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SCHEDULE 14A INFORMATION
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
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
GENE LOGIC INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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GENE LOGIC INC.
708 QUINCE ORCHARD ROAD
GAITHERSBURG, MARYLAND 20878
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 8, 1999
TO THE STOCKHOLDERS OF GENE LOGIC INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
GENE LOGIC INC., a Delaware corporation (the "Company"), will be held on
Tuesday, June 8, 1999 at 3:00 p.m. local time at the Company's executive
offices, 708 Quince Orchard Road, Gaithersburg, Maryland 20878, for the
following purpose:
1. To elect two directors to hold office until the 2002 Annual Meeting
of Stockholders.
2. To approve the Company's 1997 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized
for issuance under such plan by 1,000,000 shares.
3. To approve the Company's 1997 Non-Employee Directors' Stock Option
Plan, as amended, to increase the aggregate number of shares of
Common Stock authorized for issuance under such plan by 200,000
shares and to increase the number of shares underlying the options
which are automatically granted each year to each non-employee
director by 7,500 shares.
4. To ratify the selection of Arthur Andersen LLP as independent
auditors of the Company for its fiscal year ending December 31, 1999.
5. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 23,
1999, as the record date for the determination of stockholders entitled to
notice of and to vote at this Annual Meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors
/s/ MARK D. GESSLER
Mark D. Gessler
President, Chief Operating Officer,
Chief Financial Officer
and Secretary
Gaithersburg, Maryland
May 6, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN
PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE
YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID
IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
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GENE LOGIC INC.
708 Quince Orchard Road
Gaithersburg, Maryland 20878
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 8, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors
of GENE LOGIC INC., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on June 8, 1999, at 3:00 p.m. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at the Company's executive offices, 708 Quince
Orchard Road, Gaithersburg, Maryland 20878. The Company intends to mail this
proxy statement and accompanying proxy card on or about May 6, 1999 to all
stockholders entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company or, at the Company's request, ChaseMellon Shareholder Services, L.L.C.
No additional compensation will be paid to directors, officers or other regular
employees for such services, but ChaseMellon Shareholder Services, L.L.C. will
be paid its customary fee, estimated to be about $6,500, if it renders
solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
April 23, 1999 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on April 23, 1999 the Company had outstanding and
entitled to vote 19,783,358 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled
to one vote for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election appointed
for the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office, 708
Quince Orchard Road, Gaithersburg, Maryland 20878, written notice of revocation
or a duly executed proxy bearing a later date, or it may be revoked by attending
the meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
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STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in
the Company's proxy statement and form of proxy for the Company's 2000 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is January 7, 2000. Unless a stockholder who wishes to bring a matter
before the stockholders at the Company's 2000 annual meeting of stockholders
notifies the Company of such matter prior to March 22, 2000, management will
have discretionary authority to vote all shares for which it has proxies in
opposition to such matter.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation and
By-laws provide that the Board of Directors shall be divided into three classes,
each class consisting, as nearly as possible, of one-third of the total number
of directors, with each class having a three-year term. Vacancies on the Board
may be filled only by persons elected by a majority of the remaining directors.
A director elected by the Board to fill a vacancy (including a vacancy created
by an increase in the Board of Directors) shall serve for the remainder of the
full term of the class of directors in which the vacancy occurred and until such
director's successor is elected and qualified.
The Board of Directors is presently composed of six members. There
are two directors in the class whose term of office expires in 1999. Each of the
nominees for election to this class is currently a director of the Company who
was previously elected by the stockholders. If elected at the Annual Meeting,
each of the nominees would serve until the 2002 annual meeting of stockholders
and until his or her successor is elected and has qualified, or until such
director's earlier death, resignation or removal.
Directors are elected by a plurality of the votes present in person
or represented by proxy and entitled to vote at the meeting. Shares represented
by executed proxies will be voted, if authority to do so is not withheld, for
the election of the two nominees named below. In the event that any nominee
should be unavailable for election as a result of an unexpected occurrence, such
shares will be voted for the election of such substitute nominee as management
may propose. Each person nominated for election has agreed to serve if elected,
and management has no reason to believe that any nominee will be unable to
serve.
The following table sets forth the names of the Board of Directors'
nominees for election as directors and those directors who will continue to
serve after the Annual Meeting. Also set forth is certain other information with
respect to each such person's age, the periods during which he has served as a
director and positions currently held with the Company.
DIRECTOR EXPIRATION OF PRINCIPAL OCCUPATION/
NOMINEES FOR A THREE-YEAR TERM AGE SINCE TERM POSITIONS HELD WITH THE COMPANY
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Jeffrey D. Sollender 39 1997 1999 Director
Alan G. Walton, Ph.D., D.Sc.(2) 63 1994 1999 Chairman of the Board of Directors
CONTINUING DIRECTORS
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Charles L. Dimmler III(1)(2) 57 1996 2000 Director
G. Anthony Gorry, Ph.D. 58 1997 2000 Director
Jules Blake, Ph.D.(1)(2) 74 1994 2001 Director
Michael J. Brennan, M.D., Ph.D. 41 1995 2001 Chief Executive Officer and Director
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(1) Member of Audit Committee.
(2) Member of Compensation Committee.
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Set forth below is biographical information for each person nominated
and each person whose term of office as a director will continue after the
Annual Meeting.
NOMINEES FOR ELECTION FOR A TERM EXPIRING AT THE 2002 ANNUAL MEETING OF
STOCKHOLDERS
JEFFREY D. SOLLENDER. Mr. Sollender has served as a director of the
Company since July 1997. Mr. Sollender is a founder of and advisor to
Biotechvest L.P., a venture capital investment firm formed in 1993. From 1994
through December 1995, Mr. Sollender served as an advisor to Forward Ventures, a
venture capital investment firm. Mr. Sollender became a venture partner of
Forward Ventures in 1996 and a general partner in September 1997. Mr. Sollender
co-founded Triangle Pharmaceuticals, Inc., a biopharmaceutical company, in 1995,
CombiChem Inc., a combinatorial chemistry company, in 1994 and GenQuest, Inc., a
functional genomics company, in 1995. He served as Vice President of Operations
and Business Development for CombiChem Inc. and GenQuest, Inc. until January
1995 and February 1996, respectively. Mr. Sollender co-founded AriZeke
Pharmaceuticals, an oral drug delivery company, in 1997 and continues to serve
as Chairman and Chief Executive Officer of the company. Mr. Sollender received
his MBA from the University of Chicago Graduate School of Business.
ALAN G. WALTON, PH.D., D.SC. Dr. Walton has served as Chairman of the
Board of Directors of the Company since its inception in September 1994. He has
been a General Partner of Oxford Bioscience Partners, a private equity
investment firm, since 1991 and a member of the Board of Directors of
Collaborative Clinical Research since 1994 and Alexandria Real Estate Equities,
Inc., a public company, since 1998. In 1981, Dr. Walton co-founded University
Genetics Co., a public corporation specializing in technology transfer from
academic institutions to industry and in the seed financing of high-technology
start-ups, and served as President and Chief Executive Officer until 1987. He
has lectured extensively at various universities, including Harvard Medical
School, Indiana University and Case Western Reserve University where he was
Professor of Macromolecular Science and Director of the Laboratory for
Biological Macromolecules. Dr. Walton received a Ph.D. in chemistry and a D.Sc.
in biological chemistry from Nottingham University, England.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING OF STOCKHOLDERS
CHARLES L. DIMMLER III. Mr. Dimmler has served as a director of the
Company since May 1996. Since 1994, Mr. Dimmler has been an investment officer
of Cross Atlantic Partners Funds, an equity investment firm, and an operating
officer of Cross Atlantic Partners, Inc. (formerly Hambro Health International,
Inc.), an affiliate of Hambros Bank Limited, a global merchant bank based in
London. From 1988 to 1998, Mr. Dimmler was a General Partner of Hambro
International Equity Partners, an equity investment firm. Mr. Dimmler serves as
a director of SunPharm Corporation, a public company, and various private
companies. He holds an honors degree from the University of California at Davis.
G. ANTHONY GORRY, PH.D. Dr. Gorry has served as a director of the
Company since January 1997. Since April 1992, Dr. Gorry has been Vice President
for Information Technology and Professor of Computer Science at Rice University.
From 1975 to April 1992, he served as Vice President for Information Technology
and Professor of Medical Informatics and Neuroscience at Baylor College of
Medicine, as well as Director of the W.M. Keck Center for Computational Biology
and Adjunct Professor of Computer Science at Rice University. Dr. Gorry holds an
M.S. in chemical engineering from the University of California at Berkeley and a
Ph.D. in computer science from Massachusetts Institute of Technology. He is a
fellow of the American College of Medical Informatics and a member of the
Institute of Medicine and of the National Academy of Sciences.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING OF STOCKHOLDERS
JULES BLAKE, PH.D. Dr. Blake has served as a director of the Company
since its inception in September 1994. From 1973 until his retirement in 1989,
Dr. Blake served as Vice President of Research and Development and Vice
President, Corporate Scientific Affairs, for Colgate-Palmolive, Inc., a consumer
products company. Dr. Blake
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was appointed as an Industrial Research Institute Fellow at the United States
Office of Science and Technology Policy, Executive Office of the President,
where he served until 1991. Dr. Blake serves on the boards of directors of the
public companies Martek Biosciences Corporation and ProCyte Corporation. Dr.
Blake holds a Ph.D. in organic chemistry from the University of Pennsylvania.
MICHAEL J. BRENNAN, M.D., PH.D. Dr. Brennan has served as a director
and Chief Executive Officer of the Company since December 1995. From December
1995 to January 1999, Dr. Brennan served as President of the Company. From
October 1993 to November 1995, he was Vice President, Business Development for
Corange International Limited's worldwide therapeutics business, Boehringer
Mannheim Therapeutics. From June 1990 to October 1993, Dr. Brennan was a
director and the general manager of Boehringer Mannheim, South Africa. Dr.
Brennan received a Ph.D. in neurobiology and an M.D. from the University of
Witwatersrand, Johannesburg, South Africa. In 1985, he completed his residency
in neurology at Boston City Hospital.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998, the Board of
Directors held eight meetings. The Board has an Audit Committee and a
Compensation Committee.
The Audit Committee meets with the Company's independent auditors at
least annually to review the results of the annual audit and discuss the
financial statements; recommends to the Board the independent auditors to be
retained; and receives and considers the accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. The Audit Committee is composed of two
non-employee directors: Dr. Blake and Mr. Dimmler. It met TWO times during such
fiscal year.
The Compensation Committee makes recommendations concerning salaries
and incentive compensation, awards stock options to employees and consultants
under the Company's stock option plans and otherwise determines compensation
levels and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of three non-employee
directors: Dr. Walton, Dr. Blake and Mr. Dimmler. It met four times during such
fiscal year.
During the fiscal year ended December 31, 1998, each Board member
attended 75% or more of the aggregate of the meetings of the Board and of the
committees on which he served, held during the period for which he was a
director or committee member, respectively.
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PROPOSAL 2
APPROVAL OF AMENDMENT TO THE 1997 EQUITY INCENTIVE PLAN
In September 1997, the Board adopted, and the stockholders
subsequently approved, the Company's 1997 Equity Incentive Plan (the "Incentive
Plan"), which was an amended and restated version of the Company's 1996 Stock
Plan.
In March 1999, the Board amended the Incentive Plan, subject to
stockholder approval, to increase the number of shares of Common Stock
authorized for issuance under the Incentive Plan from a total of 6,100,000
shares to a total of 7,100,000 shares. The Board adopted this amendment in order
to ensure that the Company can continue to grant stock options at levels
determined appropriate by the Board.
As of April 8, 1999 awards (net of canceled or expired awards)
covering an aggregate of 4,509,474 shares of the Company's Common Stock had been
granted under the Incentive Plan. Only 1,590,526 shares of Common Stock (plus
any shares that might in the future be returned to the Incentive Plan as a
result of cancellations or expiration of awards or the reacquisition by the
Company of issued shares) remained available for future grant under the
Incentive Plan.
Stockholders are requested in this Proposal 2 to approve the
amendment to the Incentive Plan. The affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled to
vote at the meeting will be required to approve the amendment to the Incentive
Plan. Abstentions will be counted toward the tabulation of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Incentive Plan are outlined below:
GENERAL
The Incentive Plan provides for the grant of incentive stock options,
nonstatutory stock options, stock bonuses and restricted stock purchase awards
(collectively "awards"). Incentive stock options granted under the Incentive
Plan are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Nonstatutory stock options granted under the Incentive Plan are not intended to
qualify as incentive stock options under the Code. See "Federal Income Tax
Information" for a discussion of the tax treatment of awards.
PURPOSE
The Board adopted the Incentive Plan to provide a means by which
employees, directors and consultants of the Company and its affiliates may be
given an opportunity to purchase stock in the Company, to assist in retaining
the services of such persons, to secure and retain the services of persons
capable of filling such positions and to provide incentives for such persons to
exert maximum efforts for the success of the Company and its affiliates. As of
April 8, 1999, all of the employees, directors and consultants of the Company
and its affiliates are eligible to participate in the Incentive Plan.
ADMINISTRATION
The Board administers the Incentive Plan. Subject to the provisions
of the Incentive Plan, the Board has the power to construe and interpret the
Incentive Plan and to determine the persons to whom and the dates on which
awards will be granted, the number of shares of Common Stock to be subject to
each award, the time or times during
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the term of each award within which all or a portion of such award may be
exercised, the exercise price, the type of consideration and other terms of the
award.
The Board has the power to delegate administration of the Incentive
Plan to a committee composed of not fewer than two members of the Board. In the
discretion of the Board, a committee may consist solely of two or more outside
directors in accordance with Section 162(m) of the Code or solely of two or more
non-employee directors in accordance with Rule 16b-3 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Board has delegated
administration of the Incentive Plan to the Compensation Committee of the Board.
As used herein with respect to the Incentive Plan, the "Board" refers to any
committee the Board appoints as well as to the Board itself.
The regulations under Section 162(m) of the Code require that the
directors who serve as members of the committee must be "outside directors." The
Incentive Plan provides that, in the Board's discretion, directors serving on
the committee may be "outside directors" within the meaning of Section 162(m).
This limitation would exclude from the committee directors who are (i) current
employees of the Company or an affiliate, (ii) former employees of the Company
or an affiliate receiving compensation for past services (other than benefits
under a tax-qualified pension incentive plan), (iii) current and former officers
of the Company or an affiliate, (iv) directors currently receiving direct or
indirect remuneration from the Company or an affiliate in any capacity (other
than as a director), and (v) any other person who is otherwise considered an
"outside director" for purposes of Section 162(m). The definition of an "outside
director" under Section 162(m) is generally narrower than the definition of a
"non-employee director" under Rule 16b-3 of the Exchange Act.
ELIGIBILITY
Incentive stock options may be granted under the Incentive Plan only
to employees (including officers) of the Company and its affiliates. Employees
(including officers), directors and consultants of both the Company and its
affiliates are eligible to receive all other types of awards under the Incentive
Plan.
No incentive stock option may be granted under the Incentive Plan to
any person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any affiliate of the Company, unless the exercise price
is at least 110% of the fair market value of the stock subject to the option on
the date of grant and the term of the option does not exceed five years from the
date of grant. In addition, the aggregate fair market value, determined at the
time of grant, of the shares of Common Stock with respect to which incentive
stock options are exercisable for the first time by a participant during any
calendar year (under the Incentive Plan and all other such plans of the Company
and its affiliates) may not exceed $100,000.
No person may be granted options, stock bonuses or the right to
purchase restricted stock under the Incentive Plan exercisable for more than
700,000 shares of Common Stock in any calendar year ("Section 162(m)
Limitation").
STOCK SUBJECT TO THE INCENTIVE PLAN
Subject to stockholder approval of this Proposal, an aggregate of
7,100,000 shares of Common Stock will be reserved for issuance under the
Incentive Plan. If awards granted under the Incentive Plan expire or otherwise
terminate without being exercised, the shares of Common Stock not acquired
pursuant to such awards again become available for issuance under the Incentive
Plan. If the Company reacquires unvested stock issued under the Incentive Plan,
the reacquired stock will again become available for reissuance under the
Incentive Plan for awards other than incentive stock options.
TERMS OF OPTIONS
The following is a description of the permissible terms of options
under the Incentive Plan. Individual option grants may be more restrictive as to
any or all of the permissible terms described below.
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Exercise Price; Payment. The exercise price of incentive stock
options may not be less than 100% of the fair market value of the stock subject
to the option on the date of the grant and, in some cases (see "Eligibility"
above), may not be less than 110% of such fair market value. The exercise price
of nonstatutory options may not be less than 85% of the fair market value of the
stock on the date of grant and, in some cases (see "Eligibility" above), may not
be less than 110% of such fair market value. If options were granted with
exercise prices below market value, deductions for compensation attributable to
the exercise of such options could be limited by Section 162(m) of the Code (see
"Federal Income Tax Information" below). As of April 8, 1999, the closing price
of the Company's Common Stock as reported on the Nasdaq National Market System
was $5.188 per share.
The exercise price of options granted under the Incentive Plan must
be paid either in cash at the time the option is exercised or at the discretion
of the Board, (i) by delivery of other Common Stock of the Company, (ii)
pursuant to a deferred payment or other arrangement or (iii) in any other form
of legal consideration acceptable to the Board.
Option Exercise. Options granted under the Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. Shares
covered by currently outstanding options under the Incentive Plan typically vest
monthly over a period of four years during the participant's employment by, or
service as a director or consultant to, the Company or an affiliate
(collectively, "service"). Shares covered by options granted in the future under
the Incentive Plan may be subject to different vesting terms. The Board has the
power to accelerate the time during which an option may vest or be exercised. In
addition, options granted under the Incentive Plan may permit exercise prior to
vesting, but in such event the Company shall be able to repurchase unvested
shares, generally at their exercise price, should the participant's service
terminate before vesting. To the extent provided by the terms of an option, a
participant may satisfy any federal, state or local tax withholding obligation
relating to the exercise of such option by a cash payment upon exercise, by
authorizing the Company to withhold a portion of the stock otherwise issuable to
the participant, by delivering already-owned Common Stock of the Company or by a
combination of these means.
Term. The maximum term of options under the Incentive Plan is 10
years, except that in certain cases (see "Eligibility" above) the maximum term
is five years. Options under the Incentive Plan generally terminate three months
after termination of the participant's service unless (i) such termination is
due to the participant's disability, in which case the option may, but need not,
provide that it may be exercised (to the extent the option was exercisable at
the time of the termination of service) at any time within 12 months of such
termination; (ii) the participant dies before the participant's service has
terminated, or within three months after termination of such service, in which
case the option may, but need not, provide that it may be exercised (to the
extent the option was exercisable at the time of the participant's death) within
18 months of the participant's death by the person or persons to whom the rights
to such option pass by will or by the laws of descent and distribution; or (iii)
the option by its terms specifically provides otherwise. A participant may
designate a beneficiary who may exercise the option following the participant's
death. Individual option grants by their terms may provide for exercise within a
longer period of time following termination of service.
TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK
Payment. The Board determines the purchase price under a restricted
stock purchase agreement, but the purchase price may not be less than 85% of the
fair market value of the Company's Common Stock on the date of grant. The Board
may award stock bonuses in consideration of past services without a purchase
payment.
The purchase price of stock acquired pursuant to a restricted stock
purchase agreement under the Incentive Plan must be paid either in cash at the
time the option is exercised or at the discretion of the Board, (i) pursuant to
a deferred payment or other arrangement or (ii) in any other form of legal
consideration acceptable to the Board.
Vesting. Shares of stock sold or awarded under the Incentive Plan
may, but need not be, subject to a repurchase option in favor of the Company in
accordance with a vesting schedule as determined by the Board. The Board has the
power to accelerate the vesting of stock acquired pursuant to a restricted stock
purchase agreement under the Incentive Plan.
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Restrictions on Transfer. Rights under a stock bonus or restricted
stock bonus agreement may not be transferred except by will or the laws of
descent and distribution, or, if expressly authorized by the terms of the
applicable stock bonus or restricted stock purchase agreement, pursuant to a
domestic relations order satisfying the requirements of Rule 16b-3.
RESTRICTIONS ON TRANSFER
The participant may not transfer an incentive stock option otherwise
than by will or by the laws of descent and distribution. During the lifetime of
the participant, only the participant may exercise an incentive stock option.
The Board may grant nonstatutory stock options that are transferable. Shares
subject to repurchase by the Company may be subject to restrictions on transfer
that the Board deems appropriate.
ADJUSTMENT PROVISIONS
Transactions not involving receipt of consideration by the Company,
such as a merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company, may change the class and number of shares of
Common Stock subject to the Incentive Plan and outstanding awards. In that
event, the Incentive Plan will be appropriately adjusted as to the class and the
maximum number of shares of Common Stock subject to the Incentive Plan, the
Section 162(m) Limitation and outstanding awards will be adjusted as to the
class, number of shares and price per share of Common Stock subject to such
awards.
EFFECT OF CERTAIN CORPORATE EVENTS
The Incentive Plan provides that, in the event of a dissolution,
liquidation or sale of substantially all of the assets of the Company, specified
types of merger or other corporate reorganization ("change in control"), any
surviving corporation will be required to either assume awards outstanding under
the Incentive Plan or substitute similar awards for those outstanding under the
Incentive Plan. If any surviving corporation declines to assume awards
outstanding under the Incentive Plan, or to substitute similar awards, then,
with respect to participants whose service has not terminated, the vesting and
the time during which such awards may be exercised will be accelerated, and such
awards will terminate if the participant does not exercise them before a change
in control. In the event that any person who was providing services as an
employee, director or consultant immediately prior to the consummation of a
change of control is terminated other than for cause within 12 months following
such change of control, any stock awards held by such persons shall immediately
become vested and exercisable or free from repurchase rights. The acceleration
of an award in the event of an acquisition or similar corporate event may be
viewed as an anti-takeover provision, which may have the effect of discouraging
a proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Incentive Plan without
stockholder approval or ratification at any time. Unless sooner terminated, the
Incentive Plan will terminate on September 29, 2007.
The Board may also amend the Incentive Plan at any time or from time
to time. However, no amendment will be effective unless approved by the
stockholders of the Company if such modification requires stockholder approval
in order to comply with Rule 16b-3 of the Exchange Act or satisfy the
requirements of Section 422 of the Code or any securities exchange listing
requirements. The Board may submit any other amendment to the Incentive Plan for
stockholder approval, including, but not limited to, amendments intended to
satisfy the requirements of Section 162(m) of the Code regarding the exclusion
of performance-based compensation from the limitation on the deductibility of
compensation paid to certain employees.
8.
11
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax
rates than ordinary income or short-term capital gains. The maximum long-term
capital gains rate for federal income tax purposes is currently 20% while the
maximum ordinary income rate and short-term capital gains rate is effectively
39.6%. Slightly different rules may apply to participants who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
Incentive Stock Options. Incentive stock options under the Incentive
Plan are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the
participant or the Company by reason of the grant or exercise of an incentive
stock option. However, the exercise of an incentive stock option may increase
the participant's alternative minimum tax liability, if any.
If a participant holds stock acquired through exercise of an
incentive stock option for at least two years from the date on which the option
is granted and at least one year from the date on which the shares are
transferred to the participant upon exercise of the option, any gain or loss on
a disposition of such stock will be a long-term capital gain or loss.
Generally, if the participant disposes of the stock before the
expiration of either of these holding periods (a "disqualifying disposition"),
then at the time of disposition the participant will realize taxable ordinary
income equal to the lesser of (i) the excess of the stock's fair market value on
the date of exercise over the exercise price, or (ii) the participant's actual
gain, if any, on the purchase and sale. The participant's additional gain or any
loss upon the disqualifying disposition will be a capital gain or loss, which
will be long-term or short-term depending on whether the stock was held for more
than one year.
To the extent the participant recognizes ordinary income by reason of
a disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options, Restricted Stock Purchase Awards and
Stock Bonuses. Nonstatutory stock options, restricted stock purchase awards and
stock bonuses granted under the Incentive Plan generally have the following
federal income tax consequences:
There are no tax consequences to the participant or the Company by
reason of the grant. Upon acquisition of the stock, the participant normally
will recognize taxable ordinary income equal to the excess, if any, of the
stock's fair market value on the acquisition date over the purchase price.
However, to the extent the stock is subject to certain types of vesting
restrictions, the taxable event will be delayed until the vesting restrictions
lapse unless the participant elects to be taxed on receipt of the stock. With
respect to employees, the Company is generally required to withhold from regular
wages or supplemental wage payments an amount based on the ordinary income
recognized. Subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a tax reporting obligation,
the Company will generally be entitled to a business expense deduction equal to
the taxable ordinary income realized by the participant.
Upon disposition of the stock, the participant will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock plus any amount recognized as ordinary
income upon acquisition (or vesting) of the stock. Such gain or loss will be
long-term or short-term depending on whether the stock was held for more than
one year. Slightly different rules may apply to participants who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
Potential Limitation on Company Deductions. Section 162(m) of the
Code denies a deduction to any publicly-held corporation for compensation paid
to certain "covered employees" in a taxable year to the extent that
9.
12
compensation to such covered employee exceeds $1 million. It is possible that
compensation attributable to awards, when combined with all other types of
compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options and stock appreciation rights will qualify as
performance-based compensation if the award is granted by a compensation
committee comprised solely of "outside directors" and either (i) the plan
contains a per-employee limitation on the number of shares for which such awards
may be granted during a specified period, the per-employee limitation is
approved by the stockholders, and the exercise price of the award is no less
than the fair market value of the stock on the date of grant, or (ii) the award
is granted (or exercisable) only upon the achievement (as certified in writing
by the compensation committee) of an objective performance goal established in
writing by the compensation committee while the outcome is substantially
uncertain, and the award is approved by stockholders.
Compensation attributable to restricted stock and stock bonuses will
qualify as performance-based compensation, provided that: (i) the award is
granted by a compensation committee comprised solely of "outside directors," and
(ii) the purchase price of the award is no less than the fair market value of
the stock on the date of grant. Stock bonuses qualify as performance-based
compensation under the Treasury regulations only if (i) the award is granted by
a compensation committee comprised solely of "outside directors," (ii) the award
is granted (or exercisable) only upon the achievement of an objective
performance goal established in writing by the compensation committee while the
outcome is substantially uncertain, (iii) the compensation committee certifies
in writing prior to the granting (or exercisability) of the award that the
performance goal has been satisfied and (iv) prior to the granting (or
exercisability) of the award, stockholders have approved the material terms of
the award (including the class of employees eligible for such award, the
business criteria on which the performance goal is based, and the maximum amount
- -- or formula used to calculate the amount -- payable upon attainment of the
performance goal).
10.
13
NEW PLAN BENEFITS
The following table presents certain information with respect to
options and awards granted under the Incentive Plan as of December 31, 1998 to
(i) the Named Executive Officers (as set forth in the Summary Compensation
Table), (ii) all executive officers as a group, (iii) all non-executive officer
employees as a group and (iv) all non-employee directors as a group.
NEW PLAN BENEFITS
1997 EQUITY INCENTIVE PLAN
NUMBER OF SHARES UNDERLYING OPTIONS
NAME AND POSITION(1) DOLLAR VALUE($)(2) AND AWARDS GRANTED(3)
- --------------------- -------------------- -----------------------------------
Michael J. Brennan, M.D., Ph.D 917,655 743,962
Chief Executive Officer and Director
Mark D. Gessler 471,203 446,981
President, Chief Operating Officer, Chief Financial Officer
and Secretary
Gregory G. Lennon, Ph.D. 1,327,636 327,636
Senior Vice President, Research & Development and Chief
Scientific Officer
Victor M. Markowitz, D.Sc. 577,636 227,636
Senior Vice President, Data Management Systems
Daniel R. Passeri 721,898 202,709
Senior Vice President, Technology and Program Management
All executive officers as a group 4,428,527 2,048,924
All non-executive officer employees as a group 6,808,518 1,827,791
All non-employee directors as a group 31,050 154,500
- -------------------------
(1) In addition to the foregoing, Douglas Dolginow, M.D., the Company's
Senior Vice President, Pharmacogenomics, received an option to purchase
100,000 shares of the Company's Common Stock, Stephen Push, the Company's
Vice President of Corporate Communications, received an option to
purchase 100,000 shares of the Company's Common Stock and James Veitch,
the Company's Vice President of Business Development, received an option
to purchase 75,000 shares of the Company's Common Stock.
(2) Includes the number of shares granted multiplied by the exercise price.
(3) Net of cancelled or expired awards.
11.
14
PROPOSAL 3
APPROVAL OF THE AMENDMENTS TO THE 1997 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN
In September 1997, the Board adopted, and the stockholders
subsequently approved, the Company's 1997 Non-Employee Directors' Stock Option
Plan (the "Directors' Plan"). In March 1999, the Board amended the Directors'
Plan, subject to stockholder approval, (i) to increase the number of shares of
Common Stock authorized for issuance under the Directors' Plan from a total of
125,000 shares to a total of 325,000 shares, and (ii) to increase the number of
shares underlying the options which are automatically granted each year to each
non-employee director, who has continuously served for the six-month period
prior to the date of the annual meeting, from 7,500 shares to 15,000 shares. The
Board adopted these amendments in order to ensure that the Company can continue
to grant stock options to non-employee directors at levels determined
appropriate by the Board.
As of April 8, 1999, options (net of canceled or expired options)
covering an aggregate of 37,500 shares of the Company's Common Stock had been
granted under the Directors' Plan. Only 87,500 shares of Common Stock (plus any
shares that might in the future be returned to the Directors' Plan as a result
of cancellations or expiration of options or the reacquisition by the Company of
issued shares) remained available for future grant under the Directors' Plan.
Stockholders are requested in this Proposal 3 to approve the
amendments to the Directors' Plan. The affirmative vote of the holders of a
majority of the shares present in person or represented by proxy and entitled to
vote at the meeting will be required to approve the amendments to the Directors'
Plan. Abstentions will be counted toward the tabulation of votes cast on
proposals presented to the stockholders and will have the same effect as
negative votes. Broker non-votes are counted towards a quorum, but are not
counted for any purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Directors' Plan are outlined below:
GENERAL
The Directors' Plan provides for the automatic grant of nonstatutory
stock options. Options granted under the Directors' Plan are not intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Code. See "Federal Income Tax Information" for a discussion of the tax treatment
of nonstatutory stock options.
PURPOSE
The Board adopted the Directors' Plan to provide a means by which
non-employee directors of the Company may be given an opportunity to purchase
stock in the Company, to assist in retaining the services of such persons, to
secure and retain the services of persons capable of filling such positions and
to provide incentives for such persons to exert maximum efforts for the success
of the Company. Five of the current six directors of the Company are eligible to
participate in the Directors' Plan.
ADMINISTRATION
The Board administers the Directors' Plan. The Board has the power to
construe and interpret the Directors' Plan, but not to determine the persons to
whom or the dates on which options will be granted, the number of shares to be
subject to each option, the time or times during the term of each option within
which all or a portion of such option may be exercised, the exercise price or
the type of consideration or the other terms of the option.
12.
15
The Board has the power to delegate administration of the Directors'
Plan to a committee composed of not fewer than two members of the Board. The
Board has delegated administration of the Directors' Plan to the Compensation
Committee. As used herein with respect to the Directors' Plan, the "Board"
refers to any committee the Board appoints as well as to the Board itself.
ELIGIBILITY
The Directors' Plan provides that options may be granted only to
non-employee directors of the Company. A "non-employee director" is defined in
the Directors' Plan as a director of the Company who is not otherwise an
employee of or consultant to the Company or any affiliate.
STOCK SUBJECT TO THE DIRECTORS' PLAN
Subject to stockholder approval of this Proposal, an aggregate of
325,000 shares of Common Stock will be reserved for issuance under the
Directors' Plan. If options granted under the Directors' Plan expire or
otherwise terminate without being exercised, the shares of Common Stock not
acquired pursuant to such options again become available for issuance under the
Directors' Plan.
TERMS OF OPTIONS
The following is a description of the terms of options under the
Directors' Plan. Individual option grants may not be more restrictive as to the
terms described below except as otherwise noted.
Automatic Grants. Each person who is first elected or appointed to
the Board as a non-employee director shall automatically be granted an option to
purchase 30,000 shares of Common Stock. Immediately following each annual
meeting of stockholders, each person who is then a non-employee director and who
has continuously served as a non-employee director for the six-month period
prior to the date of the such annual meeting of stockholders, shall, subject to
stockholder approval of this Proposal, automatically be granted an option to
purchase 15,000 shares of Common Stock of the Company.
Exercise Price; Payment. The exercise price of options may not be
less than 100% of the fair market value of the stock subject to the option on
the date of the grant. At April 8, 1999, the closing price of the Company's
Common Stock as reported on the Nasdaq National Market System was $5.188 per
share.
The exercise price of options granted under the Directors' Plan must
be paid either in cash at the time the option is exercised or (i) by delivery of
other Common Stock of the Company or (ii) pursuant to a cashless exercise under
Regulation T.
Option Exercise. Options granted under the Directors' Plan become
exercisable in cumulative increments ("vest") as set out in the Directors' Plan
during the optionholder's service as a director of the Company during any
subsequent employment of the optionholder by and/or service by the optionholder
as a consultant to the Company or an affiliate (collectively, "service"). The
Board does not have the power to accelerate the time during which an option may
vest or be exercised. Options granted under the Directors' Plan do not permit
exercise prior to vesting. An optionholder may satisfy any federal, state or
local tax withholding obligation relating to the exercise of such option by a
cash payment upon exercise, by authorizing the Company to withhold a portion of
the stock otherwise issuable to the optionholder, by delivering already-owned
Common Stock of the Company or by a combination of these means.
Term. The term of options under the Directors' Plan is 10 years.
Options under the Directors' Plan terminate on the earlier of the date it
expires or 12 months after termination of the optionholder's service unless the
optionholder dies before the optionholder's service has terminated in which case
the option will terminate on the earlier of the date it expires or 18 months
following the date of the optionholder's death. Such option may be exercised by
the person or persons to whom the rights to such option pass by will or by the
laws of descent and distribution. An optionholder may designate a beneficiary
who may exercise the option following the
13.
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optionholder's death. The option term is not extended in the event that exercise
of the option within these periods is prohibited.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as
determined by the Board.
RESTRICTIONS ON TRANSFER
Except as specifically provided in the option agreement, the
optionholder may not transfer an option otherwise than by will, by the laws of
descent and distribution or pursuant to a qualified domestic relations order.
During the lifetime of the optionholder, an option may be exercised only by the
optionholder or transferee pursuant to a domestic relations order satisfying the
requirements of Rule 16b-3.
ADJUSTMENT PROVISIONS
Transactions not involving receipt of consideration by the Company,
such as a merger, consolidation, reorganization, stock dividend or stock split,
may change the class and number of shares of Common Stock subject to the
Directors' Plan and outstanding options. In that event, the Directors' Plan will
be appropriately adjusted as to the class and the maximum number of shares of
Common Stock subject to the Directors' Plan, and outstanding options will be
adjusted as to the class, number of shares and price per share of Common Stock
subject to such options.
EFFECT OF CERTAIN CORPORATE EVENTS
The Directors' Plan provides that, in the event of a dissolution,
liquidation or sale of substantially all of the assets of the Company, specified
types of merger or other corporate reorganization, then the vesting and the time
during which such options may be exercised will be accelerated prior to such
event and the options terminated if not exercised after such acceleration and at
or prior to such event. The acceleration of an option in the event of an
acquisition or similar corporate event may be viewed as an anti-takeover
provision, which may have the effect of discouraging a proposal to acquire or
otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Directors' Plan without
stockholder approval or ratification at any time. Unless sooner terminated, the
Directors' Plan will terminate on August 31, 2007.
The Board may also amend the Directors' Plan at any time or from time
to time. However, no amendment will be effective unless approved by the
stockholders of the Company if such modification requires stockholder approval
in order to comply with Rule 16b-3 of the Exchange Act or satisfy the
requirements of Section 422 of the Code or any Nasdaq or securities exchange
listing requirements.
FEDERAL INCOME TAX INFORMATION
Long-term capital gains currently are generally subject to lower tax
rates than ordinary income or short-term capital gains. The maximum long-term
capital gains rate for federal income tax purposes is currently 20% while the
maximum ordinary income rate and short-term capital gains rate is effectively
39.6%. Slightly different rules may apply to optionholders who acquire stock
subject to certain repurchase options or who are subject to Section 16(b) of the
Exchange Act.
Nonstatutory Stock Options. Options granted under the Directors' Plan
generally have the federal income tax consequences of nonstatutory stock options
described under "Federal Income Tax Information" in Proposal 2 above.
14.
17
NEW PLAN BENEFITS
The following table presents certain information with respect to
options granted under the Directors' Plan as of December 31, 1998, to all
non-employee directors as a group.
NEW PLAN BENEFITS
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
NAME AND POSITION DOLLAR VALUE ($) (1) NUMBER OF SHARES UNDERLYING OPTIONS GRANTED
- ----------------- -------------------- -------------------------------------------
All non-employee directors as a group 225,000 37,500
- -----------------
(1) Represents the number of shares multiplied by the exercise price.
15.
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PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the
Company's independent auditors for the fiscal year ending December 31, 1999 and
has further directed that management submit the selection of independent
auditors for ratification by the stockholders at the Annual Meeting. Arthur
Andersen LLP is currently the Company's independent auditors. Representatives of
Arthur Andersen LLP are expected to be present at the Annual Meeting, will have
an opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
Stockholder ratification of the selection of Arthur Andersen LLP as
the Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection Arthur Andersen LLP to
the stockholders for ratification as a matter of good corporate practice. If the
stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the Annual
Meeting will be required to ratify the selection of Arthur Andersen LLP.
Abstentions will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
16.
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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of April 8, 1999 by: (i) each
director and nominee for director; (ii) each of the Named Executive Officers;
(iii) all executive officers and directors of the Company as a group; and (iv)
all those known by the Company to be beneficial owners of more than five percent
of its Common Stock.
BENEFICIAL OWNERSHIP (1)
----------------------------------------
NAME NUMBER OF SHARES PERCENT OF TOTAL
- ------------------------------------------------------------------ ---------------- ----------------
Alan G. Walton, Ph.D., D.Sc. (2) ................................. 1,937,035 9.8%
Oxford Bioscience Partners
315 Post Road West
Westport, CT 06880
Oxford Bioscience Partners (3) ................................... 1,912,660 9.6%
c/o Alan G. Walton, Ph.D., D.Sc
315 Post Road West
Westport, CT 06880
Charles L. Dimmler III (4) ....................................... 1,417,943 7.2%
Cross Atlantic Partners, Inc.
650 Madison Avenue, 21st Floor
New York, NY 10022
Cross Atlantic Partners K/S (5) .................................. 1,382,399 7.0%
c/o Charles L. Dimmler III
Cross Atlantic Partners, Inc.
650 Madison Avenue, 21st Floor
New York, NY 10022
Michael J. Brennan, M.D., Ph.D. (6) .............................. 689,381 3.5%
Mark D. Gessler (7) .............................................. 353,098 1.8%
Gregory G. Lennon, Ph.D. (8) ..................................... 140,693 *
Victor M. Markowitz, D.Sc. (9) ................................... 97,716 *
Daniel R. Passeri, J.D. (10) ..................................... 42,739 *
Jules Blake, Ph.D. (11) .......................................... 27,938 *
G. Anthony Gorry, Ph.D. (12) ..................................... 26,063 *
Jeffrey D. Sollender (13) ........................................ 23,875 *
All directors and executive officers
as a group (11 persons) (14) ................................... 4,873,700 23.9%
- ------------------
* Represents beneficial ownership of less than 1%.
17.
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(1) This table is based upon information supplied by officers, directors
and principal stockholders and Schedules 13D and 13G filed with the
Securities and Exchange Commission (the "SEC"). Beneficial ownership
is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities.
Except as indicated by footnote, and subject to community property
laws where applicable, the persons named in the table above have sole
voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them. Percentage of beneficial
ownership is based on 19,777,942 shares of Common Stock outstanding
as of April 8, 1999.
(2) Includes an aggregate of 1,862,660 shares and warrants to purchase an
aggregate of 50,000 shares held of record by Oxford Bioscience
Partners, of which Dr. Walton is a general partner, and by entities
related thereto. Also includes 24,375 shares subject to options held
by Dr. Walton exercisable within 60 days of April 8, 1999.
(3) Includes 995,282 shares and warrants to purchase 39,141 shares held
of record by Oxford Bioscience Partners, L.P., 276,119 shares and
warrants to purchase 10,859 shares held of record by Oxford
Bioscience Partners (Bermuda) Limited Partnership, 138,952 shares
held of record by Oxford Bioscience Partners (Adjunct) L.P., 100,000
shares held of record by Oxford Bioscience Management Partners,
116,106 shares held of record by Oxford Bioscience Partners II, L.P.,
113,958 shares held of record by Oxford Bioscience Partners
(GS-Adjunct) II, L.P., 87,012 shares held of record by Oxford
Bioscience Partners (Bermuda) II Limited Partnership and 35,231
shares held of record by Oxford Bioscience Partners Adjunct II, L.P.
(4) Includes 764,788 shares held of record by Cross Atlantic Partners
K/S, 432,577 shares held of record by Cross Atlantic Partners II K/S
and 185,034 shares held of record by Cross Atlantic Partners III K/S.
Also includes 24,375 shares subject to options held by Mr. Dimmler
exercisable within 60 days of April 8, 1999. Mr. Dimmler is an
operating officer of Cross Atlantic Partners, Inc. and an investment
officer of Cross Atlantic Partners Funds. Mr. Dimmler disclaims
beneficial ownership of the 1,382,399 shares held of record by Cross
Atlantic Partners K/S and related entities.
(5) Includes 764,788 shares held of record by Cross Atlantic Partners
K/S, 432,577 shares held of record by Cross Atlantic Partners II K/S
and 185,034 shares held of record by Cross Atlantic Partners III K/S.
(6) Includes 100,000 shares held of record by the Brennan Family Limited
Partnership and 144,381 shares subject to options held by Dr. Brennan
exercisable within 60 days of April 1, 1999.
(7) Includes 30,000 shares held of record by the Gessler Family Limited
Partnership, and 77,451 shares subject to options held by Mr. Gessler
exercisable within 60 days of April 8, 1999.
(8) Includes 85,216 shares subject to options held by Dr. Lennon
exercisable within 60 days of April 8, 1999.
(9) Includes 97,716 shares subject to options held by Dr. Markowitz
exercisable within 60 days of April 8, 1999.
(10) Includes 42,322 shares subject to options held by Mr. Passeri
exercisable within 60 days of April 8, 1999.
(11) Includes 27,938 shares subject to options held by Dr. Blake
exercisable within 60 days of April 8, 1999.
(12) Includes 24,063 shares subject to options held by Dr. Gorry
exercisable within 60 days of April 8, 1999.
(13) Includes 21,875 shares subject to options held by Mr. Sollender
exercisable within 60 days of April 8, 1999.
(14) Includes warrants to purchase 50,000 shares and 584,710 shares
subject to options held by all directors and executive officers
as a group exercisable within 60 days of April 8, 1999.
18.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors
and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
ten percent stockholders 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 a 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, 1998, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that Mr.
Gessler and Dr. Markowitz timely reported all transactions but inadvertently did
not include in their initial Form 3 report certain derivative securities. These
omissions were corrected by the reporting of these shares with amended Form 3
reports.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company who is not affiliated with
stockholders of the Company currently receive $12,000 per year and a per meeting
fee of $1,000 (exclusive of telephonic meetings). In the fiscal year ended
December 31, 1998, the total compensation paid to non-employee directors for
services during that year was $32,000. The members of the Board of Directors are
also eligible for reimbursement for their expenses incurred in connection with
attendance at Board meetings in accordance with Company policy.
Each non-employee director of the Company also receives automatic
stock option grants under the Directors' Plan. Only non-employee directors of
the Company or an affiliate of such directors (as defined in the Code) are
eligible to receive options under the Directors' Plan. Options granted under the
Directors' Plan are intended by the Company not to qualify as incentive stock
options under the Code. The terms of the Directors' Plan are described in
Proposal 3.
During the last fiscal year, the Company granted options covering
7,500 shares to each non-employee director of the Company, at an exercise price
per share of $6.00. The fair market value of such Common Stock on the date of
grant was $6.00 per share (based on the closing sales price reported on the
Nasdaq National Market the day prior to the date of grant). As of April 8, 1999,
no options had been exercised under the Directors' Plan.
19.
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COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31,
1998, 1997 and 1996, compensation awarded or paid to, or earned by the Company's
Chief Executive Officer and its four other most highly compensated executive
officers at December 31, 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (1) AWARDS
------------------------------------------- ------------
OTHER ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(2) OPTIONS (#)
---- ---------- --------- ------------ -----------
Michael J. Brennan, M.D., Ph.D ........................ 1998 287,500 69,000(4) 4,200 --
Chief Executive Officer and Director (3) 1997 207,292 110,000(4) -- 498,962
1996 200,000 30,000(4) -- 245,000
Mark D. Gessler ....................................... 1998 220,000 19,480 5,000 --
President, Chief Operating Officer, Chief Financial 1997 187,917 45,000 54,287(6) 321,981
Officer and Secretary (5) 1996 95,353 40,000 97,091(7) 25,000
Gregory G. Lennon, Ph.D ............................... 1998 196,981 9,750 20,844(8) 200,000
Senior Vice President, Research & Development and 1997 50,000 25,000 15,365(7) 127,636
Chief Scientific Officer
Victor M. Markowitz, D.Sc ............................. 1998 159,096 9,750 -- 100,000
Senior Vice President, Data Management Systems 1997 40,962 25,000 -- 127,636
Daniel R. Passeri ..................................... 1998 165,000 19,480 2,550 75,000
Senior Vice President, Technology and Program 1997 106,875 85,000(9) -- 127,709
Management
(1) As permitted by rules promulgated by the SEC, no amounts are shown
for 1998, or with respect to certain "perquisites," where such
amounts do not exceed the lesser of 10% of bonus plus salary or
$50,000.
(2) Except as otherwise noted, represents cost of tax services provided
by Arthur Andersen LLP, paid for by the Company.
(3) Dr. Brennan served as President through January 1999.
(4) Includes an amount paid to a corporation of which Dr. Brennan is a
stockholder for service rendered by such corporation.
(5) Mr. Gessler served as Senior Vice President, Corporate Development
until becoming President and Chief Operating Officer in January 1999.
(6) Represents a $50,000 Promissory Note forgiven upon effectiveness of
the initial public offering and $4,287 of accrued interest thereon.
(7) Represents reimbursements made by the Company for relocation
expenses.
(8) Includes a $20,044 reimbursement made by the Company for Dr. Lennon's
relocation expenses.
(9) Includes a $30,000 payment made by the Company for Mr. Passeri's
relocation expenses.
20.
23
STOCK OPTION GRANTS AND EXERCISES
The Company adopted its 1996 Stock Plan in January 1996 and amended
and restated the 1996 Stock Plan in September 1997 as the Incentive Plan. The
Company grants options to its executive officers under the Incentive Plan. As of
April 8, 1999, options to purchase a total of 3,222,546 shares were outstanding
under the Incentive Plan and options to purchase 1,590,526 shares remained
available for grant thereunder.
The following tables show for the fiscal year ended December 31,
1998, certain information regarding options granted to, exercised by, and held
at year end by, the Named Executive Officers:
OPTION GRANTS IN FISCAL YEAR 1998
INDIVIDUAL GRANTS
------------------------------------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM (4)
OPTIONS GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME (#)(1) FISCAL YEAR(2) ($/SH)(3) DATE 5% ($) 10% ($)
- ---------------------------------- --------------- -------------- ----------- ----------- --------- ---------
Michael J. Brennan, M.D., Ph.D.... -- -- -- -- -- --
Mark D. Gessler .................. -- -- -- -- -- --
Gregory G. Lennon, Ph.D .......... 200,000 13.3% $ 6.00 6/04/08 1,070,679 2,415,677
Victor M. Markowitz, D.Sc ........ 100,000 6.7% $ 4.50 9/08/08 685,340 1,357,838
Daniel R. Passeri ................ 75,000 5.0% $ 7.88 3/19/08 260,505 764,879
(1) Terms of the options granted under the Incentive Plan are described
in Proposal 2.
(2) Based on options to purchase 1,498,500 shares granted to employees in
1998, including the Named Executive Officers.
(3) The exercise price is equal to the fair market value of the Common
Stock on the date of grant as determined by the Board of Directors on
the date of grant.
(4) The potential realizable value is calculated based on the term of the
option at its time of grant (10 years) and the fair market value per
share of the Company's Common Stock as of December 31, 1998 of $6.97.
It is calculated assuming that the stock price on the date of grant
appreciates at the indicated annual rate, compounded annually. The
total appreciation of the options over their 10-year terms at 5% and
10% is 63% and 159%, respectively, and do not reflect the Company's
estimate or projection of the future stock price performance. Actual
gains, if any, are dependent on the actual future performance of the
Company's Common Stock.
21.
24
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR-END IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE REALIZED (#) EXERCISABLE/ FISCAL YEAR-END ($)(2)
NAME EXERCISE (#) ($)(1) UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
- ------------------------------ ------------ -------------- -------------------------- --------------------------
Michael J. Brennan, M.D., Ph.D.... 190,000 $ 1,305,430 101,780/247,182 454,957/1,104,903
Mark D. Gessler .................. 175,000 1,202,950 50,161/121,820 224,220/544,535
Gregory G. Lennon, Ph.D .......... 5,000 25,000 100,044/222,592 451,433/474,704
Victor M. Markowitz, D.Sc ........ -- -- 70,878/156,758 393,976/615,010
Daniel R. Passeri ................ 80,000 388,000 29,540/93,169 62,200/151,059
- ---------------------
(1) Based on the fair market value per share of Common Stock (as
determined by the Board of Directors) at the date of exercise, less
the exercise price.
(2) Based on the fair market value per share of Common Stock of $6.97 at
December 31, 1998, less the exercise price, multiplied by the number
of shares underlying the option.
EMPLOYMENT AGREEMENTS
On December 1, 1995, Michael J. Brennan, M.D., Ph.D. the current
Chief Executive Officer and director and former President of the Company,
entered into an employment agreement with the Company. The employment agreement
has a five-year term and provides, among other things, for the payment to Dr.
Brennan of annual bonuses. The agreement also provided for acceleration of
certain unvested options upon achievement of certain performance-based goals,
including vesting of 80% of such options upon completion of the Company's
initial public offering and the remaining 20% 180 days thereafter. Upon
termination of the agreement by the Company without cause, Dr. Brennan will
receive severance pay in the amount equal to Dr. Brennan's total combined annual
base salary and performance bonus for the calendar year in which the termination
becomes effective.
On May 16, 1996, Mark D. Gessler, the President, Chief Operating
Officer, Chief Financial Officer and Secretary of the Company, entered into an
employment agreement with the Company. The employment agreement has a four-year
term and provides, among other things, for the payment to Mr. Gessler of annual
bonuses. The agreement also provided for acceleration of certain unvested
options upon achievement of certain performance-based goals, including vesting
of 80% of such options upon completion of the Company's initial public offering
and the remaining 20% 180 days thereafter. Upon termination of the agreement by
the Company without cause, Mr. Gessler will receive severance pay in the amount
of one-half of his salary for the calendar year in which the termination becomes
effective.
On August 23, 1997, Gregory G. Lennon, Ph.D. the Senior Vice
President, Research and Development and Chief Scientific Officer and a
stockholder of the Company, entered into an employment agreement with the
Company. The employment agreement has a four-year term and provides, among other
things, for the payment to Dr. Lennon of annual bonuses. The agreement provided
for the grant of certain options of which 15.7% vest immediately and the
remaining 84.3% of such options vest monthly over four years. The agreement also
provided for acceleration of vesting of an additional 15.7% of such options upon
completion of the Company's initial public offering. Upon termination of the
agreement by the Company without cause, Dr. Lennon will receive severance pay in
the amount of six months of his then current salary.
On September 1, 1997, Victor M. Markowitz, the Senior Vice President,
Data Management Systems, entered into an employment agreement with the Company.
The employment agreement has a four-year term and provides, among other things,
for the payment to Dr. Markowitz of annual bonuses. The agreement also provided
for the grant of certain options which vest monthly over four years and for
acceleration of 15.7% of certain unvested
22.
25
options upon completion of the Company's initial public offering. Upon
termination of the agreement by the Company without cause, Dr. Markowitz will
receive severance pay in the amount of three months of his then current salary.
On February 17, 1997, Daniel R. Passeri, the Senior Vice President,
Technology and Program Management, entered into an employment agreement with the
Company. The employment agreement has a four-year term and provides, among other
things, for the payment to Mr. Passeri of annual bonuses. The agreement also
provided for acceleration of certain unvested options upon achievement of
certain performance-based goals, including vesting of 80% of such options upon
completion of the Company's initial public offering and the remaining 20% 180
days thereafter. Upon termination of the agreement by the Company without cause,
Mr. Passeri will receive severance pay in the amount of three months of his then
current salary.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION(1)
The Compensation Committee of the Board of Directors (the
"Compensation Committee") is composed of Dr. Walton, Dr. Blake and Mr. Dimmler,
none of whom are currently officers or employees of the Company. The
Compensation Committee is responsible for setting and administering the
Company's policies governing employee compensation and administering the
Company's equity incentive plans, as well as evaluating the performance of the
Company's management and determining all compensation matters concerning the
Company's executive officers.
COMPENSATION PHILOSOPHY
The compensation policies adopted by the Compensation Committee are
designed to (i) align compensation with business objectives and performance;
(ii) attract, retain and reward executive officers and other key employees who
contribute to the long-term success of the Company; and (iii) motivate the
Company's executive officers and other key employees to enhance long-term
stockholder value. Key elements of this philosophy are:
o The Company's salaries must be competitive with comparable biotechnology
companies with which the Company competes for highly qualified and
experienced executives. To date, the Compensation Committee has relied on
its members' experience in working with other comparable companies to
ensure executive salaries are competitive.
o The Company has a cash bonus program for executive officers to provide
motivation to achieve specific operating goals and to generate rewards
that bring total compensation to competitive levels.
o The Company provides equity-based incentives for executives and other key
employees to ensure that they are motivated over the long term to respond
to the Company's business challenges and opportunities as stockholders as
well as employees.
The Committee's objective is to set executive compensation within a
range which the Compensation Committee believes is comparable to the range of
compensation set by companies of similar size in the biotechnology industry. The
group of comparable companies is not necessarily the same as the companies
included in the market indices included in the performance graph on page 26 of
this Proxy Statement. The primary components of executive compensation are base
salary, cash incentives and long-term equity incentives. Each year, the
Compensation Committee reviews the criteria upon which all aspects of employee
compensation are based.
Base Salary. In 1998, base salaries for executive officers, other
than the Chief Executive Officer, were set at competitive levels based primarily
on the recommendation of the Chief Executive Officer and assisted by the
Compensation Committee's analysis of published compensation surveys reflecting
compensation data for biotechnology companies. Annual adjustments were made to
maintain base salaries at levels competitive with
- -------------------------------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC, and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, whether made before or after the
date hereof and irrespective of any general incorporation language
contained in such filing.
23.
26
comparable companies and to maintain an equitable relationship between the base
salaries of executive officers and overall merit increases for the Company's
other employees. In the case of any executive officer joining the Company, base
salary was also determined as one component of a total compensation package that
had to be competitive with compensation granted by the executive's prior
employer and/or other opportunities that might be available to the executive.
Annual Bonus Compensation. The amount of the bonus component in the
total compensation plan for executive officers is established at the beginning
of each year (or upon employment, in the case of newly hired executives). The
actual incentive award depends on the extent to which Company performance
objectives are achieved. At the start of each year, the Compensation Committee
approves the annual performance objectives for the Company which are based upon
overall strategic goals set by the Board of Directors. In 1998, each officer's
bonus component was based on operating, strategic and financial goals that were
considered to be critical to the Company's fundamental long-term goal of
building stockholder value. These goals included establishing collaborations
with pharmaceutical companies for drug target and drug lead discovery programs
and achieving certain revenue targets and stock appreciation objectives. Awards
are paid in cash and distributions were made upon achievement of such objectives
in the performance year. The bonus component for 1999 will be based on similar
performance goals.
Long-Term Incentive Compensation. The long-term incentive element of
the Company's executive compensation program provides for the grant of stock
awards under the Incentive Plan, which may include incentive stock options,
nonstatutory stock options, stock bonuses or rights to purchase restricted
stock. The Company has used the grant of options under its Incentive Plan to
align the interests of stockholders and management. Options granted to executive
officers are intended to provide a continuing financial incentive to maximize
long-term value to stockholders and to help make the executive's total
compensation opportunity competitive. Initial stock option awards for executive
officers are individually determined at or prior to employment at levels which
are designed to attract qualified executives and in certain cases to be
competitive with options granted by their prior employers. Employees from within
the Company who are promoted to positions as executive officers typically
receive additional option grants to bring their total option grants up to the
level that would have been granted to a person hired for such executive officer
position from outside the Company. For additional information regarding options
awards, see the compensation tables preceding this report.
Executive officers receive value from option grants only if the
Common Stock appreciates over the long term. The amount of individual option
grants is determined based in part on competitive practices at comparable
companies and on the Company's philosophy of significantly linking executive
compensation with stockholder interests. In determining the size of individual
grants, the Committee also considers the number of shares subject to options
previously granted to each executive officer, including the number of shares
that have vested and that remain unvested and the potential reward to the
officer if the stock price appreciates in the public market. The Committee
believes that option grants by the Company to its executive officers and
employees are comparable to the average range for comparable companies.
CHIEF EXECUTIVE OFFICER COMPENSATION
The total compensation program for the Chief Executive Officer is
largely based upon the same policies and criteria used for other executive
officers. Each year the Compensation Committee reviews the Chief Executive
Officer's existing compensation arrangement, the individual performance for the
calendar year under review, as well as the Company's performance relative to its
peers.
Michael J. Brennan, M.D., Ph.D. was appointed as Chief Executive
Officer in December 1995. Dr. Brennan's base salary for 1998 was $287,500. In
determining Dr. Brennan's cash compensation, the Compensation Committee
considered Dr. Brennan's contribution to the performance of the Company and his
leadership in implementing strategic and financial initiatives designed to
augment the Company's development efforts. In particular, the Committee took
into account the multiple collaborations established and expanded during 1998,
the acquisition of rights to additional core technologies and the acquisition of
Oncormed, Inc. The Compensation Committee also considered industry reports as
well as industry compensation data compiled by members of the Compensation
Committee.
24.
27
SECTION 162(m) OF THE CODE
Section 162(m) of the Code limits the Company to a deduction for
federal income tax purposes of no more than $1 million of compensation paid to
certain Named Executive Officers in a taxable year. Compensation above $1
million may be deducted if it is "performance-based compensation" within the
meaning of the Code.
The Compensation Committee has not yet established a policy for
determining which forms of incentive compensation awarded to its Named Executive
Officers shall be designed to qualify as "performance-based compensation."
However, pursuant to Section 162(m), the Incentive Plan permits compensation
from options granted thereunder at no less than 100% of fair market value to be
excluded from the Section 162(m) limitations.
CONCLUSION
Through the programs described above, a significant portion of the
Company's compensation program and the compensation of the Company's Chief
Executive Officer are contingent on Company performance, and realization of
benefits is closely linked to increases in long-term stockholder value. The
Company remains committed to this philosophy of pay for performance, recognizing
that the competitive market for talented executives and the volatility of the
Company's business may result in highly variable compensation for a particular
time period.
COMPENSATION COMMITTEE
Alan G. Walton, Ph.D., D.Sc.
Jules Blake, Ph.D.
Charles L. Dimmer III
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
As stated above, the Compensation Committee consists of Alan G.
Walton, Ph.D., D.Sc., Jules Blake, Ph.D. and Charles Dimmler III. No member of
the Compensation Committee was at any time during the fiscal year ended December
31, 1998 an officer or employee of the Company.
25.
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PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph and table show the total stockholder return of an
investment of $100 in cash on November 21, 1997 for (i) the Company's Common
Stock, (ii) the Center for Research and Security Prices Total Return Index for
the Nasdaq Stock Market (US) ("Nasdaq US"), (iii) Nasdaq Pharmaceutical Stocks
("Nasdaq PH"), and (iv) a peer group of 15 genomics companies with market
capitalizations of less than $500 million. All values assume reinvestment of the
full amount of all dividends and are calculated as of the end of the last day of
each month the Company's Common Stock was publicly traded through 1998:
CUMULATIVE TOTAL RETURN
------------------------------
11/21/97 12/31/97 12/31/98
-------- -------- --------
Gene Logic Inc. ............... 100 100 87
Peer Group .................... 100 86 64
Nasdaq Stock Market (U.S.)..... 100 97 137
Nasdaq Pharmaceutical ......... 100 96 123
In this proxy statement, Gene Logic is initiating the use of a new
index for comparison of cumulative total returns. In the past, the Company used
the Nasdaq Pharmaceutical Index, which focuses on companies that develop,
manufacture, and market pharmaceuticals, including many companies with
substantially larger market capitalizations than Gene Logic. The Company
believes that this index does not represent a suitable peer group for a genomics
and bioinformatics company with a small market capitalization.
- ------------------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act or the Exchange Act, whether made before or after
the date hereof and irrespective of any general incorporation language
contained in such filing.
26.
29
Beginning with this proxy statement, the Company will compare its
total return to that of the group listed in the latest edition of the annual
Genomics Review published by BioWorld(R), an independent industry
newsletter--excluding those companies that have market capitalizations greater
than $500 million and those that have no stock or American Depository Receipts
traded on a U.S.-based stock market. The resulting peer group comprises the 15
companies listed below:
COMPANY SYMBOL COMPANY SYMBOL
- ------- ------ ------- ------
Ariad Pharmaceuticals Inc. ARIA Hyseq Inc. HYSQ
Aurora Biosciences Corp. ABSC Lynx Therapeutics Inc. LYNX
Axys Pharmaceuticals Inc. AXPH Myriad Genetics Inc. MYGN
Cadus Pharmaceutical Corp. KDUS Nanogen Inc. NGEN
CuraGen Corp. CRGN Onyx Pharmaceuticals Inc. ONXX
Genome Therapeutics Corp. GENE Ribozyme Pharmaceuticals Inc. RZYM
Genset SA GENXY Vysis Inc. VYSI
Genzyme Corp. Molecular GZMO
Oncology Division
CERTAIN TRANSACTIONS
The Company has entered into indemnity agreements with certain
officers and directors which provide, among other things, that the Company will
indemnify such officer or director, under the circumstances and to the extent
provided for therein, for expenses (including attorney fees), witness fees,
damages, judgments, fines and settlements he may be required to pay in actions
or proceedings which he is or may be made a party be reason of his position as a
director, officer or other agent of the Company, and otherwise to the full
extent permitted under Delaware law and the Company's By-laws.
27.
30
OTHER MATTERS
The Board of Directors knows of no other matters that will be
presented for consideration at the Annual Meeting. If any other matters are
properly brought before the meeting, it is the intention of the persons named in
the accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ MARK D. GESSLER
Mark D. Gessler
President, Chief Operating Officer,
Chief Financial Officer and Secretary
May 6, 1999
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE COMMUNICATIONS, GENE LOGIC
INC., 708 QUINCE ORCHARD ROAD, GAITHERSBURG, MARYLAND 20878.
28.
31
GENE LOGIC INC.
1997 EQUITY INCENTIVE PLAN
ADOPTED SEPTEMBER 29, 1997
APPROVED BY STOCKHOLDERS NOVEMBER 11, 1997
AMENDED BY THE BOARD OF DIRECTORS MARCH 19, 1999
AMENDMENT APPROVED BY STOCKHOLDERS ___________, 1999
INTRODUCTION.
This Plan is an amendment and restatement of the Company's existing
1996 Stock Plan (the "1996 Plan"), and shall become effective on the date of the
initial public offering (the "IPO") of the Company's common stock (the
"Effective Date"). No options shall be granted under the 1996 Plan from and
after the Effective Date.
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company and its Affiliates may
be given an opportunity to benefit from increases in value of the common stock
of the Company ("Common Stock") through the granting of (i) Incentive Stock
Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to
purchase restricted stock, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services
of persons who are now Employees, Directors or Consultants, to secure and retain
the services of new Employees, Directors and Consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
1.
32
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means Gene Logic Inc., a Delaware corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render consulting services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(g) "CONTINUOUS SERVICE" means the employment or relationship as a
Director or Consultant is not interrupted or terminated. The Board, in its sole
discretion, may determine whether Continuous Service shall be considered
interrupted in the case of: (i) any leave of absence approved by the Board,
including sick leave, military leave, or any other personal leave; or (ii)
transfers between locations of the Company or between the Company, Affiliates or
their successors.
(h) "DIRECTOR" means a member of the Board.
(i) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(k) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock of the Company determined as follows:
(i) If the Common Stock is listed on any established stock
exchange, or traded on the Nasdaq National Market or The Nasdaq SmallCap Market,
the Fair Market Value of a share of Common Stock shall be the closing sales
price for such stock (or the closing bid, if no sales were reported) as quoted
on such exchange or market (or the exchange or market with the greatest volume
of trading in Common Stock) on the last market trading day prior to
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable;
(ii) In the absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
(l) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(m) "LISTING DATE" means the first date upon which any security of
the Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated
2.
33
(or approved for designation) upon notice of issuance as a national market
security on an interdealer quotation system if such securities exchange or
interdealer quotation system has been certified in accordance with the
provisions of Section 25100(o) of the California Corporate Securities Law of
1968.
(n) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
of 1933 ("Regulation S-K"), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(o) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the Plan.
(r) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(s) "OPTIONEE" means a person to whom an Option is granted pursuant
to the Plan.
(t) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(u) "PLAN" means this 1997 Equity Incentive Plan.
(v) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(w) "STOCK AWARD" means any right granted under the Plan, including
any Option, any stock bonus, and any right to purchase restricted stock.
3.
34
(x) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section
12.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee
or committees ("Committee") of two or more members of the Board. In the
discretion of the Board, a Committee may consist solely of two (2) or more
Outside Directors, in accordance with Code Section 162(m), or solely of two (2)
or more Non-Employee Directors, in accordance with Rule 16b-3. If administration
is delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan.
4.
35
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 11 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate Seven Million One Hundred Thousand (7,100,000)
shares of Common Stock. Such share reserve shall consist of (i) the options
granted under the 1996 Plan which are outstanding as of the Effective Date plus
(ii) the shares available for grant under the 1996 Plan as of the Effective Date
plus (iii) an additional Three Million (3,000,000) shares of common stock. If
any Stock Award shall for any reason expire or otherwise terminate, in whole or
in part, without having been exercised in full, the stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.
(b) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Option is at least one
hundred ten percent (110%) of the Fair Market Value of such stock at the date of
grant and the Option is not exercisable after the expiration of five (5) years
from the date of grant.
(c) Subject to the provisions of Section 11 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Stock Awards
covering more than seven hundred thousand (700,000) shares of Common Stock in
any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option Agreement or
otherwise) the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted, and the exercise price
of each Nonstatutory Stock Option shall be not less than eighty-five percent
(85%) of the Fair Market Value of the stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, an Option may be granted
with an
5.
36
exercise price lower than that set forth in the preceding sentence if such
Option is granted pursuant to an assumption or substitution for another option
in a manner satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other Common Stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Common Stock of the
Company) with the person to whom the Option is granted or to whom the Option is
transferred pursuant to subsection 6(d), or (C) in any other form of legal
consideration that may be acceptable to the Board. In the case of any deferred
payment arrangement, interest shall be payable at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement. In
addition, the "par value" of stock acquired under an Option may not be paid
pursuant to a deferred compensation arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option may be
transferred to the extent provided in the Option Agreement; provided that if the
Option Agreement does not expressly permit transfer, then such Nonstatutory
Stock Option shall not be transferable except by will, by the laws of descent
and distribution or pursuant to a domestic relations order satisfying the
requirements of Rule 16b-3, and shall be exercisable during the lifetime of the
person to whom the Option is granted only by such person or any transferee
pursuant to a domestic relations order. Notwithstanding the foregoing, the
person to whom the Option is granted may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionee, shall thereafter be entitled to exercise
the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
subsection 6(e) are subject to any Option provisions governing the minimum
number of shares as to which an Option may be exercised.
(f) TERMINATION OF CONTINUED SERVICE. In the event an Optionee's
Continuous Service terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option within such period of
time designated by the Board, which shall in no
6.
37
event be later than the expiration of the term of the Option as set forth in the
Option Agreement (the "Post-Termination Exercise Period") and only to the extent
that the Optionee was entitled to exercise the Option on the date Optionee's
Continuous Service terminates. In the case of an Incentive Stock Option, the
Board shall determine the Post-Termination Exercise Period at the time the
Option is granted, and the term of such Post-Termination Exercise Period shall
in no event exceed three (3) months from the date of termination. In addition,
the Board may at any time, with the consent of the Optionee, extend the
Post-Termination Exercise Period and provide for continued vesting; provided
however, that any extension of such period by the Board in excess of three (3)
months from the date of termination shall cause an Incentive Stock Option so
extended to become a Nonstatutory Stock Option, effective as of the date of
Board action. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified in the
Option Agreement or as otherwise determined above, the Option shall terminate,
and the shares covered by such Option shall revert to the Plan. Notwithstanding
the foregoing, the Board shall have the power to permit an Option to continue to
vest during the Post-Termination Exercise Period.
(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Service terminates as a result of the Optionee's disability, the Optionee may
exercise his or her Option (to the extent that the Optionee was entitled to
exercise it at the date of termination), but only within such period of time
ending on the earlier of (i) the date twelve (12) months following such
termination (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a three (3)-month period after the termination of, the
Optionee's Continuous Service, the Option may be exercised to the extent vested
by the Optionee's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionee's death pursuant to subsection 6(d), but only within
the period ending on the earlier of (i) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of such Option as set forth in
the Option Agreement. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option
7.
38
as to any part or all of the shares subject to the Option prior to the full
vesting of the Option. Any unvested shares so purchased may be subject to a
repurchase right in favor of the Company or to any other restriction the Board
determines to be appropriate.
7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.
Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or Committee
shall deem appropriate. The terms and conditions of stock bonus or restricted
stock purchase agreements may change from time to time, and the terms and
conditions of separate agreements need not be identical, but each stock bonus or
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement, but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company for its benefit.
(b) TRANSFERABILITY. No rights under a stock bonus or restricted
stock purchase agreement shall be transferable except by will or the laws of
descent and distribution or, if the agreement so provides, pursuant to a
domestic relations order satisfying the requirements of Rule 16b-3, so long as
stock awarded under such agreement remains subject to any restrictions pursuant
to the agreement.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or Committee in its discretion. Notwithstanding the foregoing, the Board
or Committee to which administration of the Plan has been delegated may award
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.
(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or Committee.
(e) TERMINATION OF CONTINUOUS SERVICE. In the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of stock held by that person which have not vested as
of the date of termination under the terms of the stock bonus or restricted
stock purchase agreement between the Company and such person.
8.
39
8. COVENANTS OF THE COMPANY.
(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares under Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
of 1933, as amended (the "Securities Act") either the Plan, any Stock Award or
any stock issued or issuable pursuant to any such Stock Award. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such Stock Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which a
Stock Award may first be exercised or the time during which a Stock Award or any
part thereof will vest, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) Neither an Employee, Director nor a Consultant nor any person to
whom a Stock Award is transferred in accordance with the Plan shall be deemed to
be the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Consultant or other
holder of Stock Awards any right to continue in the employ of the Company or any
Affiliate, or to continue serving as a Consultant and Director, or shall affect
the right of the Company or any Affiliate to terminate the employment of any
Employee with or without notice and with or without cause, the right to
terminate the relationship of any Consultant pursuant to the terms of such
Consultant's agreement with the Company or Affiliate or service as a Director
pursuant to the Company's By-Laws.
(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such
9.
40
limit (according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred in accordance with
the Plan, as a condition of exercising or acquiring stock under any Stock Award,
(1) to give written assurances satisfactory to the Company as to such person's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters, and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (2) to
give written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Stock Award for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement,
the person to whom a Stock Award is granted may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
stock under a Stock Award by any of the following means or by a combination of
such means: (1) tendering a cash payment; (2) authorizing the Company to
withhold shares from the shares of the Common Stock otherwise issuable to the
participant as a result of the exercise or acquisition of stock under the Stock
Award; or (3) delivering to the Company owned and unencumbered shares of the
Common Stock of the Company.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Stock Award, without the receipt of consideration by the Company
(through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of shares subject to the Plan and the maximum
number of shares subject to award to any person during any calendar year, and
the outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of shares and price per share of stock subject to such outstanding Stock
Awards. Such adjustments shall be made by the Board or Committee, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the
10.
41
Company shall not be treated as a "transaction not involving the receipt of
consideration by the Company.")
(b) In the event of a Change in Control, (i) any surviving or
acquiring corporation shall assume Stock Awards outstanding under the Plan or
shall substitute similar Stock Awards for those outstanding under the Plan, or
(ii) in the event any surviving or acquiring corporation refuses to assume such
Stock Awards or to substitute similar Stock Awards for those outstanding under
the Plan, (A) with respect to Stock Awards held by persons then performing
services as Employees, Directors or Consultants, the vesting of such Stock
Awards and the time during which such Stock Awards may be exercised shall be
accelerated prior to such event and the Stock Awards terminated if not exercised
after such acceleration and at or prior to such event, and (B) with respect to
any other Stock Awards outstanding under the Plan, such Stock Awards shall be
terminated if not exercised prior to such event.
In addition, with respect to any person who was providing services as
an Employee, Director or Consultant immediately prior to the consummation of the
Change in Control, any Stock Awards held by such persons shall immediately
become fully vested and exercisable, and any repurchase right by the Company
with respect to shares acquired by such person under a Stock Award shall lapse,
if such person's Continuous Service is terminated other than for Cause within
twelve (12) months following consummation of the Change in Control. For purposes
of the Plan, "Cause" shall mean willful conduct that is materially injurious to
the Company (or any Affiliate) or any successor thereto, whether financial or
otherwise.
For purposes of this Plan, "Change in Control" means: (1) a
dissolution, liquidation, or sale of all or substantially all of the assets of
the Company; (2) a merger or consolidation in which the Company is not the
surviving corporation; (3) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's common shares outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; or (4) the
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or any Affiliate of the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least fifty percent
(50%) of the combined voting power entitled to vote in the election of
directors.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 11 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company to the extent stockholder approval is necessary for the Plan to
satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment
to the Plan for stockholder approval, including, but not limited to, amendments
to the Plan intended to satisfy
11.
42
the requirements of Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based compensation from the limit on
corporate deductibility of compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of the Company,
whichever is earlier. No Stock Awards may be granted under the Plan while the
Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the
Plan is in effect shall not be impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
14. STOCKHOLDER APPROVAL.
No Stock Awards granted under the Plan shall be exercisable in whole
or part unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
12.
43
GENE LOGIC INC.
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN, AS
CORRECTED SEPTEMBER 9, 1998
ADOPTED ON SEPTEMBER 29, 1997
APPROVED BY STOCKHOLDERS ON NOVEMBER 11, 1997
AMENDED BY THE BOARD OF DIRECTORS MARCH 19, 1999
AMENDMENT APPROVED BY STOCKHOLDERS ___________, 1999
1. PURPOSE.
(a) The purpose of the 1997 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of Gene Logic Inc.
(the "Company") who is not otherwise at the time of grant an employee of or
consultant to the Company or of any Affiliate of the Company (each such person
being hereafter referred to as a "Non-Employee Director") will be given an
opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services
of persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(b).
(b) The Board may delegate administration of the Plan to a committee
composed of two (2) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate three hundred twenty five
thousand (325,000) shares of the Company's common stock. If any option granted
under the Plan shall for any reason expire or otherwise terminate
1.
44
without having been exercised in full, the stock not purchased under such option
shall again become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the
Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is first elected or appointed to the Board as a
Non-Employee Director after the Adoption Date shall automatically be granted, on
the date of such initial election or appointment, an option to purchase thirty
thousand (30,000) shares of common stock of the Company on the terms and
conditions set forth herein (hereinafter, an "Initial Grant").
(b) Immediately following each annual meeting of stockholders, each
person who is then a Non-Employee Director and who has continuously served as a
Non-Employee Director for the six (6)-month period prior to the date of the such
annual meeting of stockholders, shall automatically be granted, an option to
purchase fifteen thousand (15,000) shares of common stock of the Company on the
terms and conditions set forth herein (hereinafter, an "Annual Grant").
6. OPTION PROVISIONS.
Each option shall be subject to the following terms and conditions:
(a) The term of each option commences on the date it is granted and,
unless sooner terminated as set forth herein, expires on the date ("Expiration
Date") ten (10) years from the date of grant. If the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate terminates for any reason or for no reason, the option shall terminate
on the earlier of the Expiration Date or the date twelve (12) months following
the date of termination of all such service; provided, however, that if such
termination of service is due to the optionee's death, the option shall
terminate on the earlier of the Expiration Date or eighteen (18) months
following the date of the optionee's death. In any and all circumstances, an
option may be exercised following termination of the optionee's service as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate only as to that number of shares as to which it was exercisable as of
the date of termination of all such service under the provisions of subparagraph
6(e).
(b) The exercise price of each option shall be equal to one hundred
percent (100%) of the Fair Market Value of the stock (as such term is defined in
subsection 9(e) of this Plan) subject to such option on the date such option is
granted.
(c) The optionee may elect to make payment of the exercise price
under one of the following alternatives:
2.
45
(i) In cash (or check) at the time of exercise;
(ii) Provided that at the time of the exercise the Company's
common stock is publicly traded and quoted regularly in The Wall Street Journal,
payment by delivery of shares of common stock of the Company already owned by
the optionee, held for the period required to avoid a charge to the Company's
reported earnings, and owned free and clear of any liens, claims, encumbrances
or security interest, which common stock shall be valued at its Fair Market
Value on the date immediately preceding the date of exercise; or
(iii) Pursuant to a program developed under Regulation T as
promulgated by the Federal Reserve Board which results in the receipt of cash
(or check) by the Company either prior to the issuance of shares of the
Company's common stock or pursuant to the terms of irrevocable instructions
issued by the optionee prior to the issuance of shares of the Company's common
stock.
(iv) Payment by a combination of the methods of payment specified
in subparagraph 6(c)(i) through 6(c)(iii) above.
(d) An option shall be transferable only to the extent specifically
provided in the option agreement; provided, however, that if the option
agreement does not specifically provide for the transferability of an option,
then the option shall not be transferable except by will or by the laws of
descent and distribution, or pursuant to a qualified domestic relations order
satisfying the requirements of Rule 166-3 of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and shall be exercisable during the
lifetime of the person to whom the option is granted only by such person (or by
his guardian or legal representative) or transferee pursuant to such an order.
Notwithstanding the foregoing, the optionee may, by delivering written notice to
the Company in a form satisfactory to the Company, designate a third party who,
in the event of the death of the optionee, shall thereafter be entitled to
exercise the option.
(e) (i) An Initial Grant shall become exercisable in four (4) equal
annual installments measured from the date of grant, commencing on the one
(1)-year anniversary of the date of grant of the option, and (ii) an Annual
Grant shall become exercisable one (1) year from the date of grant, provided
that, with respect to any grant under the Plan, the optionee has, during the
entire period prior to such vesting installment date, continuously served as a
Non-Employee Director or employee of or consultant to the Company or any
Affiliate of the Company, whereupon such option shall become fully exercisable
in accordance with its terms with respect to that portion of the shares
represented by that installment.
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (i) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(ii) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (x) the issuance of the shares upon the
exercise of the option has been registered under a then currently-effective
registration statement under the Securities Act of 1933, as amended (the
3.
46
"Securities Act"), or (y) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may require
any optionee to provide such other representations, written assurances or
information which the Company shall determine is necessary, desirable or
appropriate to comply with applicable securities laws as a condition of granting
an option to the optionee or permitting the optionee to exercise the option. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(g) Notwithstanding anything to the contrary contained herein, an
option may not be exercised unless the shares issuable upon exercise of such
option are then registered under the Securities Act or, if such shares are not
then so registered, the Company has determined that such exercise and issuance
would be exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of stock required
to satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems necessary
for the lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise of
such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is
transferred under subparagraph 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant
thereto shall confer upon any Non-Employee Director any right to continue in the
service of the Company or any Affiliate in any capacity or shall affect any
right of the Company, its Board or stockholders or any Affiliate, to remove any
Non-Employee Director pursuant to the Company's Bylaws and the provisions of
Delaware General Corporations Law.
4.
47
(c) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of common stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
(d) In connection with each option made pursuant to the Plan, it
shall be a condition precedent to the Company's obligation to issue or transfer
shares to a Non-Employee Director, or to evidence the removal of any
restrictions on transfer, that such Non-Employee Director make arrangements
satisfactory to the Company to insure that the amount of any federal, state or
local withholding tax required to be withheld with respect to such sale or
transfer, or such removal or lapse, is made available to the Company for timely
payment of such tax.
(e) As used in this Plan, "Fair Market Value" means, as of any date,
the value of the common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap, the Fair Market Value of a share of
common stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in common stock) on the last market
trading day prior to the day of determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable; or
(ii) In the absence of an established market for the common
stock, the Fair Market Value shall be determined in good faith by the Board.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding options will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding options. Such adjustments shall be made by the Board, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all
or substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the surviving corporation; (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
common stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise; or (4) the acquisition by any person, entity or group within
the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable
successor provisions (excluding any employee benefit plan, or related trust,
sponsored or maintained by the Company or any Affiliate
5.
48
of the Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities
of the Company representing at least fifty percent (50%) of the combined voting
power entitled to vote in the election of directors, then to the extent not
prohibited by applicable law, the time during which options outstanding under
the Plan may be exercised shall be accelerated prior to such event and the
options terminated if not exercised after such acceleration and at or prior to
such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan
and/or some or all outstanding options granted under the Plan. However, except
as provided in paragraph 10 relating to adjustments upon changes in stock, no
amendment shall be effective unless approved by the stockholders of the Company
to the extent stockholder approval is necessary for the Plan to satisfy the
requirements of Rule 16b-3 promulgated under the Exchange Act or any Nasdaq or
securities exchange listing requirements.
(b) Rights and obligations under any option granted before any
amendment of the Plan shall not be impaired by such amendment unless (i) the
Company requests the consent of the person to whom the option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on August 31, 2007. No options may
be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan, except
with the consent of the person to whom the option was granted.
(c) The Plan shall terminate upon the occurrence of any of the events
described in Section 10(b) above.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board.
(b) No option granted under the Plan shall be exercised or become
exercisable unless and until the Plan is approved by the stockholders of the
Company.
6.
49
PROXY
GENE LOGIC INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 8, 1999
The undersigned hereby appoints Michael J. Brennan, M.D., Ph.D. and Mark D.
Gessler, and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all of the shares of stock of GENE LOGIC
INC. which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of GENE LOGIC INC. to be held at the Company's executive offices,
708 Quince Orchard Road, Gaithersburg, Maryland 20878, on Tuesday, June 8,
1999 at 3:00 p.m. local time, and at any and all postponements, continuations
and adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
Please mark
your votes as
indicated in
this example. [X]
MANAGEMENT RECOMMENDS A VOTE FOR THE FOR WITHHOLD
NOMINEES FOR DIRECTOR LISTED BELOW. all nominees listed AUTHORITY
below (except as to vote for
marked to the all nominees
contrary below). listed below.
PROPOSAL 1: To elect two directors to
hold office until the 2002
Annual Meeting of
Stockholders. [ ] [ ]
Nominees: Jeffrey D. Sollender
and Alan G. Walton, Ph.D.,
D.Sc.
To withhold authority to vote for any
nominee(s) write such nominee(s)'
name(s) below:
- ----------------------------------------
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 2,3 AND 4.
FOR AGAINST ABSTAIN
PROPOSAL 2: To approve the Company's 1997
Equity Incentive Plan to increase the [ ] [ ] [ ]
aggregate number of shares of Common
Stock authorized for issuance under such
plan by 1,000,000 shares.
FOR AGAINST ABSTAIN
PROPOSAL 3: To approve the Company's 1997
Non-Employee Directors' Stock Option Plan [ ] [ ] [ ]
to increase the aggregate number of shares
Common Stock authorized for issuance under
such plan by 200,000 shares and to increase
the number of shares underlying the options
which are automatically granted each year
to each non-employee director by 7,500
shares.
FOR AGAINST ABSTAIN
PROPOSAL 4: To ratify selection of Arthur
Andersen LLP as independent auditors of the [ ] [ ] [ ]
Company for its fiscal year ending
December 31, 1998.
- -------
| PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED
| RETURN ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED
| STATES.
Signature(s) Date
--------------------------------------------- ------------------
Please sign exactly as your name appears hereon. If the stock is registered in
names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership name by authorized person.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE