<PAGE>
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 Section 240.14a-11(c) or Section
240.14a-12
CYBERONICS, 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)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction 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:
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(4) Date Filed:
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<PAGE>
CYBERONICS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
May 28, 1998
TO THE STOCKHOLDERS OF CYBERONICS, INC.:
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders of
Cyberonics, Inc., a Delaware corporation (the "Company"), will be held on
Thursday May 28, 1998, at 10:00 a.m., local time, at the executive offices of
the Company located at 16511 Space Center Boulevard, Suite 600, Houston, Texas.
The purpose of the meeting is to consider and approve an amendment to the
Company's 1991 Employee Stock Purchase Plan (the "Purchase Plan") to increase
the number of shares of Common Stock available for grant thereunder by 100,000
shares.
Only stockholders of record at the close of business on April 9, 1998 are
entitled to notice of, and to vote at, the special meeting and any adjournment
thereof.
All stockholders are cordially invited to attend the meeting in person.
HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO MARK,
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE
POSTAGE PREPAID ENVELOPE ENCLOSED FOR THAT PURPOSE. You may revoke your proxy at
any time before it has been voted, and if you attend the meeting you may vote in
person even if you have previously returned your proxy card. Your prompt
cooperation will be greatly appreciated.
Sincerely,
Robert P. Cummins
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Webster, Texas
April 15, 1998
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN THE ENCLOSED PROXY
CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF YOU ATTEND THE MEETING AND SO DESIRE, YOU MAY WITHDRAW YOUR PROXY
AND VOTE IN PERSON.
THANK YOU FOR ACTING PROMPTLY
<PAGE>
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of Cyberonics, Inc., a Delaware
corporation (the "Company") for use at the Special Meeting of Stockholders (the
"Special Meeting") to be held on May 28, 1998 at 10:00 a.m. local time, or at
any adjournment thereof, for the purposes set forth herein and in the
accompanying Notice of Special Meeting of Stockholders. The Special Meeting will
be held at the Company's executive offices located at 16511 Space Center
Boulevard, Suite 600, Houston, Texas 77058 (phone no. (281) 228-7200).
These proxy solicitation materials were mailed on or about April 13, 1998 to
all stockholders entitled to vote at the meeting.
RECORD DATE AND OUTSTANDING SHARES
Stockholders of record at the close of business on April 9, 1998 (the
"Record Date") are entitled to notice of and to vote at the Special Meeting.
The outstanding voting securities of the Company as of such date consisted
of 17,051,788 shares of Common Stock, $.01 par value. For information regarding
holders of more than 5% of the outstanding Common Stock, see "Principal
Stockholders."
REVOCABILITY OF PROXIES
The enclosed Proxy is revocable at any time before its use by delivering to
the Company a written notice of revocation or a duly executed proxy bearing a
later date. If a person who has executed and returned a proxy is present at the
meeting and wishes to vote in person, he or she may elect to do so and thereby
suspend the power of the proxy holders to vote his or her proxy.
VOTING AND SOLICITATION
Every stockholder of record on the record date is entitled, for each share
held, to one vote on each proposal or item that comes before the meeting.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
material to such beneficial owners. Proxies may also be solicited by certain of
the Company's directors, officers and regular employees, without additional
compensation personally or by telephone, telecopy, or telegram.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Special Meeting
is a majority of the shares of Common Stock issued and outstanding on the Record
Date. Shares that are voted "FOR," "AGAINST" or "ABSTAIN" are treated as being
present at the meeting for purposes of establishing a quorum and also treated as
shares "represented and voting" at the Special Meeting (the "Votes Cast") with
respect to such matter.
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of the quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal. In the absence of controlling precedent to the
contrary, the Company intends to treat abstentions in this manner. Accordingly,
abstentions will have the same effect as a vote against the Purchase Plan.
<PAGE>
Broker non-votes will be counted for purposes of determining the presence or
absence of a quorum for the transaction of business, but will not be counted for
purposes of determining the number of Votes Cast with respect to a proposal.
STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting of Stockholders must
be received by the Company no later than July 2, 1998 in order to be considered
for possible inclusion in the Company's proxy statement and form of proxy
relating to that meeting.
PROPOSAL TO
AMEND 1991 STOCK PLAN
The Company's Board of Directors and stockholders have previously adopted
and approved the Company's 1991 Employee Stock Purchase Plan (the "Purchase
Plan") and originally reserved an aggregate of 100,000 shares of the Common
Stock of the Company for issuance thereunder. Upon completion of the Purchase
Plan offering period which ended November 30, 1997, no shares remained available
for issuance. Accordingly, in April 1998, the Board of Directors approved an
amendment (the "Amendment") to the Purchase Plan to reserve an additional
100,000 shares of Common Stock for issuance thereunder. The Board of Directors
believes that employee stock purchase plans have come to be seen by employees as
a customary benefit. As the Purchase Plan shares have been exhausted, the
Company is not able to offer this benefit to existing or new employees. The
Board of Directors believes that the increase in the number of shares reserved
for issuance under the Purchase Plan is necessary to attract and retain the best
available employees to support the Company's growth strategy.
SUMMARY OF THE PURCHASE PLAN(1)
GENERAL. The purpose of the Purchase Plan is to provide employees with an
opportunity to purchase Common Stock of the Company through payroll deductions.
ADMINISTRATION. The Purchase Plan may be administered by the Board of
Directors (the "Board") or a committee appointed by the Board. All questions of
interpretation or application of the Purchase Plan are determined by the Board
or its appointed committee, and its decisions are final, conclusive and binding
upon all participants.
ELIGIBILITY. Each employee of the Company (including officers), whose
customary employment with the Company is at least twenty (20) hours per week and
more than five (5) months in any calendar year, is eligible to participate in an
Offering Period (as defined below); provided, however, that no employee shall be
granted an option under the Purchase Plan (i) to the extent that, immediately
after the grant, such employee would own 5% of either the voting power or value
of the stock of the Company, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company accrues at
a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year. Eligible employees become participants in the
Purchase Plan by filing with the Company a subscription agreement authorizing
payroll deductions prior to the beginning of each Offering Period unless a later
time for filing the subscription agreement has been set by the Board.
PARTICIPATION IN AN OFFERING. The Purchase Plan is implemented by offering
periods lasting not more than twenty-seven (27) months (an "Offering Period").
Common Stock may be purchased under the Purchase Plan on each purchase date, as
defined in the relevant Offering (a "Purchase Date"), unless the participant
withdraws or terminates employment earlier. The Board may change the Purchase
Dates or the
- ------------------------
(1) No New Plan Benefits Table is being provided as the data are not
determinable.
2
<PAGE>
length or date of commencement of an Offering Period. To participate in the
Purchase Plan, each eligible employee must authorize payroll deductions pursuant
to the Purchase Plan. Such payroll deductions may not exceed 10% of a
participant's compensation. Once an employee becomes a participant in the
Purchase Plan, the employee will automatically participate in each successive
Offering Period until such time as the employee withdraws from the Purchase Plan
or the employee's employment with the Company terminates. At the beginning of
each Offering Period, each participant is automatically granted options to
purchase shares of the Company's Common Stock on each Purchase Date during the
Offering Period. Options are exercised on each Purchase Date to the extent of
the payroll deductions accumulated. Options expire on the relevant Purchase Date
or upon termination of employment, whichever is earlier. The maximum number of
shares subject to option is specified by the Board each Offering Period.
PURCHASE PRICE, SHARES PURCHASED. Shares of Common Stock may be purchased
under the Purchase Plan at a price not less than 85% of the lesser of the fair
market value of the Common Stock on (i) the first day of the Offering Period or
(ii) the Purchase Date. The number of shares of Common Stock a participant
purchases on each Purchase Date is determined by dividing the total amount of
payroll deductions withheld from the participant's compensation during that
Purchase Period by the purchase price.
TERMINATION OF EMPLOYMENT. Termination of a participant's employment for
any reason, including disability or death, cancels his or her option and
participation in the Purchase Plan immediately. In such event, the payroll
deductions credited to the participant's account will be returned to him or her
or, in the case of death, to the person or persons entitled thereto as provided
in the Purchase Plan.
ADJUSTMENT UPON CHANGE IN CAPITALIZATION. In the event that the stock of
the Company is changed by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other change in the capital structure
of the Company effected without the receipt of consideration, appropriate
proportional adjustments shall be made in the number and class of shares of
stock subject to the Purchase Plan, the number and class of shares of stock
subject to options outstanding under the Purchase Plan, and the exercise price
of any such outstanding options. Any such adjustment shall be made by the Board,
whose determination shall be conclusive.
In the event of a (i) a dissolution or liquidation of the Company; (ii) a
merger or consolidation in which the Company is not the surviving corporation,
the surviving corporation may assume outstanding rights or substitute similar
rights for those under the Plan, such rights may continue in full force and
effect, or participants' accumulated payroll deductions may be used to purchase
Common Stock immediately prior to the transaction described and the
participants' rights under the current Offering terminated.
AMENDMENT AND TERMINATION OF THE PLAN. The Board of Directors may at any
time terminate or amend the Purchase Plan. No amendment shall be effective
unless it is approved by the holders of a majority of the votes cast at a duly
held shareholders' meeting, if such amendment would require shareholder approval
in order to comply with Section 423 of the Code. The Purchase Plan will
terminate in 2001.
WITHDRAWAL. Generally, a participant may withdraw from an Offering Period
at any time without affecting his or her eligibility to participate in future
Offering Periods. However, once a participant withdraws from a particular
offering, that participant may not participate again in the same offering.
FEDERAL TAX INFORMATION FOR PURCHASE PLAN. The Purchase Plan, and the right
of participants to make purchases thereunder, is intended to qualify under the
provisions of Sections 421 and 423 of the Code. Under these provisions, no
income will be taxable to a participant until the shares purchased under the
Purchase Plan are sold or otherwise disposed of. Upon sale or other disposition
of the shares, the participant will generally be subject to tax and the amount
of the tax will depend upon the holding period. If the shares are sold or
otherwise disposed of more than two (2) years from the first day of the Offering
Period or more than one (1) year from the date of transfer of the stock to the
participant, then the
3
<PAGE>
participant will recognize ordinary income measured as the lesser of (i) the
excess of the fair market value of the shares at the time of such sale or
disposition over the purchase price, or (ii) an amount equal to 15% of the fair
market value of the shares as of the first day of the Offering Period. Any
additional gain will be treated as long-term capital gain. If the shares are
sold or otherwise disposed of before the expiration of this holding period, the
participant will recognize ordinary income generally measured as the excess of
the fair market value of the shares on the date the shares are purchased over
the purchase price. Any additional gain or loss on such sale or disposition will
be long-term or short-term capital gain or loss, depending on the holding
period. The Company is not entitled to a deduction for amounts taxed as ordinary
income or capital gain to a participant except to the extent of ordinary income
is recognized by participants upon a sale or disposition of shares prior to the
expiration of the holding period(s) described above.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON THE PARTICIPANT AND THE COMPANY WITH RESPECT TO THE SHARES PURCHASED UNDER
THE PURCHASE PLAN. REFERENCE SHOULD BE MADE TO THE APPLICABLE PROVISIONS OF THE
CODE. IN ADDITION, THE SUMMARY DOES NOT DISCUSS THE TAX CONSEQUENCES OF A
PARTICIPANT'S DEATH OR THE INCOME TAX LAWS OF ANY STATE OR FOREIGN COUNTRY IN
WHICH THE PARTICIPANT MAY RESIDE.
VOTE REQUIRED; RECOMMENDATION
Approval of the Amendment of the Purchase Plan requires the affirmative vote
of a majority of the Votes Cast at the Special Meeting. THE BOARD OF DIRECTORS
RECOMMENDS VOTING "FOR" THE APPROVAL OF THE AMENDMENT OF THE PURCHASE PLAN.
4
<PAGE>
PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders,
assuming reinvestment of all dividends, of the Company's Common Stock since
February 11, 1993 (the date the Company first became subject to the reporting
requirements of the Exchange Act) to the cumulative total return over such
period of (i) the Standard & Poor's 500 Index and (ii) the Standard & Poor's
Medical Products & Supplies Index. The graph assumes that $100 was invested on
February 11, 1993 in the Common Stock of the Company and in each of the
comparative indices. The graph further assumes that such amount was initially
invested in the Common Stock of the Company at a price of $12.00 per share, the
price at which such stock was first offered to the public by the Company on that
date. The information contained in the Performance Graph shall not be deemed to
be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act or the Exchange Act, except to the extent
that the Company specifically incorporates it by reference into such filing.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
2/11/93 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97
<S> <C> <C> <C> <C> <C> <C>
Cyberonics, Inc. $100 77.1 64.6 33.3 50 64.6
Standard & Poor's 500 Index $100 100.6 99.2 121.7 149.8 197.7
Standard & Poor's $100 83.2 78.4 118.3 153.6 201.5
Medical Products &
Supplies Index
</TABLE>
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the compensation
paid by the Company for the year ended June 30, 1997 to the Chief Executive
Officer and each of the other most highly compensated executive officers of the
Company whose total compensation exceeded $100,000 (collectively, the "Named
Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION -----------
SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION
- ------------------------------------------- ----------- --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Robert P. Cummins (1) ..................... 1997 196,596 68,530 356,000 294(2)
President and Chief Executive Officer 1996 140,758 32,930 50,000 8,194(2)(3)
Reese S. Terry, Jr. ....................... 1997 146,693 32,596 63,500 6,705(2)
Chairman of the Board and Executive Vice 1996 130,880 32,950 -- 5,321(2)
President 1995 127,746 11,158 20,000 5,544(2)
William H. Duffell, Jr. (4) ............... 1997 157,356 32,963 90,000 13,952(5)
Vice President, Clinical and Regulatory 1996 150,000 27,886 -- 27,881(6)
Affairs 1995 23,077 5,000 85,000 --
John K. Bakewell .......................... 1997 131,187 29,527 135,000 263(2)
Vice President Finance and Administration 1996 105,052 27,537 -- 225(2)
and Chief Financial Officer 1995 101,620 8,630 55,000 226(2)
Shawn P. Lunney ........................... 1997 119,423 54,744 137,750 231(2)
Vice President, Marketing
</TABLE>
- ------------------------
(1) Mr. Cummins became an executive officer of the Company in fiscal 1996.
(2) Represents premiums paid by the Company for term life insurance, the
benefits of which are payable to beneficiaries designated by the Named
Executive Officer.
(3) Includes $7,900 paid to Mr. Cummins in fiscal 1996 as a travel/auto
allowance.
(4) Mr. Duffell joined the Company late in fiscal 1995. Mr. Duffell's bonus in
fiscal 1996 includes a $10,000 bonus related to Mr. Duffell's relocation to
Houston.
(5) Represents $332 paid by the Company for term life insurance and $13,620 paid
to Mr. Duffell for expenses related to relocation to Houston.
(6) Represents $315 paid by the Company for term life insurance and $27,566 paid
to Mr. Duffell for expenses related to relocation to Houston.
6
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR. The following table sets forth each
grant of stock options made during the year ended June 30, 1997 to each of the
Named Executive Officers:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
---------------------------------------------------- STOCK PRICE
NUMBER OF PERCENT OF APPRECIATION
SECURITIES TOTAL FOR OPTION
UNDERLYING OPTIONS GRANTED EXERCISE TERM($)(2)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ------------------
NAME GRANTED(#) FISCAL YEAR(1) ($/SH) DATE 5% 10%
- ------------------------------ ---------- --------------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Cummins............. 2,000(3) 0.1% $3.06 06/01/03 2,318 5,342
2,000(3) 0.1% $3.06 07/05/04 2,776 6,589
2,000(3) 0.1% $3.06 06/01/05 3,183 7,749
50,000(3) 2.6% $3.06 10/11/05 83,391 204,912
300,000 15.8% $3.06 11/01/06 577,325 1,463,056
Reese S. Terry, Jr............ 20,000(3) 1.1% $3.06 09/20/04 28,488 67,920
43,500 2.3% $3.06 11/01/06 83,712 212,143
John K. Bakewell.............. 45,000(3) 2.4% $3.06 05/10/03 51,388 118,151
15,000(3) 0.8% $3.06 09/20/04 21,366 50,940
75,000 4.0% $3.06 11/01/06 144,331 365,764
William H. Duffell, Jr........ 90,000 4.8% $3.06 11/01/06 173,197 438,917
Shawn P. Lunney............... 3,000(3) 0.2% $3.06 12/09/02 3,172 7,213
10,000(3) 0.5% $3.06 03/25/03 11,249 25,805
15,000(3) 0.8% $3.06 09/20/04 21,640 51,812
104,750 5.5% $3.06 11/01/06 201,583 510,850
</TABLE>
- ------------------------
(1) Total number of shares subject to options granted to employees in fiscal
1997 was 1,893,388, which number includes options granted to employee
directors.
(2) Potential realizable value is based on an assumption that the stock price
appreciates at the annual rate shown (compounded annually) from the date of
grant until the end of the ten-year option term. These numbers are
calculated based on the requirements promulgated by the SEC and do not
reflect the Company's estimate of future stock price growth.
(3) In November 1996, the Company repriced stock options that had an exercise
price in excess of the fair market value in effect on the date of repricing.
The option grants indicated reflect previously granted options that were
repriced as if such options had been newly granted in November 1996.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
VALUES. The following table sets forth, for each of the Names Executive
Officers, each exercise of stock options during the fiscal year ended June 30,
1997 and the year-end value of unexercised options:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED ON REALIZED YEAR-END: YEAR-END:
NAME EXERCISE(#) ($)(1) EXERCISABLE/UNEXERCISABLE(2) EXERCISABLE/UNEXERCISABLE(3)
- ---------------------------------- ------------- --------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
Robert P. Cummins................. -- -- 176,750/181,250 $829,078/$850,063
Reese S. Terry, Jr................ -- -- 27,219/36,281 $127,657/$170,158
John K. Bakewell.................. -- -- 104,355/70,645 $481,771/$327,629
William H. Duffell, Jr............ -- -- 83,542/91,458 $382,708/$421,892
Shawn P. Lunney................... 7,125 $ 29,231 86,081/74,669 $399,546/$349,802
</TABLE>
- ------------------------
(1) Represents market value of underlying securities at date of exercise less
option exercise price.
7
<PAGE>
(2) Options granted by the Company are generally vest over a four-year period
such that 12.5% of the shares subject to the option vest on the six month
anniversary of the grant date, and 1/48 of the optioned shares vest each
month thereafter until fully vested.
(3) Market value of underlying securities at fiscal year-end ($7.75/per share)
minus the exercise price.
TEN YEAR OPTION REPRICINGS. In November 1996, the Company extended an offer
to all optionees to reprice options then held by them with exercise prices above
the then prevailing market price. The following table sets forth information
with respect to stock options held by executive officers of the Company that
were repriced in November 1996. No other option repricings involving executive
officers have occurred. The Report on Executive Compensation and Repricing of
Options set forth below describes the rationale of the Board of Directors behind
the repricing.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE
UNDERLYING OF STOCK EXERCISE PRICE NEW
DATE OF OPTIONS AT TIME OF AT TIME OF EXERCISE
NAME REPRICING REPRICED(#) REPRICING($) REPRICING($) PRICE($)
- --------------------------------------------- ----------- ----------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Robert P. Cummins ........................... 11/1/96 2,000 $ 3.06 $ 8.00 $ 3.06
President and Chief Executive Officer 11/1/96 2,000 $ 3.06 $ 7.50 $ 3.06
11/1/96 2,000 $ 3.06 $ 4.00 $ 3.06
11/1/96 50,000 $ 3.06 $ 4.75 $ 3.06
John K. Bakewell ............................ 11/1/96 45,000 $ 3.06 $ 7.75 $ 3.06
Vice President, Finance and Administration 11/1/96 15,000 $ 3.06 $ 4.75 $ 3.06
and Chief Financial Officer
Stephen D. Ford ............................. 11/1/96 20,000 $ 3.06 $ 6.50 $ 3.06
Vice President, Manufacturing 11/1/96 20,000 $ 3.06 $ 4.75 $ 3.06
11/1/96 25,000 $ 3.06 $ 3.25 $ 3.06
Shawn P. Lunney ............................. 11/1/96 3,000 $ 3.06 $ 5.25 $ 3.06
Vice President, Marketing 11/1/96 10,000 $ 3.06 $ 5.25 $ 3.06
11/1/96 15,000 $ 3.06 $ 4.75 $ 3.06
12/9/94 3,000 $ 3.50 $ 7.00 $ 5.25
12/9/94 10,000 $ 3.50 $ 6.50 $ 5.25
Reese S. Terry, Jr. ......................... 11/1/96 20,000 $ 3.06 $ 4.75 $ 3.06
Chairman of the Board and Executive Vice
President
<CAPTION>
LENGTH
(IN YEARS)
OF ORIGINAL
OPTION TERM
REMAINING AT
DATE OF
NAME REPRICING
- --------------------------------------------- -----------------
<S> <C>
Robert P. Cummins ........................... 6.6
President and Chief Executive Officer 7.6
8.6
8.9
John K. Bakewell ............................ 6.5
Vice President, Finance and Administration 7.9
and Chief Financial Officer
Stephen D. Ford ............................. 6.3
Vice President, Manufacturing 7.9
8.5
Shawn P. Lunney ............................. 6.1
Vice President, Marketing 6.4
7.9
8.0
8.3
Reese S. Terry, Jr. ......................... 7.9
Chairman of the Board and Executive Vice
President
</TABLE>
8
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Delaware General Corporation Law, the Company has
included in its Certificate of Incorporation a provision to eliminate the
personal liability of its directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, subject to certain exceptions. In
addition, the Bylaws of the Company provide that the Company is required to
indemnify its officers and directors under certain circumstances, including
those circumstances in which indemnification would otherwise be discretionary,
and the Company is required to advance expenses to its officers and directors as
incurred in connection with proceedings against them for which they may be
indemnified. The Company has entered into indemnification agreements with its
officers and directors containing provisions that are in some respects broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements require the Company, among other
things, to indemnify such officers and directors against certain liabilities
that may arise by reason of their status or service as directors or officers
(other than liabilities arising from willful misconduct of a culpable nature),
to advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms. At present, the Company is not aware
of any pending or threatened litigation or proceeding involving a director,
officer, employee or agent of the Company in which indemnification would be
required or permitted. The Company believes that its charter provisions and
indemnification agreements are necessary to attract and retain qualified persons
as directors and officers.
9
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 31, 1998 certain information with
respect to the beneficial ownership of Cyberonics Common Stock (i) by each
person known by Cyberonics to own beneficially more than five percent of the
outstanding shares of Cyberonics Common Stock, (ii) by each director of
Cyberonics, (iii) by each of the Chief Executive Officer and four other most
highly paid executive officers of Cyberonics who earned over $100,000 in fiscal
1997 and (iv) by all directors and executive officers as a group. Except as
otherwise noted below, Cyberonics knows of no agreements among its stockholders
which relate to voting or investment of its shares of Cyberonics Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING
BENEFICIALLY SHARES
NAME OF BENEFICIAL OWNER OWNED(1) OWNED(1)
- --------------------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
St. Jude Medical, Inc. (2)............................................................. 2,181,818 12.8%
One Lillehei Plaza
St. Paul, MN 55117-9983
Vista III, L.P. (3).................................................................... 786,602 4.6%
36 Grove Street
New Canaan, CT 06840
The Clark Estates (4).................................................................. 1,226,208 7.2%
30 Wall Street
New York, NY 10005
Reese S. Terry, Jr. (5)................................................................ 695,500 4.1%
c/o Cyberonics, Inc.
17448 Highway 3, Suite 100
Webster, TX 77598-4135
SmallCap World Fund Inc................................................................ 864,800 5.1%
c/o Capital Research and Management
333 South Hope Street
Los Angeles, CA 90071
Wisconsin Investment Board............................................................. 847,362 5.0%
P.O. Box 7842
Madison, WI 53707
Robert P. Cummins (6).................................................................. 461,176 2.7%
John K. Bakewell (7)................................................................... 169,712 1.0%
William H. Duffell (8)................................................................. 168,258 1.0%
Shawn P. Lunney (9).................................................................... 136,208 0.8%
Thomas A. Duerden, Ph.D. (10).......................................................... 48,000 0.3%
Stanley H. Appel, M.D. (11)............................................................ 121,300 0.7%
Tony Coelho (12)....................................................................... 34,166 0.2%
Michael J. Strauss (13)................................................................ 17,500 0.1%
All executive officers and directors as a group (11 persons)(14)....................... 2,120,954 11.6%
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Shares of Cyberonics Common Stock subject to
10
<PAGE>
options and warrants currently exercisable, or exercisable within 60 days,
are deemed outstanding for computing the percentage holdings of the person
holding such options but are not deemed outstanding for computing the
percentage holdings of any other person. Except as indicated by footnote,
and subject to community property laws where applicable, the persons named
in the table have sole voting and investment power with respect to all
shares of Cyberonics Common Stock shown as beneficially owned by them.
(2) St. Jude acquired these shares pursuant to a Common Stock Purchase Agreement
dated April 8, 1996, which acquisition closed in July 1996. In connection
with the Stock Purchase Agreement, St. Jude also entered into a
Stockholders' Agreement which provides, among other things, that St. Jude
will not acquire additional shares of Common Stock. In addition, St. Jude
has agreed that, through July 1, 1998, it will vote its shares of Common
Stock in favor of director nominees as recommended by the Board of Directors
and, for so long as it holds any Common Stock, to vote its shares of Common
Stock on all other matters submitted to the stockholders for a vote as
recommended by the Board of Directors or in the same proportion as the votes
cast by all other stockholders.
(3) Mr. Cummins, the Chief Executive Officer, President and a director of
Cyberonics, is a limited partner of the partnership that controls Vista III,
L.P.
(4) Pursuant to a letter agreement dated March 28, 1997, the Clark Estates is
entitled to designate one person to serve on the Company's Board of
Directors for as long as the Clark Estates retains at least 600,000 of the
aggregate of 901,408 shares of Common Stock purchased on such date by
parties affiliated with the Clark Estates. To date, the Clark Estates has
not exercised this right.
(5) Includes 134,500 shares held in trusts for the benefit of Mr. Terry's
children of which Mr. Terry serves as trustee. Also includes 53,500 shares
subject to options exercisable on or before May 31, 1998.
(6) Includes 5,000 shares held in trust for the benefit of Mr. Cummins' daughter
of which Mr. Cummins serves as trustee. Also includes 387,167 shares subject
to options exercisable on or before May 31, 1998. Excludes shares held by
Vista III, L.P. as to which Mr. Cummins disclaims beneficial ownership
except to the extent of his pecuniary interest therein.
(7) Includes 168,582 shares subject to options exercisable on or before May 31,
1998.
(8) Includes 96,735 shares subject to options exercisable on or before May 31,
1998.
(9) Includes 129,083 shares subject to options exercisable on or before May 31,
1998.
(10) Includes 27,500 shares subject to options exercisable on or before May 31,
1998.
(11) Includes 67,500 shares subject to options exercisable on or before May 31,
1998.
(12) Includes 34,166 shares subject to options exercisable on or before May 31,
1998.
(13) Includes 17,500 shares subject to options exercisable on or before May 31,
1998.
(14) Includes 1,248,399 shares subject to options held by executive officers and
directors, which options are exercisable on or before May 31, 1998. Also
includes shares which may be determined to be beneficially owned by
executive officers and directors. See Notes 5 through 13.
11
<PAGE>
OTHER MATTERS
Management does not intend to bring before the meeting any matters other
than those set forth herein, and has no present knowledge that any other matters
will or may be brought before the meeting by others. However, if any other
matters properly come before the meeting, it is the intention of the persons
named in the enclosed form of proxy to vote the proxies in accordance with their
judgement.
BY ORDER OF THE BOARD OF DIRECTORS
Reese S. Terry, Jr.
SECRETARY
Dated: April 15, 1998
12
<PAGE>
CYBERONICS, INC.
1991 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1991 Employee Stock
Purchase Plan of Cyberonics, Inc., as amended April 8, 1998.
1. Purpose. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Cyberonics, Inc., a Delaware corporation.
(e) "Compensation" shall mean all base straight time gross earnings,
overtime, shift premium and commissions, but shall exclude incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which have
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an employee of the
Company for purposes of tax withholding under the Code whose customary
employment with the Company or any Designated Subsidiary is at least twenty (20)
hours per week and more than five (5) months in any calendar year. For purposes
of the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Company. Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the employment
relationship will be deemed to have terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
Period.
<PAGE>
(i) "Exercise Date" shall mean the last day of each Offering Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sale
price for the Common Stock (or the mean of the closing bid and asked prices, if
no sales were reported), as quoted on such exchange (or the exchange with the
greatest volume of trading in Common Stock) or system on the date of such
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable, or;
(2) If the Common Stock is quoted on the NASDAQ system (but not
on the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(k) "Offering Period" shall mean a period of approximately six (6)
months, commencing on the first Trading Day on or after December 1 and
terminating on the last Trading Day in the period ending the following May 31,
or commencing on the first Trading Day on or after June 1 and terminating on the
last Trading Day in the period ending the following November 30, during which an
option granted pursuant to the Plan may be exercised.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or foreign, of
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock exchanges
and the National Association of Securities Dealers Automated Quotation (NASDAQ)
System are open for trading.
<PAGE>
3. Eligibility.
(a) Any Employee (as defined in Section 2(g)), who shall be employed
by the Company on a given Enrollment Date shall be eligible to participate in
the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent his or her rights to purchase stock under
all employee stock purchase plans of the Company and its subsidiaries to accrue
at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading Day
on or after June 1 and December 1 each year, or on such other date as the Board
shall determine, and continuing thereafter until terminated in accordance with
Section 19 hereof. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least fifteen (15) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office at
least five (5) business days prior to the applicable Enrollment Date, unless a
later time for filing the subscription agreement is set by the Board for all
eligible Employees with respect to a given Offering Period.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount, expressed in whole percentages, of the
Compensation which he or she receives on each pay day during the Offering Period
not exceeding fifteen percent (15%), and the aggregate of such payroll
deductions during the Offering Period shall not exceed fifteen percent (15%) of
the participant's Compensation during said Offering Period.
<PAGE>
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan. A participant may not make any additional
payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase (but not above 15% of
Compensation) or decrease the rate of his or her payroll deductions during the
Offering Period by completing or filing with the Company a new subscription
agreement authorizing a change in payroll deduction rate. The Board may, in its
discretion, limit the number of participation rate changes during any Offering
Period. The change in rate shall be effective with the first full payroll period
following five (5) business days after the Company's receipt of the new
subscription agreement unless the Company elects to process a given change in
participation more quickly. A participant's subscription agreement shall remain
in effect for successive Offering Periods unless terminated as provided in
Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period which is scheduled to end during the current calendar year (the "Current
Offering Period") that the aggregate of all payroll deductions which were
previously used to purchase stock under the Plan in a prior Offering Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Offering Period equal $21,250. Payroll deductions
shall recommence at the rate provided in such participant's subscription
agreement at the beginning of the first Offering Period which is scheduled to
end in the following calendar year, unless terminated by the participant as
provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Offering Period more than a
number of Shares determined by dividing $12,500 by the Fair Market Value of a
share of the Company's Common Stock on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections
3(b) and 12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof, and
shall expire on the last day of the Offering Period.
<PAGE>
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account will be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period will be automatically terminated, and no further payroll deductions for
the purchase of shares will be made during the Offering Period. If a participant
withdraws from an Offering Period, payroll deductions will not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof), for any reason, including by virtue of him or her having
failed to remain an Employee of the Company for at least twenty (20) hours per
week during an Offering Period in which the Employee is a participant, he or she
will be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option will be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 14 hereof, and such participant's option will be automatically
terminated.
(c) A participant's withdrawal from an Offering Period will not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Interest. No interest shall accrue or be payable on the payroll
deductions of a participant in the Plan.
<PAGE>
12. Stock.
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 200,000 shares, subject
to adjustment upon changes in capitalization of the Company as provided in
Section 18 hereof. If on a given Exercise Date the number of shares with respect
to which options are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration.
(a) Administrative Body. The Plan shall be administered by the Board
or a committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties. Members of the Board
who are eligible Employees are permitted to participate in the Plan, provided
that:
(1) Members of the Board who are eligible to participate in the
Plan may not vote on any matter affecting the administration of the Plan or the
grant of any option pursuant to the Plan.
(2) If a Committee is established to administer the Plan, no
member of the Board who is eligible to participate in the Plan may be a member
of the Committee.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be only administered by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary
who is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's
<PAGE>
death subsequent to an Exercise Date on which the option is exercised but prior
to delivery to such participant of such shares and cash. In addition, a
participant may file a written designation of a beneficiary who is to receive
any cash from the participant's account under the Plan in the event of such
participant's death prior to exercise of the option. If a participant is married
and the designated beneficiary is not the spouse, spousal consent shall be
required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
15. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each
participant in the Plan. Statements of account will be given to participating
Employees at least annually, which statements will set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities
<PAGE>
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Board determines,
in the exercise of its sole discretion and in lieu of such assumption or
substitution, to shorten the Offering Period then in progress by setting a new
Exercise Date (the "New Exercise Date") or to cancel each outstanding right to
purchase and refund all sums collected from participants during the Offering
Period then in progress. If the Board shortens the Offering Period then in
progress in lieu of assumption or substitution in the event of a merger or sale
of assets, the Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for his
option has been changed to the New Exercise Date and that his option will be
exercised automatically on the New Exercise Date, unless prior to such date he
has withdrawn from the Offering Period as provided in Section 10 hereof. For
purposes of this paragraph, an option granted under the Plan shall be deemed to
be assumed if, following the sale of assets or merger, the option confers the
right to purchase, for each share of option stock subject to the option
immediately prior to the sale of assets or merger, the consideration (whether
stock, cash or other securities or property) received in the sale of assets or
merger by holders of Common Stock for each share of Common Stock held on the
effective date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation and
the participant, provide for the consideration to be received upon exercise of
the option to be solely common stock of the successor corporation or its parent
equal in fair market value to the per share consideration received by holders of
Common Stock and the sale of assets or merger.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered by each outstanding option, in the event the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of shares of its outstanding Common Stock, and
in the event of the Company being consolidated with or merged into any other
corporation.
19. Amendment or Termination.
(a) The Board of Directors of the Company may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 18 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of
<PAGE>
Directors on any Exercise Date if the Board determines that the termination of
the Plan is in the best interests of the Company and its shareholders. Except as
provided in Section 18 hereof, no amendment may make any change in any option
theretofore granted which adversely affects the rights of any participant. To
the extent necessary to comply with Rule 16b-3 or under Section 423 of the Code
(or any successor rule or provision or any other applicable law or regulation),
the Company shall obtain shareholder approval in such a manner and to such a
degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
20. Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years from the later of (i) the effective date or (ii) the date of any
amendment, unless sooner terminated under Section 19 hereof.
23. Additional Restrictions of Rule 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such
<PAGE>
options shall contain, and the shares issued upon exercise thereof shall be
subject to, such additional conditions and restrictions as may be required by
Rule 16b-3 to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
Adopted by the
Board of Directors: December 10, 1991
Stockholders: January 7, 1992
Amendment adopted by the
Board of Directors: April 8, 1998
Stockholders:
<PAGE>
EXHIBIT A
CYBERONICS, INC.
1991 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________ hereby elects to participate in the Cyberonics,
Inc. 1991 Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan") and subscribes to purchase shares of the Company's Common Stock
in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% of my Compensation on each payday (not to exceed 15%) during
the Offering Period in accordance with the Employee Stock Purchase
Plan. (Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise
my option.
4. I have received a copy of the complete "Cyberonics, Inc. 1991 Employee
Stock Purchase Plan." I understand that my participation in the
Employee Stock Purchase Plan is in all respects subject to the terms of
the Plan. I understand that the grant of the option by the Company
under this Subscription Agreement is subject to obtaining shareholder
approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should
be issued in the name(s) of (Employee or Employee and Spouse Only):____
________________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to
the Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares), I will be
treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount equal to the excess
of the fair market value of the shares at the time such shares were
delivered to me over the price which I paid for the shares.
<PAGE>
I hereby agree to notify the Company in writing within 30 days after
the date of any disposition of my shares and I will make adequate
provision for Federal, state or other tax withholding obligations, if
any, which arise upon the disposition of the Common Stock. The Company
may, but will not be obligated to, withhold from my compensation the
amount necessary to meet any applicable withholding obligation
including any withholding necessary to make available to the Company
any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any
time after the expiration of the 2-year holding period, I understand
that I will be treated for federal income tax purposes as having
received income only at the time of such disposition, and that such
income will be taxed as ordinary income only to the extent of an amount
equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Offering Period. The remainder of the gain, if
any, recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent
upon my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
-------------------------------------------------
(First) (Middle) (Last)
- -------------------------- ----------------------------------------
Relationship
----------------------------------------
(Address)
NAME: (Please print)
-------------------------------------------------
(First) (Middle) (Last)
- -------------------------- ----------------------------------------
Relationship
----------------------------------------
(Address)
<PAGE>
Employee's Social
Security Number:
----------------------------------------
Employee's Address:
----------------------------------------
----------------------------------------
----------------------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
------------------------------ ----------------------------------------
Signature of Employee
----------------------------------------
Spouse's Signature (If beneficiary
other than spouse)
<PAGE>
EXHIBIT B
CYBERONICS, INC.
1991 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Cyberonics,
Inc. 1991 Employee Stock Purchase Plan which began on ____________, 19____ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant
-----------------------------------
-----------------------------------
-----------------------------------
Signature
-----------------------------------
Date:
-----------------------------------
<PAGE>
DETACH HERE
This Proxy is solicited on behalf of the Board of Directors
CYBERONICS, INC.
1998 SPECIAL MEETING OF STOCKHOLDERS
MAY 28, 1998
The undersigned stockholder of CYBERONICS, INC., a Delaware corporation,
hereby acknowledges receipt of the Notice of Special Meeting of Stockholders
and Proxy Statement, each dated April 15, 1998 and hereby appoints Robert P.
Cummins and John Bakewell, and each of them, proxies and attorneys-in-fact,
with full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1998 Special Meeting of
Stockholders of CYBERONICS, INC. to be held on May 28, 1998 at 10.00 a.m.
local time, at the Company's offices at 16511 Space Center Boulevard, Suite
600, Houston Texas and at any adjournment or adjournments thereof, and to
vote all shares of Common Stock which the undersigned would be entitled to
vote if then and there personally present, on the matter set forth on the
other side.
___________ ___________
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
___________ ___________
<PAGE>
DETACH HERE
_____
X Please mark
votes as in
_____ this example.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR THE AMENDMENT PROPOSAL SET FORTH ABOVE AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
FOR AGAINST ABSTAIN
1. PROPOSAL TO AMEND THE COMPANY'S 1991 EMPLOYEE STOCK ____ ____ ____
PURCHASE PLAN TO INCREASE THE NUMBER OF SHARES OF ____ ____ ____
COMMON STOCK AVAILABLE THEREUNDER BY 100,000 SHARES:
and, in their discretion, upon such other matter or matters which may properly
come before the meeting or any adjournment or adjournments thereof.
____
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT ____
(This Proxy should be marked, dated and signed by
the stockholder(s) exactly as his or her name
appears hereon, and returned promptly in the
enclosed envelope. Persons signing in a fiduciary
capacity should so indicate. If shares are held by
joint tenants or as community property, both
should sign.)
Signature: ________________________ Date: ______________
Signature: ________________________ Date: ______________
