SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Confidential, for use of the Commission only as permitted by Rule
14a-6(e)(2)
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
CYGNUS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
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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:
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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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2) Form, Schedule or Registration Statement No.:
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3) Filing party:
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4) Date filed:
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UV
March 21, 1997
Dear Cygnus Stockholder:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
(the "Annual Meeting") of Cygnus, Inc. ("Cygnus" or the "Company") which will be
held on May 8, 1997, at 3:30 p.m., at Holbrook-Palmer Park, 150 Watkins Avenue,
Atherton, California 94027.
At the Annual Meeting, you will be asked to elect directors for the next
year and reappoint Ernst & Young LLP as the Company's independent auditors.
Please take this opportunity to participate in the affairs of the Company.
Complete details of the business to be conducted at the Annual Meeting are given
in the attached Notice of Annual Meeting and Proxy Statement. I urge you to
review all of the proposals in the proxy statement carefully and I solicit your
support of the Board's recommendations on these proposals. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ACCOMPANYING REPLY ENVELOPE. Returning the proxy does not
deprive you of your right to attend the meeting and to vote your shares in
person for the matters acted upon at the 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 (415) 369-4300.
Sincerely yours,
[LOGO]
Gregory B. Lawless, Ph.D.
PRESIDENT, CHIEF EXECUTIVE OFFICER
CYGNUS, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 8, 1997
------------------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of
Cygnus, Inc. ("Cygnus" or the "Company") will be held on May 8, 1997, at 3:30
p.m., local time, at Holbrook-Palmer Park, 150 Watkins Avenue, Atherton,
California 94027 to act on the following matters:
1. To re-elect six directors of the Company to serve until the next Annual
Meeting or the election of their successors.
2. To re-appoint Ernst & Young LLP to serve as the Company's independent
auditors.
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
These matters are more fully described in the Proxy Statement accompanying
this Notice.
Only stockholders of record at the close of business on March 10, 1997 are
entitled to notice of and to vote at the Annual Meeting; however, all
stockholders are cordially invited to attend the meeting. To assure your
representation at the meeting, you are urged to mark, sign, date and return the
enclosed proxy card as promptly as possible in the postage-prepaid envelope
enclosed for that purpose. Any stockholder attending the meeting may vote in
person even if he or she has returned a proxy.
By Order of the Board of Directors
[LOGO]
Gregory B. Lawless, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Redwood City, California
March 21, 1997
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.
CYGNUS, INC.
400 PENOBSCOT DRIVE
REDWOOD CITY, CALIFORNIA 94063
------------------------
PROXY STATEMENT
---------------------
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 8, 1997
------------------------
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Cygnus, Inc. (the "Company" or "Cygnus") for use at the Annual Meeting of
Stockholders to be held on May 8, 1997, at 3:30 p.m., local time, or at any
adjournment or postponement thereof, for the purposes set forth herein. The
Annual Meeting will be held at Holbrook-Palmer Park, 150 Watkins Avenue,
Atherton, California 94027.
The Company's telephone number is (415) 369-4300. This Proxy Statement and
the accompanying proxy card were mailed to stockholders on or about March 21,
1997.
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 and 2
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 at the Company's principal executive office,
400 Penobscot Drive, Redwood City, CA 94063, Attention: Chief Financial Officer,
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 and regular employees in person or by telephone or
facsimile. 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,
1997, 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, 18,773,017
shares of the Common Stock were issued and outstanding and they were held by 592
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 other matter submitted for stockholder approval at the Annual Meeting will
1
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 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 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 1996 fiscal year.
------------------------
THE ANNUAL REPORT OF THE COMPANY FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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., 400 PENOBSCOT DRIVE, REDWOOD CITY, CALIFORNIA 94063, ATTENTION:
CORPORATE MARKETING.
------------------------
2
PROPOSAL ONE--RE-ELECTION OF DIRECTORS
A board of six directors will be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the six nominees to the Board of Directors named below. All of the nominees
have served as directors since the last annual meeting. 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 in
accordance with cumulative voting to assure 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 in accordance with cumulative voting to assure 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 one vacancy on the Board.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
NOMINEES LISTED BELOW:
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- ---------------------------------------- --- -------------------------------------------------------- -----------
Frank T. Cary........................... 76 Former Chairman and Chief Executive Officer of 1992
International Business Machines Corporation
Gary W. Cleary, Ph.D.................... 54 Chairman of the Board of Directors and Chief Technical 1985
Officer of the Company
Gregory B. Lawless, Ph.D................ 57 President and Chief Executive Officer of the Company 1992
Andre F. Marion......................... 61 Former Vice President, The Perkin-Elmer Corporation; 1994
Former Chairman and Chief Executive Officer, Applied
Biosystems, Inc.
Richard G. Rogers....................... 68 Former President and Chief Operating Officer of Syntex 1989
Corporation
Walter B. Wriston....................... 77 Former Chairman and Chief Executive Officer of Citicorp/ 1992
Citibank, N.A.
BUSINESS EXPERIENCE OF NOMINEES FOR RE-ELECTION AS DIRECTORS
Mr. Cary has served as a director of the Company since July 1992. He was
Chairman of the Board of International Business Machines Corporation ("IBM")
from 1973 until his retirement in 1983, and was Chief Executive Officer of IBM
from 1973 to 1981. Mr. Cary is also a director of AEA Investor Inc., Celgene
Corporation, ICOS Corporation, Lexmark International, Inc., ONTOS, Inc., SPS
Transaction Services, Inc., SEER Technologies, TELTREND, Inc., and VION
Pharmaceuticals.
Dr. Cleary, the founder and Chairman of the Board of the Company, also
served as the Company's President and Chief Executive Officer from its inception
until July 1986. Since 1986, Dr. Cleary has served as Chief Technical Officer of
the Company. During his professional career, Dr. Cleary has served as an
investigator with the U.S. Food and Drug Administration and has held research
and management positions at Cutter Labs, Alza Corporation, Key Pharmaceuticals
and Genentech, Inc.
Dr. Lawless joined the Company in January 1992 as President, Chief Executive
Officer and Director. From March 1989 to January 1992, Dr. Lawless was President
and Chief Operating Officer of Chiron Corporation. Prior to joining Chiron he
held various positions with The DuPont Co. from May 1969 to
3
March 1989, including serving as Chief Operating Officer of its pharmaceutical
subsidiary and as a director of DuPont's Specialty Diagnostic Division.
Mr. Marion has served as a director of the Company 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 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. and Applied Imaging.
Mr. Rogers has served as a director of the Company since October 1989. He
was President and Chief Operating Officer of Syntex Corporation, a
pharmaceutical company, from 1982 until his retirement in 1986.
Mr. Wriston has served as a director of the Company since July 1992. He was
Chairman of the Board 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 AEA Investors, Inc., Bio Research Labs, ICOS Corporation,
Tandem Computers Inc., United Meridian Corp., York International Corporation,
and VION Pharmaceuticals, Inc.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held five regularly scheduled meetings
during the 1996 fiscal year and one special meeting. 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 a 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 1996, held one regularly
scheduled meeting in the last fiscal year. 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, its 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 1996, held two
regularly scheduled meetings during the last fiscal year. The Compensation
Committee reviews and makes recommendations to the Board concerning the
Company's executive compensation policy, bonus plans and incentive option plans,
and approves the granting of stock options to officers.
The Employee Stock Option Committee, which consisted of directors Cleary and
Lawless in fiscal year 1996, held five regularly scheduled meetings. The
Employee Stock Option Committee was established by the Board of Directors in
mid-1992 to grant stock options to employees (other than officers of the
Company) or to consultants to the Company under the Company's Amended 1986
Incentive Stock Plan or any successor plan or plans within guidelines
established by the Board of Directors.
COMPENSATION OF DIRECTORS
All non-employee directors of the Company were entitled to the following
compensation for fiscal year 1996: (i) $15,000 per year paid in quarterly
installments; (ii) $1,000 per Board meeting and $500 per committee meeting; and
(iii) an option granted to purchase 8,785 shares of Common Stock at an exercise
price equal to 100% of the fair market value of the Common Stock on the date of
grant. As approved by the shareholders at the 1993 Annual Meeting of
Shareholders, the annual option was increased from 1,000
4
shares to 6,000 shares of the Company's Common Stock effective June 1992 and
such number of shares subject to the annual option shall be increased at a
cumulative rate of 10% each year thereafter.
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.
PROPOSAL TWO--RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP,
independent auditors for the Company during fiscal year 1996, to serve in the
same capacity for the year ending December 31, 1997, and is asking the
stockholders to ratify this appointment. The affirmative vote of a majority of
the shares represented and voting at the Annual Meeting is required to ratify
the selection of Ernst & Young LLP.
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
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.
THE COMPANY'S 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, 1997.
5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of Common Stock of
the Company as of March 10, 1997, by (a) each person known by the Company to own
beneficially more than 5% of the outstanding Common Stock; (b) the Chief
Executive Officer of the Company; (c) each of the four other most highly
compensated executive officers of the Company (determined at fiscal year-end
1996); (d) each director of the Company; and (e) all directors and executive
officers as a group:
NUMBER OF SHARES
BENEFICIALLY APPROXIMATE
NAME OWNED(1) PERCENT OWNED
- ------------------------------------------------------------------------------- ----------------- ---------------
Amerindo Investment Advisors, Inc.(2).......................................... 3,300,000 17.58%
388 Market Street, Suite 950
San Francisco, CA 94111
Neil R. Ackerman(3)............................................................ 78,521 *
Frank T. Cary(4)............................................................... 40,846 *
Gary W. Cleary(5).............................................................. 823,263 4.36%
Cygnus, Inc.
400 Penobscot Drive
Redwood City, CA 94063
John C. Hodgman(6)............................................................. 89,173 *
Gregory B. Lawless(7).......................................................... 632,554 3.26%
Andre F. Marion(8)............................................................. 14,860 *
Richard G. Rogers(9)........................................................... 9,441 *
Alan F. Russell(10)............................................................ 174,031 *
Walter B. Wriston(11).......................................................... 28,046 *
All executive officers and directors as a group (12 persons)(12)............... 2,076,662 10.40%
- ------------------------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the stockholders named
in the table are known to the Company to have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned
by them, subject to community property laws where applicable.
(2) Information as of December 31, 1996, per Schedule 13G filed pursuant to Rule
13d-1(b) or 13d-2(b) of the Securities Exchange Act of 1934, as amended.
(3) Includes options to purchase 74,950 shares exercisable within 60 days of
March 10, 1997.
(4) Includes options to purchase 27,846 shares exercisable within 60 days of
March 10, 1997.
(5) Includes options to purchase 95,676 shares exercisable within 60 days of
March 10, 1997. Excludes approximately 32,000 shares previously owned by Dr.
Cleary which were transferred to irrevocable trusts for the benefit of Dr.
Cleary's two children. Dr. Cleary disclaims beneficial ownership of these
shares and has no rights, benefits of ownership or authority over such
trusts. Dr. Cleary also disclaims beneficial ownership of any shares held by
Roberta Cleary.
(6) Includes options to purchase 82,062 shares exercisable within 60 days of
March 10, 1997.
(7) Includes options to purchase 604,694 shares exercisable within 60 days of
March 10, 1997.
(8) Includes options to purchase 13,860 shares exercisable within 60 days of
March 10, 1997.
6
(9) Includes options to purchase 7,986 shares exercisable within 60 days of
March 10, 1997. Excludes shares previously held by Mr. Rogers, but
subsequently transferred to an irrevocable trust for the benefit of his
grandchildren. Mr. Rogers disclaims beneficial ownership of such shares and
has no rights, benefits of ownership or authority over the trust.
(10) Includes options to purchase 170,677 shares exercisable within 60 days of
March 10, 1997.
(11) Includes options to purchase 27,846 shares exercisable within 60 days of
March 10, 1997.
(12) Includes officers' and directors' shares listed above; also includes
185,927 shares held directly or beneficially owned by three officers of the
Company not listed above, including options to purchase 163,854 shares
exercisable within 60 days of March 10, 1997.
7
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, 1996) (hereinafter referred to as the
"named executive officers") for the fiscal years ended December 31, 1996, 1995
and 1994:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------------------------------
--------------------------------- SECURITIES ALL OTHER
BONUS RESTRICTED UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($)(1) STOCK AWARDS ($) OPTIONS(#) ($)
- -------------------------------------- --------- ---------- ---------- ----------------- ----------- -------------
Gregory B. Lawless.................... 1996 $ 305,000 $ 259,250 $ 0 26,000 $ 6,725(2)
President and Chief 1995 279,231 195,500 0 63,100 6,725(2)
Executive Officer 1994 252,740 126,675 0 225,000 6,725(2)
Gary W. Cleary........................ 1996 $ 236,852 $ 108,000 $ 0 10,500 $ 0
Chairman of the Board 1995 229,308 44,850 0 50,725 0
and Chief Technical 1994 205,317 102,000 0 35,000 0
Officer
Alan F. Russell....................... 1996 $ 196,105 $ 127,500 $ 0 22,700 $ 0
Senior Vice President-- 1995 190,353 109,500 0 43,430 0
Scientific Affairs 1994 180,265 81,075 0 77,500 0
Neil R. Ackerman(3)................... 1996 $ 193,555 $ 125,900 $ 0 17,600 $ 0
Vice President-- 1995 189,483 76,300 0 50,860 0
Research and 1994 127,009 86,600 0 90,000 0
Development
John C. Hodgman....................... 1996 $ 182,146 $ 118,500 $ 0 45,400 $ 25,000(4)
Vice President, Finance 1995 157,987 63,500 0 40,930 122,912(4)
and Chief Financial 1994 57,692 58,500 0 70,000 26,934(4)
Officer (and Principal
Accounting Officer);
President, Cygnus
Diagnostics
- ------------------------
(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) Represents premiums paid for term life insurance.
(3) Dr. Ackerman joined the Company on April 29, 1994.
(4) Represents payment of relocation expenses for Mr. Hodgman. Mr. Hodgman
joined the Company on August 1, 1994.
8
STOCK OPTIONS
The following table sets forth information concerning the grant of stock
options under the Company's 1994 Stock Option/Award Plan (the "Plan" or the
"Stock Plan") and its predecessor, the 1986 Incentive Stock Plan, in 1996 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
---------------------------------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE ($) AT ASSUMED
SECURITIES PERCENT OF ANNUAL RATES OF STOCK
UNDERLYING TOTAL OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM(1)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME (#)(2) FISCAL YEAR ($/SH)(3) DATE 5% 10%
- -------------------------------------- ----------- ------------- ----------- ----------- ---------- ------------
Gregory B. Lawless.................... 26,000 5.35% $ 21.125 1/29/06 $ 345,420 $ 875,363
Gary W. Cleary........................ 10,500 2.16% 21.125 1/29/06 139,497 353,512
Alan F. Russell....................... 22,700 4.67% 21.125 1/29/06 301,579 764,259
Neil R. Ackerman...................... 17,600 3.62% 21.125 1/29/06 233,823 592,553
John C. Hodgman....................... 30,000 6.17% 21.750 1/02/06 410,354 1,039,917
15,400 3.17% 21.125 1/29/06 204,595 518,484
- ------------------------
(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 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) Except with respect to the options granted to Dr. Lawless, all options
become vested and exercisable for 25% of the shares on the first anniversary
of the date of grant and for the balance in equal monthly installments over
the 36-month period thereafter. The option granted to Dr. Lawless becomes
vested and exercisable for 1/48 of the shares per month upon grant. Each
option has a term of ten (10) years. If the Company merges with or into
another corporation, then (i) the successor corporation must assume the
outstanding options or issue substitute options, or (ii) the Board of
Directors of the Company must accelerate the exercisability of all
outstanding options, which terminate if not exercised prior to the merger.
(3) The exercise price may be paid in cash, promissory notes, other shares of
Common Stock of the Company or other consideration determined by the Board
of Directors. However, since the inception of the Plan, payments for
exercised options have been only in cash.
The following table sets forth information with respect to the named
executive officers concerning exercise of options during the 1996 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.
9
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE OPTIONS AT FY-END(#) AT FY-END($)(2)
EXERCISE REALIZED -------------------------- ---------------------------
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------- ----------- ---------- ----------- ------------- ------------ -------------
Gregory B. Lawless................ 0 $ 0 570,374 145,156 $ 3,109,047 $ 1,814,153
Gary W. Cleary.................... 0 0 82,085 47,783 1,182,983 540,604
Alan F. Russell................... 25,000 382,719 150,504 74,713 804,808 754,189
Neil R. Ackerman.................. 27,715 382,910 56,653 74,092 821,469 819,134
John C. Hodgman................... 3,705 24,404 55,696 96,929 807,592 747,171
- ------------------------
(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, 1996
($14.50), 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 has entered into an Amended and Restated Employment Agreement
(the "Amended Agreement") dated as of January 29, 1996, with Gregory B. Lawless,
Ph.D., which expires on January 29, 2000, and provides for the payment to Dr.
Lawless of an annual salary, subject to annual increase (but not decrease) at
the discretion of the Board of Directors. Dr. Lawless' base salary for fiscal
1997 has been set at $353,100. The Amended Agreement also provides for an annual
bonus (to be determined by the Compensation Committee of the Board of Directors
pursuant to the company-wide incentive bonus plan) under which Dr. Lawless is
eligible to receive up to 100% of his annual base salary. The Amended Agreement
also provides that Dr. Lawless will be reimbursed for reasonable costs incurred
by him attributable to his automobile operating and cellular expenses and life,
disability and other insurance premiums. If the Company terminates Dr. Lawless'
employment without cause during the term of the agreement, or, if certain
changes are made with respect to Dr. Lawless' responsibilities, or the location
of his employment (which by their happening may have the effect of terminating
the agreement), Dr. Lawless will be entitled to receive on the Company's normal
payroll schedule his then effective base annual salary, plus an amount equal to
all bonus compensation paid to him for the full calendar year preceding the date
of termination, for a period of twelve months following termination, or, until
he obtains comparable employment elsewhere. Additionally, all unvested options
held by him will immediately vest. The Amended Agreement may be terminated at
any time "for cause" without penalty.
The Company has also entered into an employment agreement with Alan F.
Russell, Ph.D. providing for the payment to Dr. Russell of a base salary of at
least $160,000 per annum. The base salary may be increased and Dr. Russell may,
in certain circumstances receive bonuses in accordance with the Company's
compensation policies. If the Company terminates Dr. Russell's agreement without
cause, Dr. Russell will be entitled to receive a lump sum payment equal to one
year's base salary within thirty days of the termination; otherwise Dr.
Russell's agreement may be terminated "for cause" at any time without penalty
under the agreement.
The Company has also entered into agreements with all of its executive
officers relating to a change in control of the Company. The agreements
generally provide that if, within 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 annual base
salary plus bonus. In addition, the vesting schedule of any stock
10
option granted to such officer is accelerated by 12 months. The agreements
continue until December 31, 1999 and are automatically renewed thereafter for
additional one year periods unless either party provides the other notice of
non-renewal. In addition, the agreements continue in effect for 24 months beyond
the term provided if a change in control of the Company occurs during the term
of the agreement.
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 who are not eligible
to participate in any of the Company's executive compensation programs. The
Committee sets the base salary of the Company's executive officers and
administers the Company's Stock Plan under which stock option grants may be made
to executive officers and other senior level 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 corporate 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 health care 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, payable in cash, 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) performance-based 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 1996 are summarized below. It is
expected that this process will remain the same in fiscal year 1997. 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."
11
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 businesses, 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 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 independent consulting
firms and information 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 employees for their
contributions to corporate and individual objectives. The Committee's philosophy
is that increasing portions of compensation should be "at risk" for those
employees with greater influence on stockholder value. Therefore, different
percentages are applicable to individual employees based on level of
responsibility and performance. Each eligible employee's bonus reward is
expressed as a percentage of the participant's December 31 base salary earnings
for the plan year. Executive officers participate with all other employees in
the Company's incentive bonus plan, under which a cash bonus can be awarded
annually depending upon the executive's individual performance, and the
achievement of the Company's performance goals which are based on profit and
loss targets, revenue targets, control of expenses, product development
milestones and new partnership agreements. Each of the Company goals is weighted
to reflect its relative importance. The Company guidelines are established at
the beginning of the year by executive management and approved by the Committee
and the Board of Directors. The incentive plan begins funding when overall
Company performance reaches the budgeted level. Awards are driven by a
combination of Company and individual performance. If overall Company
performance falls short of the budgeted performance level, the plan is not
funded and a bonus award is not made, regardless of individual achievement.
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. Based upon 1996 Company performance, the Compensation Committee
determined to award a bonus payment which was paid in March 1997. It is
anticipated that for the fiscal year 1997, the Company's Incentive Bonus Plan
for executive officers and all other employees will continue to provide for
performance-based bonus amounts equal to a certain percentage of the employee's
annual base salary earnings.
TOTAL ANNUAL CASH COMPENSATION (BASE SALARY PLUS BONUS)
Total cash compensation is targeted competitively to be at the 50th
percentile of the comparative companies as determined through an analysis of
survey and proxy data. This "total cash" position is achieved through a
combination of base salary and bonus when the Company goals are achieved at the
"budgeted" level. Top-quartile compensation can be obtained only if business
results significantly exceed the budgeted level of performance.
12
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 management 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. Other senior level technical and management employees
participate in the Plan based on their performance and level of responsibility.
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 years and has a term of ten years from the grant date. These
stock options generally vest for 25% of the total number of granted shares on
the first anniversary of the grant date and for the balance in equal monthly
installments over the next 36-month period. Accordingly, the option will provide
a return to the executive only if the market price of the underlying share
appreciates over the option term 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 1996 the Committee considered and approved long-term
incentive stock option grants for the plan participants which reflected an
assessment of each individual's performance and the individual's impact on
overall company performance.
CEO COMPENSATION
Dr. Lawless' compensation is determined pursuant to the principles noted
above and by the terms of his amended and restated employment agreement which
was entered into in January 1996. Dr. Lawless' base salary for fiscal year 1996
was $305,000. In determining any increase in Dr. Lawless' salary, the
Compensation Committee seeks competitiveness with other companies of comparable
size within the industry. In addition, Dr. Lawless is eligible to receive an
incentive bonus of up to 100% of his annual base salary dependent on the overall
Company, as well as individual performance. Based upon the Committee's judgment
of the overall performance of the Company and Dr. Lawless' individual
performance in 1996, he was awarded a bonus of $259,250 which was equal to 85%
of his annual base salary for the fiscal year of 1996. The Committee's favorable
evaluation of overall Company performance was based upon the Company's having
met certain stated goals and milestones, such as the completion of corporate
partnerships and the achievement of certain regulatory and product development
milestones and revenue targets. In addition, since the beginning of 1997, Dr.
Lawless has been granted options to purchase 55,000 shares of the Company's
Common Stock under the terms and conditions of the Stock Option Plan. The
exercise price of the options was equal to 100% of the fair market value of the
Common Stock of the Company on the date of the grant.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, 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 which is not considered to be
performance-based. The non-performance based compensation to be paid to the
Company's executive officers for the 1996 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 1997 will
exceed that limit. The Company's Stock 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
13
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 foreseeable 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
14
STOCK PERFORMANCE CHART
The following graph shows a five-year comparison of cumulative total
stockholder returns for the Company, the Nasdaq's U.S. Stock Market Index and
the Nasdaq Pharmaceutical Index, based on an assumed $100 invested on December
31, 1992 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 drug delivery business within the
pharmaceutical industry is still in a developing stage. The Nasdaq
Pharmaceutical Index includes companies which develop, manufacture and market
pharmaceutical products, including biopharmaceutical products, as well as drug
delivery 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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Cygnus Stock, NASDAQ's U.S. Stock Market and Pharmaceutical
Indices
Index (1/31/91 = 100.00 Cygnus Stock NASDAQ U.S. Stock Market Index
12/31/92 $100 $100
12/31/93 $93.75 114.7837
12/31/94 $56.25 112.1988
12/31/95 $186.4583 158.6717
12/31/96 $120.8333 195.1731
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
Cygnus Stock, NASDAQ's U.S. Stock Market and Pharmaceutical
Indices
Index (1/31/91 = 100.00 NASDAQ Pharmaceutical Index
12/31/92 $100
12/31/93 89.13595
12/31/94 67.08732
12/31/95 122.7282
12/31/96 123.1083
15
STOCKHOLDERS PROPOSALS FOR 1998 ANNUAL MEETING
Proposals to be presented by stockholders of the Company at the 1998 Annual
Meeting must be received by the Company at its principal executive office no
later than November 21, 1997. 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,
1996 has been mailed concurrently with this 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 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, 1996, INCLUDING THE FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF EXHIBITS.
REQUESTS SHOULD BE SENT TO CORPORATE MARKETING, 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
[LOGO]
Gregory B. Lawless, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Dated: March 21, 1997
16
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CYGNUS, INC.
1997 ANNUAL MEETING OF STOCKHOLDERS
P The undersigned stockholder of Cygnus, Inc. hereby acknowledges receipt
R of the Notice of Annual Meeting of Stockholders and Proxy Statement for the
O 1997 Annual Meeting of Stockholders of Cygnus, Inc. to be held on May 8, 1997
X and hereby appoints Gregory B. Lawless, John C. Hodgman and Alan F. Russell
Y 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 which 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 THE REAPPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS, AND AS THE PROXYHOLDERS DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY
COME BEFORE THE MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
-----------------------------------------------------------------------------
COMMENTS/ADDRESS CHANGE: PLEASE MARK COMMENTS/ADDRESS BOX ON REVERSE SIDE
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FOLD AND DETACH HERE
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Please mark
your choices / X /
like this.
FOR WITHHELD FOR ALL
1. ELECTION OF DIRECTORS / / / /
Nominees: Frank T. Cary,
Gary W. Cleary, Gregory B. Lawless,
Andre F. Marion, Richard G. Rogers
and Walter B. Wriston
2. Proposal to reappoint Ernst & Young FOR AGAINST ABSTAIN
LLP as the independent auditors / / / / / /
for the 1997 fiscal year.
INSTRUCTIONS: To withhold authority to
vote for any individual nominee, strike
a line through the nominee's name.
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 , 1997
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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