SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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
[ ] 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:
<PAGE>
[LOGO] CNS
CNS, INC.
4400 WEST 78TH ST.
BLOOMINGTON, MINNESOTA 55435
(612) 820-6696
-----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 1998
-----------------------
To the Stockholders of CNS, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of CNS, Inc.
(the "Company") will be held on Wednesday, April 22, 1998 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 the appointment of KPMG Peat Marwick LLP as
independent auditors for the Company for the fiscal year ending
December 31, 1998; and
3. 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, 1997.
The Board of Directors has fixed the close of business on March 3, 1998 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 18, 1998.
- --------------------------------------------------------------------------------
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 OR WITHDRAWN BY YOU AT ANY TIME
BEFORE IT IS EXERCISED.
- --------------------------------------------------------------------------------
<PAGE>
CNS, INC.
4400 WEST 78TH ST.
BLOOMINGTON, MINNESOTA 55435
(612)820-6696
-----------------------
PROXY STATEMENT
-----------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 22, 1998
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 22, 1998 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 18, 1998.
Any stockholder 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
stockholder 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.
Under Delaware law, each item of business properly presented at a meeting
of stockholders generally must be approved by the affirmative vote of the
holders of a majority of the voting power of the shares present, in person or by
proxy, and entitled to vote on that item of business. However, if the shares
present and entitled to vote on that item of business would not constitute a
quorum for the transaction of business at the meeting, then the item must be
approved by a majority of the voting power of the minimum number of shares that
would constitute a quorum. Votes cast by proxy or in person at the Annual
Meeting of Stockholders will determine whether or not a quorum is present. If a
stockholder 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.
OUTSTANDING VOTING SECURITIES
Only stockholders of record as of the close of business on March 3, 1998,
will be entitled to vote at the meeting. On that date, the Company had
outstanding 18,393,059 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
<PAGE>
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, 1998, 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 and
nominee of the Company, by each executive officer named in the Summary
Compensation Table below, and by all directors, nominees and executive officers
of the Company as a group:
NUMBER OF SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERD(1)(2) OF CLASS
------------------------------------ ------------ --------
Richard W. Perkins(3) 1,133,596 6.1%
Perkins Capital Management, Inc.
730 East Lake Street
Wayzata, MN 55391
Daniel E. Cohen, M.D.(4) 830,664 4.5%
Patrick Delaney 100,066 *
R. Hunt Greene 80,000 *
Andrew J. Greenshields(5) 74,000 *
Richard E. Jahnke(6) 229,000 1.2%
Marti Morfitt 0 --
David J. Byrd 15,700 *
Rihab Fitzgerald(7) 144,484 *
Kirk P. Hodgdon 82,000 *
All directors, nominees and 2,992,284 15.4%
officers as a group (13 persons)(8)
- -----------------------
*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 of Common Stock which could be
purchased under stock options exercisable within sixty (60) days of the
date hereof: Mr. Perkins, 80,000 shares; Dr. Cohen, 200,000 shares; Mr.
Delaney, 80,000 shares; Mr. Greene, 60,000 shares; Mr. Greenshields, 70,000
shares; Mr. Jahnke, 166,000 shares; Mr. Byrd, 15,000 shares; Ms.
Fitzgerald, 42,000 shares; Mr. Hodgdon, 82,000 shares; and all directors,
nominees and officers as a group, 1,018,000 shares.
(3) Includes 928,248 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, Inc. has sole voting with respect to 140,548 of
such shares and sole dispositive power with respect to 928,248 of such
shares. Mr. Perkins and Perkins Capital Management, Inc. 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 73,948 shares
held by a partnership of which Mr. Perkins is a general partner.
(4) Includes 327,332 shares of Common Stock owned of record by Dr. Cohen's
spouse for which he has no voting or dispositive power.
(5) Includes 4,000 shares of Common Stock held by Mr. Greenshields jointly with
his spouse for which he has shared voting and dispositive power.
(6) Mr. Jahnke served as Director, President and Chief Operating Officer of the
Company until March 30, 1998, the effective date of his resignation.
(7) Includes 1,442 shares of Common Stock held by Ms. Fitzgerald jointly with
her spouse for which she has shared voting and dispositive power.
(8) Includes 327,332 shares of Common Stock owned by spouses and 5,442 shares
owned jointly with spouses.
<PAGE>
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. Except as noted 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 or her 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 1982; Mr. Greene has been a director since
1985; Mr. Greenshields has been a director since 1986; Mr. Perkins has been a
director since 1993; and Ms. Morfitt will join the Board as a director on March
30, 1998. 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. All of the nominees other than Ms. Morfitt are the Directors who
served during 1997. Ms. Morfitt will join the Company as its President and Chief
Operating Officer on March 30, 1998, replacing Richard E. Jahnke who resigned
effective as of March 30, 1998 in order to pursue other business interests. The
Company thanks Mr. Jahnke for his service since 1993.
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 Ms. Morfitt will devote their full working time to the business of the
Company. Messrs. Delaney, Greene, Perkins and Greenshields will devote such time
as is necessary to fulfill their duties as directors.
DANIEL E. COHEN, M.D., 45, 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.
MARTI MORFITT, 40, has agreed to serve as the Company's President and Chief
Operating Officer beginning March 30, 1998. From September 1982 through February
1998, Ms. Morfitt served in a series of positions of increasing responsibility
with the Pillsbury Company, a Minneapolis-based manufacturer and distributor of
food products, most recently serving from May 1997 to February 1998 as
Vice-President, Meals, and from February 1994 to May 1997 as Vice-President,
Green Giant Brands. She also serves as a director of Graco, Inc., a
Minneapolis-based manufacturer of fluid handling systems.
PATRICK DELANEY, 55, has served as a director of the Company since its
inception in 1982 and 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, 47, has been an investment banker for over fifteen years.
He is presently Managing Director of Greene Holcomb & Company LLC, a Minneapolis
investment bank that provided investment banking services to the Company. 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, 60, has been President of Pathfinder Ventures,
Inc., Minneapolis, Minnesota, since 1980. He is also a general partner of
Pathfinder Venture Capital Funds II and III and a general partner of Spell
Capital Partners, LP, all of which are Minneapolis-based venture capital limited
partnerships. Mr. Greenshields is also a director of Aetrium, Inc., a
manufacturer of semiconductor handling equipment.
<PAGE>
RICHARD W. PERKINS, 67, has been President, Chief Executive Officer and a
director of Perkins Capital Management, Inc. since 1985. He is also a general
partner of Spell Capital Partners, LP and 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 device company; Nortech Systems,
Inc., a contract manufacturer for the electronics industry; Quantech, Ltd., a
development stage medical products company; Vital Images, Inc., a medical
products company; and Harmony Holdings, Inc., a producer of television
commercials, music videos and related media.
--------------------------------------------------------
MANAGEMENT RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED.
--------------------------------------------------------
OTHER INFORMATION REGARDING THE BOARD
BOARD MEETINGS
The Board of Directors met six times during 1997. 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 1997.
COMMITTEES
The Audit Committee of the Board of Directors, which is comprised of
Messrs. Greene, Chairman, and Greenshields, met twice during 1997. 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 1997. The
Compensation Committee took action in writing in lieu of a meeting once during
the fiscal year 1997. 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 executive officers of
the Company. The Compensation Committee therefore also has the authority to make
awards under and adopt and alter administrative rules and practices governing
the Company's Stock Option Plans and Stock Purchase Plan ("Plans") and interpret
the terms and provisions of the Plans and any award issued under those Plans.
The Nominating Committee is comprised of Dr. Cohen and Messrs. Greenshields
and Delaney. The Nominating Committee did not meet during 1997. The
responsibilities of the Nominating Committee include Board membership
recommendations and executive officer succession planning.
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending December 31, 1997,
1996 and 1995, 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 four most highly
compensated executive officers of the Company as of December 31, 1997 (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. 1997 $219,750 $ -0- -0- $300
Chief Executive Officer, 1996 150,000 150,000 -0- 300
Treasurer and Chairman 1995 141,400 141,400 200,000 300
of the Board
Richard E. Jahnke 1997 219,750 -0- -0- 300
President and 1996 150,000 150,000 -0- 300
Chief Operating Officer 1995 140,500 140,500 75,000 300
Kirk P. Hodgdon 1997 142,000 -0- -0- 300
Vice President of 1996 127,000 76,200 -0- 300
Consumer Marketing 1995 125,250 75,150 50,000 300
David J. Byrd 1997 136,000 -0- 60,000(2) 275
Vice President of 1996 118,750(3) 71,250 -0- 275
Finance and Chief 1995 -0- -0- -0- -0-
Financial Officer
Rihab Fitzgerald 1997 112,630 -0- -0- 300
Vice President of 1996 100,000 60,000 -0- 300
Consumer Sales 1995 96,250 57,750 50,000 -0-
</TABLE>
- -----------------------
(1) Represents the payment of life insurance premiums.
(2) Represents a repricing of an option previously granted on February 5, 1996.
See "Report on Option Repricings."
(3) Mr. Byrd became Vice President of Finance and Chief Financial Officer in
February 1996 and received a salary for the remainder of 1996.
<PAGE>
STOCK OPTIONS
The following table contains information concerning grants of stock options
to the Named Executives during the fiscal year ending December 31, 1997:
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT
PERCENT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK
OF SECURITIES OPTIONS EXERCISE OR PRICE APPRECIATION
UNDERLYING GRANTED TO BASE FOR OPTION TERM(1)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED(#) IN 1997 ($/Sh) DATE 5% 10%
- ---- ------------- ---------- ----------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Daniel E. Cohen, M.D...... -0- -- -- -- -- --
Richard E. Jahnke......... -0- -- -- -- -- --
Kirk P. Hodgdon........... -0- -- -- -- -- --
David J. Byrd............. 60,000(2)(3) 54.5% $ 7.25 07/23/07 $273,569 $693,278
Rihab Fitzgerald.......... -0- -- -- -- -- --
</TABLE>
- ------------------------
(1) Potential realizable values shown above represent potential gains based
upon annual compound price appreciation of 5% and 10% from the date of
grant through the full option term. The actual value realized, if any, on
stock option exercises will be dependent on overall market conditions and
the future performance of the Company and its Common Stock. There is no
assurance that the actual value realized will approximate the amounts
reflected in this table.
(2) The option vests as follows: 15,000 shares on each of July 23, 1997, 1998,
1999 and 2000.
(3) Represents a repricing of an option previously granted on February 5, 1996.
See "Report on Option Repricing."
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Named
Executives concerning the exercise of options during fiscal year ending December
31, 1997 and unexercised options held as of December 31, 1997:
AGGREGATED OPTION EXERCISES IN 1997 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
ON VALUE ----------------------------- -----------------------------
NAME EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Daniel E. Cohen, M.D. -0- -0- 150,000 50,000 $178,125 $ 59,375
Richard E. Jahnke 3,000 $ 16,313 167,250 58,750 663,421 237,266
Kirk P. Hodgdon -0- -0- 57,500 36,500 108,281 91,344
David J. Byrd -0- -0- 15,000 45,000 (2) (2)
Rihab Fitzgerald 39,900 414,481 32,000 12,000 44,375 20,625
</TABLE>
- ----------------------
(1) Based on the closing sale price of $6.688 per share for the Common Stock on
December 31, 1997.
(2) The exercise price for these options was greater than the closing sale
price on December 31, 1997.
REPORT ON OPTION REPRICING
The Company has historically believed that the granting of stock options to
employees and executive officers has provided a significant incentive to the
Company's employees and executive officers to align their interests with those
of the Company's stockholders. A substantial number of the Company's employees
and executive officers have received stock options in the past. The Company's
<PAGE>
policy has been to grant options to certain employees on their starting dates
and each executive officer on the date of his or her election, and to grant
additional options to employees and executive officers on a periodic basis. In
July of 1997, when the fair market value of the Company's Common Stock was
$7.25, the Compensation Committee of the Company reviewed the Company's
outstanding stock options and determined that the Company had outstanding
options to purchase 90,000 shares of its Common Stock at prices significantly
above market. This was the result of a decline in the market price of the
Company's securities that was in part attributable to market conditions.
The Compensation Committee believed that because of the significant
decrease in the price of the Company's Common Stock, it was unlikely that these
options would provide significant incentive for employees and executive
officers, particularly in the short term. Accordingly, the Company canceled
90,000 options and reissued the same number of options at an exercise price of
$7.25 per share on July 23, 1997, the fair market value of each share underlying
the options on the date of grant, and adjusted the exercise periods in order to
coincide with the original grant. This cancellation and reissuance was the
equivalent of a repricing of the 90,000 options. The Compensation Committee
believed that it was in the best interests of the Company to cancel these
options and to issue new stock options because the new option grants would
provide an additional incentive for employees and certain executive officers and
result in increased stockholder value. Of the options that were repriced, 60,000
were held by David J. Byrd, Vice President of Finance and Chief Financial
Officer of the Company.
The table below provides information with respect to such repricing,
together with the only other incident of repricing in the past ten fiscal years.
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING LENGTH OF
NUMBER OF MARKET PRICE OF EXERCISE PRICE ORIGINAL TERM
OPTIONS STOCK AT TIME AT TIME OF NEW REMAINING AT
REPRICED OR OF REPRICING OR REPRICING OR EXERCISE REPRICING OR
NAME DATE AMENDED(#) AMENDMENT($) AMENDMENT($) PRICE($) AMENDMENT
- ---- ---- ---------- --------------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
David J. Byrd, 7/23/97 60,000 $7.25 $15.875 $7.25 102 months
Vice President of
Finance and
Chief Financial Officer
Rihab Fitzgerald, 7/22/88 60,000 $1.155 $ 1.405 $1.155 45 months
Vice President of
Consumer Sales
William Doubek, 7/22/88 32,000 $1.155 $ 1.405 $1.155 45 months
Vice President of
Operations
M.W. Anderson, 7/22/88 50,000 $1.155 $ 1.405 $1.155 45 months
Vice President of
Clinical and Regulatory
Affairs
</TABLE>
<PAGE>
REPORT ON EXECUTIVE COMPENSATION
This is a report of the Compensation Committee of the Board of Directors of
the Company, which is 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 Compensation Committee will take into account internally set
performance goals and comparisons with the performance of other publicly-held
consumer products companies with 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. In 1997, 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 April
1, 1997.
CASH BONUS. Bonuses are awarded to executive officers in consideration of
contributions to the Company and the Company's overall performance. In 1997, the
Board of Directors adopted a plan under which the Chairman and Chief Executive
Officer of the Company and the President and Chief Operating Officer of the
Company would be eligible for cash bonuses equal to amounts of between 25% and
100% of their base salaries depending on the Company's level of net income for
the fiscal year, with net income of at least $17,800,000 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 15% and 60% of their
base salaries if the same level of net income was achieved. The eligible
executive officers of the Company did not receive bonuses during the 1997 fiscal
year.
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 Committee has 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 1997, the Company repriced 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 repricing and exercisable
for ten years. The right to exercise the repriced options vests over the first
four years of the term of the option.
CHIEF EXECUTIVE OFFICER COMPENSATION. Dr. Cohen's compensation for
1995-1997 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 external nasal dilator, and has
made arrangements for the Company to test and 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 Compensation Committee are not, however, subject to Board of Director review
and approval.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS:
Andrew J. Greenshields, Chairman
Richard W. Perkins
<PAGE>
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, 1992 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,
------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CNS, Inc. $100.00 $330.00 $355.00 $1210.00 $1150.00 $535.00
Industry Index 100.00 78.70 87.19 145.63 155.08 185.98
Broad Market 100.00 119.95 125.94 163.35 202.99 248.30
</TABLE>
EMPLOYMENT AGREEMENTS
Dr. Cohen and Messrs. Byrd and Hodgdon have employment agreements with the
Company. The employment agreements with Dr. Cohen and Messrs. Byrd and Hodgdon
provide that they are entitled to base salaries, respectively, of $235,000,
$138,000 and $139,000 annually plus they may earn cash bonuses as established by
the Board from time to time. Either the Company or Dr. Cohen, or Messrs. Byrd
and Hodgdon may terminate their respective agreements on 90 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. Byrd and Hodgdon contains a noncompete obligation which
remains in effect for a period of one year after termination of employment.
Each of the employment agreements with Dr. Cohen and Messrs. Byrd and
Hodgdon provides that upon the termination of their employment with the Company
during the twelve-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: Dr. Cohen, $439,500; Mr. Byrd, $272,000; and Mr. Hodgdon, $284,000.
<PAGE>
In February 1998, the Company entered into a severance agreement with Mr.
Jahnke in connection with his resignation as President and Chief Operating
Officer of the Company. Under the terms of the agreement, the Company agreed to
continue Mr. Jahnke's salary of $20,083 a month from August 1998 through the end
of 1998 and to pay Mr. Jahnke a one-time severance payment of $110,458 and to
pay other benefits of approximately of $44,209, which includes a payment of his
accrued vacation. The Company has also agreed to continue his group health,
dental and life insurance benefits through December 31, 1998. Mr. Janhke agreed
to be available to consult with the Company during the period he is receiving
severance payments and thereafter with respect to certain matters. The Company
also agreed to grant Mr. Jahnke a two-year option to purchase 75,000 shares with
an exercise price of $6.125 and Mr. Jahnke agreed to surrender options to
purchase 75,000 shares at a price of $5.50.
DIRECTOR COMPENSATION
Non-employee directors were not paid any fees or remuneration for services
as members of the Board of Directors during fiscal year 1997. Fees were paid to
Mr. Delaney's law firm, Lindquist & Vennum P.L.L.P., for legal services rendered
to the Company and to Mr. Greene's company, Greene Holcomb & Company LLC, for
investment banking 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 vested 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.
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<PAGE>
APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL #2)
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, 1998, 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. In the event the appointment of KPMG Peat Marwick LLP should not be
ratified and approved by the stockholders, the Board of Directors will make
another appointment to be effective at the earliest feasible time.
A representative of KPMG Peat Marwick LLP is expected to attend the
meeting. He or she will have an opportunity to make a statement if he or she
desires to do so and will be available to respond to appropriate questions.
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MANAGEMENT RECOMMENDS A VOTE "FOR" THE PROPOSAL TO RATIFY AND
APPROVE THE APPOINTMENT OF KPMG PEAT MARWICK LLP.
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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, 1997
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 19, 1998.
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 by
telephone, facsimile or in person. The Company may also request banks and
brokers to solicit their customers who have a beneficial interest in shares
registered in the names of nominees and will reimburse such banks and brokers
for their reasonable out-of-pocket expenses.
GENERAL
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.
<PAGE>
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 LLP 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 18, 1998
PLEASE SIGN, DATE AND MAIL YOUR PROXY NOW
<PAGE>
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, 1998, at the Annual Meeting of Stockholders to be held on April 22, 1998, 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., PATRICK DELANEY, R. HUNT GREENE,
ANDREW J. GREENSHIELDS, MARTI MORFITT, 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 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)
<PAGE>
(CONTINUED FROM OTHER SIDE)
3. 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 stockholder. If no direction is made, the Proxy will be voted
for items 1 and 2. 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:____________________________, 1998
________________________________________
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.
