SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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/ / Preliminary Proxy Statement
/ / CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED
BY RULE 14A-6(E)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
ENCHIRA BIOTECHNOLOGY CORPORATION
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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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and 0-11.
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ENCHIRA BIOTECHNOLOGY CORPORATION
4200 RESEARCH FOREST DRIVE
THE WOODLANDS, TEXAS 77381
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 2001
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The Annual Meeting of the Stockholders of Enchira Biotechnology Corporation,
a Delaware corporation (the "Company"), will be held at the Company's offices,
4200 Research Forest Drive, The Woodlands, Texas, on June 5, 2001 at
10:00 a.m., local time, for the following purposes:
1. To elect eight directors to serve until the annual stockholders' meeting
in 2002 or until their successors have been elected and qualified;
2. To approve an amendment to the Company's 1997 Stock Option Plan, as
amended, to increase the number of shares available for grant to 2,000,000
shares;
3. To approve an amendment to the Company's Non-Employee Director Option
Plan, as amended, to increase the number of shares available for grant to
400,000 shares;
4. To ratify and approve the appointment of Andersen LLP as the Company's
independent public accountants for the 2001 fiscal year; and
5. To act upon such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record at the close of business on April 20, 2001 are
entitled to receive notice of, and to vote at, the meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING OF
STOCKHOLDERS REGARDLESS OF THE SIZE OF YOUR HOLDINGS OR WHETHER YOU PLAN TO
ATTEND THE MEETING. THEREFORE, PLEASE MARK, SIGN, DATE, AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY. IF YOU ARE PRESENT AT THE MEETING, AND WISH TO DO SO, YOU
MAY REVOKE THE PROXY AND VOTE IN PERSON.
By Order of the Board of Directors
Paul G. Brown, III
SECRETARY
May 1, 2001
The Woodlands, Texas
ENCHIRA BIOTECHNOLOGY CORPORATION
4200 RESEARCH FOREST DRIVE
THE WOODLANDS, TEXAS 77381
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PROXY STATEMENT
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SOLICITATION AND REVOCABILITY OF PROXIES
The accompanying proxy is solicited by the Board of Directors of Enchira
Biotechnology Corporation (the "Company") for use at the 2001 Annual Meeting of
Stockholders to be held on June 5, 2001 and at any adjournments thereof (the
"Annual Meeting"). The Annual Meeting will be held at 10:00 a.m., local time, at
the Company's principal executive offices, 4200 Research Forest Drive, The
Woodlands, Texas. If the accompanying proxy is properly executed and returned,
the shares it represents will be voted at the Annual Meeting in accordance with
the directions noted thereon or, if no direction is indicated, it will be voted
in favor of the proposals described in this Proxy Statement. In addition, the
proxy confers discretionary authority to the persons named in the proxy
authorizing those persons to vote, in their discretion, on any other matters
properly presented at the Annual Meeting. The Board of Directors is not
currently aware of any such other matters.
Each stockholder of the Company has the unconditional right to revoke his
proxy at any time prior to its exercise, either in person at the Annual Meeting
or by written notice to the Company addressed to Secretary, Enchira
Biotechnology Corporation, 4200 Research Forest Drive, The Woodlands, Texas
77381. No revocation by written notice will be effective unless such notice has
been received by the Secretary of the Company prior to the day of the Annual
Meeting or by the inspector of election at the Annual Meeting.
The principal executive offices of the Company are located at 4200 Research
Forest Drive, The Woodlands, Texas 77381. This Proxy Statement and the
accompanying Notice of Annual Meeting of Stockholders and proxy are being mailed
to the Company's stockholders on or about May 1, 2001.
QUORUM AND VOTING
The number of voting securities of the Company outstanding on April 20,
2001, the record date for the determination of stockholders of the Company
entitled to receive notice of, and to vote at, the Annual Meeting was
(i) 9,286,591 shares of common stock, par value $0.01 per share (the "Common
Stock"), each share being entitled to one vote, and (ii) 312,000 shares of
Series B Convertible Preferred Stock, par value $0.01 per share (the "Preferred
Stock"). Shares of Preferred Stock have voting rights on all matters subject to
a vote of the holders of Common Stock on an as-converted basis. As of the record
date, the shares of Preferred Stock are entitled to an aggregate of 929,760
votes upon each of the matters to be voted on at the Annual Meeting. The total
number of votes that may be cast at the Annual Meeting is 10,216,351.
The presence, either in person or by proxy, of holders of a majority of the
outstanding shares of Common Stock (including holders of Preferred Stock on an
as-converted basis) is necessary to constitute a quorum at the Annual Meeting.
Abstentions and broker non-votes which are properly executed and received by the
Company prior to or at the Annual Meeting are counted for purposes of
determining whether a quorum is present. A plurality vote is required for the
election of directors. Accordingly, if a quorum is present at the Annual
Meeting, the eight persons receiving the greatest number of votes will be
elected to serve as directors. Withholding authority to vote for a director
nominee and broker non-votes in the election of directors will not affect the
outcome of the election of directors. All other matters to be voted on will be
decided by the vote of the holders of a majority of the shares present or
represented at the Annual Meeting and entitled to vote on such matter. On any
such matter, an abstention will have the same effect as a negative vote but,
because shares held by brokers will not be considered entitled to vote on
matters as to which the brokers withhold authority, a broker non-vote will have
no effect on such vote.
All Proxies that are properly completed, signed and returned prior to the
Annual Meeting will be voted. Any Proxy given by a stockholder may be revoked at
any time before it is exercised if the stockholder either (i) files with the
Secretary of the Company an instrument revoking it, (ii) executes and returns a
Proxy bearing a later date or (iii) attends the Annual Meeting and expresses a
desire to vote his shares of Common Stock in person. Votes will be counted by
Computershare Investor Services, LLC, the Company's transfer agent and
registrar.
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PROPOSAL NUMBER 1:
ELECTION OF DIRECTORS
The Board of Directors has nominated and urges you to vote for the election
of the eight nominees identified below who have been nominated to serve as
directors until the next annual meeting of stockholders or until their
successors are duly elected and qualified. Each of the nominees listed below is
a member of the Company's present Board of Directors. Proxies solicited hereby
will be voted for all eight nominees unless stockholders specify otherwise in
their proxies.
If, at the time of or prior to the Annual Meeting, any of the nominees
should be unable or decline to serve, the discretionary authority provided in
the proxy may be used to vote for a substitute or substitutes designated by the
Board of Directors. The Board of Directors has no reason to believe that any
substitute nominee or nominees will be required.
NOMINEES FOR DIRECTOR
The eight nominees for election as directors and certain additional
information with respect to each of them are as follows:
YEAR FIRST
NAME AGE POSITION WITH THE COMPANY BECAME A DIRECTOR
- ---- -------- ----------------------------------- -----------------
William E. Nasser.................. 61 Chairman of the Board 1992
Peter P. Policastro, Ph.D.......... 47 President and Chief Executive
Officer and Director 1999
Daniel J. Monticello, Ph.D......... 45 Vice President, Research and
Development and Director 1994
Nancy T. Chang, Ph.D............... 51 Director 2000
R. James Comeaux................... 63 Director 1997
G. Anthony Gorry, Ph.D............. 60 Director 2000
Thomas E. Messmore, CFA............ 55 Director 1992
William D. Young................... 56 Director 1994
WILLIAM E. NASSER. Mr. Nasser has served as Chairman of the Board since
April 1998 and has been a Director since January 1992. Mr. Nasser served as
President and Chief Executive Officer from April 1998 to June 1999. Mr. Nasser
formerly served as Chairman of the Board, President and Chief Executive Officer
of Petrolite Corporation from 1992 to 1995 and as President of Petrolite from
1988 to 1992. He retired in November 1995 after over 30 years of service.
Mr. Nasser currently is a director of Laclede Gas Company. He holds a B.S.
degree in Chemical Engineering from the University of Notre Dame and an M.S.
degree from the University of Oklahoma.
PETER P. POLICASTRO, PH.D. Dr. Policastro has served as the Company's
President and Chief Executive Officer since July 1999 after serving as the
Company's Executive Vice President and Chief Operating Officer since
January 1999. He served as Senior Vice President Research and Development in the
Melamine Resins and Derivatives Unit, a division of Borden Chemical, Inc. from
1998 to 1999. From 1995 to 1998, Dr. Policastro was Senior Vice President of
Plastics Manufacturing Company, a division of Sun Coast Industries, Inc. From
1992 to 1995, Dr. Policastro was Chief Executive Officer and a founder of
Med-Genesis, Inc., a surgical products company. From 1989 to 1992,
Dr. Policastro was President of OctaNova Laboratories. Dr. Policastro received
his A.B. degree in Chemistry from Duke University in 1976 and his Ph.D. in
Organic Chemistry from the Massachusetts Institute of Technology in 1983.
DANIEL J. MONTICELLO, PH.D. Dr. Monticello was the Company's first
employee. He joined the Company in July 1990 as Vice President, Research and
Development and became a Director in 1994.
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From 1983 to 1990, Dr. Monticello was employed by Miles Laboratories where he
served in various capacities in the Biotechnology Products Division, including
Manager of Biochemistry Research. Dr. Monticello earned his B.S. degree from the
University of Michigan and his M.S. and Ph.D. in Microbiology from Michigan
State University. His post-doctoral research at the University of Georgia from
1982 to 1984 concerned the microbial desulfurization of fossil fuels.
NANCY T. CHANG, PH.D. Dr. Chang has been a director since October 2000. She
is a co-founder of and has served as President and Chairman of the Board of
Tanox Inc. since March 1986. Dr. Chang has served as Tanox's Chief Executive
Officer since June 1990. From 1986 to 1992, Dr. Chang served as an Associate
Professor at Baylor College of Medicine in the Division of Molecular Virology.
Between 1981 and 1986, Dr. Chang was employed by Centocor, Inc., serving as the
Director of Research, Molecular Biology Group, from 1984 to 1986. From 1980 to
1981, she was employed by Roche Institute of Molecular Biology. Dr. Chang
received her Ph.D. in biological chemistry from Harvard University.
R. JAMES COMEAUX. Mr. Comeaux has been a Director since April 1997.
Mr. Comeaux has been President of Petrochemical Management Incorporated since
1993. From 1989 to 1993, Mr. Comeaux served as President and Chief Executive
Officer of Arcadian Corporation. He served as Senior Vice President of
Fina, Inc. from 1984 to 1989. Prior to joining Fina, Mr. Comeaux spent 17 years
at Gulf Oil Corporation. Mr. Comeaux is a director of Ivex Packaging
Corporation. Mr. Comeaux received a B.S. degree in Chemical Engineering from
Lamar University.
G. ANTHONY GORRY, PH.D. Dr. Gorry has served as a director of the Company
since November 2000. Since April 1992, Dr. Gorry has been Vice President,
Information Technology and Professor of Computer Science at Rice University.
Presently he is also Professor of Management and Director of the Center for
Technology in Teaching and Learning at Rice. Dr. Gorry is also a Director of the
W.M. Keck Center for Computational Biology, a joint endeavor of Rice, Baylor
College of Medicine and the University of Houston. He directs a training grant
on computational biology funded by the National Library of Medicine. He is also
Adjunct Professor of Neuroscience at Baylor College of Medicine. Dr. Gorry also
serves on the Board of Directors of Gene Logic Inc. Dr. Gorry holds a B.Eng.
from Yale University, an M.S. in chemical engineering from the University of
California, Berkeley and a Ph.D. in computer science from the Massachusetts
Institute of Technology. He is a Member of the Institute of Medicine and of the
National Academy of Sciences and a Fellow of the American College of Medical
Informatics.
THOMAS E. MESSMORE, CFA. Mr. Messmore has been a Director since 1992.
Mr. Messmore has been Managing Director of Zurich Centre Resources, Ltd., a
subsidiary of Zurich Insurance Group, since 1997 and currently serves as a
member of the Executive Staff with their parent company Zurich Insurance in
Zurich, Switzerland. Previously, Mr. Messmore served as President and Chief
Executive Officer of UBS Asset Management (New York), Inc. from 1995 until
October 1996. Mr. Messmore served as Senior Vice President of The Travelers
Insurance Company from 1984 until his resignation in January 1994. Prior
thereto, he served as Senior Vice President and Chief Financial Officer of the
Keystone Massachusetts Group, an affiliate of The Travelers Insurance Company.
Mr. Messmore received a B.S. degree in Engineering from West Virginia University
and an M.B.A. from Harvard Business School.
WILLIAM D. YOUNG. Mr. Young has been a Director since 1994. Mr. Young has
been Chief Executive Officer and Chairman of the Board of ViroLogic, Inc. since
October 1999. Mr. Young was Chief Operating Officer of Genentech, Inc. from
March 1997 to October 1999, with responsibility for overseeing
Genentech, Inc.'s operations, business development and sales and marketing.
Prior to joining Genentech, Inc. in 1980, Mr. Young spent 14 years with Eli
Lilly and Company. He received his B.S. degree in Chemical Engineering from
Purdue University and an M.B.A. from Indiana University. Mr. Young is also on
the Board of Directors of IDEC Pharmaceuticals, Inc. and is a member of the
National Academy of Engineering.
4
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE ELECTION
OF EACH OF THE ABOVE-NAMED NOMINEES.
All directors hold office until the next annual meeting of the stockholders
of the Company or until their successors have been duly elected and qualified.
The Company's officers are elected annually by, and serve at the pleasure of,
the Board of Directors, subject to the terms of any employment agreements.
The Company's Certificate of Incorporation and Bylaws provide that the
number of directors on the Board shall be fixed from time to time by the Board
of Directors but shall not be less than three nor more than fifteen persons. The
Board in its discretion and in accordance with such authority has currently
fixed its size at eight members. No proxy will be voted for a greater number of
persons than the number of nominees named herein.
DIRECTORS' MEETINGS AND COMPENSATION
During 2000, the Board of Directors met 5 times and took certain additional
actions by unanimous written consent in lieu of meetings. During 2000, no
director of the Company attended fewer than 75 percent of the meetings of the
Board of Directors.
Members of the Board of Directors are reimbursed for out-of-pocket expenses
incurred in attending Board of Directors and committee meetings. In March 2001,
the Board approved an amendment to the Company's Non-Employee Director Option
Plan, as amended (the "Director Plan"), under which non-employee directors
receive an option to purchase (i) 300 shares of Common Stock for Board meetings
attended in person, (ii) 100 shares of Common Stock for Board meetings attended
telephonically and (iii) 100 shares for Committee meetings attended either in
person or telephonically. Such options are to be received in lieu of cash fees
to the non-employee directors. During 2000, each of Messrs. Comeaux, Lopez,
Nasser and Young and Drs. Chang and Gorry received $1,000 for each board meeting
attended and $500 for each committee meeting attended. Directors who are
employees of the Company do not receive any additional compensation for their
services as a director.
Under the Director Plan, each nonemployee director receives an automatic
annual grant of non-qualified options to purchase 6,000 shares of Common Stock
at an exercise price per share equal to the fair market value per share of
Common Stock on the date the option is granted. The Board increased this amount
from 4,000 shares by an amendment to the Director Plan approved in March 2001.
BOARD COMMITTEES
The Company's Board of Directors has an Executive Committee, a Compensation
Committee and an Audit Committee. The Board of Directors does not have a
Nominating Committee. During 2000, the Executive Committee met 4 times, the
Compensation Committee met 1 time and the Audit Committee met 3 times. During
2000, no director of the Company attended fewer than 75 percent of the number of
meetings of committees on which he served. Ramon Lopez is currently a director
but is not standing for reelection to the Board.
The Executive Committee exercises all the powers of the Board in the
management of the business and affairs of the Company, except as limited by
Delaware law, when the Board is not in session. The current members of the
Executive Committee are Messrs. Comeaux, Lopez and Nasser and Dr. Policastro.
The Compensation Committee makes recommendations concerning compensation,
including incentive arrangements, for the Company's officers. The Compensation
Committee also administers the Company's stock incentive plans. The current
members of the Compensation Committee are Messrs. Comeaux, Lopez and Messmore
and Dr. Chang. The Audit Committee's functions include making recommendations
concerning the engagement of independent public
5
accountants, reviewing with the independent public accountants the plan and
results of the auditing engagement, approving professional services provided by
the independent public accountants, and reviewing the adequacy of the Company's
internal accounting controls. To promote the independence of its audit, the
Audit Committee consults separately and jointly with the independent auditors
and management. The current members of the Audit Committee are Messrs. Comeaux
and Messmore and Dr. Gorry.
As required by Nasdaq Stock Market and Securities and Exchange Commission
(the "Commission") rules regarding audit committees, the Board of Directors has
reviewed the qualifications of its Audit Committee and has determined that none
of the current members of the Audit Committee have a relationship with the
Company that might interfere with the exercise of their independence from the
Company or its management.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee includes three directors who are independent, as defined
by the standards of the Nasdaq Stock Market. The Audit Committee assists the
Board in overseeing matters relating to the Company's accounting and financial
reporting practices, the adequacy of its internal controls and the quality and
integrity of its financial statements. In May 2000, the Audit Committee adopted,
and the Board of Directors ratified, a new Audit Committee Charter, which is
attached hereto as Exhibit A.
The Audit Committee met 3 times during the year ended December 31, 2000.
Also, the Audit Committee Chairman, on behalf of the Audit Committee, reviewed
with management and the independent auditors the interim financial information
included in the Company's quarterly reports on Form 10-Q for the fiscal quarters
ended March 31, June 30, and September 30, 2000 prior to their being filed with
the Commission.
The independent auditors provided the Audit Committee with a written
statement describing all the relationships between the Company and its auditors
that might bear on the auditors' independence consistent with Independence
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees." The Audit Committee also discussed with the auditors any
relationships that may impact their objectivity and independence and satisfied
itself as to the auditors' independence.
The Audit Committee discussed and reviewed with the independent auditors all
communications required by generally accepted auditing standards, including
those described in Statement of Auditing Standards No. 61, as amended,
"Communication with Audit Committees."
With and without management present, the Audit Committee discussed and
reviewed the results of the independent auditors' examination of the Company's
December 31, 2000 financial statements. The discussion included matters related
to the conduct of the audit, such as the selection of and changes in significant
accounting policies, the methods used to account for significant or unusual
transactions, the effect of significant accounting policies in controversial or
emerging areas, the process used by management in formulating particularly
sensitive accounting estimates and the basis for the auditors' conclusions
regarding the reasonableness of those estimates, significant adjustments arising
from the audit and disagreements, if any, with management over the application
of accounting principles, the basis for management's accounting estimates and
the disclosures in the financial statements.
The Audit Committee reviewed the Company's audited financial statements as
of and for the year ended December 31, 2000, and discussed them with management
and the independent auditors. Based on such review and discussions, the Audit
Committee recommended to the Board that the Company's audited financial
statements be included in its Annual Report on Form 10-K for the fiscal year
ended December 31, 2000 for filing with the Commission.
6
FEES PAID TO PRINCIPAL ACCOUNTING FIRM
The following table sets forth the aggregate fees billed to the Company by
its principal accounting firm, Andersen LLP, for the fiscal year ended
December 31, 2000:
Audit Fees.................................................. $53,000(1)
Financial Information Systems
Design and Implementation Fees............................ --
All Other Fees.............................................. 28,200
Total Fees.............................................. $81,200
- ------------------------
(1) The Company anticipates that Andersen will bill no additional fees for
services rendered in 2000.
The Audit Committee has considered whether the provision of the services
reflected under "All Other Fees" above might affect Andersen's independence with
respect to their audit of the Company's financial statements, and the Audit
Committee believes that such services do not affect, and are compatible with,
Andersen's independence.
This report of the Audit Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), except to the extent that the Company specifically incorporates
this information by reference, and shall not otherwise be deemed filed under
such Acts.
R. James Comeaux
G. Anthony Gorry, Ph.D.
Thomas E. Messmore, CFA, Chairman
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
Set forth below is certain information concerning the executive officers of
the Company, including the business experience of each during the past five
years.
NAME AGE POSITION WITH THE COMPANY
- ---- -------- ------------------------------------------
William E. Nasser......................... 61 Chairman of the Board
Peter P. Policastro, Ph.D................. 47 President and Chief Executive Officer
Daniel J. Monticello, Ph.D................ 45 Vice President, Research and Development
Paul G. Brown, III........................ 40 Vice President, Finance and Administration
and Chief Financial Officer
David B. Carpi............................ 39 Vice President, Business Development
Information regarding the business experience of Mr. Nasser and Drs.
Policastro and Monticello is set forth above under the heading "Proposal Number
1: Election of Directors--Nominees for Director."
PAUL G. BROWN, III. Mr. Brown has served as Vice President, Finance and
Administration of the Company since September 1993 and Chief Financial Officer
since September 1997. From February 1992 to September 1993, he served as
Corporate Controller of the Company. Mr. Brown spent 10 years with Andersen LLP
from 1982 to 1992, serving most recently as a Tax Manager. Mr. Brown earned his
B.S. degree in Accounting from the University of New Orleans.
DAVID B. CARPI. Mr. Carpi joined the Company in September 2000 as Vice
President of Business Development. From April 1993 to July 1997, Mr. Carpi
served as Manager and from July 1997 to
7
September 2000 as Director of Business Development and Strategic Planning of the
Liposome Company. In 1989, he founded Oragen Inc., a joint venture to develop
oral formulations of peptide-based pharmaceuticals. Mr. Carpi also worked in
sales and marketing capacities for Johnson & Johnson and Merck and Co.
Mr. Carpi holds a Master of Science from the Sloan School of Management,
Massachusetts Institute of Technology (MIT) and a Bachelor of Science in
Molecular Biology from Carnegie-Mellon University.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee") of the Board of Directors of
the Company currently consists of Messrs. Comeaux, Lopez and Messmore, none of
whom is an officer or employee of the Company. The Committee is responsible for
evaluating the performance of management, determining the compensation for
certain executive officers of the Company and administering the Company's stock
plans under which grants of stock options and restricted stock may be made to
employees of the Company. The Committee has furnished the following report on
executive compensation for 2000:
Under the supervision of the Committee, the Company has developed a
compensation policy which is designated to attract and retain key executives
responsible for the success of the Company and motivate management to enhance
long-term stockholder value. The annual compensation package for executive
officers primarily consists of (i) a cash salary which reflects the
responsibilities relating to the position and individual performance,
(ii) variable performance awards payable in cash or stock and tied to the
achievement of certain personal or corporate goals or milestones and
(iii) long-term stock based incentive awards which strengthen the mutuality of
interests between the executive officers and the Company's stockholders.
In determining the level and composition of compensation of each of the
Company's executive officers, the Committee takes into account various
qualitative and quantitative indicators of corporate and individual performance.
Although no specific target has been established, the Committee generally seeks
to set salaries near the median range in comparison with peer group companies.
In setting such salaries, the Committee considers its peer group to be certain
companies in the biotechnology industry with market capitalizations under one
billion dollars. Such competitive group does not necessarily include the
companies comprising the Peer Group Index reflected in the performance graph in
this Proxy Statement. Because the Company is still in the development stage, the
use of certain traditional performance standards (E.G., profitability and return
on equity) is not currently appropriate in evaluating the performance of the
Company's executive officers. Consequently, in evaluating the performance of
management the Committee takes into consideration such factors as the Company's
achieving specified milestones or goals under various research or development
programs. In addition, the Committee recognizes performance and achievements
that are more difficult to quantify, such as the successful supervision of major
corporate projects, demonstrated leadership ability, and contributions to the
industry and community development. For 2000, the Committee included in its
evaluation the progress made by the Company, including the continuing
advancement of the Company's research and development under existing research
and collaboration agreements.
Base compensation is established through negotiation between the Company and
the executive officer at the time the executive is hired, and then subsequently
adjusted when such officer's base compensation is subject to review or
reconsideration. While the Company has entered into employment agreements with
certain of its executive officers, such agreements provide that base salaries
after the initial year will be determined by the Committee after review. When
establishing or reviewing base compensation levels for each executive officer,
the Committee, in accordance with its general compensation policy, considers
numerous factors, including the responsibilities relating to the position, the
qualifications of the executive and the relevant experience the individual
brings to the Company, strategic goals for which the executive has
responsibility, and compensation levels of companies at a
8
comparable stage of development who compete with the Company for business,
scientific, and executive talents. As stated above, such comparable companies
are generally those with market capitalizations under one billion dollars and
are not necessarily among the companies comprising the Peer Group Index
reflected in the performance graph in this Proxy Statement. No predetermined
weights are given to any one of such factors. The base salaries for the
executive officers for fiscal 2000 were at the median level in comparison to the
Company's peer group companies.
In addition to each executive officer's base compensation, the Committee may
award cash bonuses and/or grant awards under the Company's stock and/or option
compensation plans to chosen executive officers depending on the extent to which
certain defined personal and corporate performance goals are achieved. Such
corporate performance goals are the same as discussed above.
All employees of the Company, including its executive officers, are eligible
to receive long-term stock-based incentive awards under the Company's stock
compensation plans as a means of providing such individuals with a continuing
proprietary interest in the Company. Such grants further the mutuality of
interest between the Company's employees and its stockholders by providing
significant incentives for such employees to achieve and maintain high levels of
performance. The Company's stock compensation plans enhance the Company's
ability to attract and retain the services of qualified individuals. Factors
considered in determining whether such awards are granted to an executive
officer of the Company include the executive's position in the Company, his or
her performance and responsibilities, the amount of stock options and restricted
stock, if any, currently held by the officer, the vesting schedules of any such
options or restricted stock and the executive officer's other compensation.
While the Committee does not adhere to any firmly established formulas or
schedules for the issuance of awards such as options or restricted stock, the
Committee will generally tailor the terms of any such grant to achieve its goal
as a long-term incentive award by providing for a vesting schedule encompassing
several years or tying the vesting dates to particular corporate or personal
milestones. For example, Mr. Brown and Drs. Policastro and Monticello were
granted options to acquire an aggregate of 70,000 shares of Common Stock in 2000
in recognition of their continuing contributions to the Company, with vesting
contingent on the Company accomplishing specific goals. See "Executive
Compensation--Option Grants in Last Fiscal Year."
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Dr. Policastro's current employment agreement with the Company specifies an
initial base annual salary of $200,000. This salary was adjusted in
January 2001 to Dr. Policastro's current base annual salary of $250,000. In
setting this current base salary for Dr. Policastro, the Committee evaluated the
compensation package for chief executive officers of peer group companies with
similar market capitalizations. The Committee expects that when it reevaluates
Dr. Policastro's base salary level in the future, it will consider a variety of
factors, including Dr. Policastro's responsibilities, his general background and
qualifications, his achievement of various corporate and personal milestones set
by the Committee from time to time, and compensation levels for executives in
Dr. Policastro's position and with his background at peer group companies. The
Committee has not attached any particular relative weighting to the foregoing
factors (or any other factors which the Committee may also consider in reaching
compensation decisions for the Company's executive officers).
Dr. Policastro will be eligible to receive such bonuses as may be determined
by the Committee. The Committee will retain discretion to determine the amount
of any incentive bonus awards to be paid to Dr. Policastro, and the Committee
expects that it will evaluate a number of factors in reaching this decision,
including the Company's strategic goals for which Dr. Policastro has
responsibility, his other responsibilities, his initiatives and contributions to
the Company's achievement of various corporate and strategic goals, and his own
achievement of certain personal milestones as determined by the Committee from
time to time. On January 1, 2001 Dr. Policastro received a bonus of $40,000.
9
On February 4, 2000, Dr. Policastro was granted a stock option to purchase
40,000 shares of Common Stock at an exercise price of $4.50 per share, with
vesting over four years. The Committee expects that Dr. Policastro will continue
to participate in the Company's stock compensation plans on the same general
terms as other participants in such plans with respect to future stock option
grants that he may be granted from time to time, although the amount of shares
underlying option grants to Dr. Policastro will be potentially larger than for
other employees as a result of his position and/or performance.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), added by the Revenue Reconciliation Act of 1993, places a $1 million
cap per executive on the deductible compensation that can be paid to certain
executives of publicly-traded corporations. Amounts that qualify as "performance
based" compensation under Section 162(m)(4)(c) of the Code are exempt from the
cap and do not count toward the $1 million limit. Generally, stock options will
qualify as performance based compensation. The Committee has discussed and
considered and will continue to evaluate the potential impact of Section 162(m)
on the Company in making compensation determinations, but has not established a
set policy with respect to future compensation determinations.
The foregoing report is given by the following members of the Compensation
Committee:
R. James Comeaux
Ramon Lopez
Nancy T. Chang, Ph.D.
Thomas E. Messmore, CFA, Chairman
The report of the Compensation Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended, except to the extent that the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such acts.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes certain information regarding aggregate cash
compensation, stock option and restricted stock awards and other compensation
earned by the Company's President and Chief Executive Officer and each of the
Company's other executive officers as of December 31, 2000 who earned in excess
of $100,000 during 2000.
LONG-TERM COMPENSATION
ANNUAL -------------------------
COMPENSATION SECURITIES
------------------- RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS STOCK AWARDS OPTIONS(#) COMPENSATION(1)
- --------------------------- -------- -------- -------- ------------ ---------- ---------------
Peter P. Policastro, Ph.D............. 2000 $207,500 40,000 $ 13,600
President and Chief Executive 1999 $192,500 -- -- 140,800 $ 81,624(2)
Officer 1998 -- -- -- -- --
Daniel J. Monticello, Ph.D............ 2000 $174,070 5,000 $281,354(3)
Vice President, Research and 1999 $171,113 -- -- 86,700 $ 12,800
Development 1998 $169,000 $ 155 -- 1,714 $ 12,800
Paul G. Brown, III.................... 2000 $148,753 $27,501 25,000 $ 11,900
Vice President, 1999 $135,169 $25,000 -- 61,300 $ 10,814
Finance and Administration 1998 $131,313 -- -- 3,142 $ 10,005
and Chief Financial Officer
- --------------------------
(1) During each of the three years ended December 31, 2000, perquisites for each
individual named in the Summary Compensation Table aggregated less than 10%
of the total annual salary and bonus
10
reported for such individuals in the Summary Compensation Table.
Accordingly, no such amounts are included in the Summary Compensation Table.
All amounts listed above represent Company contributions to the Company's
Simplified Employee Pension Plan ("SEP") unless otherwise indicated.
(2) Includes $73,624 for relocation expenses.
(3) Includes $267,754 in compensation from stock options exercised.
STOCK OPTIONS
The following table sets forth information concerning the grant of stock
options under the Company's 1997 Stock Option Plan during 2000 to the executive
officers named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES PERCENTAGE OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------
NAME GRANTED(1) FISCAL 2000 SHARE DATE 5% 10%
- ---- ---------- ------------------- --------- ---------- ---------- ----------
Peter P. Policastro, Ph.D...... 40,000 22.7% $4.50 2/4/10 $293,200 $466,800
Daniel J. Monticello, Ph.D..... 5,000 2.8% $4.50 2/4/10 $ 36,650 $ 58,350
Paul G. Brown, III............. 25,000 14.2% $4.50 2/4/10 $183,250 $291,750
- --------------------------
(1) No stock appreciation rights ("SARs") or other instruments were granted in
tandem with the options reflected in this table.
(2) The Securities and Exchange Commission requires disclosure of the potential
realizable value or present value of each grant. The disclosure assumes the
options will be held for the full ten-year term prior to exercise. Such
options may be exercised prior to the end of such ten-year term. The actual
value, if any, an executive officer may realize will depend upon the excess
of the stock price over the exercise price on the date the option is
exercised. There is no assurance that the stock price will appreciate at the
rates shown in the table. If the assumed annual rate of stock price
appreciation of 5% or 10% per year should occur, the market value per share
of Common Stock at the end of the ten-year option term would be $7.33 and
$11.67, respectively, for the options granted at $4.50 to Drs. Policastro
and Monticello and Mr. Brown
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning option exercises and
the value of unexercised options held by the executive officers of the Company
named in the Summary Compensation Table.
11
AGGREGATED OPTION EXERCISES IN 2000
AND OPTION VALUES AT DECEMBER 31, 2000
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS HELD AT HELD AT
ACQUIRED DECEMBER 31, 2000(#) DECEMBER 31, 2000(1)($)
ON VALUE ---------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Peter P. Policastro, Ph.D...... -- -- 72,700 108,100 $189,020 $183,460
Daniel J. Monticello, Ph.D..... 11,102 32,307 86,076 $ 56,355 $169,865
Paul G. Brown, III............. -- -- 26,116 76,612 $ 39,845 $123,535
- --------------------------
(1) Computed based on the difference between aggregate fair market value and
aggregate exercise price. The fair market value of the Company's Common
Stock on December 31, 2000, was $4.66 based on the average of the high and
low prices on the Nasdaq National Market on December 29, 2000.
SIMPLIFIED EMPLOYEE PENSION PLAN
In April 1992, the Company adopted a Simplified Employee Pension Plan (the
"SEP") for all employees. Under the terms of the SEP, employees are eligible to
participate after completion of six months of service. The Company has the
discretion to determine how much, if anything, it will contribute to the
employee's accounts in the SEP each year. Currently, the Company contributes an
amount equal to eight percent of the employees' monthly compensation to the SEP.
Employees are vested immediately and there is at present no employee
contribution. Total expenses under the SEP were approximately $159,200 for the
year ended December 31, 2000.
PERFORMANCE GRAPH
The following performance graph compares the performance of the Company's
Common Stock to the Nasdaq Combined Composite Index and an index of Peer Group
companies for the period beginning December 31, 1995 and ending December 31,
2000. The "Peer Group" is composed of companies in the Nasdaq Pharmaceutical
Group Index. The index of Peer Group companies is weighted according to the
respective market capitalization of its component companies as of December 31,
2000. The graph assumes that the value of the investment in the Company's Common
Stock and each index was $100 at December 31, 1995, and that all dividends were
reinvested.
12
COMPARISON OF CUMULATIVE RETURN
AMONG ENCHIRA BIOTECHNOLOGY CORPORATION,
NASDAQ COMBINED COMPOSITE INDEX AND
PEER GROUP INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
ENCHIRA BIOTECHNOLOGY CORPORATION NASDAQ COMBINED COMPOSITE INDEX PEER GROUP INDEX
12/31/95 100 100 100
12/30/96 86 123 108
12/29/97 46 149 121
12/31/98 4 208 138
12/31/99 9 387 293
12/31/00 11 235 474
12/31/95 12/30/96 12/29/97 12/31/98 12/31/99 12/31/00
-------- -------- -------- -------- -------- --------
Enchira Biotechnology Corporation.......... 100 86 46 4 9 11
Nasdaq Combined Composite Index............ 100 123 149 208 387 235
Peer Group Index........................... 100 108 121 138 293 474
The foregoing stock price performance comparisons shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933, which
incorporates such comparisons by reference, and shall not otherwise be deemed
filed under such acts.
There can be no assurance that the Company's stock performance will continue
into the future with the same or similar trends depicted in the graph above. The
Company will not make or endorse any predictions as to future stock performance.
EMPLOYMENT AGREEMENTS
In December 1998, Dr. Policastro entered into a three-year employment
agreement with the Company as Executive Vice President and Chief Operating
Officer (amended to President and Chief Executive Officer effective July 1,
1999). Dr. Policastro's current annual base salary under this agreement was
increased to $250,000 in January 2001. Dr. Policastro received a cash bonus of
$40,000 on January 1, 2001. Salary is to be reviewed no less than annually by
the Board of Directors. If he is terminated without cause, as that term is
defined in the agreement, the Company is obligated to pay him an amount not
greater than one year of his salary at the time of termination.
In January 1996, the Company entered into an employment agreement with
Dr. Monticello. His current annual base salary under this agreement is $185,000,
as of January 2001. Dr. Monticello
13
received a cash bonus of $15,000 on January 1, 2001. Dr. Monticello's salary is
to be reviewed no less frequently than annually by the Board of Directors. The
agreement expires in April 2002. If Dr. Monticello is terminated without cause,
as that term is defined in the agreement, the Company is obligated to pay
Dr. Monticello an amount not greater than one year of his salary at the time of
termination.
In July 1995, Mr. Brown entered into a five-year employment agreement with
the Company, and his agreement is currently in effect through July 2005 under
the agreement's automatic renewal provision. His current annual salary under
this agreement is $170,000, as of January 2001. Mr. Brown received a cash bonus
of $15,000 on January 1, 2001. Mr. Brown's salary is to be reviewed no less than
annually by the Board of Directors. If he is terminated without cause, as that
term is defined in the agreement, the Company is obligated to pay him an amount
not greater than six months of his salary at the time of termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of the Company
currently consists of Messrs. Comeaux, Lopez and Messmore and Dr. Chang. No
member of the Compensation Committee of the Board of Directors of the Company
was, during 2000, an officer or employee of the Company, or was formerly an
officer of the Company or had any relationships requiring disclosure by the
Company under Item 404 of Regulation S-K.
During fiscal 2000, no executive officer of the Company served as (i) a
member of the compensation committee (or other board committee performing
equivalent functions) of another entity, one of whose executive officers served
on the Compensation Committee of the Board of Directors, (ii) a director of
another entity, one of whose executive officers served on the Compensation
Committee of the Board of Directors of the Company or (iii) a member of the
compensation committee (or other board committee performing equivalent
functions) of another entity, one of whose executive officers served as a
director of the Company.
14
PROPOSAL NUMBER 2:
APPROVAL OF AMENDMENT TO 1997 STOCK OPTION PLAN, AS AMENDED
The Board has adopted, subject to stockholder approval, an amendment to the
Company's 1997 Stock Option Plan, as amended (the "Plan"), to increase the
number of shares available for issuance thereunder from 1,200,000 shares to
2,000,000 shares. The Board believes that such amendment is necessary to allow
the Board to continue to attract and retain talented employees and consultants.
The Plan initially had 100,000 shares available for issuance, but this was
reduced to 14,286 because of the Company's 1-for-7 reverse stock split in 1998.
In 1999, the stockholders approved an increase in the number of shares available
for issuance to 1,200,000 shares. The proposed amendment will provide the Board
with a sufficient amount of shares to continue providing equity incentives to
current and potential employees and consultants. Options to purchase a total of
863,830 shares are granted and outstanding under the Plan.
The terms of the Plan are summarized below. The following summary is
qualified in its entirety by reference to the full text of the Plan, which is
filed as Exhibit A to the Company's definitive proxy statement for its 1999
annual meeting.
SUMMARY OF THE PLAN
PURPOSE. The purpose of the Plan is to attract and retain the best
available personnel for positions of substantial responsibility, to provide
additional incentive to employees and consultants of the Company and to promote
the success of the Company's business.
EFFECTIVE DATE OF PLAN. The Plan became effective as of January 14, 1997,
and the Board adopted the amendment on March 15, 2001. No Option shall be
granted pursuant to the Plan after January 14, 2007.
ELIGIBILITY. The individuals eligible to receive Incentive Options and
Nonqualified Options (together, the "Options") are those key employees and
consultants of the Company as the Compensation Committee of the Board of
Directors or such other committee that the Board of Directors may designate to
administer the Plan (the "Committee") determines from time to time. Only
employees are eligible to receive Incentive Options. "Incentive Option" means an
Option granted under the Plan which is designated as an "Incentive Option" and
satisfies the requirements of Section 422 of the Code. "Nonqualified Option"
means an Option granted under the Plan other than an Incentive Option.
ADMINISTRATION. The Plan provides that the Committee is constituted in such
a manner as to permit the Plan to comply with Rule 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), with respect to a plan intended to qualify thereunder as a discretionary
plan. All questions of interpretation and application of the Plan and Options
shall be subject to the determination of the Committee. The Plan shall be
administered in such a manner as to permit the Options granted under it which
are designated to be Incentive Options to qualify as Incentive Options. To
comply with Section 162(m) of the Code, it is the Company's intent that the
Committee shall be constituted solely of two or more Directors who are "outside
directors" within the meaning of the Treasury Regulations promulgated under
Section 162(m) of the Code. The Committee has complete authority to construe,
interpret and administer provisions of the Plan, to determine which persons are
to be granted Options, the terms and conditions of Options, and to make all
other determinations necessary or deemed advisable in the administration of the
Plan.
RESERVED SHARES. The total number of shares of Common Stock with respect to
which Options may be granted under the Plan is currently 1,200,000 shares,
subject to adjustment under the Plan. If
15
the stockholders approve Proposal Number 2, the maximum number of shares of
Common Stock subject to the Plan will be increased by 800,000 shares to
2,000,000 shares. The shares may be treasury shares or authorized but unissued
shares.
TERMS OF OPTIONS. The price at which Common Stock may be purchased under an
Option shall be established by the Committee, provided that the price at which
Common Stock may be purchased under an Option that is intended to qualify as an
Incentive Option shall not be less than 100 percent of the fair market value of
the Common Stock on the date the Incentive Option is granted. In the case of any
10 percent holder of Common Stock, the price at which shares of Common Stock may
be purchased under an Incentive Option shall not be less than 110 percent of the
fair market value of the Common Stock on the date the Incentive Option is
granted. The expiration date of an Option shall be established by the Committee,
provided that no Incentive Option shall be exercisable after the expiration of
10 years from the date the Incentive Option is granted. In the case of a
10 percent holder of Common Stock, no Incentive Option shall be exercisable
after the expiration of five years from the date the Incentive Option is
granted. To the extent that the aggregate fair market value (determined as of
the time an Incentive Option is granted) of the Common Stock with respect to
which Incentive Options first become exercisable by the Optionee during any
calendar year (under the Plan and any other incentive stock option plan(s) of
the Company or any affiliate) exceeds $100,000, the Incentive Options shall be
treated as Nonqualified Options. In making this determination, Incentive Options
shall be taken into account in the order in which they were granted.
EXERCISE OF OPTIONS. Each Option may be exercised from time to time, in
whole or in part, in the manner and subject to the conditions the Committee, in
its sole discretion, may provide in the written option agreement, as long as the
Option is valid and outstanding. The consideration to be paid for the shares to
be issued upon exercise of an Option, including the method of payment, shall be
determined by the Committee and may consist entirely of (i) cash, (ii) a
promissory note or notes, (iii) other shares of the Company's capital stock,
(iv) authorization for the Company to retain from the total number of shares as
to which the Option is exercised that number of shares having a fair market
value on the date of exercise equal to the exercise price for the total number
of shares as to which the Option is exercised, (v) delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds required to
pay the exercise price or (vi) any combination of the foregoing methods of
payment. The Committee will determine the period over which individual Options
become exercisable.
NON-TRANSFERABILITY AND NO RIGHTS AS STOCKHOLDER. Options shall not be
transferable by the Optionee otherwise than by will or under the laws of descent
and distribution, and shall be exercisable, during the Optionee's lifetime, only
by him. No Optionee shall have any rights as a stockholder with respect to
Common Stock covered by his Option until the date a stock certificate is issued
for the Common Stock.
CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. If the Company shall effect a
subdivision or consolidation of shares or other capital readjustment, the
payment of a stock dividend, or other increase or reduction of the number of
shares of the Common Stock outstanding, without receiving compensation therefor
in money, services or property, then (i) the number, class, and per share price
of shares of Common Stock subject to outstanding Options shall be appropriately
adjusted in such a manner as to entitle an Optionee to receive upon exercise of
an Option, for the same aggregate cash consideration, the same total number and
class of shares as he would have received had he exercised his Option in full
immediately prior to the event requiring the adjustment; and (ii) the number and
class of shares of Common Stock then reserved for issuance under the Plan shall
be adjusted by substituting for the total number and class of shares of Common
Stock then reserved that number and class of shares of stock that would have
been received by the owner of an equal number of outstanding shares of each
class of Common Stock as the result of the event requiring the adjustment.
16
If the Company shall be a party to a merger or a similar reorganization
after which the Company is not the surviving corporation, or if there is a sale
of all or substantially all the Common Stock or a sale of all or substantially
all of the assets of the Company, or if the Company is to be liquidated or
dissolved (any of which events shall constitute a "Significant Transaction"),
then, subject to the provisions hereof, the Committee, in its discretion, may
accelerate the vesting of all outstanding Options or take such other action with
respect to outstanding Options as it deems appropriate, including, without
limitation, canceling such outstanding Options and paying the Optionees an
amount equal to the value of such Options, as determined by the Board.
Notwithstanding the foregoing, if a Significant Transaction shall occur in
connection with or following a Change in Control (as defined in the Plan), in
connection with which Significant Transaction the holder of any Option that is
not fully vested shall not receive, in respect of such Option, a substitute
award of stock options containing substantially similar terms to and having an
equal or greater fair market value than such Option, then the Committee shall
either (i) accelerate the vesting of such Option within a reasonable time prior
to the completion of such Significant Transaction (such that the holder of such
Option would have the opportunity to participate in the Significant Transaction
on the same basis as holders of Common Stock, subject to such holder's exercise
of such Option) or (ii) cancel such Option in consideration of the payment to
the holder thereof of an amount (in cash) equal to the fair market value of such
Option. For purposes of the foregoing, the fair market value attributable to
Options shall be determined by the Committee either, at its election, (x) in
accordance with the Black-Scholes method (for purposes of which volatility shall
be measured over the preceding one year period and the risk-free interest rate
shall be the rate of U.S. treasury bills with a maturity corresponding to the
remaining term of such Option) or (y) to be an amount equal to the fair market
value of the Common Stock subject to such Option less the exercise price thereof
and (ii) the fair market value of (A) any Options shall be determined as of the
date, either of the Change in Control or of the Significant Transaction, that
results in the greater fair market value of such Options, and (B) any substitute
award shall be determined as of the date of the Significant Transaction.
AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors of the Company
may amend, terminate or suspend the Plan at any time, in its sole and absolute
discretion; provided, however, that to the extent required to maintain the
status of any Incentive Option under the Code, no amendment that would
(i) change the aggregate number of shares of Common Stock which may be issued
under Incentive Options, (ii) change the class of employees eligible to receive
Incentive Options, or (iii) decrease the exercise price for Incentive Options
below the fair market value of the Common Stock at the time it is granted, shall
be made without the approval of the Company's stockholders.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
INCENTIVE OPTIONS. An employee who has been granted an Incentive Option
will not realize taxable income at the time of the grant or exercise (but in
some circumstances may be subject to an alternative minimum tax as a result of
the exercise) of such Option and the Company will not be entitled to a deduction
at either such time. If the employee makes no disposition of the shares acquired
pursuant to an Incentive Option within two years from the date of the grant of
such option, or within one year of the transfer of such shares to him or her,
any gain or loss realized on a subsequent disposition of such shares will be
treated as a long-term capital gain or loss. Under such circumstances, the
Company will not be entitled to any deduction for federal income tax purposes.
If the foregoing holding period requirements are not satisfied, a portion of any
gain in the year of disposition will be taxable to the employee as ordinary
income, and the Company will be entitled to a corresponding deduction. The
Company will not be entitled to any deduction in connection with any loss to the
employee or the portion of any gain that is taxable to the employee as
short-term or long-term capital gain.
17
NONQUALIFIED OPTIONS. Nonqualified Options will not qualify for special
federal income tax treatment. No tax is imposed on the optionee upon the grant
of a Nonqualified Option. Upon exercise of a Nonqualified Option, the employee
will realize ordinary income in an amount measured by the excess, if any, of the
fair market value of the shares on the date of exercise over the Option exercise
price, and the Company will be entitled to a corresponding deduction, provided
the Company withholds income tax with respect to such amount and provided that
such amount is not limited by Section 162(m) of the Code with respect to Options
with an exercise price that was less than the fair market value of the Common
Stock on the date of grant. However, if the shares received upon the exercise of
a Nonqualified Option are transferred to the Optionee subject to certain
restrictions, then the taxable income realized by the Optionee, unless the
Optionee elects otherwise, and the Company's tax deduction (assuming any federal
income tax withholding requirements are satisfied) should be deferred and should
be measured based upon the fair market value of the shares at the time the
restrictions lapse. The restrictions imposed on officers, directors and
10 percent stockholders by Section 16(b) of the Exchange Act is such a
restriction during the period prescribed thereby if other shares have been
purchased by such individual within six months of the exercise of a Nonqualified
Option. Ordinary income realized upon the exercise of a Nonqualified Option is
not an adjustment for alternative minimum tax purposes.
TAX WITHHOLDING. The Company shall be entitled to deduct from other
compensation payable to each Optionee any sums required by federal law to be
withheld with respect to the grant or exercise of an Option. In the alternative,
the Company may require the Optionee to pay the sum to the Company. The Plan
also permits the Committee, in its discretion, to permit the Optionee to satisfy
the withholding tax obligation by electing to have the Company withhold from the
shares to be issued on exercise that number of shares having a fair market value
equal to the amount required to be withheld. Employees should consult their own
tax counsel for advice regarding tax consequences.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE AMENDMENT TO THE COMPANY'S 1997 STOCK OPTION PLAN, AS AMENDED, AND
PROXIES EXECUTED AND RETURNED WILL BE SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE
INDICATED THEREON.
18
PROPOSAL NUMBER 3:
APPROVAL OF AMENDMENT TO THE
NON-EMPLOYEE DIRECTOR OPTION PLAN, AS AMENDED
The Board has adopted, subject to stockholder approval, an amendment to the
Company's Non-Employee Director Option Plan, as amended (the "Director Plan"),
to increase the number of shares available for issuance thereunder from 200,000
shares to 400,000 shares. In addition, the Board approved amendments to
(i) re-establish the number of shares that will be subject to options
automatically upon a director's election or re-election to the Board at 6,000
shares and (ii) provide for the issuance of options under the Director Plan to
directors in lieu of director fees for attending Board and Committee meetings.
The Board believes that such amendments are necessary to allow the Board to
continue to attract and retain talented individuals to serve on the Company's
Board of Directors.
The Plan initially had 175,000 shares available for issuance. The number of
shares available for issuance was reduced to 25,000 in 1998 because of the
Company's 1-for-7 reverse stock split. In 1999, the stockholders approved an
increase in the number of shares available for issuance to 200,000 shares. The
proposed amendment will afford the Board a sufficient amount of shares to
continue providing equity incentives to current and potential directors.
The terms of the Director Plan are summarized below. In addition, the full
text of the Director Plan, as amended, is set forth in Exhibit B to this Proxy
Statement. The following summary is qualified in its entirety by reference to
the text of the Director Plan.
SUMMARY OF THE DIRECTOR PLAN
The Director Plan is a "formula" plan for purposes of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended, pursuant to which options
for shares of Common Stock are automatically granted to certain eligible
non-employee directors of the Company as of specified dates. No person exercises
any discretion with respect to persons eligible to receive formula grants of
options under the Director Plan or the amount of formula grants thereunder.
ELIGIBILITY. Persons who are non-employee directors ("Non-Employee
Directors") of the Company are eligible to participate in the Director Plan.
Options granted under the Director Plan are transferable only at the death of a
Non-Employee Director or pursuant to a qualified domestic relations order as
defined by the Code or the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
STOCK SUBJECT TO DIRECTOR PLAN. The maximum number of shares of Common
Stock in respect of which options may be granted under the Director Plan as
currently in effect is 200,000, subject to appropriate adjustment upon a
reorganization, stock split, recapitalization or other change in the Company's
capital structure. In the event that the stockholders approve this Proposal
Number 3, the maximum number of shares of Common Stock subject to the Director
Plan will be increased to 400,000. Options to purchase a total of 170,647 shares
are currently outstanding under the Director Plan, as adjusted for the reverse
split.
OPTION PERIOD. Options granted to Non-Employee Directors under the Director
Plan have a term of ten years from the date of grant. The right to exercise
options granted to a Non-Employee Director under the Director Plan expires
12 months after the termination, for any reason, of his service as a director of
the Company, if earlier than the expiration of the term of the option.
AMENDMENT. The Board may amend or discontinue the Director Plan, except
that (i) no amendment may be made without stockholder approval that would cause
the Director Plan to cease to satisfy the requirements of Rule 16b-3 of the
Exchange Act or for which such approval is otherwise required by law and
(ii) no amendment or termination may be made that would impair an optionee's
rights under outstanding options without the optionee's consent, unless required
to comply with
19
Rule 16b-3. The Board may not amend provisions in the Director Plan regarding
eligibility and automatic grants of options more than once every six months,
except to the extent necessary to comply with applicable provisions of the Code
or ERISA.
NON-QUALIFIED OPTIONS. Options issued under the Director Plan constitute
non-qualified stock options.
ANNUAL GRANT OF STOCK OPTIONS. Following the March 2001 amendment, each
Non-Employee Director receives annually on each July 1 during the life of the
Director Plan, non-qualified options to purchase 6,000 shares of Common Stock.
Such number of shares will be proportionately adjusted in the event of a split
of or stock dividend on the Common Stock. Options granted under the Director
Plan shall have an exercise price per share equal to the fair market value per
share of Common Stock on the date the option is granted. Non-Employee Directors
shall have the right to decline grants of options under the Director Plan by
giving notice to the Company prior to the date of grant.
GRANTS IN LIEU OF DIRECTOR FEES. Following the March 2001 amendment, each
non-employee director is entitled to receive an option on the date of the
applicable Board or Committee meeting with an exercise price equal to the fair
market value of the Common Stock on the date of such meeting in the following
amounts:
- 300 shares for each Board meeting attended in person;
- 100 shares for each Board meeting attended telephonically; and
- 100 shares for each Committee meeting attended (whether in person or
telephonically).
CHANGE IN CAPITAL STRUCTURE. Upon a change in the Company's capital
structure as a result of a stock split, dividend or recapitalization, the number
of shares subject to outstanding options and reserved under the Director Plan
and the exercise price of outstanding options shall be appropriately adjusted to
reflect the number and class of shares that would have been issuable if such
shares had been outstanding immediately prior to such event.
FEDERAL INCOME TAX CONSEQUENCES OF THE DIRECTOR PLAN
GENERAL. A Non-Employee Director will not recognize any taxable income at
the time an option is granted. Ordinary income will be recognized by a
Non-Employee Director at the time of exercise in an amount equal to the excess
of the fair market value of the shares of Common Stock received over the option
price for such shares. However, if other shares of Common Stock have been
purchased by a Non-Employee Director within six months of the exercise of an
option, recognition of the income attributable to such exercise may under
certain circumstances be postponed for a period of up to six months from the
date of such purchase of such other shares of Common Stock due to liability to
suit under Section 16(b) of the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"). If applicable, one effect of any such postponement would
be to measure the amount of the Non-Employee Director's taxable income by
reference to the fair market value of such shares at the time such liability to
suit under Section 16(b) of the Exchange Act no longer exists (rather than at
the earlier date of the exercise of the option). The Non-Employee Director will
generally recognize a capital gain or loss upon a subsequent sale of the shares
of Common Stock.
DEDUCTIBILITY. Upon a Non-Employee Director's exercise of an option granted
under the Director Plan, the Company may claim a deduction for compensation paid
at the same time and in the same amount as ordinary income is recognized by the
Non-Employee Director.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" APPROVAL
OF THE AMENDMENT TO THE COMPANY'S NON-EMPLOYEE DIRECTOR OPTION PLAN, AS AMENDED,
AND PROXIES EXECUTED AND RETURNED WILL BE SO VOTED UNLESS CONTRARY INSTRUCTIONS
ARE INDICATED THEREON.
20
PROPOSAL NUMBER 4:
APPROVAL OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed the firm of Andersen LLP as the
Company's independent public accountants to make an examination of the accounts
of the Company for the fiscal year ending December 31, 2001, subject to
ratification by the Company's stockholders. Representatives of Andersen will be
present at the Annual Meeting and will have an opportunity to make a statement,
if they desire to do so. They will also be available to respond to appropriate
questions from stockholders attending the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" RATIFICATION
OF THE APPOINTMENT OF ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001, AND PROXIES EXECUTED
AND RETURNED WILL BE SO VOTED UNLESS CONTRARY INSTRUCTIONS ARE INDICATED
THEREON.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 2001, certain information
with respect to the shares of Common Stock and Series B Preferred Stock
beneficially owned by (i) each person known by the Company to be the beneficial
owner of more than five percent of the Common Stock or the Series B Preferred
Stock, (ii) each director of the Company, (iii) each of the executive officers
of the Company named in "Executive Compensation" and (iv) all directors and
executive officers of the Company as a group.
AMOUNT AND
NATURE
AMOUNT AND NATURE OF BENEFICIAL
OF BENEFICIAL OWNERSHIP OF
OWNERSHIP OF PERCENT OF SERIES B PERCENT OF
NAME OF BENEFICIAL OWNER COMMON STOCK(1) CLASS PREFERRED STOCK(1) CLASS
- ------------------------ ----------------- ---------- ------------------ ----------
Zesiger Capital Group LLC............... 1,654,005(2) 18.0% 55,000 14.2%
320 Park Avenue, 30th Floor
New York, New York 10022
OrbiMed Advisers Inc.................... 1,631,500(3) 18.0% -- --
767 Third Avenue, 6th Floor
New York, New York 10010
Kingdon Capital Management, LLC......... 1,200,000(4) 13.5% -- --
152 West 57th Street
New York, New York 10019
Larry N. Feinberg....................... 916,500(5) 10.1% -- --
c/o Oracle Investment Management, Inc.
200 Greenwich Avenue
Greenwich, Connecticut 06830
Ethyl Corporation....................... 759,587(6) 8.0% 160,000 41.3%
300 South Fourth Street
Richmond, Virginia 23217
Peter P. Policastro, Ph.D............... 86,867(7) 1.0% -- --
William E. Nasser....................... 117,905(8) 1.3% -- --
Daniel J. Monticello, Ph.D.............. 35,631(9) * -- --
Paul G. Brown, III...................... 36,987(10) * -- --
Nancy T. Chang, Ph.D.................... 30,000(11) * -- --
R. James Comeaux........................ 18,314(12) * -- --
G. Anthony Gorry, Ph.D.................. 30,000(13) * -- --
Ramon Lopez............................. 10,569(14) * -- --
Thomas E. Messmore...................... 43,997(15) * -- --
William D. Young........................ 98,071(16) 1.1% -- --
All directors and executive officers as
a group (11 persons).................. 519,131(7)-(16) 5.4% -- --
- --------------------------
* Represents less than 1% of the class.
21
(1) Unless otherwise indicated, each of the stockholders designated above has
sole voting and investment power with respect to the securities shown to be
owned by such stockholder. Shares issuable upon exercise of convertible
securities, including options, are indicated below and includes only those
convertible securities currently exercised or exercisable within 60 days of
March 31, 2001.
(2) Based upon information provided in a Schedule 13G/A filed on February 12,
2001, Zesiger Capital Group LLC has sole voting power with respect to
1,122,963 shares and sole dispositive power with respect to all of the
shares listed above. Includes 164,081 shares issuable upon conversion of
Series B Preferred Stock. Zesiger Capital Group LLC is a registered
investment advisor under Section 203 of the Investment Advisers Act of 1940
and disclaims beneficial ownership of all of the shares listed herein.
(3) Based upon information provided in a Schedule 13G filed on September 22,
2000, OrbiMed Advisers Inc. shares voting and dispositive power with respect
to all of the shares listed above. The Schedule 13G was also filed on behalf
of, and OrbiMed Advisers Inc. shares voting and investment power with
respect to all of the shares listed above with, OrbiMed Advisors LLC,
Caduceus Capital Trust, Caduceus Capital II, L.P., Paine Webber Eucalyptus
Fund, LLC and Paine Webber Eucalyptus Fund, Ltd.
(4) Based upon information provided in a Schedule 13G filed on February 23,
2000, Kingdon Capital Management LLC has sole voting and dispositive power
with respect to all of the shares listed above. Includes 200,000 shares
issuable upon exercise of a warrant.
(5) Based upon information provided in a Schedule 13D filed on January 12, 2001,
Mr. Feinberg has sole voting and dispositive power with respect to 160,000
shares and shared voting and dispositive power with respect to 756,500
shares. The Schedule 13D was also filed on behalf of, and Mr. Feinberg
shares voting and dispositive power in the following amounts with, Oracle
Partners, L.P. (407,300 shares), Oracle Institutional Partners, L.P.
(108,660 shares) and Oracle Investment Management, Inc. (240,540 shares).
Includes an aggregate of 173,500 shares issuable upon exercise of warrants.
(6) Based upon information provided in a Schedule 13D/A filed on October 20,
2000, Ethyl Corporation has sole voting and dispositive power with respect
to all of the shares listed above. Includes 477,327 shares issuable upon
conversion of Series B Preferred Stock.
(7) Includes 86,867 shares issuable upon exercise of options.
(8) Includes 73,342 shares issuable upon exercise of options.
(9) Includes 34,250 shares issuable upon exercise of options.
(10) Includes 35,147 shares issuable upon exercise of options.
(11) Includes 30,000 shares issuable upon exercise of options.
(12) Includes 12,143 shares issuable upon exercise of options.
(13) Includes 30,000 shares issuable upon exercise of options.
(14) Includes 10,569 shares issuable upon exercise of options.
(15) Includes 10,857 shares issuable upon exercise of options.
(16) Includes 14,571 shares issuable upon exercise of options.
22
COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and officers, and persons who own more than ten percent
of the Common Stock, to file initial reports of ownership and reports of changes
in ownership (Forms 3, 4, and 5) of Common Stock with the Securities and
Exchange Commission (the "SEC") and The Nasdaq Stock Market. Officers, directors
and greater than ten percent stockholders are required by SEC regulation to
furnish to Company with copies of all such forms that they file.
To the Company's knowledge, based solely on the Company's review of the
copies of such reports received by the Company and on written representations by
certain reporting persons that no reports on Form 5 were required, the Company
believes that during the fiscal year ended December 31, 2000, all Section 16(a)
filing requirements applicable to its officers, directors and ten percent
stockholders were complied with, except that each of Drs. Chang and Gorry did
not timely file their initial reporting statements on Form 3.
PROPOSALS OF STOCKHOLDERS
Any proposal of a stockholder intended to be presented at the next annual
meeting must be received at the Company's principal executive offices no later
than December 31, 2001, if the proposal is to be considered for inclusion in the
Company's Proxy Statement relating to such meeting.
FINANCIAL INFORMATION
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING ANY FINANCIAL
STATEMENTS AND SCHEDULES AND EXHIBITS THERETO, MAY BE OBTAINED WITHOUT CHARGE BY
WRITTEN REQUEST TO PAUL G. BROWN, III, VICE PRESIDENT OF FINANCE AND
ADMINISTRATION AND CHIEF FINANCIAL OFFICER, ENCHIRA BIOTECHNOLOGY CORPORATION,
4200 RESEARCH FOREST DRIVE, THE WOODLANDS, TEXAS 77381.
OTHER MATTERS
The Company will bear the cost of preparing and mailing proxy materials as
well as the cost of solicitation of proxies. The Company will reimburse banks,
brokerage firms, custodians, nominees, and fiduciaries for their expenses in
sending proxy materials to the beneficial owners of Common Stock and Preferred
Stock. The Company has retained Corporate Communications Center, Inc.
("Corporate Communications") to assist in the solicitation of proxies and will
pay approximately $800 for certain brokerage searches and proxy solicitations
performed by Corporate Communications. In addition to solicitation by mail,
certain directors, officers and regular employees of the Company and Corporate
Communications may solicit proxies by fax, telex, telephone and personal
interview.
By Order of the Board of Directors
Paul G. Brown, III
VICE PRESIDENT, FINANCE AND
ADMINISTRATION,
CHIEF FINANCIAL OFFICER AND SECRETARY
May 1, 2001
The Woodlands, Texas
23
EXHIBIT A
Audit Committee Charter
Enchira Biotechnology Corporation
The Board of Directors shall appoint an Audit Committee of the Board of
Directors consisting of at least three outside Directors, designating one as
Chairman of the Audit Committee. Each member of the Audit Committee shall meet
the independence and experience requirements of NASDAQ. All members shall be
independent of management and free from any relationship that would interfere
with the exercise of independent judgment as an Audit Committee member, as
determined by the Board of Directors in its business judgment. All Committee
members shall be financially literate, or shall become financially literate
within a reasonable period of time after appointment to the Committee. At least
one member shall have accounting or related financial management expertise.
In fulfilling their responsibilities hereunder, it is recognized that
members of the Committee are not necessarily accountants or auditors or experts
in the fields of accounting or auditing. As such, the Committee and its members
are not providing any expert or special assurances as to the Company's financial
statements or any professional certification as to the independent auditor's
work. Each member of the Audit Committee shall be entitled to rely upon the
integrity of those it receives information from and the accuracy of the
financial and other information provided to the Committee, absent actual
knowledge to the contrary.
In carrying out its oversight responsibilities, the Audit Committee will:
1) Review and recommend to the Board of Directors the independent accountants
to be selected to audit the annual financial statements and review the
quarterly financial statements of the Company.
2) In exercising its oversight responsibilities for the external audit
function, the Audit Committee will:
a) Review and approve the scope of the external audit.
b) Review and approve fees paid to the independent accountants.
c) Ensure the independent accountants deliver to the Audit Committee
annually a formal written statement delineating all relationships between
the independent accountants and the Company and addressing at least the
matters set forth in Independence Standards Board Standard No. 1 and
discuss with the independent accountants any relationships or services
disclosed in such statement that may impact the objectivity and
independence of the Company's independent accountants and recommend that
the Board of Directors take appropriate action in response to this
statement to satisfy itself of the independent accountants' independence.
d) Obtain from the independent accountants assurance that the audit was
conducted in a manner consistent with the procedures in Section 10A of
the Securities Exchange Act of 1934, as amended.
e) Request the independent accountants to confirm that they are accountable
to the Board of Directors and the Audit Committee and that they will
provide the Audit Committee with timely analyses of significant financial
reporting and internal control issues.
f) Review with management and the independent accountants the Company's
internal controls, including computerized information system controls and
security.
g) Meet with the Company's independent accountants in executive session to
discuss any matters the Audit Committee or the independent accountants
believe should be discussed privately.
h) Review with management significant risks and exposures identified by the
independent accountants and discuss with management the steps necessary
to manage such risks.
A-1
i) Review with management and/or the independent accountants as
appropriate:
(i) any difficulties the independent accountants encountered while
conducting audits, including any restrictions on the scope of their
work or on their access to required information;
(ii) the Company's annual financial statements and related footnotes;
(iii) the independent accountants audit of and report on the financial
statements;
(iv) the qualitative judgments about the appropriateness and
acceptability of accounting principles, financial disclosures,
account adjustments, and underlying estimates;
(v) any significant difficulties or disputes with management encountered
during the course of the audit;
(vi) any other matters about the audit procedures or findings that
Generally Accepted Accounting Standards (GAAS) require the auditors
to discuss with the Audit Committee.
vii) any legal and regulatory matters that may have a material effect on
the Company's financial statements, operations, compliance policies
and programs.
3) Report Audit Committee actions to the full Board of Directors and make
appropriate recommendations, including whether the audited financial
statements should be included in the Company's Annual Report on Form 10-K.
4) Review and approve requests for any significant management consulting
engagements to be performed by the independent accountants.
5) Maintain open communications with the independent accountants, management
and the Board of Directors.
6) Conduct or authorize investigations into matters within its scope of
responsibility in its sole discretion, and retain independent counsel,
accountants or other experts to assist in the conduct of any such
investigations, if the Audit Committee deems appropriate.
7) Meet at least one time each year in person and at least three additional
times per year by teleconference, or more frequently as circumstances
require. A majority of the Audit Committee will constitute a quorum for any
meetings, whether in person or by teleconference. The Chair of the Audit
Committee may call an Audit Committee meeting whenever deemed necessary. The
Chair of the Audit Committee should develop, in consultation with management
when appropriate, the Audit Committee meeting agenda. The Audit Committee
may ask members of management or others to attend meetings and may request
any information it deems relevant from management.
8) Prepare all reports, including the report required by the Securities and
Exchange Commission to be included in the Company's annual Proxy Statement
and take any other actions required of the Audit Committee by law,
applicable regulations, or as requested by the Board of Directors.
9) Review and reassess the adequacy of the Audit Committee's Charter annually.
A-2
EXHIBIT B
ENCHIRA BIOTECHNOLOGY CORPORATION
NON-EMPLOYEE DIRECTOR OPTION PLAN
(AS AMENDED)
SECTION 1. PURPOSE; DEFINITIONS.
(a) The purpose of the Plan is to provide compensation to Non-Employee
Directors in the form of Stock Options.
(b) For purposes of the Plan, the following terms are defined as set forth
below:
"BOARD" means the Board of Directors of the Company.
"COMMON STOCK" means the common stock, par value $0.01 per share, of the
Company.
"COMPANY" means Energy BioSystems Corporation, a Delaware corporation.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor thereto.
"FAIR MARKET VALUE" means as of any given date, the mean between the
highest and lowest sales prices of the Common Stock reported by The Nasdaq
National Market on such date or, if the Common Stock is listed on a national
securities exchange, reported on the stock exchange composite tape on such
date; or, in either case, if there are no reported sales on such date, on
the last day immediately preceding such date on which sales were reported.
If the Common Stock is traded over the counter, Fair Market Value shall mean
the average of the reported high and low or closing bid and asked prices of
the Common Stock on the most recent date on which the Common Stock was
traded. If there is no regular public trading market for the Common Stock,
the Fair Market Value of the Common Stock shall be determined by the Board
in good faith.
"NON-EMPLOYEE DIRECTOR" means a person who as of any applicable date is
a member of the Board and is not an officer or employee of the Company or
any subsidiary of the Company.
"PARTICIPANT" means a Non-Employee Director who is granted a Stock
Option hereunder.
"PLAN" means the Energy BioSystems Corporation Non-Employee Director
Option Plan as set forth herein and as hereinafter amended from time to
time.
"STOCK OPTION" means a non-qualified option to purchase shares of Common
Stock.
"TERMINATION OF DIRECTORSHIP" means the date upon which any Participant
ceases to be a member of the Board for any reason whatsoever.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
SECTION 2. OPTION AGREEMENTS.
Each Stock Option shall be evidenced by a written agreement in substantially
the form attached to the Plan.
SECTION 3. STOCK SUBJECT TO PLAN
Subject to adjustment as provided herein, the total number of shares of
Common Stock of the Company available for grant under the Plan while it is in
effect shall be 400,000. The shares of Common Stock shall be presently
authorized but unissued shares or shares subsequently acquired by
B-1
the Company and shall include shares representing the unexercised portion of any
Stock Option granted under the Plan which expires or terminates without being
exercised in full.
In the event of any merger, reorganization, consolidation, recapitalization,
stock dividend, stock split, extraordinary distribution with respect to the
Common Stock or other change in corporate structure affecting the Common Stock
(a "recapitalization"), the aggregate number of shares of Common Stock reserved
for issuance under the Plan shall be appropriately adjusted by the Board and the
number and option exercise price of shares of Common Stock subject to
outstanding Stock Options shall be adjusted so that each such Stock Option shall
thereafter cover the number and class of shares of stock and securities to which
the optionee would have been entitled pursuant to the terms of such
capitalization, if, immediately prior to the recapitalization, the optionee had
been the record holder of the number of shares of Common Stock then covered by
such Stock Option; provided, however, that the number of shares subject to any
Stock Option shall always be a whole number.
SECTION 4. ELIGIBILITY
Only individuals who are Non-Employee Directors are eligible to be granted
Stock Options under the Plan.
SECTION 5. STOCK OPTIONS
(a) Commencing on July 1, 1994, and on each subsequent July 1 during the
term of this Plan, each Non-Employee Director shall automatically be granted
Stock Options on such July 1 to purchase 6,000 shares of Common Stock.
The selection of the Non-Employee Directors to whom Stock Options are to be
granted, the timing of such grants, the number of shares subject to any Stock
Option, the exercise price of any Stock Option, the periods during which any
Stock Option may be exercised and the term of any Stock Option shall be as
provided herein, and the Board shall have no discretion as to such matters.
(b) The Company shall pay each Non-Employee Director, in lieu of cash, an
Option (the "Director Fee Option") to purchase shares of Common Stock for each
meeting of the Board or committee of the Board at which he or she attends with
an exercise price equal to the fair market value of the Company's Common Stock
on the date of such meeting in the following amounts:
(i) 300 shares for each meeting of the Board attended in person; or
(ii) 100 shares for each meeting of the Board attended telephonically;
and
(iii) 100 shares for each meeting of a committee of the Board attended,
whether in person or telephonically.
(c) In the event of any stock split or stock dividend the number of shares
of Common Stock to be granted on any date thereafter shall be adjusted by
multiplying the applicable grant number in paragraph (a) above by a fraction,
the numerator of which is the number of shares of Common Stock outstanding
immediately after such stock split or stock dividend, and the denominator of
which is the number of such shares of Common Stock outstanding immediately prior
to such event.
(d) In the event that the number of shares of Common Stock available for a
future grant under the Plan is insufficient to make all automatic grants
required to be made on the given date, then all Non-Employee Directors entitled
to a grant on such date shall share ratably in the number of Stock Options on
shares of Common Stock available for grant under the Plan.
B-2
(e) Stock Options granted under the Plan shall be subject to the following
terms and conditions in addition to those set forth above:
(i) OPTION TERM. The term of each Stock Option shall be 10 years from
the date the Stock Option is granted, subject to earlier termination as
provided herein.
(ii) OPTION PRICE. The exercise price of each Stock Option shall be
equal to 100% of the Fair Market Value of a share of Common Stock on the
date of grant, subject to adjustment pursuant to 0.
(iii) EXERCISABILITY. All Stock Options shall be exercisable in full
immediately upon the date of grant.
(iv) METHOD OF EXERCISE. Subject to the provisions of this 0, Stock
Options may be exercised, in whole or in part, at any time during the option
term by giving written notice of exercise to the Company specifying the
number of shares of Common Stock subject to the Stock Option to be
purchased. Such notice shall be accompanied by payment in full of the
purchase price by certified or bank check or such other instrument as may be
acceptable to the Company. Payment in full or in part may also be made
(1) by tendering to the Company shares of Common Stock owned by such person
having an aggregate Fair Market Value as of the date of exercise and tender
that is not greater than the full option purchase price for the shares with
respect to which the Stock Option is being exercised and by paying any
remaining amount of the option purchase price as first provided above
(however, the Board may, upon confirming that such person owns the number of
additional shares of Common Stock being tendered, authorize the issuance of
a new certificate for the number of shares of Common Stock being acquired
pursuant to the exercise of the Stock Option less the number of shares of
Common Stock being tendered upon the exercise and return to such person (or
not require surrender of) the certificate for the shares of Common Stock
being tendered upon the exercise) or (2) by delivering to the Company a
properly executed exercise notice together with irrevocable instructions to
a broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company to pay the option purchase price; provided that in
the event such person chooses to pay the option purchase price as provided
above, such person and the broker shall comply with such procedures and
enter into such agreements of indemnity and other agreements as the Board
shall prescribe as a condition of such payment procedure.
No shares of Common Stock shall be issued until full payment therefor
has been made. An optionee shall have all of the rights of a stockholder of
the Company holding Common Stock (including the right to vote the shares and
the right to receive dividends), when the optionee has given written notice
of exercise, had paid in full for such shares and has given the
representation described in 0, if applicable.
(v) NON-TRANSFERABILITY OF STOCK OPTIONS. Except as provided below, no
Stock Option shall be transferable by the optionee other than by will or by
the laws of descent and distribution or pursuant to a qualified domestic
relations order (as defined in Title I of the Employee Retirement Income
Security Act of 1974, as amended, or the rules thereunder). Any attempt to
transfer, assign, pledge, hypothecate or otherwise dispose of any Stock
Option under the Plan or of any right or privilege conferred thereby,
contrary to the provisions of the Plan, or the sale or levy or any
attachment or similar process upon the rights and privileges conferred
thereby, shall be null and void.
All Stock Options shall be exercisable, during the optionee's lifetime,
only by the optionee or by the guardian or legal representative of the
optionee, it being understood that the terms "holder" and "optionee" include
the guardian and legal representative of the optionee named in the option
agreement, or by any person to whom an option is transferred by will or the
laws of descent and distribution or pursuant to a qualified domestic
relations order.
B-3
(vi) TERMINATION OF DIRECTORSHIP. Upon a Participant's Termination of
Directorship, any Stock Option then held by such Participant (or family
transferee) may thereafter be exercised for a period of 12 months from the
date of such Termination of Directorship or until the expiration of the
stated term of such Stock Option, whichever period is the shorter.
(f) Any Non-Employee Director shall have the right to elect (i) to decline
the grant of a Stock Option under the Plan or (ii) to revoke a previous election
to decline the grant of a Stock Option under the Plan, in either event at any
time prior to the date such Stock Option would otherwise be granted. A
Non-Employee Director who has elected to decline the grant of a Stock Option
under the Plan shall not be entitled to any compensation in lieu of such Stock
Option.
SECTION 6. TERM, AMENDMENT AND TERMINATION
(a) The Plan will terminate on December 31, 2004. Under the Plan, Stock
Options outstanding as of December 31, 2004 shall not be affected or impaired by
the termination of the Plan.
(b) The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would (i) impair the rights of
an optionee under a Stock Option without the optionee's or recipient's consent,
except such an amendment made to cause the Plan to qualify for the exemption
provided by Rule 16b-3 promulgated under the Exchange Act, or (ii) disqualify
the Plan from the exemption provided by Rule 16b-3. In addition, no amendment
shall be made without the approval of the Company's stockholders to the extent
such approval is required by law, and the provisions of 0 of the Plan not be
materially amended more often than once every six months except to comport with
changes in ERISA or the Internal Revenue Code of 1986, as amended.
SECTION 7. GENERAL PROVISIONS
(a) Unless the shares have been registered under the Securities Act of 1933,
as amended, each person purchasing or receiving shares of Common Stock pursuant
to a Stock Option shall represent to and agree with the Company in writing that
such person is acquiring the shares of Common Stock without a view to the
distribution thereof. The certificates for such shares of Common Stock shall
include an appropriate legend to reflect the restrictions on transfer.
(b) Nothing contained in the Plan shall prevent the Company from adopting
other or additional compensation arrangements for Non-Employee Directors.
(c) The Plan and all Stock Options awarded and actions taken with respect
thereto shall be governed by and construed in accordance with the laws of the
State of Delaware.
SECTION 8. EFFECTIVE DATE OF PLAN
The Plan was adopted by the Compensation Committee of the Board at its
meeting on July 1, 1994 and ratified by the Board at its meeting on April 28,
1995, subject to approval by the stockholders of the Company. Stock Options
granted pursuant to this Plan may not be exercised prior to such stockholder
approval being obtained. If such approval is not obtained prior to July 1, 1995,
all Stock Options then outstanding under the Plan shall be automatically
canceled.
B-4
ENCHIRA BIOTECHNOLOGY CORPORATION
Proxy Solicited on Behalf of the Board of Directors of
the Company for the Annual Meeting of Stockholders June 5, 2001
The undersigned hereby constitutes and appoints Peter P. Policastro,
Ph. D. and Paul G. Brown, III, and each of them, his true and lawful
attorneys and proxies with full power of substitution, for and in the name,
place and stead of the undersigned, to attend the Annual Meeting of
Stockholders of Enchira Biotechnology Corporation to be held at the Company's
offices, 4200 Research Forest Drive, The Woodlands, Texas on Tuesday, June 5,
2001, at 10:00 a.m., central daylight time, and any adjournment(s) thereof,
with all powers the undersigned would possess if personally present and to
vote there at, as provided on the reverse side of this card, the number of
shares the undersigned would be entitled to vote if personally present. In
accordance with their discretion, said attorneys and proxies are authorized
to vote upon such other business as may properly come before the meeting or
any adjournment thereof.
(Continued and to be signed on reverse side.)
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ENCHIRA BIOTECHNOLOGY CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
Except
FOR WITHHOLD FOR ALL nominee(s)
ALL ALL EXCEPT number(s) FOR AGAINST ABSTAIN
1. ELECTION OF DIRECTORS / / / / / / written 2. Approval of amendment to the / / / / / /
Election of Directors, Nominees: below Company's 1997 Stock Option
01-William E. Nasser, ___________ Plan, as amended, to increase
02-Peter P. Policastro, Ph.D., the number of shares available
03-Daniel J. Monticello, Ph.D., for grant to 2,000,000.
04-Nancy T. Chang, Ph.D.,
05-R. James Comeaux, 3. Approval of amendment to the / / / / / /
06-G. Anthony Gorry, Ph.D., Company's Non-Employee Director
07-Thomas E. Messmore, CFA, Option Plan, as amended, to
and 08-William D. Young. increase the number of shares
available for grant to 400,000.
Change of address: 4. Ratification of the appointment / / / / / /
of Andersen LLP as the
Company's independent public
accountants for the fiscal year
ending December 31, 2001.
Every properly signed proxy will be voted in accordance
with specifications made on the reverse side of this card.
If not otherwise specified, this proxy will be voted for
proposals 1 through 4. This proxy confers discretionary
authority to the persons named herein to vote, in their
discretion, on any other matters properly presented at the
Annual Meeting. All prior proxies are
hereby revoked.
Signature(s)_________________________________ Signature(s)_____________________________ Dated:___________________, 2001
Note: Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
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PLEASE MARK, SIGN, DATE, AND RETURN YOUR PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE.