<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 sec. 240.141-11(c) or sec. 240.14a-12
CYBERONICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
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: N/A
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: N/A
- --------------------------------------------------------------------------------
(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): N/A
- --------------------------------------------------------------------------------
Proposed maximum aggregate value of the transaction: N/A
- --------------------------------------------------------------------------------
Total fee paid: N/A
- --------------------------------------------------------------------------------
[ ] 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: N/A
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: N/A
- --------------------------------------------------------------------------------
(3) Filing Party: N/A
- --------------------------------------------------------------------------------
(4) Date Filed: N/A
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<PAGE> 2
CYBERONICS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JANUARY 28, 2000
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN, that the Annual Meeting of Stockholders of
Cyberonics, Inc., a Delaware corporation, will be held on Friday, January 28,
2000, at 9:00 a.m., local time, at the South Shore Harbor Resort & Conference
Center, 2500 South Shore Boulevard, League City, Texas, for the following
purposes:
1. To elect seven directors to serve for the following year and until
their successors are duly elected;
2. To approve the amendment and restatement of Cyberonics' Certificate
of Incorporation for the purpose of increasing the authorized number of
shares of Common Stock by 25,000,000 shares;
3. To ratify the appointment of Arthur Andersen LLP as independent
accountants of Cyberonics for the fiscal year ending June 30, 2000; and
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on November 30, 1999,
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed Proxy as promptly as possible in the envelope
enclosed for that purpose. Any stockholder attending the meeting may vote in
person even if he or she previously returned a Proxy.
Sincerely,
ROBERT P. CUMMINS
President and Chief Executive Officer
Houston, Texas
December 20, 1999
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> 3
CYBERONICS, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 28, 2000
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of Cyberonics, Inc. for the
Annual Meeting of Stockholders to be held on Friday, January 28, 2000, at 9:00
a.m., local time, at the South Shore Harbor Resort & Conference Center, 2500
South Shore Boulevard, League City, Texas, or any adjournment or adjournments
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting.
These Proxy solicitation materials were mailed on or about December 20,
1999 to all stockholders entitled to vote at the meeting.
RECORD DATE; OUTSTANDING SHARES
Only stockholders of record at the close of business on November 30, 1999
(the "Record Date"), are entitled to receive notice of and to vote at the
meeting. The outstanding voting securities of Cyberonics as of such date
consisted of 17,845,299 shares of Common Stock, $.01 par value. For information
regarding holders of more than 5% of the outstanding Common Stock, see "Election
of Directors -- Securities Ownership of Certain Beneficial Owners and
Management."
REVOCABILITY OF PROXIES
The enclosed proxy is revocable at any time before its use by delivering to
Cyberonics 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. In the
election of directors, each stockholder will be entitled to vote for seven
nominees and the seven nominees with the greatest number of votes will be
elected.
Cyberonics will bear the cost of soliciting proxies. We have retained the
services of D.F. King & Co. to aid in the solicitation of proxies from bankers,
bank nominees and other institutional owners (and beneficial owners of shares
held by brokerage firms). We estimate that we will pay D.F. King & Co. a fee not
to exceed $6,500 for its services and will reimburse D.F. King & Co. for certain
out-of-pocket expenses. In addition, we 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 our 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 Annual Meeting
is a majority of the shares of Common Stock issued and outstanding on the Record
Date. Shares that are voted "FOR," "AGAINST" or "WITHHELD FROM" a matter are
treated as being present at the meeting for purposes of establishing a
<PAGE> 4
quorum and also treated as shares "represented and voting" at the Annual 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, we believe 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 president to the
contrary, we intend to treat abstentions in this manner. Accordingly,
abstentions will have the same effect as a vote against a proposal.
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.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of Cyberonics which are intended to be presented
by such stockholders at our 2000 Annual Meeting must be received by us no later
than August 23, 2000 in order that they may be included in the proxy statement
and form of proxy relating to that meeting.
The attached proxy card grants the proxy holder discretionary authority to
vote on any matter raised at the Annual Meeting. If a stockholder intends to
submit a proposal at the 2000 Annual Meeting, which is not eligible for
inclusion in the proxy statement and form of proxy related to that meeting, the
stockholder must give notice to us in accordance with the requirements set forth
in the Securities Exchange Act of 1934, as amended (the "Exchange Act"), no
later than August 23, 2000. If such a stockholder fails to comply with the
foregoing notice provision, the proxy holders will be allowed to use their
discretionary voting authority when the proposal is raised at the 2000 Annual
Meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL
A Board of seven directors is to be elected at the meeting. Unless
otherwise instructed, the proxy holders will vote all of the proxies received by
them for Cyberonics' seven nominees named below. In the event that any of the
nominees shall become unavailable, the proxy holders will vote in their
discretion for a substitute nominee. It is not expected that any nominee will be
unavailable. The term of office of each person elected as a director will
continue until the next Annual Meeting of Stockholders and until his successor
has been elected and qualified.
VOTE REQUIRED
The seven nominees receiving the highest number of affirmative votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote shall be elected to the Board of Directors. Votes withheld from any
director are counted for purposes of determining the presence or absence of a
quorum, but have no legal effect under Delaware law. THE BOARD OF DIRECTORS
RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE NOMINEES LISTED BELOW.
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<PAGE> 5
The names and certain information about Cyberonic's nominees, including
their ages as of the Record Date are set forth below:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- ---- --- -------------------- --------
<S> <C> <C> <C>
Robert P. Cummins.......... 45 President and Chief Executive Officer 1988
of Cyberonics
Reese S. Terry, Jr. ....... 57 Chairman of the Board, Executive Vice 1987
President and Secretary of
Cyberonics
Stanley H. Appel, M.D. .... 66 Chairman, Baylor College of Medicine, 1996
Department of Neurology
Tony Coelho................ 57 Independent Business Consultant 1997
Thomas A. Duerden, 70 Independent Business Consultant 1989
Ph.D. ...................
Michael J. Strauss, M.D.... 47 Internist and Health Policy Consultant 1997
Alan J. Olsen.............. 52 Independent Business Consultant 1999
</TABLE>
Except as set forth below, each of the nominees has been engaged in the
principal occupation described above during the past five years. There is no
family relationship between any director or executive officer of Cyberonics.
Mr. Cummins became a director of Cyberonics in June 1988. He was appointed
President and Chief Executive Officer of Cyberonics in September 1995. Until
September 1995, he was also a general partner of Vista Partners, L.P., a venture
capital partnership which he joined in 1984, a general partner of Vista III
Partners, L.P., a venture capital firm formed in 1986 and Vice President of
Vista Ventures Inc., a venture capital advisory firm. Until July 1998, Mr.
Cummins was also a director of Sigma Circuits Inc., a manufacturer of electronic
interconnect products.
Mr. Terry co-founded Cyberonics in December 1987 and served as a Director
and Chief Executive Officer of Cyberonics until February 1990, when he became
Chairman of the Board and Executive Vice President. Mr. Terry has also served as
Secretary of Cyberonics from its inception and as President of Cyberonics for
four months in 1995. From 1976 to 1986, Mr. Terry held executive positions with
Intermedics, Inc., a medical device and electronics company, including serving
as Vice President of Engineering, Vice President of Corporate Technical
Resources and, most recently, as Vice President of Quality.
Dr. Appel has been a director of Cyberonics since December 1996 and the
chair of Company's Scientific Advisory Board since its formation in 1994. Since
1977, Dr. Appel has been Chairman of the Department of Neurology, Baylor College
of Medicine.
Mr. Coelho has been a director of Cyberonics since March 1997 and an
independent business consultant since June 1998. From October 1996 to June 1998,
Mr. Coelho was the Chairman and Chief Executive Officer of ETC w/tci, the
Washington-based education, training and communications subsidiary of Tele-
Communications, Inc. From January 1990 to September 1995, Mr. Coelho served as
the President and Chief Executive Officer of Wertheim Schroder Investment
Services, Inc., an asset management firm, and from October 1989 to September
1995, he served as Managing Director of Wertheim Schroder and Co., an investment
banking firm. Mr. Coelho served in the United States House of Representatives
from California from 1979 to 1989, and served as House Majority Whip from 1986
to 1989. Mr. Coelho is also on the Board of Directors of Pinnacle Global Group,
Inc., a public holding company, Service Corporation International, a funeral
service corporation, and IFC Kaiser International, an engineering and project,
construction, and program management service provider.
Dr. Duerden has been a director of Cyberonics since March 1989 and an
independent business consultant since January 1990. Since 1997, Dr. Duerden has
been a non-executive Director of PathSource, a privately held company which is
bringing together formerly independent laboratories. From December 1988 through
January 1990, Dr. Duerden served as Chairman of the Board and Chief Executive
Officer of Tonometrics, Inc., a medical diagnostic device company. From 1979
through 1988, Dr. Duerden served as Chairman and Chief Executive Officer of
Electro Biology, Inc., an orthopedic device company.
3
<PAGE> 6
Dr. Strauss has been a director of Cyberonics since March 1997. He is an
internist and health policy consultant. In 1988, Dr. Strauss co-founded Health
Technology Associates, Inc., now known as Covance Health Economics and Outcomes
Services Inc., a consulting and research services firm specializing in third-
party payor issues, and currently serves as Executive Vice President. He also is
on the Board of Directors of Endocare, Inc. and on the Medicare Coverage
Advisory Committee.
Mr. Olsen has been a director of Cyberonics since June 1999. He has over
twenty-five years of medical device sales and marketing experience at Smith &
Nephew Richards, Danek Medical and Sofamor Danek Group. He was founder and
President of Danek Medical, a pioneer in the spinal fixation device market which
later became part of Sofamor Danek Group. He served as a Director of Sofamor
Danek Group from 1985 to 1993. He is currently an independent business
consultant, which he has been for more than the past five years, and serves on
the boards of several private and charitable organizations.
BOARD MEETINGS AND COMMITTEES
Our Board of Directors held a total of eight meetings and acted by written
consent two times during the fiscal year ended June 30, 1999. The Board has an
Audit Committee and a Compensation Committee. There is no nominating committee
or other committee performing a similar function.
The Audit Committee, which consists of Thomas A. Duerden and Michael J.
Strauss, M.D., held seven meetings during the fiscal year ended June 30, 1999.
This Committee recommends engagement of our independent public accountants and
is primarily responsible for approving the services performed by such
accountants and for reviewing and evaluating our accounting principles and our
system of internal accounting controls.
The Compensation Committee, which consists of Tony Coelho and Stanley H.
Appel, held three meetings and acted by written consent 36 times during the
fiscal year ended June 30, 1999. This Committee establishes salary and incentive
compensation of our executive officers and administers employee benefit plans.
During the fiscal year ended June 30, 1999, all current directors attended
at least seventy five percent of the meetings of the Board of Directors and the
number of meetings held by committees on which the director served, except Dr.
Appel who attended five meetings of the Board of Directors and three meetings of
the Compensation Committee.
BOARD COMPENSATION
Directors do not receive any cash compensation for their services as
members of the Board of Directors. Nonemployee directors are eligible for
discretionary option grants under our 1996 Option Plan. During fiscal 1999, each
nonemployee director, excluding Mr. Olsen, was granted an option to purchase
25,000 shares of Common Stock with an exercise price equal to the fair market
value of the Common Stock on the date of grant. Such options vest as to 1/60th
of the shares each month following the grant date until fully vested.
During fiscal 1999, Mr. Olsen was granted an option to purchase 35,000
shares of Common Stock at the time he was appointed to the Board and an option
to purchase 15,000 shares of Common Stock in connection with certain consulting
services rendered to Cyberonics. Both options had per share exercise prices
equal to the fair market value of the Common Stock on the date of grant and vest
as to 1/60th of the shares each month following the grant date until fully
vested.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date 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
1999 and were officers as of the Record Date and (iv) by all directors and
4
<PAGE> 7
executive officers as a group. Except as otherwise noted below, we know of no
agreements among our stockholders which relate to voting or investment of their
shares of Cyberonics Common Stock.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE OF OUTSTANDING
NAME OF BENEFICIAL OWNER OWNED(1) SHARES OWNED(1)
- ------------------------ ------------ -------------------------
<S> <C> <C>
The Clark Estates(2)............................... 1,426,208 8.0%
30 Wall Street
New York, NY 10005
RHO Management Partners, L.P. ..................... 1,066,386 6.0%
124 Dune Road
Quque, NY 11959
St. Jude Medical, Inc.(3).......................... 1,051,818 5.9%
One Lillehei Plaza
St. Paul, MN 55117-9983
FMR Corp. ......................................... 1,045,300 5.9%
82 Devonshire Street
Boston, MA 02109
Reese S. Terry, Jr.(4)............................. 715,500 4.0%
Robert P. Cummins(5)............................... 651,868 3.6%
William H. Duffell, Jr., Ph.D.(6).................. 174,983 1.0%
Shawn P. Lunney(7)................................. 157,216 *
Stephen D. Ford(8)................................. 161,633 *
Stanley H. Appel, M.D.(9).......................... 137,550 *
Thomas A. Duerden, Ph.D.(10)....................... 75,250 *
Tony Coelho(11).................................... 62,100 *
Michael J. Strauss, M.D.(12)....................... 52,500 *
Alan J. Olsen(13).................................. 9,308 *
All executive officers and directors as a group (10
persons)(14)..................................... 2,242,158 11.8%
</TABLE>
- ---------------
* Less than 1%
(1) Based on total shares outstanding of 17,845,299 as of the Record Date.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Cyberonics Common
Stock subject to options and warrants currently exercisable, or exercisable
within 60 days, are deemed outstanding for computing the percentage of the
person holding such options but are not deemed outstanding for computing
the percentage 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) Pursuant to a letter agreement dated March 28, 1997, the Clark Estates is
entitled to designate one person to serve on our 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.
(3) In connection with the acquisition of these shares, St. Jude also entered
into a Stockholders' Agreement which provides, among other things, that St.
Jude will not acquire additional shares of Common Stock.
(4) Includes 134,500 shares held in trusts for the benefit of Mr. Terry's
children of which Mr. Terry serves as trustee. Also includes 44,500 shares
subject to options exercisable on or before January 29, 2000.
(5) Includes 10,000 shares held in trust for the benefit of Mr. Cummins'
children of which Mr. Cummins serves as trustee. Also includes 479,168
shares subject to options exercisable on or before January 29, 2000.
5
<PAGE> 8
(6) Includes 113,735 shares subject to options exercisable on or before January
29, 2000.
(7) Includes 149,916 shares subject to options exercisable on or before January
29, 2000.
(8) Includes 99,167 shares subject to options exercisable on or before January
29, 2000. Mr. Ford resigned from his position in September 1999.
(9) Includes 93,750 shares subject to options exercisable on or before January
29, 2000.
(10) Includes 53,750 shares subject to options exercisable on or before January
29, 2000.
(11) Includes 55,000 shares subject to options exercisable on or before January
29, 2000.
(12) Includes 35,000 shares subject to options exercisable on or before January
29, 2000.
(13) Includes 5,833 shares subject to options exercisable on or before January
29, 2000.
(14) Includes 1,173,569 shares subject to options held by executive officers and
directors, which options are exercisable on or before January 29, 2000.
Also includes shares which may be determined to be beneficially owned by
executive officers and directors. See Notes 4 through 13.
PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders,
assuming reinvestment of all dividends, of our Common Stock since June 30, 1994
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 June 30, 1994 in our Common Stock and in
each of the comparative indices. 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 of 1933, as amended
(the "Securities Act") or the exchange Act, except to the extent that we
specifically incorporate it by reference into such filing.
[CHART]
<TABLE>
<CAPTION>
6/30/94 6/30/95 6/30/96 6/30/97 6/30/98 6/30/99
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Cyberonics, Inc. ........................ 100.0 51.6 77.4 100.0 137.1 161.3
S&P 500.................................. 100.0 122.6 151.0 199.2 255.2 309.0
S&P Medical.............................. 100.0 150.8 195.9 256.9 340.9 402.9
</TABLE>
6
<PAGE> 9
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the compensation
paid by us for the year ended June 30, 1999 to the Chief Executive Officer and
each of our other most highly compensated executive officers whose total
compensation exceeded $100,000. These officers are referred to as the named
executive officers:
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
OPTIONS(#)
------------
SALARY($) BONUS($) LONG-TERM
FISCAL --------- -------- COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ANNUAL COMPENSATION AWARDS COMPENSATION
- --------------------------- ------ -------------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert P. Cummins....................... 1999 $200,000 $50,000 100,000 $ 420(1)
President and Chief Executive Officer 1998 200,000 56,000 250,000 253(1)
1997 196,596 68,530 356,000 294(1)
Reese S. Terry, Jr. .................... 1999 $147,000 $36,750 -- $ 4,214(1)
Chairman of the Board and Executive 1998 147,000 41,160 -- 4,114(1)
Vice President 1997 146,693 32,596 63,500 6,705(1)
William H. Duffell, Jr., Ph.D. ......... 1999 $157,500 $39,375 -- $ 363(1)
Vice President, Clinical and
Regulatory 1998 157,500 44,100 51,235 257(1)
Affairs 1997 157,356 32,963 90,000 13,952(2)
Shawn P. Lunney......................... 1999 $144,231 $87,500(3) 25,000 $25,294(1)(4)
Vice President, Marketing 1998 125,000 37,500 104,750 126(1)
1997 112,000 63,189 50,000 126(1)
Stephen D. Ford(5)...................... 1999 $141,231 $37,500 -- $ 323(1)
Vice President, Manufacturing 1998 119,423 36,435 85,000 130(1)
1997 112,141 33,600 50,000 130(1)
</TABLE>
- ---------------
(1) Represents premiums paid by Cyberonics for term life insurance (except as
set forth below).
(2) Represents $332 paid by Cyberonics for term life insurance and $13,650 paid
to Dr. Duffell for expenses related to relocation to Houston.
(3) During fiscal 1999, Mr. Lunney also performed the duties of Area Sales
Director for which he earned an additional bonus of $50,000.
(4) Also includes $25,000 paid to Mr. Lunney for sales awards.
(5) Mr. Ford resigned from his position with Cyberonics in September 1999.
Option Grants in Last Fiscal Year. The following table sets forth each
grant of stock options made during the year ended June 30, 1999 to each of the
named executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ---------------------------------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES IN FOR OPTION TERM($)(2)
OPTIONS FISCAL EXERCISE PRICE EXPIRATION ---------------------------
NAME GRANTED(#) YEAR(1) ($/SH) DATE 5% 10%
- ---- ---------- ------------- -------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Cummins............ 100,000 7% $8.00 3/6/2009 $503,116 $1,274,994
Reese S. Terry, Jr. ......... -- -- -- -- -- --
William H. Duffell, Jr.,
Ph.D. ..................... -- -- -- -- -- --
Shawn P. Lunney.............. 25,000 2% 8.00 3/6/2009 125,779 318,748
Stephen D. Ford(3)........... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Total number of shares subject to options granted to employees in fiscal
1999 was 1,519,450 which number includes options granted to employee
directors.
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<PAGE> 10
(2) Potential realizable value is based on an assumption that the stock price
appreciates at the annual rate shown (compounded annually) from the date of
grant until the end of the ten-year option term. These numbers are
calculated based on the requirements promulgated by the Securities and
Exchange Commission and do not reflect our estimate of future stock price
growth.
(3) Mr. Ford resigned from his position with Cyberonics in September 1999.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-end
Values. The following table sets forth, for each of the named executive
officers, each officer's exercise of stock options during the fiscal year ended
June 30, 1999 and the year-end value of unexercised options:
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ON REALIZED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END EXERCISABLE/
NAME EXERCISE(#) ($)(1) EXERCISABLE/UNEXERCISABLE(#)(2) UNEXERCISABLE($)(3)
- ---- ----------- -------- ------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Robert P. Cummins.............. -- -- $438,335/261,665 $3,325,625/427,500
Reese S. Terry, Jr. ........... -- -- 44,500/10,000 419,969/94,375
William H. Duffell, Jr.,
Ph.D. ....................... -- -- 116,902/44,335 982,506/101,769
Shawn P. Lunney................ -- -- 141,167/65,583 1,164,297/177,656
Stephen D. Ford(4)............. -- -- 156,667/43,333 1,321,250/94,375
</TABLE>
- ---------------
(1) Represents market value of underlying securities at date of exercise less
option exercise price.
(2) Options granted by Cyberonics 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 or five year periods and 1/60th of the
optioned shares vest each month until fully vested.
(3) Market value of underlying securities at fiscal year-end ($12.50/per share)
minus the exercise price.
(4) Mr. Ford resigned from his position with Cyberonics in September 1999.
REPORT ON EXECUTIVE COMPENSATION
The following Report of the Compensation Committee of the Board of
Directors (the "Compensation Committee") describes the compensation policies and
rationale applicable to our executive officers with respect to the compensation
paid to such executive officers for the year ended June 30, 1999. The
information contained in the reports 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 previous or future filing
under the Securities Act or the Exchange Act except to the extent that we
specifically incorporate it by reference into such filing.
To the Stockholders:
The Compensation Committee of the Board of Directors, consisting of Dr.
Appel and Mr. Coelho, is responsible for establishing the compensation payable
to our executive officers and for administering our stock plans.
Compensation Policy
Our executive compensation policies are designed to attract, retain and
motivate the highly skilled executive officers upon whose performance we are
dependent by providing compensation packages competitive with those provided by
similarly situated companies with whom we compete for key employees. It is our
policy that compensation of executive officers should include base compensation
coupled with stock-based incentive opportunities and cash bonuses based on their
level of responsibility. We do not contribute to any retirement programs on
behalf of any employees. Compensation levels for all employees, including
executive officers, are generally established for each fiscal year near the
beginning of the fiscal year.
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Base Salaries
Base salaries for all employees are generally set at levels that are viewed
as competitive. The increase in annual base salaries for non-officer employees
for fiscal 1999 were established by the Board of Directors in June 1998, and
generally reflected increases of 3% to 7% over fiscal 1998 levels. With respect
to officers, the Compensation Committee determined that the primary elements of
officer compensation were to be base salaries together with bonus plan earnings
and equity participation through options. Based on a compensation analysis of
similarly situated executive officers of other companies, the base salary levels
of our officers were adjusted in September 1998 to insure competitive salary
levels. No change was made to the salary of the Chief Executive Officer.
Bonuses
We generally establish target bonus levels for executive officers at the
same time that annual salary levels are established for the fiscal year. For
fiscal 1999, maximum bonus levels were set at 30% of base salary, the same as
fiscal 1998. Bonus payout is generally tied to a number of company-wide
performance goals. Based upon our performance during fiscal 1999, executive
officers were paid 83% of their potential bonuses.
Stock Option Awards
The Compensation Committee evaluated the grant of stock options in fiscal
1999 to officers in light of the responsibilities of the officers and their
current stakes in the long-term success of Cyberonics. Stock options were
granted only to certain officers, based on the level of additional
responsibility being placed on the officer during fiscal 1999 or in connection
with the retention of the officer.
Compensation of Chief Executive Officer
The Compensation Committee believes that the compensation of the Chief
Executive Officer, Mr. Cummins, should be closely tied to the success of
Cyberonics, and should provide Mr. Cummins with a stake in the future success of
Cyberonics. Mr. Cummins' base salary remained unchanged from his fiscal 1998
base salary. He was awarded a bonus equal to 25% of his base salary, which
represented 83% of the maximum bonus that could be paid. In addition, based upon
Mr. Cummins' performance on behalf of Cyberonics and because Mr. Cummins assumed
additional responsibilities of Cyberonics in fiscal 1999, Mr. Cummins was
granted options to purchase 100,000 shares of Common Stock at an exercise price
equal to the fair market value as of the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between our Board of Directors or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires our officers
and directors, and persons who own more than ten percent of a registered class
of our equity securities, to file reports of ownership on Form 3 and changes in
ownership on Form 4 or Form 5 with the Securities and Exchange Commission. Such
officers, directors and ten-percent stockholders are also required by the rules
of the Securities and Exchange Commission to furnish us with copies of all
Section 16(a) forms they file.
Based solely on our review of the copies of such forms received we believe
that, for the fiscal year ended June 30, 1999, all Section 16(a) filing
requirements applicable to our officers, directors and ten-percent stockholders
were complied with, except as follows: Dr. Stanley H. Appel filed Form 4's late
for a sale of shares and a gift of shares in February and March 1998; and Mr.
Shawn Lunney filed a Form 4 late for the sale of shares in May 1999.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of our stockholders, including Messrs. Cummins and Terry, Drs.
Appel and Duffell and venture capital firms formerly affiliated with Mr.
Cummins, are entitled to certain registration rights with respect to the Common
Stock held by them.
As of June 30, 1998, Rick L. Amos, formerly our Vice President, Sales owed
us $100,000 under a loan for such amount provided to Mr. Amos in fiscal 1998 to
cover certain relocation expenses. The loan bore interest at 8 1/2% per annum,
and was secured by the shares of our common stock held by or underlying options
held by Mr. Amos. All principal and interest on the loan was paid in January
1999.
Covance Health Economics and Outcomes Services, Inc. provides health care
reimbursement consulting services to us. We paid to Covance $693,844, $511,459
and $0 for such services in fiscal 1999, 1998 and 1997, respectively. Dr.
Strauss, one of our directors, is the Executive Vice President of Covance.
Our Bylaws provide that we are required to indemnify our officers and
directors to the fullest extent permitted by Delaware law, including those
circumstances in which indemnification would otherwise be discretionary, and
that we are required to advance expenses to our officers and directors as
incurred. Further, we have entered into indemnification agreements with our
officers and directors. We believe that our charter and bylaw provisions and
indemnification agreements are necessary to attract and retain qualified persons
as directors and officers.
We believe that all of the transactions set forth above were made on terms
no less favorable to us than could have been obtained from unaffiliated third
parties. All future transactions between us and our officers, directors,
principal stockholders and affiliates will be approved by a majority of the
Board of Directors, including a majority of the independent and disinterested
outside directors on the Board of Directors, and will be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
PROPOSAL NO. 2
APPROVAL OF AMENDMENT AND RESTATEMENT OF
CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED SHARES
GENERAL
Cyberonics' Certificate of Incorporation as currently in effect (the
"Certificate"), provides that we are authorized to issue two classes of stock,
consisting of 25,000,000 shares designated as Common Stock, $.01 par value per
share, and 2,500,000 shares designated as Preferred Stock, $.01 par value per
share.
Our Board of Directors has authorized amendment and restatement of the
Certificate, subject to stockholder approval, to increase the authorized number
of shares of Common Stock by 25,000,000 shares, bringing the total authorized
Common Stock up to 50,000,000 shares. Under the proposed amendment and
restatement, the first paragraph of Article Fourth of the Certificate would be
amended and restated to read as follows:
"Fourth: The total number of shares of stock which the Corporation shall
have authority to issue is fifty-two million five hundred thousand (52,500,000)
shares of capital stock, classified as (i) two million five hundred thousand
(2,500,000) shares of Preferred Stock, par value $.01 per share, of which fifty
thousand (50,000) shares shall be designated as Series A Participating Preferred
Stock, and (ii) fifty million (50,000,000) shares of Common Stock, par value
$.01 per share."
The stockholders are being asked to approve such amendment. The proposed
amendment would give the Board the authority to issue additional shares of
Common Stock without requiring future stockholder approval of such issuances,
except as may otherwise be required by applicable law.
Of the 25,000,000 currently authorized shares of Common Stock, 17,845,299
shares of Common Stock were issued and outstanding as of the Record Date. In
addition, as of such date, approximately 4.5 million shares were reserved for
issuance upon exercise of outstanding options; and approximately 635,000 shares
were
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reserved for future grant under our stock plans. Accordingly, as of the Record
Date, we had only approximately 2.0 million shares of authorized but unissued
and unreserved Common Stock available for issuance.
PURPOSE AND EFFECT OF THE AMENDMENT
The principal purpose of this proposed amendment and restatement of our
Certificate of Incorporation to increase the authorized shares of Common Stock
is to make such shares available for use by the Board of Directors as it deems
appropriate or necessary. For example, such shares may be needed in connection
with future stock dividends or splits, raising additional capital through the
sale of our securities, providing options or other stock incentives to valuable
employees, consultants or others, acquisition of another company or its
technology, business or assets, or establishing a strategic relationship with a
corporate partner.
The Board of Directors has no present agreement, arrangement, plan or
understanding with respect to the issuance of any such shares of Common Stock.
If the amendment is approved by the stockholders, the Board of Directors does
not intend to solicit further stockholder approval prior to the issuance of any
additional shares of Common Stock, except as may be required by applicable law.
Frequently, opportunities arise that require prompt action, and we believe that
the delay necessitated for stockholder approval of a specific issuance could be
detrimental to Cyberonics and its stockholders. Holders of our securities as
such have no statutory preemptive rights with respect to issuances of Common
Stock.
The additional shares of Common Stock authorized will have all the rights
and privileges which the presently outstanding shares of Common Stock possess.
The increase in authorized Common Stock will not have any immediate effect on
the rights of existing stockholders. To the extent that the additional
authorized shares are issued in the future, they will decrease the existing
stockholders' percentage equity ownership and, depending on the price at which
they are issued, could be dilutive to the existing stockholders.
POTENTIAL ANTI-TAKEOVER EFFECT
The increase in the authorized number of shares of Common Stock and the
subsequent issuance of such shares could have the effect of delaying or
preventing a change-in-control of Cyberonics without further action by the
stockholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions that
would make a change-in-control of Cyberonics more difficult, and therefore less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Common
Stock, and such additional shares could be used to dilute the stock ownership or
voting rights of a person seeking to obtain control of our company. We have
previously adopted certain measures that may have the effect of helping to
resist an unsolicited takeover attempt, including the adoption of our Preferred
Share Purchase Rights Plan, provisions in our stock plans permitting the
acceleration of exercisability of outstanding options in the event of a sale of
assets or merger and provisions of the Certificate authorizing the Board to
issue up to 2,500,000 shares of Preferred Stock, the terms, provisions and
rights of which may be fixed by the Board without stockholder action or
approval.
VOTE REQUIRED
The affirmative vote of the holders of a majority of our Common Stock
issued and outstanding on the Record Date will be required to approve the
amendment and restatement of the Certificate. If the amendment is not approved,
our authorized capital stock will not change. THE BOARD OF DIRECTORS RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" THE AMENDMENT AND RESTATEMENT OF THE CERTIFICATE OF
INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK.
STOCK PRICE
The closing price of our Common Stock on the Record Date, as reported on
the Nasdaq National Market, was $17.4375.
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PROPOSAL NO. 3
PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP, independent
accountants, to audit the books, records and accounts of Cyberonics for the
current fiscal year ending June 30, 2000. Arthur Andersen LLP has audited
Cyberonics' financial statements since the fiscal year ended June 30, 1988.
A representative of Arthur Andersen LLP is expected to be available at the
Annual Meeting to make a statement if such representative desires to do so and
to respond to appropriate questions.
VOTE REQUIRED
The affirmative vote of the holders of a majority of our Common Stock
represented and voting at the meeting will be required to approve and ratify the
Board's selection of Arthur Andersen LLP. THE BOARD OF DIRECTORS RECOMMENDS
VOTING "FOR" APPROVAL AND RATIFICATION OF SUCH SELECTION. In the event of a
negative vote on such ratification, the Board of Directors will reconsider its
selection.
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
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DETACH HERE
This Proxy is solicited on behalf of the Board of Directors
CYBERONICS, INC.
ANNUAL MEETING OF STOCKHOLDERS - JANUARY 28, 2000
The undersigned stockholder of Cyberonics, Inc., a Delaware corporation, hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy
Statement for the Annual Meeting of Stockholders, and hereby appoints Robert P.
Cummins and Pamela B. Westbrook, and each of them, proxies and
attorneys-in-fact, with full power of substitution, on behalf and in the name
of the undersigned, to represent the undersigned at the Annual Meeting of
Stockholders of Cyberonics, Inc., to be held on January 28, 2000, at 9:00 a.m.,
local time, at the South Shore Harbor Resort & Conference Center, 2500 South
Shore Boulevard, League City, 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 matters set
forth on the reverse side.
A majority of such attorneys and substitutes as shall be present and shall act
at said meeting or any adjournment or adjournments thereof (or if only one shall
be present and act, then that one) shall have and may exercise all of the
powers of said attorneys-in-fact hereunder.
- ------------- -------------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
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<PAGE> 16
[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 election of Directors, FOR the amendment and restatement
of the Company's Certificate of Incorporation, FOR the ratification of the
appointment of Arthur Andersen LLP as independent public accountants, and as
said proxies deem advisable on such other matters as may come before the
meeting.
1. ELECTION OF DIRECTORS
NOMINEES: (01) Robert P. Cummins, (02) Reese S. Terry, Jr.,
(03) Thomas A. Duerden, Ph.D., (04) Stanley H. Appel, M.D.,
(05) Tony Coelho, (06) Michael J. Strauss, M.D. and (07) Alan J. Olsen
FOR WITHHELD
ALL [ ] [ ] FROM ALL
NOMINEES NOMINEES
[ ]
---------------------------------------
For all nominees except as noted above
2. Proposal to amend and restate the Company's Certificate of Incorporation to
increase the authorized number of shares of Common Stock by 25,000,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the 2000 fiscal year.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
and upon such other matter or matters which may properly come before the
meeting or any adjournment thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT [ ]
LEFT
(This proxy should be dated, 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 the
shares are held by joint tenants or as
community property, both should sign.)
Signature:
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Date:
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Signature:
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Date:
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