UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement/1/
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
Paradigm Genetics, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing:
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[LOGO] PARADIGM GENETICS
April 19, 2002
Dear Stockholder,
You are cordially invited to attend the 2002 Annual Meeting of Stockholders
of Paradigm Genetics, Inc. (the "Company") to be held at 10:00 a.m. (local
time) on Friday, May 17, 2002 at the offices of Paradigm Genetics, Inc., 108
Alexander Drive, Research Triangle Park, NC 27709.
At the Annual Meeting, three people will be elected to the Board of
Directors. The Company will seek Stockholder approval to increase the number of
shares available under the Company's 2000 Employee, Director and Consultant
Stock Option Plan (the "2000 Stock Option Plan"). In addition, the Company will
ask the Stockholders to ratify the selection of PricewaterhouseCoopers LLP as
the Company's independent public accountants. The Board of Directors recommends
the approval of each of these proposals. Such other business will be transacted
as may properly come before the Annual Meeting.
We hope you will be able to attend the Annual Meeting. Whether you plan to
attend the Annual Meeting or not, it is important that your shares are
represented. Therefore, you are urged to complete, sign, date and return the
enclosed proxy card promptly in accordance with the instructions set forth on
the card. This will ensure your proper representation at the Annual Meeting.
Sincerely,
G. Steven Burrill John E. Hamer, Ph.D.
Chairman Acting President and Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
PARADIGM GENETICS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held May 17, 2002
To the Stockholders of Paradigm Genetics, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Paradigm Genetics, Inc., a
Delaware corporation (the "Company"), will be held on Friday, May 17, 2002 at
the offices of Paradigm Genetics, Inc., 108 Alexander Drive, Research Triangle
Park, NC 27709 at 10:00 a.m. (local time) for the following purposes:
1. To elect three members to the Board of Directors to serve for a term
ending in 2005 and until their successors are duly elected and qualified.
2. To consider and act upon a proposal to increase by 1,500,000 to
3,300,000 the aggregate number of shares of the Company's Common Stock,
$.01 par value per share (the "Common Stock") for which stock options
may be granted under the Company's 2000 Employee, Director and
Consultant Stock Option Plan (the "2000 Stock Option Plan").
3. To consider and act upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent public
accountants for the fiscal year ending December 31, 2002.
4. To transact such other business as may be properly brought before the
Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on March 20, 2002 as
the record date for the determination of Stockholders entitled to notice of and
to vote at the Annual Meeting and at any adjournments thereof.
All Stockholders are cordially invited to attend the Annual Meeting. Whether
you plan to attend the Annual Meeting or not, you are requested to complete,
sign, date and return the enclosed proxy card as soon as possible in accordance
with the instructions on the proxy card. A pre-addressed, postage prepaid
return envelope is enclosed for your convenience.
BY ORDER OF THE BOARD OF DIRECTORS
Neil H. Aronson, Esquire
Secretary
April 19, 2002
PARADIGM GENETICS, INC.
108 ALEXANDER DRIVE
RESEARCH TRIANGLE PARK, NC 27709
(919) 425-3000
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PROXY STATEMENT
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GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Paradigm Genetics, Inc. (the "Company"), a Delaware
corporation, of proxies, in the accompanying form, to be used at the Annual
Meeting of Stockholders to be held at the offices of Paradigm Genetics, Inc.,
108 Alexander Drive, Research Triangle Park, NC 27709 on Friday, May 17, 2002
at 10:00 a.m. (local time), and any adjournments thereof (the "Meeting").
Where the Stockholder specifies a choice on the proxy as to how his or her
shares are to be voted on a particular matter, the shares will be voted
accordingly. If no choice is specified, the shares will be voted:
. FOR the election of the three nominees for director named herein,
. FOR the proposal to increase by 1,500,000 to 3,300,000 the aggregate
number of shares of the Company's common stock, $.01 par value share
(the "Common Stock") for which stock options may be granted under the
Company's 2000 Stock Option Plan, and
. FOR the ratification of the appointment of PricewaterhouseCoopers LLP as
the Company's independent public accountants for the fiscal year ending
December 31, 2002.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date. Any
Stockholder who has executed a proxy but is present at the Meeting, and who
wishes to vote in person, may do so by revoking his or her proxy as described
in the preceding sentence. Shares represented by valid proxies in the form
enclosed, received in time for use at the Meeting and not revoked at or prior
to the Meeting, will be voted at the Meeting. The presence, in person or by
proxy, of the holders of a majority of the outstanding shares of the Company's
Common Stock is necessary to constitute a quorum at the Meeting. Votes of
Stockholders of record who are present at the meeting in person or by proxy,
abstentions, and broker non-votes (as defined below) are counted as present or
represented at the meeting for purposes of determining whether a quorum exists.
The nominees for election as directors at the meeting will be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting. Withholding authority to vote for a nominee for director will
have no effect on the outcome of the vote. For the proposals to increase by
1,500,000 to 3,300,000 shares the aggregate number of shares of the Company's
Common Stock for which stock options may be granted under the Company's 2000
Stock Option Plan and to ratify the appointment of PricewaterhouseCoopers LLP
as the Company's independent public accountants for the fiscal year ending
December 31, 2002, the affirmative vote of a majority of shares of Common Stock
present or represented by proxy at the Meeting is necessary for approval.
Because abstentions are treated as shares present or represented and entitled
to vote at the Meeting, abstentions with respect to either of these proposals
will have the same effect as a vote against the proposal.
If you hold your shares of Common Stock through a broker, bank or other
representative, generally the broker or your representative may only vote the
Common Stock that it holds for you in accordance with your instructions.
However, if it has not timely received your instructions, the broker or your
representative may vote on certain matters for which it has discretionary
voting authority. If a broker or your representative cannot vote on a
particular matter because it does not have discretionary voting authority, this
is a "broker non-vote" on that
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matter. Broker non-votes are not considered for the particular matter and have
the practical effect of reducing the number of affirmative votes required to
achieve a majority for such matter by reducing the total number of votes from
which the majority is calculated. The Company does not expect any broker
non-votes on any of the matters to come before the Annual Meeting because they
are considered routine matters.
The close of business on March 20, 2002 has been fixed as the record date
for determining the Stockholders entitled to notice of and to vote at the
Meeting. As of the close of business on March 20, 2002, the Company had
31,894,561 shares of Common Stock outstanding and entitled to vote. Holders of
Common Stock are entitled to one vote per share on all matters to be voted on
by Stockholders.
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock of the Company for their
expenses in forwarding proxy materials to such beneficial owners. Solicitation
of proxies by mail may be supplemented by telephone, telegram, telex and
personal solicitation by the directors, officers or employees of the Company.
No additional compensation will be paid for such solicitation.
This Proxy Statement and the accompanying proxy are being mailed on or about
April 19, 2002 to all Stockholders entitled to notice of and to vote at the
Meeting.
The Annual Report to Stockholders for the fiscal year ended December 31,
2001 is being mailed to the Stockholders with this Proxy Statement, but does
not constitute a part hereof.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 28, 2002
concerning the beneficial ownership of the Common Stock by each stockholder
known by the Company to be the beneficial owner of 5% or more of the
outstanding shares of Common Stock, each current member of the Board of
Directors, each executive officer named in the Summary Compensation Table on
page 12, and all directors and current executive officers as a group.
Shares Beneficially
Owned(1)
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Name and Address** Number Percent
- ------------------ --------- -------
Mazama Capital Management, Inc.(2)..................... 6,035,400 18.9%
800 Fifth Ave.--Ste. 24-B
New York, NY 10021
Innotech Investments Limited(3)........................ 3,966,542 12.3%
3 Charterhouse Mews
Charterhouse Square
London EC1M 6BB
AWM Investment Management(4)........................... 3,634,175 11.4%
153 E. 53rd St., 55th floor
New York, NY 10022
Entities Affiliated with The Burrill AgBio Capital
Fund L.P.(5)......................................... 2,004,161 6.3%
One Embarcadero Center
Suite 2700
San Francisco, CA 94111
G. Steven Burrill(6)................................... 2,004,161 6.3%
John A. Ryals, Ph.D(7)................................. 779,372 2.4%
John E. Hamer, Ph.D(8)................................. 179,900 *
Ian A.W. Howes(9)...................................... 160,300 *
Athanasios Maroglou, Ph.D(10).......................... 112,947 *
Craig Liddell, Ph.D(11)................................ 77,064 *
Robert M. Goodman, Ph.D(12)............................ 55,832 *
Michael Summers(13).................................... 55,832 *
Henri Zinsli, Ph.D(14)................................. 14,166 *
Mark B. Skaletsky(15).................................. 7,722 *
Susan K. Harlander(16)................................. 7,166 *
Leroy E. Hood, M.D., Ph.D(17).......................... 1,666 *
All directors and current executive officers as a
group (16 persons)................................... 3,692,530 11.3%
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* Represents beneficial ownership of less than 1% of the Company's
outstanding shares of Common Stock.
** Addresses are given for beneficial owners of 5% or more of the outstanding
Common Stock only.
(1) The number of shares of Common Stock issued and outstanding on February
28, 2002, was 31,963,532. The calculation of percentage ownership for each
listed beneficial owner is based upon the number of shares of Common Stock
issued and outstanding at February 28, 2002, plus shares of Common Stock
subject to options and warrants held by such person at February 28, 2002
and exercisable within 60 days thereafter. The persons and entities named
in the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them, except as noted below.
(2) This information is based solely on the Schedule 13G filed by Mazama
Capital Management Inc. with the Securities and Exchange Commission on
January 31, 2001, which reported ownership as of December 31, 2001.
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(3) Includes warrants to purchase 187,500 shares of our common stock. All of
the issued capital stock of Innotech Investment Limited is owned by a
blind trust, the sole Trustee of which is J. S. Portrait, who as a result
of her control of the shares of Innotech, may be deemed to be the
beneficial owner of the Paradigm shares held by Innotech.
(4) This information is based upon market survey data, as of February 28,
2002, provided by a third party market survey data provider. We believe
this data to be materially correct. AWM Investment Management has not
confirmed its holdings.
(5) As the General Partner of Burrill AgBio Capital Fund L.P., Burrill &
Company, LLC, is deemed to beneficially own the shares held of record by
Burrill AgBio Capital Fund L.P. Mr. Burrill is the Chief Executive Officer
of Burrill & Company, LLC.
(6) Includes 1,947,828 shares of record held by The Burrill AgBio Capital Fund
L.P., which Mr. Burrill may be deemed to beneficially own by virtue of his
position as the Chief Executive Officer of Burrill & Company, LLC, the
General Partner of Burrill AgBio Capital Fund L.P. Mr. Burrill disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest in Burrill AgBio Capital Fund L.P. Also includes 54,999 shares
subject to immediately exercisable stock options. As of February 28, 2002,
we had the right to repurchase all 18,056 of the shares issuable upon
exercise of these options if Mr. Burrill ceases his directorship with us.
Includes an additional 1,334 shares that may be acquired upon the exercise
of options within 60 days of February 28, 2002.
(7) Includes 8,000 shares, which were issued upon the exercise of immediately
exercisable options and 155 immediately exercisable options held by Dr.
Ryals' wife. As of February 28, 2002, we had the right to repurchase 45
shares issuable upon exercise of these options. Also includes 137,036
shares held by Dr. Ryals that are subject to immediately exercisable stock
options. As of February 28, 2002, we had the right to repurchase 35,712
shares issuable upon exercise of these options. Includes 634,181 shares of
common stock held by Dr. Ryals.
(8) Includes 1,250 shares, which were issued upon the exercise of immediately
exercisable options, 1,050 shares purchased through an employee stock
purchase plan, and 10,550 immediately exercisable options held by Dr.
Hamer's wife. As of February 28, 2002, we had the right to repurchase
4,863 shares if she ceases her employment with us. Also includes 2,000
shares held by Dr. Hamer's daughter. Also includes 24,333 shares of common
stock that were issued upon the exercise of immediately exercisable
options and 139,854 shares that are subject to immediately exercisable
stock options held by Dr. Hamer. As of February 28, 2002, we had the right
to repurchase 37,188 shares that are issuable upon exercise of Dr. Hamer's
options if Dr. Hamer ceases his employment with us. Includes an additional
813 and 50 shares that may be acquired upon the exercise of options within
60 days of February 28, 2002 by Dr. Hamer and his wife, respectively.
(9) Includes 153,800 shares, which were issued upon the exercise of
immediately exercisable options and 5,687 shares that are subject to
immediately exercisable stock options. As of February 28, 2002, we had the
right to repurchase 77,069 shares, which were issued upon exercise of
immediately exercisable options if Mr. Howes ceases his employment with
us. Includes an additional 813 shares that may be acquired upon the
exercise of options within 60 days of February 28, 2002.
(10) Includes 102,000 shares, which were issued upon the exercise of
immediately exercisable options, and 10,947 shares that are subject to
immediately exercisable stock options. As of February 28, 2002, we had the
right to repurchase 72,188 shares and 2,512 shares issuable upon exercise
of these options.
(11) Includes 23,750 shares, which were issued upon the exercise of immediately
exercisable options, and 52,522 shares that are subject to immediately
exercisable stock options. As of February 28, 2002, we had the right to
repurchase 33,022 shares issuable upon exercise of these options if Dr.
Liddell ceases his employment with us. Includes additional 792 shares that
may be acquired upon the exercise of options within 60 days of February
28, 2002.
(12) Includes 52,666 shares, which were issued upon the exercise of stock
options and 2,499 shares issuable upon the exercise of stock options. As
of February 28, 2002, we had the right to repurchase 5,389 shares issued
upon exercise of immediately exercisable options if Dr. Goodman ceases his
directorship with us. Includes additional 667 shares that may be acquired
upon the exercise of options within 60 days of February 28, 2002.
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(13) Includes 55,165 shares that are subject to immediately exercisable stock
options. As of February 28, 2002, we had the right to repurchase 5,389
shares issuable upon exercise of the immediately exercisable options if
Mr. Summers ceases his directorship with us. Includes additional 667
shares that may be acquired upon the exercise of options within 60 days of
February 28, 2002.
(14) Includes 8,334 shares, which were issued upon the exercise of stock
options, and 5,165 shares that are subject to immediately exercisable
stock options. As of February 28, 2002, we had the right to repurchase
4,167 shares and 1,222 shares issuable upon exercise of the immediately
exercisable options if Dr. Zinsli ceases his directorship with us.
Includes an additional 667 shares that may be acquired upon the exercise
of options within 60 days of February 28, 2002.
(15) Includes 6,277 shares that are subject to immediately exercisable stock
options and an additional 1,445 shares that may be acquired upon the
exercise of options within 60 days of February 28, 2002.
(16) Includes 5,721 shares that are subject to immediately exercisable stock
options and an additional 1,445 shares that may be acquired upon the
exercise of options within 60 days of February 28, 2002.
(17) Includes 555 shares that are subject to immediately exercisable stock
options and an additional 1,111 shares that may be acquired upon the
exercise of options within 60 days of February 28, 2002.
5
MANAGEMENT
Board of Directors
Under the Company's Charter and Bylaws, the number of members of the
Company's Board of Directors is fixed from time to time by the Board of
Directors. The Board of Directors currently consists of eight members. The
Board of Directors is classified into three classes as follows: Mark B.
Skaletsky and Susan K. Harlander, Ph.D. constitute a class with a term ending
in 2004 (the "Class I directors"); G. Steven Burrill, John A. Ryals, Ph.D and
Robert Goodman, Ph.D. constitute a class with a term ending in 2003 (the "Class
III directors"); and Michael Summers, Leroy E. Hood, Ph.D. and Henri Zinsli,
Ph.D. constitute a class with a term which expires at the upcoming meeting (the
"Class II directors"). At each annual meeting of Stockholders, directors are
elected for a full term of three years to succeed those directors whose terms
are expiring.
The Board of Directors has voted to set the size of the Board of Directors
at eight and to nominate Michael Summers, Leroy E. Hood, Ph.D. and Henri Zinsli
Ph.D. for election at the Meeting for a term of three years, to serve until the
2005 annual meeting of Stockholders, and until their respective successors have
been elected and qualified. The Class I directors (Mark B. Skaletsky and Susan
K. Harlander) and the Class III directors (G. Steven Burrill, John A. Ryals,
Ph.D. and Robert M. Goodman, Ph.D.) will serve until the annual meetings of
Stockholders to be held in 2004 and 2003, respectively, and until their
respective successors have been elected and qualified.
Set forth below are the names of the persons nominated as directors and the
directors whose terms do not expire this year, their ages, their offices in the
Company, if any, their principal occupations or employment for the past five
years, the length of their tenure as directors and the names of other public
companies in which such persons hold directorships.
Name Age Position with the Company
---- --- -------------------------
G. Steven Burrill................. 57 Director and Chairman of the Board
Robert M. Goodman, Ph.D........... 56 Director
Michael Summers................... 60 Director
Henri Zinsli, Ph.D................ 61 Director
Mark B. Skaletsky................. 53 Director
Susan K. Harlander, Ph.D.......... 53 Director
Leroy E. Hood, M.D., Ph.D......... 63 Director
John A. Ryals, Ph.D............... 48 Director
G. Steven Burrill has been a member of our Board of Directors since March
1999, and has served as the chairman of our Board of Directors since December
1999. Mr. Burrill is the Chief Executive Officer of Burrill & Company, a
private merchant bank focused on life science companies, which he founded in
1996. Prior to starting Burrill & Company, Mr. Burrill spent 27 years with
Ernst & Young, including the last 17 years as a partner of the firm. Mr.
Burrill received his BBA degree from the University of Wisconsin-Madison. Mr.
Burrill currently serves on the boards of directors of DepoMed, Inc., Third
Wave Technologies, Inc. and Transgene SA.
Michael Summers has been a member of our Board of Directors since March
1998. Since October 1990, Mr. Summers has been a managing partner of Summers
Associates, a specialized international business development organization. Mr.
Summers is also managing director of Floranova Limited. He received his B.S. in
Botany from the University of Exeter in 1964.
Robert M. Goodman, Ph.D. has been a member of our Board of Directors since
June 1998. Since September 1991, Dr. Goodman has been a Professor of Plant
Pathology at the University of Wisconsin-Madison. Dr. Goodman is also a member
of the Microbiology graduate program, the interdepartmental program in plant
genetics and plant breeding, the Institute of Environmental Studies, the
graduate program in cellular and molecular biology and the biotechnology
training program. He previously was Executive Vice President,
6
Research and Development, at Calgene, Inc., and presently serves as a director
of Cornell Research Foundation, Inc., and of PlantGenix, Inc. Dr. Goodman
received a Ph.D. in plant virology from Cornell University in 1973.
Henri Zinsli, Ph.D. has been a member of our Board of Directors since June
1998. Since January 2002, Dr. Zinsli has served as the Executive Chairman of
Discovery Partners International AG in Allschwil, Switzerland. Since 1999, he
has served as the Chief Executive Officer of Discovery Technologies Ltd. Since
1998, he has served as the Chairman of Zeptosens Inc. in Witterswil,
Switzerland. He is also a non-executive director of Plasmon, plc, in Royston,
England, a position that he has held since 1996. Until 1996, he was the head of
Corporate Business Development at Ciba-Geigy Ltd. in Basel, Switzerland. Dr.
Zinsli had over 30 years of experience at Ciba-Geigy Ltd. He received his Ph.D.
in economics at the University of St. Gallen, Switzerland in 1968.
Mark B. Skaletsky joined the Company as a director in February 2001. Mr.
Skaletsky has been the Chairman and Chief Executive officer of Essential
Therapeutics, Inc. since April 2001. From May 1993 to January 2001, Mr.
Skaletsky was the President and Chief Executive Officer of GelTex
Pharmaceuticals, Inc. From 1988 to 1993, Mr. Skaletsky served as Chairman and
Chief Executive Officer of Enzytech, Inc., a biotechnology company. From 1981
to 1988, Mr. Skaletsky served as President and Chief Operating Officer of
Biogen, Inc. Mr. Skaletsky is past Chairman of the Biotechnology Industry
Organization. He also serves as a member of the board of directors of Isis
Pharmaceuticals, Inc., and ImmunoGen. In addition, Mr. Skaletsky is a member of
the Board of Trustees of Bentley College located in Waltham, MA. Mr. Skaletsky
attended Bentley College and graduated in 1970 with a Bachelor Degree in
Finance.
Susan K. Harlander, Ph.D. has been a member of our Board of Directors since
May 1, 2001. Dr. Harlander has been the President of BIOrational Consultants,
Inc. since May 2000. From May 1995 to May 2000, Dr. Harlander served in various
positions at The Pillsbury Company, including Vice President, Biotechnology
Development and Agricultural Research and Vice President, Green Giant and
Progresso R&D and Agricultural Research. From 1991 to 1995, Dr. Harlander
served as Director, Dairy Foods Research Development at Land O' Lakes, Inc.
From 1984 to 1992, Dr. Harlander served as an Assistant and Associate Professor
in the Department of Food Science and Nutrition, University of Minnesota. Dr.
Harlander received her Ph.D. in Food Science in 1984 from the University of
Minnesota.
Leroy E. Hood, M.D., Ph.D. has been a member of our Board of Directors since
January 2002. Dr. Hood founded and has been the President and Director of the
Institute for Systems Biology in Seattle, Washington since January 2000. From
1992 until January 2000, Dr. Hood was the Gates Professor and Chairman,
Department of Molecular Biotechnology, at the University of Washington in
Seattle. Dr. Hood earned his M.D. from Johns Hopkins University in 1964 and a
Ph.D. in biochemistry from the California Institute of Technology in 1968. He
is recognized as one of the world's leading scientists in molecular
biotechnology and genomics. At the California Institute of Technology, he and
colleagues pioneered four instruments that constitute the technological
foundation for contemporary molecular biology. One of the instruments allows
the rapid automated sequencing of DNA. Dr. Hood participated in the Human
Genome Project--the quest to decipher the sequence of human DNA. He serves on
the Board of Directors for Celtrans, Inc., Lynx Therapeutics Inc., Omeros Inc.,
and Targeted Growth, Inc.
John A. Ryals, Ph.D. has been a member of our Board of Directors since
September 1997. Dr. Ryals co-founded our company in September 1997 and served
as our President and Chief Executive Officer until February 26, 2002. From
October 1996 to September 1997, Dr. Ryals was Vice President of Research for
Novartis Crop Protection, Inc. and Head of the Biotechnology and Genomics
Center of Novartis in Research Triangle Park, North Carolina, where he was
responsible for worldwide biotechnology and genomics research and target-based
discovery. Dr. Ryals has 15 years of experience in agricultural biotechnology
working in various positions at the Agricultural Biotechnology Research Unit of
Ciba-Geigy Corporation, including Head of Agricultural Biotechnology Research
and Vice President of Biotechnology at Ciba Seeds, a position which he held
from 1993 to 1996. Dr. Ryals received his Ph.D. in Molecular Biology from the
University of Texas at Dallas in 1982 and is an Adjunct Professor at North
Carolina State University.
7
Committees of the Board of Directors and Meetings
Meeting Attendance. During the fiscal year ended December 31, 2001 there
were 14 meetings of the Board of Directors, and the various committees of the
Board of Directors met a total of 16 times. No director attended fewer than 75%
of the total number of meetings of the Board and of committees of the Board on
which he or she served during fiscal 2001, with the exception of Mr. Skaletsky,
who attended 60% of the Board meetings.
Audit Committee. The Audit Committee, which met five times in fiscal 2001,
has three members and presently consists of Mr. Skaletsky (as Chairman), Mr.
Burrill and Mr. Summers. The Audit Committee reviews the engagement of the
Company's independent accountants, reviews annual financial statements,
considers matters relating to accounting policy and internal controls and
reviews the scope of annual audits. All of the members of the Audit Committee
are independent under Rule 4200(a)(15) of the National Association of
Securities Dealers' listing standards. The Audit Committee Charter is attached
as Appendix A hereto and the report of the Audit Committee is included below.
Compensation Committee. The Compensation Committee, which met six times
during fiscal 2001, has four members and presently consists of Mr. Burrill (as
Chairman), Dr. Zinsli, Dr. Harlander, and Dr. Goodman. The Compensation
Committee reviews, approves and makes recommendations on the Company's
compensation policies, practices and procedures to ensure that legal and
fiduciary responsibilities of the Board of Directors are carried out and that
such policies, practices and procedures contribute to the success of the
Company. The Compensation Committee is responsible for establishing and
administering the Company's executive compensation, the Company's 2000 Stock
Option Plan and other employee equity plans. Please see the report of the
Compensation Committee included below.
Option Committee. Dr. Ryals was the sole member of the Option Committee,
which met twice during fiscal 2001. The Option Committee has the authority to
grant options within a prescribed limit (which limit may be reloaded by the
Compensation Committee from time to time) to employees below the vice president
level without seeking Compensation Committee approval. As of February 26, 2002,
Mr. Burrill replaced Dr. Ryals as the sole member of the Option Committee.
Nominating Committee. The Nominating Committee, which met twice during
fiscal 2001, had three members, Mr. Burrill, Dr. Ryals, and Mr. Summers. The
Nominating Committee's role, following consultation with all other members of
the Board of Directors, is to make recommendations to the full Board as to the
size and composition of the Board and to make recommendations as to particular
nominees. The Nominating Committee will not consider nominees recommended by
stockholders. As of February 26, 2002, Dr. Ryals was removed from the
Nominating Committee.
Compensation Committee Interlocks and Insider Participation. The
Compensation Committee has four members, Mr. Burrill (as Chairman), Dr. Zinsli,
Dr. Harlander, and Dr. Goodman and the Option Committee has one member, Mr.
Burrill, who replaced Dr. Ryals as of February 26, 2002. None of the members of
our Compensation Committee has at any time been one of our officers or
employees. No member of our Compensation Committee serves as a member of the
board of directors or compensation committee of any entity that has an
executive officer serving as a member of our Board of Directors or Compensation
Committee.
Compensation of Directors
Our directors who are also our employees receive no compensation for serving
on the Board of Directors. During fiscal year 2001, we paid each of our
non-employee directors a fee of $19,000, with the exception of Mr. Skaletsky
and Dr. Harlander, who served on our Board for less than a full year and who
were paid $12,917 and $11,000 respectively. We reimburse our non-employee
directors for reasonable expenses incurred in attending board and committee
meetings. Beginning January 2001, each non-employee director receives options
to purchase 6,000 shares each year upon grants by the Compensation Committee,
except for the Chairman of the Board, who receives options to purchase 12,000
shares.
8
In June 1998, Dr. Goodman, Mr. Summers and Dr. Zinsli each received options
to purchase 50,000 shares of our common stock at an exercise price of $0.08 per
share. In December 1999, Dr. Goodman, Mr. Summers and Dr. Zinsli each received
options to purchase 2,666 shares of our common stock at an exercise price of
$0.60 per share. These options vest ratably beginning on the grant date of the
option and extending through the next four years of service. In March 2000, Mr.
Burrill received options to purchase 50,000 shares of our common stock, which
vest ratably beginning on the grant date of the option and extending through
the next three years of service and have an exercise price of $7.00 per share.
In March 2001, Mr. Skaletsky and Dr. Harlander each received options to
purchase 20,000 shares of our common stock. Mr. Skaletsky's options vest
ratably beginning on the grant date of the option and extending through the
next three years of service and have an exercise price of $3.94 per share. Dr.
Harlander's options vest ratably beginning in May 2001 and extending through
the next three years of service and have an exercise price of $3.94 per share.
In March 2001, Dr. Goodman, Mr. Summers, and Dr. Zinsli each received options
to purchase 6,000 shares of our common stock at an exercise price of $3.94 per
share. In March 2001, Mr. Burrill received options to purchase 12,000 shares of
our common stock at an exercise price of $3.94. These options vest ratably
beginning on January 1, 2001, extending through the next three years of
service. In February 2002, Dr. Goodman, Mr. Summers, Dr. Zinsli, Mr. Skaletsky,
and Dr. Harlander each received options to purchase 6,000 shares of our common
stock at an exercise price of $1.65 per share. In February 2002, Mr. Burrill
received options to purchase 12,000 shares of our common stock at an exercise
price of $1.65. These options vest ratably beginning on January 1, 2002,
extending through the next three years of service.
Executive Officers
The names of, and certain information regarding, executive officers of the
Company who are not also directors are set forth below. Except for executive
officers who have employment agreements with the Company, the executive
officers serve at the pleasure of the Board of Directors.
Name Age Position
- ---- --- --------
John E. Hamer, Ph.D. 44 Acting President and Chief Executive Officer, and
Chief Scientific Officer
Ian A.W. Howes...... 43 Vice President of Finance, Chief Financial Officer
and Treasurer
Jin Sun Kim, J.D.... 37 Vice President, Healthcare
Ken Hunt, J.D....... 36 Vice President, Agriculture
Gary Miller, Ph.D... 56 Vice President, Nutrition
Craig Liddell, Ph.D. 43 Vice President, Healthcare Technologies
James D. Bucci...... 57 Vice President, Human Resources
John E. Hamer, Ph.D. has served as our Acting President and Chief Executive
Officer, and our Chief Scientific Officer since February 2002 and prior to that
was our Vice President of Research beginning in February 2000. From March 1999
to February 2000, Dr. Hamer served as our Director of Microbial Research. From
September 1998 to March 1999, he served as our Director of Fungal Biology. From
September 1998 to September 2000, Dr. Hamer held the position of Professor of
Biological Sciences and, from September 1992 to September 1998, he served as
Associate Professor of Biological Sciences at Purdue University. He also has
served as Adjunct Professor of Microbiology and Immunology at Purdue University
Medical School since September 1998. Dr. Hamer has received numerous grants and
awards of distinction throughout his career, including a David and Lucille
Packard Fellowship (1990-1995) and the National Science Foundation Presidential
Faculty Fellowship (1993-1998). He is the former Editor-in-Chief of the
Academic Press journal Fungal Genetics and Biology. Dr. Hamer serves on
numerous scientific review and advisory boards, including those for the
National Institutes of Health, the National Science Foundation, Purdue Alumni
Science Advisory Board, North Carolina Genomic and Bioinformatics Consortium
and the Functional Genomics (FUGE) Advisory Board for Norway. Dr. Hamer
received his Ph.D. in Microbiology from the University of California, Davis in
1987.
9
Ian A. W. Howes has served as our Vice President of Finance and Chief
Financial Officer since January 1999. From February 1997 to December 1998, Mr.
Howes was Chief Financial Officer at Analytika, Inc., a provider of
pharmaceutical data mining software and services. From October 1995 to January
1997, he was Chief Financial Officer at American Care Communities. From May
1991 to August 1995, Mr. Howes was Chief Financial Officer at EnSys, Inc., a
publicly traded biotechnology company. Mr. Howes received his M.B.A. from the
Kenan-Flagler Business School at the University of North Carolina at Chapel
Hill in 1997 and is a Chartered Accountant in England and Wales.
Jin Sun Kim, J.D. has served as our Vice President, Healthcare since October
2001. From August 1998 to October 2001, she was Senior Vice President,
Strategic Development and General Counsel for Medicis Pharmaceutical
Corporation where she was responsible for the company's strategic planning and
business development. Prior to joining Medicis, Ms. Kim was a transactional
attorney for several leading multinational law firms including Bryan Cave LLP
in Phoenix, Arizona, and Morrison & Foerster LLP and Debevoise & Plimpton, in
New York City. Ms. Kim received her Juris Doctorate from Yale Law School in
1989.
Ken Hunt, J.D. has served as our Vice President, Agriculture since October
2001. From December 2000 to September 2001, Mr. Hunt served as our Vice
President of Business Strategy. From September 1997 to December 2000, Mr. Hunt
served in a number of positions at Monsanto, including director of business
development for nutrition, director of business development for genomics and
director of commercial development for designer fibers. From 1993 to September
1997, Mr. Hunt worked at Sara Lee Knit Products, where he progressed from
marketing assistant to director of marketing. Mr. Hunt received his Master's of
Business Administration from the Babcock Graduate School of Management at Wake
Forest University, his Juris Doctorate from Wake Forest University School of
Law, and his Bachelor of Arts in psychology from Wake Forest University.
Gary Miller, Ph.D. has served as our Vice President, Nutrition since October
2001. Dr. Miller brings more than 25 years of experience in building and
managing customer focused scientific and business organizations for food,
pharmaceutical, and nutraceutical industries. From June 1999 to October 2001,
Dr. Miller was the Senior Vice President, Science and Business Development for
Archer Daniels Midland Nutraceuticals ("ADM"). Prior to joining ADM, Dr. Miller
became Vice President R&D for McNeil Specialty Products Co a subsidiary of
Johnson & Johnson, where he was for 13 years. Dr. Miller received his B.S. and
Doctorate degrees in Food Science from Rutgers University.
Craig Liddell, Ph.D. has served as our Vice President, Healthcare
Technologies since February 2002. From February 2000 to February 2002, Dr.
Liddell served as our Vice President of Informatics. From July 1998 to February
2000, Dr. Liddell served as our Director of Informatics. Dr. Liddell has been
an Adjunct Professor of Plant Pathology and since 1991 he has been a Principal
Investigator at the Computing Research Laboratory at New Mexico State
University. From July 1996 to July 1998, Dr. Liddell was an Associate Professor
of Plant Pathology and from 1989 to July 1996, Dr. Liddell was an Assistant
Professor of Plant Pathology at New Mexico State University. Dr. Liddell was a
Postdoctoral Research Scientist in the Departments of Plant Pathology at the
University of California-Davis and the University of Wisconsin-Madison. He is
the senior editor of the journal Phytopathology. Dr. Liddell received his Ph.D.
in Plant Pathology from the University of Sydney, Australia in 1986.
James Bucci has served as our Vice President, Human Resources since February
2000. From November 1997 to February 2000, Mr. Bucci was Senior Vice President
of Human Resources for Suburban Hospital Healthcare Systems in Bethesda,
Maryland, a not-for-profit integrated healthcare provider. From April 1993 to
October 1997, he served as Group Vice President of Human Resources at First
Citizens Bank in Raleigh, North Carolina, a closely held regional bank. Mr.
Bucci has prior senior level human resources experience at Hallmark Cards, Inc.
and Fidelity Investments. Mr. Bucci received his Masters degree in Human
Development in 1984 from the University of Rhode Island. His undergraduate
degree is from Brown University.
10
EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table sets forth summary information as
to compensation received by the Company's Chief Executive Officer and each of
the four other most highly compensated executive officers who were employed by
the Company at the end of fiscal 2001 (collectively, the "named executive
officers") for services rendered to the Company in all capacities during the
three fiscal years ended December 31, 2001.
Annual Compensation Securities
--------------------- Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- -------- ------- ---------- ------------
John E. Hamer, Ph.D.(1)......................... 2001 $195,000 $38,295 19,500 $1,650(5)
Acting President and Chief Executive Officer,
and Chief Scientific Officer 2000 $178,801 $45,000 -- $1,668(5)
1999 $142,500 $37,500 67,500 $5,000(6)
John A. Ryals, Ph.D.(2)......................... 2001 $325,200 $ -- 252,700 $5,065(7)
Former President and Chief Executive Officer,
and Director 2000 $297,600 $75,000 -- $5,065(7)
1999 $221,825 $58,438 77,917 $ 600(8)
Athanasios Maroglou, Ph.D.(3)................... 2001 $200,417 $44,055 19,500 $2,275(5)
Former Vice President, Project Management 2000 $179,632 $50,000 5,260 $2,287(5)
1999 $ 50,020 $ 6,667 165,000 --
Ian A.W. Howes.(4).............................. 2001 $198,750 $34,842 19,500 $2,625(5)
Vice President of Finance 2000 $185,000 $46,250 -- $2,625(5)
Chief Financial Officer and Treasurer 1999 $155,400 $41,250 303,300 --
Craig Liddell, Ph.D............................. 2001 $190,000 $34,613 19,000 $2,375(5)
Vice President, Healthcare Technologies 2000 $179,154 $45,000 -- $2,199(5)
1999 $125,000 $37,500 67,500 --
- --------
(1) Dr. Hamer was the Vice President of Research until February 26, 2002. On
February 26, 2002, he was named Acting President and Chief Executive
Officer, as well as Chief Scientific Officer.
(2) Dr. Ryals was terminated as President and Chief Executive Officer on
February 26, 2002. He remains a member of the Board of Directors.
(3) Dr. Maroglou served as our Vice President of Project Management from
November 1999 until March 1, 2002. Dr. Maroglou resigned effective March 1,
2002.
(4) Mr. Howes joined the Company in January 1999.
(5) Represents matching contributions made under the Company's 401(K) plan.
(6) Represents reimbursements for moving expenses paid to Dr. Hamer.
(7) Represents life insurance premiums paid on behalf of Dr. Ryals in the
amount of $2,440 each year and matching contributions made under the
Company's 401(K) plan in the amount of $2,625.
(8) Represents life insurance premiums paid on behalf of Dr. Ryals.
11
Option Grants in Last Fiscal Year
The following table presents each grant of stock options during the fiscal
year ended December 31, 2001, to each of the named executive officers. All
options were granted under our 2000 Stock Option Plan.
The potential realizable value is calculated based on the seven year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to the rules promulgated by the SEC and does not represent our
estimate of future stock price performance. The potential realizable value of
5% and 10% appreciation are calculated by:
. Multiplying the number of shares of common stock under the option by the
market price at grant date;
. Assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and
. Subtracting from that result the aggregate option exercise price.
Percentages shown under "Percentage of Total Options Granted to Employees in
Fiscal Year" are based on an aggregate of 1,273,133 options granted to our
employees and directors under the Company's 2000 Stock Option Plan during
fiscal year 2001.
Individual Grants
Potential Realizable
% of Total Value at Assumed Annual
Number of Options Market Rates of Stock Price
Securities Granted to Exercise Price Appreciation for Option
Underlying Employees or Base on Term(2)
Options in Fiscal Price Date of Expiration -----------------------
Name Granted(1) Year ($/Share) Grant Date 5% 10%
---- ---------- ---------- --------- ------- ---------- -------- --------
John E. Hamer, Ph.D............... 19,500 1.5% $3.94 $3.94 3/16/08 $ 31,278 $ 72,890
John A. Ryals, Ph.D............... 252,700 19.8% $3.94 $3.94 3/16/08 $405,325 $944,579
Athanasios Maroglou, Ph.D......... 19,500 1.5% $3.94 $3.94 3/16/08 $ 31,278 $ 72,890
Ian A.W. Howes.................... 19,500 1.5% $3.94 $3.94 3/16/08 $ 31,278 $ 72,890
Craig Liddell, Ph.D............... 19,000 1.5% $3.94 $3.94 3/16/08 $ 30,476 $ 71,021
(1) The options were granted pursuant to the Company's 2000 Stock Option Plan.
With the exception of 50,000 options granted to Dr. Ryals, the options
granted to the named executive officers are incentive stock options and
vest monthly in 48 equal installments commencing on January 21, 2001.
(2) The amounts shown in this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10% compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
optionee's continued employment through the option period and the date on
which the options are exercised.
12
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table provides information regarding the exercises of options
by each of the named executive officers during fiscal year 2001. In addition,
this table includes the number of shares covered by both exercisable and
unexercisable stock options as of December 31, 2001 and the values of
"in-the-money" options, which values represent the positive spread between the
exercise price of any such option and the fiscal year-end value of the Common
Stock.
The following table includes options granted under the Company's 1998 Stock
Option Plan and under the Company's 2000 Stock Option Plan. The options granted
under the Company's 1998 Stock Option Plan are immediately exercisable in full
at the grant date, but shares purchased by exercise of unvested options are
subject to a repurchase right in our favor that entitles us to repurchase
unvested shares at the original exercise price on termination of the
executive's services with us.
Number of Securities
Underlying Value of the Unexercised
Unexercised Options In-The-Money Options
Shares at Fiscal Year-End at Fiscal Year-End(2)
Acquired On Value ------------------------- -------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- ------------- ----------- -------------
John E. Hamer, Ph.D.(3)........... -- -- 139,042 14,625 $746,508 25,769
John A. Ryals, Ph.D.(4)........... -- -- 128,592 202,025 $486,666 355,968
Athanasios Maroglou, Ph.D.(5)..... -- -- 10,135 14,625 $ 14,902 25,769
Ian A.W. Howes.(6)................ -- -- 4,875 14,625 $ 8,590 25,769
Craig Liddell, Ph.D.(7)........... 76,769 $376,359 51,731 14,250 $264,556 25,109
- --------
(1) Amounts shown in this column do not necessarily represent actual value
realized from the sale of the shares acquired upon exercise of the option
because in many cases the shares are not sold on exercise but continue to
be held by the executive officer exercising the option. The amounts shown
represent the difference between the option exercise price and the market
price on the date of exercise, which is the amount that would have been
realized if the shares had been sold immediately upon exercise.
(2) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for the Company's Common Stock of $5.70, which was the
most recent closing sale price per share of the Company's Common Stock as
reported in the NASDAQ National Market System on December 31, 2001.
(3) As of December 31, 2001, 33,333 shares of Common Stock were issued upon the
exercise of immediately exercisable options and 139,042 shares are subject
to immediately exercisable stock options held by Dr. Hamer. As of December
31, 2001, we had the right to repurchase 44,167 of the shares issued or
issuable upon the exercise of these options if Dr. Hamer ceases his
employment with us.
(4) As of December 31, 2001, 128,592 shares are subject to immediately
exercisable stock options held by Dr. Ryals. As of December 31, 2001, we
had the right to repurchase 38,959 of the shares issued or issuable upon
the exercise of these options if Dr. Ryals ceases his employment with us.
(5) As of December 31, 2001, 165,000 shares of Common Stock were issued upon
the exercise of immediately exercisable options and 10,135 shares are
subject to immediately exercisable stock options held by Dr. Maroglou. As
of December 31, 2001, we had the right to repurchase 81,803 of the shares
issued or issuable upon the exercise of these options if Dr. Maroglou
ceases his employment with us.
(6) As of December 31, 2001, 303,300 shares of Common Stock were issued upon
the exercise of immediately exercisable options and 4,875 shares are
subject to immediately exercisable stock options held by Mr. Howes. As of
December 31, 2001, we had the right to repurchase 83,519 of the shares
issued or issuable upon the exercise of these options if Mr. Howes ceases
his employment with us.
(7) As of December 31, 2001, 120,519 shares of Common Stock were issued upon
the exercise of immediately exercisable options and 51,731 shares are
subject to immediately exercisable stock options held by Dr. Liddell. As of
December 31, 2001, we had the right to repurchase 40,000 of the shares
issued or issuable upon the exercise of these options if Dr. Liddell ceases
his employment with us.
13
Employment Contracts, Termination of Employment and Change of Control
Arrangements
In February 1998, the Company entered into an employment agreement with Dr.
Ryals, pursuant to which his initial annual base salary was set at $180,000. In
1999, his annual base salary was increased to $233,750, in 2000, his annual
base salary was increased to $300,000, and in 2001, his annual base salary was
increased to $330,000. In addition, Dr. Ryals was eligible to receive an annual
targeted bonus up to 50% of base salary to be awarded on the basis of achieving
mutually agreed upon objectives and criteria between Dr. Ryals and the Company.
The agreement provided that the employment relationship could be terminated
with or without cause at any time by Dr. Ryals or the Company. Dr. Ryals was
terminated as President and Chief Executive Officer on February 26, 2002.
Furthermore, the agreement provided that, if the Company terminated Dr. Ryals
with or without cause, as defined in the agreement, the Company would have no
obligation to pay severance beyond his accrued base salary and bonus up to the
date of termination. However, if the Company were to continue to pay Dr. Ryals
an amount equal to his current monthly salary for a three month period
following a termination without cause, he would be prohibited from competing
with the Company for that three month period. Moreover, upon proper notice to
Dr. Ryals, the Company may extend the non-compete period to a total of twelve
months provided the Company continues to pay him such amounts. Dr. Ryals
executed a separate proprietary information and inventions agreement pursuant
to which he agreed that he would not disclose any confidential information
received during his employment with the Company and, that, with some
exceptions, he would assign to the Company any and all inventions conceived or
developed during his employment with the Company.
At the time of commencement of employment, most of the Company's employees,
including Dr. Hamer, Dr. Maroglou, Mr. Howes, and Dr. Liddell, sign offer
letters and employment agreements. These employment agreements provide for
employment at will and contain standard provisions relating to confidential
information and invention assignment by which the employee agrees not to
disclose any confidential information received during his or her employment
with the Company and that, with some exceptions, he or she will assign to the
Company any and all inventions conceived or developed during employment.
The outstanding option agreements issued under the Company's 1998 Stock
Option Plan and 2000 Employee, Director and Consultant Stock Option Plan
provide for accelerated vesting of options under certain circumstances in
connection with a change of control (as defined in such option agreements). If
an option holder's employment is terminated by the Company for a reason other
than for "cause" (as defined in the applicable stock option agreement) within
12 months of the change of control, that employee's unvested options shall vest
immediately upon such termination. If an option holder's employment is
terminated as a result of voluntary resignation, disability or death or is
terminated by the Company for cause, then that employee's unvested options
shall cease to vest.
14
Performance Graph: Comparison of Cumulative Total Return
The graph set forth below compares the annual percentage change in the
Company's cumulative total stockholder return on its Common Stock between May
5, 2000 (the date the Common Stock commenced public trading) and December 31,
2001 with the cumulative total return of the NASDAQ Composite Index and the
NASDAQ Biotechnology Index during the same period. This graph assumes the
investment of $100 on May 5, 2000 in the Company's Common Stock and each of the
comparison groups and assumes reinvestment of dividends, if any. The Company
has not paid any dividends on the Common Stock, and no dividends are included
in the report of the Company's performance. This graph is not "soliciting
material," is not deemed filed with the Securities and Exchange Commission and
is not to be incorporated by reference in any filing of the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934 whether made
before or after the date hereof and irrespective of any general incorporation
language in any such filing. Information used on the graph was obtained from
NASDAQ, a source believed to be reliable, but the Company is not responsible
for any errors or omissions in such information.
[CHART]
Paradigm Nasdaq Biotech
Genetics, Inc. Nasdaq Index
-------------- ------- --------------
5/5/2000 $100.00 $100.00 $100.00
6/1/2000 142.11 93.86 94.34
7/3/2000 188.60 104.59 120.53
8/1/2000 218.43 96.56 115.19
9/1/2000 240.35 110.94 135.57
10/2/2000 335.09 93.50 121.04
11/1/2000 207.90 87.33 121.89
12/1/2000 142.11 69.31 106.80
1/2/2001 136.84 60.05 100.24
2/1/2001 150.88 72.91 100.81
3/1/2001 72.36 57.20 93.04
4/2/2001 71.93 46.71 70.32
5/1/2001 98.25 56.81 90.25
6/1/2001 99.37 56.31 99.76
7/2/2001 106.53 56.30 97.22
8/1/2001 97.12 54.19 85.12
9/4/2001 95.02 46.39 86.10
10/1/2001 84.21 38.79 73.28
11/1/2001 70.88 45.75 85.38
12/3/2001 68.35 49.91 91.08
12/31/2001 80.00 51.10 89.25
15
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
Overview
The Compensation Committee of the Board of Directors (the "Compensation
Committee") is composed entirely of Directors who are not current or former
employees of the Company. The Compensation Committee is responsible for
establishing and administering the Company's executive compensation policies
and the Company's stock option and other employee equity plans. This report
addresses the compensation policies for fiscal year 2001 as they affected Dr.
Ryals, in his capacity as the then President and Chief Executive Officer, and
Director, and the other executive officers of the Company.
General Compensation Philosophy
The objectives of the Company's executive compensation program are to:
. Attract, motivate and retain qualified executives and reward performance;
. Reward executives for their contributions towards achieving the
Company's strategic goals; and
. Align the interests of executives with the long-term interests of
stockholders.
Executive Officer Compensation Program
The Company's executive officer compensation program is comprised of: (i)
base salary, which is set on an annual basis; (ii) annual incentive bonuses,
which are based on predetermined Company objectives and individual performance
goals; and (iii) long-term incentive compensation in the form of periodic stock
option grants, with the objective of aligning the executive officers' long-term
interests with those of the stockholders and encouraging the achievement of
superior results over an extended period.
The Compensation Committee performs annual reviews of executive compensation
to confirm the competitiveness of the overall executive compensation packages
as compared with companies who compete with the Company for prospective
employees.
In considering compensation of the Company's executives, the Compensation
Committee considers the anticipated tax treatment to the Company of various
components of compensation. The Company does not believe Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), which generally
disallows a tax deduction for certain compensation in excess of $1 million to
any of the executive officers appearing in the Summary Compensation Table
above, will have an effect on the Company. The Compensation Committee has
considered the requirements of Section 162(m) of the Code and its related
regulations. The Compensation Committee's present policy is to take reasonable
measures to preserve the full deductibility of substantially all executive
compensation, to the extent consistent with its other compensation objectives.
Base Salary and Benefits
The Compensation Committee reviews base salary levels for the Company's
executive officers on an annual basis. The Compensation Committee studies
salary surveys and other salary information that relate to similar
biotechnology companies to assist in its evaluation of executive compensation.
The Compensation Committee seeks to compare the salaries paid by companies
similar in size and stage of development to the Company. Within this comparison
group, the Company seeks to make comparisons to executives at a comparable
level of experience, who have a comparable level of responsibility and expected
level of contribution to the Company's performance. In setting base salaries,
the Compensation Committee also takes into account the intense level of
competition among biotechnology companies to attract talented personnel, as
well as individual experience and
16
performance. The Company seeks to set base salaries to be competitive with
compensation paid by comparable companies to persons with similar experience.
Executive officers are also entitled to participate in benefit plans generally
available to employees.
Annual Incentive Bonuses
The Compensation Committee determines the amount of annual cash bonuses
based on achievement of predetermined financial, operational and strategic
objectives of the Company as well as individual performance goals. The
Compensation Committee evaluates a number of quantitative and qualitative
factors, including (i) the Company's financial performance in an officer's area
of responsibility, (ii) the officer's progress towards non-financial objectives
and (iii) the officer's ability to manage and motivate others, develop and
maintain the skills necessary to work in a high-growth company, recognize and
pursue new business opportunities and initiate programs to enhance the
Company's growth and successes. Bonuses are awarded on an annual basis.
Long-Term Incentive Compensation
Long-term incentive compensation, in the form of stock options, allows the
executive officers to share in any appreciation in the value of the Company's
Common Stock. The Company believes that option grants (i) align executive
officer interests with stockholder interests by creating a direct link between
stockholder return and compensation, (ii) give executives a long-term interest
in the Company's success and (iii) help retain executive talent in a
competitive market. Option grants are made from time to time, based on the
Compensation Committee's view that an executive's contributions have or will
have a significant impact on the Company's performance. When determining the
magnitude of an option grant, the Compensation Committee considers, among other
factors, (i) past performance of the executive, (ii) appropriate incentives to
meet long-term objectives, (iii) the magnitude of grants awarded at other
biotechnology companies and companies of comparable size and complexity and
(iv) the amount of equity held by the executive prior to the grant.
Chief Executive Officer Compensation
Dr. Ryals served as President and Chief Executive Officer from the formation
of the Company in September 1997 until February 2002. In January 2001, at the
recommendation of the Compensation Committee, Dr. Ryals' base salary was
increased to $330,000. This compensation is consistent with the range of salary
and bonus levels received by Dr. Ryals' counterparts in comparable companies in
the biotechnology industry. Dr. Ryals was terminated as President and Chief
Executive Officer on February 26, 2002.
The Compensation Committee
G. Steven Burrill
Henri Zinsli
Robert M. Goodman
Susan K. Harlander
17
REPORT OF AUDIT COMMITTEE
The Audit Committee of the Board of Directors, which consists entirely of
directors who meet the independence and experience requirements of the NASDAQ
National Market System, has furnished the following report:
The Audit Committee assists the Board in overseeing and monitoring the
integrity of the Company's financial reporting process, its compliance with
legal and regulatory requirements and the quality of its internal and external
audit processes. The role and responsibilities of the Audit Committee are set
forth in a written Charter adopted by the Board, which is attached as Appendix
A to this Proxy Statement. The Audit Committee reviews and reassesses the
Charter annually and recommends any changes to the Board for approval. The
Audit Committee is responsible for overseeing the Company's overall financial
reporting process. In fulfilling its responsibilities for the financial
statements for fiscal year 2001, the Audit Committee took the following actions:
. Reviewed and discussed the audited financial statements for the fiscal
year ended December 31, 2001 with management and PricewaterhouseCoopers
LLP, the Company's independent auditors;
. Discussed with PricewaterhouseCoopers LLP the matters required to be
discussed by Statement on Auditing Standards No. 61 relating to the
conduct of the audit; and
. Received written disclosures and the letter from PricewaterhouseCoopers
LLP regarding its independence as required by Independence Standards
Board Standard No. 1. The Audit Committee further discussed with
PricewaterhouseCoopers LLP their independence. The Audit Committee also
considered the status of pending litigation, taxation matters and other
areas of oversight relating to the financial reporting and audit process
that the Committee determined appropriate.
Based on the Audit Committee's review of the audited financial statements
and discussions with management and PricewaterhouseCoopers LLP, the Audit
Committee recommended to the Board that the audited financial statements be
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 for filing with the Securities and Exchange Commission.
The Audit Committee
Mark B. Skaletsky
Michael Summers
G. Steven Burrill
18
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and officers, and persons who own more than 10% of the Common Stock,
to file with the Securities and Exchange Commission (the "SEC") initial reports
of beneficial ownership and reports of changes in beneficial ownership of the
Common Stock and other equity securities of the Company. Officers, directors
and greater than 10% beneficial owners are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 2001 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% beneficial owners were complied with, except that (i) initial
reports of ownership were filed late by Susan K. Harlander, Ken Hunt, Jin Sun
Kim and Leroy E. Hood; (ii) one report, covering one transaction, was filed
late by John E. Hamer, and (iii) one report, covering two transactions, was
filed late by John A. Ryals.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Security for Loan to Officer
In April 2001 the Company secured a third party loan in the amount of
$70,327 to Craig Liddell. In January 2002, Dr. Liddell repaid the loan, and the
Company's security was withdrawn.
ELECTION OF DIRECTORS
(Notice Item 1)
The Company's Charter and Bylaws provide for a classified Board of
Directors. The number of members of the Company's Board of Directors is fixed
from time to time by the Board of Directors. The Board of Directors currently
consists of eight members. The Board of Directors is classified into three
classes as follows: Mark B. Skaletsky and Susan K. Harlander, Ph.D. constitute
a class with a term ending in 2004 (the "Class I directors"); G. Steven
Burrill, John A. Ryals, Ph.D. and Robert M. Goodman, Ph.D. constitute a class
with a term ending in 2003 (the "Class III directors"); and Michael Summers,
Leroy E. Hood, M.D., Ph.D. and Henri Zinsli, Ph.D. constitute a class with a
term which expires at the upcoming meeting (the "Class II directors"). At each
annual meeting of Stockholders, directors are elected for a full term of three
years to succeed those directors whose terms are expiring.
The Board of Directors has voted to set the size of the Board of Directors
at eight and to nominate Michael Summers, Leroy E. Hood, M.D., Ph.D. and Henri
Zinsli, Ph.D. for election at the Meeting for a term of three years, to serve
until the 2005 annual meeting of Stockholders, and until their respective
successors have been elected and qualified. The Class I directors (Mark B.
Skaletsky and Susan K. Harlander, and the Class III directors (G. Steven
Burrill, John A. Ryals, Ph.D. and Robert M. Goodman, Ph.D.) will serve until
the annual meetings of Stockholders to be held in 2004 and 2003, respectively,
and until their respective successors have been elected and qualified.
Unless authority to vote for any of the nominees named above is withheld,
the shares represented by the enclosed proxy will be voted FOR the election as
directors of such nominees. In the event that any nominee shall become unable
or unwilling to serve, the shares represented by the enclosed proxy will be
voted for the election of such other person as the Board of Directors may
recommend in that nominee's place. The Board has no reason to believe that any
nominee will be unable or unwilling to serve.
A plurality of the shares voted affirmatively or negatively at the Meeting
is required to elect each nominee as a director.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF MICHAEL SUMMERS, LEROY E.
HOOD, M.D., PH.D., AND HENRI ZINSLI, PH.D. AS DIRECTORS, AND PROXIES SOLICITED
BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
19
INCREASE IN THE AGGREGATE NUMBER OF SHARES
FOR WHICH STOCK OPTIONS MAY BE GRANTED UNDER THE COMPANY'S
2000 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK OPTION PLAN
(Notice Item 2)
General
The Company's Board of Directors and the Stockholders approved the 2000
Employee, Director and Consultant Stock Option Plan (the "Plan") in 2000. A
total of 1,800,000 shares of Common Stock were initially reserved for issuance
under the Plan. The Plan may be amended by the Stockholders, the Board of
Directors or the Compensation Committee of the Board of Directors, provided
that any amendment approved by the Board of Directors or the Compensation
Committee which is of a scope that requires Stockholder approval in order to
ensure favorable federal income tax treatment for any incentive stock options
under Code Section 422, is subject to obtaining such Stockholder approval. The
Board of Directors has voted to approve an amendment to the Plan to increase by
1,500,000 to 3,300,000 the aggregate number of shares of Common Stock for which
stock options may be granted under the Plan. This amendment is being submitted
for Stockholder approval at the Meeting to ensure continued qualification of
the Plan under the NASDAQ National Market System, incentive stock option rules
and Section 162(m) of the Internal Revenue Code of 1986 rules. The Board
believes that the increase is advisable to give the Company the flexibility
needed to attract, retain and motivate employees, directors and consultants.
All key employees and consultants of the Company and the members of the Board
of Directors are eligible to participate in the Plan.
Material Features of the Plan
The purpose of the Plan is to attract, retain and motivate employees,
directors and consultants through the issuance of stock options and to
encourage ownership of shares of Common Stock by employees, directors and
consultants of the Company. The Plan is administered by the Compensation
Committee. Subject to the provisions of the Plan, the Compensation Committee
determines the persons to whom options will be granted, the number of shares to
be covered by each option and the terms and conditions upon which an option may
be granted, and has the authority to administer the provisions of the Plan. All
employees, directors and consultants of the Company and its affiliates
(approximately 255 people) are eligible to participate in the Plan.
Options granted under the Plan may be either (i) options intended to qualify
as "incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), or (ii) non-qualified stock options. Incentive
stock options may be granted under the Plan only to key employees of the
Company and its affiliates. Non-qualified stock options may be granted to
consultants, directors and key employees of the Company and its affiliates.
The aggregate fair market value (determined at the time of grant) of shares
issuable pursuant to incentive stock options which become exercisable in any
calendar year under any incentive stock option plan of the Company may not
exceed $100,000 for any employee. Incentive stock options granted under the
Plan may not be granted at a price less than the fair market value of the
Common Stock on the date of grant, or 110% of fair market value in the case of
options granted to an employee holding more than 10% of the voting stock of the
Company. Incentive stock options granted under the Plan expire not more than
ten years from the date of grant, or not more than five years from the date of
grant in the case of incentive stock options granted to an employee holding
more than 10% of the voting stock of the Company. An option granted under the
Plan is exercisable, during the optionholder's lifetime, generally only by the
optionholder and is not transferable (except at the Compensation Committee's
discretion) by him or her except by will or by the laws of descent and
distribution.
An incentive stock option granted under the Plan may, at the Compensation
Committee's discretion, be exercised after the termination of the
optionholder's employment with the Company (other than by reason of death,
disability or termination for cause as defined in the Plan) to the extent
exercisable on the date of such
20
termination, at any time prior to the earlier of the option's specified
expiration date or 90 days after such termination. In granting any
non-qualified stock option, the Compensation Committee may specify that such
non-qualified stock option shall be subject to such termination or cancellation
provisions as the Compensation Committee shall determine. In the event of the
optionholder's death or disability, both incentive stock options and
non-qualified stock options generally may be exercised, to the extent
exercisable on the date of death or disability (plus a pro rata portion of the
option if the option vests periodically), by the optionholder or the
optionholder's survivors at any time prior to the earlier of the option's
specified expiration date or one year from the date of the optionholder's death
or disability. Generally, in the event of the optionholder's termination for
cause, all outstanding and unexercised options are forfeited.
If the shares of Common Stock shall be subdivided or combined into a greater
or smaller number of shares or if the Company shall issue any shares of Common
Stock as a stock dividend on its outstanding Common Stock or additional shares
or new or different shares or other securities of the Company or other non-cash
assets are distributed with respect to such shares of Common Stock, the number
of shares of Common Stock deliverable upon the exercise of an option granted
under the Plan shall be appropriately increased or decreased proportionately,
and appropriate adjustments shall be made in the purchase price per share to
reflect such subdivision, combination or stock dividend. If the Company is to
be consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Compensation Committee or the Board of Directors of any entity assuming the
obligations of the Company under the Plan (the "Successor Board"), shall, as to
outstanding options under the Plan either (i) make appropriate provision for
the continuation of such options by substituting on an equitable basis for the
shares then subject to such options the consideration payable with respect to
the outstanding shares of Common Stock in connection with the Acquisition or
securities of the successor or acquiring entity; or (ii) upon written notice to
the participants, provide that all options must be exercised (either to the
extent then exercisable or, at the discretion of the Compensation Committee,
all options being made fully exercisable for purposes of such transaction)
within a specified number of days of the date of such notice, at the end of
which period the options shall terminate; or (iii) terminate all options in
exchange for a cash payment equal to the excess of the fair market value of the
shares subject to each such option (either to the extent then exercisable or,
at the discretion of the Compensation Committee, all options being made fully
exercisable for purposes of such transaction) over the exercise price thereof.
In the event of a recapitalization or reorganization of the Company (other than
an Acquisition) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock,
an optionholder upon exercising an option under the Plan, shall be entitled to
receive for the purchase price paid upon such exercise the securities he or she
would have received if he or she had exercised such option prior to such
recapitalization or reorganization.
The Plan may be amended by the Board of Directors or the Compensation
Committee, provided that any amendment approved by the Board of Directors or
the Compensation Committee which is of a scope that requires Stockholder
approval in order to ensure favorable federal income tax treatment for any
incentive stock options under Code Section 422, is subject to obtaining such
Stockholder approval.
On February 28, 2002, the closing market price per share of the Company's
Common Stock was $1.61, as reported in the NASDAQ National Market System.
21
Federal Income Tax Considerations
The following is a description of certain United States federal income tax
consequences of the issuance and exercise of awards under the Plan:
Stock Options
Options granted under the Plan may be either incentive stock options, which
satisfy the requirements of Section 422 of the Internal Revenue Code or
non-qualified stock options, which are not intended to meet such requirements.
The federal income tax treatment for the two types of options differs as
follows:
Incentive Stock Options. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For federal tax purposes, dispositions are
divided into two categories: qualifying and disqualifying. A qualifying
disposition occurs if the sale or other disposition is made after the optionee
has held the shares for more than two years after the option grant date and
more than one year after the exercise date. If either of these two holding
periods is not satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of the amount realized
upon the sale or other disposition of the purchased shares over the exercise
price paid for those shares. If there is a disqualifying disposition of the
shares, then the excess of the fair market value of the shares on the exercise
date (or the amount realized on a disqualifying sale, if less) over the
exercise price paid for those shares will be taxable as ordinary income to the
optionee; any additional gain or loss recognized upon the disposition will be
taxable as a capital gain or loss.
Non-Qualified Stock Options. No taxable income is recognized by an optionee
upon the grant of a non-qualified stock option. The optionee will in general
recognize ordinary income, in the year in which the option is exercised, equal
to the excess of the fair market value of the purchased shares on the exercise
date over the exercise price paid for the shares, and the optionee will be
required to satisfy the tax withholding requirements applicable to such income.
The Company will generally be entitled to an income tax deduction equal to
the amount of ordinary income recognized by the optionee with respect to the
exercise of a non-qualified stock option or the disqualifying disposition of an
incentive stock option. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by the
optionee.
The affirmative vote of a majority of the votes present or represented and
entitled to vote at the Meeting is required to approve the increase in the
aggregate number of shares of Common Stock available under the Plan.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE AMENDMENT TO THE PLAN TO
INCREASE BY 1,500,000 TO 3,300,000 THE AGGREGATE NUMBER OF SHARES FOR WHICH
STOCK OPTIONS MAY BE GRANTED UNDER THE PLAN, AND PROXIES SOLICITED BY THE BOARD
WILL BE VOTED IN FAVOR OF SUCH AMENDMENT UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
22
INDEPENDENT PUBLIC ACCOUNTANTS
(Notice Item 3)
The Board of Directors has appointed PricewaterhouseCoopers LLP, independent
public accountants, to audit the financial statements of the Company for the
fiscal year ending December 31, 2002. The Board proposes that the Stockholders
ratify this appointment. PricewaterhouseCoopers LLP audited the Company's
financial statements for the fiscal year ended December 31, 2001. The Company
expects that representatives of PricewaterhouseCoopers LLP will be present at
the Meeting, with the opportunity to make a statement if they so desire, and
will be available to respond to appropriate questions.
Audit Fees
The Company paid PricewaterhouseCoopers LLP a total of $73,400 for their
audit of the Company's annual financial statements for the fiscal year ended
December 31, 2001 and for their review of the Company's Quarterly Reports on
Form 10-Q filed during the last fiscal year.
All Other Fees
During the Company's fiscal year ended December 31, 2001, the Company paid
PricewaterhouseCoopers LLP a total of $43,775 for their provision of services
(other than their audit) of the Company's financial statements. These services
included the filing of the Company's Form S-3 and tax preparation work.
Financial Information Design and Implementation
The Company did not engage PricewaterhouseCoopers, LLC to perform services
related to financial information design and implementation during the fiscal
year ended December 31, 2001.
The Audit Committee has considered whether the provision of the services
described above under the caption All Other Fees is compatible with maintaining
PricewaterhouseCoopers LLP's independence.
In the event that ratification of the appointment of PricewaterhouseCoopers
LLP as the independent public accountants for the Company is not obtained at
the Meeting, the Board of Directors will reconsider its appointment.
The affirmative vote of a majority of the shares voted affirmatively or
negatively at the Meeting is required to ratify the appointment of the
independent public accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF PRICEWATERHOUSECOOPERS, LLP AS INDEPENDENT PUBLIC ACCOUNTANTS,
AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A
STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
OTHER MATTERS
The Board of Directors knows of no other business that will be presented to
the Meeting. If any other business is properly brought before the Meeting, it
is intended that proxies in the enclosed form will be voted in respect thereof
in accordance with the judgment of the persons voting the proxies.
23
STOCKHOLDER PROPOSALS
To be considered for inclusion in the proxy statement relating to the
Company's Annual Meeting of stockholders to be held in 2003, stockholder
proposals must be received no later than December 12, 2002. To be considered
for presentation at the Annual Meeting, although not included in the proxy
statement, proposals must be received no later than February 25, 2003 and no
earlier than January 26, 2003. Proposals received after that date will not be
voted on at the Annual Meeting. If a proposal is received before that date, the
proxies that management solicits for the meeting may still exercise
discretionary voting authority on the proposal under circumstances consistent
with the proxy rules of the Securities and Exchange Commission. All stockholder
proposals should be marked for the attention of Chief Executive Officer,
Paradigm Genetics, Inc., 108 Alexander Drive, Research Triangle Park, NC 27709.
108 ALEXANDER DRIVE
RESEARCH TRIANGLE PARK, NC 27709
(919) 425-3000
APRIL 19, 2002
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2001 (other than exhibits thereto) filed with the Securities and Exchange
Commission, which provides additional information about the Company, is
available to beneficial owners of the Company's Common Stock without charge
upon written request to Investor Relations, Paradigm Genetics, Inc., 108
Alexander Drive, Research Triangle Park, NC 27709.
24
APPENDIX A
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
PARADIGM GENETICS, INC. AUDIT COMMITTEE CHARTER
I. PURPOSE
The Audit Committee shall provide assistance to the board of directors of
the Corporation (the "Board") in fulfilling their responsibility to the
shareholders, potential shareholders, and investment community relating to
corporate accounting, reporting practices of the Corporation, and the quality
and integrity of the financial reports of the Corporation. The Audit
Committee's primary duties and responsibilities are to:
. Evaluate whether management is setting the appropriate tone at the top
by communicating the importance of internal financial control and
ensuring that all individuals possess an understanding of their roles
and responsibilities.
. Oversee that management has maintained the reliability and integrity of
the accounting policies and financial reporting and disclosure practices
of the Corporation.
. Oversee that management has established and maintained processes to
assure that an adequate system of internal control is functioning within
the Corporation.
. Oversee that management has established and maintained processes to
assure compliance by the Corporation with all applicable laws,
regulations and corporate policy.
The Audit Committee will fulfill these responsibilities primarily by carrying
out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors, and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his or her independent judgment as a member of the Audit
Committee. All members of the Audit Committee shall be able to read and
understand fundamental financial statements, including a company's balance
sheet, income statement and cash flow statement, and at least one member of the
Audit Committee shall have accounting or related financial management expertise
which results in the individual's financial sophistication
The members of the Audit Committee shall be elected by the Board at the
annual organizational meeting of the Board or until their successors shall be
duly elected and qualified. Unless a Chairperson is elected by the full Board,
the members of the Audit Committee may designate a Chairperson by majority vote
of the full Audit Committee membership.
III. MEETINGS
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. As part of its job to foster open
communication, the Audit Committee should meet at least annually with
management, the director of the internal auditing department and the
independent accountants separately to discuss any matters that the Audit
Committee or each of these groups believe should be discussed privately. In
addition, the Audit Committee or at least its Chairperson should meet with the
independent accountants and management quarterly to review the Corporation's
financials consistent with Section IV.4 below.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
A-1
Documents/Reports Review
1. Review and reassess, at least annually, the adequacy of this Charter. Make
recommendations to the Board, as conditions dictate, to update this Charter.
2. Review with management and the independent accountants each 10-Q prior to
its filing and, prior to the release of earnings, including a discussion
with the independent accountants of the matters required to be discussed by
SAS No. 61. The Chairperson of the Audit Committee may represent the entire
Audit Committee for purposes of this review.
3. Review with management and the independent accountants the Corporation's
annual financial statements, including a discussion with the independent
accountants of the matters required to be discussed by Statement of Auditing
Standards No. 61 ("SAS No. 61").
General
. Review significant accounting and reporting issues, including recent
professional and regulatory pronouncements, and understand their impact
on the financial statements; and
. Ask management and the internal and external auditors about significant
risks and exposures and the plans to minimize such risks.
Annual Financial Statements
. Review the annual financial statements and determine whether they are
complete and consistent with the information known to committee members,
and assess whether the financial statements reflect appropriate
accounting principles;
. Pay particular attention to complex and/or unusual transactions such as
restructuring charges and derivative disclosures;
. Focus on judgmental areas such as those involving valuation of assets
and liabilities, including, for example, the accounting for and
disclosure of obsolete or slow-moving inventory; loan losses; warranty,
product, and environmental liability; litigation reserves; and other
commitments and contingencies;
. Meet with management and the external auditors to review the financial
statements and the result of the audit;
. Consider management's handling of proposed audit adjustments identified
by the external auditors;
. Review the MD&A and other sections of the annual report before its
release and consider whether the information is adequate and consistent
with members' knowledge about the company and its operations; and
. Ensure that the external auditors communicate certain required matters
to the committee.
Independent Accountants
4. External Audit
. Review the external auditors' proposed audit scope and approach;
. Review the performance of the external auditors and recommend to the
board of directors the appointment or discharge of the external
auditors; and
. Review and confirm the independence of the external auditors by
reviewing the nonaudit services provided and the auditors' assertion of
their independence in accordance with professional standards.
A-2
Other Responsibilities
5. Meet with the external auditors and management in separate executive
sessions to discuss any matters that the committee or these groups believe
should be discussed privately.
6. Ensure that significant findings and recommendations made by the external
auditors are received and discussed on a timely basis.
7. Review, with the company's counsel, any legal matters that could have a
significant impact on the company's financial statements.
8. Perform other oversight functions as requested by the full board.
9. Review and update the charter; receive approval of changes from the board.
A-3
APPENDIX B
2000 STOCK OPTION PLAN INCLUDING PROPOSED SHARE INCREASE
PARADIGM GENETICS, INC.
2000 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK OPTION PLAN
1. DEFINITIONS.
-----------
Unless otherwise specified or unless the context otherwise requires, the
following terms, as used in this PARADIGM GENETICS, INC. 2000 Employee,
Director and Consultant Stock Option Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated
-------------
power to act on its behalf to the Committee, in which case the
Administrator means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of
---------
the Code, is a parent or subsidiary of the Company, direct or
indirect.
Board of Directors means the Board of Directors of the Company.
------------------
Code means the United States Internal Revenue Code of 1986, as
----
amended.
Committee means the committee of the Board of Directors to which the
---------
Board of Directors has delegated power to act under or pursuant to the
provisions of the Plan.
Common Stock means shares of the Company's common stock, $.01 par
------------
value per share.
Company means PARADIGM GENETICS, INC., a North Carolina corporation.
-------
Disability or Disabled means permanent and total disability as defined
---------- --------
in Section 22(e)(3) of the Code.
Fair Market Value of a Share of Common Stock means:
-----------------
(1) If the Common Stock is listed on a national securities exchange
or traded in the over-the-counter market and sales prices are
regularly reported for the Common Stock, the closing or last price of
the Common Stock on the Composite Tape or other comparable reporting
system for the trading day immediately preceding the applicable date;
(2) If the Common Stock is not traded on a national securities
exchange but is traded on the over-the-counter market, if sales prices
are not regularly reported for the Common Stock for the trading day
referred to in clause (1), and if bid and asked prices for the Common
Stock are regularly reported, the mean between the bid and the asked
price for the Common Stock at the close of trading in the
over-the-counter market for the trading day on which Common Stock was
traded immediately preceding the applicable date; and
(3) If the Common Stock is neither listed on a national securities
exchange nor traded in the over-the-counter market, such value as the
Administrator, in good faith, shall determine.
ISO means an option meant to qualify as an incentive stock option
---
under Section 422 of the Code.
Key Employee means an employee of the Company or of an Affiliate
------------
(including, without limitation, an employee who is also serving as an
officer or director of the Company or of an Affiliate), designated by
the Administrator to be eligible to be granted one or more Options
under the Plan.
Non-Qualified Option means an option which is not intended to qualify
--------------------
as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
------
Option Agreement means an agreement between the Company and a
----------------
Participant delivered pursuant to the Plan, in such form as the
Administrator shall approve.
Participant means a Key Employee, director or consultant to whom one
-----------
or more Options are granted under the Plan. As used herein,
"Participant" shall include "Participant's Survivors" where the
context requires.
Plan means this PARADIGM GENETICS, INC. 2000 Employee, Director and
----
Consultant Stock Option Plan.
Shares means shares of the Common Stock as to which Options have been
------
or may be granted under the Plan or any shares of capital stock into
which the Shares are changed or for which they are exchanged within
the provisions of Paragraph 3 of the Plan. The Shares issued upon
exercise of Options granted under the Plan may be authorized and
unissued shares or shares held by the Company in its treasury, or
both.
Survivors means a deceased Participant's legal representatives and/or
---------
any person or persons who acquired the Participant's rights to an
Option by will or by the laws of descent and distribution.
2
2. PURPOSES OF THE PLAN.
--------------------
The Plan is intended to encourage ownership of Shares by Key Employees and
directors of and certain consultants to the Company in order to attract such
people, to induce them to work for the benefit of the Company or of an Affiliate
and to provide additional incentive for them to promote the success of the
Company or of an Affiliate. The Plan provides for the granting of ISOs and
Non-Qualified Options.
3. SHARES SUBJECT TO THE PLAN.
--------------------------
a. The number of Shares which may be issued from time to time pursuant to
this Plan shall be 3,300,000, or the equivalent of such number of Shares after
the Administrator, in its sole discretion, has interpreted the effect of any
stock split, stock dividend, combination, recapitalization or similar
transaction in accordance with Paragraph 16 of the Plan.
b. If an Option ceases to be "outstanding", in whole or in part, the
Shares which were subject to such Option shall be available for the granting of
other Options under the Plan. Any Option shall be treated as "outstanding" until
such Option is exercised in full, or terminates or expires under the provisions
of the Plan, or by agreement of the parties to the pertinent Option Agreement.
4. ADMINISTRATION OF THE PLAN.
--------------------------
The Administrator of the Plan will be the Board of Directors, except to
the extent the Board of Directors delegates its authority to the Committee, in
which case the Committee shall be the Administrator. Subject to the provisions
of the Plan, the Administrator is authorized to:
a. Interpret the provisions of the Plan or of any Option or Option
Agreement and to make all rules and determinations which it deems
necessary or advisable for the administration of the Plan;
b. Determine which employees of the Company or of an Affiliate shall be
designated as Key Employees and which of the Key Employees, directors
and consultants shall be granted Options;
c. Determine the number of Shares for which an Option or Options shall
be granted, provided, however, that in no event shall Options to
purchase more than 500,000 Shares be granted to any Participant in
any fiscal year; and
d. Specify the terms and conditions upon which an Option or Options may
be granted;
provided, however, that all such interpretations, rules, determinations, terms
and conditions shall be made and prescribed in the context of preserving the tax
status under Section 422 of the Code
3
of those Options which are designated as ISOs. Subject to the foregoing, the
interpretation and construction by the Administrator of any provisions of the
Plan or of any Option granted under it shall be final, unless otherwise
determined by the Board of Directors, if the Administrator is the Committee.
5. ELIGIBILITY FOR PARTICIPATION.
-----------------------------
The Administrator will, in its sole discretion, name the Participants in
the Plan, provided, however, that each Participant must be a Key Employee,
director or consultant of the Company or of an Affiliate at the time an Option
is granted. Notwithstanding the foregoing, the Administrator may authorize the
grant of an Option to a person not then an employee, director or consultant of
the Company or of an Affiliate; provided, however, that the actual grant of such
Option shall be conditioned upon such person becoming eligible to become a
Participant at or prior to the time of the delivery of the Option Agreement
evidencing such Option. ISOs may be granted only to Key Employees. Non-Qualified
Options may be granted to any Key Employee, director or consultant of the
Company or an Affiliate. The granting of any Option to any individual shall
neither entitle that individual to, nor disqualify him or her from,
participation in any other grant of Options.
6. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
Each Option shall be set forth in writing in an Option Agreement, duly
executed by the Company and, to the extent required by law or requested by the
Company, by the Participant. The Administrator may provide that Options be
granted subject to such terms and conditions, consistent with the terms and
conditions specifically required under this Plan, as the Administrator may deem
appropriate including, without limitation, subsequent approval by the
shareholders of the Company of this Plan or any amendments thereto.
A. Non-Qualified Options: Each Option intended to be a Non-Qualified
---------------------
Option shall be subject to the terms and conditions which the
Administrator determines to be appropriate and in the best interest
of the Company, subject to the following minimum standards for any
such Non-Qualified Option:
a. Option Price: Each Option Agreement shall state the option price
(per share) of the Shares covered by each Option, which option
price shall be determined by the Administrator but shall not be
less than the par value per share of Common Stock;
b. Each Option Agreement shall state the number of Shares to which
it pertains;
c. Each Option Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be
exercised, and may provide that the Option rights accrue or
become exercisable in
4
installments over a period of months or years, or upon the
occurrence of certain conditions or the attainment of stated
goals or events; and
d. Exercise of any Option may be conditioned upon the Participant's
execution of a Share purchase agreement in form satisfactory to
the Administrator providing for certain protections for the
Company and its other shareholders, including requirements that:
i. The Participant's or the Participant's Survivors' right to
sell or transfer the Shares may be restricted; and
ii. The Participant or the Participant's Survivors may be
required to execute letters of investment intent and must
also acknowledge that the Shares will bear legends noting
any applicable restrictions.
B. ISOs: Each Option intended to be an ISO shall be issued only to a Key
----
Employee and be subject to the following terms and conditions, with
such additional restrictions or changes as the Administrator
determines are appropriate but not in conflict with Section 422 of
the Code and relevant regulations and rulings of the Internal Revenue
Service:
a. Minimum standards: The ISO shall meet the minimum standards
required of Non-Qualified Options, as described in Paragraph 6(A)
above, except clause (a) thereunder.
b. Option Price: Immediately before the Option is granted, if the
Participant owns, directly or by reason of the applicable
attribution rules in Section 424(d) of the Code:
i. Ten percent (10%) or less of the total combined voting power
-------
of all classes of share capital of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred percent
(100%) of the Fair Market Value per share of the Shares on
the date of the grant of the Option.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, the Option price per share of the Shares covered
by each Option shall not be less than one hundred ten
percent (110%) of the said Fair Market Value on the date of
grant.
c. Term of Option: For Participants who own
i. Ten percent (10%) or less of the total combined voting power
-------
of all classes of share capital of the Company or an
Affiliate, each Option shall terminate not more than ten
(10) years from the date
5
of the grant or at such earlier time as the Option Agreement
may provide.
ii. More than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or an
Affiliate, each Option shall terminate not more than five
(5) years from the date of the grant or at such earlier time
as the Option Agreement may provide.
d. Limitation on Yearly Exercise: The Option Agreements shall
restrict the amount of Options which may be exercisable in any
calendar year (under this or any other ISO plan of the Company or
an Affiliate) so that the aggregate Fair Market Value (determined
at the time each ISO is granted) of the stock with respect to
which ISOs are exercisable for the first time by the Participant
in any calendar year does not exceed one hundred thousand dollars
($100,000), provided that this subparagraph (d) shall have no
force or effect if its inclusion in the Plan is not necessary for
Options issued as ISOs to qualify as ISOs pursuant to Section
422(d) of the Code.
7. EXERCISE OF OPTIONS AND ISSUE OF SHARES.
---------------------------------------
An Option (or any part or installment thereof) shall be exercised by giving
written notice to the Company at its principal executive office address,
together with provision for payment of the full purchase price in accordance
with this Paragraph for the Shares as to which the Option is being exercised,
and upon compliance with any other condition(s) set forth in the Option
Agreement. Such written notice shall be signed by the person exercising the
Option, shall state the number of Shares with respect to which the Option is
being exercised and shall contain any representation required by the Plan or the
Option Agreement. Payment of the purchase price for the Shares as to which such
Option is being exercised shall be made (a) in United States dollars in cash or
by check, or (b) at the discretion of the Administrator, through delivery of
shares of Common Stock having a Fair Market Value equal as of the date of the
exercise to the cash exercise price of the Option, or (c) at the discretion of
the Administrator, by having the Company retain from the shares otherwise
issuable upon exercise of the Option, a number of shares having a Fair Market
Value equal as of the date of exercise to the exercise price of the Option, or
(d) at the discretion of the Administrator, by delivery of the grantee's
personal recourse note bearing interest payable not less than annually at no
less than 100% of the applicable Federal rate, as defined in Section 1274(d) of
the Code, or (e) at the discretion of the Administrator, in accordance with a
cashless exercise program established with a securities brokerage firm, and
approved by the Administrator, or (f) at the discretion of the Administrator, by
any combination of (a), (b), (c), (d) and (e) above. Notwithstanding the
foregoing, the Administrator shall accept only such payment on exercise of an
ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which
such Option was exercised to the Participant (or to the Participant's Survivors,
as the case may be). In determining what constitutes "reasonably promptly," it
is expressly understood that the delivery of the Shares may be delayed by the
Company in order to comply with any law or regulation
6
(including, without limitation, state securities or "blue sky" laws) which
requires the Company to take any action with respect to the Shares prior to
their issuance. The Shares shall, upon delivery, be evidenced by an appropriate
certificate or certificates for fully paid, non-assessable Shares.
The Administrator shall have the right to accelerate the date of exercise
of any installment of any Option; provided that the Administrator shall not
accelerate the exercise date of any installment of any Option granted to any Key
Employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to Paragraph 19) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in Paragraph
6.B.d.
The Administrator may, in its discretion, amend any term or condition of an
outstanding Option provided (i) such term or condition as amended is permitted
by the Plan, (ii) any such amendment shall be made only with the consent of the
Participant to whom the Option was granted, or in the event of the death of the
Participant, the Participant's Survivors, if the amendment is adverse to the
Participant, and (iii) any such amendment of any ISO shall be made only after
the Administrator, after consulting the counsel for the Company, determines
whether such amendment would constitute a "modification" of any Option which is
an ISO (as that term is defined in Section 424(h) of the Code) or would cause
any adverse tax consequences for the holder of such ISO.
8. RIGHTS AS A SHAREHOLDER.
-----------------------
No Participant to whom an Option has been granted shall have rights as a
shareholder with respect to any Shares covered by such Option, except after due
exercise of the Option and tender of the full purchase price for the Shares
being purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.
9. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS.
--------------------------------------------
By its terms, an Option granted to a Participant shall not be transferable
by the Participant other than (i) by will or by the laws of descent and
distribution, or (ii) as otherwise determined by the Administrator and set forth
in the applicable Option Agreement. The designation of a beneficiary of an
Option by a Participant shall not be deemed a transfer prohibited by this
Paragraph. Except as provided above, an Option shall be exercisable, during the
Participant's lifetime, only by such Participant (or by his or her legal
representative) and shall not be assigned, pledged or hypothecated in any way
(whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment,
pledge, hypothecation or other disposition of any Option or of any rights
granted thereunder contrary to the provisions of this Plan, or the levy of any
attachment or similar process upon an Option, shall be null and void.
7
10. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR DEATH OR
-------------------------------------------------------------------
DISABILITY.
----------
Except as otherwise provided in the pertinent Option Agreement, in the
event of a termination of service (whether as an employee, director or
consultant) with the Company or an Affiliate before the Participant has
exercised all Options, the following rules apply:
a. A Participant who ceases to be an employee, director or consultant of
the Company or of an Affiliate (for any reason other than termination
"for cause", Disability, or death for which events there are special
rules in Paragraphs 11, 12, and 13, respectively), may exercise any
Option granted to him or her to the extent that the Option is
exercisable on the date of such termination of service, but only within
such term as the Administrator has designated in the pertinent Option
Agreement.
b. Except as provided in Subparagraph (c) below, or Paragraph 12 or 13, in
no event may an Option Agreement provide, if the Option is intended to
be an ISO, that the time for exercise be later than three (3) months
after the Participant's termination of employment.
c. The provisions of this Paragraph, and not the provisions of Paragraph
12 or 13, shall apply to a Participant who subsequently becomes
Disabled or dies after the termination of employment, director status
or consultancy, provided, however, in the case of a Participant's
Disability or death within three (3) months after the termination of
employment, director status or consultancy, the Participant or the
Participant's Survivors may exercise the Option within one (1) year
after the date of the Participant's termination of employment, but in
no event after the date of expiration of the term of the Option.
d. Notwithstanding anything herein to the contrary, if subsequent to a
Participant's termination of employment, termination of director status
or termination of consultancy, but prior to the exercise of an Option,
the Board of Directors determines that, either prior or subsequent to
the Participant's termination, the Participant engaged in conduct which
would constitute "cause", then such Participant shall forthwith cease
to have any right to exercise any Option.
e. A Participant to whom an Option has been granted under the Plan who is
absent from work with the Company or with an Affiliate because of
temporary disability (any disability other than a permanent and total
Disability as defined in Paragraph 1 hereof), or who is on leave of
absence for any purpose, shall not, during the period of any such
absence, be deemed, by virtue of such absence alone, to have terminated
such Participant's employment, director status or consultancy with the
Company or with an Affiliate, except as the Administrator may otherwise
expressly provide.
8
f. Except as required by law or as set forth in the pertinent Option
Agreement, Options granted under the Plan shall not be affected by any
change of a Participant's status within or among the Company and any
Affiliates, so long as the Participant continues to be an employee,
director or consultant of the Company or any Affiliate.
11. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE".
--------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, the
following rules apply if the Participant's service (whether as an employee,
director or consultant) with the Company or an Affiliate is terminated "for
cause" prior to the time that all his or her outstanding Options have been
exercised:
a. All outstanding and unexercised Options as of the time the Participant
is notified his or her service is terminated "for cause" will
immediately be forfeited.
b. For purposes of this Plan, "cause" shall include (and is not limited
to) dishonesty with respect to the Company or any Affiliate,
insubordination, substantial malfeasance or non-feasance of duty,
unauthorized disclosure of confidential information, and conduct
substantially prejudicial to the business of the Company or any
Affiliate. The determination of the Administrator as to the existence
of "cause" will be conclusive on the Participant and the Company.
c. "Cause" is not limited to events which have occurred prior to a
Participant's termination of service, nor is it necessary that the
Administrator's finding of "cause" occur prior to termination. If the
Administrator determines, subsequent to a Participant's termination of
service but prior to the exercise of an Option, that either prior or
subsequent to the Participant's termination the Participant engaged in
conduct which would constitute "cause," then the right to exercise any
Option is forfeited.
d. Any definition in an agreement between the Participant and the Company
or an Affiliate, which contains a conflicting definition of "cause" for
termination and which is in effect at the time of such termination,
shall supersede the definition in this Plan with respect to such
Participant.
12. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY.
-----------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, a
Participant who ceases to be an employee, director or consultant of the Company
or of an Affiliate by reason of Disability may exercise any Option granted to
such Participant:
a. To the extent exercisable but not exercised on the date of Disability;
and
9
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights as would have
accrued had the Participant not become Disabled prior to the end of the
accrual period which next ends following the date of Disability. The
proration shall be based upon the number of days of such accrual period
prior to the date of Disability.
A Disabled Participant may exercise such rights only within the period
ending one (1) year after the date of the Participant's termination of
employment, directorship or consultancy, as the case may be, notwithstanding
that the Participant might have been able to exercise the Option as to some or
all of the Shares on a later date if the Participant had not become disabled and
had continued to be an employee, director or consultant or, if earlier, within
the originally prescribed term of the Option.
The Administrator shall make the determination both of whether Disability
has occurred and the date of its occurrence (unless a procedure for such
determination is set forth in another agreement between the Company and such
Participant, in which case such procedure shall be used for such determination).
If requested, the Participant shall be examined by a physician selected or
approved by the Administrator, the cost of which examination shall be paid for
by the Company.
13. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
---------------------------------------------------------
Except as otherwise provided in the pertinent Option Agreement, in the
event of the death of a Participant while the Participant is an employee,
director or consultant of the Company or of an Affiliate, such Option may be
exercised by the Participant's Survivors:
a. To the extent exercisable but not exercised on the date of death; and
b. In the event rights to exercise the Option accrue periodically, to the
extent of a pro rata portion of any additional rights which would have
accrued had the Participant not died prior to the end of the accrual
period which next ends following the date of death. The proration shall
be based upon the number of days of such accrual period prior to the
Participant's death.
If the Participant's Survivors wish to exercise the Option, they must take
all necessary steps to exercise the Option within one (1) year after the date of
death of such Participant, notwithstanding that the decedent might have been
able to exercise the Option as to some or all of the Shares on a later date if
he or she had not died and had continued to be an employee, director or
consultant or, if earlier, within the originally prescribed term of the Option.
14. PURCHASE FOR INVESTMENT.
-----------------------
Unless the offering and sale of the Shares to be issued upon the particular
exercise of an Option shall have been effectively registered under the
Securities Act of 1933, as now in force or
10
hereafter amended (the "1933 Act"), the Company shall be under no obligation to
issue the Shares covered by such exercise unless and until the following
conditions have been fulfilled:
a. The person(s) who exercise(s) such Option shall warrant to the Company,
prior to the receipt of such Shares, that such person(s) are acquiring
such Shares for their own respective accounts, for investment, and not
with a view to, or for sale in connection with, the distribution of any
such Shares, in which event the person(s) acquiring such Shares shall
be bound by the provisions of the following legend which shall be
endorsed upon the certificate(s) evidencing their Shares issued
pursuant to such exercise or such grant:
"The shares represented by this certificate have been taken
for investment and they may not be sold or otherwise
transferred by any person, including a pledgee, unless (1)
either (a) a Registration Statement with respect to such
shares shall be effective under the Securities Act of 1933, as
amended, or (b) the Company shall have received an opinion of
counsel satisfactory to it that an exemption from registration
under such Act is then available, and (2) there shall have
been compliance with all applicable state securities laws."
b. At the discretion of the Administrator, the Company shall have received
an opinion of its counsel that the Shares may be issued upon such
particular exercise in compliance with the 1933 Act without
registration thereunder.
15. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
-----------------------------------------
Upon the dissolution or liquidation of the Company, all Options granted
under this Plan which as of such date shall not have been exercised will
terminate and become null and void; provided, however, that if the rights of a
Participant or a Participant's Survivors have not otherwise terminated and
expired, the Participant or the Participant's Survivors will have the right
immediately prior to such dissolution or liquidation to exercise any Option to
the extent that the Option is exercisable as of the date immediately prior to
such dissolution or liquidation.
16. ADJUSTMENTS.
-----------
Upon the occurrence of any of the following events, a Participant's rights
with respect to any Option granted to him or her hereunder which has not
previously been exercised in full shall be adjusted as hereinafter provided,
unless otherwise specifically provided in the pertinent Option Agreement:
A. Stock Dividends and Stock Splits. If (i) the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, or (ii) additional shares or new or different shares
or other securities of the Company or other
11
non-cash assets are distributed with respect to such shares of Common Stock, the
number of shares of Common Stock deliverable upon the exercise of such Option
may be appropriately increased or decreased proportionately, and appropriate
adjustments may be made in the purchase price per share to reflect such events.
The number of Shares subject to the limitation in Paragraph 4(c) shall also be
proportionately adjusted upon the occurrence of such events.
B. Consolidations or Mergers. If the Company is to be consolidated with or
-------------------------
acquired by another entity in a merger, sale of all or substantially all of the
Company's assets or otherwise (an "Acquisition"), the Administrator or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such Options by substituting on an
equitable basis for the Shares then subject to such Options either the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of any successor or acquiring
entity; or (ii) upon written notice to the Participants, provide that all
Options must be exercised (either to the extent then exercisable or, at the
discretion of the Administrator, all Options being made fully exercisable for
purposes of this Subparagraph), within a specified number of days of the date of
such notice, at the end of which period the Options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess of the
Fair Market Value of the shares subject to such Options (either to the extent
then exercisable or, at the discretion of the Administrator, all Options being
made fully exercisable for purposes of this Subparagraph) over the exercise
price thereof.
C. Recapitalization or Reorganization. In the event of a recapitalization
----------------------------------
or reorganization of the Company (other than a transaction described in
Subparagraph B above) pursuant to which securities of the Company or of another
corporation are issued with respect to the outstanding shares of Common Stock, a
Participant upon exercising an Option shall be entitled to receive for the
purchase price paid upon such exercise the securities which would have been
received if such Option had been exercised prior to such recapitalization or
reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
--------------------
made pursuant to Subparagraph A, B or C with respect to ISOs shall be made only
after the Administrator, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424(h) of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Administrator
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments, unless
the holder of an ISO specifically requests in writing that such adjustment be
made and such writing indicates that the holder has full knowledge of the
consequences of such "modification" on his or her income tax treatment with
respect to the ISO.
17. ISSUANCES OF SECURITIES.
-----------------------
Except as expressly provided herein, no issuance by the Company of shares
of stock of any class, or securities convertible into shares of stock of any
class, shall affect, and no
12
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to Options. Except as expressly provided herein, no
adjustments shall be made for dividends paid in cash or in property (including
without limitation, securities) of the Company.
18. FRACTIONAL SHARES.
-----------------
No fractional shares shall be issued under the Plan and the person
exercising such right shall receive from the Company cash in lieu of such
fractional shares equal to the Fair Market Value thereof.
19. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
------------------------------------------------------------------
The Administrator, at the written request of any Participant, may in its
discretion take such actions as may be necessary to convert such Participant's
ISOs (or any portions thereof) that have not been exercised on the date of
conversion into Non-Qualified Options at any time prior to the expiration of
such ISOs, regardless of whether the Participant is an employee of the Company
or an Affiliate at the time of such conversion. Such actions may include, but
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such Options. At the time of such conversion,
the Administrator (with the consent of the Participant) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Administrator in its discretion may determine, provided that such conditions
shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to
give any Participant the right to have such Participant's ISOs converted into
Non-Qualified Options, and no such conversion shall occur until and unless the
Administrator takes appropriate action. The Administrator, with the consent of
the Participant, may also terminate any portion of any ISO that has not been
exercised at the time of such conversion.
20. WITHHOLDING.
-----------
In the event that any federal, state, or local income taxes, employment
taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other
amounts are required by applicable law or governmental regulation to be withheld
from the Participant's salary, wages or other remuneration in connection with
the exercise of an Option or a Disqualifying Disposition (as defined in
Paragraph 21), the Company may withhold from the Participant's compensation, if
any, or may require that the Participant advance in cash to the Company, or to
any Affiliate of the Company which employs or employed the Participant, the
statutory minimum amount of such withholdings unless a different withholding
arrangement, including the use of shares of the Company's Common Stock or a
promissory note, is authorized by the Administrator (and permitted by law). For
purposes hereof, the fair market value of the shares withheld for purposes of
payroll withholding shall be determined in the manner provided in Paragraph 1
above, as of the most recent practicable date prior to the date of exercise. If
the fair market value of the shares withheld is less than the amount of payroll
withholdings required, the Participant may be
13
required to advance the difference in cash to the Company or the Affiliate
employer. The Administrator in its discretion may condition the exercise of an
Option for less than the then Fair Market Value on the Participant's payment of
such additional withholding.
21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
----------------------------------------------
Each Key Employee who receives an ISO must agree to notify the Company in
writing immediately after the Key Employee makes a Disqualifying Disposition of
any shares acquired pursuant to the exercise of an ISO. A Disqualifying
Disposition is any disposition (including any sale) of such shares before the
later of (a) two years after the date the Key Employee was granted the ISO, or
(b) one year after the date the Key Employee acquired Shares by exercising the
ISO. If the Key Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
22. TERMINATION OF THE PLAN.
-----------------------
The Plan will terminate on February 28, 2010, the date which is ten (10)
years from the earlier of the date of its adoption and the date of its approval
-------
by the shareholders of the Company. The Plan may be terminated at an earlier
date by vote of the shareholders of the Company; provided, however, that any
such earlier termination shall not affect any Option Agreements executed prior
to the effective date of such termination.
23. AMENDMENT OF THE PLAN AND AGREEMENTS.
------------------------------------
The Plan may be amended by the shareholders of the Company. The Plan may
also be amended by the Administrator, including, without limitation, to the
extent necessary to qualify any or all outstanding Options granted under the
Plan or Options to be granted under the Plan for favorable federal income tax
treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code, and to the extent
necessary to qualify the shares issuable upon exercise of any outstanding
Options granted, or Options to be granted, under the Plan for listing on any
national securities exchange or quotation in any national automated quotation
system of securities dealers. Any amendment approved by the Administrator which
the Administrator determines is of a scope that requires shareholder approval
shall be subject to obtaining such shareholder approval. Any modification or
amendment of the Plan shall not, without the consent of a Participant, adversely
affect his or her rights under an Option previously granted to him or her. With
the consent of the Participant affected, the Administrator may amend outstanding
Option Agreements in a manner which may be adverse to the Participant but which
is not inconsistent with the Plan. In the discretion of the Administrator,
outstanding Option Agreements may be amended by the Administrator in a manner
which is not adverse to the Participant.
14
24. EMPLOYMENT OR OTHER RELATIONSHIP.
--------------------------------
Nothing in this Plan or any Option Agreement shall be deemed to prevent the
Company or an Affiliate from terminating the employment, consultancy or director
status of a Participant, nor to prevent a Participant from terminating his or
her own employment, consultancy or director status or to give any Participant a
right to be retained in employment or other service by the Company or any
Affiliate for any period of time.
25. GOVERNING LAW.
-------------
This Plan shall be construed and enforced in accordance with the law of the
State of North Carolina.
15
PARADIGM GENETICS, INC.
108 ALEXANDER DRIVE
RESEARCH TRIANGLE PARK, NC 27709
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 2002
PARADIGM GENETICS, INC. BOARD OF DIRECTORS SOLICITS THIS PROXY
The undersigned, revoking any previous proxies relating to these shares,
hereby acknowledges receipt of the Notice and Proxy Statement dated April 12,
2002 in connection with the Annual Meeting of Stockholders to be held at 10 a.m.
on Friday, May 17, 2002 at the offices of Paradigm Genetics, Inc., 108 Alexander
Drive, Research Triangle Park, NC 27709 and hereby appoints John Hamer, Ph.D.
and Neil H. Aronson, Esq., and each of them (with full power to act alone), the
attorneys and proxies of the undersigned, with power of substitution to each, to
vote all shares of the Common Stock of Paradigm Genetics, Inc. registered in the
name provided in this Proxy which the undersigned is entitled to vote at the
2002 Annual Meeting of Stockholders, and at any adjournments of the meeting,
with all the powers the undersigned would have if personally present at the
meeting. Without limiting the general authorization given by this Proxy, the
proxies are, and each of them is, instructed to vote or act as follows on the
proposals set forth in the Proxy.
This Proxy when executed will be voted in the manner directed herein. If no
direction is made this Proxy will be voted FOR the election of Directors and FOR
Proposals 2 and 3.
In their discretion the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournments of the
meeting.
If you wish to vote in accordance with the Board of Directors'
recommendations, just sign on the reverse side. You need not mark any boxes.
1. Election of Directors (or if any nominee is not available for election,
such substitute as the Board of Directors may designate):
Proposal to elect Michael Summers, Leroy E. Hood, Ph.D. and Henri Zinsli,
Ph.D. as Directors of the Company.
Michael Summers [ ] FOR [ ] WITHHOLD VOTE
Leroy E. Hood, Ph.D. [ ] FOR [ ] WITHHOLD VOTE
Henri Zinsli, Ph.D. [ ] FOR [ ] WITHHOLD VOTE
2. Proposal to increase by 1,500,000 to 3,300,000, the aggregate number of
shares for which stock options may be granted under the Company's 2000 Stock
Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to ratify the appointment of PriceWaterhouseCoopers LLP as the
Company's independent public accountants for the fiscal year ending December 31,
2002.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
[X] Please mark votes as in this example.
The Board of Directors recommends a vote FOR Proposals 1, 2 and 3.
Please sign exactly as name(s) appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title
as such.
Signature: Date
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Signature: Date
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PLEASE CAST YOUR VOTE AS SOON AS POSSIBLE!