SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
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 Section240.14a-11(c) or
Section240.14a-12
CYGNUS, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / 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:
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[LOGO]
April 3, 2000
Dear Cygnus Stockholders:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
(the "Annual Meeting") of Cygnus, Inc. ("Cygnus" or the "Company"), which will
be held on May 9, 2000, at 1:30 p.m. local time, at Holbrook-Palmer Park, 150
Watkins Avenue, Atherton, California 94027.
At this year's Annual Meeting, you will be asked to elect five directors for
the next year and reappoint Ernst & Young LLP as the Company's independent
auditors. Additionally, the Board of Directors is recommending that you approve
the amendments to the Company's Amended 1991 Employee Stock Purchase Plan and
the 1999 Stock Incentive Plan to increase the number of shares available under
the plans. The accompanying Notice of Annual Meeting and Proxy Statement
describe these proposals. We urge you to read this information carefully.
Also included in this package is Cygnus' 1999 Annual Report and Form 10-K.
The Annual Report is in summary form, and contains our letter to stockholders
and highlights of operations. You will find the Company's audited consolidated
financial statements included as part of the Form 10-K.
Whether or not you plan to attend the Annual Meeting, please sign, date, and
return the enclosed proxy promptly in the accompanying reply envelope. If you
decide to attend the Annual Meeting and wish to change your proxy vote, you may
do so by giving notice and voting in person at the Annual Meeting.
I hope to see you at the Annual Meeting. Should you require directions to
the Annual Meeting, please contact the Company's headquarters at (650) 369-4300.
Sincerely yours,
/s/ JOHN C HODGMAN
John C Hodgman
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
CYGNUS, INC.
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CYGNUS, INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 9, 2000
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TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
Cygnus, Inc., a Delaware corporation ("Cygnus" or the "Company"), will be held
on May 9, 2000, at 1:30 p.m. local time, at Holbrook-Palmer Park, 150 Watkins
Avenue, Atherton, California 94027 to act on the following matters:
1. To re-elect five directors of the Company to serve until the next Annual
Meeting or the election of their successors.
2. To approve an amendment to the Amended 1991 Employee Stock Purchase Plan
to increase the number of shares of Common Stock authorized for issuance
over the term of the Purchase Plan by an additional 700,000 shares.
3. To approve an amendment to the 1999 Stock Incentive Plan to increase the
number of shares of Common Stock authorized for issuance thereunder by an
additional 2,000,000 shares.
4. To re-appoint Ernst & Young LLP to serve as the Company's independent
auditors.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement 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 March 10, 2000 are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books of the Company will remain open between the record date and the date of
the Annual Meeting. A list of stockholders entitled to vote at the Annual
Meeting will be available for inspection at the corporate offices of the
Company.
All stockholders are cordially invited to attend the Annual Meeting in
person. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE SIGN, DATE, AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE POSTAGE-PREPAID ENVELOPE PROVIDED.
Should you receive more than one proxy because your shares are registered in
different names and addresses, each proxy should be signed and returned to
ensure that all your shares will be voted. You may revoke your proxy at any time
prior to the Annual Meeting. If you attend the Annual Meeting and vote by
ballot, your proxy will be revoked automatically and only your vote at the
Annual Meeting will be counted.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ BARBARA G. MCCLUNG
Barbara G. McClung
SECRETARY
Redwood City, California
YOUR VOTE IS IMPORTANT
TO ENSURE YOUR REPRESENTATION AT THE MEETING, PLEASE MARK, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU HAVE
PREVIOUSLY RETURNED A PROXY.
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CYGNUS, INC.
400 PENOBSCOT DRIVE
REDWOOD CITY, CALIFORNIA 94063
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PROXY STATEMENT
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FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 9, 2000
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GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Cygnus, Inc., a Delaware corporation (the "Company" or "Cygnus") for use at the
Annual Meeting of Stockholders to be held on May 9, 2000, at 1:30 p.m. local
time, or at any adjournment or postponement thereof, for the purposes set forth
herein (the "Annual Meeting"). The Annual Meeting will be held at
Holbrook-Palmer Park, 150 Watkins Avenue, Atherton, California 94027. These
proxy solicitation materials were mailed on or about April 7, 2000 to all
stockholders entitled to vote at the Annual Meeting.
PROXIES AND SOLICITATION COSTS
The enclosed proxy is solicited by the Company's Board of Directors and,
when the proxy card is properly completed and returned, it will be voted as
directed by the stockholder on the proxy card. Stockholders are urged to specify
their choices on the enclosed proxy card. If a proxy card is signed and returned
without choices specified, in the absence of contrary instructions, the shares
of Common Stock represented by such proxy will be voted "FOR" Proposals 1, 2, 3
and 4 described in the accompanying Notice and this Proxy Statement and will be
voted in the proxy holders' discretion as to other matters that may properly
come before the Annual Meeting. Any proxy given pursuant to this solicitation
may be revoked by the person giving it at any time before its use by (i)
delivering to the Company, Attention: Chief Financial Officer, at 400 Penobscot
Drive, Redwood City, CA 94063, a written notice of revocation or duly executed
proxy bearing a later date, or (ii) attending the Annual Meeting and voting in
person.
The cost of soliciting proxies will be borne by the Company. The Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation materials to such
beneficial owners. Proxies may be solicited by certain of the Company's
directors, officers, regular employees or outside vendors in person or by
telephone, facsimile or email. No additional compensation will be paid to
directors, officers or other regular employees for such services.
RECORD DATE, SHARE OWNERSHIP AND VOTING
Only holders of Common Stock of record at the close of business on March 10,
2000, the record date and time fixed by the Board of Directors, are entitled to
notice of and to vote at the Annual Meeting. At the record date, 25,569,503
shares of the Common Stock were issued and outstanding and there were 641
stockholders of record. Each holder of shares of Common Stock is entitled to one
vote for each share of Common Stock held on the record date on each of the
proposals presented in this Proxy Statement.
A majority of the shares of Common Stock entitled to vote, whether present
in person or represented by proxy, will constitute a quorum for the transaction
of business at the Annual Meeting. Directors will be elected by plurality vote.
The five nominees for election as directors at the 2000 Annual Meeting of
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Stockholders who receive the greatest number of votes cast for the election of
directors at that meeting by the holders of the Company's Common Stock entitled
to vote at that meeting shall become directors at the conclusion of the
tabulation of votes. The affirmative vote of a majority of the Company's
outstanding shares having voting power present in person or represented by proxy
and authorized and entitled to vote at the Annual Meeting is required to adopt
the proposals relating to approval of the amendments to the Amended 1991
Employee Stock Purchase Plan and 1999 Stock Incentive Plan. The other matters
submitted for stockholder approval at the Annual Meeting will be decided by the
affirmative vote of the holders of a majority of the shares of Common Stock
present in person or represented by proxy and entitled to vote at the Annual
Meeting. With regard to the election of directors, votes may be cast in favor of
or withheld from each nominee; votes that are withheld will be excluded entirely
from the vote and will have no effect. Abstentions may be specified on all
proposals except the election of directors and will be counted as present for
purposes of determining the existence of a quorum regarding the item on which
the abstention is noted. If shares are not voted by the broker who is the record
holder of the shares, or if shares are not voted in other circumstances in which
proxy authority is defective or has been withheld with respect to any matter,
these non-voted shares are not deemed to be present or represented for purposes
of determining whether stockholder approval of that matter has been obtained.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC"). Such
officers, directors and 10% stockholders are also required by SEC rules to
furnish the Company with copies of all forms which they file pursuant to Section
16(a). Based solely on its review of the copies of such forms received by it and
representations from certain reporting persons that no filings were required for
such persons, the Company believes that its officers, directors and 10%
stockholders complied with all applicable Section 16(a) filing requirements for
the 1999 fiscal year.
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THE ANNUAL REPORT OF THE COMPANY FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
HAS BEEN MAILED CONCURRENTLY WITH THE MAILING OF THE NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT TO ALL STOCKHOLDERS ENTITLED TO NOTICE OF AND TO VOTE AT THE
ANNUAL MEETING. THE ANNUAL REPORT IS NOT INCORPORATED INTO THIS PROXY STATEMENT
AND IS NOT CONSIDERED PROXY SOLICITING MATERIAL. IN COMPLIANCE WITH RULE 14A-3
PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, THE COMPANY HEREBY
UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON, UPON WRITTEN REQUEST, A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL
STATEMENTS AND FINANCIAL SCHEDULES THERETO. REQUESTS FOR SUCH COPIES SHOULD BE
DIRECTED TO CYGNUS, INC., ATTENTION: CORPORATE COMMUNICATIONS, 400 PENOBSCOT
DRIVE, REDWOOD CITY, CALIFORNIA 94063.
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PROPOSAL ONE--RE-ELECTION OF DIRECTORS
A board of five directors will be elected at the 2000 Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the five nominees to the Board of Directors named below. If a nominee is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee designated by the proxy holders to fill
such vacancy. However, it is not expected that any nominee will be unable or
will decline to serve as a director. If a nomination is made to elect an
individual to the vacant position on the Board, the proxy holders will propose a
nominee to fill such position and vote all proxies received by them to ensure
the election of as many of the Company's nominees as possible. If stockholders
nominate persons other than the Company's nominees for election as directors,
the proxy holders will vote all proxies received by them to ensure the election
of as many of the Company's nominees as possible. The term of office of each
person elected as a director will continue until the next Annual Meeting of
Stockholders or until the director's successor has been elected. The Company's
Bylaws fix the Board at seven directors. Following the Annual Meeting, there
will be two vacancies on the Board.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
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Frank T. Cary................................... 79 Former Chairman and Chief Executive Officer of 1992
International Business Machines Corporation
John C Hodgman.................................. 46 Chairman of the Board of Directors, President 1998
and Chief Executive Officer of Cygnus
Andre F. Marion................................. 64 Vice Chairman of the Board of Directors of 1994
Cygnus, Former Vice President of The
Perkin-Elmer Corporation; Former Chairman and
Chief Executive Officer of Applied Biosystems,
Inc.
Richard G. Rogers............................... 71 Former President and Chief Operating Officer of 1989
Syntex Corporation
Walter B. Wriston............................... 80 Former Chairman and Chief Executive Officer of 1992
Citicorp/Citibank, N.A.
BUSINESS EXPERIENCE OF NOMINEES FOR RE-ELECTION AS DIRECTORS
Mr. Cary has served as a director of Cygnus since July 1992. He was Chairman
of the Board and Chief Executive Officer of International Business Machines
Corporation ("IBM") from 1973 until 1981. Mr. Cary is also a director of Celgene
Corporation, ICOS Corporation, Lexmark International, Inc., TELTREND, Inc., and
VION Pharmaceuticals, Inc.
Mr. Hodgman, Chairman of the Board, President and Chief Executive Officer of
Cygnus, also served as President, Cygnus Diagnostics from May 1995 to August
1998, for which he was responsible for all commercialization efforts for the
GlucoWatch-Registered Trademark- system, and was also Chief Financial Officer.
He was appointed President, Chief Executive Officer and Director of Cygnus in
August 1998 and was appointed Chairman of the Board of Directors of Cygnus in
July 1999. Mr. Hodgman joined Cygnus in August 1994 as Vice President, Finance
and Chief Financial Officer. Prior to joining Cygnus, Mr. Hodgman served as Vice
President of Operations and Finance and Chief Financial Officer for Central
Point Software, a personal computer and networking software company. Prior to
that, he was the Vice President of Finance and Administration and Chief
Financial Officer of Ateq Corporation.
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Mr. Marion was appointed Vice Chairman of the Board of Directors of Cygnus
in August 1998. He has served as a director of Cygnus since August 1994. Mr.
Marion was a founder of Applied Biosystems, Inc., a supplier of instruments for
biotechnology research, and served as its Chairman of the Board of Directors and
Chief Executive Officer from 1981 until February 1993, when it merged with The
Perkin-Elmer Corporation, a manufacturer of analytical instruments. Mr. Marion
served as Vice President of The Perkin-Elmer Corporation and President of its
Applied Biosystems Division until his retirement in February 1995. Mr. Marion is
also a director of Molecular Devices Corp., Applied Imaging Corporation, Aclara
BioSciences, Inc. and several private companies.
Mr. Rogers has served as a director of Cygnus since October 1989. He was
President and Chief Operating Officer of Syntex Corporation, a pharmaceutical
company, from 1982 until his retirement in 1985.
Mr. Wriston has served as a director of Cygnus since July 1992. He was
Chairman of the Board of Directors of Citicorp/Citibank, N.A. from 1970 through
1984 and its Chief Executive Officer from 1967 until his retirement in 1984. Mr.
Wriston is also a director of ICOS Corporation, VION Pharmaceuticals, Inc., York
International Corporation and one private company.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held five regularly scheduled meetings
during the 1999 fiscal year. Each of the nominees who was a director during the
entire fiscal year attended or participated in 75% or more of the aggregate
number of meetings of the Board of Directors and the committees of the Board on
which the director served. The Board of Directors has an Audit Committee, a
Compensation Committee and an Employee Stock Option Committee. There is no
nominating committee or any committee performing the functions of a nominating
committee.
The Audit Committee, which consisted of independent non-employee directors
Wriston (chair), Cary, Marion and Rogers, in fiscal 1999 held two regularly
scheduled meetings. The principal functions of the Audit Committee are to
recommend engagement of the Company's independent auditors, to review and
approve the services performed by the Company's independent auditors and to
review the Company's accounting principles, internal control structure, policies
and procedures.
The Compensation Committee, which also consisted of independent non-employee
directors Cary (chair), Marion, Rogers and Wriston, in fiscal 1999 held one
regularly scheduled meeting and three special meetings. The Compensation
Committee establishes the Company's executive compensation policy, approves the
bonus plans and incentive option plans, and grants stock options to officers.
The Employee Stock Option Committee, which consisted of director Hodgman and
former director Gary W. Cleary from January 1999 until July 9, 1999 and
consisted of director Hodgman for the remainder of fiscal year 1999, in fiscal
1999 held four regularly scheduled meetings and three special meetings. The
Employee Stock Option Committee was established by the Board of Directors in
mid-1992 to grant stock options to the Company's employees (other than officers
of the Company) and consultants under the Company's stock plans, and such
Committee is currently responsible for making grants under the Company's 1999
Stock Incentive Plan (the "1999 Plan").
COMPENSATION OF DIRECTORS
All non-employee directors of the Company receive $3,750 per fiscal quarter,
a $1,000 fee for each Board meeting and a $500 fee per committee meeting
(including in each case telephonic meetings). Non-employee directors are also
eligible to receive periodic option grants under the Automatic Option Grant
Program in effect for them under the Company's 1999 Plan. Automatic option
grants are made under the 1999 Plan as follows: (i) on the first trading day in
June of the year the non-employee Board member is first elected or appointed as
such, he or she will automatically receive an option grant for 6,000 shares of
Common Stock; and (ii) on the first trading day in June of each subsequent year
that such person
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continues to serve as a non-employee Board member, he or she will automatically
receive an additional option for that number of shares which is equal to 110% of
the shares that were subject to the previous year's grant. In addition, any
person who becomes a non-employee Board member after the first trading day in
June but before December 31 of any year will receive his or her initial
automatic grant on the date of his or her initial election or appointment to
cover the option that person would have received on the first trading day in
June of that year had the Board member then been eligible. Each automatic option
grant under the 1999 Plan has a price equal to 100% of the fair market value of
the Common Stock on the option grant date and becomes exercisable for the option
shares on the first anniversary of such grant date.
On June 1, 1999, directors Cary, Rogers and Wriston each received an
automatic option grant under the 1999 Plan for 11,693 shares, and director
Marion received an automatic grant for 10,630 shares. Each such grant has an
exercise price per share equal to $12.125, the fair market value of the Common
Stock on the grant date, and has a term of ten (10) years measured from such
grant date. The options become exercisable for all the option shares on the
first anniversary of the grant date, subject to earlier termination in the event
of the optionee's cessation of Board service prior to such time. In addition,
the options will immediately accelerate in full upon an acquisition of the
Company, unless the options are assumed by the successor corporation.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and Bylaws provide for
indemnification of all directors and officers. Each director and officer of the
Company has entered into a separate indemnification agreement with the Company.
STOCKHOLDER APPROVAL
The affirmative vote of the holders of a majority of the shares of Common
Stock present in person or represented by proxy and entitled to vote at the 2000
Annual Meeting is required for approval of Proposal One.
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PROPOSAL TWO--APPROVAL OF AN AMENDMENT TO
THE COMPANY'S AMENDED 1991 EMPLOYEE STOCK PURCHASE PLAN
GENERAL
At the 2000 Annual Meeting, the stockholders are also being asked to approve
an amendment to the Company's Amended 1991 Employee Stock Purchase Plan (the
"Purchase Plan") which will increase the number of shares of Common Stock
issuable thereunder by an additional 700,000 shares. The proposed share increase
will allow the Company to maintain a sufficient share reserve to provide the
Company's employees with the continuing opportunity to acquire an equity
interest in the Company through a payroll deduction based stock purchase
program. In addition, accounting rules require sufficient shares in the Purchase
Plan to cover future purchases of shares for the current offering period (two
years). If there are insufficient shares, the Company could face adverse
accounting consequences, including potentially material non-cash compensation
charges in future periods.
The Purchase Plan was initially adopted by the Board in August 1991 and was
approved by the stockholders at the May 12, 1992 Annual Meeting. The Purchase
Plan has subsequently been amended on several occasions to increase the number
of issuable shares and to make certain other changes to the Purchase Plan, and
each such amendment has been approved by the stockholders. The Amended 1991
Employee Stock Purchase Plan was amended and restated by the Board of Directors
effective March 1, 2000 to increase the number of shares reserved, subject to
stockholder approval. The Purchase Plan is intended to meet the requirements of
an "employee stock purchase plan," as defined in Section 423 of the Internal
Revenue Code (the "Code").
The following is a summary of the principal features of the amendment to the
Purchase Plan. The summary, however, does not purport to be a complete
description of all the provisions of the Purchase Plan. Any stockholder of the
Company who wishes to obtain a copy of the actual plan document may do so upon
written request to the Corporate Secretary at the Company's corporate offices in
Redwood City, California.
SHARE RESERVE
A total of 1,975,000 shares of Common Stock has been reserved for issuance
to date under the Purchase Plan, assuming approval by the stockholders of the
700,000 share increase which is the subject of this Proposal Two.
In the event that any change is made to the outstanding shares of Common
Stock by reason of any recapitalization, reincorporation, stock split, stock
dividend or other change in corporate structure without the Company's receipt of
consideration, appropriate adjustments will be made to (i) the number and/or
class of securities issuable under the Purchase Plan, (ii) the maximum number
and/or class of securities purchasable per participant per offering period and
(iii) the number and/or class of securities subject to each outstanding purchase
right and the purchase price payable per share.
ADMINISTRATION
The Purchase Plan is currently administered by the Compensation Committee of
the Board (the "Plan Administrator") and, in such capacity, the Plan
Administrator has full authority to adopt administrative rules and procedures
and to interpret the provisions of the Purchase Plan. All costs and expenses
incurred in administration of the Purchase Plan will be paid by the Company
without charge to participants. Day-to-day administration of the Purchase Plan
is the responsibility of Company management.
ELIGIBILITY
Generally, any employee of the Company who is employed by the Company at the
beginning of an offering period will be eligible to participate in the Purchase
Plan for as long as he or she remains an eligible employee.
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As of December 31, 1999, approximately 70 employees (including officers and
an employee director) were participating in the Purchase Plan.
OFFERING PERIODS; PURCHASE RIGHTS
The Purchase Plan is implemented with consecutive and overlapping offering
periods of a duration determined by the Plan Administrator. In the absence of
express action by the Plan Administrator, each of two offering periods will
begin on or around April 1 and October 1, respectively, and last for a period of
twenty-four (24) months each. The first offering period commenced on October 1,
1991 and concluded on March 31, 1992, and subsequent offering periods have been
implemented since April 1, 1992 and October 1, 1992. No offering period may
exceed a period of twenty-four (24) months.
Each participant will have a separate purchase right for each offering
period in which he or she participates. Offering periods are each divided into
four six-month purchase periods, and the participant's purchase right will be
granted on the first day of the offering period and will be automatically
exercised in successive installments on the last trading day of each such
semi-annual purchase period. Each purchase right entitles the participant to
purchase the whole number of shares of Common Stock obtained by dividing the
participant's payroll deductions for each purchase period by the purchase price
in effect for that period.
If the fair market value of the Common Stock on the exercise date at the end
of the purchase period is lower than the fair market value on the trading day
before the first day of the offering period, then all participants in such
offering period will be automatically withdrawn from such offering period
immediately after the exercise of their purchase rights on that purchase date
and will be automatically re-enrolled in the next offering period.
PURCHASE PRICE
The purchase price per share under the Plan is a designated percentage of
the lower of (i) the fair market value of a share of Common Stock on the trading
day before the first day of the applicable offering period or (ii) the fair
market value of a share of Common Stock on the exercise date which is the last
trading day of the applicable six-month purchase period. The designated
percentage is equal to eighty-five percent (85%), unless determined otherwise by
the Plan Administrator, but shall in no event be less than eighty-five percent
(85%).
PAYROLL DEDUCTIONS
Each participant may authorize his or her payroll deductions for the
purchase of Common Stock under the Purchase Plan in any multiple of one percent
(1%), up to a maximum of fifteen percent (15%), of his or her total cash
compensation from the Company. On the last trading day of each purchase period,
the payroll deductions of each participant will be automatically applied to
exercise the option and the purchase of whole shares of Common Stock at the
purchase price in effect for such purchase period.
NEW PLAN BENEFITS
As of March 10, 1999, no purchase rights had been granted and no shares of
Common Stock had been issued on the basis of the 700,000 share increase for
which stockholder approval is sought under this Proposal Two.
STOCKHOLDER APPROVAL
The affirmative vote of the holders of a majority of the Company's voting
stock present in person or represented by proxy and entitled to vote at the 2000
Annual Meeting is required for approval of the amendment increasing the share
reserve under the Purchase Plan. If such approval is not obtained, then
9
the share increase to the Purchase Plan will not become effective, and the
Purchase Plan will terminate once the balance of the share reserve as last
approved by the stockholders has been issued under the Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF INCREASE IN THE NUMBER OF SHARES IN THE PURCHASE PLAN.
PROPOSAL THREE--APPROVAL OF AN AMENDMENT TO
THE COMPANY'S 1999 STOCK INCENTIVE PLAN
At the 2000 Annual Meeting, stockholders will be asked to approve an
amendment to the Company's 1999 Stock Incentive Plan (the "1999 Plan") which
will increase the maximum number of shares reserved for issuance pursuant to
option grants and stock awards under the 1999 Plan by 2,000,000 shares.
The following is a summary of the principal features of the 1999 Plan that
will be in effect if the amendment to the 1999 Plan is approved by the
stockholders. However, the summary does not purport to be a complete description
of all the provisions of the 1999 Plan. Any stockholder of the Company who
wishes to obtain a copy of the actual plan document may do so upon written
request to the Corporate Secretary at the Company's corporate offices in Redwood
City, California.
The 1999 Plan was adopted by the Company's Board of Directors on May 11,
1999 and amends and restates the Company's 1994 Stock Option/Award Plan. The
1999 Plan was amended and restated by the Board of Directors effective March 1,
2000 to increase the number of shares reserved, subject to stockholder approval.
ADMINISTRATION
The Employee Stock Option Committee is responsible for administering the
1999 Plan with respect to Restricted Stock, Stock Units, Options, Stock
Appreciation Rights and other awards to be made to employees who are not
executive officers of the Company and to consultants in the Company's service.
The Compensation Committee of the Board administers the 1999 Plan with respect
to Restricted Stock, Stock Units, Options, Stock Appreciation Rights and other
awards to be made to executive officers of the Company, who are subject to the
short-swing profit restrictions of Section 16(b) of the Securities Exchange Act
of 1934, as amended. Each such committee, acting in its administrative capacity,
will be referred to as the "1999 Plan Administrator." The 1999 Plan
Administrator will have complete discretion, subject to the provisions of the
1999 Plan, to authorize restricted stock, stock units, options and stock
appreciation rights awards under the 1999 Plan. However, all option grants made
under the Automatic Option Grant Program will be made in strict compliance with
the provisions of that program, and no administrative discretion will be
exercised by the 1999 Plan Administrator with respect to the grants made under
such program.
SHARE RESERVE
The aggregate number of shares that has been reserved for issuance over the
term of the 1999 Plan to date is 7,916,000 shares of Common Stock, which will be
increased by 2,000,000 shares to 9,916,000 shares of Common Stock upon approval
by the stockholders of this Proposal Three. As of December 31, 1999, 1,446,982
shares of Common Stock remained available for issuance pursuant to option grants
and stock awards under the 1999 Plan. Assuming approval of this Proposal Three,
that number will be increased by 2,000,000 shares to 3,446,982 shares of Common
Stock. In no event may any one participant in the 1999 Plan be granted
Restricted Stock, Stock Units or Stock Appreciation Rights awards for more than
1,200,000 shares in the aggregate under the 1999 Plan. In addition, no
participant in the 1999 Plan may receive options in a calendar year that exceed
twenty-five percent (25%) of the shares authorized for award under the 1999
Plan.
10
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to the class and number of securities issuable (on both an aggregate and
per-participant basis) under the 1999 Plan and under each outstanding option and
equity-based award. Appropriate adjustments will also be made to the exercise
price (if any) payable per share under the outstanding options and equity-based
awards.
EQUITY INCENTIVE PROGRAMS/ELIGIBILITY
The 1999 Plan consists of (i) Discretionary Option Grants, (ii) equity-based
awards under which the 1999 Plan Administrator may award restricted stock, stock
units and stock appreciation rights (collectively, "Equity-Based Awards"), and
(iii) an Automatic Option Grant Program. Employees (including officers and
directors) of the Company and its subsidiaries will be eligible to participate
in the Discretionary Option Grant and Equity-Based Award Programs. Only the
non-employee Board members will be eligible to participate in the Automatic
Option Grant Program.
As of December 31, 1999, approximately 84 employees (including officers and
an employee director), no independent contractors or consultants, and five (5)
non-employee members of the Board were eligible to participate in the 1999 Plan.
DISCRETIONARY OPTION GRANTS
The 1999 Plan Administrator may grant nonqualified stock options, incentive
stock options (which are entitled to favorable tax treatment), or a combination
thereof under the 1999 Plan. The number of shares of the Company's Common Stock
covered by each option granted to a participant will be determined by the 1999
Plan Administrator, but no participant may be granted options in a calendar year
that exceed 25% of the shares authorized for award under the 1999 Plan.
Options become exercisable at the times and on the terms established by the
1999 Plan Administrator. Options expire at the times established by the 1999
Plan Administrator but not later than ten (10) years after the date of grant.
The 1999 Plan Administrator may extend the maximum term of any option granted
under the 1999 Plan, subject to such ten (10)-year limit.
EQUITY-BASED AWARD PROGRAM
The 1999 Plan Administrator may grant stock appreciation rights and such
grants may be made in conjunction with options. The number of shares covered by
each stock appreciation right will be determined by the 1999 Plan Administrator.
Upon exercise of a stock appreciation right, the participant will receive
payment from the Company in an amount determined by multiplying (1) the
difference between the fair market value of a share of the Company's Common
Stock on the date of exercise over the grant price (fair market value of a share
on the grant date), times (2) the number of shares with respect to which the
stock appreciation right is exercised. Stock appreciation rights may be paid in
cash or shares of the Company's Common Stock, as determined by the 1999 Plan
Administrator. Stock appreciation rights are exercisable at the times and on the
terms established by the 1999 Plan Administrator.
The 1999 Plan Administrator may award shares of Common Stock that are
generally not paid for, but which are not transferable unless certain conditions
are met. Such an award is called restricted stock. When the restricted stock
award conditions are satisfied, then the participant is vested in the shares and
has ownership of the shares. At any particular point in time, the participant
may be partially vested, fully vested or not vested at all in the restricted
stock that was awarded.
The 1999 Plan Administrator may also award stock units. A stock unit is a
bookkeeping entry that represents the equivalent of a Company share of Common
Stock. A stock unit is similar to restricted stock
11
in that the 1999 Plan Administrator will establish performance goals and/or
other conditions that must be satisfied before the participant can receive any
benefit from the stock unit. A written stock unit award agreement specifies the
performance goals and any other terms and conditions that apply. When the
participant satisfies the conditions of the stock unit award agreement, the
Company will pay the participant for the vested stock units with either cash or
Company shares. The amount received will depend upon the degree of achievement
of the performance goals, although the 1999 Plan Administrator has discretion to
reduce or waive any performance objectives after the award.
AUTOMATIC OPTION GRANT PROGRAM
AUTOMATIC GRANTS. Non-employee Board members will receive option grants
under this program as follows: Each non-employee Board member will automatically
receive an option grant for 6,000 shares on the first trading day in June
following his or her initial election or appointment at any time on or after
June 1, 1994. However, any non-employee Board member who is first elected or
appointed as such between June 1 and December 31 of any year (and who is not
already serving on the Board at that time) will receive an automatic option
grant on the date of such initial election or appointment for the number of
shares he or she would have received on the first trading day in June of that
year had he or she then been eligible. In addition, on the anniversary of each
Board member's initial automatic option grant on the first trading day in June,
each such continuing non-employee Board member will automatically receive an
additional nonstatutory option for that number of shares equal to 110% of the
number of shares he or she received under the previous year's automatic option
grant.
TERMS. Each automatic option grant to the non-employee Board members will
have an exercise price per share equal to one hundred percent (100%) of the fair
market value per share of Common Stock on the option grant date. The options
will have a maximum term of ten (10) years measured from the grant date, subject
to earlier termination at the end of the three (3)-month period measured from
the date of the optionee's cessation of Board service for any reason other than
his or her disability or death, and the end of the twelve (12)-month period
measured from such date in the event the optionee's service terminates by reason
of his or her disability or death. Each automatic option grant will become fully
exercisable for vested shares on the first anniversary of the option grant date
and will remain exercisable until the earlier to occur of (i) the expiration of
the option term or (ii) the termination of the option in connection with the
optionee's termination of service or an acquisition of the Company.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1999 Plan in any or all respects
whatsoever, subject to any required stockholder approval. The Board may
terminate the 1999 Plan at any time, and the 1999 Plan will in all events
terminate on January 1, 2004.
NEW PLAN BENEFITS
As of March 10, 2000, no awards have been made under the 1999 Plan on the
basis of the 2,000,000 share increase for which stockholder approval is sought
as part of this Proposal. Other than the annual automatic option grants to
non-employee directors, all other awards are made at the discretion of the
applicable Plan Administrator.
FEDERAL INCOME TAX CONSEQUENCES
A recipient of a stock option or stock appreciation right will not have
taxable income upon the grant of the option. For options and stock appreciation
rights other than incentive stock options, the participant will recognize
ordinary income upon exercise in an amount equal to the excess of the fair
market value of the shares over the exercise price (the "Appreciation Value") on
the date of exercise. Any gain or loss recognized upon any later disposition of
the shares generally will be capital gain or loss.
12
A participant is not deemed to receive any taxable income at the time an
award of stock units is granted, nor is the Company entitled to a tax deduction
at that time. Employment taxes may be withheld at the time of the award of
vested stock units. When vested stock units and any dividend equivalents are
settled and distributed, the participant is deemed to receive an amount of
ordinary income equal to the amount of cash and/or the fair market value of
shares received. This income is subject to withholding taxes for employees or
former employees. The Company is allowed a tax deduction in an amount equal to
the ordinary income that the participant is deemed to receive.
The acquisition of shares upon exercise of an incentive stock option will
not result in any taxable income to the participant, except for purposes of the
alternative minimum tax. Gain or loss recognized by the participant on a later
sale or other disposition of such shares will either be long-term capital gain
or loss or ordinary income, depending upon whether the participant holds the
shares transferred upon the exercise for a specified period. Any ordinary income
recognized will be in the amount, if any, by which the lesser of the fair market
value of such shares on the date of exercise or the amount realized from the
sale or other disposition exceeds the option price.
Unless the participant elects to be taxed at the time of receipt of
restricted stock, the participant will not have taxable income upon the receipt
of the award, but upon vesting will recognize ordinary income equal to the fair
market value of the shares or cash received at the time of vesting.
At the discretion of the 1999 Plan Administrator, the 1999 Plan allows a
participant to satisfy tax withholding requirements under federal and state tax
laws in connection with the exercise or receipt of an Award by electing to have
shares of Common Stock withheld, and/or by delivering to the Company
already-owned shares, such shares having a value equal to the amount required to
be withheld.
STOCKHOLDER APPROVAL
The affirmative vote of the holders of a majority of the Company's voting
stock present in person or represented by proxy and entitled to vote at the 2000
Annual Meeting is required for approval of the amendment to the 1999 Plan.
Should such stockholder approval not be obtained, then the 2,000,000 share
increase to the authorized share reserve under the 1999 Plan will not be
implemented and any awards granted on the basis of that increase will
immediately terminate without becoming exercisable for the shares of Common
Stock or other consideration subject to those options and awards, and no
additional options or awards will be granted on the basis of such share
increase. The 1999 Plan will, however, continue to remain in effect, and option
grants and awards may continue to be made pursuant to the provisions of the 1999
Plan in effect prior to the amendment summarized in this Proposal Three, until
the available reserve of Common Stock as last approved by the stockholders has
been issued pursuant to the exercise of options granted or awards made under the
1999 Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE APPROVAL OF
INCREASE IN THE NUMBER OF SHARES IN THE 1999 PLAN.
13
PROPOSAL FOUR--RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP,
independent auditors for the Company during fiscal year 1999, to serve in the
same capacity for the year ending December 31, 2000, and is asking the
stockholders to ratify this appointment.
In the event the stockholders fail to ratify the appointment, the Board of
Directors will reconsider its selection. Even if the selection is ratified, the
Board of Directors in its discretion may direct the appointment of a different
independent auditing firm at any time during the year if the Board of Directors
believes that such a change would be in the best interests of the Company and
its stockholders.
Representatives of Ernst & Young LLP are expected to be present at the 2000
Annual Meeting and will have the opportunity to make a statement if they desire
to do so, and will be available to respond to appropriate questions.
STOCKHOLDER APPROVAL
The affirmative vote of the holders of a majority of the Company's voting
stock present in person or represented by proxy and entitled to vote at the 2000
Annual Meeting is required to ratify the selection of Ernst & Young LLP as the
Company's independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP TO SERVE AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2000.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table lists all persons known by Cygnus to own beneficially,
as of March 10, 2000, five percent or more of the outstanding shares of its
Common Stock. On December 31, 1999 there were 25,411,183 shares of Cygnus Common
Stock outstanding.
NUMBER OF
SHARES
BENEFICIALLY APPROXIMATE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PERCENT OWNED
- - -------------------------------------------------------------- ----------- --------------
Amerindo Investment Advisors, Inc............................. 2,196,600(1) 8.27%
388 Market Street, Suite 950
San Francisco, CA 94111
FMR Corp...................................................... 1,666,650(2) 6.27%
82 Devonshire Street
Boston, MA 02109-3614
- - ------------------------
(1) Information as of December 31, 1999, per Schedule 13G/A filed pursuant to
Rule 13d-1(c) of the Securities Exchange Act of 1934, as amended.
(2) Information as of December 31, 1999, per Schedule 13G filed pursuant to Rule
13d-1(c) of the Securities Exchange Act of 1934, as amended.
14
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 10, 2000 by: (i) each
director; (ii) the Chief Executive Officer and the four other most highly
compensated executive officers for the year ended December 31, 1999 (the "Named
Executive Officers"), and (iii) all directors and executive officers as a group.
NUMBER OF
SHARES
BENEFICIALLY APPROXIMATE
NAME OF BENEFICIAL OWNER OWNED(1) PERCENT OWNED(2)
- - --------------------------------------------------------------- ----------- -----------------
Neil R. Ackerman............................................... 262,947 *
Craig W. Carlson............................................... 140,388 *
Frank T. Cary.................................................. 79,925 *
Gary W. Cleary................................................. 659,399 2.48%
John C Hodgman................................................. 296,559 1.12%
Andre F. Marion................................................ 41,295 *
Barbara G. McClung............................................. 39,663 *
Richard G. Rogers.............................................. 36,486 *
Walter B. Wriston.............................................. 62,125 *
All executive officers and directors as a group (9 persons).... 1,618,787 6.09%
- - ------------------------
* Less than 1% of the shares outstanding.
(1) This disclosure is made pursuant to certain rules and regulations
promulgated by the Securities and Exchange Commission and, in certain
instances, the number of shares shown as being beneficially owned may not be
deemed to be beneficially owned for other purposes. Includes options to
purchase shares exercisable within 60 days of March 10, 2000 in the
following amounts: Mr. Ackerman, 221,398 shares; Mr. Carlson, 128,605
shares; Mr. Cary, 35,079 shares; Mr. Cleary, 208,572 shares; Mr. Hodgman,
245,468 shares; Mr. Marion, 40,295 shares; Ms. McClung, 28,437 shares; Mr.
Rogers, 27,435 shares; Mr. Wriston, 56,925 shares; and all directors and
executive officers as a group, 992,214 shares.
(2) Percentage of outstanding Common Stock and of Common Stock that may be
acquired upon exercise of outstanding options on or before May 9, 2000 by
the persons named above and by all directors and executive officers as a
group.
15
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company to the Company's Chief Executive
Officer and each of the four other most highly compensated executive officers of
the Company (determined as of December 31, 1999) (hereinafter referred to as the
"named executive officers") for the fiscal years ended December 31, 1999, 1998
and 1997:
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
--------------------------
AWARDS
ANNUAL COMPENSATION --------------------------
----------------------------------------- RESTRICTED SECURITIES
SALARY BONUS OTHER ANNUAL STOCK AWARDS UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($)(1) COMPENSATION ($) ($)(2) OPTIONS (#) COMPENSATION ($)
- - --------------------------- --------- --------- --------- ------------------- ------------- ----------- -----------------
John C Hodgman ............ 1999 $ 311,538 $ 300,000 $ -- $ 225,000 90,000
Chairman, President and 1998 245,481 -0- -- 230,329
Chief Executive Officer 1997 193,771 130,020 -- 105,600
Gary W. Cleary ............ 1999 $ 188,283 -0- -- $ 80,000 30,000 $ 131,000(3)
Chairman Emeritus of the 1998 259,596 -0- -- 83,630
Board 1997 246,930 105,439 -- 80,000
Neil R. Ackerman .......... 1999 $ 244,038 $ 200,000 -- $ 150,000 60,000 --
Senior Vice President, 1998 217,518 -0- -- 105,565
Research and Development 1997 205,115 100,096 -- 107,400
and Scientific Affairs
Barbara G. McClung ........ 1999 $ 202,635 $ 140,000 -- $ 100,000 70,000
Senior Vice President, 1998 160,808 -0- -- 55,000
General Counsel and 1997 --
Secretary
Craig W. Carlson .......... 1999 $ 192,115 $ 165,000 -- $ 125,000 75,000
Senior Vice President, 1998 163,365 -0- -- 72,155
Finance and Chief 1997 147,965 72,207 -- 67,900
Financial Officer
- - ------------------------------
(1) Represents amounts which were accrued in the indicated year under the
Company's employee bonus plan, in which all employees of the Company
participate.
(2) A bonus in the form of a Restrictive Stock grant was issued on February 26,
1999 to certain executive officers in lieu of a cash bonus for 1998. The
restriction on the stock was lifted on July 1, 1999. The valuation amount is
based on the February 26, 1999 stock price of $5.75 per share.
(3) On July 9, 1999, Mr. Cleary resigned as Chief Technical Officer and on
February 22, 2000, Mr. Cleary resigned from the Board of Directors. This
amount represents the first of two equal payments to Mr. Cleary under an
employment agreement.
16
STOCK OPTIONS
The following table sets forth information concerning the grant of stock
options in fiscal year 1999 under the Company's 1999 Stock Incentive Plan to
each of the named executive officers. No stock appreciation rights were granted
to the named executive officers during such fiscal year:
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------
NUMBER OF POTENTIAL REALIZED VALUE ($)
SECURITIES AT ASSUMED ANNUAL RATES
UNDERLYING PERCENT OF TOTAL OF STOCK PRICE APPRECIATION
OPTIONS OPTIONS EXERCISE OF FOR OPTION TERM(1)
GRANTED GRANTED TO EMPLOYEES BASE PRICE EXPIRATION -------------------------------
(#)(2) FISCAL YEAR ($/SH)(3) DATE 0% 5% 10%
------------- ----------------------- ------------- ----------- --------- --------- ---------
John C Hodgman............. 90,000 9.71% $ 5.75 2/26/2009 -- $ 325,453 $ 824,762
Gary W. Cleary............. 30,000 3.24% $ 5.75 2/26/2009 -- $ 108,484 $ 274,921
Neil R. Ackerman........... 60,000 6.47% $ 5.75 2/26/2009 -- $ 216,969 $ 549,841
Barbara G. McClung......... 50,000 5.39% $ 5.75 2/26/2009 -- $ 180,807 $ 458,201
20,000 2.16% 11.13 7/12/2009 -- $ 139,929 $ 354,608
Craig W. Carlson........... 75,000 8.09% $ 5.75 2/26/2009 -- $ 271,211 $ 687,301
- - ------------------------------
(1) Potential realizable value is based on an assumption that the stock price of
the Common Stock appreciates at the annual rate shown (compounded annually)
from the date of grant until the end of the ten (10)-year option term. These
numbers are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future stock price growth.
(2) Generally, stock option grants become vested and excercisable for (i) 25% of
the underlying shares on the first anniversary of the grant date and (ii)
for the balance of the shares in a series of thirty-six (36) successive
equal monthly installments over the optionee's thirty-six (36)-month period
of service thereafter. These options have a term of ten (10) years measured
from the grant date.
(3) The exercise price may be paid in (i) cash, (ii) shares of Common Stock held
for the requisite period to avoid a charge to the Company's earnings for
financial reporting purposes, (iii) through a same-day sale program or (iv)
subject to the discretion of the 1999 Plan Administrator, by delivery of a
full-recourse, secured promissory note payable to the Company. However,
since the inception of the 1999 Plan, payments for shares of Common Stock
acquired pursuant to the exercise of options have been made only in cash.
The following table sets forth information with respect to the Named
Executive Officers concerning exercise of options during the 1999 fiscal year
and unexercised options held as of the end of that fiscal year. No stock
appreciation rights were exercised by such Named Executive Officers during such
fiscal year and no Stock Appreciation Rights were held by them at the end of
such fiscal year.
17
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL-YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS AT FY END(#) OPTIONS AT FY END($)(2)
ON EXERCISE REALIZED -------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ----------------------------- ----------- ------------ ----------- ------------- ------------ -------------
John C Hodgman............... 96,180 $ 1,214,058 198,615 276,459 $ 1,028,957 $ 3,271,970
Gary W. Cleary............... 50,725 633,303 198,890 73,882 1,417,093 697,707
Neil R. Ackerman............. 27,200 369,113 212,453 164,057 1,407,481 1,698,584
Barbara G. McClung........... 11,212 167,227 10,104 103,684 7,815 1,116,505
Craig W. Carlson............. 63,700 672,198 103,856 144,994 320,029 1,582,132
- - ------------------------
(1) Market value on the date of exercise, less option exercise price.
(2) Market value of shares covered by in-the-money options on December 31, 1999
($18.25), less the option exercise price. Options are in-the-money if the
market value of the shares covered thereby is greater than the option
exercise price.
EMPLOYMENT AND CHANGE IN CONTROL CONTRACTS
The Company entered into an employment agreement dated as of August 28, 1998
with Gary W. Cleary whose employment terminated with the Company on July 9,
1999. Mr. Cleary also resigned from the Board of Directors effective February
22, 2000. The employment agreement provided for the payment to Mr. Cleary of two
lump sum payments of $131,000 each on July 9, 1999, and on January 9, 2000. This
amount was calculated from Mr. Cleary's 1999 annual salary. Thus, the Company
paid Mr. Cleary $262,000 over a twelve-month period, plus expenses.
The Company has entered into agreements with all of its executive officers
relating to a change in control of the Company. These agreements generally
provide that if, within five months prior to a change in control or within
twenty-four (24) months after a change in control of the Company, employment
with the Company is terminated by the Company other than for cause, disability
or retirement or by the officer for good reason, then as severance pay the
Company shall pay such officer one times his or her annual base salary plus
bonus. In addition, all stock options immediately become fully vested. The
agreements continued until December 31, 1999 and are automatically renewed
thereafter for additional one-year periods unless either party provides the
other notice of non-renewal. No such notice of non-renewal was provided to the
Company by any party and all agreements were automatically renewed for an
additional one-year period until December 31, 2000. In addition, the agreements
continue in effect for twenty-seven (27) months beyond the term provided if a
change in control of the Company occurs during the term of the agreement.
The Company has also entered into employment agreements with all of its
executive officers. The agreements generally provide that, if employment with
the Company is terminated by the Company other than for cause, disability, or
retirement, then as severance pay the Company shall pay such officer over a
period of twelve months his or her annual base salary plus bonus, unless such
officer becomes a regular full-time employee of another employer. In addition,
the vesting schedule of any stock options granted to such officer is accelerated
up to 20% of the total number of unvested shares. Also, during the first five
months of post-employment, vesting continues at the rate of 1% per month. The
agreements continue until February 28, 2000 and are automatically renewed
thereafter for an additional one-year period unless either party provides the
other notice of non-renewal. No such notice of non-renewal was provided to the
Company by any party and all agreements were automatically renewed for an
additional one-year period.
18
COMPENSATION COMMITTEE REPORT
GENERAL
Notwithstanding anything to the contrary set forth in any of the Company's
previous or future filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934 that might incorporate this Proxy Statement or future
filings with the Securities and Exchange Commission, in whole or in part, the
following report and the Performance Graph which follows shall not be deemed to
be incorporated by reference into any such filing.
The Compensation Committee of the Board of Directors (the "Committee")
exercises broad oversight responsibilities regarding executive compensation and
determines the total compensation of executive officers. The Committee is
composed exclusively of independent, non-employee directors. The Committee sets
the base salary of the Company's executive officers and administers the
Company's Stock Incentive Plan under which stock option grants may be made to
executive officers and other employees. In addition, the Committee administers
the Company's Incentive Bonus Plan, under which the Company's executive officers
and other employees may receive a bonus based upon the accomplishment of
corporate goals as well as individual performance, and considers and approves
management succession for all of the Company's officers.
The fundamental policy of the Committee is to attract and retain individuals
of high caliber to serve as executive officers of the Company, to motivate their
performance in the achievement of aggressive business plans, to achieve the
Company's strategic objectives and to align the interests of executive officers
with the long-term interest of stockholders by optimizing stockholder value in a
rapidly changing healthcare environment. Because the Company's underlying
philosophy is "pay-for-performance," each executive's total compensation is
based on the overall performance of the Company and the executive as an
individual. Accordingly, each executive officer's compensation package is
comprised of three components: (i) base salary, which reflects individual
performance and is designed primarily to be competitive with the base salary
levels of other companies within the industry of comparable size to the Company;
(ii) annual variable bonus awards, which are tied to the achievement of the
Company's performance goals established and approved by the Board of Directors
(as described more fully in the section entitled "Annual Incentive Compensation"
herein); and (iii) stock options, which align and strengthen the mutuality of
interests between the executive officers and stockholders.
In designing and administering its executive compensation program, the
Company attempts to strike an appropriate balance among these various elements,
each of which is discussed in greater detail below.
FACTORS
The process involved and the factors considered in the executive
compensation determination for fiscal year 1999 are summarized below. It is
expected that this process will remain the same in fiscal year 2000. However,
the Committee may, at its discretion, apply a different set of factors in
setting executive compensation in the future in order to further enhance the
basic concept of "pay-for-performance."
SALARY LEVELS
In establishing the base salary level for each executive officer, the
Committee considers executive compensation data compiled from surveys of
biotechnology, pharmaceutical and high technology companies. The Company
identifies and the Committee selects comparative companies on the basis of a
number of factors, such as their size and organizational complexity, the nature
of their business, the geographic regions in which they operate, the structure
of their compensation programs (including the extent to which they rely on
bonuses and other "at risk" forms of compensation) and the availability of
compensation information. The companies with whom Cygnus compares its
compensation practices are not necessarily those included in the indexes used to
compare stockholder return in the Stock Performance Chart. The
19
Company's Human Resources Department, in an effort to obtain a broad base of
data, participates in a number of compensation surveys and obtains commercially
available survey data. This information is supplemented with data from proxy
statements of comparative companies. The Company's salary program is designed to
reward individual performance within the context of the Company's overall
performance. Using survey data as a starting point, the Committee takes into
account the performance of each officer based on the achievement of specific
performance objectives. Other factors considered in the review include the
executive's experience and adherence to the Company's core values. Annual
performance reviews and formal merit increase guidelines determine individual
salary adjustments.
ANNUAL INCENTIVE COMPENSATION
The Incentive Bonus Plan is designed to reward executive officers for their
contributions to corporate and individual objectives. The Committee's philosophy
is that increasing portions of compensation should be "at risk" for such
officers. The corporate and individual objectives are established at the
beginning of the year by executive management and approved by the Committee and
the Board of Directors. Awards are driven by a combination of Company and
individual performance, compared to the objectives. Information regarding
Company performance (or summaries thereof) is considered by the Committee in a
subjective evaluation of overall performance of the Company and the executive
officers for purposes of determining actual bonus levels. If the corporate
performance objectives are not met, the plan is not funded and a bonus award is
not made, regardless of individual performance. Based upon 1999 Company
performance, the Compensation Committee awarded to certain executive officers a
cash bonus. It is anticipated that for fiscal year 2000, the Company's Incentive
Bonus Plan for executive officers and all other employees will continue to
provide for performance-based bonus amounts.
LONG-TERM INCENTIVE COMPENSATION
The Company's primary incentive for long-term performance is the utilization
of stock options as a component of a competitive, performance-based compensation
program. The Committee continues to believe that stock options that are granted
at the current market price, as is required under the Company's stock option
plan, are an excellent incentive for employees to pursue a long-term strategy
that will result in increased stockholder value. The performance stock option
grant program is designed to align the interests of the executive officers with
those of the Company's stockholders and provide each individual with an
incentive to manage the Company from the perspective of stockholders. Stock
option grants to executive officers are considered annually and are intended to
reflect, as well as reward, the individual's contribution to the achievement of
aggressive business goals. Each option grant allows the executive officer to
acquire shares of the Company's Common Stock at the fair market price on the
grant date. The option vests over four (4) years and has a term of ten (10)
years from the grant date. Generally, these stock options vest for 25% of the
total number of shares underlying the option on the first anniversary of the
grant date and for the balance in equal monthly installments over the next
thirty-six (36)-month period of service. Certain options are subject to
acceleration if specific performance criteria are met. Accordingly, the options
will provide a return to the executive only if the market price of the
underlying shares appreciates over the terms of the options and the executive
remains employed by the Company.
The guidelines for stock option grants are reviewed and set periodically,
based on a comparison to survey data from other pharmaceutical, biotech and high
technology companies. In 1999, the Committee considered and approved long-term
incentive stock option grants for the plan participants that reflected an
assessment of each individual's performance and the individual's impact on
overall Company performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Hodgman's annual salary for 1999 was $300,000 and is unchanged as of the
date of the mailing of this proxy. In determining any increase in Mr. Hodgman's
salary, the Compensation Committee seeks competitiveness with other companies of
comparable size within the industry. In addition, Mr. Hodgman is
20
eligible to receive an incentive bonus dependent on overall Company performance
as well as his individual performance. Based upon the Committee's judgment of
the overall performance of the Company and Mr. Hodgman's individual performance
in 1999, he was awarded a cash bonus of $300,000. In addition, in 1999 Mr.
Hodgman was granted options to purchase 90,000 shares of the Company's Common
Stock under the terms and conditions of the Company's stock option plan. The
exercise price of the options was equal to 100% of the fair market value of the
Common Stock on the option grant date.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m)
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to publicly held companies for compensation exceeding $1 million paid
to certain of the corporation's executive officers. The limitation applies only
to compensation that is not considered to be performance-based. The non-
performance-based compensation to be paid to the Company's executive officers
for the 1999 fiscal year did not exceed the $1 million limit per officer, nor is
it expected that the non-performance-based compensation to be paid to the
Company's executive officers for fiscal year 2000 will exceed that limit. The
Company's 1999 Stock Incentive Plan is structured so that any compensation
deemed paid to an executive officer in connection with the exercise of option
grants made under that plan will qualify as performance-based compensation which
will not be subject to the $1 million limitation.
Because it is very unlikely that the cash compensation payable to any of the
Company's executive officers in the foreseable future will approach the $1
million limit, the Compensation Committee has not taken any other action to
limit or restructure the elements of cash compensation payable to the Company's
executive officers. The Compensation Committee will reconsider this matter
should the individual compensation of any executive officer ever approach the $1
million level.
COMPENSATION COMMITTEE
Frank T. Cary (Chairman)
Andre F. Marion
Richard G. Rogers
Walter B. Wriston
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STOCK PERFORMANCE GRAPH
The following graph shows a five-year comparison of cumulative total
stockholder returns for the Company, the Nasdaq U.S. Stock Market Index and the
Nasdaq Pharmaceutical Index, based on an assumed $100 invested on December 31,
1995, with immediate reinvestment of dividends.
The Company does not believe it can reasonably identify a peer group of
companies on an index or line-of-business basis for the purpose of developing a
comparative performance index. The Nasdaq Pharmaceutical Index includes
companies which develop, manufacture and market pharmaceutical products,
including biopharmaceutical products, as well as diagnostic device companies,
and, in the opinion of the Company, provides a meaningful index of comparative
performance.
The comparisons in the graph below are based on historical data and are not
indicative of, or intended to forecast, the possible future performance of the
Company's Common Stock.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
CYGNUS STOCK, NASDAQ U.S. STOCK MARKET AND
PHARMACEUTICAL INDICES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
CYGNUS STOCK NASDAQ U.S. STOCK MARKET NASDAQ PHARMACEUTICAL
12/31/95 100 100 100
12/31/96 64.78999106 123.0355024 100.3114094
12/31/97 88.82931189 150.7577906 103.5803260
12/31/98 21.78284182 212.3922919 131.9183326
12/31/99 81.54602324 386.0854721 245.5068787
Total Return assumes $100 invested on December 31, 1995 with immediate
reinvestment of dividends.
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
Proposals to be presented by stockholders of the Company at the 2001 Annual
Meeting must be received by the Company at its corporate office no later than
November 18, 2000. Such proposals may be included in next year's Proxy Statement
if they comply with certain rules and regulations promulgated by the Securities
and Exchange Commission.
ANNUAL REPORT
A copy of the Company's Annual Report for the fiscal year ended December 31,
1999 has been mailed concurrently with this Proxy Statement to all stockholders
entitled to notice of and to vote at the Annual
22
Meeting. The Annual Report is not incorporated into this Proxy Statement and is
not proxy soliciting material.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1999, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF EXHIBITS.
REQUESTS SHOULD BE SENT TO CORPORATE COMMUNICATIONS, CYGNUS, INC., 400 PENOBSCOT
DRIVE, REDWOOD CITY, CA 94063.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, the persons named in the
accompanying form of proxy will vote the shares represented by proxy as the
Board of Directors may recommend or as the proxy holders, acting in their sole
discretion, may determine.
By Order of the Board of Directors
/s/ JOHN C HODGMAN
John C Hodgman
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Dated: April 3, 2000
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PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CYGNUS, INC.
2000 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Cygnus, Inc. hereby acknowledges receipt of
the Notice of Annual Meeting of Stockholders and Proxy Statement for the 2000
Annual Meeting of Stockholders of Cygnus, Inc. to be held on May 9, 2000 and
hereby appoints John C. Hodgman, Craig W. Carlson and Barbara G. McClung and
each of or any of them, proxy and attorney-in-fact, with full power of
substitution, on behalf and in the name of the undersigned, to represent the
undersigned at such meeting and at any adjournment or postponement thereof, and
to vote all shares of Common Stock that the undersigned would be entitled to
vote if then and there personally present, on the matters set forth below.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS
INDICATED, WILL BE VOTED FOR ELECTION OF THE COMPANY'S NOMINEES AS DIRECTORS
AND FOR EACH OF THE LISTED PROPOSALS, AND AS THE PROXYHOLDERS DEEM ADVISABLE ON
SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING AND ANY ADJOURNMENT OR
POSTPONEMENT THEREOF.
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COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENTS/ADDRESS BOX ON REVERSE SIDE
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^ FOLD AND DETACH HERE ^
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INSTRUCTIONS: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name.
Please mark
your choices /X/
like this
FOR WITHHELD FOR ALL
1. ELECTION OF DIRECTORS / / / /
Nominees: Frank T. Cary, John C. Hodgman, Andre F.
Marion, Richard G. Rogers and Walter B. Wriston
FOR AGAINST ABSTAIN
2. Proposal to amend the Company's Amended 1991 / / / / / /
Employee Stock Purchase Plan to increase the number
of shares of Common Stock authorized for insurance
over the term of the Purchase Plan by 700,000
shares.
3. Proposal to amend the Company's 1999 Stock Incentive / / / / / /
Plan to increase the number of shares of Common Stock
authorized for issuance thereunder by an additional
2,000,000 shares.
4. Proposal to reappoint Ernst & Young LLP as the / / / / / /
Company's independent auditors for the 2000 fiscal
year.
I PLAN TO ATTEND THE MEETING. / /
COMMENT/ADDRESS CHANGE / /
Please mark this box if you
have written comments/address
change on the reverse side.
Signature(s) ___________________________________ Dated____________, 2000
NOTE: Please sign as name appears hereon. Joint owners should
each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such.
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^ FOLD AND DETACH HERE ^