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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12
Hyseq, Inc
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(Name of Registrant as Specified in Its Charter)
[COMPANY NAME]
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(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.
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[ ] 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.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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HYSEQ, INC.
670 ALMANOR AVENUE
SUNNYVALE, CA 94086
408-524-8100
April 10, 2000
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Hyseq, Inc., which will be held at 9:00 a.m. Pacific Daylight Time on
Tuesday, May 23, 2000, at the Hilton Inn Sunnyvale, 1250 Lakeside Drive,
Sunnyvale, California. You will be asked to consider and vote on the following
proposals:
(1) to elect two Class I directors;
(2) to approve an amendment to our Amended and Restated Articles of
Incorporation, as amended, that increases the number of
authorized shares of common stock from 50,000,000 to
100,000,000;
(3) to approve an amendment to the Hyseq, Inc. Non-Employee Director
Stock Option Plan that (i) changes the method for determining
the number of shares of our common stock covered by options that
are granted under the Plan; and (ii) lengthens the vesting date
for a new director's initial and first annual grants of options;
(4) to approve an amendment to the Hyseq, Inc. Employee Stock
Purchase Plan that increases the maximum number of shares of
common stock available for purchase under the Plan from 50,000
to 250,000; and
(5) to transact any other business appropriate to the meeting.
Each proposal is described in the accompanying Notice of Annual Meeting of
Stockholders and Proxy Statement. We are enclosing a proxy card and a
postage-paid return envelope for you to cast your votes. WE RECOMMEND THAT YOU
VOTE FOR EACH OF THESE PROPOSALS.
We realize that not all of you will be able to attend the meeting and
vote in person. HOWEVER, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE
YOU TO COMPLETE, SIGN AND RETURN THE PROXY CARD NOW SO THAT YOUR SHARES WILL BE
REPRESENTED. If you decide later to attend the meeting, you can revoke your
proxy at the meeting and vote your shares in person.
Remember, your vote is important no matter how many or how few shares
you own.
Sincerely,
GEORGE B. RATHMANN
Chairman of the Board
LEWIS S. GRUBER
President and Chief Executive Officer
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HYSEQ, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 2000
The Annual Meeting of Stockholders of Hyseq, Inc. will be held on
Tuesday, May 23, 2000, at 9:00 a.m. Pacific Daylight Time, at the Hilton Inn
Sunnyvale, 1250 Lakeside Drive, Sunnyvale, California. We will ask you to
consider and vote on the following proposals:
(1) to elect two Class I directors;
(2) to approve an amendment to our Amended and Restated Articles of
Incorporation, as amended, that increases the number of
authorized shares of common stock from 50,000,000 to
100,000,000;
(3) to approve an amendment to the Hyseq, Inc. Non-Employee Director
Stock Option Plan that (i) changes the method for determining
the number of shares of our common stock covered by options that
are granted under the Plan; and (ii) lengthens the vesting date
for a new director's initial and first annual grants of options;
(4) to approve an amendment to our Employee Stock Purchase Plan that
increases the maximum number of shares of common stock available
for purchase under the Plan from 50,000 to 250,000; and
(5) to transact any other business appropriate to the meeting.
If you were a stockholder of record at the close of business on March
31, 2000, you are entitled to receive notice of, and to vote at, the annual
meeting. You may inspect a complete list of stockholders eligible to vote at
the meeting at our offices during the ten days prior to the meeting.
By order of the Board of Directors:
James N. Fletcher
Secretary
April 10, 2000
670 Almanor Avenue
Sunnyvale, California 94086
YOUR VOTE IS IMPORTANT
WE URGE YOU TO DESIGNATE YOUR CHOICE ON EACH OF THE PROPOSALS AND TO
DATE, SIGN AND RETURN THE PROXY CARD. BY RETURNING THE PROXY CARD PROMPTLY, YOU
WILL HELP ASSURE THAT THERE ARE ENOUGH SHARES REPRESENTED TO HAVE A VALID
MEETING AND WILL HELP US AVOID THE EXPENSE OF FURTHER SOLICITATION.
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HYSEQ, INC.
670 ALMANOR AVENUE
SUNNYVALE, CA 94086
408-524-8100
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PROXY STATEMENT
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GENERAL INFORMATION
We have sent this Proxy Statement to you in connection with the
solicitation of proxies for the annual meeting of our stockholders. The meeting
will be held at 9:00 a.m. Pacific Daylight Time on Tuesday, May 23, 2000.
Record Date: The record date for the meeting is the close of business
on March 31, 2000. All holders of record on March 31, 2000, of our common stock
will be entitled to vote at the meeting. On the record date, there were
13,246,873 shares of common stock outstanding.
Mailing Date: The date of this Proxy Statement is April 10, 2000. This
Proxy Statement and the proxy card will be mailed on or about April 12, 2000.
Returning Your Proxy: Even if you do not attend the meeting you may
still vote your shares at the meeting by signing and returning your proxy card.
If you specify a choice on your proxy card, your shares will be voted according
to your choice. If you sign and return your proxy card but do not mark any
choices, then your shares will be voted:
(1) FOR election of the two Class I directors;
(2) FOR approval of an amendment to our Amended and Restated
Articles of Incorporation, as amended, increasing the number of
authorized shares of common stock from 50,000,000 to
100,000,000;
(3) FOR approval of an amendment to the Hyseq, Inc. Non-Employee
Director Stock Option Plan that (i) changes the method for
determining the number of shares of our common stock covered by
options that are granted under the Plan; and (ii) lengthens the
vesting date for a new director's initial and first annual
grants of options; and
(4) FOR approval of the amendment to our Employee Stock Purchase
Plan increasing the number of shares of common stock available
for issuance under the Plan from 50,000 to 250,000.
Your signed proxy also gives the persons named on the proxy card,
called the proxies, the authority to vote your shares in the event that other
matters are properly brought before the meeting.
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Revoking Your Proxy: Even if you sign and return your proxy card, you
can always revoke it. You can terminate the original proxy you sent to us by
delivering a written notice of revocation or sending a subsequent signed proxy
card, so long as the revocation or subsequent signed proxy is received by us
before the meeting. If you sign and return your proxy card but then attend the
meeting, you can revoke your proxy by voting in person at the meeting.
Quorum: A majority of the outstanding shares of common stock,
represented in person or by proxy, constitutes a quorum. A quorum is the number
of represented shares of stock needed to have a valid meeting to transact
business.
Voting: Approval of the proposed amendment to our Amended and Restated
Articles of Incorporation, as amended that increases the number of authorized
shares of our common stock from 50,000,000 to 100,000,000, requires a majority
vote of all outstanding shares of our common stock. A majority vote of a quorum
is needed to approve each of the other proposals described in this Proxy
Statement. Shares of our common stock represented by valid proxies, i.e.,
executed proxies that are received in time for the meeting and are not later
revoked, will be voted at the meeting.
We will tabulate the vote as follows:
(1) abstentions are treated as votes against a proposal;
(2) executed proxies are voted as indicated;
(3) executed proxies with no preferences are treated as votes for a
proposal; and
(4) broker non-votes are treated as votes against the proposal to
increase the number of authorized shares of common stock, but
have no effect on the vote on the other proposals. A broker
non-vote occurs when a broker lacks the authority to vote on
some proposals, and so does not vote on those proposals.
Cost of Solicitation: We bear the entire cost of holding the meeting,
including the solicitation of proxies. We ask banks, brokers and other
institutions, nominees and fiduciaries to forward the proxy materials to their
principals to obtain authority to execute proxies. We will reimburse them for
their expenses. In addition to the solicitation of proxies by mail, our
directors, officers or employees may solicit proxies in person or by telephone.
Annual Reports: We are mailing our Annual Report to Stockholders for
the fiscal year 1999 along with this Proxy Statement. Our Annual Report to
Stockholders includes our financial statements for the year ended December 31,
1999. If you would like a copy of the Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, that we filed with the Securities and Exchange
Commission, we will send you one without charge. Please send your request to:
Investor Relations
Hyseq, Inc.
670 Almanor Avenue
Sunnyvale, California 94086
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PRINCIPAL STOCKHOLDERS:
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of March 31, 2000, (except as
otherwise indicated in the footnotes below) by: (1) each of our directors; (2)
each of our named executive officers; (3) by each person known by us to be the
beneficial owner of more than 5% of our outstanding common stock; and (4) all
of our directors and executive officers as a group:
SHARES BENEFICIALLY
OWNED (1)
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NUMBER OF PERCENTAGE %
NAME AND ADDRESS (2) SHARES (3)
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George B. Rathmann (4) ......................................... 613,230 4.5
Robert D. Weist (5) ............................................ 232,595 1.8
Lewis S. Gruber (6) ............................................ 876,356 6.5
Radoje T. Drmanac (7) .......................................... 973,650 7.2
Raymond F. Baddour (8) ......................................... 41,820 *
Greta E. Marshall (9) .......................................... 46,160 *
Thomas N. McCarter III (10) .................................... 49,500 *
Ernst Schweizer (11) ........................................... 17,280 *
Mark E. Gitter ................................................. 8,456 *
James N. Fletcher (12) ......................................... 30,499 *
Snezana Drmanac (7) ............................................ 973,650 7.2
David M. Rosen (13) ............................................ 12,500 *
John E. Ford (14) .............................................. 2,566 *
Institute of Molecular Genetics and Genetic Engineering (15) ... 708,480 5.4
Vojode Stepe 283
P.O. Box 794
11001 Belgrade Yugoslavia
PE Corporation (16) ............................................ 766,921 5.8
761 Main Ave
Norwalk, CT 06859
Dimensional Fund Advisors Inc. (17) ............................ 1,061,200 8.0
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Scudder Kemper Investments Inc. (18) ........................... 695,600 5.3
345 Park Avenue
New York, NY 10154
All of our directors and executive officers, as a group
(13 persons) (19) ............................................. 2,904,612 20.3
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* Represents beneficial ownership of less than 1% of the common stock.
(1) Beneficial ownership is a technical term determined in accordance
with the rules of the Securities and Exchange Commission. Beneficial
ownership generally means whether a stockholder can vote or sell the
stock either directly or indirectly. Shares of common stock issuable
pursuant to stock options currently exercisable, or exercisable
within 60 days after March 31, 2000, are deemed outstanding for
purposes of computing the percentage owned by the person holding such
options, but are not deemed outstanding for computing the percentage
of any other person.
(2) Unless otherwise indicated, the persons named in the table above have
the sole voting and investment power with respect to all shares
beneficially owned by them. Unless otherwise indicated, the address
of each beneficial owner is: c/o Hyseq, Inc., 670 Almanor Avenue,
Sunnyvale, California 94086.
(3) Applicable percentage ownership is based on 13,246,873 shares of
common stock outstanding as of March 31, 2000.
(4) Includes 339,333 shares issuable upon exercise of options.
(5) Includes 25,920 shares issuable upon exercise of options. Also
includes 206,675 shares held by the Weist Family Trust of which Mr.
Weist is trustee.
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(6) Mr. Gruber holds shares individually, jointly with his wife and
through a corporation and a partnership that they control. Includes
303,309 shares issuable upon exercise of options and 1,200 shares
issuable upon the exercise of warrants.
(7) Includes 95,004 shares issuable upon exercise of options held
individually by Dr. Snezana Drmanac. Also includes 168,966 shares
issuable upon exercise of options, 1,200 shares issuable upon the
exercise of warrants and 508,480 shares held individually by Dr.
Radoje Drmanac. Dr. Snezana Drmanac and Dr. Radoje Drmanac each
disclaim beneficial ownership of any shares owned by, or issuable
upon the exercise of options or warrants held by the other. Also
includes 200,000 shares held by each of the Drmanac Family Trust A
and the Drmanac Family Trust B of which both Drs. Drmanac are
trustees.
(8) All shares are issuable upon exercise of options.
(9) Includes 32,820 shares issuable upon exercise of options.
(10) Includes 30,300 shares issuable upon exercise of options.
(11) All shares are issuable upon exercise of options.
(12) Includes 7,339 shares issuable upon exercise of options and 1,200
shares issuable upon the exercise of warrants.
(13) All shares are issuable upon exercise of options.
(14) Includes 1,973 shares issuable upon exercise of options.
(15) Information based solely on a Schedule 13G filed with the Securities
Exchange Commission on February 17, 1998, representing stockholdings
as of December 31, 1997. The 708,480 shares issued to the Institute
of Molecular Genetics and Genetic Engineering are being held by the
First National Bank of Chicago and cannot be voted or disposed of
until certain restrictions imposed by the United States Department of
the Treasury are satisfied.
(16) Information based solely on a Schedule 13D filed with the Commission
on August 22, 1997.
(17) Information based solely on a Schedule 13G filed with the Commission
on February 3, 2000, representing holdings as of December 31, 1999,
which schedule states that Dimensional Fund Advisors Inc.,
("Dimensional") in its role as investment adviser or manager to
certain investment companies, trusts and accounts (the "Funds"). In
its role as investment adviser or manager, Dimensional possesses
voting or investment power over all securities as described in this
schedule which are owned by the Funds. Dimensional disclaims
beneficial ownership of such securities.
(18) Information based solely on a Schedule 13G filed with the Securities
and Exchange Commission on January 28, 2000, representing holdings as
of December 31, 1999.
(19) Includes 1,080,164 shares issuable upon exercise of options or
warrants.
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MANAGEMENT
DIRECTORS
Our Amended and Restated Articles of Incorporation, as amended, and
By-Laws, as amended, provide for our business to be under the direction of our
Board of Directors. Our Board is divided into three classes, with the members
of each class serving a staggered three-year term. Currently, our Board
comprises:
o three Class I directors: Mr. Weist and Mr. Gruber (and one
vacancy);
o three Class II directors: Dr. Baddour, Ms. Marshall and Dr.
Schweizer; and
o three Class III directors: Dr. Rathmann, Dr. Drmanac and Mr.
McCarter.
At each annual meeting of stockholders, the appropriate number of
directors will be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. Because the term of the Class I
directors expires in 2000, the Class I directors will be elected at this year's
meeting for a three year term expiring in 2003. The terms of the Class II
directors and the Class III directors expire in calendar years 2001 and 2002,
respectively. With the recent appointment of Dr. Rathmann as Chairman of the
Board, we have decided to defer appointment of a Class I director to fill the
vacancy in order that Dr. Rathmann may have time to discuss nominee
considerations with our Board. Your proxy cannot be voted for a greater number
of persons than the number of nominees named. Our Board met seven times in 1999.
No director attended less than 75% of the Board's meetings.
The following table sets forth the names, ages and positions of our
directors as of March 31, 2000:
NAME AGE POSITION
---- --- --------
George B. Rathmann, Ph.D. ............ 72 Chairman of the Board and Director
Robert D. Weist (1)(2)................ 60 Vice Chairman of the Board and Director
Lewis S. Gruber....................... 49 President, Chief Executive Officer and Director
Radoje T. Drmanac, Ph.D. ............. 42 Chief Scientific Officer and Director
Raymond F. Baddour, Ph.D. (1)(3)...... 75 Director
Greta E. Marshall (2)(3).............. 62 Director
Thomas N. McCarter III (3)............ 70 Director
Ernst Schweizer, Ph.D. ............... 65 Director
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(1) Member of the Compensation Committee
(2) Member of the Nominating Committee
(3) Member of the Audit Committee
George B. Rathmann has served as Chairman of our Board and as a director
since February 1, 2000. Prior to joining us, Dr. Rathmann served as the
Chairman of the Board of ICOS Corporation, a publicly held biopharmaceutical
company he founded in 1990. While at ICOS, he also served as Chief Executive
Officer and President from September 1991 until June 1999. In 1980, he
co-founded Amgen, Inc., a publicly held biotechnology company. He was a
director of Amgen until 1993 and at various times also served as its Chairman
of the Board, President and Chief Executive Officer. Dr. Rathmann was
previously associated with Abbott Laboratories, Inc., a healthcare products
manufacturer, where from 1975 to 1977 he was Director of Research and
Development and from 1977 to 1980, Divisional Vice President. Dr. Rathmann
received his Ph.D. in physical chemistry from Princeton University.
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Robert D. Weist serves as a director and Vice Chairman of our Board.
Mr. Weist served as Chairman of our Board from March 1994 until February 1,
2000 and served as our President and a director from May 1993 until March 1994.
Mr. Weist has also been President of Weist Associates, a management consulting
firm, since April 1992. Mr. Weist was a consultant to and Senior Vice
President, Administration, General Counsel and Secretary of Amgen, a
biotechnology company, from January 1986 through April 1992, and served as its
Vice President, General Counsel and Secretary from May 1982 to January 1986.
Mr. Weist also serves as a director of BioSource International Inc., a
biological products supplier. Mr. Weist holds a B.S. in chemical engineering
from Purdue University, a J.D. from New York University and an M.B.A. from the
University of Chicago.
Lewis S. Gruber, one of our founders, has been the Chief Executive
Officer, President and a director since joining us in June 1994. From January
1989 until June 1994, Mr. Gruber was a partner with the law firm of Marshall,
O'Toole, Gerstein, Murray & Borun, which has represented us as one of our
patent counsel since May 1992. Mr. Gruber holds a B.S. in sociology, an M.S. in
cell biology and genetics from the University of Arizona, and a J.D. from
Arizona State University.
Radoje T. Drmanac, Ph.D. joined us in August 1994 and serves as Chief
Scientific Officer and a director. Dr. Drmanac co-invented sequencing by
hybridization ("SBH") technology while at the Institute of Molecular Genetics
and Genetics Engineering in Belgrade, Yugoslavia, where he conducted research
from May 1986 until February 1991. Dr. Drmanac served as a Molecular Biologist
and Group Leader at The Argonne National Laboratory from February 1991 until
August 1994. Dr. Drmanac was a member of the Editorial Board of the
International Journal of Genome Research from 1992 to 1994, and has been a
member of the Human Genome Organization since 1992. Dr. Drmanac received his
Ph.D. from Belgrade University and conducted post-doctoral studies at the
Imperial Cancer Research Fund in London.
Raymond F. Baddour, Ph.D. has served as a director since December
1993. Since July 1989, Dr. Baddour has served as the Lammot du Pont Professor
of Chemical Engineering, Emeritus, at the Massachusetts Institute of Technology
where he formerly served as the Lammot du Pont Professor of Chemical
Engineering from 1973 to 1989. Dr. Baddour also serves as a director of Ascent
Pediatrics, Inc., a pharmaceutical company, Scully Signal Co., an equipment
manufacturing company, and MatTek Corporation, a bio-materials company. He was
a director of Amgen from 1980 to 1997. Dr. Baddour holds a B.S. in chemical
engineering from Notre Dame University and an M.S. and Sc.D. from the
Massachusetts Institute of Technology.
Greta E. Marshall has served as a director since July 1994. Ms.
Marshall is a principal of The Marshall Plan, an investment management company,
which she founded in 1989. From 1985 until 1989, Ms. Marshall was Investment
Manager of the California Public Employee's Retirement System, a public pension
organization. Ms. Marshall is also a director of EG&G Inc., a technology and
scientific instrument company. Ms. Marshall holds a B.A. in English and an
M.B.A. from the University of Louisville.
Thomas N. McCarter III has served as a director since October 1996.
Mr. McCarter currently serves as Chairman of the Ramapo Land Company, a real
estate company, and is a general partner of Miles Timber Properties, a land
company, positions he has held for more than five years. Mr. McCarter is a
director and was a former Chairman of Stillrock Management, Inc., an investment
company, is a director of Parock Group, a diversified investment company, and
is a director of other closely-held companies. Mr. McCarter attended Princeton
University from 1948 to 1951 and has been a Certified Investment Counselor
since 1972.
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Ernst Schweizer, Ph.D. has served as a director since March 1999. Dr.
Schweizer is currently the President of Medarex Europe and Managing Director of
Medarex, Inc. Prior to joining Medarex, a biopharmaceutical company focused on
the development of antibodies, in January 1999, Dr. Schweizer served as the
Deputy Head of Business Development & Licensing at Novartis, a pharmaceutical
company, and was the Chief Scientific and Technical Officer in Business
Development & Licensing at CIBA-Geigy, before its consolidation into Novartis,
during a 37 1/2 year tenure with that company. Dr. Schweizer received his Ph.D.
from the University of Stuttgart and holds numerous patents.
BOARD COMMITTEES
Compensation Committee
In April 1994, our Board established a Compensation Committee. The
Compensation Committee reviews, and makes recommendations to our Board, on our
compensation policies, practices and procedures designed to contribute to our
success. The Compensation Committee administers the 1995 Employee Stock Option
Plan (the "1995 Plan"), the Non-Employee Director Stock Option Plan and the
Scientific Advisory Board/Consultants Stock Option Plan. No member of the
Compensation Committee was at any time during the past three fiscal years an
officer or employee of ours or any of our subsidiaries. Mr. Weist, however,
served until February 2000 without compensation as the Chairman of our Board.
He did, however, receive fees as a director. As of February, 2000, Mr. Weist
serves as Vice Chairman of our Board, and as a director. He will continue to
serve as Vice Chairman without compensation. Dr. Baddour, as the Chairperson,
and Mr. Weist presently serve on the Compensation Committee, which met three
times during 1999.
Audit Committee
In March 1997, our Board established an Audit Committee. The Audit
Committee reviews our annual audit and meets with our independent auditors to
review our internal controls and financial management practices. Mr. McCarter,
as the Chairperson, and Dr. Baddour and Ms. Marshall presently serve on the
Audit Committee, which met five times during 1999.
Nominating Committee
In October 1996, we established a Nominating Committee. The Nominating
Committee considers and recommends individuals for Board membership and senior
management positions. The Nominating Committee will consider stockholders'
nominations for directors only if notice is received at our principal office in
Sunnyvale, California, at least 60 days, but not more than 90 days, prior to
the first anniversary of the preceding year's annual meeting of the
stockholders. Ms. Marshall, as the Chairperson, and Mr. Weist presently serve
on the Nominating Committee, which met two times during 1999.
DIRECTOR COMPENSATION
During 1999, we paid all non-employee directors a fee of $2,500 for
each Board meeting attended in person or by telephone, subject to an overall
cap of $10,000 per year. Each non-employee director earned $10,000 in 1999.
During 1999, all non-employee directors also received fees of $1,000 for each
Committee meeting attended in person. Committee fees were not subject to the
$10,000 cap.
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On March 20, 2000, our Board increased the fee paid to our directors
who are not our employees to $6,250 per meeting attended in person or by
telephone, subject to a new overall cap of $25,000 per year. All non-employee
directors will continue to receive fees of $1,000 for each Committee meeting
attended in person and those fees will not be subject to the new $25,000 cap.
The Board also approved a new $6,000 fee per annum fee that will be paid to
Committee chairpersons who are not also our employees. All of the new fees will
become effective beginning with the meeting of our Board following this year's
meeting on May 23, 2000.
Our employees who are also directors do not receive any Board or
Committee fees. All directors are reimbursed for reasonable expenses incurred
in attending Board and committee meetings.
In October 1996, our stockholders approved the Non-Employee Director
Stock Option Plan. Under the Plan, each new non-employee director receives a
one-time grant of options to purchase 23,040 shares of common stock, of which
11,520 shares are exercisable immediately, with the balance becoming
exercisable in two equal allotments on the first and second anniversaries of
joining the Board. The Plan also provides that all non-employee directors
automatically receive options to purchase up to 5,760 shares each year (such
that the amount received under the Plan, when added to all other options
granted to a director which become exercisable in that year, totals 5,760) on
the date of each annual meeting of the stockholders. In accordance with the
Plan, Mr. Weist, Dr. Baddour and Ms. Marshall each received options to purchase
960 shares immediately following the annual meeting of the stockholders in
1999. A total of 138,240 shares of common stock are reserved for issuance under
the Plan. Options to purchase 93,120 of the original 138,240 reserved shares
have been issued as of December 31, 1999. All non-employee directors will
receive options to purchase 5,760 shares immediately following this year's
meeting if we do not amend the Plan as proposed. See "Item 3. Approval of
Amendment to Our Non-Employee Director Stock Option Plan" regarding proposed
changes to the Plan that would (i) change, for all directors who are not our
employees, the method for determining the number of shares issuable upon
exercise of initial and annual grants of options made on or after May 23, 2000;
and (ii) delay, for directors who become non-employee directors on or after May
23, 2000, the vesting dates for initial option grants and the first annual
grants made to such new directors. If approved by the stockholders, the
amendment would apply to all options granted on and after this year's meeting
that will be held on May 23, 2000. Options granted before May 23, 2000 would not
be affected.
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EXECUTIVE OFFICERS AND KEY EMPLOYEES
The names of, and certain information regarding, our executive
officers and key employees who are not also directors, are set forth below:
NAME AGE POSITION
---- --- --------
Mark E. Gitter.............................. 46 Chief Financial Officer
James N. Fletcher........................... 47 Senior Vice President of Administration, General
Counsel and Secretary
Snezana Drmanac, M.D........................ 37 Vice President of SBH Biochemistry
David M. Rosen, Ph.D........................ 44 Vice President of Operations
John E. Ford, Ph.D.......................... 37 Vice President of Functional Genomics
Mark E. Gitter served as our Director of Finance and Controller from
July 1998 until March 1999 when he was promoted to Chief Financial Officer.
Prior to joining us in 1998, Mr. Gitter was at Syntex Corporation, a
pharmaceutical company, for more than 13 years in various finance positions.
Prior to joining Syntex, he worked at Intel Corporation and Deloitte & Touche.
Mr. Gitter is a CPA and received his MBA in accounting and health care fiscal
management and a B.S. in biochemistry from the University of Wisconsin.
James N. Fletcher served as our Vice President of Administration from
September 1994 until March 1998, and has served as our Secretary since April
1996 and as our General Counsel and Senior Vice President of Administration
since March 1998. Mr. Fletcher was an independent consultant to us from April
1994 until September 1994. Mr. Fletcher served as General Counsel and a
consultant to National Business Funding, a development-stage financial services
company, from July 1993 until May 1994, as Assistant General Counsel of
ComputerLand Corporation, a computer reseller, from November 1990 until
December 1992 and served as a consultant from December 1992 until May 1993. Mr.
Fletcher holds a B.S. in political science from Arizona State University and a
J.D. from the University of Arizona.
Snezana Drmanac, M.D. joined us in August 1994 as a Senior Scientist
and became the Director of SBH Biochemistry Development in May 1997. On January
1, 1999, Dr. Drmanac was appointed Vice-President of SBH Biochemistry. Prior to
joining us, Dr. Drmanac was a Junior Scientist at The Argonne National
Laboratories from 1991 to 1994, leading the project of developing and
implementing SBH in DNA library screening. From 1989 to 1990, Dr. Drmanac
worked as a Scientific Officer in the Genome Analysis Department in the
Imperial Cancer Research Fund in London. Dr. Drmanac also served as a Research
Associate at the Genome Structure Unit Division in the Center of Genetic
Engineering in Belgrade. Dr. Drmanac earned her M.D. at the University of
Belgrade.
David M. Rosen, Ph.D. joined us in March 1999 as Vice President of
Operations. Prior to joining us, Dr. Rosen was Senior Vice President, Research
and Development, in charge of clinical research and manufacturing operations,
at Celtrix Pharmaceuticals from May 1998 to October 1998. During his seven
years at Celtrix, and an additional nine years at Celtrix's parent company,
Collagen Corporation, Dr. Rosen served as Vice President of Research and
Development, Director of Research and was Project Manager for a variety of
biopharmaceutical projects in cell and molecular biology, bone and osteoporosis
research and growth factors. Dr. Rosen holds a Ph.D. and B.S. in biochemistry
from the University of California, Riverside.
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John E. Ford, Ph.D. joined us in 1996 as a Scientist and has served as
Director and Senior Director of Functional Genomics. On March 9, 2000, Dr. Ford
was appointed Vice-President of Functional Genomics. Prior to joining us, Dr.
Ford served as a Visiting Scientist at DNAX Research Institute of Molecular and
Cellular Biology, where he helped to establish their Novel Factor Cloning
effort. Dr. Ford's post-doctoral training was at Stanford University School of
Medicine in the Department of Pathology. Dr. Ford holds a Ph.D. in Biochemistry
from the Universite de Sherbrooke and a B.Sc. in Biology from Bishop's
University, both in Quebec, Canada.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned for the three
fiscal years ended December 31, 1999, by our Chief Executive Officer and the
four other most highly compensated executive officers (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Award
------------------------------------- ----------------------------
Securities
Underlying All Other
Fiscal Compen- Compen-
Name and Principal Positions Year Salary ($) Bonus ($) sation sation ($)
- ---------------------------- -------- ----------- ----------- ---------- ----------
Lewis S. Gruber 1999 268,750 53,250 37,870 56,299(1)
President and Chief Executive Officer 1998 237,500 50,000 30,000 56,299(1)
1997 200,000 - 0 - - 0 - 49,651(1)
Radoje T. Drmanac 1999 215,000 53,250 30,290 - 0 -
Chief Scientific Officer 1998 186,500 63,680(2) 24,000 - 0 -
1997 146,000 13,680(2) 28,215 - 0 -
Mark E. Gitter 1999 163,015 - 0 - 30,380 - 0 -
Chief Financial Officer 1998 45,833 - 0 - - 0 - 7,500(3)
James N. Fletcher 1999 157,350 13,500 17,630 - 0 -
Senior Vice President of 1998 143,750 - 0 - 11,000 - 0 -
Administration, Secretary and 1997 104,167 - 0 - 29,354 - 0 -
General Counsel
Snezana Drmanac 1999 154,125 - 0 - 19,990 - 0 -
Vice-President of SBH 1998 112,997 9,120(4) 12,000 - 0 -
Biochemistry 1997 97,280 9,120(4) 26,017 - 0 -
- --------------
(1) In December 1996, Mr. Gruber purchased 48,000 shares of our common stock
at $1.56 per share and 144,000 shares at $2.90 per share using the
proceeds of a loan from us in the amount of $492,000. In March 1997, Mr.
Gruber purchased 179,712 shares at $6.51 per share using the proceeds of a
loan from us in the amount of $1,170,000. These shares vested over a
period of two years ending in March 1999. Each of Mr. Gruber's loans bears
interest at a rate of 3% per annum. The value representing the difference
between the applicable federal rates on the dates of the loans and the 3%
interest rates charged on each of the loans, is included as "Other
Compensation." Mr. Gruber repaid his loans in February 2000 by delivery of
approximately 15,000 shares to us.
(2) Pursuant to the terms of an employment agreement which was effective
through July 31, 1998, Dr. Drmanac was entitled to annual bonuses of
$13,680.
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(3) Mr. Gitter was promoted to Chief Financial Officer in March of 1999. He
was our Director of Finance and Controller from the time he joined us in
July 1998 until his promotion. Mr. Gitter received a one-time
reimbursement for relocation expenses of $7,500.
(4) Dr. Drmanac was promoted to Vice-President of SBH Biochemistry in January
1999. She was our Director of SBH Biochemistry Development prior to her
promotion. Pursuant to the terms of an employment agreement which was
effective through July 31, 1998, Dr. Drmanac was entitled to annual
bonuses of $9,120.
As Dr. George B. Rathmann did not join us as Chairman of the Board until
February 2000, compensation earned by Dr. Rathmann will be reported in next
year's Proxy Statement. As an inducement to joining us as an employee, Dr.
Rathmann received a one-time grant of options to purchase 1,000,000 shares of
our common stock at $31.688 per share, the closing price of our stock on the day
before he was appointed. One-third of these options vested on the date of grant
and an additional one-third will vest on each of the two anniversaries
thereafter. Dr. Rathmann is receiving grants of options to purchase 3,000 shares
of our common stock per month, at the fair market value on each date of grant,
in lieu of cash compensation for his services as our employee.
OPTION GRANTS IN 1999
The following table sets forth our grants of options to purchase
common stock during 1999 to the Named Executive Officers:
POTENTIAL
NUMBER OF % OF TOTAL REALIZABLE VALUE AT
SECURITIES OPTIONS ASSUMED ANNUAL
UNDERLYING GRANTED EXERCISE RATES OF STOCK PRICE
OPTIONS TO EMPLOYEES PRICE ($) EXPIRATION APPRECIATION FOR
NAME GRANTED (1) IN 1999 (PER SHARE) DATE OPTION TERM (2)($)
---- ----------- ------------ ----------- ---------- --------------------
5% 10%
-------- --------
Lewis S. Gruber.............. 37,870 5.2 3.30 8/17/09 78,566 199,087
Radoje T. Drmanac............ 30,290 4.2 3.30 8/17/09 62,841 159,238
Mark E. Gitter............... 30,380 4.2 (3) (4) 73,336 185,839
James N. Fletcher............ 17,630 2.4 3.30 8/17/09 36,576 92,683
Snezana Drmanac.............. 19,990 2.8 3.30 8/17/09 41,472 105,090
- --------------
(1) All options were granted pursuant to the 1995 Plan and become exercisable
in four equal annual installments commencing one year after the date of
grant.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent upon the future
market performance of our common stock and the date on which the options
are exercised. The amounts represented in this table may not necessarily
be achieved.
(3) On February 4, 1999, an option to purchase 10,000 shares of our common
stock was granted to Mr. Gitter at an exercise price of $4.938 per share.
On August 18, 1999, an option to purchases 20,380 shares was granted to
Mr. Gitter at an exercise price of $3.30 per share.
(4) The option granted on February 4, 1999 will expire on February 3, 2009.
The option granted on August 18, 1999 will expire on August 17, 2009.
The following table indicates whether each of the Named Executive
Officers exercised any options to purchase common stock during the year ended
December 31, 1999, and the number of shares subject to both exercisable and
unexercisable stock options as of December 31, 1999.
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AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND DECEMBER 31, 1999 OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED OPTIONS AT VALUE OF UNEXERCISED IN-
DECEMBER 31, 1999 THE-
SHARES --------------------------- MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1999 (2)($)
ON VALUE --------------------------
NAME EXERCISE REALIZED (1)($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ---------------- ----------- ------------- ----------- -------------
Lewis S. Gruber............. 11,000 16,367 303,309 70,930 4,643,436 954,329
Radoje T. Drmanac........... - 0 - - 0 - 161,912 71,268 2,380,308 904,876
Mark E. Gitter.............. - 0 - - 0 - - 0 - 30,380 - 0 - 410,277
James N. Fletcher........... - 0 - - 0 - 32,017 43,521 364,772 528,469
Snezana Drmanac............. - 0 - - 0 - 88,500 46,963 1,265,860 582,224
- --------------
(1) Based on the fair market value at the date of exercise minus the exercise
price as determined by the Board prior to our initial public offering.
(2) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for our common stock of $17.34, the average of the high
and low sales price per share of our common stock as reported by the Nasdaq
National Market on December 31, 1999.
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REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of our Board of Directors comprises Dr.
Baddour, as Chairperson, and Mr. Weist. The Compensation Committee's
responsibilities include recommending to the Board the compensation for our
executive officers, grants of stock options to our employees, and administering
our stock option and employee stock purchase plans. The Compensation Committee
bases its decisions on our executive compensation philosophy, which seeks to
relate salaries, bonuses and stock option awards to our success in meeting
annual and long-term performance goals, to reward individual achievement and to
attract and retain qualified executives.
We set our executive officers' salaries in the low to mid-range
compared to those with similar management positions in peer companies
consisting primarily of other genomics and biotechnology companies. The level
of salaries paid to our executive officers also takes into account our
technological achievements during the year, its success in entering into
significant technology agreements with collaborators, as well as an evaluation
of the individual performance and contribution of each executive to our
performance for the year. Particular emphasis is placed on the individual
officer's level of responsibility for and role in meeting our strategic,
technological and financial objectives. Because of our stage of development,
the Compensation Committee has not used either the profitability or the market
value of our stock as a significant factor in consideration for setting
executive officer salaries.
BONUSES
We award bonuses for accomplishments achieved during the past year.
The Compensation Committee recommends to the Board the amount of the bonus,
with advice from our management. The Compensation Committee makes its
recommendations based upon an assessment of the individual's contributions
during the year, compared to (but not restricted to) a list of goals previously
approved by management and the Compensation Committee. The Compensation
Committee also considers general factors relating to us in recommending the
size of the bonus pool and adjusts bonuses based on those factors as well. In
determining bonuses for the fiscal year ended December 31, 1999, (which are
paid in April 2000 and considered as compensation for the year 2000) the
Compensation Committee will consider, among other accomplishments:
o the establishment of a 3.5 year, $60 million collaboration with
American Cyanamid Company;
o commencement of preclinical studies with our IL-Hy1 and CD39L4
product candidates;
o identification of over 35,000 genes that contain signal peptide
segments, indicating that they are capable of producing secretory
proteins, or have significant homology to the coding regions of
known genes;
o complete sequencing of more than 5,000 genes; and
o filing of numerous patent applications on gene discoveries,
apparatus and processes and the issuance of two new
technology-based patents, including a patent covering methods for
identifying a base in a nucleic acid sequence.
STOCK OPTIONS
Stock options awards are intended to align the interests of executives
with the interests of the stockholders in our long-term performance. The
Compensation Committee developed guidelines for executive stock option awards,
in consultation with our management. The guidelines are based upon:
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o analysis of long-term incentive awards based on each individual
executive's position;
o responsibilities, performance and contribution to the achievement
of our long-term goals; and
o competitive stock option data from other genomics and biotechnology
companies.
In addition, the Compensation Committee reviews the equity position of all
executive officers on an annual basis and awards stock options to executive
officers periodically.
CHIEF EXECUTIVE OFFICER'S COMPENSATION
The 1999 compensation of Lewis S. Gruber, our Chief Executive Officer
and President, took into account the above policies and specific milestones we
achieved during the prior year. The Compensation Committee believes that Mr.
Gruber's salary of $268,750 for 1999 (plus a bonus of $53,250 paid in April
1999 in recognition of accomplishments in 1998) was in the low to middle range
compared to CEOs in peer companies consisting primarily of other genomics and
biotechnology companies. Mr. Gruber also received options to purchase 37,870
shares in 1999.
COMPENSATION COMMITTEE
Raymond F. Baddour, Ph.D., Chairman
Robert D. Weist
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PERFORMANCE GRAPH
The following graph compares the annual percentage change in our
cumulative total stockholder return on our common stock, for the period from
August 7, 1997 (the date of our initial public offering) through December 31,
1999, with the comparable return of three indexes: The Nasdaq Market Index, the
Hambrecht & Quist Biotechnology Index and the Nasdaq Pharmaceutical Index. We
have not paid any dividends on our common stock, and no dividends are included
in the representation of our performance. The graph assumes you invested $100
in our common stock and in each of the indices on August 8, 1997 (the date our
stock was first publicly traded). The stock price performance on the graph
below is not necessarily indicative of future price performance.
[GRAPH]
FISCAL YEAR ENDING
---------------------------------------------------------------
COMPANY/INDEX/MARKET 8/8/97 12/31/97 12/31/98 12/31/99
------ -------- -------- --------
Hyseq, Inc. 100.00 64.71 35.29 114.29
Hambrecht & Quist Biotechnology Index 100.00 98.21 149.55 319.68
NASDAQ Market Index 100.00 98.95 139.56 246.14
Nasdaq Pharmaceutical Index 100.00 96.87 123.23 230.27
At December 31, 1999 and March 31, 2000, the closing prices of our common stock
were $17.00 and $44.63 per share, respectively.
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COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and officers and persons who beneficially own more than 10% of our
common stock to file with the Securities and Exchange Commission initial
reports of beneficial ownership and reports of changes in beneficial ownership
of the common stock and other equity securities of ours. Officers, directors
and greater than 10% beneficial owners are required by Securities and Exchange
Commission regulation to furnish us with copies of all Section 16(a) forms they
file. Specific due dates for these reports have been established by the
Commission and we are required to disclose in this Proxy Statement any failure
to file by such due dates during fiscal 1999.
To our knowledge, based solely on review of the copies of such reports
furnished to us and written representations that no other reports were required,
during the fiscal year ended December 31, 1999, all Section 16(a) filing
requirements applicable to our officers, directors and greater than 10%
beneficial owners were complied with except for a Form 5 which was to be filed
by Robert D. Weist by February 14, 2000. Mr. Weist's Form 5 will be filed on or
before April 10, 2000.
CERTAIN TRANSACTIONS
In December 1993, Lewis S. Gruber, one of our directors and an
executive officer, received a warrant to purchase 144,000 shares of common
stock at $2.90 per share in exchange for the assignment of all right, title and
interest in and to certain patent rights relating to diagnostic applications
owned by him. In connection with our hiring of Mr. Gruber in June 1994, we
granted him a 10-year option to purchase 345,600 shares of common stock at an
exercise price of $1.56 per share. In December 1996, Mr. Gruber used the
proceeds of a loan from us to exercise the warrant to purchase 144,000 shares
of common stock at $2.90 per share and to exercise options to purchase 48,000
shares of common stock at an exercise price of $1.56 per share. The loan, in
the principal amount of $492,000, was evidenced by a promissory note dated
December 9, 1996, that bore interest at 3% per annum and was due on December 8,
2001. The loan was secured by, and with recourse only to, 118,080 shares of Mr.
Gruber's common stock. In March 1997, Mr. Gruber purchased 179,712 shares at
$6.51 per share using the proceeds of an additional $1,170,000 loan, as
evidenced by a promissory note dated March 12, 1997, on the same terms as his
prior loan. As a condition of the purchase, Mr. Gruber did not receive any
options under the 1995 Plan during 1997. In February 2000, Mr. Gruber repaid
both notes and accrued interest totaling $1,811,208. The notes were repaid by
surrendering to us approximately 15,000 shares of common stock.
Mr. Gruber's spouse was one of our directors from our inception to
June 1994 and is a member of Sachnoff & Weaver, Ltd., a law firm which has
served as our general corporate counsel since June 1996. Sachnoff & Weaver,
Ltd. and certain members and related persons in addition to Mr. Gruber's spouse
are stockholders. In January 1997, Sachnoff & Weaver, Ltd. purchased 76,800
shares of common stock at $6.51 per share. Sachnoff & Weaver, Ltd. paid
$102,415 in cash and delivered a promissory note to us for the balance in the
amount of $397,585 secured by 61,069 shares of common stock. The note bore
interest at 8.25% per annum and was paid in full during 1998. We incurred legal
fees and costs to Sachnoff & Weaver, Ltd. of approximately $441,000 in 1999.
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MATTERS TO BE CONSIDERED BY THE STOCKHOLDERS
ITEM 1. ELECTION OF CLASS I DIRECTORS
We have three classes of directors that serve staggered, three-year
terms. There are currently two Class I directors, three Class II directors and
three Class III directors. The Board of Directors has nominated the current
Class I directors, Mr. Robert D. Weist and Mr. Lewis S. Gruber, for
re-election. There are no other nominees for Class I director. Each Class I
director elected at the annual meeting will serve a three-year term ending on
the date of the annual meeting in 2003 or until a successor is duly elected or
appointed.
You may vote for either or both of the nominees for Class I director,
or you may withhold your votes for either or both of them, by completing,
signing and returning the enclosed proxy card or by attending the meeting. IF
YOU SIGN AND RETURN THE PROXY CARD BUT NEGLECT TO COMPLETE THE "VOTE
FOR/WITHHOLD AUTHORITY" SECTION, THE PROXIES WILL VOTE YOUR SHARES FOR EACH OF
THE NOMINEES. Both of the nominees have agreed to serve as a director if
elected; however, if either nominee is unable or unwilling to accept nomination
or election, the proxies will then vote your shares for such other person or
persons as the Board recommends.
Our By-Laws require the affirmative vote of a majority of the votes
cast by stockholders present, in person or by proxy, and eligible to vote at
the meeting, provided that a quorum exists, to elect directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS: The Board of Directors
recommends that you vote for both Mr. Weist and Mr. Gruber.
ITEM 2. APPROVAL OF AMENDMENT TO OUR AMENDED AND RESTATED ARTICLES OF
INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK
On February 1, 2000, our Board of Directors approved an amendment to
our Amended and Restated Articles of Incorporation, as amended, which increases
the number of authorized shares of common stock, $.001 par value per share, from
50,000,000 to 100,000,000, primarily in contemplation of as yet undetermined
future public and private offerings of our securities. Our Amended and Restated
Articles of Incorporation, as amended, currently authorize 50,000,000 shares of
common stock and 8,000,000 shares of preferred stock. Of the 50,000,000
authorized shares of common stock, approximately 13,246,873 were issued and
outstanding as of March 31, 2000. Approximately 3,982,338 additional shares are
reserved for issuance upon the exercise of warrants and options. No change is
proposed for the number of authorized shares of preferred stock.
The proposed amendment will modify, as follows, the first paragraph of
Article Fourth of our Amended and Restated Articles of Incorporation, as
amended:
"FOURTH: The number and classes and/or series of shares the Corporation
is authorized to issue is as follows:
Number of
Authorized
Shares Class or Series Par Value
---------- --------------- ---------
3,000,000 Preferred Stock Series A $.001
5,000,000 All Other Series Preferred Stock .001
100,000,000 Common Stock .001
No other provisions of Article Fourth of the Amended and Restated
Articles of Incorporation, as amended or of the Amended and Restated
Articles of Incorporation, as amended are to be amended."
You may vote for approval of the amendment, vote against approval, or
abstain from voting altogether by completing, signing and returning the
enclosed proxy card or by attending the meeting. IF YOU SIGN AND RETURN THE
PROXY CARD BUT NEGLECT TO COMPLETE THE "FOR/AGAINST/ABSTAIN" SECTION, THE
PROXIES WILL VOTE YOUR SHARES FOR APPROVAL OF THE AMENDMENT TO OUR AMENDED AND
RESTATED ARTICLES OF INCORPORATION.
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Approval of the amendment requires the affirmative vote of a majority
of the stockholders eligible to vote at the meeting, whether present at the
meeting or not.
RECOMMENDATION OF THE BOARD OF DIRECTORS: The Board of Directors
recommends that you vote for approval of the amendment to our Amended and
Restated Articles of Incorporation as amended, which increases the number of
authorized shares of common stock from 50,000,000 to 100,000,000.
ITEM 3. APPROVAL OF AMENDMENT TO OUR NON-EMPLOYEE DIRECTOR STOCK OPTION
PLAN
On March 20, 2000, our Board of Directors approved Amendment No. 3 to
our Non-Employee Director Stock Option Plan, as amended. If you approve
Amendment No. 3, it will apply to all grants of options under this Plan
beginning on May 23, 2000. The amendment will not effect any options granted
before May 23, 2000. Amendment No. 3 will change the number of shares issuable
upon exercise of initial and annual grants of options. The number of shares will
change from a fixed number to a number equal to the lesser of (i) 10,000 shares
or (ii) the number determined by dividing $200,000 by the fair market value of
our common stock on the date of grant. The amendment also will delay the vesting
date for the initial grant of an option to a new director so that 50% vests one
year after the grant date and the other 50% vests two years after the grant
date. Additionally, the first annual grant of options to a new director will
vest on the later of (i) the first anniversary of the date on which that
director joined the Board, or (ii) the date of grant, with subsequent grants of
annual options vesting on the date of grant as they do under the existing Plan.
All other provisions of this Plan will remain in full force and effect.
Presently, Mr. Weist, Dr. Baddour, Ms. Marshall, Mr. McCarter and Dr. Schweizer
qualify to participate in the Non-Employee Director Stock Option Plan.
The following is a description of the material features of the
Non-Employee Director Stock Option Plan and Amendment No. 3. Amendment No. 3
requires your approval to be adopted.
OPERATION OF THE PLAN WITHOUT AMENDMENT NO. 3
Under the current Non-Employee Director Stock Option Plan, directors
who are not employees automatically receive options to purchase 23,040 shares
upon their initial election to the Board. Options to purchase 11,520 of these
shares are exercisable immediately, with the balance becoming exercisable in two
equal allotments on the first and second anniversaries of joining our Board. All
non-employee directors also automatically receive options to purchase up to
5,760 shares each year (such that the amount received under the Plan, when added
to all prior options granted to a director that become exercisable in that year,
total 5,760) on the date of the annual meeting of the stockholders. These
options are exercisable immediately. All options are granted at the fair market
value of our common stock on the date of grant.
At our 1998 annual meeting, the stockholders approved Amendment No. 1
and Amendment No. 2 to the Non-Employee Director Stock Option Plan. Amendment
No. 1 added alternative exercise price payment methods, removed certain
restrictions on the exercise of options after a director ceases to be a
director, and added a definition of the term "cause" as used in the Plan.
Amendment No. 2 added a provision that accelerates the vesting of options
granted under the Plan upon a change of control.
Under the Non-Employee Director Stock Option Plan, a maximum of 138,240
shares of our common stock can be issued. As of March 31, 2000, options to
purchase 93,120 shares of common stock were issued and
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outstanding under the Plan, leaving 45,120 shares available for future option
grants. The next automatic option grants under the Plan, or under proposed
Amendment No. 3 if approved, will be made at the close of business on May 23,
2000. Under the Plan and Amendment No. 3, the options will be granted at the
fair market value of our common stock on the date of grant.
OPERATION OF THE PLAN WITH AMENDMENT NO. 3
If the Plan is amended as proposed, directors who are not our
employees will continue to receive an automatic initial grant of options when
they join our Board, and thereafter, receive annual grants at the close of
business on the day of our annual meetings of stockholders. However, under the
amended Plan, the number of shares that can be purchased upon exercise of the
options will be equal to the lesser of (i) the number determined by dividing
$200,000 by the fair market value of our common stock on the date of grant; or
(ii) 10,000 shares. Amendment No. 3 also will revise the vesting date for
initial options that are granted when a new director joins our Board. As
proposed, 50% of a new director's options will vest one year after the grant
date and the other 50% will vest two years after the grant date. Additionally, a
new director's first annual grant of options will vest on the first anniversary
of the date on which he or she joins our Board, or if later, the date of grant.
All other provisions of the Non-Employee Director Stock Option Plan will remain
in full force and effect.
REASONS FOR THE AMENDMENT
We believe that our Non-Employee Director Stock Option Plan, as
operated under Amendment No. 3 allows us to ensure that our directors are fairly
rewarded for their services while providing us with an absolute measure
($200,000) of the initial value of the options we are granting them. Our Board
believes the proposed vesting change will provide more incentive for new
directors to take an active role in fulfilling their duties. There is currently
one Class I director vacancy, which, when filled, would automatically result in
a grant of options to purchase 23,040 shares under the existing Plan.
Additionally, our five current non-employee directors, will each be granted
options to purchase 5,760 shares per year, for a yearly aggregate of up to
28,800 shares under the existing Plan. By comparison, under Amendment No. 3, if
the fair market value for our shares on May 23, 2000 were $44.63 (the closing
price for our shares on the record date), options to purchase 4,481 shares would
issue to each director. The dollar value of options granted under Amendment No.
3 would be $200,000 per director whereas the dollar value of options granted
under the existing Plan would be $257,069 (5,760 multiplied by $44.63).
Amendment No. 3 also limits grants of initial and annual options to a
maximum of 10,000 shares per grant to offset against any future fall in our
stock price. With this limit on initial and annual grants, the initial option
grant to a new director decreases under Amendment No. 3 from a fixed number of
23,040 shares to a maximum of 10,000 shares. Annual grants to all directors also
decrease to less than 5,760 shares per director under the Amendment No. 3
formula unless the price at which our shares trade decreases to less than $34.72
per share. A total of 45,120 shares remain available for issuance under the
Plan. The Board determined not to recommend an increase in the number of shares
authorized under the Plan this year based on the current fair market value of
our common stock.
We believe that the inherent value created by granting options under
the Non-Employee Director Plan has and will continue to be a successful means
of attracting, retaining and motivating highly qualified individuals for our
Board of Directors.
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As of March 31, 2000, the market value of the 138,240 shares issued or
available for issuance under the Non-Employee Director Stock Option Plan was
$6,169,651. No options may be granted under the Plan after October 23, 2005.
MISCELLANEOUS PROVISIONS
The Non-Employee Director Stock Option Plan is administered by the
Compensation Committee, which presently comprises Dr. Baddour and Mr. Weist.
The Compensation Committee has full authority to interpret and administer the
Plan, and to correct any defect or omission or reconcile any inconsistency in
the Plan, and its decisions are conclusive and binding upon us and all other
persons.
If a participant ceases to be a director by reason of disability, the
participant's right to exercise any unexercised options granted under the
Non-Employee Director Stock Option Plan shall be subject to the condition that,
until those options are exercised, the participant (i) shall not be engaged as
an advisor, principal, agent, partner, officer, director or employee in any
business or activity which is competitive with our business, and (ii) shall be
reasonably available to us for consultation. If a participant fails to comply
with these conditions, he will forfeit all rights as to any unexercised
options.
Although our Board of Directors may amend or terminate the
Non-Employee Director Stock Option Plan at any time, no amendment may, without
stockholder approval, materially increase the number of shares of common stock
issuable under the Plan, materially modify the requirements as to eligibility
for participation, materially increase the benefits accruing to participants
under the Plan or extend the termination date of the Plan. The Compensation
Committee may amend or modify any outstanding options in any manner consistent
with the Compensation Committee's authority under the Plan. No such amendment
or modification may impair the rights of a participant under the option without
that participant's consent.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to the grant and exercise
of awards under the Non-Employee Director Stock Option Plan and with respect to
the sale of common stock acquired under the Non-Employee Director Stock Option
Plan:
Tax Consequences to a Participant. A participant will not recognize
ordinary income upon the grant of a non-statutory option. Upon exercise of a
non-statutory option, a participant generally will recognize ordinary income in
an amount equal to the difference between the exercise price for the option and
the fair market value of the common stock on the exercise date. With respect to
any common stock acquired upon the exercise of a non-statutory option, a
participant will have a tax basis equal to the exercise price plus any income
recognized upon the exercise of the option. Upon selling common stock acquired
upon the exercise of a non-statutory option, a participant generally will
recognize capital gain or loss in an amount equal to the excess of the sale
price of the common stock over the participant's tax basis in that common
stock. The capital gain or loss will be long-term, midterm or short-term gain
or loss, depending upon the holding period of the shares.
Tax Consequences to Us. We generally will be entitled to a
business-expense deduction with respect to any ordinary compensation income
recognized by a participant, provided that we include and report those amounts
on a timely filed Form W-2 or Form 1099 - MISC (or similar IRS form filing).
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You may vote for approval of the Amendment No. 3, vote against
approval, or abstain from voting altogether by completing, signing and
returning the enclosed proxy card or by attending the meeting. IF YOU SIGN AND
RETURN THE PROXY CARD BUT NEGLECT TO COMPLETE THE "FOR/AGAINST/ABSTAIN"
SECTION, THE PROXIES WILL VOTE YOUR SHARES FOR APPROVAL OF THE AMENDMENT NO. 3
TO THE NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN.
Approval of the amendment requires the affirmative vote of a majority
of the votes cast by the stockholders present, in person or by proxy, and
eligible to vote at the meeting, a quorum being present. A copy of the proposed
amendment is attached as Exhibit A and is incorporated into this proxy
statement by this reference.
RECOMMENDATION OF THE BOARD OF DIRECTORS: The Board of Directors
recommends that you vote for approval of Amendment No. 3 to the Non-Employee
Director Stock Option Plan.
ITEM 4. APPROVAL OF AMENDMENT TO OUR EMPLOYEE STOCK PURCHASE PLAN
On February 1, 2000, the Board of Directors adopted, subject to
stockholder approval, an amendment to our Employee Stock Purchase Plan, which
increases the aggregate number of shares of common stock available for purchase
under the Plan from 50,000 to 250,000. All other provisions of the Plan remain
in full force and effect. The following is a description of the material
features of the Plan:
GENERAL INFORMATION
At our 1998 annual meeting, our stockholders approved the Employee
Stock Purchase Plan providing an opportunity for our eligible employees to
purchase common stock through payroll deductions. We believe that the Plan is
an effective means of aligning employees' interests, through their purchases of
common stock, with the interests of stockholders. The Plan is an integral part
of our over-all employee benefits package, which we rely on to help attract and
retain motivated and talented employee.
REASONS FOR THE AMENDMENT
The Employee Stock Purchase Plan currently provides that the aggregate
number of shares of common stock available for purchase under the Plan is
50,000. However, 48,219 of those originally available shares of common stock
have already been purchased through the Plan, leaving only 1,781 shares
available for future purchases. The Plan has been so successful that the number
of shares available for purchase were depleted sooner than originally
anticipated. As the number of our employees grows, we expect the demand for
shares under the Plan to grow as well. Considering the growing number of
employees who are expected to participate in the Plan, we expect the shares
made available by the amendment, if approved by our stockholders, will meet our
needs until 2003. Because the Plan is a key benefit for employees and is part
of what we believe is a very competitive compensation package, which allows us
to attract and retain high-quality employees, we feel strongly that the Plan
should be amended so that there is a sufficient number of shares available for
future purchases.
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DESCRIPTION OF THE EMPLOYEE STOCK PURCHASE PLAN
The purpose of the Employee Stock Purchase Plan is to enable our
eligible employees and employees of our subsidiaries to acquire a proprietary
interest in us by purchasing common stock through payroll deductions. If the
amendment is approved, the total number of shares of our common stock that have
been purchased under the Plan, plus the number of shares that will be available
for purchase by employees upon the exercise of purchase rights granted under
the Plan, will equal 250,000. If any purchase right granted under the Plan
expires or terminates for any reason without having been exercised in full or
ceases for any reason to be exercisable in whole or in part, the unpurchased
shares subject to that grant will be added back to the number of shares
available for purchase. The aggregate maximum number of shares will be subject
to appropriate adjustment in the event of stock dividends, stock splits,
recapitalization, or similar changes affecting the outstanding shares of common
stock. As of March 31, 2000, the market value of the 250,000 shares issued or
available for issuance under the Plan was $11,157,500.
The Plan is administered by our Compensation Committee, which
currently comprises Dr. Baddour and Mr. Weist. The Committee has full authority
to construe and interpret the Plan and correct any defect or omission or
reconcile any inconsistency in the Plan, and its decisions are final,
conclusive and binding upon all employees and all persons claiming under or
through any employee.
All of our employees (except for those who already own 5% or more of
our common stock) and, if designated by our Board of Directors, the employees
of our subsidiaries, are eligible to participate in the Employee Stock Purchase
Plan on the first Offering Date coincident with or next following the
employee's completion of 90 days of continuous service. For purposes of the
Plan, an "Offering Date" is defined as the date on which the administering
committee grants an eligible employee the right to purchase shares of common
stock. An eligible employee may become a participant in the Plan effective the
first day of an offering period following the submission of an enrollment form
that authorizes deductions from the employee's paycheck, so long as the
enrollment form is submitted to the committee at least 15 days prior to the
first day of the applicable offering period. If an enrollment form is submitted
less than 15 days before the first day of an offering period, it shall become
effective on the first day of the next succeeding offering period. A
participant may elect to have deductions made from his or her pay on each
payday at a whole number percentage rate of at least 1% but less than 10% of
the compensation that he or she is entitled to receive. A participant may
increase the rate of his payroll deductions effective as of any subsequent
Offering Date by filing a new authorization form with the committee 15 or more
days before the next Offering Date. A request for a decrease in payroll
deductions becomes effective as soon as practicable after it is filed with the
Committee.
The common stock to be sold under the Employee Stock Purchase Plan may
be shares acquired on the open market, treasury shares or shares newly issued
for the purpose. The purchase price for shares of common stock to be purchased
with payroll deductions is 85% (or such other amount as the committee
authorizes, but in no event less than 85%) of the fair market value of the
common stock on the date on which a grant of a purchase right under the Plan is
made or on the date on which the common stock is purchased, whichever is less.
The fair market value of the common stock on a given date shall be determined
by the committee based upon the reported closing sales price of the common
stock on the Nasdaq National Market on such date. If the limit on the number of
shares of common stock available to be purchased under the Plan is reached,
then the last purchase of common stock shall be allocated among the
participants pro rata based upon the number of shares that would have been
purchased under the Plan without this limitation.
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A participant may elect to withdraw his shares or any cash credited to
his account at any time. All of the cash deposits returned to the participant
will be paid to him promptly after receipt of the notice of the withdrawal,
without interest. Shares of common stock to be delivered to the participant
will be registered in his name, or if the participant directs in writing to the
committee, in the name of the participant and the person designated by the
participant, and will be delivered to the participant as soon as practicable
after the request for withdrawal. If the participant wishes to sell shares of
the common stock in his account, he may request that the Compensation Committee
sell the shares on his behalf, in which event all commission costs incurred in
connection with the sale of the shares of common stock will be paid by the
participant.
If a participant terminates his employment or otherwise becomes
ineligible to participate in the Employee Stock Purchase Plan, any unused
payroll deductions will be returned to him without interest. A participant may
terminate payroll deductions at any time by giving written notice to the
committee. A participant must wait six months from the date his withdrawal from
the Plan before he may reenter the Plan. An employee must be employed by us or
one of our affiliates on the date that the common stock is purchased in order
to participate in the purchase for that offering period.
An employee will not be granted a purchase right under the Employee
Stock Purchase Plan if he owns, immediately after the grant of the purchase
right, 5% or more of the voting power or value of all classes of our stock or
that of any of our affiliates, or if purchase rights under the Plan or any
other plans qualified under Section 423 of the Internal Revenue Code, would
result during any calendar year in the purchase of shares having an aggregate
fair market value of more than $25,000.
Our Board of Directors may amend or terminate the Employee Stock
Purchase Plan at any time, provided that no amendment shall, without
stockholder approval, increase the number of shares of common stock available
for purchase under the Plan (except upon stock splits and dividends,
combinations and similar events), change the class of affiliates whose
employees are eligible to participate in the Plan, or otherwise effect a change
inconsistent with Code Section 423.
You may vote for approval of the amendment, vote against approval, or
abstain from voting altogether by completing, signing and returning the
enclosed proxy card or by attending the meeting. IF YOU SIGN AND RETURN THE
PROXY CARD BUT NEGLECT TO COMPLETE THE "FOR/AGAINST/ABSTAIN" SECTION, THE
PROXIES WILL VOTE YOUR SHARES FOR APPROVAL OF THE AMENDMENT TO THE EMPLOYEE
STOCK PURCHASE PLAN.
Approval of the amendment requires the affirmative vote of a majority
of the votes cast by the stockholders present, in person or by proxy, and
eligible to vote at the meeting, a quorum being present. A copy of the proposed
amendment is attached as Exhibit B and is incorporated into this proxy
statement by this reference.
RECOMMENDATION OF THE BOARD OF DIRECTORS: The Board of Directors recommends
that you vote for approval of the amendment to the Employee Stock Purchase
Plan, which increases the number of shares issuable under the Plan from 50,000
to 250,000.
OTHER BUSINESS
As of the date of this Proxy Statement, we do not know of any other
business to be considered at the meeting. However, if any additional matters
are properly presented at the meeting, the persons named in the proxy, or their
substitutes, will vote your shares in accordance with their judgment on such
matters.
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GENERAL INFORMATION
As of March 31, 2000, there were 13,246,873 shares of common stock
outstanding and entitled to vote at the meeting. There were options to purchase
2,713,523 shares of common stock at varying exercise prices between $.78 and
$101.44 and warrants to purchase an additional 312,881 shares of common stock
outstanding at varying exercise prices between $3.42 and $5.21 per share (the
weighted average exercise price was $14.54 per share for options, $3.79 per
share for warrants and $13.43 per share overall).
STOCKHOLDER PROPOSALS
We did not receive any stockholder proposals for inclusion in this
year's proxy statement. If you wish to present a proposal to be included in
next year's proxy statement, and assuming that next year's annual meeting will
be held on May 15, 2001, your must submit your proposal in writing and we must
receive it between February 15, 2001, and March 16, 2001.
Whether or not you plan to attend the annual meeting, we urge you to
fill out, sign, date and return the proxy at your earliest convenience.
By order of the Board of Directors:
James N. Fletcher
Secretary
April 10, 2000
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EXHIBIT A
AMENDMENT NO. 3 TO
HYSEQ, INC. NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
WHEREAS, the Board of Directors and the Stockholders of Hyseq, Inc. has
approved that certain Amendment No. 3 to the Hyseq, Inc. Non-Employee Director
Stock Option Plan (the "Plan"), to become effective with respect to all Initial
and Subsequent Option grants made on or after May 23, 2000. All Initial Options
and Subsequent Options granted prior to the effective date of this Amendment No.
3 shall continue to be governed by the terms of the Plan as in existence prior
to the effective date of this Amendment No. 3.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Article 2.1 shall be amended to read as follows:
Effective on the date on which a director first becomes a
member of the Board of Directors of the Company, commencing with
directors who first become members on or after May 23, 2000 ("New
Directors"), each New Director who satisfies the conditions set forth
in Section 1.3 will automatically be awarded a stock option (an
"Initial Option" or the "Initial Options") under the Plan to purchase a
number of shares of Common Stock (subject to adjustment pursuant to
Section 3.2) equal to the lesser of (i) the number determined by
dividing $200,000 by the Fair Market Value of a share of Common Stock
(as determined pursuant to Section 3.6(a) of the Plan) as of the date
the Initial Option is granted, or (ii) 10,000. Commencing with the
Annual Meeting of the Stockholders held in 2000, effective on the date
of each Annual Meeting of the Stockholders, each director of the
Company then in office who satisfies the conditions set forth in
Section 1.3, will automatically be awarded a stock option (a
"Subsequent Option" or the "Subsequent Options") to purchase a number
of shares of Common Stock (subject to adjustment pursuant to Section
3.2) equal to the lesser of (i) the number determined by dividing
$200,000 by the Fair Market Value of a share of Common Stock (as
determined pursuant to Section 3.6(a) of the Plan) as of the date the
Subsequent Option is granted, or (ii) 10,000; provided, however, that a
director who is granted an Initial Option at an Annual Meeting of the
Stockholders shall not be entitled to receive his or her first
Subsequent Option until the next Annual Meeting of the Stockholders.
(Collectively, the Subsequent Option(s) and the Initial Option(s) may
be referred to herein as an "Option" or "Options".)
2. Article 2.4(c) shall be amended to read as follows:
c. With respect to Initial Options granted prior to May 23,
2000, one half of the Participant's Initial Option shall be exercisable
on the date of grant and one fourth of the Initial Option shall become
exercisable on the date of the Annual Meeting of the Stockholders held
in each of the two years following the year in which the Participant
receives the Initial Option. For Initial Options granted on or
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after May 23, 2000, the Participant's Initial Option shall be
exercisable as follows: Fifty percent (50%) of the Initial Option shall
be exercisable on the first anniversary of the date of grant and the
remaining fifty percent (50%) of the Initial Option shall become
exercisable on the second anniversary of the date of grant. All Initial
Options shall be exercisable until the tenth anniversary of the date of
grant. Each director's first Subsequent Option shall vest on the later
of (i) the first anniversary of the date on which the New Director
becomes a member of the Company's Board of Directors, or (ii) the grant
date of the Subsequent Option. All other Subsequent Options shall
become exercisable on the date of grant (the date of each Annual
Meeting.) Subsequent Options shall be exercisable until the tenth
anniversary of the date on which the Subsequent Option(s) was granted.
The foregoing notwithstanding, (i) in the event a Participant's status
as a non-employee director ceases as the result of his termination for
cause, all of the Participant's outstanding Options shall immediately
terminate and (ii) upon the date the Participant ceases to serve as a
non employee director of the Company for any reason or for no reason,
all vesting of Options under this Plan shall cease.
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EXHIBIT B
Amendment No. 1
to
Hyseq, Inc. Employee Stock Purchase Plan
WHEREAS, the Board of Directors and the Stockholders of Hyseq, Inc. have
approved the following amendment to Section 5 of the Hyseq, Inc. Employee Stock
Purchase Plan (the "Stock Purchase Plan") to be effective as of May 23, 2000.
NOW, THEREFORE, Section 5 of the Stock Purchase Plan is hereby amended to
increase the maximum number of shares of Common Stock which may be issued for
all purposes under the Stock Purchase Plan from 50,000 to 250,000.
All other provisions of the Stock Purchase Plan remain in full force and
effect.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
HYSEQ, INC.
2000 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints George B. Rathmann and Lewis S. Gruber as
proxies, with the power to act without the other and with power of substitution,
and hereby authorizes them to represent and vote all the shares of stock of
Hyseq, Inc., a Nevada corporation standing in the name of the undersigned with
all powers which the undersigned would have if present at the Annual Meeting of
Stockholders to be held on May 23, 2000, at 9:00 a.m. Pacific Daylight Time and
at any adjournment or adjournments thereof, as fully and with the same force and
effect as the undersigned might or could so act if personally present thereat,
as follows:
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO SELECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS 1 THROUGH 5.
[ ] I PLAN TO ATTEND THE MEETING
ITEM 1: Election of Class I Directors
Nominees: Robert D. Weist Lewis S. Gruber
(To withhold authority to vote for any individual nominee, strike a line
through that nominee's name in the list above.)
VOTE FOR [ ] WITHHOLD AUTHORITY [ ]
all nominees listed to vote for all nominees
(except as marked to the contrary)
ITEM 2: Approval of an amendment to the Hyseq, Inc. Amended and Restated
Articles of Incorporation, as amended, to increase the number of
authorized shares of common stock
FOR [ ] AGAINST [ ] ABSTAIN [ ]
ITEM 3: Approval of an amendment to the Hyseq, Inc. Non-Employee Director Stock
Option Plan
FOR [ ] AGAINST [ ] ABSTAIN [ ]
ITEM 4: Approval of an amendment to the Hyseq, Inc. Employee Stock Purchase Plan
to increase the number of shares of common stock issuable under the Plan
FOR [ ] AGAINST [ ] ABSTAIN [ ]
ITEM 5: The proxies are authorized to vote, in their discretion, upon such other
business as may properly come before the meeting or any adjournment
thereof
FOR [ ] AGAINST [ ] ABSTAIN [ ]