<PAGE> 1
CYBERONICS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 29, 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, December 29,
2000, at 10:00 a.m., local time, at Cyberonics' offices located at 16511 Space
Center Boulevard, Suite 600, Houston, 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 amend and restate the Cyberonics, Inc. 1997 Stock Plan to
increase the number of Common Shares available for issuance under the plan
by an aggregate of 900,000 Shares;
3. To ratify the appointment of Arthur Andersen LLP as independent
accountants of Cyberonics for the fiscal year ending June 30, 2001; 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 16, 2000,
are entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person. To
assure your representation at the meeting, however, 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
November 27, 2000
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> 2
CYBERONICS, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
DECEMBER 29, 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, December 29, 2000, at 10:00
a.m., local time, at Cyberonics' offices located at 16511 Space Center
Boulevard, Suite 600, Houston, 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 November 27,
2000 to all stockholders entitled to vote at the meeting.
RECORD DATE, OUTSTANDING SHARES
Only stockholders of record at the close of business on November 16, 2000
(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 18,642,753 shares of Common Stock, $.01 par value per share. 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 $7,500 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> 3
quorum and also treated as shares "represented and voting" at the Annual Meeting
(the "Votes Cast") with respect to such matter.
Abstentions and broker non-votes are counted for purposes of determining
the presence or absence of a quorum for the transaction of business. Abstentions
are counted in tabulations of the votes cast on proposals presented to
stockholders and will have the same effect as a vote against the proposals,
whereas broker non-votes are not counted for purposes of determining whether a
proposal has been approved.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
In accordance with the requirements set forth in the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), proposals of stockholders of
Cyberonics which are intended to be presented by such stockholders at our Annual
Meeting for fiscal 2001 must be received by us no later than July 24, 2001 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 2001 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 our Bylaws no later than
August 31, 2001. If such a stockholder fails to comply with the foregoing notice
provision, the proxy holders will not be allowed to use their discretionary
voting authority when the proposal is raised at the 2001 Annual Meeting.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL
Seven directors are to be elected at the meeting. Unless otherwise
instructed, the proxy holders will vote all of the proxies received by them for
the 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.
The names and certain information about Cyberonics' director nominees,
including their ages is set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert P. Cummins............... 46 President, Chief Executive Officer and Director
Reese S. Terry, Jr. ............ 58 Chairman of the Board of Directors and Secretary
Stanley H. Appel, M.D. ......... 67 Director
Tony Coelho..................... 58 Director
Thomas A. Duerden, Ph.D. ....... 70 Director
Michael J. Strauss, M.D. ....... 47 Director
Alan J. Olsen................... 53 Director
</TABLE>
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
2
<PAGE> 4
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. Mr. Terry resigned from his position
as Executive Vice President in February 2000. 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 our 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 director of PathSource, a privately held company which is consolidating
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.
Dr. Strauss has been a director of Cyberonics since March 1997. He is a
physician entrepreneur whose professional career has focused on new medical
technology and the boundary it shares with health services research, health
policy and business. He currently serves as a senior consultant for Covance
Health Economics and Outcomes Services Inc. (CHEOS), a consulting, outcomes
research and services firm helping medical product manufacturers address
economic, reimbursement and other market issues. Dr. Strauss was a founder and
President of CHEOS and negotiated its sale to Corning Inc. He also is a member
of the Medicare Coverage Advisory Committee (Health Care Financing
Administration) and serves on the Board of Directors of Endocare, Inc.,
manufacturer of products for treating urological diseases, and Kaiser
Permanente's Mid-Atlantic Permanente Medical Group.
Mr. Olsen has been a director of Cyberonics since June 1999. He has over 25
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.
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<PAGE> 5
BOARD COMPOSITION
Pursuant to a letter agreement dated March 28, 1997, the Clark Estates is
entitled to designate one person whom it wishes to have appointed to serve on
our Board of Directors. This right terminates in the event the Clark Estates
ceases to own 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.
BOARD MEETINGS AND COMMITTEES
Our Board of Directors held a total of eight meetings and acted by written
consent one time during the fiscal year ended June 30, 2000. 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 Michael J. Straus, M.D., Thomas A.
Duerden and Alan J. Olsen, held four meetings during the fiscal year ended June
30, 2000. 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 two meetings and acted by written consent 38 times during the fiscal
year ended June 30, 2000. This Committee establishes salary and incentive
compensation of our executive officers and administers employee benefit plans.
During the fiscal year ended June 30, 2000, all current directors attended
at least 75 percent of the meetings of the Board of Directors and the number of
meetings held by committees on which the director served, except Mr. Coelho who
attended five meetings of the Board of Directors and two meetings of the
Compensation Committee.
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 SECURITIES 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 (SEC).
Such officers, directors and ten-percent stockholders are also required by SEC
rules 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, 2000, all Section 16(a) filing
requirements applicable to our officers, directors and ten-percent stockholders
were complied with, except as follows: Dr. Duffell did not file Form 4s for
sales and purchases made by his wife from the period of September 1998 through
April 2000; a Form 4 was filed in July 2000 to report these transactions; and
Mr. Lunney did not file a Form 4 for the sale of shares in February 2000; a Form
5 was filed in September 2000 for this sale.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of August 31, 2000 certain information
with respect to the beneficial ownership of our Common Stock (i) by each person
known by us to own beneficially more than five percent of the outstanding shares
of our Common Stock, (ii) by each of our directors, (iii) by each of the named
executive officers and (iv) by all directors and executive officers as a group.
Except as otherwise noted below,
4
<PAGE> 6
we are not aware of any agreements among our stockholders which relate to voting
or investment of our shares of our Common Stock.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME OF BENEFICIAL OWNER OWNED(1) SHARES OWNED(1)
------------------------ ------------ ---------------
<S> <C> <C>
Massachusetts Financial Services Co........................ 1,323,795 7.1%
500 Boylston Street, 15th Floor
Boston, MA 20116
The Clark Estates(2)....................................... 1,217,683 6.5%
One Rockefeller Plaza, 31st Floor
New York, NY 10020
RHO Management Partners, L.P............................... 1,214,166 6.5%
152 West 57th Street, 23rd Floor
New York, NY 10019
Reese S. Terry, Jr.(3)..................................... 671,100 3.6%
Robert P. Cummins(4)....................................... 656,235 3.4%
Pamela B. Westbrook(5)..................................... 51,214 *
William H. Duffell, Jr., Ph.D.(6).......................... 139,083 *
Shawn P. Lunney(7)......................................... 166,966 *
Richard P. Kuntz(8)........................................ 22,500 *
Stanley H. Appel, M.D.(9).................................. 141,300 *
Thomas A. Duerden, Ph.D.(10)............................... 79,000 *
Tony Coelho(11)............................................ 74,600 *
Michael J. Strauss, M.D.(12)............................... 55,000 *
Alan J. Olsen(13).......................................... 16,808 *
All executive officers and directors as a group (10
persons)(14)............................................. 2,073,806 10.5%
</TABLE>
---------------
* Less than 1%
(1) Based on total shares outstanding of 18,645,694 at August 31, 2000.
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 our 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 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 whom it wishes to have appointed 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) Includes 116,500 shares held in trusts for the benefit of Mr. Terry's
children of which Mr. Terry serves as trustee. Also includes 34,500 shares
subject to options exercisable on or before October 30, 2000. Mr. Terry
resigned from his position as Executive Vice President in February 2000.
(4) Includes 10,000 shares held in trust for the benefit of Mr. Cummins'
children of which Mr. Cummins serves as trustee. Also includes 417,285
shares subject to options exercisable on or before October 30, 2000.
(5) Includes 50,001 shares subject to options exercisable on or before October
30, 2000.
(6) Includes 59,002 shares subject to options exercisable on or before October
30, 2000. Dr. Duffell resigned from his position in August 2000.
(7) Includes 161,166 shares subject to options exercisable on or before October
30, 2000.
(8) Includes 22,500 shares subject to options exercisable on or before October
30, 2000.
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<PAGE> 7
(9) Includes 97,500 shares subject to options exercisable on or before October
30, 2000.
(10) Includes 57,500 shares subject to options exercisable on or before October
30, 2000.
(11) Includes 67,500 shares subject to options exercisable on or before October
30, 2000.
(12) Includes 47,500 shares subject to options exercisable on or before October
30, 2000.
(13) Includes 13,333 shares subject to options exercisable on or before October
30, 2000.
(14) Includes 1,027,787 shares subject to options held by executive officers and
directors, which options are exercisable on or before October 30, 2000, but
does not include shares owned by Dr. Duffell. Also includes shares which
may be determined to be beneficially owned by executive officers and
directors. See Notes 3 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, 1995
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, 1995 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.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Cyberonics, Inc. ............................... 100.0 150.0 193.8 265.6 312.5 300.0
S&P 500......................................... 100.0 123.1 162.5 208.1 251.9 267.0
S&P Medical..................................... 100.0 129.9 170.4 226.1 267.2 288.5
</TABLE>
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<PAGE> 8
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the
compensation paid by us for the year ended June 30, 2000 to the Chief Executive
Officer and each of our other most highly compensated executive officers whose
total compensation exceeded $100,000. These officers are referred to as the
named executive officers:
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING
OPTIONS (#)
------------
LONG-TERM
FISCAL SALARY($) BONUS($) COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ANNUAL COMPENSATION AWARDS COMPENSATION
--------------------------- ------ --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert P. Cummins(1)..................... 2000 $236,538 $170,335 100,000(2) $ 420(3)
President and Chief 1999 200,000 50,000 100,000 420(3)
Executive Officer 1998 200,000 56,000 250,000 253(3)
Reese S. Terry, Jr.(4)................... 2000 $ 96,115 $ -- -- $ 4,100(3)
Chairman of the Board and Executive 1999 147,000 36,750 -- 4,214(3)
Vice President 1998 147,000 41,160 -- 4,114(3)
Pamela B. Westbrook...................... 2000 $155,769 $ 40,335 -- $ 347(3)
Vice President, Finance &
Administration 1999 103,846 33,750 175,000 260(3)
Chief Financial Officer 1998 -- -- -- --
William H. Duffell, Jr., Ph.D(5)......... 1999 $163,558 $ -- -- $ 363(3)
Vice President, Clinical and Regulatory 1999 157,500 39,375 -- $ 363(3)
Affairs 1998 157,500 44,100 51,235 257(3)
Shawn P. Lunney.......................... 2000 $155,769 $ 2,835 -- $ 347(3)
Vice President, Marketing 1999 144,231 87,500(6) 25,000 25,294(3)(7)
1998 125,000 37,500 104,750 126(3)
Richard P. Kuntz......................... 2000 $ 76,269 $ 32,835 150,000 $12,173(3)(8)
Vice President, Manufacturing 1999 -- -- -- --
1998 -- -- -- --
</TABLE>
---------------
(1) Mr. Cummins became an executive officer of Cyberonics in fiscal 1996.
(2) Excludes a grant of options to purchase 450,000 shares of our common stock
at $18.00 per share, which is contingent on stockholder approval of the
amended and restated 1997 Stock Plan described under Proposal 2 herein. See
"Compensation Committee Report and Proposal 2" below.
(3) Represents premiums paid for term life insurance (except as set forth
below).
(4) Mr. Terry resigned from his position as Executive Vice President in February
2000.
(5) Mr. Duffell resigned from his position as Vice President in August 2000.
(6) During fiscal 1999, Mr. Lunney also performed the duties of Sales Area
Director for which he earned an additional bonus of $50,000.
(7) Also includes $25,000 paid to Mr. Lunney for sales awards.
(8) Represents $173 for term life insurance and $12,000 for expenses paid to Mr.
Kuntz associated with relocating to Houston.
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Option Grants in Last Fiscal Year. The following table sets forth each
grant of stock options made during the year ended June 30, 1999 to each of the
named executive officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN OPTION TERM($)(2)
OPTIONS FISCAL EXERCISE EXPIRATION -----------------------
NAME GRANTED(#) YEAR(1) PRICE($/SH) DATE 5% 10%
---- ---------- ------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Cummins..................... 100,000(3) 8% $ 18.00 6/9/2010 $1,132,010 $2,868,736
Reese S. Terry, Jr.(4)................ -- -- -- -- -- --
Pamela B. Westbrook................... -- -- -- -- -- --
William H. Duffell, Jr., Ph.D.(5)..... -- -- -- -- -- --
Shawn P. Lunney....................... -- -- -- -- -- --
Richard P. Kuntz...................... 150,000 12% $15.125 1/6/2010
</TABLE>
---------------
(1) Total number of shares subject to options granted to employees in fiscal
2000 was 1,202,700, 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 our estimate of future stock price growth.
(3) Excludes a grant of options to purchase 450,000 shares of our common stock
at $18.00 per share, which is contingent on stockholder approval of the
amended and restated 1997 Stock Plan described under Proposal 2 herein. See
"Compensation Committee Report and Proposal 2" below.
(4) Mr. Terry resigned from his position as Executive Vice President in February
2000.
(5) Dr. Duffell resigned as Vice President in August 2000.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-end
Values. The following table sets forth, for each of the named executive
officers, each officer's exercise of stock options during the fiscal year ended
June 30, 2000 and the year-end value of unexercised options:
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ON VALUE YEAR-END FISCAL YEAR-END
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE/UNEXERCISABLE(#)(2) EXERCISABLE/UNEXERCISABLE($)(3)
---- ----------- -------------- -------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Robert P. Cummins(4).......... 121,050 $2,503,565 387,286/291,664 $2,146,241/$300,000
Reese S. Terry, Jr.(5)........ 10,000 $ 206,875 34,500/10,000 308,344/89,375
Pamela B. Westbrook........... 20,000 $ 371,876 38,334/116,666 263,546/802,079
William H. Duffell, Jr.,
Ph.D.(6).................... 82,235 $1,223,202 55,669/23,333 303,143/--
Shawn P. Lunney............... -- $ -- 156,167/49,583 1,112,047/142,031
Richard P. Kuntz.............. -- $ -- 12,500/137,500 --/--
</TABLE>
---------------
(1) Represents market value of underlying securities at date of exercise less
option exercise price.
(2) Options 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 ($12.00 per share)
minus the exercise price.
(4) Excludes a grant of options to purchase 450,000 shares of our common stock
at $18.00 per share, which is contingent on stockholder approval of the
amended and restated 1997 Stock Plan described under Proposal 2 herein. See
"Compensation Committee Report and Proposal 2" below.
(5) Mr. Terry resigned from his position as Executive Vice President in February
2000.
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<PAGE> 10
(6) Dr. Duffell resigned his position as Vice President in August 2000.
REPORT OF THE COMPENSATION COMMITTEE
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, 2000.
The Compensation Committee, 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.
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 2000 were established by the Board of Directors in June 1999, and
generally reflected increases of 4% over fiscal 1999 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. No change was made to the salaries of
the executive officers, except 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 2000, maximum bonus levels were set at 30% of base salary, the same level
as fiscal 1999. Bonus payout is generally tied to a combination of company-wide
and departmental performance goals. Based upon our performance during fiscal
2000, executive officers were paid an average of 65% of their potential bonuses.
Stock Option Awards
The Compensation Committee evaluated the grant of stock options in fiscal
2000 to officers in light of the responsibilities of the officers and their
current stakes in our long-term success. No stock options were granted to
officers, except the Chief Executive Officer and to new officers as an
inducement to enter into employment with the Company.
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 was increased to an annual base salary of
$300,000, which was effective in March 2000. He was awarded a bonus equal to 72%
of his base salary, which represented 65% of the maximum bonus that could be
paid.
In February 2000, in connection with a comprehensive review of our
executive compensation packages, the Board of Directors engaged the services of
Towers Perrin, a management consulting firm, to conduct an independent
compensation review, including a review of salary, bonus and stock option grants
for our executive officers, including our Chief Executive Officer, as well as
our Vice Presidents. Towers Perrin submitted its
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recommendations to the compensation committee in March 2000 and recommended
increases in salary, bonus and stock option grants for Mr. Cummins and increases
in salaries and bonuses for the Vice Presidents. The recommendations were based
on Towers Perrin's survey of comparable high growth medical device and
pharmaceutical companies. In March 2000, the Board of Directors approved an
increase in the salary and bonus to be paid to Mr. Cummins as recommended by
Towers Perrin. The salary was increased to $300,000 on an annual basis and Mr.
Cummins is eligible for a bonus of up to 100% of salary. Each of these levels
was consistent with the recommendations of Towers Perrin. A grant of additional
options to Mr. Cummins was delayed pending the conclusion of preliminary
discussions with Medtronic regarding a potential combination with us which had
begun in mid-March. In May 2000, the Board of Directors was advised by US
Bancorp Piper Jaffray, our financial advisor at that time, that Medtronic was
not interested in continuing discussions concerning a potential combination. In
June 2000, the Board of Directors resumed the compensation review and determined
that additional stock option grants to Mr. Cummins were appropriate. Consistent
with Towers Perrin's recommendation, options granted to Mr. Cummins included:
100,000 options approved and granted from the 1996 stock option plan at an
exercise price of $18.00 per share and 450,000 options approved for grant
subject to approval of the Amended and Restated 1997 Stock Plan described under
Proposal 2 herein. The option grants were also consistent with the Towers
Perrin's recommendation. All of these options have an exercise price of $18.00
per share. The closing price of Cyberonics' Common Stock the day before the
approval of the grants to Mr. Cummins was $14.50.
COMPENSATION COMMITTEE
Stanley H. Appel, M.D.
Tony Coehlo
BOARD COMPENSATION
Directors do not receive any cash compensation for their services as
members of the Board of Directors. Non-employee directors are eligible for
discretionary option grants under our 1997 Option Plan.
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 shares of our Common Stock held by or underlying options held
by Mr. Amos. All principle 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 $431,662, $693,844
and $511,459 for such services in fiscal 2000, 1999 and 1998, respectively. Dr.
Strauss, one of our directors, was the Executive Vice President of Covance
through 1999 and currently serves as a Senior Consultant for 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 the transactions described 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,
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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
In the Summer of 2000, the Compensation Committee of the Board of Directors
conducted a review of the stock options held by the Company's executive officers
and certain other senior employees. The Compensation Committee determined that
it was appropriate to grant Mr. Cummins additional options as well as increase
the size of the 1997 Stock Plan so that additional grants could be made to
officers and employees in the future as appropriate to continue to provide them
incentives to contribute to the success of the Company. Mr. Cummins was granted
options to purchase 450,000 shares at an exercise price of $18.00 per share (see
"Report of Compensation Committee"). This grant was contingent upon the approval
by our stockholders of an amended stock plan. In addition, the Board of
Directors determined that the Company needed to reserve an additional 450,000
shares of common stock for future grants. The original adoption of the 1997
Stock Plan authorized the issuance of options for a maximum of 1 million shares.
The Amended and Restated Plan provides for an additional 900,000 shares,
bringing the aggregate number of shares available for issuance under the Amended
and Restated Plan to 1.9 million. The grant of the June 2000 Options is
conditioned upon the stockholders approving the Amended and Restated 1997 Stock
Plan (the "1997 Stock Plan"). In the event that the stockholders do not approve
such plan, the options to purchase 450,000 shares of Common Stock granted to Mr.
Cummins will be void. The Compensation Committee and the Board of Directors as a
whole believes that approval of the 1997 Stock Plan is important to the Company
and in the best interests of the stockholders.
Section 162(m). In 1993, Section 162(m) was added to the Internal Revenue
Code of 1986, as amended. Section 162(m) limits the Company's deduction in any
one fiscal year for federal income tax purposes to $1,000,000 per person with
respect to the Company's Chief Executive Officer and its four other highest paid
executive officers who are employed on the last day of the fiscal year unless
the compensation was not otherwise subject to the deduction limit. Grants under
the 1997 Stock Plan will not be subject to the deduction limitation if the
stockholders approve the 1997 Stock Plan, including the option grant limitations
described below.
The approval of the adoption of the 1997 Stock Plan requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock represented, in person or by proxy, and voting at the Annual
Meeting. No option or stock right granted with respect to shares added under the
1997 Stock Plan may be exercised prior to such shareholder approval, and in the
event such shareholder approval is not obtained, such options and stock rights
shall automatically terminate. THE COMPENSATION COMMITTEE AND THE BOARD OF
DIRECTORS AS A WHOLE RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL OF THE
1997 STOCK PLAN.
SUMMARY OF THE 1997 STOCK PLAN
General. The purpose of the 1997 Stock Plan is to attract and retain the
best available persons for positions of substantial responsibility with the
Company, to provide additional incentive to the employees, directors and
consultants of the Company and to promote the success of the Company's business.
Options granted under the 1997 Stock Plan may be either "incentive stock
options," as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or non-statutory stock options. In addition, awards of, as
well as rights to purchase, shares of the Company's common stock ("Stock
Rights") may be granted under the 1997 Stock Plan.
Administration. The 1997 Stock Plan may generally be administered by the
Compensation Committee of the Board (the "Administrator"). Subject to the other
provisions of the 1997 Stock Plan, the Board has the authority to (i) interpret
the 1997 Stock Plan and apply its provisions; (ii) prescribe, amend or rescind
rules and regulations relating to the 1997 Stock Plan; (iii) select the persons
to whom options and Stock Rights are to be granted; (iv) determine the number of
shares to be made subject to each option or Stock Right; (v) determine the fair
market value; (vi) prescribe the terms and conditions of each option or Stock
Right; (vii) authorize any person to execute, on behalf of the Company, any
instrument required to effect the grant of
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an option or Stock Right; and (viii) take any other actions deemed necessary or
advisable for the administration of the 1997 Stock Plan. All decisions,
interpretations and other actions of the Administrator shall be final and
binding on all holders of options and Stock Rights and on all persons deriving
their rights therefrom.
Eligibility, Limitations. Non-statutory stock options and Stock Rights may
be granted under the 1997 Stock Plan to employees, directors and consultants of
the Company or any parent or subsidiary of the Company. Incentive stock options
may be granted only to employees of the Company or any parent or subsidiary of
the Company.
As discussed above, Section 162(m) of the Code places limits on the
deductibility for federal income tax purposes of compensation paid to certain
executive officers of the Company. In order to preserve the Company's ability to
deduct the compensation income associated with options granted to such persons,
the 1997 Stock Plan provides that no employee may be granted, in any fiscal year
of the Company, options to purchase more than 500,000 shares of common stock.
Notwithstanding this limit, however, in connection with an employee's initial
employment, he or she may be granted options to purchase up to an additional
250,000 shares of common stock.
Terms and Conditions of Options. Each option granted under the 1997 Stock
Plan is evidenced by a written stock option agreement between the Company and
the optionee, and is subject to the following additional terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price
of options at the time the options are granted. The exercise of an
incentive stock option may not be less than 100% of the fair market value
of the common stock on the date such option is granted; provided, however,
the exercise of an incentive stock option granted to a 10% stockholder may
not be less than 110% of the fair market value of the common stock on the
date such option is granted. The fair market value of the common stock is
generally determined with reference to the closing sale price for the
common stock (or the closing bid if no sales were reported) on the last
market trading day prior to the date the option is granted. The exercise
price of a non-statutory stock option may be determined by the
Administrator, but shall not be less than 100% of the fair market value per
share on the date of the grant. The exercise price of a non-statutory stock
option intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code may not be less than 100% of the fair
market value of the common stock on the date of grant.
(b) Exercise of Option. The Administrator determines when options
become exercisable, and may in its discretion, accelerate the vesting of
any outstanding option.
(c) Form of Consideration. The means of payment for shares issued
upon exercise of an option is specified in each option agreement. The 1997
Stock Plan permits payment to be made by cash, check, promissory note,
other shares of common stock of the Company (with some restrictions),
cashless-broker exercise, a reduction in the amount of any Company
liability to the optionee, any other form of consideration permitted by
applicable law, or any combination thereof.
(d) Term of Option. The term of an incentive stock option may be no
more than ten years from the date of grant; provided that in the case of an
incentive stock option granted to a 10% stockholder, the term of the option
may be no more than five years from the date of grant. In the case of a
non-statutory stock option, if the Option Agreement does not provide for a
term, such term shall be ten years from the date of the grant. No option
may be exercised after the expiration of its term.
(e) Termination of Employment. If an optionee's employment,
directorship or consulting relationship terminates for any reason (other
than death or disability), then all options held by the optionee under the
1997 Stock Plan expire on the earlier of: (i) the date set forth in his or
her notice of grant or stock option agreement (but in the absence of a
specified time in the option agreement, three months following the
optionee's termination); or (ii) the expiration of the option. To the
extent the option is exercisable at the time of such termination, the
optionee may exercise all or part of his or her option at any time before
its termination.
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(f) Permanent Disability. If an optionee's employment, directorship
or consulting relationship terminates as a result of permanent and total
disability (as defined in the Code), then all options held by such optionee
under the 1997 Stock Plan will generally expire on the earlier of: (i) the
date set forth in his or her notice of grant or stock option agreement (but
in the absence of a specified time in the option agreement, three months
following the optionee's termination); or (ii) the expiration of the
option. Unless otherwise provided in the grant, options granted after the
date the 1997 Stock Plan is approved shall fully vest upon the optionee's
disability.
(g) Death. If an optionee's employment, directorship or consulting
relationship terminates as a result of death (as defined in the Code), then
all options held by such optionee under the 1997 Stock Plan will generally
expire on the earlier of: (i) the date set forth in his or her notice of
grant or stock option agreement (but in the absence of a specified time in
the option agreement, twelve months following the optionee's termination);
or (ii) the expiration of the option. The optionee or, if applicable, the
executor or other legal representative of the optionee's estate may
exercise all or part of the optionee's option at any time before such
expiration to the extent that such option was exercisable at the time of
termination of employment. Unless otherwise provided in the grant, options
granted after the date the 1997 Stock Plan is approved shall fully vest
upon the optionee's death.
(h) Nontransferability of Options. Unless expressly permitted by the
Administrator, options granted under the 1997 Stock Plan generally are not
transferable other than by will or the laws of descent and distribution,
and generally may be exercised during the optionee's lifetime only by the
optionee. In no event may an incentive stock option be transferable in a
manner that would cause such option to cease to be an incentive stock
option.
(i) Value Limitation. If the aggregate fair market value of all
shares of common stock subject to an optionee's incentive stock option
which are exercisable for the first time during any calendar year exceeds
$100,000, the excess portion of such option will be treated as a
non-statutory stock option.
(j) Other Provisions. The stock option agreement may contain other
terms, provisions and conditions not inconsistent with the 1997 Stock Plan
as may be determined by the Administrator.
Stock Rights. A Stock Right may award the recipient common stock or may
give the recipient the right to purchase common stock. Shares received or
purchased pursuant to a Stock Right are subject to a restricted stock agreement
between the Company and the recipient. Unless the Administrator determines
otherwise, the restricted stock agreement shall give the Company a reacquisition
option exercisable upon the voluntary or involuntary termination of the
recipient's employment or consulting relationship with the Company for any
reason (including death and disability). The acquisition price for any shares
reacquired by the Company shall be determined by the Administrator at the time
the shares are acquired pursuant to the Restricted Stock Agreement. The
reacquisition option lapses at a rate determined by the Administrator. A Stock
Right and the stock acquired pursuant thereto (while restricted) is generally
nontransferable other than by will or the laws of descent and distribution.
Adjustments Upon Changes in Capitalization. In the event that the stock of
the Company changes by reason of any stock split, reverse stock split, stock
dividend, combination, reclassification or other similar changes in the capital
structure of the Company effected without the receipt of consideration,
appropriate adjustments will be made in the number and class of shares of stock
subject to the 1997 Stock Plan, the number and class of shares of stock subject
to any option or Stock Right outstanding under the 1997 Stock Plan, and the
exercise price of any such award.
In connection with any change of control of the Company, the optionee shall
fully vest in and have the right to exercise the optionee's options or Stock
Rights as to all of the optioned stock, and any restrictions shall lapse with
respect to any unreleased restricted stock. In such event, the Administrator
shall notify the optionee that the option or Stock Right is fully vested and
exercisable for fifteen (15) days from the date of such notice, that the option
or Stock Purchase Right shall terminate upon expiration of such period, and that
restrictions have been released on restricted shares. A change of control is
defined to include certain mergers, reorganizations, consolidations, asset
sales, or the acquisition of more than fifty percent (50%) of the
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<PAGE> 15
Company by any person or certain changes in the composition of the Board of
Directors. In addition, the Committee of directors, with the approval of a
majority of the Incumbent Directors, may provide that all options and Stock
Rights not exercised immediately prior to a change of control shall: (i)
terminate on such change of control; (ii) be assumed by the successor in any
such merger or corporate transaction; or (iii) be surrendered in exchange for
equivalent substitution options or awards from the successor (or parent
thereof).
Amendment and Termination of the 1997 Stock Plan. The Board may amend,
alter, suspend or terminate the 1997 Stock Plan, or any part thereof, at any
time and for any reason. No such action by the Board or stockholders may alter
or impair any option or Stock Right previously granted under the 1997 Stock Plan
without the written consent of the optionee/recipient. Unless terminated
earlier, the 1997 Stock Plan will terminate ten years from the date of its
approval by the stockholders or the Board, whichever is earlier.
No Enhancement of Outstanding Options. Notwithstanding anything in the
1997 Stock Plan to the contrary, there shall be no modification to any option
that is outstanding prior to the date of the Amendment and Restatement.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options. An optionee who is granted an incentive stock
option does not generally recognize taxable income at the time the option is
granted or upon its exercise, although the exercise may subject the optionee to
the alternative minimum tax. Upon a disposition of the shares more than two
years after grant of the option and one year after exercise of the option, any
gain or loss is treated as long-term capital gain or loss. If these holding
periods are not satisfied, the optionee recognizes ordinary income at the time
of disposition equal to the difference between the exercise price and the lower
of (i) the fair market value of the shares at the date of the option exercise or
(ii) the sale price of the shares. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as ordinary
income is treated as long-term or short-term capital gain or loss, depending on
the holding period. The Company is entitled to a deduction in the same amount as
the ordinary income recognized by the optionee.
Non-Statutory Stock Options. An optionee does not recognize any taxable
income at the time he or she is granted a non-statutory stock option. Upon
exercise, the optionee recognizes ordinary income generally equal to the excess
of the then fair market value of the shares over the exercise price. Any taxable
income recognized in connection with an option exercise by an employee of the
Company is subject to tax withholding by the Company. The Company is entitled to
a deduction in the same amount as the ordinary income recognized by the
optionee. Upon a disposition of such shares by the optionee, any difference
between the sale price and the optionee's exercise price, to the extent not
recognized as ordinary income as provided above, is treated as long-term or
short-term capital gain or loss, depending on the holding period. A different
rule for measuring ordinary income upon the exercise of a Non-Statutory Stock
Option may apply if the optionee is an officer, director, or 10% stockholder of
the Company.
Stock Rights. Restricted stock is generally acquired pursuant to Stock
Rights. At the time of acquisition, restricted stock is subject to a
"substantial risk of forfeiture" within the meaning of Section 83 of the Code.
As a result, the recipient will not generally recognize ordinary income at the
time of acquisition. Instead, the recipient will recognize ordinary income on
the dates when the stock ceases to be subject to a substantial risk of
forfeiture. The stock will generally cease to be subject to a substantial risk
of forfeiture when it is no longer subject to the Company's right to reacquire
the stock upon the recipient's termination of employment with the Company. At
such times, the recipient will recognize ordinary income measured as the
difference between the purchase price (if any) and the fair market value of the
stock on the date the stock is no longer subject to a substantial risk of
forfeiture.
The purchaser may accelerate to the date of acquisition his or her
recognition of ordinary income, if any, and the beginning of any capital gain
holding period, by timely filing an election pursuant to Section 83(b) of the
Code. In such event, the ordinary income recognized, if any, is measured as the
difference between the purchase price and the fair market value of the stock on
the date of purchase and the capital gain holding period commences on such date.
The ordinary income recognized by a purchaser who is an employee will be
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<PAGE> 16
subject to tax withholding by the Company. Different rules may apply if the
purchaser is also an officer, director, or 10% stockholder of the Company.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND THE COMPANY WITH RESPECT TO THE GRANT AND EXERCISE OF
OPTIONS, AND UPON RECIPIENTS OF STOCK RIGHTS, UNDER THE 1997 STOCK PLAN. IT DOES
NOT PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF THE
EMPLOYEE'S, DIRECTOR'S OR CONSULTANT'S DEATH OR THE PROVISIONS OF THE INCOME TAX
LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE EMPLOYEE,
DIRECTOR OR CONSULTANT MAY RESIDE.
VOTE REQUIRED
At the Annual Meeting, the stockholders are being asked to approve the
amendment and restatement to the 1997 Stock Plan. The affirmative vote of the
holders of a majority of the shares entitled to vote at the Annual Meeting will
be required to approve the adoption of the 1997 Stock Plan. THE BOARD OF
DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE APPROVAL OF THE COMPANY'S
1997 STOCK PLAN.
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, 2001. 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 of Directors' 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 - DECEMBER 29, 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 December 29, 2000, at 10:00
a.m., local time, at the Cyberonics' offices located 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 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> 18
[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 Cyberonics, Inc. 1997 Stock Plan to increase the number of Common Shares
available for issuance under the plan by an aggregate of 900,000 Shares, 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 Cyberonics, Inc. 1997 Stock Plan to
increase the number of Common Shares available for issuance under the plan by an
aggregate of 900,000 Shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Proposal to ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the 2001 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:
----------------------------------
Date:
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Signature:
----------------------------------
Date:
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