UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 [ ]
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to § 240.14a-12
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CYBERONICS, 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)
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Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
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Form, Schedule or Registration Statement No.
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CYBERONICS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
SEPTEMBER 22, 2011
Dear Stockholder:
This letter serves as notice that the 2011 Annual Meeting of Stockholders of Cyberonics, Inc., a Delaware corporation, will be held on September 22, 2011, at 10:00 a.m., central time, at our offices, 100 Cyberonics Boulevard, Houston, Texas 77058. At the Annual Meeting, stockholders will be asked to:
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Elect the seven director candidates described in the proxy statement to serve for the following year and until their successors are duly elected;
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Ratify the selection of KPMG LLP as the independent registered public accounting firm of Cyberonics, Inc. for the fiscal year ending April 27, 2012;
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Consider a non-binding, advisory vote to approve the compensation of Cyberonics, Inc.’s named executive officers;
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Consider a non-binding, advisory vote on the frequency with which stockholders will be provided a non-binding, advisory vote on the compensation of Cyberonics, Inc.’s named executive officers; and
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Transact such other business as may properly come before the meeting or any adjournment or postponement thereof.
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Only stockholders of record at the close of business on August 1, 2011 are entitled to notice of and to vote at the Annual Meeting. A list of stockholders will be available commencing September 9, 2011 and may be inspected at our offices during normal business hours prior to the Annual Meeting. The list of stockholders will also be available for review at the Annual Meeting. In the event there are not sufficient votes for a quorum or to approve the items of business at the time of the Annual Meeting, the Annual Meeting may be adjourned in order to permit further solicitation of proxies.
Even if you plan to attend the Annual Meeting, please sign, date, and return the enclosed proxy card as promptly as possible to ensure that your shares are represented. If you attend the Annual Meeting, you may withdraw any previously submitted proxy and vote in person.
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Sincerely,
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August 10 , 2011
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/s/ David S. Wise
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Houston, Texas
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David S. Wise
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Senior Vice President, Chief Administrative Officer
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CYBERONICS, INC.
100 Cyberonics Boulevard
Houston, Texas 77058
PROXY STATEMENT
These proxy materials are furnished to you in connection with the solicitation of proxies by the Board of Directors (“Board”) of Cyberonics, Inc. for use at our 2011 Annual Meeting of Stockholders and any adjournments or postponements of the meeting (the “Annual Meeting”). The Annual Meeting will be held on September 22, 2011, at 10:00 a.m., Central Daylight Time, at our offices, 100 Cyberonics Boulevard, Houston, Texas 77058.
The proxy materials include this proxy statement for the 2011 Annual Meeting of Stockholders and our Annual Report to Stockholders for the fiscal year ended April 29, 2011. If you received a paper copy of these materials by mail, the proxy materials also include a proxy card for the Annual Meeting.
We are mailing to our stockholders a notice that the proxy materials are available on the internet. All stockholders receiving the notice will have the ability to access the proxy materials over the internet and may request to receive a paper copy of the proxy materials by mail or an electronic copy by e-mail. Instructions on how to access the proxy materials over the internet, including the proxy card, or on how to request a paper copy may be found in the notice. In addition, the notice contains instructions on how stockholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis.
Our stockholders may elect to receive future proxy materials, including the notice of internet availability, by e-mail. Choosing to receive your future proxy materials by e-mail will help us conserve natural resources and reduce the costs of printing and distributing our proxy materials. If you choose to receive future proxy materials by e-mail, you will receive an e-mail message with instructions containing a link to the website where those materials are available and a link to the proxy voting website. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.
On or about August 10, 2011, we mailed a Notice of Internet Availability of Proxy Materials to our stockholders containing instructions on how to access the proxy materials and vote online. This proxy statement, the proxy card, and our 2011 Annual Report to Stockholders are being made available to our stockholders on the internet on or about August 10, 2011.
ABOUT THE ANNUAL MEETING
What is the purpose of the Annual Meeting?
At the Annual Meeting, our stockholders will be asked (i) to elect the seven director candidates described in this proxy statement to serve for the following fiscal year and until their successors are duly elected, (ii) to ratify the selection of KPMG L.L.P. as our independent registered public accounting firm for the fiscal year ending April 27, 2012, (iii) to vote in an advisory capacity on the compensation of our named executive officers, (iv) to vote in an advisory capacity on the frequency of future advisory votes on executive compensation, and (v) to transact such other business as may properly come before the Annual Meeting. Our stockholders are not, however, entitled to nominate any additional directors for election at the Annual Meeting at this time.
Why did I receive these proxy materials?
You received these proxy materials from us in connection with the solicitation by our Board of proxies to be voted at the Annual Meeting because you owned our common stock as of August 1, 2011. We refer to this date as the “record date.”
This proxy statement contains important information for you to consider when deciding how to vote your shares at the Annual Meeting. Please read this proxy statement carefully.
A proxy is your legal designation of another person to vote the shares that you own. That other person is called a proxy. If you designate someone as your proxy in a written document, that document is also called a proxy or a proxy card. Our Board has appointed Daniel J. Moore and Milton M. Morris (the “Proxy Holders”) to serve as proxies for the Annual Meeting.
What does it mean if I receive more than one notice of internet availability or proxy card?
If you receive more than one notice of internet availability or proxy card, then you own our common stock through multiple accounts at the transfer agent or with stockbrokers. Please vote the shares subject to each notice of internet availability and sign and return all proxy cards to ensure that all of your shares are voted at the Annual Meeting.
What is the difference between holding shares as a “stockholder of record” and holding shares in “street name?”
If your shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are a “stockholder of record” of these shares, and you are receiving the notice of internet availability or paper copies of these proxy materials directly from us. As the stockholder of record, you have the right to vote your shares by internet or by telephone as described in the notice of internet availability, to mail your proxy directly to us, or to vote in person at the Annual Meeting.
Most of our stockholders hold their shares in a stock brokerage account or through a bank or other holder of record rather than directly in their own name. If your shares are held in a brokerage account, through a bank or other holder of record (commonly referred to as being held in “street name”), you are the “beneficial owner” of these shares and the notice of internet availability or paper copies of these proxy materials are being forwarded to you by that broker, bank, or other custodian. As summarized below, there are distinctions between shares held of record and those held beneficially.
How many votes must be present to hold the Annual Meeting?
There must be a quorum for the Annual Meeting to be held. A quorum is the presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the shares of common stock issued and outstanding on the record date. As of the record date, there were 28,119,711 shares of our common stock issued and outstanding. Consequently, the presence of the holders of at least 14,059,856 shares of common stock is required to establish a quorum for the Annual Meeting. Proxies that are voted “FOR,” “AGAINST,” or “WITHHELD FROM” a matter are treated as being present at the Annual Meeting for purposes of establishing a quorum and also treated as shares “represented and voting” at the Annual Meeting with respect to such matter.
Abstentions and broker non-votes are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business. Abstentions occur when stockholders are present at the Annual Meeting but choose to withhold their vote for any of the matters on which stockholders are voting. “Broker non-votes” occur when other holders of record (such as banks and brokers) that hold shares on behalf of beneficial owners do not receive voting instructions from the beneficial owners before the Annual Meeting and do not otherwise have discretionary authority to vote those shares. The New York Stock Exchange's (the "NYSE") Rule 452 restricts the circumstances in which brokers who are record holders of shares may exercise discretionary authority to vote those shares. With respect to the Annual Meeting, Rule 452 prohibits such brokers from exercising discretionary authority in the election of our directors and in the advisory votes regarding executive compensation, but such brokers may exercise discretionary authority with respect to the ratification of the selection of KPMG L.L.P. as our independent registered public accounting firm. Although there are no controlling precedents under Delaware law regarding the treatment of broker non-votes, we intend to treat abstentions and broker non-votes as set forth in more detail under “What vote is required to approve each proposal discussed in this proxy statement, and how are my votes counted?”
You are entitled to one vote for each share of common stock that you owned on the record date on all matters considered at the Annual Meeting.
How do I vote my shares?
Shares held directly in your name as the stockholder of record with Computershare Trust Company, N.A., our transfer agent, can be voted in person at the Annual Meeting, or you can follow the instructions on the notice of internet availability mailed to you to submit your vote by telephone or internet, or you can provide a proxy to be voted at the Annual Meeting by signing and dating the proxy card, if one was mailed to you, and returning it in the enclosed postage-paid envelope. If you plan to vote in person at the Annual Meeting, please bring proof of identification. Even if you currently plan to attend the Annual Meeting, we recommend that you also submit your proxy by one of the other alternatives described above so that your vote will be counted even if you later decide not to attend the Annual Meeting.
Shares held in street name are shares registered in the name of a bank or broker or other entity, but beneficially owned by another person. If you hold your shares in street name (for example, at your brokerage account), please follow the instructions provided by your record holder to vote your shares. Shares held in street name may be voted in person by you at the Annual Meeting only if you obtain a signed proxy from your bank, broker, or other holder of record (the record holder) giving you the right to vote the shares. If you hold your shares in street name and wish simply to attend the Annual Meeting, please bring proof of ownership and proof of identification.
If you hold your shares in street name, your record holder will be permitted to exercise voting discretion only in certain limited circumstances. With respect to the Annual Meeting, Rule 452 prohibits brokers from exercising discretionary voting authority with respect to such shares in the election of directors or the advisory votes regarding executive compensation. Thus, if you do not give your bank, broker, or other holder of record specific instructions, your shares may not be voted for the election of our directors and will not be counted in determining the number of shares necessary for approval.
If you vote by granting a proxy, the Proxy Holders will vote the shares of which you are the stockholder of record in accordance with your instructions. If you submit a proxy without giving specific voting instructions, the Proxy Holders will vote those shares as recommended by our Board.
What are the recommendations of the Board?
Our Board recommends that you vote:
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FOR the election of the seven nominated directors;
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FOR the proposal to ratify the selection of KPMG L.L.P. as our independent registered public accounting firm for the fiscal year ending April 27, 2012;
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FOR the proposal to approve the compensation of the Company’s named executive officers; and
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EVERY THREE YEARS on the frequency of future advisory votes on executive compensation.
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Can I change my vote?
Yes. If you are a stockholder of record, you may revoke your proxy at any time before it is exercised by (1) submitting a written notice of revocation to our Secretary, David S. Wise, by mail to Cyberonics, Inc., 100 Cyberonics Boulevard, Houston, Texas 77058 or by facsimile at (281) 283-5369; (2) submitting a subsequent telephone or internet vote; (3) mailing in a new proxy card bearing a later date; or (4) attending the Annual Meeting and voting in person, which suspends the powers of the Proxy Holders.
If you hold your shares in street name and you vote by proxy, you may change your vote by submitting new voting instructions to your bank, broker, or other holder of record in accordance with that entity’s procedures.
Could other matters be decided at the Annual Meeting?
At the time this proxy statement was prepared, we did not know of any matters to be raised at the Annual Meeting other than those referred to in this proxy statement.
With respect to any other matter that properly comes before the Annual Meeting, the Proxy Holders will vote as recommended by our Board or, if no recommendation is given, at their discretion.
What vote is required to approve each proposal discussed in this proxy statement, and how are my votes counted?
Election of Directors. A plurality of the votes cast is required for the election of directors. This means that the seven director nominees receiving the highest number of affirmative votes of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote will be elected to our Board. You may vote “FOR” or “WITHHOLD AUTHORITY” for each director nominee. If you “WITHHOLD AUTHORITY,” your votes will be counted for purposes of determining the presence or absence of a quorum, but will not have an effect on the outcome of the proposal. Broker non-votes, if any, will be counted for purposes of determining the presence or absence of a quorum, but will not be counted as having been voted and will not have an effect on the outcome of the proposal.
Say On Pay. The advisory resolution to approve the Company’s compensation for its named executive officers as set forth in this proxy statement will require the affirmative vote of a majority of the votes cast, which means that the number of shares voted “FOR” the proposal must exceed the number of votes cast “AGAINST” the proposal. You may vote “FOR,” “AGAINST,” or “ABSTAIN” on our proposal to provide an advisory vote on the compensation of our named executive officers. If you “ABSTAIN,” your votes will be counted for purposes of establishing a quorum, but will not have an effect on the outcome of the proposal. Broker non-votes will have no effect on the outcome of the proposal.
Scheduling Vote. The advisory proposal regarding how frequently advisory votes on executive compensation will occur requires a plurality of the votes cast for the three options presented at the annual meeting. In other words, the frequency option that receives the most affirmative votes of all the votes cast in person or by proxy at the meeting is the one that will be deemed approved by the stockholders. You may vote “ONE YEAR,” “TWO YEARS,” “THREE YEARS,” or “ABSTAIN.” If you “ABSTAIN,” your votes will be counted for purposes of establishing a quorum, but will not have an effect on the outcome of the proposal. Broker non-votes will have no effect in determining whether any frequency option in the proposal is approved.
Other Items. For each other item properly presented for a vote, the affirmative vote of the holders of a majority of the shares present, in person or by proxy, and entitled to vote on the item will be required for approval. You may vote “FOR,” “AGAINST,” or “ABSTAIN” on our proposal to ratify the selection of our independent registered public accounting firm. If you “ABSTAIN,” your votes will be counted for purposes of establishing a quorum, and the abstention will have the same effect as a vote “AGAINST” the proposal. Pursuant to Rule 452, brokers will be permitted to exercise discretionary voting authority with respect to the ratification of KPMG L.L.P., and so there should not be any broker non-votes on that proposal. Broker non-votes on any other proposal, if any, will not be counted as having been voted and will not have an effect on the outcome of these proposals.
Who is participating in this proxy solicitation, and who will pay for its cost?
We will bear the entire cost of soliciting proxies, including the cost of the preparation, assembly, internet hosting, printing, and mailing of the Notice of Internet Availability of Proxy Materials, this proxy statement, the proxy card, and any additional information furnished to our stockholders in connection with the Annual Meeting. In addition to this solicitation by mail, our directors, executive officers, and other employees may solicit proxies by use of mail, telephone, facsimile, electronic means, in person, or otherwise. These persons will not receive any additional compensation for assisting in the solicitation, but may be reimbursed for reasonable out-of-pocket expenses in connection with the solicitation.
We have not retained the services of a proxy solicitation firm to assist in the solicitation of proxies.
May I propose actions for consideration at the next annual meeting of stockholders or nominate individuals to serve as directors?
You may submit proposals for consideration at future stockholder meetings, including director nominations. Please see “Corporate Governance — Director Selection Process” (p. 8) and “Proposals for the 2012 Annual Meeting of Stockholders” (p. 57) for more details.
What is “householding” and how does it affect me?
The Securities and Exchange Commission (“SEC”) has implemented rules regarding the delivery of proxy materials to households. This method of delivery, often referred to as “householding,” permits us to send a single annual report and/or a single proxy statement to any household receiving paper copies and at which two or more different stockholders reside where we believe the stockholders are members of the same family or otherwise share the same address or where one stockholder has multiple accounts. In each case, the stockholder(s) must consent to the householding process. Under the householding procedure, each stockholder continues to receive a separate notice of internet availability or notice of any meeting of stockholders and proxy card. Householding reduces the volume of duplicate information our stockholders receive and reduces our expenses. We may institute householding in the future and will notify our registered stockholders who will be affected by householding at that time.
Many banks, brokers, and other holders of record have instituted householding. If you or your family has one or more “street name” accounts under which you beneficially own our common stock, you may have received householding information from your bank, broker, or other holder of record in the past. Please contact the holder of record directly if you have questions, require additional copies of this proxy statement or our annual report, or wish to revoke your decision to household and thereby receive multiple copies. You should also contact the holder of record if you wish to institute householding. These options are available to you at any time.
Whom should I contact with questions about the Annual Meeting?
If you have any questions about this proxy statement or the Annual Meeting, please contact our Secretary, David S. Wise, by mail at 100 Cyberonics Boulevard, Houston, Texas 77058 or by telephone at (281) 228-7200.
Where may I obtain additional information about Cyberonics, Inc.?
We refer you to our Annual Report on Form 10-K for the fiscal year ended April 29, 2011 filed with the SEC on June 16, 2011. Our Annual Report to Stockholders, including financial statements, is included among your proxy materials. The Annual Report is not part of the proxy solicitation material. You may also find information about us on our website at www.cyberonics.com.
If you would like to receive any additional information, please contact our Secretary, David S. Wise, by mail at 100 Cyberonics Boulevard, Houston, Texas 77058 or by telephone at (281) 228-7200.
CORPORATE GOVERNANCE
Our Governance Practices
General.
We are committed to good corporate governance. Our governance rules and procedures are described in our Corporate Governance Guidelines, Corporate Code of Business Conduct and Ethics, Financial Code of Ethics, and charters for each standing committee of our Board. Each of these documents is available on our website at www.cyberonics.com.
Codes of Ethics
Our Board has adopted a Corporate Code of Business Conduct and Ethics for our employees, agents, and representatives. In addition, our Board has adopted a Financial Code of Ethics for our principal executive officer, principal financial officer, principal accounting officer, controller, and other senior financial officers. A copy of each code is available on our website at www.cyberonics.com. Any change to, or waiver from, either code will be disclosed as required by applicable securities laws.
Board Size
Our Board is currently composed of seven directors. The Nominating & Governance Committee of our Board considers and makes recommendations to our Board concerning the appropriate size and needs of our Board and considers candidates to fill new positions created by expansion or vacancies that occur by resignation, retirement, or any other reason.
Director Independence
As required under the listing standards of The NASDAQ Stock Market L.L.C. (“NASDAQ”), a majority of the members of our Board must qualify as “independent,” as affirmatively determined by our Board. Our Board has delegated this responsibility to the Nominating & Governance Committee. Pursuant to its charter, the Nominating & Governance Committee determines whether or not each director and each prospective director is independent.
The Nominating & Governance Committee evaluated all relevant transactions and relationships between each director, or any of his or her family members, and our company, senior management, and independent registered accounting firm. Based on this evaluation, the Nominating & Governance Committee has determined that the following individuals are “independent” as that term is defined in the NASDAQ listing standards and under the U.S. securities laws: Board members Jackson, Laptewicz, Morrison, Novak, Rosenthal, and Tremmel, which members constitute a majority of the members of our Board. Mr. Moore is not independent because he currently serves as our President and Chief Executive Officer (“CEO”).
Meetings
Our Board held a total of eight meetings and acted by written consent two times during the fiscal year ended April 29, 2011. During the fiscal year ended April 29, 2011, all directors attended at least 75% of the Board meetings and the meetings held by committees on which the director served.
Executive Sessions; Presiding Director
The independent directors meet in executive session at the beginning and at the end of each regularly scheduled quarterly meeting of our Board. The independent directors met in executive session in five meetings during the fiscal year ended April 29, 2011. Our Board separates the offices of Chairman of our Board and CEO by appointing an independent, non-executive Chairman. We believe that an independent Chairman permits our CEO to focus on managing his day-to-day responsibilities to our company and facilitates our Board’s independent oversight of our executive officers’ management of business risk, thereby better protecting stockholder value. Our current non-executive Chairman, Hugh M. Morrison, presides over Board meetings and executive sessions of our independent directors.
Board Oversight of Risk Management
Our Board monitors the manner by which management addresses the various risks our company faces in many different areas, including business strategy, government regulation, financial condition, internal controls, health care compliance, product development, competition for talent, business vitality, operational efficiency, quality assurance, health and safety, supply chain management, reputation, customer spending patterns, and intellectual property, among many others. Our Board believes that, in light of the interrelated nature of our company’s risks, and although a Board committee with insights helpful on particular risks may assist, overall oversight of risk management ultimately is the responsibility of the full Board.
In carrying out its risk oversight responsibility, our Board receives a quarterly risk management report from our General Counsel describing the status of all pending and potential claims and governmental investigations and a quarterly risk management matrix compiling information from each of our executive officers. In addition, at each regularly scheduled quarterly Board meeting, and occasionally in regular monthly written reports to our Board, our CEO highlights recent developments, if any, as to significant risks that management believes should be monitored by our Board. Members of our Board also have an opportunity at each regularly scheduled quarterly Board meeting, as well as, at their discretion, anytime between such Board meetings, to question executive management about any risks related to our business.
Annual Meeting Attendance
We do not have a formal policy regarding director attendance at annual meetings. However, our directors are expected to attend board meetings and meetings of committees on which they serve and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. Two of our directors attended the 2010 Annual Meeting of Stockholders.
Limitation on Public Company Board Service
The Nominating & Governance Committee monitors the number of public company boards on which each director serves and develops limitations on such service as appropriate to ensure the ability of each director to fulfill his or her duties and as may be otherwise required or limited by applicable securities laws or NASDAQ listing standards. Our Board has adopted a policy, described in our Corporate Governance Guidelines, prohibiting any Board member from serving on the boards of more than four other public companies. In addition, no director may serve on the audit committee of more than two other public company boards, if that director also serves on our Board’s Audit Committee, unless our Board specifically determines that such service would not impair the director’s ability to serve effectively on our Board’s Audit Committee. Our Board currently is in full compliance with these policies.
Term Limits
Our Board does not believe it should establish term or age limits. While term limits could help ensure that there are fresh ideas and viewpoints available to our Board, our Board believes that they hold the disadvantage of losing the contribution of directors who have been able to develop, over a period of time, increasing insight into our business and operations and, therefore, provide an increasing contribution to our Board as a whole. As an alternative to term limits, the Nominating & Governance Committee reviews each director’s continuation on our Board every year.
Succession Planning
The Nominating & Governance Committee reports to our Board on CEO succession planning at least annually. The Nominating & Governance Committee has developed a succession plan that includes development and mentoring of several of our current executive officers as potential successors to our CEO, as well as contingency plans for identifying a successor to our CEO should it become necessary to do so.
Chairman and Chief Executive Officer
Our Board separates the positions of CEO and Chairman of our Board. Hugh M. Morrison currently serves as the non-executive Chairman of our Board. See “—Executive Sessions; Presiding Director” (p. 6)
Board and Committee Self-Evaluation
Our Board conducts an annual self-evaluation to determine whether it and its committees are functioning effectively. The Nominating & Governance Committee receives comments from all directors and reports annually to our Board with an assessment of our Board’s and each committee’s performance. The assessment focuses on our Board’s contribution to us, on the efficiency and effectiveness of our Board’s execution of its responsibilities, and more specifically on areas in which our Board believes that it could improve.
Director Orientation and Continuing Education
Our Board takes measures as it deems appropriate to ensure that its members may act on a fully-informed basis. To that end, our Board adopted a policy requiring that each member of our Board attend at least one director education program every three fiscal years. The Nominating & Governance Committee is responsible for ensuring compliance with this policy, which is set forth in our Corporate Governance Guidelines. Each new director is provided with the opportunity to review our business and operations with key personnel on accepting a seat on our Board. We assemble orientation materials for new directors and host an orientation session to introduce our business and the procedures and processes of our Board. Additional steps with respect to director orientation and continuing education are taken as necessary to comply with applicable securities laws and NASDAQ listing standards.
Director Selection Process
The Nominating & Governance Committee is responsible for establishing criteria for selecting new directors and actively seeking individuals to become directors for recommendation to our Board. In considering candidates for our Board, the Nominating & Governance Committee considers the entirety of each candidate’s credentials. There is currently no set of specific minimum qualifications that must be met by a nominee recommended by the Nominating & Governance Committee, as different factors may assume greater or lesser significance at particular times, and the needs of our Board may vary in light of its composition and the Nominating & Governance Committee’s perceptions about future issues and needs. However, while the Nominating & Governance Committee does not maintain a formal list of qualifications in making its evaluation and recommendation of candidates, it may consider, among other factors
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a high ethical character consistent with our Corporate Code of Business Conduct and Ethics, which is available on our website, www.cyberonics.com;
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accomplishments within their respective fields, active and former chief executive officers of public companies and leaders of major complex organizations, including scientific, government, educational and other non-profit institutions;
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·
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leaders in the fields of medicine or neurology, including those who have received awards and honors in their fields;
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relevant business and financial expertise and experience, including expertise and experience particularized to our business, and the ability to offer advice and guidance to the CEO based on that expertise and experience;
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·
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ability to exercise sound business judgment; and
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·
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diversity reflecting gender, ethnic background, and professional experience.
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While the Nominating & Governance Committee values diversity as one of several factors considered in evaluating otherwise well qualified director candidates, as described above, it has not chosen to adopt a formal policy with regard to the consideration of diversity in identifying director candidates.
The Nominating & Governance Committee may consider candidates for our Board from any reasonable source, including from a search firm engaged by the Nominating & Governance Committee or stockholder recommendations, provided that the procedures set forth below are followed. The Nominating & Governance Committee does not intend to alter the manner in which it evaluates candidates based on whether the candidate is recommended by a stockholder or not. However, in evaluating a candidate’s relevant business experience, the Nominating & Governance Committee may consider previous experience as a member of our Board. Any invitation to join our Board must be extended by our Board as a whole.
Stockholders or a group of stockholders may recommend potential candidates for consideration by the Nominating & Governance Committee by sending a written request to our Secretary, David S. Wise, by mail at 100 Cyberonics Boulevard, Houston, Texas 77058 or by facsimile at (281) 283-5369, not later than 120 calendar days prior to the first anniversary of the annual meeting for the previous year. The written request must include the following:
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·
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the name and address of the person or persons to be nominated;
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the number and class of all shares of each class of our stock owned of record and beneficially by each nominee, as reported to the nominating stockholder by the nominee;
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the information regarding each such nominee required by paragraphs (a), (d), (e) and (f) of Item 401 of Regulation S-K adopted by the SEC;
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a signed consent by each nominee to serve as our director, if elected;
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the nominating stockholder’s name and address;
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the number and class of all shares of each class of our stock owned of record and beneficially by the nominating stockholder; and
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in the case of a person who holds our stock through a nominee or street name holder of record, evidence establishing such indirect ownership of stock and entitlement to vote such stock for the election of directors at the annual meeting.
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From time to time, the Nominating & Governance Committee may request additional information from the nominee or the nominating stockholder. Possible candidates suggested by stockholders are evaluated by the Nominating & Governance Committee in the same manner as other possible candidates.
The stockholder recommendation procedures described above do not preclude a stockholder of record from making proposals at any annual stockholder meeting, provided that they comply with the requirements described in the section entitled “Proposals for the 2012 Annual Meeting of Stockholders” (p.57).
Communications from Stockholders and Interested Parties
Our Board welcomes communications from our stockholders and other interested parties. Stockholders and any other interested parties may send communications to our Board, any committee of our Board, the Chairman of our Board or any director in particular to: c/o Cyberonics, Inc., 100 Cyberonics Blvd., Houston, Texas 77058.
Our Secretary (or any successor to the duties thereof) will review each communication received from stockholders and other interested parties and will forward the communication, as expeditiously as reasonably practicable, to the addressees if: (1) the communication complies with the requirements of any applicable policy adopted by us relating to the subject matter of the communication; and (2) the communication falls within the scope of matters generally considered by our Board. To the extent the subject matter of a communication relates to matters that have been delegated by our Board to a committee or to an executive officer, then our Secretary may forward the communication to the executive officer or chairman of the committee to which the matter has been delegated. The acceptance and forwarding of communications to the members of our Board or an executive officer does not imply or create any fiduciary duty of our Board members or executive officers to the person submitting the communications.
Committees of Our Board
General
Our Board has three standing committees: an Audit Committee, a Compensation Committee, and a Nominating & Governance Committee. Each committee is comprised entirely of independent directors, as currently required under the SEC’s rules and regulations and the NASDAQ listing standards, and each committee is governed by a written charter approved by the Board. These charters form an integral part of our corporate governance policies, and a copy of each charter is available on our website at www.cyberonics.com.
The table below provides the composition of each standing committee of our Board:
|
Name
|
Audit
Committee
|
Compensation
Committee
|
Nominating
&
Governance
Committee
|
|||||
|
Guy C. Jackson
|
X*
|
X
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||||||
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Joseph E. Laptewicz, Jr.
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X
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X*
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||||||
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Alfred J. Novak
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X
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X
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||||||
|
Arthur L. Rosenthal, Ph.D.
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X
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X*
|
||||||
|
Jon T. Tremmel
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X
|
|||||||
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_________________
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* Chairman
|
Audit Committee
Pursuant to its charter, which is reviewed annually by its members, the Audit Committee is appointed by our Board to assist it and to perform an oversight function by:
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·
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monitoring actions we take to comply with our internal accounting and control policies, as well as external accounting, legal, and regulatory requirements;
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·
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reviewing the qualifications and independence of the registered public accounting firm engaged for the purpose of auditing our consolidated financial statements and internal controls and issuing audit reports for inclusion in our Annual Report on Form 10-K (the “independent auditor”);
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·
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reviewing our consolidated financial statements and internal controls with management and the independent auditors; and
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·
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selecting our independent auditors and evaluating their performance.
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The Nominating & Governance Committee, in its business judgment, has determined that the Audit Committee is comprised entirely of directors who satisfy the standards of independence established under the SEC’s rules and regulations, NASDAQ listing standards, and our Corporate Governance Guidelines. The Nominating & Governance Committee, in its business judgment, has determined that each Audit Committee member is financially literate and two of the current members of the Audit Committee, Messrs. Jackson and Novak, qualify as “audit committee financial experts” within the meaning of the SEC’s rules and regulations.
According to its charter, the Audit Committee has the authority, at our expense, to retain professional advisors, including legal, accounting, or other consultants, to advise the Audit Committee in connection with the exercise of its powers and responsibilities. The Audit Committee may require any of our executive officers or employees, our outside legal counsel, or our independent auditor to attend a meeting of the Audit Committee or to meet with any members of, or consultants to, the Audit Committee. The Audit Committee is responsible for the resolution of any disagreements between the independent auditor and management regarding our financial reporting. The Audit Committee meets at least quarterly with management and the independent auditor in separate executive sessions to discuss any matter that any of these groups believe should be discussed privately. The Audit Committee makes regular reports to our Board.
The Report of the Audit Committee is set forth under “Audit Matters” in this proxy statement.
The Audit Committee held eight meetings and acted by written consent once during the fiscal year ended April 29, 2011.
Compensation Committee
The Compensation Committee establishes the salary and incentive compensation of our executive officers and administers our stock plans. The Nominating & Governance Committee, in its business judgment, has determined that the Compensation Committee is comprised entirely of directors who satisfy the standards of independence established under the SEC’s rules and regulations, NASDAQ listing standards, and our Corporate Governance Guidelines. The Report of the Compensation Committee is set forth under “Compensation Committee Report” (p. 37) in this proxy statement.
The Compensation Committee is delegated all authority of our Board as may be required or advisable to fulfill the purposes of the Compensation Committee as set forth in its charter. The Compensation Committee may form and delegate some or all of its authority to subcommittees when it deems appropriate.
Pursuant to its charter, which is reviewed by its members on an annual basis, the purposes of the Compensation Committee are to:
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review, evaluate, and approve the agreements, plans, policies, and programs to compensate our executive officers and to recommend the same for our directors;
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review and discuss with our management the Compensation Discussion and Analysis to be included in the proxy statement for our annual meeting of stockholders and determine whether to recommend to our Board that the Compensation Discussion and Analysis be included in this proxy statement, in accordance with applicable rules and regulations;
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produce the Compensation Committee Report for inclusion in this proxy statement, in accordance with applicable rules and regulations;
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otherwise discharge our Board’s responsibilities relating to compensation of our executive officers and directors; and
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perform such other functions as our Board may assign to the committee from time to time.
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In connection with these purposes, our Board has entrusted the Compensation Committee with the overall responsibility for establishing, implementing, and monitoring the compensation for our executive officers. In general, executive compensation matters are presented to the Compensation Committee or raised with the Compensation Committee in one of the following ways: (1) at the request of the Compensation Committee Chairman or another Compensation Committee member or member of our Board; (2) in accordance with our Corporate Governance Guidelines or the Compensation Committee’s charter; or (3) by our CEO.
The Compensation Committee works with our executive management team, including our CEO, Chief Financial Officer (“CFO”), and Chief Administrative Officer (“CAO”), to implement and promote our executive compensation strategy.
Our CEO is instrumental to this process. Specifically, our CEO assists the Compensation Committee by:
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recommending, at the beginning of the fiscal year, the company and individual performance objectives to be used in determining each executive officer’s annual bonus;
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recommending, at the beginning of the fiscal year, the adjustments (if any) to base salary levels for each executive officer;
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recommending, at the beginning of the fiscal year, an equity award for each executive officer;
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preparing, at the end of the fiscal year, an evaluation of each executive officer and a self-evaluation, including a comparison of performance to individual and company objectives approved by the Compensation Committee at the beginning of the fiscal year; and
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·
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recommending, following the end of the fiscal year, the amount of the annual bonus amounts for each executive officer.
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During fiscal 2011, our CFO assisted the Compensation Committee by providing financial data for the company performance objectives that are factored into the Compensation Committee’s compensation decisions. Our CAO assisted the Compensation Committee by providing historical executive compensation data requested by the Compensation Committee’s consultant. Finally, our other executive officers assisted in the compensation process by preparing self-evaluations of their annual performance at the end of the fiscal year for use by the CEO.
Our executive officers do not discuss executive compensation matters with the Compensation Committee’s compensation consultant in connection with the Compensation Committee’s process for determining executive officer compensation, except as needed to respond to questions from the consultant. The Compensation Committee’s consultant does not provide services for our executive officers or for the company.
Pursuant to its charter, the Compensation Committee has the sole authority to retain and terminate any compensation consultant used to assist in the evaluation of the compensation of our executive officers and directors and also has the sole authority to approve the consultant’s fees, which are then paid by the company, and other retention terms. During the fourth quarter of fiscal 2011, the Compensation Committee engaged the services of Pearl Meyer & Partners (“Pearl Meyer”), an experienced compensation consulting firm that has access to national compensation surveys, to perform a competitive review of compensation for our executive officers.
Using information uniquely available to it, Pearl Meyer prepared the reports requested by the Compensation Committee and met with the Compensation Committee to explain and discuss the matters included in its reports, including the relative position of our executive compensation program in the competitive market and the design of our compensation plans consistent with the Compensation Committee’s compensation philosophy.
Together with management, Pearl Meyer and any counsel or other advisors it deems appropriate, the Compensation Committee typically reviews and discusses the executive compensation matters presented and makes a final determination.
The Compensation Committee held 13 meetings and acted by written consent three times during the fiscal year ended April 29, 2011.
Nominating & Governance Committee
The Nominating & Governance Committee identifies individuals qualified to become members of our Board, makes recommendations to our Board regarding director nominees for the next annual meeting of stockholders, and develops and recommends corporate governance principles and policies to our Board. The Nominating & Governance Committee, in its business judgment, has determined that it is comprised entirely of directors who satisfy the standards of independence established under the NASDAQ listing standards and our Corporate Governance Guidelines. For information regarding the Nominating & Governance Committee’s policies and procedures for identifying, evaluating, and selecting director candidates, including candidates recommended by stockholders, please see “— Director Selection Process” (p. 8).
The Nominating & Governance Committee is delegated all authority of our Board as may be required or advisable to fulfill the purposes of the Nominating & Governance Committee as set forth in its charter, which is reviewed by its members on an annual basis. More particularly, the Nominating & Governance Committee:
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prepares and recommends appropriate corporate governance guidelines for adoption by our Board and modifications from time to time to those guidelines;
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establishes criteria for selecting new directors and actively seeks individuals qualified to become board members for recommendation to our Board;
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determines whether or not each director and each prospective director is independent, disinterested, or a non-employee director under the standards applicable to the Board and the committees on which such director is serving or may serve;
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determines as to each member of our Board’s Audit Committee whether such member qualifies as a “financial expert” within the meaning of the rules implementing Sarbanes Oxley section 407;
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recommends to our Board a non-executive director to serve as Chairman of our Board;
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reviews the advisability or need for any changes in the number of directors and composition of our Board and each director’s continuation on the Board every year;
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reviews the advisability or need for any changes in the number, charters, or titles of committees of our Board and recommends the composition of each committee and the individual director to serve as chairman of each committee;
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ensures that the chairman of each committee reports to our Board annually about the committee’s annual evaluation of its performance and evaluation of its charter;
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receives comments from all directors and reports to our Board annually with an assessment of our Board’s performance, to be discussed with the full Board following the end of each fiscal year;
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reviews and assesses the adequacy of our Corporate Governance Guidelines and recommends any proposed changes to our Board for approval;
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monitors compliance with our Board’s continuing education policy; and
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makes a report to our Board annually on succession planning and works with our Board to evaluate potential successors to the CEO.
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The Nominating & Governance Committee has the sole authority to retain, amend the engagement with, and terminate any search firm to be used to identify director candidates. It has sole authority to approve the search firm’s fees and other retention terms and has authority to cause us to pay the fees and expenses of the search firm. The Nominating & Governance Committee also has authority to obtain advice and assistance from internal or external legal, accounting, or other advisors, to approve the fees and expenses of such outside advisors, and to cause us to pay the fees and expenses of such outside advisors.
The Nominating & Governance Committee held four meetings and did not act by written consent during the fiscal year ended April 29, 2011.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is now, or at any time has been, employed by or served as an executive officer of Cyberonics, Inc. or any of its subsidiaries, or has had any substantial business dealings with Cyberonics, Inc. or any of its subsidiaries. None of our executive officers is now, or at any time has been, a member of the compensation committee or board of directors of another entity, one of whose executive officers has been a member of the Compensation Committee or our Board.
TRANSACTIONS WITH RELATED PERSONS
Recognizing that related person transactions involving our company present a heightened risk of conflicts of interest or improper valuation (or the perception thereof), our Board adopted a formal process set forth in the Board’s written meeting minutes for reviewing, approving, and ratifying transactions with related persons. This process is described below.
General
Under the policy, any “Related Person Transaction” may be consummated or may continue only if the Audit Committee approves or ratifies the transaction in accordance with the guidelines set forth in the policy.
For these purposes, a “Related Person” is:
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·
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a senior officer (which shall include, at a minimum, each executive officer and Section 16 officer) or director;
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·
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a stockholder owning more than 5% of our company (or its controlled affiliates);
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·
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a person who is an immediate family member of a senior officer or director; or
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·
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an entity that is owned or controlled by someone listed above, or an entity in which someone listed above has a substantial ownership interest or control of that entity.
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For these purposes, a “Related Person Transaction” is a transaction between our company and any Related Person (including any transactions requiring disclosure under Item 404 of Regulation S-K under the Securities Exchange Act of 1934, as amended (“Exchange Act”)), other than:
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·
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transactions involving compensation approved by the Compensation Committee;
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·
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transactions available to all employees generally; and
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·
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transactions involving less than $5,000 when aggregated with all similar transactions.
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Audit Committee Approval
Our Board has determined that the Audit Committee is best suited to review and approve Related Person Transactions. Accordingly, in the event that management recommends a Related Person Transaction, management is required to present the transaction to the Audit Committee in advance of entering into the transaction. If management is unable to present the transaction to the Audit Committee for approval in advance, management may enter into the transaction preliminarily, subject to ratification by the Audit Committee; provided, however, that if the Audit Committee does not so approve, management must make all reasonable efforts to cancel or annul the transaction, or if unable to do so, to amend it in a satisfactory manner. The Audit Committee may approve or ratify a Related Person Transaction only if the transaction is on terms comparable to those that could be obtained in arm’s length dealings with an unrelated third party.
Corporate Opportunity
Our Board recognizes that a member of our management or a director may be presented with a significant business opportunity that may equally be available to our company, either directly or via referral. Before the opportunity may be consummated by a Related Person (other than an otherwise unaffiliated 5% stockholder), the opportunity must be presented to the Audit Committee for consideration. The Audit Committee, in its discretion, may present the opportunity to our Board for consideration.
Disclosure
All Related Person Transactions must be disclosed in our applicable filings as required by SEC rules and regulations.
Other Agreements
Management assures that all Related Person Transactions are approved in accordance with any requirements of our financing agreements.
Since the beginning of the fiscal year ended April 29, 2011, we have not entered into any Related Person Transactions and there are no such currently proposed transactions.
ITEMS TO BE VOTED ON BY STOCKHOLDERS
Proposal No. 1: Election of Directors
Our Board is composed of seven directors, all of whom are seeking reelection at the Annual Meeting. Unless otherwise instructed, the Proxy Holders will vote all of the proxies received by them FOR each of the seven nominees named below. In the event that any of the nominees becomes unavailable, the Proxy Holders will vote, in their discretion, for a substitute nominee. It is not expected that any nominee will be unavailable. The term of office of each person elected as a director will continue until the 2012 Annual Meeting of Stockholders and until his successor has been elected and qualified, or until his earlier resignation or removal.
Our Director Nominees
Based on recommendations from the Nominating & Governance Committee, our Board has nominated seven directors for election at the Annual Meeting. The names and certain information about the nominees, including their ages as of the Annual Meeting date, are set forth below:
|
Name
|
Age
|
|
|
Guy C. Jackson
|
69
|
|
|
Joseph E. Laptewicz, Jr.
|
62
|
|
|
Daniel J. Moore
|
50
|
|
|
Hugh M. Morrison
|
64
|
|
|
Alfred J. Novak
|
63
|
|
|
Arthur L.Rosenthal, Ph.D.
|
64
|
|
|
Jon T. Tremmel.
|
65
|
Mr. Jackson has been a member of our Board since July 2003. In June 2003, Mr. Jackson retired from the accounting firm of Ernst & Young LLP after 35 years with the firm and one of its predecessors, Arthur Young & Company. During his career, Mr. Jackson served as the audit partner for a number of public companies. Mr. Jackson has a B.S. degree from The Pennsylvania State University and a M.B.A. from the Harvard Business School. Mr. Jackson also serves on the board of directors and is chairman of the audit committees of Digi International, Inc., a technology company, and Life Time Fitness, Inc., an operator of health and activity centers, and is a former director of Urologix, Inc., a medical device company and EpiCept Corporation, a specialty pharmaceutical company. Mr. Jackson’s particular qualifications for service on our Board include his understanding of audit committee and board processes, his substantial experience with external and internal audits, his expertise in the finance area, and his medical technology knowledge gained as a partner at Ernst & Young LLP and on other boards.
Mr. Laptewicz has been a member of our Board since September 2008. Mr. Laptewicz is a retired business executive with extensive medical device experience. From 1998 to 2005, he served on the board of directors of Advanced Neuromodulation Systems, Inc., a publicly-held manufacturer of implantable neuromodulation devices for the treatment of pain acquired by St. Jude Medical, Inc. in 2005. From 1996 to 2003, he served on the board of directors of AngioDynamics, Inc., a publicly-held manufacturer of interventional radiology products. From 1994 to 2000, Mr. Laptewicz served as President and CEO, and from 2001 to 2004 as Chairman of the board of directors, of Empi, Inc., a leading manufacturer and provider of non-invasive medical products for pain management and physical rehabilitation. From 1972 to 1994, Mr. Laptewicz served in various positions of increasing responsibility for subsidiaries of Pfizer, Inc., at the time a large pharmaceutical and medical technology company, including Vice President and General Manager from 1990 to 1991 and President from 1991 to 1994 of Schneider (USA), Inc., a worldwide manufacturer of catheters, stents, and related medical products. Mr. Laptewicz’s particular qualifications for service on our Board include many years of demonstrated managerial ability from service as CEO and President and in other senior executive positions at medical technology companies and his experience serving on the board of directors of Advanced Neuromodulation Systems, Inc.
Mr. Moore was appointed to our Board in May 2007. Contemporaneous with his appointment to our Board, Mr. Moore was appointed by our Board as President and CEO. Mr. Moore joined us from Boston Scientific Corporation (“Boston Scientific”), a diverse maker of minimally invasive medical products, where, since 1989, he held positions in sales, marketing, and senior management in the United States and in Europe. His last position at Boston Scientific was President, International Distributor Management. Prior to that role, he held the position of President, Inter-Continental, the fourth largest business unit of Boston Scientific, with more than 1,000 global employees and revenues exceeding $700 million. Mr. Moore previously held senior management positions at several Boston Scientific U.S. and international divisions. He currently serves as President of the Board of Directors for the Epilepsy Foundation of Texas and as a member of the Board of Directors for the National Epilepsy Foundation and the Board of Directors for the Medical Device Manufacturers Association. Mr. Moore’s particular qualifications for service on our Board include his extensive domestic and international sales, management, and operating executive experience at a diverse, global medical device manufacturer, as well as his service as the President and CEO of our company.
Mr. Morrison was appointed to our Board in November 2006. From September 2008 to the present, Mr. Morrison has served as Managing Director at Callahan Advisors, LLC, an investment management company. From 1983 to December 2005, Mr. Morrison served as a director, and from January 1998 to December 2005 as Chairman of the board of directors, of Advanced Neuromodulation Systems, Inc., a publicly-held designer, developer, manufacturer, and marketer of advanced implantable neurostimulation devices acquired by St. Jude Medical, Inc. in 2005. Mr. Morrison served as a director of Owen Healthcare, Inc., a publicly held hospital pharmacy management firm, from 1994 until it was acquired in 1996 by Cardinal Healthcare. In addition, Mr. Morrison served as a director of Dow Hickam Pharmaceuticals, Inc., a pharmaceutical manufacturer and marketer, from 1984 to 1991, when the company was sold to Mylan Laboratories, Inc. From March 1996 to May 2006, Mr. Morrison served as President and CEO, and from January 1998 to May 2006 as Chairman of the board of directors, of Pilgrim Cleaners, Inc., a retail dry cleaning company operating over 100 stores (“Pilgrim”), and its parent, Clean Acquisition, Inc. (“Clean”). In January 2004, Pilgrim and Clean each filed a petition under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of Texas, Houston Division. Subsequent to Mr. Morrison’s resignation, Pilgrim and Clean each filed a petition under Chapter 7 of the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of Texas, Houston Division in July 2006. Mr. Morrison is licensed as a Certified Public Accountant. Mr. Morrison’s particular qualifications for service on our Board include his extensive board leadership experience in the healthcare sector, specific knowledge of neurostimulation device businesses, his operating executive experience, and his accounting expertise.
Mr. Novak was appointed to our Board in January 2007. Since September 1999, Mr. Novak has served on the board of directors of OrbusNeich Medical Technology Company, Ltd., a privately held interventional cardiology company, where he was elected Chairman and CEO in January 2010. From April 1998 until August 2009, he served as the Chairman of the board of directors of ProRhythm, Inc., a company dedicated to the treatment of atrial fibrillation through the use of ultrasound technologies. From September 1998 until 2003, he was a founder and co-owner of Syntheon, LLC, a privately-held company focused on minimally invasive medical devices for the gastroenterology and vascular markets. From October 2002 until March 2006, Mr. Novak was the President, CEO and director of Novoste Corporation, a publicly-held interventional cardiology company. From December 1998 until October 2002, Mr. Novak was a member of the board of directors of Sutura, Inc., a vascular closure company. Mr. Novak was President, CEO, and a director of Biosense, Inc., an electrophysiology company, from July 1996 until January 1998. He was employed by Cordis Corporation, then a publicly-held cardiology company, from April 1984 until July 1996 and served as its Vice President and CFO. Mr. Novak’s particular qualifications for service on our Board include his broad operating executive experience as CEO and CFO at medical device companies, his board experience at medical device companies, his expertise concerning new product development in a medical device company, and his finance and accounting expertise.
Dr. Rosenthal was appointed to our Board in January 2007. Since June 2011, he has served as Executive Vice Chairman of Cappella, Inc., a development stage company focused on novel device solutions for coronary artery disease. From June 2009 until June 2011, he served as President and CEO of Cappella, Inc. Dr. Rosenthal served as Chairman, from January 2002, and CEO, commencing in January 2005, of Labcoat, Ltd. until its acquisition by Boston Scientific Corporation in December 2008. From January 1994 to May 2000, he was a Senior Vice President, Corporate Officer, and Chief Development Officer of Boston Scientific, and from May 2000 until his retirement in January 2005, he was a Senior Vice President, Chief Scientific Officer, and Executive Committee Member of Boston Scientific. Dr. Rosenthal retired in February 2010 from his position as a non-executive director and Chairman of the Remuneration Committee for Renovo, Ltd., a U.K. publicly-traded pharmaceutical company. In July 2009, Dr. Rosenthal joined the board of Interface Biologics, Inc, a Toronto-based development stage company focused on drug delivery devices, as a non-executive director. In April 2011, he was elected Chairman at Interface Biologics, Inc. In June 2011, he joined the boards of Tornado Medical Systems Inc., an early-stage medical imaging and spectroscopy company based in Toronto, and Arch Therapeutics, Inc., a life science company based in Natick, MA developing liquid polymers to stop or control bleeding. Dr. Rosenthal’s particular qualifications for service on our Board include his extensive knowledge of regulatory and compliance requirements pertaining to medical devices, his experience with new product development, and his experience as an operating executive at a major medical device manufacturer.
Mr. Tremmel has been a business consultant since his retirement from Medtronic, Inc. in April 2007, where he had been the President of Medtronic, Inc.’s Neurological Division since March 2003 and President of Medtronics’s Physio-Control Division from May 2001 until March 2003. Mr. Tremmel also served as the President of Medtronics’s Tachyarrhythmia Management and Interventional Vascular Divisions between 1992 and 2001. Prior to 1992, he served in various positions of increasing responsibility at Medtronic after joining the company in 1978. Mr. Tremmel currently serves on the board of directors and compensation committee of EnteroMedics, Inc., a publicly traded company developing a neurostimulation device for the treatment of obesity, Nevro, Inc., a privately-held company developing a neurostimulation device for the treatment of chronic pain, and Medasys Inc., a privately-held company developing implantable pumps for chronic pain. Mr. Tremmel’s particular qualifications for service on our Board include his extensive global experience in the medical device industry, including expertise in strategic planning, new business development, and organization development, as well as specific responsibility for a large implantable neurostimulation device business.
OUR BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” EACH OF OUR BOARD’S NOMINEES IDENTIFIED ABOVE.
Proposal No. 2: Ratification of the Selection of the Independent Registered Public Accounting Firm
The Audit Committee has selected KPMG L.L.P. as our independent registered public accounting firm to conduct our audit for the fiscal year ending April 27, 2012.
We engaged KPMG L.L.P. to serve as our independent registered public accounting firm and to audit our consolidated financial statements beginning with the fiscal year ended April 26, 2002. The engagement of KPMG L.L.P. has been approved annually by our Board or by the Audit Committee, as the Board’s delegate. The Audit Committee has reviewed and discussed the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 29, 2011, and has recommended, and our Board has approved, their inclusion therein. See “Audit Matters—Report of the Audit Committee” (p. 56).
Although stockholder ratification of the selection of KPMG L.L.P. is not required, the Audit Committee and our Board consider it desirable for our stockholders to vote on this selection. Even if the selection is ratified, however, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it believes that such a change would be in the best interests of us and our stockholders.
A representative of KPMG L.L.P. is expected to be present at the Annual Meeting and will have an opportunity to make a statement if the representative desires to do so and will be available to respond to appropriate questions from stockholders at the Annual Meeting.
OUR BOARD RECOMMENDS VOTING “FOR” THE RATIFICATION OF THE SELECTION OF KPMG LLP.
Proposal No. 3: Advisory Vote on the Compensation of the Company’s Named Executive Officers
In accordance with the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), the Company is providing its stockholders the opportunity to cast a non-binding advisory vote on the compensation of our named executive officers as set forth in this proxy statement. This vote is commonly referred to as a “Say-on-Pay” vote. This is an advisory vote, and as such, is not binding on the Board. However, the Compensation Committee will take the results of the vote into account when considering executive compensation.
OUR BOARD RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE PROPOSAL TO APPROVE THE COMPENSATION OF THE COMPANY’S EXECUTIVE OFFICERS.
Proposal No. 4: Advisory Vote on the Frequency of Future Advisory Votes on Executive Compensation
The Dodd-Frank Act also enables stockholders, on an advisory basis, to express their preference on how frequently they would like the Company to conduct future advisory votes on executive compensation. This is an advisory vote, and as such is not binding on the Board. However, the Board will take the results of the vote into account when deciding when to call for the next advisory vote on executive compensation. A scheduling vote similar to this will occur at least once every six years.
OUR BOARD RECOMMENDS A VOTE FOR “EVERY THREE YEARS.”
STOCK OWNERSHIP MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC. Such officers, directors and 10% stockholders are also required by securities laws to furnish us with copies of all Section 16(a) forms they file.
For the fiscal year ended April 29, 2011, Jon T. Tremmel filed on February 3, 2011 a Form 4 that should have been filed no later than September 27, 2010. To our knowledge and based on written representations from our officers and directors, we believe that all other reports required to be filed pursuant to Section 16(a) were filed in a timely manner.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of August 1, 2011, except where otherwise noted, certain information with respect to the amount of our common stock beneficially owned (as defined by the SEC’s rules and regulations) by (1) each of our named executive officers, (2) each of our directors and director nominees, (3) all current executive officers and directors as a group and (4) each person known by us to own beneficially more than 5% of the outstanding shares of our common stock. Except as otherwise noted below, we are not aware of any agreements among our stockholders that relate to voting or investment of shares of our common stock.
|
Amount and Nature of Beneficial Ownership (1)
|
||||||||
|
Name of Beneficial Owner
|
Shares Owned
|
Shares Under Exercisable Options
|
Total Beneficial Ownership
|
Percent of
Class
(2)
|
||||
|
Named Executive Officers:
|
||||||||
|
Daniel J. Moore (3)
|
443,466
|
40,715
|
484,181
|
1.72%
|
||||
|
Gregory H. Browne (4)
|
155,938
|
25,030
|
180,968
|
*
|
||||
|
Milton M. Morris (5)
|
116,457
|
15,522
|
131,979
|
*
|
||||
|
James A. Reinstein (6)
|
171,418
|
34,550
|
205,968
|
*
|
||||
|
David S. Wise (7)
|
143,253
|
215,194
|
358,447
|
1.27%
|
||||
|
Directors and Director Nominees: (8)
|
||||||||
|
Guy C. Jackson (9)
|
27,859
|
43,000
|
70,859
|
*
|
||||
|
Joseph E. Laptewicz, Jr. (10)
|
17,833
|
—
|
17,833
|
*
|
||||
|
Hugh M. Morrison (11)
|
28,668
|
—
|
28,668
|
*
|
||||
|
Alfred J. Novak (12)
|
26,059
|
—
|
26,059
|
*
|
||||
|
Arthur L. Rosenthal, Ph.D. (13)
|
26,059
|
—
|
26,059
|
*
|
||||
|
Jon T. Tremmel (14)
|
7,178
|
—
|
7,178
|
*
|
||||
|
All current executive officers and directors as a group (14 persons)
|
1,322,748
|
640,374
|
1,963,122
|
6.83%
|
||||
|
5% Holders Not Listed Above
|
||||||||
|
FMR LLC (15)
82 Devonshire Street
Boston, MA 02109
|
3,410,862
|
—
|
3,410,862
|
12.13%
|
||||
|
Palo Alto Investors, LLC (16)
470 University Avenue
Palo Alto, CA 94301
|
2,980,824
|
—
|
2,980,824
|
10.60%
|
||||
|
BlackRock Inc. (17)
40 East 52nd Street
New York, NY 10022
|
2,082,554
|
—
|
2,082,554
|
7.41%
|
||||
|
The Vanguard Group, Inc. (18)
P.O. Box 2600
Valley Forge, PA 19482
|
1,449,825
|
—
|
1,449,825
|
5.16%
|
||||
|
* Less than 1%
|
|
(1)
|
Beneficial ownership is determined in accordance with the SEC’s rules and regulations and generally includes voting or investment power with respect to securities. Shares of our common stock subject to options and warrants currently exercisable, or exercisable within 60 days after August 1, 2011, are deemed outstanding for purposes of computing the percentage of shares beneficially owned by the person holding such options, but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.
|
|
(2)
|
Based on total shares outstanding of 28,119,711 at August 1, 2011.
|
|
(3)
|
Includes 266,380 shares of unvested restricted stock as to which Mr. Moore does not have investment power and 40,715 shares as to which Mr. Moore has a right to acquire beneficial ownership within 60 days.
|
|
(4)
|
Includes 106,525 shares of unvested restricted stock as to which Mr. Browne does not have investment power and 25,030 shares as to which Mr. Browne has a right to acquire beneficial ownership within 60 days.
|
|
(5)
|
Includes 116,457 shares of unvested restricted stock as to which Dr. Morris does not have investment power and 15,522 shares as to which Dr. Morris has a right to acquire beneficial ownership within 60 days.
|
|
(6)
|
Includes 106,099 shares of unvested restricted stock as to which Mr. Reinstein does not have investment power and 34,550 shares as to which Mr. Reinstein has a right to acquire beneficial ownership within 60 days.
|
|
(7)
|
Includes 114,513 shares of unvested restricted stock as to which Mr. Wise does not have investment power and 215,194 shares as to which Mr. Wise has a right to acquire beneficial ownership within 60 days.
|
|
(8)
|
Excludes the beneficial ownership of Mr. Moore, which is reported above.
|
|
(9)
|
Includes 3,445 shares of unvested restricted stock as to which Mr. Jackson does not have investment power and 43,000 shares as to which Mr. Jackson has a right to acquire beneficial ownership within 60 days.
|
|
(10)
|
Includes 9.790 shares of unvested restricted stock as to which Mr. Laptewicz does not have investment power.
|
|
(11)
|
Includes 6,591 shares of unvested restricted stock as to which Mr. Morrison does not have investment power.
|
|
(12)
|
Includes 5,445 shares of unvested restricted stock as to which Mr. Novak does not have investment power.
|
|
(13)
|
Includes 5,445 shares of unvested restricted stock as to which Dr. Rosenthal does not have investment power.
|
|
(14)
|
Includes 7,178 shares of unvested restricted stock as to which Mr. Tremmel does not have investment power.
|
|
(15)
|
Based on a Form 13F filed with the SEC for the quarter ended March 31, 2011.
|
|
(16)
|
Based on a Form 13F filed with the SEC for the quarter ended March 31, 2011.
|
|
(17)
|
Based on a Form 13F filed with the SEC for the quarter ended June 30, 2011.
|
|
(18)
|
Based on a Form 13F filed with the SEC for the quarter ended March 31, 2011.
|
Equity Compensation Plan Information
The following table sets forth certain information regarding our equity compensation plans as of April 29, 2011:
|
Plan Category
|
Number of Securities to
be Issued Upon
Exercise of Outstanding
Options, Warrants and
Rights
(A)
|
Weighted
Average Exercise
Price of
Outstanding
Options
Warrants and
Rights
(B)
|
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (A))
(C)
|
|||||||
|
Equity compensation plans approved by security holders(1)
|
2,217,789
|
$15.85
|
1,517,149
|
|||||||
|
Equity compensation plans not approved by security holders(2)
|
351,767
|
$16.80
|
281,619
|
|||||||
|
Total
|
2,569,556
|
$15.98
|
1,798,768
|
|||||||
|
_________________________
|
||||||||||
|
(1)
|
The Cyberonics, Inc. Amended and Restated 1996 Stock Option Plan (“1996 Stock Plan”), the Cyberonics, Inc. Amended and Restated 1997 Stock Plan (“1997 Stock Plan”), the Cyberonics, Inc. 1998 Stock Option Plan (“1998 Stock Plan”), the Cyberonics, Inc. 2005 Stock Plan (“2005 Stock Plan”), and the Cyberonics, Inc. 2009 Stock Plan (“2009 Stock Plan”) were approved by our Board and became effective in November 1996, November 2000, October 1998, March 2005, and August 2009, respectively. Options granted under the 1996 Stock Plan (now expired), the 1997 Stock Plan (no longer available), and the 2005 Stock Plan (no longer available) generally vest ratably over four or five years following their date of grant. Options granted under the 1998 Stock Plan (now expired) generally vest seven years from the grant date, but can accelerate based upon the achievement of specific milestones related to regulatory approval and the achievement of company objectives. Option awards have a maximum term of 10 years. The following table reflects the number of options, warrants, and rights outstanding and the number of shares available for awards under the stock plans as of April 29, 2011:
|
|
Stock Plan
|
Outstanding Options, Warrants and Rights
|
Shares
Available for Future Issuance
|
||
|
1996 Stock Plan
|
503,647
|
0
|
||
|
1997 Stock Plan
|
1,066,590
|
0
|
||
|
1998 Stock Plan
|
42,242
|
0
|
||
|
2005 Stock Plan
|
148,245
|
0
|
||
|
2009 Stock Plan
|
457,065
|
1,517,149
|
|
(2)
|
New Employee Equity Inducement Plan. The Cyberonics, Inc. New Employee Equity Inducement Plan (the “New Employee Plan”) is a non-stockholder approved plan, which was adopted by our Board on June 1, 2003. It was subsequently amended and restated by our Board on April 24, 2007. The New Employee Plan provides for the award of unrestricted shares, restricted stock, and stock options to newly hired employees. We have reserved 1,150,000 shares of common stock for issuance under the New Employee Plan. All option awards will have an exercise price per share of no less than 100% of the fair market value per share of our common stock on the grant date. Any vesting period and the term of the option, up to ten years, as well as the form of consideration to be paid on exercise, are determined by our Board or the Compensation Committee at the time the award is granted. The terms of any restricted stock award, including forfeiture terms, are also determined by our Board or the Compensation Committee at the time the award is granted.
|
|
The following table reflects the number of options, warrants, and rights outstanding and the number of shares available for awards under the New Employee Plan as of April 29, 2011:
|
|
Stock Plan
|
Outstanding Options,
Warrants and Rights
|
Shares Available
for Future
Issuance
|
||
|
New Employee Plan
|
351,767
|
281,619
|
Our pending legal proceedings are limited to ordinary routine litigation incidental to our medical device business.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
|
Name
|
Age
|
Position
|
||
|
Daniel J. Moore
|
50
|
President & CEO
|
||
|
Darren W. Alch
|
45
|
Vice President, Corporate Counsel & Compliance Officer, Assistant Secretary
|
||
|
Gregory H. Browne
|
58
|
Senior Vice President, Finance & CFO
|
||
|
Milton M. Morris
|
41
|
Vice President, Research & Development
|
||
|
Bryan D. Olin
|
44
|
Vice President, Clinical , Quality & Regulatory
|
||
|
James A. Reinstein
|
46
|
Senior Vice President & Chief Commercial Officer
|
||
|
Randal L. Simpson
|
51
|
Vice President, Operations
|
||
|
David S. Wise
|
56
|
Senior Vice President & Chief Administrative Officer, Secretary
|
||
|
Mark S. Verratti
|
43
|
Vice President, Sales – The Americas, Asia & EMMEA
|
Mr. Moore’s biographical information is set forth under “Items To Be Voted On By Stockholders — Proposal No. 1: Election of Directors — Our Director Nominees” (p. 15).
Mr. Alch joined us in August 2005 as Compliance Officer and Assistant General Counsel. He also assumed the role of Privacy Officer at that time. He was appointed Assistant Corporate Secretary in December 2010. In April 2011, he was appointed to his current position as Vice President, Corporate Counsel & Compliance Officer and Assistant Secretary with responsibility for all U.S. and worldwide legal functions other than intellectual property. Before joining Cyberonics, he was a shareholder in the health law group of the national law firm of Jenkens & Gilchrist, P.C., which he joined in 1996. Prior to Jenkens & Gilchrist, he worked for pharmaceutical manufacturer Pfizer, Inc. in a sales and marketing capacity. Mr. Alch is a graduate of the U.S. Military Academy at West Point, and served on active duty in the U.S. Army as a field artillery officer.
Mr. Browne joined us in July 2007 as Vice President, Finance & CFO. In April 2011, he was promoted to Senior Vice President, Finance & CFO. Mr. Browne has served as both CEO and CFO for several publicly traded healthcare companies. From May 2002 to June 2006, he was CFO at Amedisys, Inc., a home nursing company with revenues in excess of $600 million, during a period of substantial growth in revenue, profitability and market capitalization. From June 2006 to November 2006, Mr. Browne was a private investor, and from November 2006 to July 2007, he was a partner with Tatum, LLC, an executive services company. He founded in 1996 and served as President until March 2001 and a director until October 2001 at PeopleWorks, Inc., a human resource outsourcing company. PeopleWorks filed a petition for reorganization under chapter 11 of the Bankruptcy Code in November 2001. PeopleWorks’s petition was converted to chapter 7, and the company was liquidated in 2002. From January 1992 to July 1995, he served as CEO for Ramsay Healthcare Inc., a provider of psychiatric services, and from 1989 to 1991 as CEO for Ramsay-HMO, Inc., a health maintenance organization.
Dr. Morris joined us in January 2009 as Vice President, Research & Development, from Innerpulse Corporation, a private company developing an implantable defibrillator, where he had been the Director, Program Management & Operations since July 2007. Prior to Innerpulse, he spent 11 years at Boston Scientific and its predecessor, Guidant Corporation, where he served as Director, Marketing from May 2006 to July 2007, Field Clinical Representative from October 2004 to May 2006, Director, Research & Development from November 2002 to October 2004, and Manager, Research & Development from October 1999 to October 2002. Dr. Morris received his Ph.D. in Electrical Engineering from The University of Michigan and his Masters of Business Administration from the Kellogg School of Management at Northwestern University.
Dr. Olin joined us in May 2009 as Vice President, Quality. In August 2009, he assumed additional responsibility for Clinical Affairs, and in April 2011, his responsibilities were expanded again to include Regulatory Affairs. Prior to May 2009, Dr. Olin was employed at Zeltiq Aesthetics, Inc., a privately held medical technology company in the San Francisco area, where he had served as Sr. Director, Quality Assurance since October 2007. Prior to Zeltiq Aesthetics, Dr. Olin was employed at the LifeScan and Cordis companies of Johnson & Johnson from 1999 to 2007, holding several positions of increasing responsibility in quality assurance, statistics, and clinical data management. Dr. Olin began his career with Procter & Gamble in 1993 after obtaining his Ph.D. in Statistics from Iowa State University. In August 2009, in addition to his Quality responsibilities, Dr. Olin was named Interim Vice President, Clinical Affairs, and in November 2009, he was appointed as our Vice President, Clinical Affairs and Quality.
Mr. Reinstein joined us in August 2007 as Vice President, Sales & Marketing and General Manager, International. In April 2011, he was promoted to Senior Vice President & Chief Commercial Officer. Prior to August 2007, Mr. Reinstein had a 17-year career at Boston Scientific Corporation, where he held positions in sales, marketing, and general management in the United States, Europe, Latin America, and Asia. From 2005 through mid 2007, he served as Vice President of Asia with direct leadership of Korea, Taiwan, and Hong Kong. Prior to that role, he was the Country Director of Boston Scientific de Mexico, where the business experienced compounded annual growth in excess of 30%. Countries under his leadership were recognized for excellence relative to peer countries in four of his last six years, with Korea being recognized as the top international country in 2006. Additionally, Mr. Reinstein held senior management positions at several Boston Scientific U.S. and international divisions. Prior to joining Boston Scientific, he spent four years with The Procter & Gamble Company in sales and management roles.
Mr. Simpson joined us in 1998 and served in various manufacturing management positions such as Director, Manufacturing, Director, Materials, and Sr. Director of Operations, until October 2003 when he became Vice President, Operations. From March 2006 until May 2008, Mr. Simpson was responsible for the Quality Department, and from August 2007 until January 2009, he also assumed responsibility for the Research & Development Department. From February to May 2009, he again assumed responsibility for Quality. Prior to joining us, Mr. Simpson was employed by Intermedics, Inc., a manufacturer of implantable medical devices for cardiac rhythm management, including pacemakers and defibrillators, as Manager of Manufacturing. Mr. Simpson has more than 25 years of manufacturing experience with more than 18 years of experience in the medical device industry.
Mr. Wise joined us in September 2003 as Vice President and General Counsel. He was appointed our Secretary in November 2003. In June 2009, he also assumed responsibility for the Human Resources Department. In April 2011, he was promoted to Senior Vice President & Chief Administrative Officer. From 1994 to 2003, he was employed in positions of increasing responsibility at Centerpulse USA, Inc. (formerly Sulzer Medica), a global medical devices company, where he served as Group Vice President and General Counsel. Prior to Centerpulse, he spent 12 years in private practice focused on intellectual property and commercial litigation. Mr. Wise currently serves as a member of the Board of Directors of the Epilepsy Foundation of Texas.
Mr. Verratti joined us in March 2005 to help lead our epilepsy and depression sales forces primarily in the United States and since that time has served in various sales management positions. He is currently our Vice President, Sales - The Americas, Asia and EMMEA. Prior to March 2005, he held the position of Northeast Area Director for Forest Pharmaceuticals, managing more than 450 employees and revenues exceeding $500 million. Mr. Verratti has more than 18 years of sales and marketing experience in the pharmaceutical and medical device industry.
COMPENSATION DISCUSSION AND ANALYSIS
The following Compensation Discussion and Analysis contains statements regarding future individual and company performance targets and goals. These targets and goals are disclosed in the limited context of our executive compensation program and should not be understood to be statements of management’s expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts.
Executive compensation for fiscal 2011 aligned well with the objectives of our compensation philosophy and with our performance, highlighted by the following factors:
|
·
|
As a total mix, our performance in fiscal 2011 slightly exceeded our targets, leading to annual executive bonus payouts at or slightly above target amounts.
|
|
·
|
Overachievement in the U.S. market was offset by underperformance in our international markets, resulting in strong consolidated revenue growth (up 13.5% to $190.4 million) and income from operations (up 33.4% to $49.2 million) that slightly exceeded targets.
|
|
·
|
Cash flow from operating activities, global epilepsy unit sales, and U.S. new patient unit sales all increased over prior year (16%, 6%, and 9%, respectively), but global epilepsy unit sales, again owing to underperformance in our international markets, failed to meet target.
|
|
·
|
Our new product development targets were met in the case of our AspireSR™ (Seizure Response) generator by implanting a generator in a European patient and were exceeded in the case of our AspireHC™ (High Capacity) generator by achieving FDA approval to market the generator.
|
|
·
|
The combination of growth in revenue and earnings per share, and the strong performance of our stock price in fiscal 2011 (up 82%), resulted in the achievement of performance conditions for performance-based restricted stock awarded to three of our executive officers in fiscal 2008.
|
|
·
|
Our balanced program fosters employee achievement, retention, and engagement. We delivered a total compensation package composed of salary, performance-based annual cash awards, and time-based (and in some cases, performance-based) equity awards, supplemented by a competitive employee benefits program. Together, these elements reinforced pay-for-performance, provided a balanced focus on both long- and short-term performance, and encouraged employee retention and engagement.
|
Throughout this proxy statement, the individuals who served as our principal executive officer and our principal financial officer during fiscal 2011, as well as our other three executive officers who had the highest compensation for fiscal 2011, are referred to as “Named Executive Officers.” Our “executive officers,” each of whom is identified under “Information About our Executive Officers” above, include our Named Executive Officers, as well as other persons serving as our vice presidents. The terms of office and positions held by each of our Named Executive Officers are shown in the table below.
|
Name
|
Position
|
Term of Office
|
||
|
Current Officers:
|
||||
|
Daniel J. Moore
|
President & CEO
|
May 2007 – Current
|
||
|
Gregory H. Browne
|
Vice President, Finance & CFO
Senior Vice President, Finance & CFO
|
July 2007 – March 2011
April 2011 – Current
|
||
|
Milton M. Morris
|
Vice President, Research & Development
|
January 2009 – Current
|
||
|
James A. Reinstein
|
Vice President, Sales & Marketing and General Manager, International
Senior Vice President & Chief Commercial Officer
|
August 2007 – March 2011
April 2011 – Current
|
||
|
David S. Wise
|
Vice President and General Counsel
Secretary
Vice President, Human Resources
Senior Vice President & Chief Administrative Officer
|
Sept. 2003 – March 2011
Nov. 2003 – March 2011
June 2009 – March 2011
April 2011 – Current
|
The Compensation Framework
On behalf of our Board, the Compensation Committee (referred to as the “Committee” for purposes of this Compensation Discussion and Analysis) reviews, evaluates, and approves all compensation for our executive officers, including our compensation philosophy, policies, and plans. Some of our executive officers also play important roles in the executive compensation process; however, all final decisions regarding executive compensation remain with the Committee. The Committee obtains compensation data, as it deems appropriate, from an independent compensation consultant engaged directly by the Committee. During the fourth quarters of fiscal 2010 and fiscal 2011, the Committee engaged the services of Pearl Meyer, an executive compensation consulting firm that has access to national compensation surveys, as well as our compensation information, to assist the Committee in determining the form and amount of executive compensation. For additional information regarding the Committee’s processes and procedures for the consideration and determination of executive officer compensation, including the role of the Committee’s consultant and management in the process, see “Corporate Governance — Committees of Our Board — Compensation Committee” (p. 11).
Objectives of Our Executive Compensation Program. We have developed an executive compensation program that is designed (1) to recruit and retain key executive officers responsible for our success and (2) to motivate management to enhance long-term stockholder value. To achieve these goals, the Committee’s executive compensation decisions are based on the following principal objectives:
|
·
|
Providing a competitive compensation package that attracts, motivates, and retains executive officers with the skills and experience to ensure our long-term success. We have designed multiple pay and reward vehicles that work together to achieve our overall compensation objectives. These vehicles deliver a competitive package that focuses on rewarding performance and retaining talent, while maintaining alignment with stockholder interests.
|
|
|
·
|
Rewarding individual performance while ensuring a meaningful link between our operational performance and the total compensation received by our executive officers. A substantial portion of each executive officer’s compensation is based on the collective performance of our management team, as measured by the achievement of broad company objectives, and to a lesser extent, by the achievement of individual performance objectives. The emphasis on overall performance is designed to focus our executive officers, working as a team, on a common purpose and shared performance standards aligned with stockholder interests. Individual performance objectives emphasize the elements of overall team performance more directly controlled by individual officers, thereby enhancing overall team performance and maintaining alignment with stockholder interests.
|
|
|
·
|
Balancing the components of compensation so that short-term (annual) and long-term performance objectives are recognized. Our success depends on our executive officers being focused on the critical strategic and tactical objectives, both short-term and long-term, that lead to our success as a company. The components of our compensation package, coupled with the performance objectives, align our executive compensation with our business objectives. This philosophy is applied throughout our compensation programs for all employees. The design of the program, the selected performance objectives, and the timing of awards and payouts are all intended to drive business performance and increase stockholder returns.
|
The Compensation Setting Process. For a discussion of the roles of our executive officers and the Committee in the consideration and determination of executive officer compensation, see “Corporate Governance — Committees of Our Board — Compensation Committee” (p.11). The Committee uses several tools to set compensation elements and compensation targets consistent with our executive compensation program objectives. These include:
|
·
|
Assessment of Individual Performance. Individual performance has a strong impact on compensation.
|
|||
|
–
|
CEO. The Committee meets with our CEO at the beginning of the fiscal year to agree on the CEO’s performance objectives for the year. At the end of the fiscal year, the Committee and the Chairman of our Board each meet with the CEO and in executive session to assess the CEO’s performance based on his achievement of the objectives, contribution to our company’s performance, ethics and integrity, and other leadership accomplishments.
|
|||
|
–
|
Other Executive Officers. For all other executive officers, the Committee receives performance assessments and compensation recommendations from the CEO and also exercises its judgment based on the Board’s interactions with the executive officers. As with the CEO, an executive officer’s performance assessment is based on his achievement of the objectives, contribution to our company’s performance, ethics and integrity, and other leadership accomplishments.
|
|||
|
·
|
Assessment of Company Performance. The Committee establishes specific company performance targets that determine payouts under the annual cash incentive (executive bonus) program and under performance-based equity incentive awards.
|
|||
|
·
|
Benchmarking Analysis. The Committee reviews peer-group data as a market check for compensation decisions, but does not base compensation targets on peer-group data alone.
|
|||
|
–
|
Individual Competitiveness. The Committee compares the overall pay of individual executives to the most relevant benchmarking data available from its consultant, Pearl Meyer. The individual’s pay is driven primarily by individual and company performance and internal pay equity; the peer group data is used as a market check to ensure that individual pay remains within the broad middle range of peer group pay. The Committee typically seeks to maintain base salary in the broad middle range of peer group pay, but will permit annual bonus and long-term equity incentive awards to approach the upper end of the middle range.
|
|||
|
–
|
Overall Competitiveness. The Committee uses aggregated market data as a reference point to ensure that executive compensation is competitive, meaning within at least the broad middle range of comparative pay at peer companies when the company achieves the targeted performance levels.
|
|||
|
–
|
Peer Group. The Committee used the 2010 Peer Group to benchmark compensation decisions for fiscal 2011.
|
|||
|
·
|
The 2010 Peer Group. The peer group consists of Abiomed, Inc., AngioDynamics, Inc., ATS Medical, Inc., Cardiac Sciences Corporation, Conceptus Incorporated, Exactech, Inc., Micrus Endovascular Corporation, Nuvasive, Inc., NxStage Medical, Inc., The Spectranetics Corporation, Synovis Life Technologies, Inc., Thoratec Corporation, Wright Medical Group, Inc., and ZOLL Medical Corporation. The 2010 Peer Group was identified by Pearl Meyer from among a pool of potential peer companies within the healthcare equipment, healthcare supplies, biotechnology, and pharmaceuticals industries having revenues and market capitalization generally between one-fourth and four times those of our company at the time the peer group was selected. Pearl Meyer focused on companies that have similar products and business models and that employ people with the unique skills required to operate an established medical device business. The 2010 Peer Group was the same peer group used in fiscal 2009, except that Haemonetics Corporation (revenues increased beyond the prescribed range) and VNUS Medical Technologies, Inc. (acquired by Covidien plc) were replaced by ATS Medical, Inc. and Nuvasive, Inc. Pearl Meyer also created a composite benchmarking survey in fiscal 2010 by averaging Peer Group data with data obtained from a SIRS Executive Compensation Survey and data obtained from a confidential source of broader medical device, pharmaceutical, and biotechnology companies. For certain executive officers, Pearl Meyer used ordinal data obtained by matching positions based on rank of target total cash compensation among the named executive officers in the peer group (i.e., matching the second-highest-paid to the fifth-highest-paid named executive officers in the peer group to our named executive officers) rather than positional data based on title and responsibilities, for positions not common in the 2010 Peer Group. These included the V.P., Sales & Marketing and General Manager, International (matched to the third-ranked named executive officer in the peer group) and the V.P., General Counsel & Human Resources (matched to the fourth-ranked named executive officer in the peer group). The composite benchmarking survey, as supplemented by ordinal data for certain officers, is referenced below as the “2010 Composite Survey.”
|
|||
|
·
|
The 2011 Peer Group. The Committee used the 2010 Peer Group, with compensation data aged by 12 months (“2011 Peer Group”), to benchmark compensation decisions for fiscal 2012. Pearl Meyer used the 2011 Peer Group to create a customized set of benchmarking data (“2011 Custom Survey”) comprising 100% positional data for positions closely matched to positions in the survey (i.e., CEO, CFO, and V.P., Research & Development), 100% ordinal data from the peer group for one position having no positional match in the survey data (i.e., V.P., Sales & Marketing and General Manager, International), and a blend of positional data and ordinal data for one position with limited positional matches in the survey data (i.e., the V.P., General Counsel & Human Resources).
|
|||
Reducing the Possibility of Excessive Risk-Taking. Our executive compensation program is designed to motivate and reward our executive officers for their performance during the fiscal year and over the long term and for taking appropriate risks toward achieving our long-term financial and strategic growth objectives. The following characteristics of our executive compensation program work to reduce the possibility of our executive officers, either individually or as a group, making excessively risky business decisions that could maximize short-term results at the expense of long-term value:
|
·
|
Balanced Mix of Pay Components. The target compensation mix is not overly weighted toward annual incentive awards and represents a balance of base salary, annual short-term incentive compensation in the form of a cash bonus, and long-term equity-based compensation vesting over three or four years or based on long-term performance objectives.
|
|
|
·
|
Bracketed Incentive Awards. Annual cash bonuses can be as little as 0%, but no more than 200%, of target.
|
|
|
·
|
Stock Ownership Guidelines. Our executive officers and directors are encouraged to comply with guidelines suggesting the ownership of substantial equity positions in our stock. See “Other Matters — Stock Ownership Guidelines and Hedging Prohibitions” (p. 34).
|
|
|
·
|
Performance Assessments. Compliance and ethical behaviors are integral factors considered in all performance assessments.
|
Executive Compensation for Fiscal 2011
Overview. In setting compensation and compensation targets for fiscal 2011, the Committee reviewed fiscal 2010 individual and company performance and peer group data and also considered expected trends in executive pay. The Committee’s review showed the following:
|
·
|
Company Performance. In fiscal 2010, the company ranked at the 52nd and 7th percentiles in one- and three-year performance, respectively, for revenue growth, at the 99th and 52nd percentiles for EBITDA as a percent of revenue, and at the 46th and 63rd percentiles for total shareholder return in the Peer Group. Overall, the company’s performance improved substantially over its performance relative to the Peer Group in fiscal 2009.
|
||||
|
·
|
Individual Performance. In assessing the fiscal 2010 performance of executive officers, the Committee members considered the company’s and the executive officer’s accomplishment of objectives established at the beginning of the fiscal year and their own subjective assessment of the executive officer’s performance.
|
||||
|
–
|
Mr. Moore. In assessing Mr. Moore’s performance, the Committee noted that under Mr. Moore’s leadership in fiscal 2010, the company:
|
||||
|
·
|
delivered record revenue of $167.8 million and basic income per share of $2.83, representing 17% and 180% increases, respectively, over the prior year;
|
||||
|
·
|
held the growth of operating expenses to only 4% and doubled income from operations over the prior year to $36.9 million;
|
||||
|
·
|
achieved regulatory approval to market the VNS Therapy® System in Japan;
|
||||
|
·
|
completed follow-up in the company’s post-approval dosing study (D-21) in the treatment-resistant depression indication; and
|
||||
|
·
|
closed a number of significant technology and intellectual property collaborations that positioned the company for accelerated development of new products.
|
||||
|
–
|
Mr. Browne. Under Mr. Browne’s leadership as CFO, expense reduction efforts contributed to the strong income from operations performance. In addition, the company strengthened its balance sheet through strong operating cash flows, careful management of capital expenses, and debt reduction as opportunities presented themselves. Mr. Browne also maintained proper internal controls and financial compliance.
|
||||
|
–
|
Dr. Morris. Under Dr. Morris’s leadership, the company dramatically expanded its new product development efforts in fiscal 2010, building a robust research and development team and initiating development projects for new pulse generators with seizure-sensing capabilities and other new products.
|
||||
|
–
|
Mr. Reinstein. Under Mr. Reinstein’s leadership of the sales and marketing and international organizations, fiscal 2010 worldwide revenue increased 17% to a new company record, with the U.S. sales team leading the company to significant overachievement of its performance targets. Mr. Reinstein was also responsible for managing the successful effort to achieve regulatory and reimbursement approval in Japan.
|
||||
|
–
|
Mr. Wise. Mr. Wise successfully managed the company’s risks related to several legal matters, and led efforts to expand the company’s intellectual property franchise and negotiate and close several significant technology collaborations. He assumed responsibility in fiscal 2010 for the company’s Human Resources Department and undertook successful efforts to restructure the department and introduce new measures to mitigate compliance risks.
|
||||
Program Elements. Our fiscal 2011 program consisted of base salary, an annual cash bonus under the Executive Bonus Plan, a long-term equity incentive award split between restricted stock that cliff-vests after three years and stock options that vest annually over a four-year period, and severance benefits. Our executive officers also participated in the company employee benefits package.
Base Salaries. Base salaries help balance the incentive portions of the compensation program and thereby provide stability. The Committee reviews base salaries at the beginning of the fiscal year, but does not necessarily adjust base salaries if no adjustment is appropriate at the time. In establishing base salaries, the Committee considers the following factors:
|
·
|
individual performance and potential future contribution;
|
|
|
·
|
responsibilities, including any recent changes in those responsibilities;
|
|
|
·
|
level of expertise and experience required for a position;
|
|
|
·
|
strategic impact of a position;
|
|
|
·
|
internal pay equity among positions; and
|
|
|
·
|
competitive benchmarking data showing the broad middle range of base salaries, with the understanding that base salaries for officers whose performance consistently exceeds expectations may be in the upper quadrant of the middle range, and base salaries for officers whose performance is consistently outstanding may be at the upper end of the middle range.
|
The Committee made the following adjustments to the base salaries of our Named Executive Officers during the first quarter of fiscal 2011:
|
Executive Officer
|
2010 Base Salary
($)
|
2011 Base Salary
($)
|
Percentage Increase
(%)
|
2010 Composite Survey
(percentile)
|
||||
|
Daniel J. Moore
|
505,000
|
525,200
|
4.0
|
70th – 75th
|
||||
|
Gregory H. Browne
|
295,000
|
306,800
|
4.0
|
55th – 60th
|
||||
|
Milton M. Morris
|
245,000
|
268,000
|
14.5
|
30th (1)
|
||||
|
James A. Reinstein
|
312,150
|
324,625
|
4.0
|
>75th (2)
|
||||
|
David S. Wise
|
270,000
|
287,000
|
6.3
|
50th
|
_________________
|
(1)
|
The Committee believes that it is prudent to limit the amount by which an executive officer’s annual base salary is increased in any one year, resulting in Dr. Morris’s base salary for fiscal 2011 falling at the 30th percentile in the 2010 Composite Survey.
|
|
(2)
|
The 2010 Composite Survey does not include positional data for a Vice President, Sales & Marketing and General Manager, International. Mr. Reinstein’s fiscal 2011 base salary is above the 75th percentile for positional data for the top sales and marketing executive and for ordinal data for the third-highest-compensated executive.
|
Executive Bonus Program. The purpose of our executive bonus program is to motivate our executive officers to achieve, and reward the accomplishment of, our annual company, executive team, and individual performance objectives.
Overview. Our CEO’s employment agreement provided for a target annual bonus amount equal to 75% of his base salary. The employment agreements of our other Named Executive Officers provided for a target annual bonus amount equal to 50% of their base salaries. Coupled with appropriate performance objectives, as described below, the Committee believes that these target annual bonus amounts provide a strong incentive for our executive officers to achieve the performance objectives and increase stockholder value.
Performance Objectives. The Committee’s process for determining annual bonuses for fiscal 2011 started with the selection of the company and individual performance objectives at the beginning of fiscal 2011:
|
Fiscal 2011 Company Performance Objectives
|
Percentage of Target Bonus
|
|
|
Net Sales: $189.513 million
|
25%
|
|
|
Income from Operations: $45.625 million
|
25%
|
|
|
Cash Flow from Operating Activities: $43.3 million
|
5%
|
|
|
Global Epilepsy Unit Sales Growth: 10%
|
5%
|
|
|
U.S. New Patient Unit Sales Growth: Achieve Positive Growth
|
5%
|
|
|
First Commercial Sale of AspireHC™ Generator: by April 29, 2011
|
5%
|
|
|
First Clinical Implant of AspireSR™ Generator: by April 29, 2011
|
5%
|
|
|
Achievement of All Company Performance Objectives:
|
75%
|
|
|
Achievement of All Individual Performance Objectives:
|
25%
|
The Committee selected net sales, income from operations, cash flow from operating activities, and unit sales growth targets as appropriate company objectives because they are financial metrics that are widely used by management, our Board, investors, and analysts to evaluate our corporate performance. In addition, each executive officer can contribute directly and indirectly to these objectives, and bonuses are paid only to the extent that we meet these objectives, particularly net sales and income from operations, which provide the funding for bonuses. In addition, the Committee also selected two key product development objectives because the Committee believes that the introduction of new products is critical to increasing stockholder value. These targets challenged our executive officers to make or sustain significant improvements in financial and operational performance.
For each executive officer, the Committee also selected, in the case of Mr. Moore, or approved, for all other executive officers, individual performance objectives that supported the company objectives or addressed strategic objectives critical to our long-term success. These included:
|
·
|
Mr. Moore – meet all company objectives;
|
|
|
·
|
Mr. Browne – facilitate company financial objectives; optimize use of cash; enhance forecasting capabilities; ensure financial regulatory compliance; and rebuild international financial talent;
|
|
|
·
|
Dr. Morris – meet company objectives pertaining to the new AspireHC and AspireSR generators;
|
|
|
·
|
Mr. Reinstein – meet company net sales, unit sales, and new patient growth objectives, manage end-of-service modeling, meet all product launch and international clinical study milestones, and ensure Sales and Marketing quality system compliance; and
|
|
|
·
|
Mr. Wise – drive the company’s great-place-to-work initiative, develop and execute the company’s strategy for depression and advance strategic collaborations, ensure expansion of the company’s intellectual property (“IP”) and manage the company’s IP risks, and ensure U.S. and international compliance with the health care laws.
|
Bonus Funding. The executive bonuses are paid from a bonus pool, which is funded based on the extent of achievement of company and individual performance objectives. Thus, the amount accumulated in the bonus pool is equal to each executive officer’s target bonus amount multiplied by that executive officer’s percentage achievement of all performance objectives. Individual bonuses may range from 0% to 200% of an executive officer’s target bonus amount, giving each executive officer the opportunity to underachieve or overachieve to the extent of his target bonus amount. The sum of the bonuses actually paid to all executive officers may be less than, but ordinarily should not exceed, the amount in the bonus pool, unless the Committee, in its discretion, determines otherwise. The Committee retains full discretion to disregard the guidelines and award annual bonuses in any amount or not award them at all. For a discussion of the process followed by the Committee to fund the bonus pool, see the discussion below at “Executive Compensation — Summary Compensation — Non-Equity Incentive Plan Compensation (Column G)” (p. 42).
Bonus Determinations. After the end of fiscal 2011, Mr. Moore prepared a written report describing his individual performance assessments of, and recommendations to the Committee of bonus amounts for, each executive officer, including spreadsheets reflecting the bonus pool amounts funded. Mr. Moore also prepared a written self-evaluation of his performance for the Committee and received a formal performance review in a meeting with our Chairman. In addition, the Committee received information reflecting current and historical summaries of all forms of compensation received by each executive officer. Based on this information, the Committee awarded the following annual bonus amounts for fiscal 2011:
|
Named Executive Officer
|
Target Amount of 2011 Annual Bonus (1)
($)
|
Final 2011 Annual Bonus Amounts
($)
|
Percent of Target Bonus Amount
(%)
|
|||
|
Daniel J. Moore
|
393,900
|
425,000
|
108
|
|||
|
Gregory H. Browne
|
153,400
|
159,068
|
104
|
|||
|
Milton M. Morris
|
134,000
|
140,191
|
105
|
|||
|
James A. Reinstein
|
162,313
|
166,415
|
103
|
|||
|
David S. Wise
|
143,500
|
148,628
|
104
|
_________________
|
(1)
|
For Mr. Moore, the target bonus amount is 75% of his base salary. For all other executive officers, the target bonus amount is 50% of their base salary.
|
Equity Awards. Our equity awards program is designed to give our executive officers a longer-term stake in our company, act as a long-term retention tool, and align employee and stockholder interests by increasing compensation as stockholder value increases. The Committee believes that annual equity awards should be divided approximately equally between restricted stock that cliff-vests after three years and stock options that vest annually over a four-year period, giving our executive officers the benefits and risks associated with both forms of incentive compensation. The Committee typically grants annual equity awards valued at a multiple in the range of approximately 1.0 to 1.5 times each executive officer’s base salary, with the actual multiple depending on past and anticipated future performance, considerations pertaining to the Board’s stock ownership guidelines, as described on page 34 under “Other Matters — Stock Ownership Guidelines and Hedging Prohibitions,” and benchmarking data.
The Committee also grants additional equity awards at periodic intervals to executive officers considered to be key leaders in the company’s management team. These additional awards are intended specifically to encourage retention of leaders whose success makes them attractive candidates for positions at other medical device companies. They may be subject to either time-based or performance-based forfeiture conditions. In fiscal 2010, the Committee granted retention-purposed equity awards, which will cliff-vest in fiscal 2013, to each of our Named Executive Officers. The Committee granted no such awards in fiscal 2011.
In June 2011, the Committee approved annual equity awards having the approximate aggregate grant date values specified in the table below based on individual and company performance as described above for our Named Executive Officers (see “— Executive Compensation for Fiscal 2011 — Overview” (p. 27)), internal compensation equity, and benchmarking data. The shares of restricted stock all vest on the third anniversary of the grant date, and the stock options vest 25% per year on the first four anniversaries of the grant date.
|
Named Executive Officer
|
Approximate Grant Value
($)
|
Multiple of Fiscal 2010 Salary
|
Shares of Restricted Stock Granted for Fiscal 2011
(#)
|
Optioned Shares
Granted for
Fiscal 2011
(#)
|
2010 Composite Survey
(percentile)
|
|||||||
|
Daniel J. Moore
|
1,146,000
|
2.27 (1)
|
23,551
|
47,102
|
75th
|
|||||||
|
Gregory H. Browne
|
414,000
|
1.40
|
8,508
|
17,016
|
75th
|
|||||||
|
Milton M. Morris
|
306,000
|
1.25
|
6,288
|
12,576
|
75th
|
|||||||
|
James A. Reinstein
|
400,000
|
1.28
|
8,220
|
16,440
|
>75th (2)
|
|||||||
|
David S. Wise
|
423,000
|
1.57
|
8,692
|
17,384
|
75th
|
|||||||
__________________
|
(1)
|
The Committee believes that it is prudent to limit the amount by which an executive officer’s annual base salary is increased in any one year, resulting in Dr. Morris’s base salary for fiscal 2011 falling at the 30th percentile in the 2010 Composite Survey.
|
|
(2)
|
The 2010 Composite Survey does not include positional data for a Vice President, Sales & Marketing and General Manager, International. Mr. Reinstein’s fiscal 2011 base salary is above the 75th percentile for positional data for the top sales and marketing executive and for ordinal data for the third-highest-compensated executive.
|
Severance Benefits. Our employment agreements with our executive officers and the terms of our equity awards provide certain severance benefits to our executive officers, as described below.
Change-in-Control Benefits. An acquisition in our industry can take six months or more to complete, and during that time, it is critical that we have stability in our leadership. If we are in the process of being acquired, our executive officers may have concerns about their employment with the acquiring company. Accordingly, we have provided each of our executive officers with change-in-control benefits so that our executive officers can focus on our business without the distraction of searching for new employment. The change-in-control benefits for our executive officers are set forth in their employment agreements. These severance benefits are discussed below in “Executive Compensation — Potential Payments Upon Termination or Change in Control — Termination Upon or Within One Year Following a Change in Control (Other Than for Cause or Disability or by the Employee for Good Reason) (Column D) — Change in Control Arrangement with Mr. Moore” (p. 49) and “— Change in Control Arrangements with Our Other Named Executive Officers” (p. 50).
Other Termination Payments. Our offices in southeast Texas are located relatively distant from locales with large clusters of medical device companies from which we recruit talented executive officers. As a consequence, we find it helpful to offer a termination benefit as an incentive for our executive officers to relocate. The termination benefits for our executive officers are discussed below in “Executive Compensation — Potential Payments Upon Termination or Change in Control — Termination Without Cause (Column F) — Severance Arrangement with Mr. Moore” (p. 52) and “— Severance Arrangements with Our Other Named Executive Officers” (p. 52).
Equity Awards. The terms of our equity awards, depending on the terms of each equity award agreement and the particular equity award plan from which an award is granted, provide for accelerated vesting of any unvested grants of restricted stock or stock options upon some or all of the executive officer’s death or disability (as defined in the plans, limited to stock options) or upon a change in control of our company (as defined in the plans). These accelerated benefits are discussed below in “Executive Compensation — Potential Payments Upon Termination or Change in Control — Change in Control (Column C)” (p. 48) and “— Termination Due to Death (Column E)” (p. 51) and “— Termination Due to Disability” (p. 51).
Other Benefits. In addition to base salaries, annual bonuses, equity awards, and severance benefits, we provide other forms of compensation. Except as otherwise indicated, these benefits are available to all employees, including our executive officers, and are offered for the purpose of providing competitive benefits to attract new employees and to secure the continued employment of current employees.
|
·
|
401(k) Savings Plan. We have a defined contribution profit-sharing (401(k)) plan, the Cyberonics, Inc. Employee Retirement Savings Plan. We match the plan contributions of our employees, in cash, at the rate of 50% of up to 6% of an employee’s wages or salary. Our matching contribution vests 20% per year for the first five years of a participant’s employment. An employee who participates after the fifth year of employment will be fully vested immediately in our matching contributions.
|
|
|
·
|
Health and Welfare Benefits. Our employees, including our executive officers, are eligible to participate in medical, dental, vision, disability insurance, life insurance, and flexible healthcare and dependant care spending accounts to meet their health and welfare needs. These benefits are provided so as to assure that we are able to maintain a competitive position in terms of attracting and retaining our employees. These benefits are provided on a non-discriminatory basis to all employees.
|
|
|
·
|
Perquisites and Other Personal Benefits. We believe that the total mix of compensation and benefits provided to our employees is competitive and for that reason, we provide only limited other personal benefits, such as reimbursement of newly hired employees, including our executive officers, for their expenses related to relocation to Houston, Texas, including travel expenses related to a search for housing, moving expenses, and closing costs related to selling a residence. See “Executive Compensation — Summary Compensation — All Other Compensation (Column H)” (p. 43) for the amounts paid as perquisite and other personal benefits received by our executive officers during fiscal 2011.
|
In June 2011, the Committee adjusted the salaries of our executive officers and approved the Fiscal 2012 Executive Bonus Program and equity awards.
Base Salaries. The Committee made the following adjustments to the base salaries of our Named Executive Officers for fiscal 2012:
|
Executive Officer
|
Fiscal 2011
Base Salary
($)
|
Fiscal 2012
Base Salary
($)
|
Percentage Increase
(%)
|
2011 Custom Survey
(percentile)
|
||||
|
Daniel J. Moore
|
525,200
|
550,000
|
4.7
|
>90th (1)
|
||||
|
Gregory H. Browne
|
306,800
|
316,000
|
3.0
|
60th
|
||||
|
Milton M. Morris
|
268,000
|
287,000
|
7.1
|
60th
|
||||
|
James A. Reinstein
|
324,625
|
334,364
|
3.0
|
65th
|
||||
|
David S. Wise
|
287,000
|
297,000
|
3.5
|
60th
|
_______________
|
(1)
|
Mr. Moore’s base salary for fiscal 2011 was in the range of the 70th – 75th percentile of positional data in the 2010 Composite Survey. Based solely on Pearl Meyer’s aging of the positional data in the 2010 Composite Survey, his 2011 salary jumped to approximately the 90th percentile in the 2011 Custom Survey. The Committee chose to discount the accuracy of the benchmarking data and determined that a 4.7% increase in Mr. Moore’s base salary was justified in light of his exceptional leadership since assuming the CEO position four years ago.
|
Fiscal 2012 Executive Bonus Program. The Fiscal 2012 Executive Bonus Program is the same as the Fiscal 2011 Executive Bonus Program with the exception that the pool from which bonuses may be paid will be funded according to the following table, and the target bonus amounts for Messrs. Browne, Reinstein, and Wise will increase from 50% to up to 75% of their annual base salaries.
|
Fiscal 2012 Performance Objectives
|
Percentage of
Target Bonus
|
||
|
Annual Net Sales Target
|
25%
|
||
|
Annual Income from Operations Target
|
25%
|
||
|
Annual Cash Flow from Operating Activities Target
|
5%
|
||
|
Annual International Epilepsy Unit Sales Growth Target
|
5%
|
||
|
Annual U.S. New Patient Unit Sales Growth Target (1)
|
5%
|
||
|
Annual New Product Development Targets (1)
|
10%
|
||
|
Achievement of All Company Performance Objectives:
|
75%
|
||
|
Achievement of All Individual Performance Objectives:
|
25%
|
||
| ____________________ | |||
|
(1)
|
These objectives are not subject to partial credit in the event that the target is not achieved.
|
||
Fiscal 2012 Equity Awards. In June 2011, the Committee approved annual equity awards having the approximate grant date values specified in the table below. The shares of restricted stock all vest on the third anniversary of the grant date, and the stock options vest 25% per year on the first four anniversaries of the grant date.
|
Named Executive
Officer
|
Approximate Grant
Value
($)
|
Shares of Restricted Stock
(#)
|
Optioned Shares
(#)
|
2011 Custom Survey
(percentile)
|
||||
|
Daniel J. Moore
|
1,203,000
|
23,395 (1)
|
46,790
|
75th
|
||||
|
Gregory H. Browne
|
418,000
|
8,129
|
16,258
|
75th
|
||||
|
Milton M. Morris
|
402,000
|
7,187
|
15,634
|
>75th
|
||||
|
James A. Reinstein
|
478,000
|
9,295
|
18,590
|
75th
|
||||
|
David S. Wise
|
400,000
|
7,779
|
15,558
|
75th
|
_________________
|
(1)
|
In Mr. Moore’s 2011 Employment Agreement, as amended, we agreed to grant him an award of 23,551 shares of phantom stock on September 15, 2011. This award will be subject to time-based vesting conditions. See the discussion below at “Executive Compensation — Summary Compensation — Salary (Column C) — Employment Arrangements with Mr. Moore” (p. 39).
|
Fiscal 2012 Performance-Based Equity Awards. In June 2011, the Committee approved the following additional equity awards to encourage retention of key leaders in our company. The shares of restricted stock from each award will vest, if at all, on the company’s attainment of certain performance objectives that the Committee believes will be challenging, and if attained, will promote stockholder value.
|
Named Executive Officer
|
Grant Date Value
($)
|
Shares of Restricted Stock
(#)
|
||
|
Daniel J. Moore
|
1,969,515
|
76,605 (1)
|
||
|
Gregory H. Browne
|
1,002,690
|
39,000
|
||
|
Milton M. Morris
|
1,002,690
|
39,000
|
||
|
James A. Reinstein
|
1,002,690
|
39,000
|
||
|
David S. Wise
|
1,002,690
|
39,000
|
|
________________________
|
|
(1)
|
In Mr. Moore’s 2011 Employment Agreement, as amended, we agreed to grant him an award of 23,551 shares of phantom stock on September 15, 2011. This award will be subject to time-based vesting conditions. See the discussion below at “Executive Compensation — Summary Compensation — Salary (Column C) — Employment Arrangements with Mr. Moore” (p. 39).
|
Stock Ownership Guidelines and Hedging Prohibition
Our Board believes that ownership of significant amounts of our stock by our executive officers and directors will help align their interests with that of our stockholders. To that end, our Board adopted stock ownership guidelines for our directors and executive officers in February 2008 and clarified those guidelines during fiscal 2011. At the end of February 2013 and on the last day of each fiscal year thereafter (“Measurement Date”), the market value of our equity held by an executive officer or director is encouraged to be at least:
|
·
|
Five times the base salary for the CEO;
|
|
|
·
|
Three times the base salary for all executive officers, other than the CEO; and
|
|
|
·
|
Five times the annual cash retainer for all non-employee directors.
|
Equity ownership used to determine the market value includes all common stock, all unvested restricted shares of our common stock, and all in-the-money, vested, unexercised stock options (calculated as stock market value, minus exercise price, minus estimated tax expense at a 30% tax rate).
In the alternative, an individual will be in compliance with the guidelines by holding a number of shares of our common stock equal to or greater than the sum of:
|
·
|
50% of all restricted shares vested during the five years preceding the Measurement Date; and
|
|
|
·
|
50% of the number of shares of stock acquired from the exercise of stock options during the five years preceding the Measurement Date.
|
Compliance with our stock ownership guidelines is voluntary; however, an individual’s failure to comply with the guidelines is a factor that may be considered by the Committee in connection with the award of future equity awards to the individual.
Our Insider Trading Policy prohibits our directors and executive officers from entering into certain types of derivative transactions related to our common stock. We will continue periodically to review best practices and to re-evaluate our position with respect to hedging prohibitions.
In fiscal 2010, our Board adopted a policy prohibiting directors and executive officers from pledging our stock as collateral for a debt and from holding our stock in a margin brokerage account, except as may be approved by the Nominating & Governance Committee. New directors or executive officers not in compliance with the policy at the time of their becoming subject to the policy have one year to become compliant.
Tax Deductions for Executive Compensation
Section 162(m) of the Internal Revenue Code (“Code”) limits the deductibility of compensation in excess of $1,000,000 paid to our principal executive officer, our principal financial officer, or any of the three other most highly compensated executive officers, unless the compensation qualifies as “performance-based compensation.” In order to be deemed performance-based compensation, the compensation must be based, among other things, on the achievement of pre-established, objective performance criteria and must be pursuant to a plan that has been approved by our stockholders. Our Board has not yet adopted a policy with respect to the limitation under Section 162(m).
Accounting Treatment of Executive Compensation Decisions
We account for stock-based awards based on their grant date fair value, as determined under Statement of Financial Accounting Standards Board No. 123 (revised 2004), “Share-Based Payment” (“FAS 123(R)”). Compensation expense for these awards, to the extent such awards are expected to vest, is recognized on a straight-line basis over the requisite service period of the award (or to an employee’s eligible retirement date, if earlier). If the award is subject to a performance condition, however, the cost will vary based on our estimate of the number of shares that ultimately will vest over the requisite service or other period over which the performance condition is expected to be achieved.
In connection with its approval of stock-based awards, the Committee is cognizant of and sensitive to the impact of such awards on stockholder dilution. The Committee also endeavors to avoid stock-based awards made subject to a market condition, which may result in an expense that must be marked to market on a quarterly basis. The accounting treatment for stock-based awards does not otherwise impact the Committee’s compensation decisions.
Equity Awards – Historical Practices and New Policy
In November 2006, our Board adopted a policy regarding equity awards to facilitate the establishment of appropriate processes, procedures, and controls in connection with the administration of equity-based incentive plans. The Equity Award Policy, which was amended in 2007, 2010, and 2011 to further strengthen our controls and simplify administration of the policy, requires that the Committee approve all equity incentive awards, other than awards to our Board, on the effective date of the grant. In addition, the policy establishes one predefined date during each fiscal quarter, on the 15th day of June, September, December, and March, except in certain narrow circumstances that require the date to be changed, when equity incentive awards may be made by the Committee. Awards to Board members will be made on the date of our annual meeting of stockholders. Awards provided in an employment agreement, which typically are deemed to have been granted once the Committee approves the terms of the award and the employee executes the agreement and commences employment, represent an exception.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed the disclosure set forth above under the heading “Compensation Discussion and Analysis” with management and, based on the review and discussions, it has recommended to the Board of Directors that the “Compensation Discussion and Analysis” be included in this proxy statement and incorporated by reference into Cyberonics, Inc.’s Annual Report on Form 10-K for the fiscal year ended April 29, 2011.
Respectfully submitted by the Compensation Committee of the Board of Directors of Cyberonics, Inc.
|
Arthur L. Rosenthal, Ph.D. (Chairman)
|
|
|
Joseph E. Laptewicz, Jr.
|
|
|
Jon T. Tremmel
|
EXECUTIVE COMPENSATION
The following table summarizes, with respect to our Named Executive Officers, information relating to the compensation earned for services rendered in all capacities. Please see “Information about our Executive Officers” (p. 22) and “Compensation Discussion and Analysis — Overview” (p. 24) for a list of our current executive officers, including our Named Executive Officers.
|
Summary Compensation Table for Year Ended April 29, 2011
|
||||||||||||||||
|
A
Name and Principal Position
|
B
Year
|
C
Salary
($)
|
D
Bonus
($)
|
E
Stock Awards
($)
|
F
Option Awards
($)
|
G
Non-Equity Incentive Plan Compensation
($)
|
H
All Other Compensation
($)
|
I
Total
($)
|
||||||||
|
Daniel J. Moore
President and Chief Executive Officer
|
2011
|
521,315
|
—
|
2,975,788
|
617,366
|
425,000
|
10,296
|
4,549,766
|
||||||||
|
2010
|
500,673
|
—
|
977,114
|
357,804
|
525,566
|
9,019
|
2,370,175
|
|||||||||
|
2009
|
474,808
|
—
|
523,500
|
935,018
|
425,000
|
11,938
|
2,370,263
|
|||||||||
|
Gregory H. Browne
Senior Vice President, Finance and CFO
|
2011
|
304,531
|
—
|
207,000
|
223,029
|
159,068
|
7,242
|
900,869
|
||||||||
|
2010
|
292,101
|
—
|
749,071
|
199,109
|
197,077
|
4,332
|
1,441,691
|
|||||||||
|
2009
|
275,957
|
—
|
180,880
|
323,067
|
173,739
|
4,215
|
957,858
|
|||||||||
|
Milton M. Morris
Vice President, Research & Development
|
2011
|
263,577
|
—
|
152,987
|
164,834
|
140,191
|
8,745
|
730,334
|
||||||||
|
2010
|
241,539
|
—
|
711,889
|
120,754
|
166,388
|
8,354
|
1,248,924
|
|||||||||
|
2009
|
64,904
|
75,000
|
245,700
|
408,308
|
36,940
|
12,795
|
843,646
|
|||||||||
|
James A. Reinstein
Senior Vice President & Chief Commercial Officer
|
2011
|
322,226
|
—
|
199,993
|
215,479
|
166,415
|
8,583
|
912,696
|
||||||||
|
2010
|
310,073
|
—
|
729,876
|
223,741
|
220,493
|
2,507
|
1,486,691
|
|||||||||
|
2009
|
298,393
|
—
|
164,693
|
294,157
|
197,244
|
136,914
|
1,091,401
|
|||||||||
|
David S. Wise
Senior Vice President & Chief Administrative Officer and Secretary
|
2011
|
283,731
|
40,000
|
211,476
|
227,852
|
148,628
|
8,550
|
920,237
|
||||||||
|
2010
|
267,404
|
—
|
782,972
|
182,483
|
183,366
|
8,338
|
1,424,563
|
|||||||||
|
2009
|
252,404
|
—
|
148,486
|
265,208
|
160,911
|
5,829
|
832,838
|
|||||||||
Salary (Column C)
The amounts reported in Column C represent base salaries paid to each of the Named Executive Officers for the listed fiscal year. Because we typically adjust base salaries on July 1, rather than the first day of a new fiscal year, the amounts reported in Column C vary from the base salaries approved by the Committee at the beginning of the fiscal year. Each of our current Named Executive Officers has entered into an employment agreement that provides for payment of the executive officer’s base salary.
Employment Arrangements with Mr. Moore.
On April 26, 2007, we entered into an employment agreement with Mr. Moore appointing him as our President and CEO effective May 1, 2007. Pursuant to his employment agreement, which had a term of four years and renewed annually thereafter unless terminated on notice by Mr. Moore or us, Mr. Moore received a sign-on bonus of $125,000 and was entitled to receive an annual salary of $450,000, which was increased as determined by the Compensation Committee to $525,200 as of July 1, 2010. In addition, he was eligible to receive an annual bonus, the target amount for which was 75% of his current annual base salary, at the end of each fiscal year subject to his achievement of certain objectives set by the Compensation Committee at the outset of each fiscal year. The agreement also provided for Mr. Moore to receive compensation in the form of three awards of our common stock totaling 250,000 shares, including (1) an award of 25,000 shares, which were issued in June 2007, (2) 100,000 shares of restricted stock, which also were issued in June 2007 and which vested at the rate of 25,000 shares on each of the first four anniversaries of May 1, 2007, and (3) 125,000 shares of restricted stock issued in September 2007 subject to vesting according to the achievement of certain performance objectives, the last of which were achieved in fiscal 2011.
On March 23, 2011, we entered into a new employment agreement with Mr. Moore, and on July 25, 2011, we agreed with Mr. Moore to amend the new employment agreement. The 2011 agreement, which replaces his 2007 employment agreement, was effective as of March 23, 2011 and expires on March 24, 2015. The terms of the 2011 agreement, as amended, are substantially the same as the terms of his 2007 employment agreement, except that the 2011 agreement includes the following compensation-related terms: (1) an annual base salary of $525,200, which was adjusted to $550,000 effective July 1, 2011, (2) eligibility for an annual bonus with a target of 100% of his annual base salary, (3) an award of 76,449 shares of restricted stock, which was granted on March 15, 2011, and an award of 23,551 shares of phantom stock, which will be granted on September 15, 2011, such awards vesting 25% per year after each of the succeeding four years, and (4) an award of 76,605 shares of restricted stock, which was granted on June 15, 2011, and an award of 73,395 shares of phantom stock, which will be granted on September 15, 2011, such awards being subject to performance-based vesting conditions. Finally, in the event that we are required to prepare an accounting restatement due to our material non-compliance with any financial reporting requirement under the securities laws, Mr. Moore agreed to disgorge all incentive-based compensation he received during the three years preceding the accounting restatement, to the extent that such compensation was based on erroneous data, in excess of what would have been paid to him under the accounting restatement.
Mr. Moore’s 2007 employment agreement and his 2011 employment agreement, as amended, both include provisions pertaining to change of control and severance benefits. For a discussion of these benefits, see “Executive Compensation — Potential Payments Upon Termination or Change in Control — Termination Upon or Within One Year Following a Change in Control (Other Than for Cause or Disability or by the Employee for Good Reason) (Column D) — Change in Control Arrangement with Mr. Moore” (p. 49) and “Executive Compensation — Potential Payments Upon Termination or Change in Control — Termination Without Cause (Column F) — Severance Arrangement with Mr. Moore” (p. 52).
Employment Arrangements with Mr. Browne.
Effective June 1, 2009, we entered into an employment agreement with Mr. Browne. Pursuant to the terms of the employment agreement, Mr. Browne’s compensation included an annual base salary of $278,250, subject to increases approved by the Committee, eligibility to participate in our annual executive bonus program (with a target bonus of 50% of his annual base salary), including potential overachievement of his target bonus amount as determined by the Compensation Committee, eligibility for equity awards at the discretion of the Compensation Committee, and general welfare benefits.
Effective January 1, 2011, we entered into a new employment agreement with Mr. Browne. The new agreement replaced his 2009 employment agreement, which would have expired in May 2011. The new agreement expires on January 1, 2015. The terms of the 2011 agreement are substantially the same as the terms of his 2007 employment agreement, except that the 2011 agreement provides for an annual base salary of $295,000, which was adjusted to $316,000 effective July 1, 2011, and provides that, in the event that we are required to prepare an accounting restatement due to our material non-compliance with any financial reporting requirement under the securities laws, Mr. Browne will disgorge all incentive-based compensation he received during the three years preceding the accounting restatement, to the extent that such compensation was based on erroneous data, in excess of what would have been paid to him under the accounting restatement.
Mr. Browne’s 2009 employment agreement and his 2011 employment agreement both provide for a severance payment if we terminate him without cause or he terminates his employment for “good reason.” See the discussion of this provision below at “Executive Compensation — Potential Payments Upon Termination or Change in Control — Termination Without Cause (Column F) — Severance Arrangement with Our Other Named Executive Officers” (p. 52).
Employment Arrangements with Dr. Morris.
Effective June 1, 2009, we entered into an employment agreement with Dr. Morris. The terms of the 2009 employment agreement are the same as the terms of our 2009 employment agreement with Mr. Browne, except that the agreement provided that Dr. Morris’s annual base salary was $225,000. Effective January 1, 2011, we entered into a new employment agreement with Dr. Morris. The terms of the new employment agreement are the same as the terms of our 2011 employment agreement with Mr. Browne, except that the 2011 agreement provides that Dr. Morris’s annual base salary is $268,000, which was adjusted to $287,000 effective July 1, 2011. For a discussion of the terms of the two employment agreements, see “— Employment Arrangement with Gregory H. Browne” (p. 39).
Employment Arrangement with Mr. Reinstein.
Effective June 1, 2009, we entered into an employment agreement with Mr. Reinstein. The terms of the 2009 employment agreement are the same as the terms of our 2009 employment agreement with Mr. Browne, except that the agreement provided that Mr. Reinstein’s annual base salary was $300,150. Effective January 1, 2011, we entered into a new employment agreement with Mr. Reinstein. The terms of the new employment agreement are the same as the terms of our 2011 employment agreement with Mr. Browne, except that the 2011 agreement provides that Mr. Reinstein’s annual base salary is $324,625, which was adjusted to $334,364 effective July 1, 2011. For a discussion of the terms of the two employment agreements, see “— Employment Arrangement with Gregory H. Browne” (p. 39).
Employment Arrangement with Mr. Wise.
Effective June 1, 2009, we entered into an employment agreement with Mr. Wise. The terms of the 2009 employment agreement are the same as the terms of our 2009 employment agreement with Mr. Browne, except that the agreement provided that Mr. Wise’s annual base salary was $255,000. Effective January 1, 2011, we entered into a new employment agreement with Mr. Wise. The terms of the new employment agreement are the same as the terms of our 2011 employment agreement with Mr. Browne, except that the 2011 agreement provides that Mr. Wise’s annual base salary is $287,000, which was adjusted to $297,000 effective July 1, 2011. For a discussion of the terms of the two employment agreements, see “— Employment Arrangement with Gregory H. Browne” (p. 39).
Salary and Cash Incentive Awards in Proportion to Total Compensation.
The following table sets forth the percentage of each Named Executive Officer’s total fiscal 2011 compensation that we paid in the form of base salary and annual cash bonus awards.
|
Name
|
Percentage of Total Compensation
(%)
|
|
|
Daniel J. Moore
|
17.9
|
|
|
Gregory H. Browne
|
51.5
|
|
|
Milton M. Morris
|
55.3
|
|
|
James A. Reinstein
|
53.5
|
|
|
David S. Wise
|
51.3
|
Bonus (Column D)
The amounts reported in Column D represent bonus awards to our Named Executive Officers other than annual awards under our Fiscal 2011 Executive Bonus Program, which are reported in Column G.
In December 2010, we paid a spot bonus to Mr. Wise for his efforts in connection with the successful conclusion of several legal matters.
Stock Awards (Column E)
The amounts reported in Column E reflect the aggregate grant date fair value for stock awarded during the fiscal year ended April 29, 2011, computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC”) Topic 718. Assumptions used in the calculation of these amounts are included in Note 13 to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 29, 2011.
The Compensation Committee approves annual equity awards for our Named Executive Officers, including restricted shares of our common stock and options to purchase shares of our common stock, on our quarterly grant date during our first fiscal quarter. Our quarterly grant date during fiscal 2010 was on Monday of the seventh week of our fiscal quarter, unless we were in a trading blackout period on that date, in which event our grant date was the first Monday that followed termination of the blackout period. Our quarterly grant dates effective for fiscal 2011 are on June 15, September 15, December 15, and March 15 of each year, unless we are in a trading blackout period or the Compensation Committee is otherwise unable to meet on that date, in which event our grant date is postponed in five-day increments until we are no longer in a trading blackout period or the Compensation Committee is able to meet.
The Compensation Committee also approves additional equity awards at periodic intervals to executive officers considered to be key leaders in the company’s management team. For additional information regarding our stock awards, see “Compensation Discussion and Analysis — Executive Compensation for Fiscal 2011 — Equity Awards” (p. 31). In March 2011, in connection with the negotiation of a new employment agreement with Mr. Moore, the Compensation Committee approved an award of 76,449 shares of restricted stock to Mr. Moore, vesting at the rate of 25% of the awarded shares on each of the first four anniversaries of the grant date.
Option Awards (Column F)
The amounts reported in Column F reflect the aggregate grant date fair value for stock options awarded during the fiscal year ended April 29, 2011, computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are included in Note 13 to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 29, 2011.
The Compensation Committee approves annual equity awards for our Named Executive Officers, including restricted shares of our common stock and options to purchase shares of our common stock, on our quarterly grant date during our first fiscal quarter. Our quarterly grant date during fiscal 2010 was on Monday of the seventh week of our fiscal quarter, unless we were in a trading blackout period on that date, in which event our grant date was the first Monday that followed termination of the blackout period. Our quarterly grant dates effective for fiscal 2011 are on June 15, September 15, December 15, and March 15 of each year, unless we are in a trading blackout period or the Compensation Committee is otherwise unable to meet on that date, in which event our grant date is postponed in five-day increments until we are no longer in a blackout period or the Compensation Committee is able to meet.
The fiscal 2011 stock option awards vest at the rate of 25% of the awarded shares on each of the first four anniversaries of the grant date.
Non-Equity Incentive Plan Compensation (Column G)
The amounts reported in Column G represent the cash amounts paid to our Named Executive Officers under our Executive Bonus Program. The amounts for fiscal 2011 were approved by the Compensation Committee and paid to our executive officers in June 2011, following the end of fiscal 2011.
Bonus Funding. We pay annual bonuses to our executive officers from a bonus pool that is funded, as described below, according to the achievement of certain company and individual performance objectives. For additional information about these performance objectives, see “Compensation Discussion and Analysis — Executive Compensation for Fiscal 2011 — Executive Bonus Program — Performance Objectives” (p. 29).
Under the terms of the Executive Bonus Program, the portion of the bonus tied to certain company performance objectives (those pertaining to net sales and income from operations) is scaled for under-achievement and over-achievement according to the following table:
|
Percent Achievement
of Performance Objective
|
Percent of Target
Bonus Funded
|
|
|
< 90%
|
Subject to Committee discretion
|
|
|
90%
|
50%
|
|
|
95%
|
75%
|
|
|
100%
|
100%
|
|
|
105%
|
110%
|
|
|
110%
|
120%
|
|
|
115%
|
130%
|
|
|
120%
|
140%
|
|
|
125%
|
150%
|
|
|
> 125%
|
Subject to Committee discretion
|
Thus, for example, if our actual net sales for the fiscal year is 90% of the performance objective target, then according to the table above, the percentage of each executive officer’s target annual bonus contributed to a pool from which the Committee will award bonuses is 50%. Since our net sales target represents 25% of the total annual bonus, the portion of each executive officer’s target annual bonus added to the bonus pool for this performance objective would be 12.5% (50% x 25%).
The table below shows the achievement of the company performance objectives for fiscal 2011 and the extent to which each executive officer’s target annual bonus was added to a bonus pool. The Fiscal 2011 Executive Bonus Program also required us to accrue quarterly 25% of each executive officer’s target bonus amount for the portion of each officer’s bonus based on individual performance objectives.
|
Performance Objective
|
Target
|
Actual Result
|
Percent Achievement
(%)
|
Target Bonus Portion Added
to Bonus Pool
(%)
|
||||
|
Net Sales
|
$189,513,000
|
$190,464,000
|
100.5
|
25.25
|
||||
|
Income from Operations
|
$45,625,000
|
$49,184,000
|
107.8
|
28.90
|
||||
|
Cash Flow
|
$43,300,000
|
$49,900,000
|
115.2
|
5.76
|
||||
|
Global Epilepsy Unit Growth
|
10%
|
8.58%
|
85.8
|
4.25
|
||||
|
U.S. New Patient Unit Sales Growth
|
Achieve Growth
|
9.20%
|
109.2
|
5.46
|
||||
|
First Commercial Sale - AspireHC™
|
By April 29, 2011
|
February 10, 2011
|
100.0
|
5.00
|
||||
|
First Implant - AspireSR™
|
By April 29, 2011
|
April 27, 2011
|
100.0
|
5.00
|
||||
|
Individual Objectives
|
25.00
|
|||||||
|
TOTAL
|
104.62
|
The table below shows the actual achievement of the executive officers’ individual performance objectives for fiscal 2011.
|
Named Executive Officer
|
Target for Individual Objectives
(%)
|
Achievement of Individual Objectives
(%)
|
||
|
Daniel J. Moore
|
100.0
|
113.2
|
||
|
Gregory H. Browne
|
100.0
|
96.4
|
||
|
Milton M. Morris
|
100.0
|
100.0
|
||
|
James A. Reinstein
|
100.0
|
91.6
|
||
|
David S. Wise
|
100.0
|
96.0
|
Based on the achievement of company and individual objectives shown above, the Committee then approved the bonus amounts shown in Column G. For additional information about the Committee’s determination of annual bonus amounts, see “Compensation Discussion and Analysis — Executive Compensation for Fiscal 2011 — Executive Bonus Program — Bonus Determinations” (p. 31).
All Other Compensation (Column H)
The amounts reported in Column H represent the aggregate dollar amount for all other benefits and payments received by our Named Executive Officers. The following table shows the nature of the benefits and payments and specific amounts for each included in Column H.
|
Year
|
Supplemental Life Insurance
($)
|
401(k) Company Match
($)
|
Relocation Benefit
($)
|
Foreign Income
Taxes
($)(1)
|
Total
($)
|
|||||||
|
Daniel J. Moore
|
2011
|
2,200
|
8,906
|
—
|
—
|
10,296
|
||||||
|
2010
|
2,200
|
6,819
|
—
|
—
|
9,019
|
|||||||
|
2009
|
2,200
|
7,110
|
2,628
|
—
|
11,938
|
|||||||
|
Gregory H. Browne
|
2011
|
—
|
7,242
|
—
|
—
|
7,242
|
||||||
|
2010
|
—
|
4,332
|
—
|
—
|
4,332
|
|||||||
|
2009
|
—
|
4,215
|
—
|
—
|
4,215
|
|||||||
|
Milton M. Morris
|
2011
|
—
|
8,745
|
—
|
—
|
8,745
|
||||||
|
2010
|
—
|
8,354
|
—
|
—
|
8,354
|
|||||||
|
2009
|
—
|
519
|
12,276
|
—
|
12,795
|
|||||||
|
James A. Reinstein
|
2011
|
—
|
2,997
|
—
|
5,586
|
8,583
|
||||||
|
2010
|
—
|
2,507
|
—
|
—
|
2,507
|
|||||||
|
2009
|
—
|
7,005
|
129,909
|
—
|
136,914
|
|||||||
|
David S. Wise
|
2011
|
—
|
8,550
|
—
|
—
|
8,550
|
||||||
|
2010
|
—
|
8,338
|
—
|
—
|
8,338
|
|||||||
|
2009
|
—
|
5,829
|
—
|
—
|
5,829
|
________________________
|
(1)
|
We reimbursed Mr. Reinstein for foreign personal income taxes and tax return preparation expenses he incurred as a consequence of his travel on business to countries outside the United States, and we grossed up the reimbursement payments for personal income taxes he incurred in the U.S. as a consequence of those reimbursements.
|
Total Compensation (Column I)
The amounts reported in Column I are the sum of Columns C through H for each of our Named Executive Officers.
Grants of Plan-Based Awards
Grants of Plan-Based Awards for Fiscal 2011
|
Estimated Future Payouts Under
Non-Equity Incentive Plan Awards
|
||||||||||||||||||
|
A
Name
|
B
Grant Date
|
C
Threshold
($)
|
D
Target
($)
|
E
Maximum
($)
|
F
All Other Stock Awards: Number of Shares of Stock or Units
(#)
|
G
All Other Option Awards: Number of Securities Underlying Options
(#)
|
H
Exercise or Base Price of Option Awards
($/Sh)
|
I
Market Price on Date of Grant
($/Sh)
|
J
Grant Date Fair Value of Stock and Option Awards
($)
|
|||||||||
|
Daniel J. Moore
|
06/15/2010
|
—
|
—
|
—
|
23,551
|
—
|
—
|
24.33
|
572,996
|
|||||||||
|
06/15/2010
|
—
|
—
|
—
|
—
|
47,102
|
24.33
|
24.33
|
617,366
|
||||||||||
|
03/15/2011
|
—
|
—
|
—
|
76,449
|
—
|
—
|
31.43
|
2,402,792
|
||||||||||
|
0
|
393,900
|
787,800
|
||||||||||||||||
|
Gregory H. Browne
|
06/15/2010
|
—
|
—
|
—
|
8,508
|
—
|
—
|
24.33
|
207,000
|
|||||||||
|
06/15/2010
|
—
|
—
|
—
|
—
|
17,016
|
24.33
|
24.33
|
223,029
|
||||||||||
|
0
|
153,400
|
306,800
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
|
Milton M. Morris
|
06/15/2010
|
—
|
—
|
—
|
6,288
|
—
|
—
|
24.33
|
152,987
|
|||||||||
|
06/15/2010
|
—
|
—
|
—
|
—
|
12,576
|
24.33
|
24.33
|
164,834
|
||||||||||
|
0
|
134,000
|
268,000
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
|
James A. Reinstein
|
06/15/2010
|
—
|
—
|
—
|
8,220
|
—
|
—
|
24.33
|
199,993
|
|||||||||
|
06/15/2010
|
—
|
—
|
—
|
—
|
16,440
|
24.33
|
24.33
|
215,479
|
||||||||||
|
0
|
162,313
|
324,626
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
|
David S. Wise
|
06/15/2010
|
—
|
—
|
—
|
8,692
|
—
|
—
|
24.33
|
211,476
|
|||||||||
|
06/15/2010
|
—
|
—
|
—
|
—
|
17,384
|
24.33
|
24.33
|
227,852
|
||||||||||
|
0
|
143,500
|
270,000
|
—
|
—
|
—
|
—
|
—
|
|||||||||||
Estimated Future Payouts Under Non-Equity Incentive Plan Awards (Columns C, D, and E)
The amounts reported in Column D represent the target amount for each Named Executive Officer’s annual bonus under the Fiscal 2011 Executive Bonus Program. The amounts reported in Columns C and E represent the range of bonus amounts (0% to 200% of target) that may be awarded under the bonus program, depending on company and individual performance against the performance objectives. For a discussion of the Fiscal 2011 Executive Bonus Program, see “Compensation Discussion and Analysis — Executive Compensation for Fiscal 2011 — Executive Bonus Program” (p. 29).
All Other Stock Awards (Column F)
The numbers of shares reported in Column F represent fiscal 2011 stock awards made in June 2010 and March 2011, in the case of Mr. Moore. For a discussion of the stock awards, see “Compensation Discussion and Analysis — Executive Compensation for Fiscal 2011 — Equity Awards” (p. 31).
All Other Option Awards (Column G)
The numbers of shares reported in Column G represent shares of our common stock subject to options granted in June 2010. For a discussion of the stock option awards, see “Compensation Discussion and Analysis — Executive Compensation for Fiscal 2011 — Equity Awards” (p. 31).
Exercise or Base Price of Option Awards (Column H)
The prices reported in Column H represent the price our executive officers must pay us per share of common stock upon the exercise of the stock option awards reported in Column G.
Market Price on Date of Grant (Column I)
The prices reported in Column I represent the closing price of our common stock on the date the Committee granted the stock awards reported in Column F and the stock options reported in Column G.
Grant Date Fair Value of Stock and Option Awards (Column J)
The amounts reported in Column J represent the fair value of the stock and stock option awards on the grant date. The fair value for stock awards is calculated by multiplying the number of shares in each award by the closing price of our common stock on the NASDAQ Global Market on the grant date. The fair value for stock option awards is calculated by multiplying the number of shares subject to the option by the Black-Scholes value of the stock option on the grant date.
Value of Outstanding Equity Awards at Fiscal 2011 Year-End
The following table provides information concerning unexercised options and stock that has not vested for our Named Executive Officers.
|
Outstanding Equity Awards as of April 29, 2011
|
||||||||||||||||||
|
Option Awards
|
Stock Awards
|
|||||||||||||||||
|
A
Name
|
B
Number of Securities Underlying Unexercised Options
(#)
Exercisable
|
C
Number of Securities Underlying Unexercised Options
(#)
Unexercisable
|
D
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
|
E
Option Exercise
Price
($)
|
F
Option Expiration Date
($)
|
G
Number of Shares or Units of Stock That Have Not Vested
(#)
|
H
Market Value of Shares or Units of Stock That Have Not Vested
($)
|
I
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
|
J
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
($)
|
|||||||||
|
Daniel J. Moore
|
—
|
—
|
—
|
—
|
—
|
216,380
|
7,700,964
|
—
|
—
|
|||||||||
|
—
|
37,500
|
—
|
19.39
|
06/16/2018
|
—
|
—
|
—
|
—
|
||||||||||
|
—
|
30,570
|
—
|
14.72
|
06/08/2019
|
—
|
—
|
—
|
—
|
||||||||||
|
—
|
47,102
|
—
|
24.33
|
06/15/2020
|
—
|
—
|
—
|
—
|
||||||||||
|
Gregory H. Browne
|
—
|
—
|
—
|
—
|
—
|
75,534
|
2,688,255
|
—
|
—
|
|||||||||
|
8,627
|
12,957
|
—
|
19.39
|
06/16/2018
|
—
|
—
|
—
|
—
|
||||||||||
|
—
|
17,012
|
—
|
14.72
|
06/08/2019
|
—
|
—
|
—
|
—
|
||||||||||
|
—
|
17,016
|
—
|
24.33
|
06/15/2020
|
—
|
—
|
—
|
—
|
||||||||||
|
Milton M. Morris
|
—
|
—
|
—
|
—
|
—
|
69,650
|
2,478,844
|
—
|
—
|
|||||||||
|
5,500
|
22,500
|
—
|
16.38
|
01/16/2019
|
—
|
—
|
—
|
—
|
||||||||||
|
3,439
|
10,317
|
—
|
14.72
|
06/08/2019
|
—
|
—
|
—
|
—
|
||||||||||
|
—
|
12,576
|
—
|
24.33
|
06/15/2020
|
—
|
—
|
—
|
—
|
||||||||||
|
James A. Reinstein
|
—
|
—
|
—
|
—
|
—
|
78,169
|
2,782,035
|
—
|
—
|
|||||||||
|
11,797
|
11,798
|
—
|
19.39
|
06/16/2018
|
—
|
—
|
—
|
—
|
||||||||||
|
6,372
|
19,116
|
—
|
14.72
|
06/08/2019
|
—
|
—
|
—
|
—
|
||||||||||
|
—
|
16,440
|
—
|
24.33
|
06/15/2020
|
—
|
—
|
—
|
—
|
||||||||||
|
David S. Wise
|
—
|
—
|
—
|
—
|
—
|
72,724
|
2,588,247
|
—
|
—
|
|||||||||
|
150,000
|
—
|
—
|
28.45
|
09/17/2013
|
—
|
—
|
—
|
—
|
||||||||||
|
5,000
|
—
|
—
|
19.75
|
05/25/2014
|
—
|
—
|
—
|
—
|
||||||||||
|
29,500
|
—
|
—
|
13.88
|
08/18/2014
|
—
|
—
|
—
|
—
|
||||||||||
|
10,636
|
10,637
|
—
|
19.39
|
06/16/2018
|
—
|
—
|
—
|
—
|
||||||||||
|
5,197
|
15,591
|
—
|
14.72
|
06/08/2019
|
—
|
—
|
—
|
—
|
||||||||||
|
—
|
17,384
|
—
|
24.33
|
06/15/2020
|
—
|
—
|
—
|
—
|
||||||||||
Number of Securities Underlying Unexercised Options (Columns B and C)
The option awards reported in Column C vest 25% annually on each of the first four anniversaries of the grant date. The grant date is 10 years prior to the expiration date specified in Column F.
Number of Shares or Units of Stock That Have Not Vested (Column G)
The table below shows the vesting schedule by fiscal year for the restricted stock awards reported in Column G.
|
Fiscal 2012
|
Fiscal 2013
|
Fiscal 2014
|
Fiscal 2015
|
Fiscal 2016
|
||||||
|
Daniel J. Moore
|
50,000
|
85,492
|
42,663
|
19,112
|
19,113
|
|||||
|
Gregory H. Browne
|
16,138
|
50,888
|
8,508
|
—
|
—
|
|||||
|
Milton M. Morris
|
15,000
|
48,362
|
6,288
|
—
|
—
|
|||||
|
James A. Reinstein
|
20,365
|
49,584
|
8,220
|
—
|
—
|
|||||
|
David S. Wise
|
10,841
|
53,191
|
8,692
|
—
|
—
|
In fiscal 2009, the Compensation Committee of our Board authorized us to withhold distribution of restricted shares on the date of vesting at the request of an executive officer and to use the value of the forfeited shares to offset the executive officer’s withholding tax liability associated with the vesting event.
Market Value of Shares or Units of Stock That Have Not Vested (Column H)
The market values of restricted stock awards reported in Column H were calculated using the closing price of our common stock on April 29, 2011, which was the last business day of fiscal 2011, of $35.59, multiplied by the number of shares set forth in Column G.
Option Exercises and Stock Vested During Fiscal 2011
The following table provides information concerning each exercise of stock options and each vesting of stock, including restricted stock, restricted stock units and similar instruments during the fiscal year ended April 29, 2011 on an aggregated basis with respect to each of our Named Executive Officers.
Option Exercises and Stock Vested During Fiscal 2011
|
Option Awards
|
Stock Awards
|
|||||||
|
Number of
Shares
Acquired on Exercise
(#)
|
Value
Realized
on Exercise
($)
|
Number of
Shares
Acquired on Vesting
(#)
|
Value
Realized
on Vesting
($)
|
|||||
|
Daniel J. Moore
|
47,690
|
785,352
|
87,500
|
2,063,250
|
||||
|
Gregory H. Browne
|
10,000
|
183,927
|
22,500
|
503,850
|
||||
|
Milton M. Morris
|
17,000
|
286,190
|
—
|
—
|
||||
|
James A. Reinstein
|
—
|
—
|
37,500
|
927,750
|
||||
|
David S. Wise
|
—
|
—
|
5,750
|
124,670
|
||||
Potential Payments Upon Termination or Change in Control
The discussion and table below disclose the amount of compensation and/or other benefits due to our Named Executive Officers in the event of a change of control of our company or their termination of employment, including, but not limited to, in connection with a change in control. The amounts disclosed assume that the applicable triggering event was effective as of April 29, 2011 and the price of our stock was $35.59 per share (the closing price of our common stock on that date). Accordingly, the disclosure includes amounts earned through April 29, 2011 and estimates of the amounts that would be paid to the Named Executive Officers upon a change of control, or their respective termination, as applicable. The actual amounts to be paid can only be determined at the time of the change of control or the Named Executive Officer’s actual separation from our company.
|
A
Name
|
B
Benefit
|
C
Change in
Control
($)
|
D
Termination
Upon or Within
One Year
Following a
Change in Control (Other Than for Cause or Disability or by the Employee for Good Reason)
($)
|
E
Termination Due to Death
($)
|
F
Termination Without
Cause
($)
|
|||||
|
Daniel J. Moore
|
Salary and Bonus
|
—
|
2,000,966
|
—
|
2,000,966
|
|||||
|
Equity Compensation
Stock Options
Restricted Shares
|
1,775,864
7,700,964
|
1,775,864
7,700,964
|
1,775,864
7,700,964
|
649,002
2,459,696
|
||||||
|
Health Care Continuation Coverage
|
—
|
35,999
|
—
|
35,999
|
||||||
|
Other Benefits (Life Insurance; Interest)
|
—
|
32,662
|
3,048,896
|
32,662
|
||||||
|
Total
|
9,476,829
|
11,546,455
|
12,525,725
|
5,178,325
|
||||||
|
Gregory H. Browne
|
Salary and Bonus
|
—
|
727,309
|
—
|
920,400
|
|||||
|
Equity Compensation
Stock Options
Restricted Shares
|
756,544
2,688,255
|
756,544
2,688,255
|
756,544
2,688,255
|
271,197
574,351
|
||||||
|
Health Care Continuation Coverage
|
—
|
17,999
|
—
|
17,999
|
||||||
|
Other Benefits (Life Insurance)
|
—
|
—
|
300,000
|
—
|
||||||
|
Total
|
3,444,799
|
4,190,107
|
3,744,799
|
1,783,948
|
||||||
|
Milton M. Morris
|
Salary and Bonus
|
—
|
631,934
|
—
|
804,000
|
|||||
|
Equity Compensation
Stock Options
Restricted Shares
|
789,147
2,478,844
|
789,147
2,478,844
|
789,147
2,478,844
|
323,286
533,850
|
||||||
|
Health Care Continuation Coverage
|
—
|
—
|
—
|
—
|
||||||
|
Other Benefits (Life Insurance)
|
—
|
—
|
300,000
|
—
|
||||||
|
Total
|
3,267,990
|
3,899,924
|
3,567,990
|
1,661,136
|
||||||
|
James A. Reinstein
|
Salary and Bonus
|
—
|
777,119
|
—
|
973,875
|
|||||
|
Equity Compensation
Stock Options
Restricted Shares
|
775,193
2,782,035
|
775,193
2,782,035
|
775,193
2,782,035
|
274,826
724,790
|
||||||
|
Health Care Continuation Coverage
|
—
|
6,922
|
—
|
6,922
|
||||||
|
Other Benefits (Life Insurance)
|
—
|
—
|
300,000
|
—
|
||||||
|
Total
|
3,557,228
|
4,341,268
|
3,857,228
|
1,980,414
|
||||||
|
David S. Wise
|
Salary and Bonus
|
—
|
679,496
|
—
|
861,000
|
|||||
|
Equity Compensation
Stock Options
Restricted Shares
|
693,447
2,588,247
|
693,447
2,588,247
|
693,447
2,588,247
|
243,549
385,831
|
||||||
|
Health Care Continuation Coverage
|
—
|
17,999
|
—
|
17,999
|
||||||
|
Other Benefits (Life Insurance)
|
—
|
—
|
300,000
|
—
|
||||||
|
Total
|
3,281,695
|
3,979,189
|
3,581,695
|
1,508,380
|
Change in Control (Column C)
Our Amended and Restated 1997 Stock Plan, 2005 Stock Plan, 2009 Stock Plan, and Amended and Restated New Employee Equity Inducement Plan (collectively, the “Equity Incentive Plans”) state that upon a Change of Control, as described below, all outstanding equity awards vest. A “Change of Control” occurs, in general, upon:
|
·
|
the acquisition by another person or entity of 50% or more of our outstanding shares of stock;
|
|
|
·
|
our reorganization, merger or consolidation or other form of corporate transaction where our stockholders prior to the transaction do not own more than 50% of the combined voting power of the resulting company’s outstanding securities;
|
|
|
·
|
the sale or disposition of all or substantially all of our assets;
|
|
|
·
|
a change in the composition of our Board, as a result of which fewer than a majority of the directors are incumbent directors; or
|
|
|
·
|
the approval by our Board or our stockholders of our liquidation or dissolution.
|
The only unvested equity awards granted to our Named Executive Officers are stock options and restricted shares of our common stock. The accelerated vesting of stock options results in an amount equal to the difference between the exercise price for each option and the market price per share (which, on the last day of the fiscal year ended April 29, 2011, was $35.59), multiplied by the number of unvested shares subject to the option. In the event that the exercise price is greater than the market price per share on the date of exercise, there is no value associated with the acceleration of vesting; thus, for purposes of the table above, no unvested shares with an exercise price greater than $35.59 are included. The numbers of optioned shares of stock subject to accelerated vesting on a Change in Control and the corresponding exercise price for each Named Executive Officer was (1) 37,500 shares at $19.39 per share, 30,570 shares at $14.72 per share, and 47,102 shares at $24.33 per share for Mr. Moore; (2) 12,957 shares at $19.39 per share, 17,012 shares at $14.72 per share, and 17,016 shares at $24.33 per share for Mr. Browne; (3) 22,500 shares at $16.38 per share, 10,316 shares at $14.72 per share, and 12,576 at $24.33 per share for Dr. Morris; (4) 11,798 shares at $19.39 per share, 19,116 shares at $14.72 per share, and 16,440 shares at $24.33 per share for Mr. Reinstein; and (5) 10,637 shares at $19.39 per share, 15,591 shares at $14.72 per share, and 17,384 shares at $24.33 per share for Mr. Wise.
The amount attributable to accelerated vesting of restricted shares was determined by multiplying the market price per share on the last day the fiscal year ended April 29, 2011 ($35.59) by the number of unvested restricted shares for each Named Executive Officer, which was (1) 216,380 shares in the case of Mr. Moore; (2) 75,534 shares in the case of Mr. Browne; (3) 69,650 shares in the case of Dr. Morris; (4) 78,169 shares in the case of Mr. Reinstein; and (5) 72,724 shares in the case of Mr. Wise.
Termination Upon or Within One Year Following a Change in Control (Other Than for Cause or Disability or by the Employee for Good Reason) (Column D)
Change in Control Arrangement with Mr. Moore.
Mr. Moore’s benefits in the event of his termination without “Cause” following a change in control are those he is eligible to receive in the event of a “Change of Control,” as reflected in Column C, plus incremental benefits that result from his termination without “Cause.” Pursuant to both Mr. Moore’s 2007 employment agreement and his 2011 employment agreement, if Mr. Moore’s employment is terminated (1) by us without “Cause” (as described below) or (2) by Mr. Moore for “Good Reason” (as described below) during the one-year period following the Change of Control, in addition to the accelerated vesting of equity awards, we will provide the following incremental benefits to Mr. Moore:
|
·
|
a payment equal to two times the sum of Mr. Moore’s current annual base salary and average bonus amount for the two most recent fiscal years;
|
|
|
·
|
medical and dental coverage for a period of 24 months; and
|
|
|
·
|
interest at the prime rate of interest on any severance benefits delayed for six months to avoid the excise tax under Section 409A of the Internal Revenue Code (“IRC”).
|
A termination is for “Cause” if Mr. Moore, after written notice and an opportunity to cure, has:
|
·
|
breached a material provision of his employment agreement;
|
|
|
·
|
willfully engaged in conduct that is materially and demonstrably injurious to our company;
|
|
|
·
|
willfully failed to comply with a lawful directive of our Board;
|
|
|
·
|
failed to comply with our written policies and procedures;
|
|
|
·
|
engaged in fraud, dishonesty or misappropriation of our assets, business, customers, suppliers or employees;
|
|
|
·
|
been convicted of a felony; or
|
|
|
·
|
continually failed or refused to perform satisfactorily, or grossly neglected, his duties, other than as resulted from physical or mental illness.
|
“Good Reason” means, in general:
|
·
|
a reduction in Mr. Moore’s base salary;
|
|
|
·
|
an adverse change in Mr. Moore’s title, status, authority, duties or responsibilities, except as necessitated by our change to a subsidiary of a public company following a change in control;
|
|
|
·
|
our failure to obtain the agreement of any successor company to perform our obligations under Mr. Moore’s employment agreement; or
|
|
|
·
|
our breach of any material provision of Mr. Moore’s employment agreement.
|
The accelerated vesting of Mr. Moore’s unvested equity awards as a result of the Change in Control (see “— Change in Control (Column C)” (p. 48)) are calculated in the manner described above in connection with Column C.
The amount in the “Other Benefits” row in Column D is interest due to Mr. Moore for a six-month delay in delivering the severance benefits per the terms of his employment agreements. The interest on delayed severance benefits is calculated based on the prime rate of interest as of April 29, 2011, the last day of fiscal 2011. The prime rate of interest reported in the Wall Street Journal on that day was 3.25%. Mr. Moore’s interest payment was estimated to be $32,662.
The cost of medical and dental coverage is calculated based on our cost to maintain Mr. Moore’s coverage under our group insurance plans.
Receipt of the foregoing benefits is contingent on and subject to Mr. Moore’s (1) avoidance of conduct that did or could have, if known, resulted in his termination for Cause; and (2) adherence to the terms of non-competition, non-solicitation, and confidentiality provisions in his employment agreement for periods of one, two, and two years, respectively, following termination of his employment.
Change in Control Arrangements with Our Other Named Executive Officers.
Effective January 1, 2011, our executive officers, other than Mr. Moore, agreed to the terms of an employment agreement with us. The 2011 employment agreements replaced substantially similar agreements effective as of June 1, 2009. See the discussion at “Executive Compensation — Summary Compensation — Salary (Column C) — Employment Arrangement with Gregory H. Browne” (p. 38). Each executive officer’s benefits in the event of his termination without “Cause” within one year following a change in control are those he is eligible to receive in the event of a “Change of Control,” as reflected in and described in connection with Column C (see “— Change in Control (Column C)” (p. 48)), plus incremental benefits provided by his employment agreement. The 2009 and 2011 employment agreements provide the same benefits on the same terms, as described below, in this regard, including incremental severance benefits payable if, within one year following a “Change of Control” (as defined above for the Equity Incentive Plans, see “— Change in Control (Column C)” (p. 48)), we terminate the executive officer’s employment without “Cause” or the executive officer terminates his employment for a “Good Reason” (both as defined above for Mr. Moore’s employment agreement, see “— Change in Control Arrangement with Mr. Moore” (p. 49)), as follows:
|
·
|
a payment equal to two times the sum of the executive officer’s annual base salary and the target bonus amount then in effect; and
|
|
|
·
|
payment of the full cost of premiums to continue medical and dental coverage under our medical and dental insurance programs pursuant to COBRA for a period of 12 months.
|
Receipt of the foregoing benefits is contingent on and subject to the executive officer’s (1) avoidance of conduct that did or could have, if known, resulted in his termination for Cause; and (2) adherence to the terms of a confidentiality provision in his employment agreement for a period of one year following termination of his employment.
Termination Due to Death (Column E)
Pursuant to the terms of the Equity Incentive Plans, in the event of a Named Executive Officer’s termination of employment due to death or “Disability” (as described below) all outstanding stock option awards vest. All restricted share awards vest upon the Named Executive Officer’s death (but not “Disability,” except in the case of awards made under the Cyberonics, Inc. 2009 Stock Plan (“2009 Plan”)). “Disability” is defined as total and permanent disability per Section 22(e)(3) of the IRC. The amount reported with respect to the accelerated vesting of stock options and restricted share awards has been calculated using the same method described in “— Change in Control (Column C)” (p. 48).
The amount in the “Other Benefits” row in Column E for Mr. Moore is the proceeds of a life insurance policy payable for the benefit of Mr. Moore under the terms of his 2007 and 2011 employment agreements ($3,000,000) and interest due to Mr. Moore for a six-month delay in delivering the severance benefits per the terms of his employment agreements. The interest on delayed severance benefits is calculated based on the prime rate of interest as of April 29, 2011, the last day of fiscal 2011. The prime rate of interest reported in the Wall Street Journal on that day was 3.25%. Mr. Moore’s interest payment was estimated to be $48,896.
The amount in the “Other Benefits” row in Column E for the Named Executive Officers other than Mr. Moore is the proceeds of a group term life insurance policy, which, as of April 29, 2011, paid a benefit of 1.5 times an employee’s annual base salary up to a maximum of $300,000.
Termination Due to Disability
Pursuant to the terms of the Equity Incentive Plans, in the event of a Named Executive Officer’s termination of employment due to Disability, all outstanding stock option awards, along with all stock awards issued from the 2009 Plan, vest. “Disability” is defined as total and permanent disability per IRC Section 22(e)(3).
Termination Without Cause (Column F)
Severance Arrangement with Mr. Moore.
In the event of a termination of Mr. Moore’s 2007 or 2011 employment agreement by us without “Cause” or by Mr. Moore for “Good Reason” (each as defined in the agreement, see “— Termination Upon or Within One Year Following a Change in Control (Other Than for Cause or Disability or by the Employee for Good Reason) (Column D) — Change in Control Arrangement with Mr. Moore” (p. 49)), Mr. Moore is entitled to receive the following severance benefits:
|
·
|
a payment equal to two times the sum of Mr. Moore’s current annual base salary and average bonus amount for the two most recent fiscal years;
|
|
|
·
|
the restrictions on that number of stock options and time-vested restricted shares shall lapse as would otherwise have lapsed if Mr. Moore had remained employed for a period through the date that is 12 months from the date of termination;
|
|
|
·
|
the restrictions on that number of performance-vested restricted shares shall lapse as determined by the Board in good faith to represent the extent of progress, if any, toward attainment of the performance criteria;
|
|
|
·
|
medical and dental coverage for a period of 24 months; and
|
|
|
·
|
interest at the prime rate of interest on any severance benefits delayed for six months to avoid the excise tax under Section 409A of the Internal Revenue Code (“IRC”).
|
The amount in the table was calculated by multiplying $35.59 (the closing price of our stock on April 29, 2011) by 69,112 time-vested restricted shares that would have vested within 12 months of April 29, 2011. As of April 29, 2011, all performance-vested shares issued under the terms of Mr. Moore’s 2007 employment agreement were vested, and no performance-vested shares had been issued under the terms of his 2011 employment agreement.
Severance Arrangements with Our Other Named Executive Officers.
Effective January 1, 2011, our executive officers, other than Mr. Moore, agreed to the terms of an employment agreement with us. The 2011 employment agreements replaced substantially similar agreements effective as of June 1, 2009. See the discussion above at “— Termination Upon or Within One Year Following a Change in Control (Other Than for Cause or Disability or by the Employee for Good Reason) (Column D) — Change in Control Arrangements with Our Other Named Executive Officers” (p. 50). The 2009 and 2011 employment agreements both provide severance benefits payable if we terminate the executive officer’s employment without “Cause” or the executive officer terminates his employment for “Good Reason” (both as defined above for Mr. Moore’s employment agreement, see “— Change in Control Arrangement with Mr. Moore” (p. 49)), as follows:
|
·
|
a payment equal to 1.5 times the sum of the executive officer’s annual base salary and the average bonus amount paid to the executive for the past two fiscal years;
|
|
|
·
|
the restrictions on that number of stock options and time-vested restricted shares shall lapse as would otherwise have lapsed if the executive officer had remained employed for a period through the date that is 12 months from the date of termination;
|
|
|
·
|
the restrictions on that number of performance-vested restricted shares shall lapse as determined by the Compensation Committee in its sole discretion to represent the extent of progress, if any, toward attainment of the performance criteria; and
|
|
|
·
|
payment of the full cost of premiums to continue medical and dental coverage under our medical and dental insurance programs pursuant to COBRA for a period of 12 months.
|
Receipt of the foregoing benefits is contingent on and subject to the executive officer’s (1) avoidance of conduct that did or could have, if known, resulted in his termination for Cause; and (2) adherence to the terms of a confidentiality provision in his employment agreement for a period of one year following termination of his employment.
The amounts shown in Column F of the table above were calculated in the manner described above in connection with Column D. See the discussion above at “— Termination Upon or Within One Year Following a Change in Control (Other Than for Cause or Disability or by the Employee for Good Reason) (Column D) — Change in Control Arrangements with Our Other Named Executive Officers” (p. 50).
NON-EMPLOYEE DIRECTOR COMPENSATION
General
At the outset of each fiscal year, the Compensation Committee reviews the total compensation paid to our non-employee directors and Non-Executive Chairman of our Board (“Chairman”). The purpose of the review is to ensure that the level of compensation is appropriate to attract and retain a diverse group of directors with the breadth of experience necessary to perform our Board’s duties, and to compensate our directors fairly for their services. The review includes the consideration of qualitative and comparative factors. To ensure directors are compensated relative to the scope of their responsibilities, the Compensation Committee considers: (1) the time and effort involved in preparing for Board and committee meetings and the additional duties assumed by committee chairs and our Chairman; (2) the level of continuing education required to remain informed of broad corporate governance trends and material developments and strategic initiatives within our company; (3) the risks associated with fulfilling fiduciary duties; and (4) the compensation paid to directors at a peer group of companies as determined by the Compensation Committee’s compensation consultant.
The following table sets forth a summary of the compensation we paid to our non-employee directors during the fiscal year ended April 29, 2011. Mr. Moore, who is both a director and a full-time employee, received no compensation for serving as a director.
Director Compensation for the Year Ended April 29, 2011
|
Name
|
Fees Earned or
Paid in Cash
($)
|
Stock Awards
($)(3)
|
All Other Compensation
($)(4)
|
Total
($)
|
||||
|
Guy C. Jackson
|
61,500
|
74,985
|
—
|
136,485
|
||||
|
Joseph E. Laptewicz, Jr.
|
56,500
|
74,985
|
—
|
131,485
|
||||
|
Hugh M. Morrison
|
111,500
|
99,996
|
—
|
211,496
|
||||
|
Alfred J. Novak
|
55,500
|
74,985
|
—
|
130,485
|
||||
|
Arthur L. Rosenthal
|
60,500
|
74,985
|
—
|
135,485
|
||||
|
Reese S. Terry, Jr.(1)
|
20,120
|
—
|
23,833
|
43,953
|
||||
|
Jon T. Tremmel (2)
|
26,440
|
175,000
|
—
|
201,440
|
_________________
|
(1)
|
Mr. Terry’s term as a director ended upon the election of Mr. Tremmel at our 2010 Annual Meeting of Stockholders on September 23, 2010.
|
|
(2)
|
Mr. Tremmel was elected to our Board at our 2010 Annual Meeting of Stockholders on September 23, 2010.
|
|
(3)
|
The amounts reported in this column reflect the aggregate grant date fair value for stock awarded during the fiscal year ended April 29, 2011, computed in accordance with FASB ASC Topic 718. For a discussion of assumptions used in the calculation of these amounts, see Note 13 to our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 29, 2011. Mr. Tremmel’s stock award was a one-time award for a new director valued at $175,000 on the date of our 2010 Annual Meeting of Stockholders (September 23, 2010).
As of April 29, 2011, the aggregate number of unvested stock awards granted to each director was as follows: Mr. Jackson – 9,770; Mr. Laptewicz – 14,146; Mr. Morrison – 14,668; Mr. Novak — 11,770; Dr. Rosenthal – 11,770; Mr. Terry – 6,688; and Mr. Tremmel – 7,178. As of April 29, 2011, the aggregate number of unexercised stock option awards granted to each director, all of which are vested, was as follows: Mr. Jackson – 43,000; Mr. Laptewicz – 0; Mr. Morrison – 0; Mr. Novak — 0; Dr. Rosenthal – 0; Mr. Terry – 41,000; and Mr. Tremmel – 0.
|
|
(4)
|
The amount reported in this column represents compensation for consulting services during the period of Mr. Terry’s service as a director.
|
Fiscal 2011 Cash Payments
Each non-employee director received the following compensation in fiscal 2011:
|
·
|
a cash retainer of $25,000, plus an additional $75,000 for the Non-Executive Chairman of our Board, Mr. Morrison;
|
|
|
·
|
an additional cash retainer of $6,000 for each member of the Audit Committee, plus an additional $5,000 for the chairperson of the Audit Committee;
|
|
|
·
|
an additional cash retainer of $4,000 for each member of the Compensation Committee and Nominating & Governance Committee, plus an additional $1,000 for the chairpersons of such committees;
|
|
|
·
|
Board meeting attendance fees of $2,000 (in-person) and $500 (telephonic); and
|
|
|
·
|
committee meeting attendance fees of $1,000 (in-person) and $500 (telephonic).
|
Fiscal 2011 Equity-Based Compensation
In addition to cash compensation, our non-employee directors are entitled to receive annual restricted stock awards under our equity compensation plans. In June 2011, our Board approved an award of 3,082 restricted shares (representing $75,000 divided by the closing share price ($24.33) on the grant date) to each of our non-employee directors, other than Mr. Terry and our non-executive Chairman, who received an award of 4,110 restricted shares (representing $100,000 divided by the closing share price ($24.33) on the grant date). All of the shares subject to each award vest on the first anniversary of the grant date. Mr. Tremmel, who replaced Mr. Terry on September 23, 2010, received an initial equity award on that date valued at $175,000 and vesting annually over a five-year period, but did not receive an annual award in June 2010.
Fiscal 2012 Director Cash Compensation
Director compensation for fiscal 2012 will be the same as the fiscal 2011 director compensation.
Fiscal 2012 Director Equity-Based Compensation
In March 2011, the Board amended its Equity Award Policy to provide that annual equity awards to non-executive directors will be approved on the date of our Annual Meeting of Stockholders commencing with the 2011 Annual Meeting scheduled for September 22, 2011.
Report of the Audit Committee
During the fiscal year ended April 29, 2011, the Audit Committee was chaired by Guy C. Jackson and comprised the following members: Guy C. Jackson, Alfred J. Novak, and Arthur L. Rosenthal, Ph.D.
Each member of the Audit Committee is an independent director as such term is defined under the Securities Exchange Act of 1934, as amended, and current listing requirements of The NASDAQ Stock Market LLC (“NASDAQ”). The Audit Committee is governed by an Audit Committee Charter, which complies with the requirements of the Sarbanes-Oxley Act of 2002 and listing requirements of NASDAQ. The Audit Committee Charter may be further amended to comply with the rules and regulations of the Securities and Exchange Commission and NASDAQ listing standards as they continue to evolve. A copy of the Audit Committee Charter is available on our website at www.cyberonics.com.
In fulfilling its responsibilities, the Audit Committee has reviewed and discussed the audited consolidated financial statements contained in the Cyberonics, Inc. Annual Report on Form 10-K for the fiscal year ended April 29, 2011 with Cyberonics’s management and independent registered public accounting firm. Management is responsible for such financial statements and the reporting process, including the system of internal controls. The independent registered public accounting firm is responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States.
The Audit Committee discussed with the independent registered public accounting firm their independence from Cyberonics and its management, including the matters in the written disclosures required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and considered the compatibility of any non-audit services with the auditors’ independence. In addition, the Audit Committee discussed the matters required to be discussed by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended.
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board approved, the inclusion of the audited consolidated financial statements in Cyberonics’ Annual Report on Form 10-K for the fiscal year ended April 29, 2011 for filing with the Securities and Exchange Commission.
Respectfully submitted by the Audit Committee of the Board of Directors of Cyberonics, Inc.,
|
Guy C. Jackson (Chairman)
|
|
|
Alfred J. Novak
|
|
|
Arthur L. Rosenthal, Ph.D.
|
Audit and Other Fees
Set forth below are the aggregate fees billed by KPMG LLP, our independent registered public accounting firm, for each of our last two fiscal years:
|
Fiscal year ended April 29, 2011
|
Fiscal year ended
April 30, 2010
|
|||||
|
Audit Fees(1)
|
$
|
856,388
|
$
|
883,526
|
||
|
Audit-Related Fees
|
––
|
––
|
||||
|
Tax Fees(2)
|
194,323
|
144,571
|
||||
|
All Other Fees
|
––
|
––
|
||||
|
Total
|
$
|
1,050,711
|
$
|
1,028,097
|
||
___________________
|
(1)
|
Audit Fees are fees we paid to KPMG LLP for professional services related to the audit of our consolidated financial statements included in our Annual Report on Form 10-K and review of financial statements included in our Quarterly Reports on Form 10-Q, and for services that are normally provided by the firm in connection with statutory and regulatory filings or engagements.
|
|
(2)
|
Tax Fees are fees paid to KPMG LLP for tax compliance, tax advice and tax planning.
|
Consistent with the Audit Committee Charter, all services provided by KPMG LLP were pre-approved by the Audit Committee, which has determined that the services provided by KPMG LLP were compatible with maintaining KPMG LLP’s independence. At each quarterly meeting, as needed, the Audit Committee reviews and approves the plan and scope of the audit services and the non-audit services to be provided by KPMG LLP and the fees to be paid for such services.
PROPOSALS FOR THE 2012 ANNUAL MEETING OF STOCKHOLDERS
In accordance with the requirements set forth in the Exchange Act, proposals of our stockholders that are intended to be presented by such stockholders at our 2012 Annual Meeting of Stockholders must be received by us no later than April 12, 2012 in order that they may be included in the proxy statement and proxy card relating to that meeting. If a stockholder intends to submit at the 2012 Annual Meeting of Stockholders a proposal that was not eligible for inclusion in the proxy statement and proxy card, the stockholder must give notice to us in accordance with our Bylaws no later than May 25, 2012. Detailed information for submitting stockholder proposals is available upon written request to our Secretary, David S. Wise, by mail at 100 Cyberonics Boulevard, Houston, Texas 77058 or by facsimile at (281) 283-5369.
Please see “Corporate Governance — Director Selection Process” (p. 8) for additional information regarding the submission of director nominees by stockholders.
Management does not intend to bring before the Annual Meeting any matters other than those set forth herein and has no present knowledge that any other matters will or may be brought before the Annual Meeting by others. However, if any other matters properly come before the Annual Meeting, then the Proxy Holders will vote the proxies in accordance with their judgment.
ANNUAL REPORT TO STOCKHOLDERS
Our Annual Report to Stockholders, which includes our consolidated financial statements for the fiscal year ended April 29, 2011, accompanies the proxy material being mailed to all of our stockholders. The Annual Report is not part of the proxy solicitation material.
We will provide you, without charge upon your request, additional copies of our Annual Report on Form 10-K or Annual Report to Stockholders for the fiscal year ended April 29, 2011. You may request such copies by contacting our Secretary, David S. Wise, at 100 Cyberonics Boulevard, Houston, Texas 77058 or by telephone at (281) 228-7200.
APPENDIX A: FORM OF PROXY
PROXY
CYBERONICS, INC.
ANNUAL MEETING OF STOCKHOLDERS – SEPTEMBER 22, 2011
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Cyberonics, Inc., a Delaware corporation, hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and Proxy Statement for the 2011 Annual Meeting of Stockholders, and hereby appoints Daniel J. Moore and Milton M. Morris, and each of them, as proxies and attorneys-in-fact, with full power of substitution, on behalf and in the name of the undersigned, to represent the undersigned at the Annual Meeting of Stockholders of Cyberonics, Inc., to be held on September 22, 2011 at 10:00 a.m., central daylight time, at Cyberonics’ offices located at 100 Cyberonics Boulevard, Houston, Texas 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 on the reverse side. In accordance with their discretion, the proxies and attorneys-in-fact are authorized to vote upon such other matters and issues as may properly come before the meeting or any adjournment thereof.
A majority of such attorneys and substitutes as shall be present and shall act at said meeting or any adjournment or postponements thereof (or if only one shall be present and act, then that one) shall have and may exercise all of the powers of said attorneys-in-fact hereunder.
This proxy will be voted as directed or, if no contrary direction is indicated, will be voted FOR all nominees in Proposal 1, FOR Proposals 2 and 3, and for 3 YRS on Proposal 4 and as the proxies deem advisable on such other matters as may come before the meeting.
The undersigned hereby revokes all proxies previously given by the undersigned to vote at the Annual Meeting of Stockholders or any adjournment or postponement thereof.
IMPORTANT—PLEASE SIGN AND DATE THIS PROXY CARD ON THE REVERSE SIDE.
ANNUAL MEETING PROXY CARD
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL OF THE NOMINEES LISTED IN PROPOSAL 1, “FOR” PROPOSALS 2 AND 3, AND FOR “3 YRS” ON PROPOSAL 4 BELOW.
|
1.
|
Election of Directors
|
||||||
|
(01) Guy C. Jackson
|
FOR ALL
|
WITHHOLD
|
FOR ALL
|
||||
|
(02) Joseph E. Laptewicz, Jr.
|
AUTHORITY
|
EXCEPT
|
|||||
|
(03) Daniel J. Moore
|
FOR ALL
|
||||||
|
(04) Hugh M. Morrison
|
|||||||
|
(05) Alfred J. Novak
|
|||||||
|
(06) Arthur L. Rosenthal, Ph.D.
|
|||||||
|
(07) Jon T. Tremmel
|
|
To withhold authority for an individual nominee, mark “FOR ALL EXCEPT” and write each withheld nominee’s number on the line below:
|
||
|
2.
|
Proposal to ratify the selection of KPMG LLP
|
||||||
|
as Cyberonics, Inc.’s independent registered public
|
|||||||
|
accounting firm for the fiscal year ending April 27, 2012.
|
FOR
|
AGAINST
|
ABSTAIN
|
|
3.
|
Say on Pay – Proposal to approve by advisory vote the
|
||||||
|
executive compensation described in the Proxy
|
|||||||
|
Statement.
|
FOR
|
AGAINST
|
ABSTAIN
|
|
4.
|
Say When on Pay – Proposal to approve by advisory
|
||||||||
|
vote the frequency of future stockholder votes on
|
|||||||||
|
executive compensation.
|
3 YRS
|
2 YRS
|
1 YR
|
ABSTAIN
|
|
MARK HERE FOR ADDRESS
|
||
|
CHANGE AND NOTE AT LEFT
|
||
|
Date (mm/dd/yyyy):
|
||
|
Signature:
|
||
|
Signature:
|
||
|
Title:
|
(This proxy should be dated, signed exactly as your name(s) appears hereon and returned promptly in the enclosed envelope. Persons signing in a fiduciary capacity should indicate their title. If the shares are held by joint tenants or as community property, both owners should sign this proxy.)