
the Committee, with respect to any participant who, at any time within one year
of termination of employment with the Company, directly or indirectly competes
with, or is employed by a competitor of, the Company.
FEDERAL INCOME TAX CONSEQUENCES
STOCK OPTIONS. An optionee will not realize taxable compensation income upon the
grant of an incentive stock option. In addition, an optionee generally will not
realize taxable compensation income upon the exercise of an incentive stock
option if he or she exercises it as an employee or within three months after
termination of employment (or within one year after termination if the
termination results from a permanent and total disability). The amount by which
the fair market value of the shares purchased exceeds the aggregate option price
at the time of exercise shall be treated as alternative minimum taxable income
for purposes of applying the alternative minimum tax. If stock acquired pursuant
to an incentive stock option is not disposed of prior to the date of two years
from the option grant date or prior to one year from the option exercise date
(the "Applicable Holding Periods"), any gain or loss realized upon the sale of
such shares will be characterized as capital gain or loss. If the Applicable
Holding Periods are not satisfied, then any gain realized in connection with the
disposition of such stock will generally be taxable as ordinary compensation
income in the year in which the disposition occurred, to the extent of the
difference between the fair market value of such stock on the date of exercise
and the option exercise price. The Company is entitled to a tax deduction to the
extent, and at the time, the optionee realizes compensation income. The balance
of any gain will be characterized as a capital gain.
An optionee will not realize taxable compensation income upon the grant of a
non-qualified stock option. As a general matter, when an optionee exercises a
non-qualified stock option, he or she will realize taxable compensation income
at that time equal to the difference between the aggregate option price and the
fair market value of the stock on the date of exercise. The Company is entitled
to a tax deduction to the extent, and at the time, the participant realizes
compensation income.
Upon the disposal of stock acquired pursuant to a non-qualified stock option,
the optionee's basis for determining taxable gain or loss will be the sum of the
option price paid for the stock plus any related compensation income recognized
by the optionee, and such gain or loss will be long-term or short-term capital
gain or loss depending on whether the optionee has held the shares for more than
one year.
SARS. The grant of an SAR would not result in income for the participant or in a
deduction for the Company. Upon receipt of shares or cash from exercise of an
SAR, the participant would generally recognize compensation income, measured by
the fair market value of the shares plus any cash received, and the Company
would be entitled to a corresponding deduction.
RESTRICTED AND DEFERRED STOCK. The grant of restricted stock and deferred stock
will not result in immediate income for the participant or in a deduction for
the Company for federal income tax purposes, assuming the shares are
nontransferable and subject to restrictions or to a deferral period creating a
"substantial risk of forfeiture," as intended by the Company and as defined in
applicable Treasury regulations. If the shares are transferable or there are no
such restrictions or significant deferral periods, the participant will realize
compensation income upon receipt of the award. Otherwise, a participant
generally will realize taxable compensation when any such restrictions or
deferral period lapses. The amount of such income will be the value of the
common stock on that date less any amount paid for the shares. Dividends paid on
the common stock and received by the participant during the restricted period or
deferral period also will be taxable compensation income to the participant. In
any event, the Company will be entitled to a tax deduction to the extent, and at
the time, the optionee realizes compensation income. A participant may elect,
under Section 83(b) of the Code, to be taxed on the value of the stock at the
time of award. If this election is made, the fair market value of the stock at
the time of the award is taxable to the participant as compensation income and
the Company is entitled to a corresponding deduction.
WITHHOLDING. The Plan requires each participant, no later than the date as of
which any part of the value of an award first becomes includible as compensation
in the gross income of the participant, to pay to the Company any federal, state
or local taxes required by law to be withheld with respect to the award. The
Company shall, to the extent permitted by law, have the right to deduct any such
taxes from any payment otherwise due to the optionee. With respect to any award
under the Plan, if the terms of the award so permit, a participant may elect to
satisfy part or all of the withholding requirements associated with the award by
(i) authorizing the Company to retain from the number of shares of Company
common stock which would otherwise be deliverable to the participant, or (ii)
delivering to the Company from shares of Company common stock already owned by
the participant that number of shares having an aggregate fair market value
equal to part or all of the tax payable by the optionee. In that case, the
Company would pay the tax liability from its own funds.
REGISTRATION WITH THE SEC
Upon approval of the amendment to the Plan by the Stockholders, the Company
intends to file a registration statement covering the offering of the additional
750,000 shares of common stock issuable under the Plan with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended.
VOTE REQUIRED
Shareholder approval of the amendment to the Plan requires the affirmative vote
of the holders of a majority of the shares of common stock represented at the
meeting and entitled to vote.
MANAGEMENT RECOMMENDS A VOTE FOR APPROVAL
OF THE AMENDMENT TO THE 1994 STOCK PLAN.
APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL #3)
The Board of Directors has selected KPMG Peat Marwick LLP, certified public
accountants, as independent auditors to make an examination of the accounts of
the Company for the fiscal year ending December 31, 1997, and to perform other
appropriate accounting services. Unless otherwise specified, proxies solicited
by the Board of Directors will be voted FOR such appointment of KPMG Peat
Marwick LLP.
The Company has requested representatives of KPMG Peat Marwick LLP to attend the
meeting. They will have an opportunity to make a statement if they desire to do
so, and they will be available to respond to appropriate questions.
ANNUAL REPORT
An Annual Report of the Company describing the Company's key activities and
containing financial statements for the fiscal year ended December 31, 1996
accompanies this Notice of Annual Meeting and proxy solicitation material.
SHAREHOLDER PROPOSALS
If a shareholder desires to present a proposal to be voted upon at the next
meeting of Stockholders of CNS, Inc., such proposal, in order to be included in
the proxy statement, must be received at the Company's office at P.O. Box 39802,
Minneapolis, Minnesota, 55439 by November 21, 1997.
SOLICITATION
The cost of soliciting proxies, including the cost of preparing, assembling, and
mailing the proxies and soliciting material, as well as the cost of forwarding
the material to the beneficial owners of stock, will be borne by the Company.
Directors, officers and regular employees of the Company may, without
compensation other than their regular remuneration, solicit proxies personally
or by telephone.
GENERAL
ABSTENTIONS AND BROKER NON-VOTES
If a shareholder abstains from voting on any matter, the Company intends to
count the person abstaining as present for purposes of determining whether a
quorum is present at the Annual Meeting of Stockholders for the transaction of
business but as not having voted for any proposal, although there is no
definitive statutory or case law authority in Delaware as to the proper
treatment of abstentions. Additionally, the Company intends to count broker
"non-votes" as present for purposes of determining the presence or absence of a
quorum for the transactions of business. A "non-vote" occurs when a nominee
holding shares for a beneficial owner votes on one proposal, but does not vote
on another proposal because the nominee does not have discretionary voting power
and has not received instructions from the beneficial owner. Therefore,
abstentions and broker "non-votes" have the same effect as votes against the
proposals.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission and
the NASD. Executive officers and directors are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. To the
Company's knowledge, all insiders of the Company filed in a timely manner all
such reports.
OTHER BUSINESS
The management of the Company does not know of any other business to be
presented at the Annual Meeting of Stockholders. If any matter properly comes
before the meeting, however, it is intended that the persons named in the
enclosed form of proxy will vote said proxy in accordance with their best
judgment.
ALL PROXIES PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY
STOCKHOLDERS. IF NO DIRECTION IS GIVEN, PROXIES WILL BE VOTED FOR THE ELECTION
OF MANAGEMENT'S NOMINEES FOR DIRECTORS, AND FOR THE APPOINTMENT OF KPMG PEAT
MARWICK. AS THE COMPANY'S INDEPENDENT AUDITORS.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Daniel E. Cohen
Daniel E. Cohen, M.D.
CHAIRMAN OF THE BOARD
Minneapolis, Minnesota
March 21, 1997
PLEASE SIGN DATE AND MAIL YOUR PROXY NOW
CNS, INC.
4400 WEST 78TH STREET
BLOOMINGTON, MINNESOTA 55435
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Daniel E. Cohen, M.D., and Patrick Delaney, and
each of them as Proxies, each with the power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of Common Stock of CNS, Inc. held of record by the undersigned on March
3, 1997, at the annual meeting of shareholders to be held on April 23, 1997, or
at any adjournment thereof.
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below (except as
marked to the contrary)
DANIEL E. COHEN, M.D., RICHARD E. JAHNKE, PATRICK DELANEY,
R. HUNT GREENE, ANDREW J. GREENSHIELDS, RICHARD W. PERKINS
(INSTRUCTION: To withhold authority to vote for any nominee, print that
nominee's name on the space provided below.)
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[ ] WITHHOLD AUTHORITY to vote for all nominees listed above.
2. PROPOSAL TO RATIFY AND APPROVE AMENDMENTS TO THE COMPANY'S 1994 STOCK PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE
INDEPENDENT AUDITORS OF THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued, and to be completed and signed on reverse side)
(continued from other side)
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned shareholder. If no direction is made, the Proxy will be voted
for items 1, 2 and 3. Please sign exactly as name appears below. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Dated:____________________________, 1997
________________________________________
Name of Shareholder(s) (Please print)
________________________________________
Signature (and Title if applicable)
________________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
