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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [X] Definitive Proxy Statement
[ ] Confidential, for Use of the [ ] Definitive Additional Materials
Commission Only [ ] Soliciting Material Pursuant to
(as permitted by Rule 14a-6(e)(2)) 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)
Payment of Filing Fee (Check in the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number of securities to which transaction applies:
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3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4. Proposed maximum aggregate value of transaction:
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5. Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
6. Amount Previously Paid:
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7. Form, Schedule or Registration Statement No.:
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8. Filing Party:
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9. Date Filed:
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GENE LOGIC INC.
708 QUINCE ORCHARD ROAD
GAITHERSBURG, MARYLAND 20878
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 7, 2001
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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 Thursday,
June 7, 2001 at 3:00 p.m. Eastern Daylight Time at the Company's executive
offices, 708 Quince Orchard Road, Gaithersburg, Maryland 20878, for the
following purpose:
1. To elect Jules Blake, Ph.D. and Michael J. Brennan, M.D., Ph.D. as
directors to serve for a term of three years.
2. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2001.
3. 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 20, 2001,
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
[J. BARRY BUZOGANY SIG]
J. Barry Buzogany
Senior Vice President, General Counsel
and Secretary
Gaithersburg, Maryland
May 4, 2001
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
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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
JUNE 7, 2001
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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 7, 2001, 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 4, 2001 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, Mellon Investor Services LLC. No additional
compensation will be paid to directors, officers or other regular employees for
such services.
VOTING RIGHTS, OUTSTANDING SHARES AND QUORUM
Only holders of record of Common Stock at the close of business on April
20, 2001 will be entitled to notice of, and to vote at, the Annual Meeting. At
the close of business on April 20, 2001, the Company had outstanding and
entitled to vote 26,408,261 shares of Common Stock. A majority of the
outstanding shares of Common Stock, represented in person or by proxy, will
constitute a quorum for the Annual Meeting.
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.
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 executive offices, 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 2002 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is January 4, 2002. Unless a stockholder who wishes to bring a matter
before the stockholders at the Company's 2002 annual meeting of stockholders
notifies the Company of such matter prior to March 20, 2002, 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 seven members, with two
vacancies. There are two directors in the class whose term of office expires in
2001. 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 2004 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
NOMINEES FOR A THREE-YEAR TERM AGE SINCE TERM POSITIONS HELD WITH THE COMPANY
------------------------------ --- -------- ------------- --------------------------------------
Jules Blake, Ph.D. (1)(2) 76 1994 2001 Director
Michael J. Brennan, M.D., Ph.D. (3) 43 1995 2001 Director
CONTINUING DIRECTORS
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Mark D. Gessler (3) 39 2000 2002 Chief Executive Officer, President
and Chairman of the Board of Directors
Charles L. Dimmler III (1)(2) 59 1996 2003 Director
G. Anthony Gorry, Ph.D. (1)(2) 60 1997 2003 Director
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(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Nominating Committee.
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.
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NOMINEES FOR ELECTION FOR A TERM EXPIRING AT THE 2004 ANNUAL MEETING OF
STOCKHOLDERS
JULES BLAKE, PH.D. Dr. Blake has served as a director of the Company since
our 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. Dr. Blake 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 board of directors of the public
company Martek Biosciences 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 since
December 1995 and as Chairman of the Board of Directors from March 2000 through
April 2001. He served as our Chief Executive Officer from December 1995 through
June 2000 and as President from December 1995 through January 1999. Since
September 2000, Dr. Brennan has been a General Partner of Oxford Biosciences
Partners, a venture capital firm specializing in the financing of early stage
healthcare companies. 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.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
DIRECTOR CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING OF
STOCKHOLDERS
MARK D. GESSLER. Mr. Gessler has served as Chief Executive Officer since
June 2000 and as President since January 1999. Mr. Gessler has also served as a
director since March 2000 and Chairman of the Board of Directors since April
2001. From January 1999 through June 2000, Mr. Gessler served as our Chief
Operating Officer. From June 1996 to October 1999, Mr. Gessler served as our
Chief Financial Officer and, from June 1996 to January 1999, was our Senior Vice
President, Corporate Development. From February 1993 to June 1996, he was with
GeneMedicine Inc., a gene therapy company, most recently as Vice President,
Corporate Development. Mr. Gessler holds an MBA from the University of
Tennessee.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2003 ANNUAL MEETING OF
STOCKHOLDERS
CHARLES L. DIMMLER III. Mr. Dimmler has served as a director of the
Company since May 1996. Mr. Dimmler has been a Managing Director of Burrill &
Company, a private merchant banking firm specializing in the life science
industries, since January 2000 and President and Chief Executive Officer of
Lundbeck, Inc., a wholly owned subsidiary of H. Lundbeck A/S, a Dutch
pharmaceutical company, since April 2001. From July 1994 to December 1999, Mr.
Dimmler was an investment officer of Cross Atlantic Partners Funds and an
operating officer of Cross Atlantic Partners, Inc., a unit of Investec Group
Investments Limited. Since 1988, Mr. Dimmler has been a General Partner of
Hambro International Equity Fund.
G. ANTHONY GORRY, PH.D. Dr. Gorry has served as a director of the Company
since January 1997. Since July 2000, Dr. Gorry has been the Friedkin Professor
of Management and Professor of Computer Science at Rice University where he also
serves as the Director of the Center for Technology in Teaching and Learning.
From April 1992 through July 2000, he was Vice President, Information Technology
at Rice. Dr. Gorry directs a training grant on computational biology funded by
the National Library of Medicine. He is also Adjunct Professor of Neuroscience
at Baylor College of Medicine. Dr. Gorry serves on the board of directors of the
public company Enchira Biotechnology Corporation. Dr. Gorry holds a B.Eng. from
Yale University, an M.S. in chemical engineering from the University of
California, Berkeley and a Ph.D. in computer science from the Massachusetts
Institute of Technology. He is a Member of the Institute of Medicine and of the
National Academy of Sciences and a Fellow of the American College of Medical
Informatics.
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BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 2000, the Board of Directors held
eight meetings. The Board has an Audit Committee, Compensation Committee and
Nominating Committee.
The Audit Committee meets with the Company's independent auditors to review
the scope, plans and results of the annual audit and to discuss the financial
statements and the independent auditors' independence from management and the
Company; 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 the audit and
financial controls. The Audit Committee is composed of three non-employee
directors: Drs. Blake and Gorry and Mr. Dimmler (Chairman). It met six times
during the 2000 fiscal year. The Audit Committee is governed by a written
charter approved by the Board of Directors. A copy of this charter is included
as Appendix A. Each of the members of the Audit Committee is independent as
defined by the Nasdaq Marketplace Rules.
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: Drs. Blake and Gorry (Chairman) and Mr. Dimmler. It met five times
during the 2000 fiscal year.
The Nominating Committee makes recommendations to the Board concerning a
new member to fill a vacancy (including a vacancy created by an increase in the
Board of Directors). The Nominating Committee is composed of two directors: Dr.
Brennan and Mr. Gessler. The Nominating Committee will consider nominees for
directors nominated by stockholders upon submission in writing to the Secretary
of the Company of the names of such nominees in accordance with the Company's
By-laws. The Nominating Committee was established in late 2000 and did not meet
during the 2000 fiscal year.
During the fiscal year ended December 31, 2000, each Board member
participated in 75% or more of the aggregate of the meetings of the Board and of
the committees on which he served that were held during the period for which he
was a director or committee member, respectively.
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has reappointed Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2001 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Representatives of
Ernst & Young 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.
FORMER INDEPENDENT AUDITORS
The following information was released by the Company in a Current Report
on Form 8-K, dated April 11, 2000 (the "Form 8-K"), regarding the Company's
former independent auditors, Arthur Andersen LLP ("Andersen").
(i) The Company dismissed Andersen as the independent auditors for the
Company on April 11, 2000.
(ii) Andersen's reports on the financial statements of the Company for the
fiscal years ended December 31, 1998 and 1999 contain no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
(iii) The Audit Committee of the Company's Board of Directors and the full
Board of Directors have approved the dismissal of Andersen.
(iv) During the fiscal years ended December 31, 1998 and 1999 and the
interim period ended April 11, 2000, other than as set forth below, there has
been no disagreement between the Company and Andersen on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure,
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which disagreement, if not resolved to the satisfaction of Andersen would have
caused them to make a reference to the subject matter of the disagreement in
connection with Andersen's reports.
On March 9, 2000, prior to the issuance of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, the Audit Committee of
the Company met with representatives of Andersen to receive Andersen's report in
connection with its audit of the 1999 financial statements of the Company. At
that meeting, the representatives of Andersen reviewed the results of the audit
and disclosed that Andersen would issue an unqualified report on the 1999
financial statements. The Andersen representatives also advised the Audit
Committee at that meeting that there were no material weaknesses relating to the
Company's internal control structure, no disagreements with management on any
accounting or financial matters, and no material errors or irregularities.
Subsequent to the Audit Committee meeting with Andersen, the Company's
Board of Directors met and, on the recommendation of the Audit Committee and the
Company's Chief Financial Officer, determined that the Company should engage new
independent auditors for the fiscal year 2000 and dismiss Andersen. The
Company's decision to change auditors resulted from the Company's
disappointments with Andersen's level of service and cost and the recommendation
of the Company's new Chief Financial Officer based on his experience since
joining the Company in late 1999. While Andersen had responded to concerns
expressed by the Company by changing the Company's engagement partner and by
promising improved services, the Board of Directors, nevertheless, authorized
management to engage alternative independent auditors who have greater
biotechnology industry-specific expertise.
Subsequent to Andersen's meeting with the Audit Committee to discuss its
audit for the fiscal year ended December 31, 1999, and after the Board of
Directors' decision to authorize management to engage new auditors, the Company
negotiated and on March 27, 2000 entered into two agreements with NeuralStem
Biopharmaceuticals, Ltd. Pursuant to one agreement, NeuralStem purchased a
module of the Company's GeneExpress(R) database. Under the second agreement, the
Company purchases human stem cells from NeuralStem's repository for gene
expression analysis. The data resulting from this analysis is provided to
NeuralStem and is also included by the Company in the GeneExpress(R) database
for license to customers in the pharmaceutical, biotechnology and other
industries. After the filing of the Form 8-K, the Company also made an equity
investment in NeuralStem.
During the course of the negotiations with NeuralStem, management of the
Company consulted with the new engagement partner from Andersen and other
representatives of Andersen over the appropriate accounting treatment for these
transactions in fiscal year 2000, including what portion, if any, should be
accounted for in the first quarter of 2000. During the course of the
consultations, management proposed that the sale of the database module for $1.5
million be accounted for in the first quarter and, after further review,
Andersen indicated its likely disagreement with this position. At the time of
filing the Form 8-K, the NeuralStem agreements had not been reported on in
filings with the Securities and Exchange Commission (the "SEC"). The Company had
not concluded how these transactions should be accounted for and intended to
determine the appropriate accounting treatment for these transactions in
consultation with the Company's new independent auditors.
Upon receipt of the Company's letter dismissing Andersen as its independent
auditors, Andersen informed the Company orally that its discussions to that
point with the Company concerning the appropriate accounting for the NeuralStem
agreements had resulted in a reportable disagreement between the Company and
Andersen. After being informed of the disagreement by Andersen, the Company
requested representatives of Andersen to meet with its Audit Committee to
discuss the substance of the disagreement and such a meeting took place at
Andersen's offices on April 13, 2000. The Company has authorized Andersen to
respond fully to all inquiries by its new independent auditors.
(v) During the fiscal years ended December 31, 1998 and 1999 and the
interim period ended April 11, 2000, there have been no "reportable events" (as
defined in Item 304(a)(1)(v) of Regulation S-K).
The Company requested that Andersen submit a letter addressed to the SEC
stating whether they agreed with the Company's summary of events. The following
language is from the response letter from Andersen
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dated May 2, 2000 which was filed by the Company with the SEC on May 4, 2000 as
part of an amendment to the Form 8-K:
"We have read Item 4 included in the attached Form 8-K dated April 18,
2000 of Gene Logic Inc. (Company) filed with the Securities and Exchange
Commission and have the following comments regarding certain of the
statements contained therein.
We were informed of our dismissal by phone call on April 7, 2000,
followed by a letter dated April 11, 2000. Accordingly, we were dismissed
by the Company subsequent to the discussion of the revenue recognition
issue described in the following paragraph. To the best of our knowledge,
we were not dismissed prior to March 27, 2000, the date the Company entered
into two agreements with NeuralStem Biopharmaceuticals, Ltd.
Regarding the NeuralStem Biopharmaceuticals, Ltd. (NeuralStem)
transactions, the Company's position, as expressed to us by the Chief
Financial Officer of the Company, was that the terms of the NeuralStem
transactions should result in $1,500,000 of revenue in the three months
ended March 31, 2000. On April 5, 2000, we informed the Company that based
on the information provided to us, our conclusion was that the NeuralStem
transactions would not result in revenue in the quarter ended March 31,
2000. Our conclusion was based on our view as to the proper application of
generally accepted accounting principles. The Chief Financial Officer
disagreed with our position. At that time, (April 5, 2000) Arthur Andersen
LLP was informed that a subsequent meeting would be held with Company
senior management to further discuss the matter. Such meeting was never
held prior to being informed of our termination.
With the exception of the matters discussed in the preceding
paragraphs, Arthur Andersen LLP is in agreement with Item 4 (a)(1) in the
Form 8-K dated April 18, 2000 of Gene Logic Inc. filed with the Securities
and Exchange Commission."
INDEPENDENT AUDITORS
The Company engaged Ernst & Young LLP as its independent auditors for the
fiscal year ended December 31, 2000 and such selection was ratified by the
stockholders at the 2000 annual meeting of stockholders. Ernst & Young LLP's
report on the financial statements of the Company for the fiscal year ended
December 31, 2000 contains no adverse opinion or disclaimer of opinion and was
not qualified or modified as to uncertainty, audit scope or accounting
principles. During the fiscal years ended December 31, 1998 and 1999 and any
subsequent interim period prior to the Company's engagement of Ernst & Young
LLP, the Company did not consult with Ernst & Young LLP regarding (i) the
application of accounting principles or the type of audit opinion that might be
rendered by Ernst & Young LLP, or (ii) any other matter that was the subject of
a disagreement between the Company and Andersen or a reportable event.
Stockholder ratification of the selection of Ernst & Young 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 of Ernst & Young 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 Ernst & Young 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 2.
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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 1, 2001 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)
-----------------------------------
NUMBER OF
NAME AND ADDRESS SHARES PERCENT OF TOTAL
---------------- ---------------- ----------------
Kern Capital Management, LLC (2)............................ 3,434,500 13.0%
Wellington Management Company, LLP (3)...................... 2,518,900 9.6%
Leroy Kopp and Kopp Investment Advisors, Inc. (4)........... 1,927,652 7.3%
Waddell & Reed Investment Management Company (5)............ 1,707,200 6.5%
Michael J. Brennan, M.D., Ph.D. (6,7)....................... 787,743 2.9%
Mark D. Gessler (6,7)....................................... 402,884 1.5%
Victor M. Markowitz, D.Sc. (7).............................. 207,844 *
Y. Douglas Dolginow, M.D. (7)............................... 181,262 *
Eric M. Eastman, Ph.D. (7).................................. 130,842 *
David S. Murray (7)......................................... 81,526 *
G. Anthony Gorry, Ph.D. (7)................................. 77,000 *
Jules Blake, Ph.D. (7)...................................... 66,500 *
Charles L. Dimmler III (7).................................. 52,401 *
All directors and executive officers as a group (10 persons)
(7)....................................................... 2,095,126 7.9%
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* Represents beneficial ownership of less than 1%.
(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 26,372,678 shares of Common
Stock outstanding as of April 1, 2001.
(2) Based on a Schedule 13G filed with the SEC on February 9, 2001, Kern Capital
Management, LLC has sole voting power with respect to 3,321,600 shares and
sole dispositive power with respect to 3,434,500 shares. Robert Kern and
David Kern are controlling members of Kern Capital Management, LLC and as
such may be deemed to be the beneficial owner of all of the shares, with
shared voting power with respect to 3,321,600 shares and shared dispositive
power with respect to 3,434,500 shares. The address of each of Kern Capital
Management, LLC, David Kern and Robert Kern is 114 West 47th Street, Suite
1926, New York, New York 10036.
(3) Based on a Schedule 13G/A filed with the SEC on February 13, 2001,
Wellington Management Company, LLP has shared voting power with respect to
1,594,100 shares and shared dispositive power with respect to 2,518,900
shares. Its address is 75 State Street, Boston, Massachusetts 02109.
(4) Based on a Schedule 13G filed with the SEC on February 2, 2001, Leroy Kopp
is the sole owner of Kopp Holding Company, and Kopp Holding Company is the
sole owner of Kopp Investment Advisors, Inc. According to such Schedule 13G:
(i) Leroy Kopp may be deemed to be the beneficial owner of 1,927,652 shares,
of which he has sole voting and dispositive power with respect to 110,00
shares, (ii) Kopp Holding Company may be deemed to be the beneficial owner
of 1,817,652 shares, and (iii) Kopp Investment Advisers, Inc. may be deemed
to be the beneficial owner of 1,817,652 shares, of which it has sole voting
power with respect to 732,200 shares, sole dispositive power with respect to
600,00 shares and shared dispositive power with respect to 1,217,652 shares.
The address of each of Mr. Kopp, Kopp Holding
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Company and Kopp Investment Advisors, Inc. is 7701 France Avenue South, Suite
500, Edina, Minnesota 55435.
(5) Based on a Schedule 13G filed with the SEC on January 23, 2001, the shares
may be deemed to be beneficially owned by one or more investment companies
or other managed accounts that are advised or sub-advised by Waddell & Reed
Investment Management Company, an investment advisory subsidiary of Waddell
& Reed, Inc. Waddell & Reed, Inc. is a subsidiary of Waddell & Reed
Financial Services, Inc., which is a subsidiary of Waddell & Reed Financial,
Inc. Waddell & Reed Investment Management Company has sole voting and
dispositive power with respect to all of the shares. The address of each of
the Waddell affiliates is 6300 Lamar Avenue, Overland Park, Kansas 66202.
(6) Includes 75,000 and 10,000 shares held of record by the Brennan Family
Limited Partnership and Gessler Family Limited Partnership, respectively.
(7) Includes shares subject to options which, for the individuals shown, are
exercisable within 60 days of April 1, 2001 as follows: Dr.
Brennan - 390,592 shares; Mr. Gessler - 276,209 shares; Dr.
Markowitz - 207,844; Dr. Dolginow - 88,417; Dr. Eastman - 63,225; Mr.
Murray - 80,417; Dr. Gorry - 75,000; Dr. Blake - 66,500; Mr.
Dimmler - 22,500; and all directors and executive officers as a
group - 1,371,120 shares.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act of 1934, as amended, 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, 2000, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with; except that one
report on Form 3 (Initial Statement of Beneficial Ownership of Securities) and
one report of Form 4 (Statement of Changes in Beneficial Ownership) covering an
aggregate of three transactions, were filed late by Jeffrey Sollender, a former
director.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company who was not affiliated with
stockholders of the Company received $12,000 per year and a per meeting fee of
$1,000 (exclusive of telephonic meetings) through June 30, 2000. Starting July
1, 2000, each non-employee director of the Company currently receives $20,000
per year. In the fiscal year ended December 31, 2000, the total fees earned by
the non-employee directors for services during that year was $60,000. 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 Company's 1997 Non-Employee Directors' Stock Option Plan
(the "Directors' Plan"). Only non-employee directors of the Company or an
affiliate of such directors (as defined in the Internal Revenue Code of 1986, as
amended, 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.
During the last fiscal year, the Company granted options covering 15,000
shares to each non-employee director of the Company, at an exercise price per
share of $35.563 under the Director's Plan. In addition, on February 2, 2000,
the Company made a one-time grant of options covering 20,000 shares each to four
of the non-employee directors of the Company, at an exercise price per share of
$62.875 under the Company's 1997
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Equity Incentive Plan (the "Incentive Plan"). The options were all granted with
an exercise price equal to the fair market value of such Common Stock on the
date of grant.
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 2000,
1999 and 1998, compensation paid to the Company's Chief Executive Officers and
its four other most highly compensated executive officers at December 31, 2000
(the "Named Executive Officers").
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- ------------
OTHER ANNUAL SECURITIES
BONUS COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($) ($)(1) OPTIONS (#)
--------------------------- ---- ---------- -------- ------------ ------------
Mark D. Gessler............................................. 2000 375,000 512,500(3) -- 220,000
Chief Executive Officer and President (2) 1999 275,000 -- -- 150,000
1998 220,000 16,885 -- --
Michael J. Brennan, M.D., Ph.D.............................. 2000 290,575 275,000(3) -- 120,000
Chief Executive Officer (4) 1999 350,000 -- -- 100,000
1998 287,500 59,800(5) -- --
Y. Douglas Dolginow, M.D.................................... 2000 262,200 66,666 -- 50,000
Senior Vice President, Pharmacogenomics (6) 1999 216,672 56,250 -- 100,000
1998 50,000 75,000(7) -- 100,000
Eric M. Eastman, Ph.D....................................... 2000 208,333 78,000 -- 90,000
Senior Vice President and Chief Technical Officer (8) 1999 168,000 28,560 -- 53,750
1998 133,333 50,000 -- --
Victor M. Markowitz, D.Sc. ................................. 2000 275,000 125,000 -- 50,000
Senior Vice President and Chief Information Officer 1999 210,000 57,008 -- 50,000
1998 159,096 16,885 -- 100,000
David S. Murray............................................. 2000 253,159 265,000 84,795(10) 160,000
Senior Vice President, Marketing and Sales (9) 1999 -- -- -- --
1998 -- -- -- --
- ---------------
(1) As permitted by rules promulgated by the SEC, no amounts are shown for any
"perquisites," where such amounts do not exceed the lesser of 10% of bonus
plus salary or $50,000.
(2) Mr. Gessler served as Chief Operating Officer until June 2000 and as Chief
Executive Officer since June 2000.
(3) Includes a bonus in special recognition of the successful completion of the
Company's secondary public offering in 2000 for Mr. Gessler and Dr. Brennan
in the amount of $237,500 and $275,000, respectively.
(4) Dr. Brennan served as Chief Executive Officer through June 2000.
(5) Includes amounts paid to a corporation of which Dr. Brennan is a
stockholder for service rendered by such corporation.
(6) Dr. Dolginow joined the Company in September 1998.
(7) Dr. Dolginow received a $50,000 bonus in connection with the Company's
acquisition of Oncormed, Inc. and was paid by Oncormed.
(8) Dr. Eastman served as Vice President, Technology Management until becoming
Senior Vice President and Chief Technical Officer in July 2000.
(9) Mr. Murray joined the Company in January 2000.
(10) Includes reimbursements for relocation expenses.
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STOCK OPTION GRANTS AND EXERCISES
The Company adopted its 1996 Stock Plan in January 1996 and amended and
restated the 1996 Stock Plan in September 1997 as the Incentive Plan. The
Company grants options to its executive officers under the Incentive Plan. As of
April 1, 2001, options to purchase a total of 4,567,640 shares were outstanding
under the Incentive Plan and options to purchase 1,278,742 shares remained
available for grant thereunder.
The following tables show for the fiscal year ended December 31, 2000,
certain information regarding options granted to, exercised by, and held at
year-end by, the Named Executive Officers:
OPTION GRANTS IN FISCAL YEAR 2000
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
-------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM (3)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED (#) FISCAL YEAR(1) ($/SH)(2) DATE 5% ($) 10% ($)
---- ----------- --------------- ----------- ---------- ----------- -------------
Mark D. Gessler.................. 120,000 5.2 62.875 2/1/10 0 0
100,000 4.3 35.563 6/7/10 0 1,209,702
Michael J. Brennan, M.D.,
Ph.D........................... 120,000 5.2 62.875 2/1/10 0 0
Y. Douglas Dolginow, M.D......... 50,000 2.2 62.875 2/1/10 0 0
Eric M. Eastman, Ph.D............ 30,000 1.3 62.875 2/1/10 0 0
60,000 2.6 21.000 5/30/10 535,856 1,599,601
Victor M. Markowitz, D.Sc. ...... 50,000 2.2 62.875 2/1/10 0 0
David S. Murray.................. 120,000 5.2 25.750 1/13/10 501,713 2,629,202
40,000 1.7 62.875 2/1/10 0 0
- ---------------
(1) Based on options to purchase 2,311,560 shares granted to employees in 2000,
including the Named Executive Officers.
(2) 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.
(3) 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 29, 2000 of $18.375. It is calculated
assuming that the stock price on the date of grant appreciates at the
indicated annual rate, compounded annually. The total appreciation of the
options over their 10-year terms at 5% and 10% is 63% and 159%,
respectively, and do not reflect the Company's estimate or projection of the
future stock price performance. Actual gains, if any, are dependent on the
actual future performance of the Company's Common Stock.
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AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2000
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE REALIZED YEAR-END (#) FISCAL YEAR-END ($)(2)
NAME EXERCISE (#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ------------ -------------- ----------------------------- -------------------------
Mark D. Gessler................... 88,649 5,629,212 257,418/195,914 1,690,813/1,675,833
Michael J. Brennan, M.D., Ph.D.... 98,270 6,240,145 335,824/134,868 3,450,082/1,892,154
Y. Douglas Dolginow, M.D. ........ 89,083 1,911,861 49,666/111,251 305,745/1,297,666
Eric M. Eastman, Ph.D. ........... 17,759 182,734 41,557/84,434 39,028/266,546
Victor M. Markowitz, D.Sc. ....... 50,000 937,500 185,945/91,691 2,448,408/969,268
David S. Murray................... 0 0 54,166/105,834 0/0
- ---------------
(1) Based on the fair market value per share of Common Stock at the date of
exercise (based on the closing sales price reported on the NASDAQ National
Market for the date of exercise), less the exercise price.
(2) Based on the fair market value per share of Common Stock of $18.375 at
December 29, 2000, less the exercise price, multiplied by the number of
shares underlying the option.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
On May 16, 1996, Mark D. Gessler entered into an employment agreement with
the Company, with a four-year term subject to automatic renewal for successive
one-year periods unless terminated. The agreement provides for payment of salary
and annual bonuses and acceleration of the vesting of certain options (all of
which have vested at present). In the event of termination of the agreement by
the Company without cause (other than in connection with a change of control),
Mr. Gessler would receive severance pay in an amount equal to 50% of his annual
salary as then in effect.
On December 1, 1995, Michael J. Brennan, M.D., Ph.D. entered into an
employment agreement, with a five-year term subject to automatic renewal for
successive one-year periods unless terminated. The agreement provides for
payment of salary and annual bonuses and acceleration of the vesting of certain
options (all of which have vested at present). In the event of termination of
the agreement by the Company without cause (other than in connection with a
change of control), Dr. Brennan would receive severance pay in an amount equal
to 100% of his annual salary and bonus for the calendar year in which the
termination becomes effective.
On April 1, 1999, Y. Douglas Dolginow, M.D., entered into an employment
agreement, with a four-year term subject to automatic renewal for successive
one-year periods unless terminated. The agreement provides for payment of salary
and annual bonuses. In the event of termination of the agreement by the Company
without cause (other than in connection with a change of control), Dr. Dolginow
would receive severance pay in the amount equal to 50% of his annual salary and
bonus for the calendar year in which the termination becomes effective or an
amount in accordance with a Company-wide severance plan applicable to Senior
Vice Presidents, whichever is greater.
On September 7, 1996, Eric M. Eastman entered into an employment agreement
with the Company, with a four-year term subject to automatic renewal for
successive one-year periods unless terminated. The agreement provides for
payment of salary and annual bonuses and acceleration of the vesting of certain
options (all of which have vested at present). In the event of termination of
the agreement by the Company without cause (other than in connection with a
change of control), Dr. Eastman would receive severance pay in an amount equal
to 25% of his annual salary as then in effect.
On September 1, 1997, Victor M. Markowitz entered into an employment
agreement with the Company, with a four-year term, subject to automatic renewal
for successive one-year periods unless terminated. The agreement provides for
payment of salary and annual bonuses and acceleration of the vesting of certain
options (which have vested at present). In the event of termination of the
agreement by the Company without cause
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(other than in connection with a change of control), Dr. Markowitz would receive
severance pay in amount equal to 25% of his annual salary as then in effect.
On January 4, 2000, David S. Murray entered into an employment agreement
with the Company, with a four-year term, subject to automatic renewal for
successive one-year periods unless terminated. The agreement provides for
payment of salary and annual bonuses. In the event of termination of the
agreement by the Company without cause (other than in connection with a change
of control), Mr. Murray would receive severance pay in amount equal to 50% of
his annual salary as then in effect.
In furtherance of the stated goals of attracting and retaining executive
officers and other key employees who contribute to the long-term success of the
Company, the Company has adopted the Executive Severance Plan (the "Retention
Plan"). The purpose of the Retention Plan is to encourage eligible executives to
continue as employees of the Company in the event of a change of control of the
Company. The Retention Plan also provides for severance benefits to those
executives if their employment with the Company is terminated, under certain
circumstances, shortly before or after the change of control of the Company.
The Retention Plan provides the following benefits for the Company's senior
executive officers, which includes the Company's Chairman of the Board, Chief
Executive Officer, President, Chief Financial Officer and Senior Vice
Presidents, upon a change in control:
(a) immediate vesting of any unvested stock options;
(b) in the event of involuntary termination without cause or constructive
termination within 13 months following or three months preceding the change of
control,
(i) payment of 12 months salary and the maximum bonus for which such
officer is eligible,
(ii) payment of outplacement services, and
(iii) continued payment of group health care costs for up to 12 months
for the employee and dependents enrolled in the health plan at
termination;
(c) in the event of death or disability within 13 months following the
change of control,
(i) payment of 6 months salary and the maximum bonus for which such
officer is eligible, and
(ii) continued payment of group health care costs for up to 6 months
for the employee and dependents enrolled in the health plan at
termination.
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. Blake, Mr. Dimmler, and Dr. Gorry none of whom is
currently an officer or employee 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:
- 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
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Committee has relied on its members' experience in working with other
comparable companies and published compensation surveys reflecting
compensation data for biotechnology companies to ensure executive
salaries are competitive.
- 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.
- 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 17 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 2000, 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 an analysis of
published compensation surveys reflecting compensation data for biotechnology
companies. Annual adjustments were made to maintain base salaries at levels
competitive with 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. In 2000, the amount of the bonus component in
the total compensation plan for executive officers was established at the
beginning of the year (or upon employment, in the case of newly hired
executives). The actual incentive award depended on the extent to which Company
performance objectives were achieved. At the start of the year, the Compensation
Committee approved the annual performance objectives for the Company, which were
based upon overall strategic goals set by the Board of Directors. In 2000, 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. Awards are paid in cash and distributions were
made upon achievement of such objectives in the performance year. In evaluating
the payment of bonuses for 2000, the Compensation Committee considered the
actual performance of the Company and individuals and the significant
accomplishments in the Company's business operations and the change in its
strategic direction, reflecting the development, introduction and growth of its
GeneExpress(R) Suite of databases.
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.
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16
Executive officers receive value from option grants only if the Company's
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.
Executive Severance Plan. In furtherance of the stated goals of attracting
and retaining executive officers and other key employees who contribute to the
long-term success of the Company, the Company adopted the Retention Plan. The
purpose of the Retention Plan is to encourage eligible executives to continue as
employees of the Company in the event of a change of control of the Company. The
Retention Plan also provides for severance benefits to those executives if their
employment with the Company is terminated, under certain circumstances, shortly
before or after the change of control of the Company.
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. served as Chief Executive Officer until
June 2000 and Mark D. Gessler has served as Chief Executive Officer since then.
Dr. Brennan's annual base salary for 2000 was $450,000. Mr. Gessler's annual
base salary was $400,000. In determining the Chief Executive Officers' cash
compensation, the Compensation Committee considered their respective levels of
experience, their contribution to the significant growth of the Company and
their leadership in implementing critical and successful strategic and financial
initiatives. In particular, the Committee took into account the successful
commercialization of the GeneExpress(R) Suite of databases, including its
expanding base of customers, accelerated data content and two major upgrades to
the underlying software platform, the establishment of important strategic
partnerships to expand the business and the Company's overall financial results.
The Compensation Committee also considered industry reports as well as industry
compensation data. For 2000, Dr. Brennan and Mr. Gessler each received a bonus
in special recognition of the successful completion of the Company's secondary
public offering. Mr. Gessler received a bonus in recognition of the specific
business accomplishments referred to above, while Dr. Brennan did not as he was
no longer Chief Executive Officer.
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.
Currently, all compensation paid to the Company's Named Executive Officers
is deductible for federal income tax purposes. As a result, the Compensation
Committee has not yet needed to establish 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.
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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
Jules Blake, Ph.D.
Charles L. Dimmer III
G. Anthony Gorry, Ph.D.
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Jules Blake, Ph.D., Charles Dimmler
III and G. Anthony Gorry, Ph.D. No member of the Compensation Committee was at
any time during the fiscal year ended December 31, 2000 an officer or employee
of the Company.
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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS(1)
The responsibilities of the Audit Committee, which are set forth in the
Audit Committee Charter adopted by the Board of Directors (a copy of which is
attached to this Proxy Statement as Appendix A), include providing oversight to
the Company's financial reporting process through periodic meetings with the
Company's independent auditors and management to review accounting, auditing,
internal controls and financial reporting matters. The management of the Company
is responsible for the preparation and integrity of the financial reporting
information and related systems of internal controls. The Audit Committee, in
carrying out its role, relies on the Company's management and its independent
auditors.
We have reviewed and discussed with management the Company's audited
financial statements included in the 2000 Annual Report to Stockholders. We have
discussed with Ernst & Young LLP, the Company's independent auditors, the
matters required to be discussed by Statement on Auditing Standards No. 61,
"Communications with Audit Committees" ("SAS 61"). SAS 61 requires the
independent auditors to provide us with additional information regarding the
scope and results of their audit of the Company's financial statements,
including with respect to (i) their responsibility under generally accepted
auditing standards, (ii) adoption of or changes in significant accounting
policies, (iii) management judgments and estimates, (iv) any significant audit
adjustments, (v) any disagreements with management, and (vi) any difficulties
encountered in performing the audit. We have received from Ernst & Young LLP a
letter providing the disclosures required by Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committees" with respect to
any relationships between Ernst & Young LLP and the Company. Ernst & Young LLP
has discussed its independence with us. Based on the review and discussions
described above with respect to the Company's audited financial statements
included in the Company's 2000 Annual Report to Stockholders, we have
recommended to the Board of Directors that such financial statements be included
in the Company's Annual Report on Form 10-K for filing with the Securities and
Exchange Commission.
AUDIT COMMITTEE
Jules Blake, Ph.D.
Charles L. Dimmler III
G. Anthony Gorry, Ph.D.
AUDITOR INDEPENDENCE
In addition to audit services, Ernst & Young LLP provides certain non-audit
services to the Company. The Audit Committee has considered whether the
provision of these additional services is compatible with maintaining the
independence of Ernst & Young LLP. The fees incurred during the 2000 fiscal year
by the Company for the services of Ernst & Young LLP are as follows:
Audit fees.................................................. $ 62,000
Financial information systems design and implementation
fees...................................................... 0
All other fees (including audit-related and tax services)... 77,200
--------
Total....................................................... $139,200
========
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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), (iii) Nasdaq Pharmaceutical Stocks and (iv) Nasdaq
Biotechnology Stocks. In this proxy statement, the Nasdaq Biotechnology Index
has been added, as the Company believes this index to be a more representative
measure of performance. 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 2000:
CUMULATIVE TOTAL RETURN
------------------------------------------------
11/21/97 12/31/97 12/31/98 12/31/99 12/31/00
-------- -------- -------- -------- --------
Gene Logic Inc. 100 100 84 331 230
Nasdaq Stock Market (U.S.) 100 97 137 254 153
Nasdaq Pharmaceutical 100 96 122 230 287
Nasdaq Biotechnology 100 95 138 278 342
CERTAIN TRANSACTIONS
During April 1999, the Company issued promissory notes in the amounts of
$150,000, $250,000 and $350,000 to Dr. Dolginow, Mr. Gessler and Dr. Brennan,
respectively, to offset tax liabilities for unrealized capital gains resulting
from stock option exercises. All the promissory notes bear interest at 5.25% and
are
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collaterally secured. Dr. Dolginow's note is required to be repaid in four equal
annual installments together with accrued interest. As of April 20, 2001, the
outstanding balance on this loan, including unpaid interest, was $75,131. The
notes for Dr. Brennan and Mr. Gessler, aggregating $600,000 plus accrued
interest to date, were repaid in full in February 2000.
During July 2000, the Company entered into a one-year consulting agreement
with Dr. Gorry to provide consulting services with respect to development of the
Company's products. The consulting fees under the agreement total $100,000, of
which $50,000 was earned in fiscal year 2000.
During 2000, the Company paid Dr. Walton, a former Chairman of the Board of
Directors, a one-time bonus of $63,000 in consideration of his extended services
as a director to the Company in connection with his resignation from the Board.
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 by 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.
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.
GENE LOGIC INC.
Gaithersburg, Maryland
May 4, 2001
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, 2000 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE COMMUNICATIONS, GENE LOGIC
INC., 708 QUINCE ORCHARD ROAD, GAITHERSBURG, MARYLAND 20878.
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(1) This section 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, or the Exchange Act of 1934,
as amended, whether made before or after the date hereof and irrespective of
any general incorporation language contained in such filing.
18
21
EXHIBIT A
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS OF
GENE LOGIC INC.
PURPOSE AND POLICY
The Audit Committee shall provide assistance and guidance to the Board of
Directors of the Company in fulfilling its oversight responsibilities to the
Company's stockholders with respect to the Company's corporate accounting and
reporting practices as well as the quality and integrity of the Company's
financial statements and reports. The policy of the Audit Committee, in
discharging these obligations, shall be to maintain and foster an open avenue of
communication among the Audit Committee, the independent auditors and the
Company's financial management.
COMPOSITION AND ORGANIZATION
The Audit Committee shall consist of at least three members of the Board of
Directors. The members of the Audit Committee shall satisfy the independence and
experience requirements of the Nasdaq National Market.
The Audit Committee shall hold such regular or special meetings as its
members shall deem necessary or appropriate. Minutes of each meeting of the
Audit Committee shall be prepared and distributed to each director of the
Company promptly after each meeting. The operation of the Audit Committee shall
be subject to the By-laws of the Company as in effect from time to time and
Section 141 of the Delaware General Corporation Law.
RESPONSIBILITIES
In fulfilling its responsibilities, the Audit Committee believes that its
functions and procedures should remain flexible in order to address changing
conditions most effectively. To implement the policy of the Audit Committee, the
Audit Committee shall be charged with the following functions:
1. To recommend annually to the Board of Directors the firm of certified
public accountants to be employed by the Company as its independent auditors for
the ensuing year, which firm is ultimately accountable to the Audit Committee
and the Board, as representatives of the Company's stockholders.
2. To review the engagement of the independent auditors, including the
scope, extent and procedures of the audit and the compensation to be paid
therefor, and all other matters the Audit Committee deems appropriate.
3. To evaluate, together with the Board, the performance of the
independent auditors and, if so determined by the Audit Committee, to recommend
that the Board replace the independent auditors.
4. To receive written statements from the independent auditors delineating
all relationships between the auditors and the Company consistent with
Independence Standards Board Standard No. 1, to consider and discuss with the
auditors any disclosed relationships or services that could affect the auditors'
objectivity and independence and otherwise to take, and if so determined by the
Audit Committee, to recommend that the Board take, appropriate action to oversee
the independence of the auditors.
5. To review, upon completion of the audit, the financial statements to be
included in the Company's Annual Report on Form 10-K.
6. To review the interim financial statements with management prior to the
public announcement of the quarterly results and to discuss, where necessary,
the results of the quarterly review and any other matters required to be
communicated to the Audit Committee by the independent auditors under generally
accepted auditing standards.
22
7. To discuss with the independent auditors the results of the annual
audit, including the auditors' assessment of the quality, not just
acceptability, of accounting principles, the reasonableness of significant
judgments, the nature of significant risks and exposures, the adequacy of the
disclosures in the financial statements and any other matters required to be
communicated to the Audit Committee by the independent auditors under generally
accepted auditing standards.
8. To evaluate the cooperation received by the independent auditors during
their audit examination, including any restrictions on the scope of their
activities or access to required records, data and information.
9. To confer with the independent auditors and with the senior management
of the Company regarding the scope, adequacy and effectiveness of internal
accounting and financial reporting controls in effect.
10. To confer with the independent auditors and senior management in
separate executive sessions to discuss any matters that the Audit Committee, the
independent auditors or senior management believe should be discussed privately
with the Audit Committee.
11. To investigate any matter brought to the attention of the Audit
Committee within the scope of its duties, with the power to retain outside
counsel and a separate accounting firm for this purpose if, in the judgment of
the Audit Committee, such investigation or retention is necessary or
appropriate.
12. To prepare the report required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy statement.
13. To review and assess the adequacy of this charter annually and
recommend any proposed changes to the Board for approval.
14. To report to the Board of Directors from time to time or whenever it
shall be called upon to do so.
15. To perform such other functions and to have such powers as may be
necessary or appropriate in the efficient and lawful discharge of the foregoing.
23
Please mark
your votes as [X]
indicated in
this example.
FOR WITHHOLD
all nominees listed below AUTHORITY
(except as marked to the to vote for all nominees
Proposal 1: To elect two directors to hold office until the 2004 Annual contrary below). listed below.
Meeting of Stockholders. [ ] [ ]
Nominees: Jules Blake, Ph.D. and
Michael J. Brennan, M.D., Ph.D.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S) WRITE SUCH NOMINEE(S)' NAME(S)
BELOW.
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FOR AGAINST ABSTAIN
Proposal 2: To ratify selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 2001. [ ] [ ] [ ]
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
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)__________________________________ Dated___________________________
Please sign exactly as your name appears hereon. If the stock is registered in
the 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.
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24
PROXY
GENE LOGIC INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 7, 2001
The undersigned hereby appoints Mark D. Gessler and Philip L. Rohrer, Jr., 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 Thursday, June 7, 2001 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 PROPOSAL 2, AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS
PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED ON THE OTHER
SIDE.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE.)
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