UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
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[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
Orchid BioSciences, Inc.
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(Name of Registrant as Specified In Its Charter)
Orchid BioSciences, Inc.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[ ] 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:
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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:
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Orchid
BioSciences, Inc
303 College Road
East
Princeton, NJ
08540
609.750.2200
609.750.2250 fax
mail@orchid.com
www.orchid.com
[LOGO OF ORCHID BIOSCIENCES, INC.] May 11, 2001
Dear Stockholder:
You are cordially invited to attend the 2001 Annual Meeting of Stockholders
of Orchid BioSciences, Inc. (the "Company") to be held at 10:00 a.m. on
Tuesday, June 12, 2001 at the Princeton Marriott Forrestal Village, 201 Village
Boulevard, Princeton, New Jersey 08540.
At the Annual Meeting, the Company will seek stockholder approval to (i)
elect Sidney M. Hecht to the Board of Directors, (ii) increase the aggregate
number of shares for which stock options may be granted under the Company's
2000 Employee, Director, and Consultant Stock Plan; (iii) amend the Company's
Restated Certificate of Incorporation to increase the number of the Company's
authorized shares of common stock, par value $0.001 per share, from 50,000,000
to 100,000,000 shares; and (iv) ratify the selection of KPMG LLP as the
Company's independent public accountants. The Board of Directors recommends the
approval of each of these proposals. Such other business will be transacted as
may properly come before the Annual Meeting.
We hope you will be able to attend the Annual Meeting. Whether you plan to
attend the Annual Meeting or not, it is important that your shares are
represented. Therefore, you are urged to complete, sign, date and return the
enclosed proxy promptly in accordance with the instructions set forth on the
proxy. This will ensure your proper representation at the Annual Meeting.
Sincerely,
/s/ Dale R. Pfost
-----------------------
Dale R. Pfost, Ph.D.
Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
ORCHID BIOSCIENCES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held June 12, 2001
To the Stockholders of Orchid BioSciences, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Orchid BioSciences, Inc.,
a Delaware corporation (the "Company"), will be held on Tuesday, June 12, 2001
at the Princeton Marriott Forrestal Village, 201 Village Boulevard, Princeton,
New Jersey 08540 at 10:00 a.m. for the following purposes:
1. To elect Sidney M. Hecht to the Board of Directors to serve for a term
ending in 2004 and until his successor is duly elected and qualified;
2. To consider and act upon a proposal to increase the aggregate number of
shares of the Company's Common Stock, $.001 par value per share (the
"Common Stock"), authorized for issuance under the Company's 2000
Employee, Director, and Consultant Stock Plan from 1,500,000 shares to
4,500,000 shares;
3. To consider and act upon a proposal to amend the Company's Restated
Certificate of Incorporation to increase the aggregate number of shares
of Common Stock authorized to be issued by the Company from 50,000,000
shares to 100,000,000 shares;
4. To consider and act upon a proposal to ratify the appointment of KPMG
LLP as the Company's independent public accountants for the fiscal year
ending December 31, 2001; and
5. To transact such other business as may be properly brought before the
Annual Meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on April 16, 2001 as
the record date for the determination of Stockholders entitled to notice of and
to vote at the Annual Meeting and at any adjournments thereof.
All Stockholders are cordially invited to attend the Annual Meeting. Whether
you plan to attend the Annual Meeting or not, you are requested to complete,
sign, date and return the enclosed proxy as soon as possible in accordance with
the instructions on the proxy. A pre-addressed, postage prepaid return envelope
is enclosed for your convenience. You may also be eligible to vote
electronically or by telephone.
By Order of the Board of Directors
/s/ Donald R. Marvin
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Donald R. Marvin
Secretary
May 11, 2001
Orchid BioSciences, Inc.
303 College Road East
Princeton, NJ 08540
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PROXY STATEMENT
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GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Orchid BioSciences, Inc. (the "Company"), a Delaware
corporation, of proxies, in the accompanying form, to be used at the Annual
Meeting of Stockholders to be held at the Princeton Marriott Forrestal
Village, 201 Village Boulevard, Princeton, New Jersey 08540 on Tuesday, June
12, 2001 at 10:00 a.m., and any adjournments thereof (the "Meeting").
If the stockholder specifies in the proxy how the shares are to be voted,
they will be voted as specified.
If the enclosed form of proxy is properly signed and returned or a proxy is
voted electronically or by telephone, the shares represented thereby will be
voted accordingly. If no choice is specified, the shares will be voted:
. FOR the election of Sidney M. Hecht as a Class I Director;
. FOR the proposal to increase the aggregate number of shares of the
Company's common stock, $.001 par value per share (the "Common Stock"),
authorized for issuance under the Company's 2000 Employee, Director, and
Consultant Stock Plan to 4,500,000 shares;
. FOR the proposal to amend the Company's Restated Certificate of
Incorporation; and
. FOR the ratification of the appointment of KPMG LLP as the Company's
independent public accountants for the fiscal year ending December 31,
2001.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date. Any
stockholder who has executed a proxy but is present at the Meeting, and who
wishes to vote in person, may do so by revoking his or her proxy as described
in the preceding sentence. Shares represented by valid proxies in the form
enclosed, received in time for use at the Meeting and not revoked at or prior
to the Meeting, will be voted at the Meeting. The presence, in person or by
proxy, of the holders of a majority of the outstanding shares of the Company's
Common Stock is necessary to constitute a quorum at the Meeting. Votes of
stockholders of record who are present at the meeting in person or by proxy,
abstentions, and broker non-votes (as defined below) are counted as present or
represented at the meeting for purposes of determining whether a quorum
exists.
Nominees for election as Directors at the meeting will be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting. Withholding authority to vote for a nominee for Director will
have no effect on the outcome of the vote.
For the proposals (i) to increase the aggregate number of shares of the
Company's Common Stock reserved for issuance under the Company's 2000
Employee, Director, and Consultant Stock Plan by 3,000,000 shares and (ii) to
ratify the appointment of KPMG LLP as the Company's independent public
accountants for the fiscal year ending December 31, 2001, the affirmative vote
of a majority of shares of Common Stock voted affirmatively or negatively at
the Meeting on the matter is necessary for approval. Abstentions with respect
to each of these two proposals have no effect on the outcome of the vote.
1
For the proposal to amend the Company's Restated Certificate of
Incorporation to increase the aggregate number of shares of Common Stock
authorized for issuance by the Company from 50,000,000 shares to 100,000,000
shares, the affirmative vote of the holders of at least the majority of the
outstanding Common Stock of the Company entitled to vote on this matter is
required for approval under Delaware law. Because abstentions are treated as
shares present or represented and entitled to vote, abstentions with respect to
this proposal have the same effect as a vote against the proposal.
If you hold your shares of Common Stock through a broker, bank or other
representative, generally the broker or your representative may only vote the
Common Stock that it holds for you in accordance with your instructions.
However, if it has not timely received your instructions, the broker or your
representative may vote on certain matters for which it has discretionary
voting authority. If a broker or your representative does not have
discretionary voting authority on a certain matter, the broker may not vote on
your behalf with respect to the matter, which is considered a "broker non-vote"
on that matter. As to the proposals relating to the stock option plan and the
ratification of independent public accountants, which each require an
affirmative vote of the majority of votes cast affirmatively or negatively at
the Meeting, broker non-votes will have no effect on the outcome of the vote.
As to the proposal to amend the Company's Restated Certificate of
Incorporation, which requires an affirmative vote of a majority of the
Company's outstanding Common Stock, broker non-votes have the same effect as a
vote against the proposal. Therefore, we urge you to vote your shares at your
earliest possible convenience.
The close of business on April 16, 2001 has been fixed as the record date
for determining the stockholders entitled to notice of and to vote at the
Meeting. As of the close of business on April 16, 2001, the Company had
33,470,830 shares of Common Stock outstanding and entitled to vote. Holders of
Common Stock are entitled to one vote per share on all matters to be voted on
by stockholders.
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company. In
addition, the Company will reimburse brokerage firms and other persons
representing beneficial owners of Common Stock of the Company for their
expenses in forwarding proxy materials to such beneficial owners. Solicitation
of proxies by mail may be supplemented by telephone, telegram, facsimile and
personal solicitation by certain officers or employees of the Company as well
as by a professional solicitor. The Company has retained D.F. King & Co., Inc.
to solicit the majority of proxies for a fee of approximately $7,500 as well as
reimbursement for certain expenses incurred by them in connection with their
services, all of which will be paid by the Company. In addition, the Company
may request banks, brokers, and other custodians, nominees and fiduciaries to
solicit customers of theirs who have shares of the Company registered in the
name of the nominee. The Company will reimburse any such persons for their
reasonable out-of-pocket expenses.
This Proxy Statement and the accompanying proxy card are being mailed on or
about May 11, 2001 to all stockholders entitled to notice of and to vote at the
Meeting.
The Annual Report to Stockholders for the fiscal year ended December 31,
2000 is being mailed to the stockholders with this Proxy Statement, but does
not constitute a part hereof.
2
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of February 15, 2001
concerning the beneficial ownership of the Common Stock by each stockholder
known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, each member of the Board of Directors as of
the fiscal year-end, each nominee for the Board of Directors who is not
currently serving on the Board, each executive officer named in the Summary
Compensation Table on page 9, and all Directors and current executive officers
as a group.
Shares
Beneficially
Owned(1)
-----------------
Name and Address** Number Percent
- ------------------ --------- -------
OrbiMed Advisors LLC(2)................................... 2,473,117 7.3%
767 Third Avenue, 6th Floor
New York, NY 10017
Oracle Strategic Partners, LP(3).......................... 2,150,000 6.4%
712 5th Avenue, 45th Floor
New York, NY 10019
INVESCO Global Health Sciences Fund(4).................... 1,701,465 5.1%
7800 East Union Avenue,
Mail Stop 1102
New York, New York 10019
Directors and Executive Officers
Dale R. Pfost, Ph.D.(5)................................... 337,502 1%
Donald R. Marvin(6)....................................... 240,944 *
Sidney M. Hecht, Ph.D.(7)................................. 27,221 *
Samuel D. Isaly(8)........................................ 2,473,117 7.3%
Jeremy M. Levin, D. Phil., MB.Bchir.(9)................... 18,332 *
Ernest Mario, Ph.D.(10)................................... 9,073 *
George Poste, DVM, Ph.D.(11).............................. 45,369 *
Robert M. Tien, M.D., M.P.H.(12).......................... 16,596 *
Anne M. VanLent(13)....................................... 15,648 *
All Directors and executive officers as a group (9
persons)(14)............................................. 3,183,802 9.4%
- ---------------------
* Represents beneficial ownership of less than 1% of the Company's
outstanding shares of Common Stock.
** Addresses are given for beneficial owners of more than 5% of the
outstanding Common Stock only. Unless otherwise indicated, the address of
each shareholder is c/o Orchid BioSciences, Inc., 303 College Road East,
Princeton, New Jersey, 08540.
(1) The number of shares of Common Stock issued and outstanding on February
15, 2001 was 33,443,293. The calculation of percentage ownership for each
listed beneficial owner is based upon the number of shares of Common Stock
issued and outstanding at February 15, 2001, plus shares of Common Stock
subject to options held by such person at February 15, 2001 and
exercisable within 60 days thereafter. The persons and entities named in
the table have sole voting and investment power with respect to all shares
shown as beneficially owned by them, except as noted below.
(2) Represents 807,749 shares of Common Stock held by Eaton Vance Worldwide
Health Sciences Fund, 100,000 shares of Common Stock subject to a
currently exercisable warrant held by Eaton Vance Worldwide Health
Sciences Fund, 410,254 shares of Common Stock held by Finsbury Worldwide
Pharmaceutical Trust, 100,000 shares of Common Stock subject to a
currently exercisable warrant held by Finsbury Worldwide Pharmaceutical
Trust, 526,782 shares of Common Stock held by PHARMAw/HEALTH, 75,000
shares of Common Stock subject to a currently exercisable warrant held
3
by PHARMAw/HEALTH, 74,074 shares of Common Stock held by Caduceus Capital
II, L.P., 148,148 shares held by Winchester Global Trust Company Limited
as Trustee For Caduceus Capital Trust, 222,222 shares of Common Stock held
by Hare & Co. for the benefit of Finsbury Worldwide Pharmaceutical Trust
and 8,888 shares of Common Stock subject to a currently exercisable option
held by OrbiMed Advisors LLC. OrbiMed Advisors LLC is the investment
advisor for each of these funds, whose Managing Member, Samuel D. Isaly,
has sole authority to vote such shares and as such is considered the
beneficial owner of the Common Stock held by each of these funds.
(3) Larry Fineberg, who is a General Partner of Oracle Strategic Partners, LP,
has the authority to vote such shares.
(4) Represents 1,299,333 shares of Common Stock held by Pirate Ship & Co.,
222,222 shares of Common Stock held by Global Health Sciences Fund and
179,910 shares of Common Stock subject to currently exercisable warrants
held by Pirate Ship & Co. John Schroer, Senior Vice President of INVESCO
Global Health Science Fund, which manages each of Pirate Ship & Co. and
Global Health Science Fund, has authority to vote such shares.
(5) Includes 225,111 shares of Common Stock subject to currently exercisable
options, 2,500 shares held by Dr. Pfost's wife, individually, and 2,500
shares held jointly by Dr. Pfost's wife and son.
(6) Includes 126,294 shares of Common Stock subject to currently exercisable
options, 70,000 shares of Common Stock subject to currently exercisable
warrants held by Cairn Investments Inc., 42,150 shares of Common Stock
held by Cairn Investments Inc. and 2,500 shares of Common Stock held by
Mr. Marvin's wife. Cairn Investments Inc. is an investment corporation
whose stockholders consist of Mr. Marvin and his wife.
(7) Represents 23,221 shares of Common Stock subject to currently exercisable
options. Mr. Hecht disclaims any beneficial ownership of the shares of
Common Stock beneficially owned by SmithKline Beecham Corporation and
SmithKline Beecham plc, except to the extent of his pecuniary interest in
such shares, if any.
(8) Mr. Isaly, who is the Managing Member of OrbiMed Advisors LLC, is deemed
to be the beneficial owner of shares of Common Stock attributed to OrbiMed
Advisors LLC. See footnote number 2 above.
(9) Represents 18,332 shares of Common Stock subject to currently exercisable
options.
(10) Represents 9,073 shares of Common Stock subject to currently exercisable
options.
(11) Represents 45,369 shares of Common Stock subject to currently exercisable
options.
(12) Represents 16,596 shares of Common Stock subject to a currently
exercisable option. Dr. Tien disclaims any beneficial ownership of the
shares of Common Stock beneficially owned by EB Finance Co., Ltd., except
to the extent of his pecuniary interest in such shares, if any.
(13) Ms. VanLent resigned her position as a Director of the Company on March
13, 2001. Ms. VanLent disclaims any beneficial ownership of the shares of
Common Stock beneficially owned by Sarnoff Corporation, except to the
extent of her pecuniary interest in such shares, if any.
(14) Includes 481,772 shares subject to currently exercisable options and
345,000 shares subject to currently exercisable warrants.
4
MANAGEMENT
Board of Directors
The Company's Amended and Restated Bylaws (the "Bylaws") provide for the
Company's business to be managed by or under the direction of the Board of
Directors. Pursuant to the Company's Restated Certificate of Incorporation, the
number of members of the Company's Board of Directors is fixed from time to
time by the Board of Directors. On February 11, 2000, the Board of Directors
voted to set the size of the Board of Directors at eight. On February 21, 2001,
the Board of Directors voted to nominate Sidney M. Hecht for election at the
Meeting for a term of three years, to serve until the 2004 annual meeting of
stockholders, and until his successor has been elected and qualified. Unless
the enclosed proxy withholds authority to vote for Dr. Hecht or is a broker
non-vote, the shares represented by such proxy will be voted for the election
of Dr. Hecht as the Board's nominee.
Dr. Hecht currently constitutes a class with a term which expires at the
upcoming Meeting (the "Class I Directors"); Drs. Tien, Levin and Mario
constitute a class with a term ending at the 2002 annual meeting (the "Class II
Directors"); and Drs. Pfost and Poste and Mr. Isaly constitute a class with a
term ending at the 2003 annual meeting (the "Class III Directors"). The Class
II Directors (Drs. Tien, Levin and Mario) and the Class III Directors (Drs.
Pfost and Poste, and Mr. Isaly) will serve until the annual meetings of
stockholders to be held in 2002 and 2003, respectively, and until their
respective successors have been elected and qualified.
The Company is currently conducting a search for a qualified candidate to
fill the vacancy on the Board of Directors resulting from Anne M. VanLent's
resignation. Until the Company identifies a qualified candidate and elects that
candidate to the Board of Directors in accordance with the Bylaws, the Company
intends to leave one vacancy on the Board of Directors. Proxies relating to the
meeting cannot be voted for more than one nominee.
Set forth below are the names of the persons nominated as Directors and
Directors whose terms do not expire this year, their ages, their offices in the
Company, if any, their principal occupations or employment for the past five
years, the length of their tenure as Directors and the names of other public
companies in which such persons hold directorships. Each officer serves at the
discretion of the Board of Directors and holds office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. There are no family relationships among any of the Company's Directors
and executive officers.
Dale R. Pfost, Ph.D.(3)... 44 Chairman, Chief Executive Officer, President
Sidney M. Hecht,
Ph.D.(1)(4)(5)........... 56 Director
Samuel D. Isaly(3)(4)(5).. 56 Director
Jeremy M. Levin, D. Phil.,
MB. BChir.(2)(4)(5)...... 46 Director
Ernest Mario,
Ph.D.(2)(5).............. 62 Director
George Poste, DVM,
Ph.D.(3)................. 56 Director
Robert M. Tien, M.D.,
M.P.H.(2)................ 43 Director
- ---------------------
(1) Class I Director
(2) Class II Director
(3) Class III Director
(4) Member of the Compensation Committee
On March 13, 2001, Anne M. VanLent, who served on the Board of Directors for
approximately two years, voluntarily resigned. To date, no new Director has
been elected to the Board of Directors to fill the vacancy created by her
resignation.
5
Dale R. Pfost, Ph.D. has served as the Company's Chairman, Chief Executive
Officer and President since November 1996. Dr. Pfost has also served as the
Chairman and President of GeneScreen, Inc. and GeneShield.com., Inc., two of
the Company's subsidiaries, since December 1999 and October 1999, respectively.
Dr. Pfost has also served as a Director of Orchid BioSciences Europe Limited,
the Company's U.K. subsidiary, since its inception in July 2000. From 1988 to
1996, Dr. Pfost was the President and Chief Executive Officer of Oxford
GlycoSciences, a leader in proteomics and glycobiology. From 1982 to 1984,
Dr. Pfost was the President and a founder of Infinitek, Inc., the developer of
the Biomek 1000. From 1984 to 1988, Dr. Pfost served as the General Manager of
the Robotics and Automated Chemistry Systems business at SmithKline Beecham
following its acquisition of Infinitek. Dr. Pfost received his B.S. in Physics
from the University of California Santa Barbara and his Ph.D. in Physics from
Brown University.
Sidney M. Hecht, Ph.D. has served as a member of the Company's Board of
Directors since 1995. He has served as John W. Mallet Professor of Chemistry
and Professor of Biology at University of Virginia since 1978. From 1981 to
1987, Dr. Hecht held concurrent appointments first as Vice President,
Preclinical Research and Development, and then Vice President, Chemical
Research and Development at SmithKline & French Laboratories, where he was
appointed a Distinguished Fellow. From 1971 to 1979, he was Assistant Professor
and then Associate Professor of Chemistry at the Massachusetts Institute of
Technology. Dr. Hecht received his B.A. in Chemistry from the University of
Rochester and his Ph.D. in Chemistry from the University of Illinois.
Samuel D. Isaly has served as a member of the Company's Board of Directors
since February 1998. He has served as the Managing Member of OrbiMed Advisors
LLC since January 1998. Mr. Isaly founded the investment consulting firm Mehta
and Isaly in 1989, which provided consulting and investment management services
to the biotechnology and healthcare industries, where he was a General Partner
until 1998. He received his B.A. from Princeton University and his M.Sc. in
International Economics, Mathematics and Econometrics at the London School of
Economics, where he was a Fulbright Scholar.
Jeremy M. Levin, D.Phil., MB.BChir. has served as a member of the Company's
Board of Directors since May 1998. From 1996 to 2000, Dr. Levin served as the
Chairman of Physiome Sciences, Inc., and was appointed as Physiome Sciences'
Chief Executive Officer in 2000. From 1998 through 1999, he was Managing
Director of Perseus Capital LLC and from 1992 to 1998, Dr. Levin served as the
President and Chief Executive Officer of Cadus Pharmaceutical Corporation,
where he also served as Chairman from 1996 to 1998. Prior to 1992, Dr. Levin
was a Vice President at IG Laboratories, a wholly owned subsidiary of Genzyme
Corporation. Dr. Levin has served on a number of public biosciences companies,
boards and on the Executive Committee and the Emerging Companies Section of the
Biotechnology Industry Organization and on the Board of Vialactia, an
agricultural genetics company. Dr. Levin received an MB.BChir. from the
University of Cambridge and a D.Phil. in DNA structure from the University of
Oxford.
Ernest Mario, Ph.D. has served as a member of the Company's Board of
Directors since March 2000. Since 1993, Dr. Mario has served as Chairman and
Chief Executive Officer of ALZA, a designer and producer of therapeutic drug
delivery systems. From 1986 to 1993, Dr. Mario was at Glaxo, where his most
recent position was Deputy Chairman and Chief Executive of Glaxo Wellcome. From
1977 to 1985, Dr. Mario worked with Squibb Corporation where he served most
recently President and Chief Executive Officer of its medical products division
and as a member of the Board of Directors of the company. Dr. Mario currently
serves as Chairman of the Board of the Duke University Health System and the
American Foundation for Pharmaceutical Education. Dr. Mario received his B.S.
degree in pharmacy from Rutgers University and his M.S. and Ph.D. degrees in
physical science from the University of Rhode Island.
George Poste, DVM, Ph.D. has served as a member of the Company's Board of
Directors since March 2000. He currently serves as Chief Executive Officer of
Health Technology Networks, a consulting group specializing in the impact of
genetics, computing and other advanced technologies on healthcare research and
development and internet-based systems for healthcare delivery. From 1992 to
1999, Dr. Poste was President of Research and Development, Chief Science and
Technology Officer and a member of the Board of Directors of SmithKline
Beecham. Dr. Poste is a non-executive chairman of diaDexus, LLC, the joint
venture in molecular
6
diagnostics between SmithKline Beecham and Incyte Pharmaceuticals, and a non-
executive chairman of Structural GenomiX. He serves on the Board of Directors
of Maxygen, Inc. and Illumina, Inc. Dr. Poste received his degree in veterinary
medicine and his Ph.D. in virology from the University of Bristol, England. He
is a Board-certified pathologist and a Fellow of the Royal Society.
Robert M. Tien, M.D. M.P.H. has served as a member of the Company's Board of
Directors since February 2000. He is Founder and Chairman of Electronic
Business International and Vice President and member of the International
Scientific Advisory Board for the American Academy of Anti-Aging Medicine. He
has several academic and hospital appointments, including a tenured
Professorship at Duke University Medical Center, where his most recent
positions included Director of Neuroradiology and Director of Neuro-MR from
1991 to 1996. He has authored or co-authored more than 160 papers. Dr. Tien
received his B.S. and M.D. from the National Taiwan University and School of
Medicine and his Master of Public Health, or M.P.H., from Harvard University
Graduate School of Public Health.
Committees of the Board of Directors and Meetings
Meeting Attendance. During the fiscal year ended December 31, 2000 there
were twelve (12) meetings of the Board of Directors, and the various committees
of the Board of Directors met a total of eight (8) times. No Director attended
fewer than 75% of the total number of meetings of the Board and of committees
of the Board on which he served during fiscal year ended 2000.
Audit Committee. The Audit Committee, which met four (4) times during the
fiscal year ended December 31, 2000, has four members, Dr. Hecht, Mr. Isaly,
Dr. Levin and Dr. Mario. The Audit Committee reviews the engagement of the
Company's independent accountants, reviews annual financial statements,
considers matters relating to accounting policy and internal controls and
reviews the scope of annual audits. Please see also the report of the Audit
Committee set forth elsewhere in this Proxy Statement.
Compensation Committee. The Compensation Committee, which met four (4) times
during the fiscal year ended December 31, 2000, has three members, Dr. Hecht,
Chairman, Mr. Isaly and Dr. Levin. The Compensation Committee reviews, approves
and makes recommendations on the Company's compensation policies, practices and
procedures to ensure that legal and fiduciary responsibilities of the Board of
Directors are carried out and that such policies, practices and procedures
contribute to the success of the Company. Please see also the report of the
Compensation Committee set forth elsewhere in this Proxy Statement.
Nominating Committee. The Company does not have a standing Nominating
Committee.
Compensation Committee Interlocks and Insider Participation. Dr. Hecht, Mr.
Isaly and Dr. Levin, all of whom are non-employee Directors, constitute the
Company's compensation committee. None of the Company's executive officers
serve as a member of the Board of Directors or compensation committee of any
entity that has one or more executive officers serving as a member of the
Company's Board of Directors or compensation committee.
Compensation of Directors
The Company's policy is to pay its Directors $3,000 per meeting for each
Board meeting attended and $500 per meeting for each committee meeting
attended. Expenses incurred in attending Board of Director meetings and
committee meetings are reimbursed by the Company.
Directors are eligible to receive periodic grants of options to purchase
shares of the Company's Common Stock under the Company's 2000 Employee,
Director and Consultant Stock Plan (the "2000 Plan"). Additionally, Directors
have received shares of Common Stock under the Company's 1995 Stock Incentive
Plan (the "1995 Plan" and, together with the 2000 Plan, the "Plans"). Under
each of the Plans, the Board has the discretion to determine the grant of
options to any non-employee Director at an exercise price equal to the
7
fair market value of the Common Stock on the grant date. Options issued under
the Plans typically vest in 36 equal monthly installments over a period of
three years or 48 equal monthly installments over a period of four years, in
each case, commencing on the last day of the month in which the option was
granted. Each option terminates on the earlier of (i) ten years after the date
of grant or (ii) the date that is three months after the optionee ceases to
serve as a Director (or twelve months, if service ends due to death or
disability). The exercisability of options granted to Directors under the Plans
will be accelerated upon an acquisition or a change of control of the Company.
Under the terms of the 1995 Plan, the Company granted to (i) Dr. Poste options
to purchase 20,000 shares on March 31, 2000 and 80,000 shares on March 31, 2000
at an exercise price of $12.00 per share and (ii) Dr. Mario options to purchase
20,000 shares on March 31, 2000 at an exercise price of $12.00 per share. Under
the terms of the 2000 Plan, the Company granted (i) Dr. Tien options to
purchase 5,000 shares on July 3, 2000 and 5,000 shares on October 2, 2000, at
an exercise price of $37.25 and $30.00 per share, respectively; (ii) Dr. Poste
options to purchase 33,333 shares on June 12, 2000 at an exercise price of
$8.00 per share; (iii) Dr. Mario options to purchase 6,667 shares on June 12,
2000, at an exercise price of $8.00 per share. Options granted during fiscal
2000 to Dale R. Pfost are reported under "Executive Compensation--Option Grants
in Last Fiscal Year".
Drs. Hecht, Poste, and Tien are also employed as consultants by the Company.
The Company has not made payments to Drs. Hecht, Poste or Tien for any
consulting services rendered in fiscal 2000.
Executive Officers
The names of, and certain information regarding, executive officers of the
Company who are not also Directors are set forth below.
Name Age Position
---- --- --------
Donald R. Marvin......... 48 Senior Vice President, Chief Financial Officer,
Chief Operating Officer and Secretary
Donald R. Marvin has served as the Company's Senior Vice President, Chief
Operating Officer and Secretary since November 1997 and has served as the
Company's Chief Financial Officer since January 2000. Mr. Marvin has also
served as a Director and the Vice President of GeneScreen, Inc. and
GeneShield.com, Inc., two of the Company's subsidiaries, since December 1999
and October 1999, respectively. Mr. Marvin has also served as a Director and
Secretary of Orchid BioSciences Europe Limited, the Company's U.K. subsidiary,
since its inception in July 2000. From 1994 to 1997, Mr. Marvin was the founder
and President of Cairn Associates Inc., a firm providing management and
financial services to emerging growth life services companies. From 1986 to
1994, Mr. Marvin was President and Chief Executive Officer of Diatron
Corporation, a biomedical company developing fluorescence-based instrument
systems for the clinical diagnostics industry. Mr. Marvin received his B.S. in
Microbiology from Ohio State University and his M.B.A. from Iona College.
8
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth summary information as
to compensation received by the Company's Chief Executive Officer and each of
the four other most highly compensated executive officers who were employed by
the Company at the end of December 31, 2000 (collectively, the "named executive
officers") for services rendered to the Company in all capacities during the
three fiscal years ended December 31, 2000.
Annual Compensation Long-Term Compensation Awards
--------------------------------- -------------------------------
Name and Principal Other Annual Awards Securities All Other
Position Year Salary Bonus Compensation Underlying Options Compensation
- ------------------ ---- -------- -------- ------------ ------------------ ------------
Dale R. Pfost, Ph.D. ... 2000 $350,000 $326,250(1) $35,000(2) 630,000 $3,699(3)
1999 $265,000 -- $74,770(4) 160,300 $3,499
1998 $240,000 -- -- 100,000 --
Donald R. Marvin........ 2000 $275,000 $213,750(5) $13,750(6) 490,000 $5,095(7)
1999 $210,000 -- $17,676 67,300 $3,200
1998 $210,000 -- -- 250,000 --
- ---------------------
(1) Includes a $60,000 accrued bonus earned for services performed in fiscal
1998 and a $200,000 bonus earned in fiscal 2000 for the completion of the
Series E Convertible Preferred financing.
(2) Amount represents payment by the Company into an accrued retirement
account for Dr. Pfost.
(3) Includes a premium in the amount of $299 paid by the Company for a term
life insurance policy that benefits Dr. Pfost's family valued at $550,000.
This insurance policy supplements the Company's standard insurance policy
for its employees to make Dr. Pfost's life insurance benefits commensurate
with the benefits offered to all of the Company's employees. Also includes
a $3,400 contribution under the Company's 401(k) Plan for the benefit of
Dr. Pfost.
(4) Amount represents two payments made by the Company into an accrued
retirement account for the benefit of Dr. Pfost, $48,270 of which
represents an accrued benefit owed to Dr. Pfost for fiscal 1998.
(5) Includes a $11,250 accrued bonus earned for services performed in fiscal
1998 and a $150,000 bonus earned in fiscal 2000 for the completion of the
Series E Convertible Preferred financing.
(6) Amount represents payment by the Company into an accrued retirement
account for Mr. Marvin.
(7) Includes a premium in the amount of $1,695 reimbursed by the Company for a
term life insurance policy that benefits Mr. Marvin's family valued at
$325,000. This insurance policy supplements the Company's standard
insurance policy for its employees to make Mr. Marvin's life insurance
benefits commensurate with the benefits offered to all of the Company's
employees. Also includes a $3,400 contribution under the Company's 401(k)
Plan for the benefit of Mr. Marvin.
9
Option Grants in Last Fiscal Year
The following table sets forth information regarding each stock option
granted during fiscal year 2000 to each of the named executive officers.
Individual Grants
----------------------------------------------- Potential Realizable
Number of % of Total Value at Assumed Annual Rates
Securities Options Exercise of Stock Price Appreciation
Underlying Granted to or Base for Option Term(2)
Options Employees in Price Expiration ---------------------------------
Name Granted(1) 2000 ($/Share)(1) Date 5% 10%
- ---- ---------- ------------ ------------ ---------- -------------- ---------------
Dale R. Pfost........... 270,000 12.75% $6.00 2/2/10 $ 1,018,809 $ 2,581,863
120,000 5.67% $6.00 2/2/10 $ 452,804(3) $ 1,147,495(3)
120,000 5.67% $6.00 2/2/10 $ 452,804(4) $ 1,147,495(4)
120,000 5.67% $6.00 2/2/10 $ 452,804(5) $ 1,147,495(5)
Donald R. Marvin........ 250,000 11.80% $6.00 2/2/10 $ 943,342 $ 2,390,617
80,000 3.78% $6.00 2/2/10 $ 301,869(6) $ 764,996(6)
80,000 3.78% $6.00 2/2/10 $ 301,869(7) $ 764,996(7)
80,000 3.78% $6.00 2/2/10 $ 301,869(8) $ 764,996(8)
- ---------------------
(1) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant.
(2) The 5% and 10% assumed rates of appreciation are suggested by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future common stock price. There can be no
assurance of the future Common Stock price.
The amounts shown in this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10% compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
optionee's continued employment through the option period and the date on
which the options are exercised.
(3) The option will vest only when the price of the Company's Common Stock
exceeds $16 within the period between 6 and 18 months immediately
following the Company's initial public offering and is sustained for 45
trading days thereafter (trailing 45-day average) and accelerates if any
acquisition of the Company occurs in which the acquiring company exchanges
stock having a value of at least $16 per share or pays $16 per share for
each share of the Company's Common Stock.
(4) The option will vest only when the price of the Company's stock exceeds
$32 within the period between 6 and 30 months immediately following the
Company's initial public offering and is sustained for 45 trading days
thereafter (trailing 45-day average) and accelerates if any acquisition of
the Company occurs in which the acquiring company exchanges stock having a
value of at least $32 per share or pays $32 per share for each share of
the Company's Common Stock.
(5) The option will vest only when the price of the Company's Common Stock
exceeds $64 within the period between 6 and 42 months immediately
following the Company's initial public offering and is sustained for 45
trading days thereafter (trailing 45-day average) and accelerates if any
acquisition of the Company occurs in which the acquiring Company exchanges
stock having a value of at least $64 per share or pays $64 per share for
each share of the Company's Common Stock.
(6) The option will vest only when the price of the Company's stock exceeds
$16 within the period between 6 and 18 months immediately following the
Company's initial public offering and is sustained for 45 trading days
thereafter (trailing 45-day average) and accelerates if any acquisition of
the Company occurs in which the acquiring company exchanges stock having a
value of at least $16 per share or pays $16 per share for each share of
the Company's Common Stock.
10
(7) The option will vest only when the price of the Company's stock exceeds $32
within the period between 6 and 30 months immediately following the initial
public offering and is sustained for 45 trading days thereafter (trailing
45-day average) and accelerates if any acquisition of the Company occurs in
which the acquiring company exchanges stock having a value of at least $32
per share or pays $32 per share for each share of the Company's Common
Stock.
(8) The option will vest only when the price of the Company's stock exceeds $64
within the period between 6 and 42 months immediately following the initial
public offering and is sustained for 45 trading days thereafter (trailing
45-day average) and accelerates if any acquisition of the Company occurs in
which the acquiring company exchanges stock having a value of at least $64
per share or pays $64 per share for each share of the Company's Common
Stock.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table provides information regarding the exercises of options
by each of the named executive officers during the fiscal year ended December
31, 2000. In addition, this table includes the number of shares covered by both
exercisable and unexercisable stock options as of December 31, 2000 and the
values of "in-the-money" options, which values represent the positive spread
between the exercise price of any such option and the fiscal year-end value of
the Common Stock.
Number of Securities
Underlying Unexercised Value of the Unexercised
Shares Options at Fiscal In-The-Money Options at
Acquired Year-End Fiscal Year-End(2)
On Value ------------------------- -------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- ----------- ----------- ------------- ----------- -------------
Dale R. Pfost, Ph.D. ... -- -- 274,469 615,831(3) $2,850,157 $5,558,668(5)
Donald R. Marvin........ 42,150 $336,740 156,152 449,998(4) $1,473,218 $3,957,307(6)
- ---------------------
(1) Amounts shown in this column do not necessarily represent actual value
realized from the sale of the shares acquired upon exercise of the option
because in many cases the shares are not sold on exercise but continue to
be held by the executive officer exercising the option. The amounts shown
represent the difference between the option exercise price and the market
price on the date of exercise, which is the amount that would have been
realized if the shares had been sold immediately upon exercise.
(2) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for the Company's Common Stock of $14.00, the closing
sale price per share of the Company's Common Stock as reported in the
NASDAQ National Market System on December 29, 2000.
(3) Includes options to purchase 360,000 shares which will only vest upon
achievement of performance milestones with respect to the price per share
of the Company's Common Stock, or an acquisition of the Company at specific
price per share thresholds.
(4) Includes options to purchase 240,000 shares, which will only vest upon
achievement of performance milestones with respect to price per share of
the Company's Common Stock or an acquisition of the Company at specific
price per share thresholds.
(5) Excludes options referenced in footnote 3 above, none of which had value at
December 31, 2000.
(6) Excludes options referenced in footnote 4 above, none of which had value at
December 31, 2000
Corporate 401(k) Plan
The Company sponsors a 401(k) plan covering employees who meet certain
defined requirements. Under the terms of the Company's 401(k) plan,
participants may elect to make contributions on a pre-tax and after-tax basis,
subject to certain limitations under the Internal Revenue Code and the Company
may match a percentage of employee contributions, on a discretionary basis, as
determined by the Company's Board of Directors. The Company may make other
discretionary contributions to the 401(k) plan, although pursuant to a
determination by the Company's Board of Directors, the Company currently
matches 50% of the first 4% of employee contribution.
11
Executive Deferred Compensation Plan
The Company has established an executive deferred compensation plan, which
became effective on February 3, 1999. It was established primarily for the
purpose of providing life and disability insurance and retirement benefits as
well as deferred compensation for the Company's executive officers, Directors
and highly compensated employees. Participants in the plan are permitted to
defer receipt of, and income taxation on, up to 50% of their regular base
salary and all or any portion of any bonus until they terminate their
employment with the Company. Under the terms of the plan, the Company will also
provide an annual cash allowance to each eligible participant to pay the
premiums for their supplemental life and disability insurance.
Employment Contracts, Termination of Employment and Change-in-Control
Arrangements
The Company entered into a three year employment agreement with Dale R.
Pfost, Ph.D., effective as of January 2000, to serve as the Company's President
and Chief Executive Officer at an annual base salary of $350,000. Under the
terms of his employment agreement, Dr. Pfost is entitled to receive an annual
bonus of up to 25% of his base salary to be awarded based upon the Company's
achievement of specific performance milestones. If the Board of Directors
determines in good faith that the Company's performance has exceeded such
milestones, it may increase Dr. Pfost's bonus to up to 35% of his base salary.
The Company also contributes an additional amount equal to 10% of Dr. Pfost's
annual salary to a non-qualified retirement plan for the sole benefit of Dr.
Pfost. In addition, upon execution of the agreement, the Company issued to Dr.
Pfost options to purchase an aggregate of 730,000 shares of the Company's
Common Stock. Of these 730,000 options, options to purchase 100,000 shares were
previously granted in December 1999 with an exercise price of $1.25 per share.
The remaining 630,000 options have an exercise price of $6.00 per share. A
total of 360,000 of these newly issued options with $6.00 per share exercise
prices will vest if and when the price of the Company's Common Stock exceeds
certain specified levels for 45 consecutive trading days. The Company may
terminate the agreement with or without cause at any time. If the Company
terminates Dr. Pfost's employment for cause, the Company is only obligated to
pay him severance equal to his accrued base salary up to the date of
termination. If the Company terminates Dr. Pfost's employment without cause, or
if Dr. Pfost terminates his employment for good reason, the Company is
obligated to pay Dr. Pfost a severance amount equal to his annual base salary
and benefits for an eighteen month period following the effective date of
termination. The Company must provide Dr. Pfost with notice of termination in
advance of the effective termination date. The advance notice period ranges
from six to eighteen months, depending on the timing of the effective date of
the termination.
The Company entered into a three year employment agreement with Donald R.
Marvin, effective as of January 2000, to serve as the Company's Senior Vice
President, Corporate Development, Chief Operating Officer and Chief Financial
Officer at an annual base salary of $275,000. Under the terms of his employment
agreement, Mr. Marvin is entitled to receive an annual bonus of up to 25% of
his base salary to be awarded based upon the achievement of specific
performance milestones. If the Board of Directors determines in good faith that
the Company's performance has exceeded such milestones, it may increase Mr.
Marvin's bonus to up to 35% of his base salary. In addition, upon execution of
the agreement, the Company issued to Mr. Marvin options to purchase an
aggregate of 557,000 shares of the Company's Common Stock. Of these 557,000
options, options to purchase 67,000 shares were previously granted in December
1999 at an exercise price of $1.25 per share. The remaining 490,000 options
have an exercise price of $6.00 per share. A total of 240,000 of these newly
issued options with $6.00 per share exercise prices will vest if and when the
price of the Company's stock exceeds certain specified levels for 45
consecutive trading days. The Company also contributes an additional amount
equal to 5% of Mr. Marvin's annual salary to a non-qualified retirement plan
for the sole benefit of Mr. Marvin. The Company may terminate the agreement
with or without cause at any time. If the Company terminates Mr. Marvin's
employment for cause, the Company is only obligated to pay him severance equal
to his accrued base salary up to the date of termination. If the Company
terminates Mr. Marvin's employment without cause, or if Mr. Marvin terminates
his employment for good reason, the Company is obligated to pay Mr. Marvin a
severance amount equal to his annual base salary and benefits for an eighteen
month period following the effective date of termination. The Company must
provide Mr. Marvin with
12
notice of termination in advance of the effective termination date. The advance
notice period ranges from six to eighteen months, depending on the timing of
the effective date of the termination.
The outstanding option agreements issued under the Plans provide for
acceleration of the vesting of the options granted upon or in connection with a
change in control.
Performance Graph
The following graph compares the annual percentage change in the Company's
cumulative total stockholder return on its Common Stock during a period
commencing on May 5, 2000 and ending on December 29, 2000 (as measured by
dividing (i) the sum of (A) the cumulative amount of dividends for the
measurement period, assuming dividend reinvestment, and (B) the difference
between the Company's share price at the end and the beginning of the
measurement period; by (ii) the share price at the beginning of the measurement
period) with the cumulative total return of broad equity market index of NASDAQ
and the peer issuers during such period. The Company has not paid any dividends
on the Common Stock, and no dividends are included in the representation of the
Company's performance. The stock price performance on the graph below is not
necessarily indicative of future price performance. Prior to May 5, 2000, the
Company's Common Stock was not publicly traded. Comparative data is provided
only for the period since that date. This graph is not "soliciting material,"
is not deemed filed with the Securities and Exchange Commission and is not to
be incorporated by reference in any filing of the Company under the Securities
Act of 1933 or the Securities Exchange Act of 1934 whether made before or after
the date hereof and irrespective of any general incorporation language in any
such filing. Information used on the graph was obtained from the Media General
Financial Services, a source believed to be reliable, but the Company is not
responsible for any errors or omissions in such information.
[LINE GRAPH APPEARS HERE]
13
Comparison of Cumulative Total Return of One or More
Companies, Peer Groups, Industry Indexes and/or Broad Markets
Date of
first public
trading of Fiscal Year Ending December 31, 2000
Company's ----------------------------------------------------------------------------------
Common Stock Monthly Trading Period Ending
------------ ----------------------------------------------------------------------------------
COMPANY/INDEX/MARKET 5/05/2000 5/31/2000 6/30/2000 7/31/2000 8/31/2000 9/29/2000 10/31/2000 11/30/2000 12/29/2000
Orchid Biosciences
Inc.................... $100.00 $109.71 $347.14 $336.00 $410.86 $310.86 $186.86 $ 91.43 $128.00
Peer Group Index........ 100.00 82.47 158.39 117.84 129.91 143.67 145.50 86.98 89.64
NASDAQ Pharmaceutical
Index.................. 100.00 91.31 117.87 109.53 131.22 129.42 117.05 103.40 107.85
The Peer Group Index includes the following companies: Genaissance
Pharmaceuticals, Illumina, Inc., Myriad Genetics, Inc., Nanogen, Inc.,
Sequenom, Inc., and Variagenics, Inc.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
This report on executive compensation is provided by the Compensation
Committee of the Board of Directors (the "Compensation Committee") to assist
stockholders in understanding their objectives and procedures in establishing
the compensation of the Company's executive officers and describes the bases
on which 2000 compensation determinations were made by the Compensation
Committee. The Compensation Committee of the Board of Directors in 2000 was
composed of Drs. Sidney M. Hecht, Jeremy M. Levin, Mr. Samuel D. Isaly and Ms.
Anne M. VanLent, none of whom have ever been officers or employees of the
Company. Ms. VanLent resigned from the Board of Directors and the Compensation
Committee on March 13, 2001. The committee is responsible for establishing the
Company's compensation programs for all employees, including the Company's
executive officers. For executive officers, the committee evaluates
performance and determines compensation policies and levels.
Compensation Philosophy
The Compensation Committee believes that compensation of the Company's
executive officers should:
. Encourage creation of stockholder value and achievement of strategic
corporate objectives;
. Integrate compensation with the Company's annual and long-term corporate
objectives and strategy, and focus executive behavior on the fulfillment
of those objectives;
. Provide a competitive total compensation package that enables the
Company to attract and retain, on a long-term basis, high caliber
personnel;
. Provide total compensation opportunity that is competitive with
companies in the biopharmaceutical and biotechnology industries, taking
into account relative company size, performance and geographic location
as well as individual responsibilities and performance;
. Align the interests of management and stockholders and enhance
stockholder value by providing management with longer term incentives
through equity ownership by management; and
. Provide fair compensation consistent with internal compensation
programs.
Salary. Salary levels are largely determined through comparisons with
companies of similar headcount and market capitalizations or complexity in the
biopharmaceutical and biotechnology industries. Actual salaries are based on
individual performance contributions within a competitive salary range for
each position that is established through job evaluation of responsibilities
and market comparisons. The Compensation Committee, on the basis of its
knowledge of executive compensation in the industry, believes that the
Company's salary levels for the executive officers are at a level that the
Compensation Committee, at the time such salary
14
determinations were made, considered to be reasonable and necessary given the
Company's financial resources and the stage of its development. In December
2000, the Compensation Committee set annual salaries for 2001. The Compensation
Committee reviews salaries on an annual basis, with the next annual review
scheduled to occur in December 2001. At such time, the Compensation Committee
may change each executive officer's salary based on the individual's
contributions and responsibilities over the prior 12 months and any change in
median comparable company pay levels.
Cash Bonus. The Compensation Committee annually reviews each executive
officer's bonus, the aggregate bonus pool for the Company and the bonus
allocations by employee position. Payment of a cash bonus is tied to the
accomplishment of specific corporate milestones set at the beginning of the
year and to each individual officer's year-end performance review.
Equity Incentives. The Company intends that certain compensation paid to
management in 2000, including stock options, be exempt from the limitations on
deductibility under Section 162(m) of the Internal Revenue Code. The
Compensation Committee believes that by providing those persons who have
substantial responsibility for the management and growth of the Company with an
opportunity to increase their ownership of Company stock, the best interest of
stockholders and executive officers will be closely aligned. Therefore,
executive officers are eligible to receive stock options when the Compensation
Committee performs its annual salary review; although the Compensation
Committee, at its discretion, may grant options at other times in recognition
of exceptional achievements. Executives receive value from these grants only if
the Company's Common Stock appreciates over the long term. Option grants
generally vest over four years and are made at 100% of fair market value on the
date of grant. The number of shares underlying stock options granted to
executive officers is based on competitive practices in the industry as
determined by independent surveys and the Compensation Committee's knowledge of
industry practice. The Board granted options to purchase an aggregate of
1,120,000 shares of the Company's common stock to the Company's executive
officers in 2000, 600,000 of which will vest upon achievement of performance
milestones with respect to the price per share of the Company's Common Stock.
CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Dale R. Pfost is the President, Chief Executive Officer and Chairman of
the Board of Directors of the Company. His salary and bonus for fiscal year
ended 2000 are consistent with the criteria described above and with the
Compensation Committee's evaluation of his overall leadership and management of
the Company. In setting Dr. Pfost's compensation for 2000, the Compensation
Committee considered Dr. Pfost's performance in advancing the development and
growth of the Company and the Company's achievement of specific corporate
objectives. Highlights of Dr. Pfost's strategic contributions include the
following: the acquisition of GeneScreen, Inc.; substantial capital fund
raising in a private placement financing which the Company completed in January
2000 that raised an aggregate of approximately $74 million and the completion
of its initial public offering in May, that raised approximately $48 million;
the establishment of the Company's European office in the United Kingdom in
July; the establishment of a number of commercial relationships with several
major pharmaceutical partners, and the launch of SNP Identification Technology,
the Company's method of performing genotyping services. The Compensation
Committee determined that these achievements were important to the Company's
future growth and could assist the Company in enhancing stockholder value and,
accordingly, determined to reward Dr. Pfost for his efforts on behalf of the
Company. In addition, the committee also granted Dr. Pfost options, exercisable
at the fair market value on the date of grant, to purchase shares of the
Company's Common Stock. Dr. Pfost's compensation for 2000 is set forth in the
Summary Compensation Table. The Compensation Committee has set Dr. Pfost's
annual salary for 2001 at $365,750.
FEDERAL TAX CONSIDERATIONS
Section 162(m) of the Internal Revenue Code (the "Code") limits the Company
to a deduction for federal income tax purposes of no more than $1 million of
compensation paid to certain executive officers in a taxable year. Compensation
above $1 million may be deducted if it is "performance-based compensation"
within the meaning of Section 162(m).
15
The statute containing this law and the applicable Treasury regulations
offer a number of transitional exceptions to this deduction limit for pre-
existing compensation plans, arrangements and binding contracts. As a result,
the committee believes that at the present time it is quite unlikely that the
compensation currently paid or awarded to any executive officer will be subject
to Section 162(m) deduction limits. Therefore, the Compensation Committee has
not yet established a policy for determining which forms of incentive
compensation awarded to its executive officers shall be designed to qualify as
"performance-based compensation." The Compensation Committee intends to
continue to evaluate the effects of the statute and any applicable Treasury
regulations and to avoid the limitations of Section 162(m) in the future to the
extent consistent with the Company's best interests.
CONCLUSION
Through the plans described above, a significant portion of the Company's
compensation program and Dr. Pfost's compensation are contingent on the
Company's performance, and realization of benefits is closely linked to return
on investment and the long term growth in shareholder 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.
Members of the Compensation Committee
Sidney M. Hecht, Chairman
Samuel D. Isaly
Jeremy M. Levin
REPORT OF AUDIT COMMITTEE
The Audit Committee of the Board of Directors, which consists entirely of
Directors who meet the independence and experience requirements of The Nasdaq
National Stock Market, has furnished the following report:
The Audit Committee assists the Board in overseeing and monitoring the
integrity of the Company's financial reporting process, its compliance with
legal and regulatory requirements and the quality of its internal and external
audit processes. The role and responsibilities of the Audit Committee are set
forth in a written Charter adopted by the Board of Directors (the "Charter"),
which is attached as Appendix A to this Proxy Statement. The Audit Committee
reviews and reassesses the Charter annually and recommends any changes to the
Board for approval. The Audit Committee is responsible for overseeing the
Company's overall financial reporting process. In fulfilling its
responsibilities for the financial statements for fiscal year 2000, the Audit
Committee took the following actions:
. Reviewed and discussed the audited financial statements for the fiscal
year ended December 31, 2000 with management and KPMG LLP ("KPMG"), the
Company's independent auditors;
. Discussed with KPMG the matters required to be discussed by Statement on
Auditing Standards No. 61 relating to the conduct of the audit; and
. Received written disclosures and the letter from KPMG regarding its
independence as required by Independence Standards Board Standard No. 1.
The Audit Committee further discussed with KPMG their independence. The
Audit Committee also considered the status of pending litigation,
taxation matters and other areas of oversight relating to the financial
reporting and audit process that the Committee determined appropriate.
16
Based on the Audit Committee's review of the audited financial statements
and discussions with management and KPMG, the Audit Committee recommended to
the Board that the audited financial statements be included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 2000 for
filing with the Securities and Exchange Commission.
Members of the Audit Committee
Sidney M. Hecht, Chairman
Samuel D. Isaly
Jeremy M. Levin
Ernest Mario
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 2000, there has not been nor is there currently proposed, any
transaction or series of similar transactions to which the Company was or is to
be a party in which the amount involved exceeded or exceeds $60,000 and in
which any director, executive officer, holder of more than 5% of the Company's
common stock or any member of the immediate family of any of the foregoing
persons had or will have a direct or indirect material interest other than the
transactions described below.
In December 1997, the Company entered into a License and Option Agreement
with Sarnoff Corporation pursuant to which Sarnoff granted rights to the
Company under certain technology for the research, development and sale of
products and services in the field of combinatorial chemistry and in vitro
diagnostics. As part of the Company's transition from our historical business
model based on microfluidics technologies to the Company's current business
model based on the Company's SNP scoring technologies, on April 13, 2000, the
Company amended its License and Option Agreement with Sarnoff pursuant to which
the Company mutually agreed to convert its existing licenses in each relevant
field from an ongoing royalty-based license to a license paid in full. In
addition, the Company exercised and fully paid up its exclusive option to the
genomics and research products fields. The Company waived its exclusivity (but
retained its non-exclusive licenses) to the fields of high-throughput screening
and cell-based assay fields. Under the terms of this amendment, in lieu of all
its future cash payment, research funding, potential royalty payment and stock
issuance obligations, the Company paid a one-time payment to Sarnoff in the
aggregate amount of approximately $3.0 million and issued to Sarnoff 250,000
shares of its Common Stock and a warrant to purchase 75,000 shares of its
common stock at $8.00 per share on April 13, 2000. Upon payment of this
consideration, the Company received exclusive licenses in the fields formerly
covered by options under its License and Option Agreement. On February 2, 2000,
the Company also issued 100,000 shares of Common Stock to Sarnoff as an advance
on the issuances which would be owed in December 2000 for the two option fields
previously exercised under the License and Option Agreement. The Sarnoff
agreement has a term which continues until terminated by mutual agreement or by
Sarnoff, if the Company fails to make any payment when due unless the failure
is cured within 90 days of notice from Sarnoff.
In December 1999 and January 2000, the Company completed a private placement
in which it issued 18,881,563 shares of Series E convertible preferred stock,
which amount includes the shares issued in connection with the acquisition of
GeneScreen. INVESCO Global Health Sciences Fund, a five percent beneficial
stockholder, through each of Global Health Sciences Fund and Pirate Ship & Co.,
purchased an aggregate of 645,189 shares of Series E convertible preferred
stock in this offering for an aggregate purchase price of $2,903,350 consisting
of cash in the aggregate principal amount of $1,000,000, and the conversion of
the principal amount of and accrued interest on a bridge note held by Pirate
Ship & Co. in the aggregate amount of $1,903,350. OrbiMed Advisors LLC, a five
percent beneficial stockholder, through each of Caduceus Capital II, L.P.,
Eaton Vance Worldwide Health Sciences Fund, Finsbury Worldwide Pharmaceutical
Trust, PHARMAw/HEALTH and Winchester Global Trust Company Limited, as Trustee
for Caduceus Capital Trust, purchased an aggregate of 1,312,864 shares of
Series E convertible preferred stock for an aggregate purchase price of
$5,907,888 in this offering consisting of cash in the aggregate amount of
$3,000,000, and the
17
conversion of the principal of and all accrued interest on the three bridge
notes held by each of Eaton Vance Worldwide Health Sciences Fund, Finsbury
Worldwide Pharmaceutical Trust and PHARMA w/HEALTH in the aggregate amount of
$2,907,860. Oracle Strategic Partners, LP, a five percent beneficial
stockholder, purchased an aggregate of 2,150,000 shares of Series E convertible
preferred stock in this offering for an aggregate purchase price of $9,675,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and officers, and persons who own more than 10% of the Common Stock,
to file with the Securities and Exchange Commission (the "SEC") initial reports
of beneficial ownership and reports of changes in beneficial ownership of the
Common Stock and other equity securities of the Company. Officers, Directors
and greater than 10% beneficial owners are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 13, 2000 all
Section 16(a) filing requirements applicable to its officers, Directors and
greater than 10% beneficial owners were met, except that (i) due to a clerical
error, initial reports of ownership were filed late by Robert M. Tien, Sidney
M. Hecht, Samuel D. Isaly, Dale R. Pfost, Anne M. VanLent, Donald R. Marvin,
Ernest Mario, George Poste and Jeremy M. Levin, (ii) one report, covering three
transactions, was filed late by Dale R. Pfost, (iii) one report, covering one
transaction, was filed late by Donald R. Marvin and (iv) one report, covering
two transactions, was filed late by Robert M. Tien.
An Annual Statement of Beneficial Ownership on Form 5 is not required to be
filed if there are no previously unreported transactions or holdings to report.
Nevertheless, the Company is required to disclose the names of Directors,
officers and 10% shareholders who did not file a Form 5 unless the Company has
obtained a written statement that no filing is required. At the date of this
proxy statement, the Company had not received a written statement from Anne M.
VanLent, a former Director, who has not filed a Form 5.
18
ELECTION OF DIRECTORS
(Notice Item 1)
The Company's Restated Certificate of Incorporation provides for a staggered
Board of Directors. The Board of Directors currently consists of eight members
for the coming year and is divided into three classes. At the meeting, a
director will be elected to hold office for three years and until his successor
is elected and qualified. Dr. Sidney M. Hecht, who is presently serving as a
Director, has been nominated for re-election by the Board of Directors. Unless
the enclosed proxy withholds authority to vote for Dr. Hecht or is a broker
non-vote, the shares represented by such proxy will be voted for the election
of Dr. Hecht as the Board's nominee.
The Board of Directors has voted (i) to maintain the size of the Board of
Directors at eight members and (ii) to nominate Sidney M. Hecht for election at
the Meeting for a term of three years to serve until the 2004 annual meeting of
stockholders, and until his successor is elected and qualified. The Class II
Directors (Drs. Tien, Levin and Mario) and the Class III Directors (Drs. Pfost,
Poste and Mr. Isaly) will serve until the annual meetings of stockholders to be
held in 2002 and 2003, respectively, and until their respective successors have
been elected and qualified.
Unless authority to vote for the nominee named above is withheld, the shares
represented by the enclosed proxy will be voted FOR Dr. Hecht. In the event
that Dr. Hecht shall become unable or unwilling to serve, the shares
represented by the enclosed proxy will be voted for the election of such other
person as the Board of Directors may recommend in his place. The Board has no
reason to believe that Dr. Hecht will be unable or unwilling to serve.
A plurality of the votes of the shares present in person or represented by
proxy at the Meeting is required to elect the nominee as a Director.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF DR. HECHT AS A CLASS I
DIRECTOR, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF
UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
19
INCREASE IN THE AGGREGATE NUMBER OF SHARES
FOR WHICH STOCK OR STOCK OPTIONS MAY BE GRANTED UNDER THE COMPANY'S
2000 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN
(Notice Item 2)
General
The Company's Board of Directors and stockholders approved the 2000
Employee, Director and Consultant Stock Plan (the "2000 Plan") in 2000. A total
of 1,500,000 shares of Common Stock were initially reserved for issuance under
the 2000 Plan. The 2000 Plan may be amended by the Board of Directors or the
Compensation Committee of the Board of Directors, provided that any amendment
approved by the Board of Directors or the Compensation Committee which is of a
scope that requires Stockholder approval in order to ensure favorable federal
income tax treatment for any incentive stock options under Code Section 422, is
subject to obtaining such stockholder approval. The Board of Directors has
voted to approve an amendment to the 2000 Plan to increase the aggregate number
of shares of Common Stock for which stock or stock options may be granted under
the 2000 Plan by 3,000,000 shares. This amendment is being submitted for
stockholder approval at the Meeting to ensure continued qualification of the
2000 Plan under ISO rules and 162(m) rules. The Board of Directors believes
that the increase is advisable to give the Company the flexibility needed to
attract, retain and motivate employees, Directors and consultants. All
employees and consultants of the Company and the members of the Board of
Directors are eligible to participate in the 2000 Plan.
Material Features of the 2000 Plan
The purpose of the 2000 Plan is to attract, retain and motivate employees,
Directors and consultants through the issuance of stock options and/or stock
grants (together, the "Grants"), and to encourage ownership of shares of Common
Stock by employees, Directors and consultants of the Company. The 2000 Plan is
administered by the Compensation Committee. Subject to the provisions of the
2000 Plan, the Compensation Committee determines the persons to whom Grants
will be granted, the number of shares to be covered by each Grant and the terms
and conditions upon which a Grant may be granted, and has the authority to
administer the provisions of the 2000 Plan. All employees, Directors and
consultants of the Company and its affiliates (approximately 375 people) are
eligible to participate in the 2000 Plan.
Options granted under the 2000 Plan may be either (i) options intended to
qualify as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or (ii) non-qualified stock options.
Incentive stock options may be granted under the 2000 Plan to employees of the
Company and its affiliates. Non-qualified stock options may be granted to
consultants, Directors and employees of the Company and its affiliates. The
Board has the discretion under the 2000 Plan to grant options to purchase the
Company's Company Stock to each non-employee Director, which options typically
vest monthly over either a three-year period or a four-year period, at an
exercise price equal to the fair market value of the Common Stock on such grant
date.
The aggregate fair market value (determined at the time of grant) of shares
issuable pursuant to incentive stock options which become exercisable in any
calendar year under any incentive stock option plan of the Company may not
exceed $100,000. Incentive stock options granted under the 2000 Plan may not be
granted at a price less than the fair market value of the Common Stock on the
date of grant, or 110% of fair market value in the case of options granted to
an employee holding 10% or more of the voting stock of the Company. Non-
qualified stock options granted under the 2000 Plan may not be granted at an
exercise price less than 50% of the fair market value of the Common Stock on
the date of grant. Incentive stock options granted under the 2000 Plan expire
not more than ten years from the date of grant, or not more than five years
from the date of grant in the case of incentive stock options granted to an
employee holding 10% or more of the voting stock of the Company. An option
granted under the 2000 Plan is exercisable, during the optionholder's lifetime,
only by the optionholder and is not transferable by him or her except by will
or by the laws of descent and distribution.
20
A stock grant (or any part or installment thereof) and the purchase price
thereof, if any, shall be made (a) in United States dollars in cash or by
check, or (b) at the discretion of the Administrator (as defined in the 2000
Plan), through delivery of shares of Common Stock having a fair market value
equal as of the date of acceptance of the Stock Grant to the purchase price of
the Stock Grant determined in good faith by the Administrator, or (c) at the
discretion of the Administrator, by delivery of the grantee's personal recourse
note bearing interest payable not less than annually at no less than 100% of
the applicable Federal rate, as defined in Section 1274(d) of the Code, or (d)
at the discretion of the Administrator, by any combination of (a), (b) and (c)
above.
An incentive stock option granted under the 2000 Plan may, at the
Compensation Committee's discretion, be exercised after the termination of the
optionholder's employment with the Company (other than by reason of death,
disability or termination for cause as defined in the 2000 Plan) to the extent
exercisable on the date of such termination, at any time prior to the earlier
of the option's specified expiration date or three months after such
termination. In granting any non-qualified stock option or stock grant, the
Compensation Committee may specify that such non-qualified stock option or
stock grant shall be subject to such termination or cancellation provisions as
the Compensation Committee shall determine. In the event of the optionholder's
death or disability, both incentive stock options and non-qualified stock
options generally may be exercised, to the extent exercisable on the date of
death or disability (plus a pro rata portion of the option if the option vests
periodically), by the optionholder or the optionholder's survivors at any time
prior to the earlier of the option's specified expiration date or twelve months
from the date of the optionholder's death or disability. Generally, in the
event of the optionholder's termination for cause, all outstanding and
unexercised options shall be forfeited. In the event of the death or disability
of an employee who has received a stock grant, generally the stock grant may be
purchased, to the extent exercisable on the date of death or disability (plus a
pro rata portion of the stock grant if the grant vests periodically), by the
holder or the holder's survivors at any time prior to the earlier of the stock
grant's specified expiration date or twelve months from the date of the
holder's death or disability. Generally, in the event of the holder's
termination for cause, all outstanding shares subject to the stock grant shall
be repurchased by the Company.
If the shares of Common Stock shall be subdivided or combined into a greater
or smaller number of shares or if the Company shall issue any shares of Common
Stock as a stock dividend on its outstanding Common Stock, the number of shares
of Common Stock deliverable upon the exercise of an option issued or purchase
of a stock grant under the 2000 Plan shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend. If the Company is to be consolidated with or acquired by another
entity in a merger, sale of all or substantially all of the Company's assets or
otherwise (an "Acquisition"), the Compensation Committee or the Board of
Directors of any entity assuming the obligations of the Company under the 2000
Plan, shall, as to outstanding Grants under the 2000 Plan either (i) make
appropriate provision for the continuation of such Grant by substituting on an
equitable basis for the shares then subject to such options or stock the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition or securities of the successor or acquiring
entity; or (ii) upon written notice to the participants, provide that all stock
grants must be purchased and all options must be exercised (either to the
extent then exercisable or, at the discretion of the Compensation Committee,
all options or grants being made fully exercisable for purposes of such
transaction) within a specified number of days of the date of such notice, at
the end of which period the Grants shall terminate; or (iii) terminate all
Grants in exchange for a cash payment equal to the excess of the fair market
value of the shares subject to each such option (either to the extent then
exercisable or, at the discretion of the Compensation Committee, all options
being made fully exercisable for purposes of such transaction) over the
exercise price thereof. In the event of a recapitalization or reorganization of
the Company (other than an Acquisition) pursuant to which securities of the
Company or of another corporation are issued with respect to the outstanding
shares of Common Stock, an optionholder upon exercising an option or a holder
upon payment for a stock grant under the 2000 Plan, shall be entitled to
receive for the purchase price paid upon such exercise the securities he or she
would have received if he or she had exercised such option or paid for such
stock prior to such recapitalization or reorganization.
21
The 2000 Plan may be amended by the stockholders of the Company. The 2000
Plan may also be amended by the Board of Directors or the Compensation
Committee, provided that any amendment approved by the Board of Directors or
the Compensation Committee which is of a scope that requires Stockholder
approval in order to ensure favorable federal income tax treatment for any
incentive stock options under Code Section 422, is subject to obtaining such
stockholder approval.
As of February 15, 2001, an aggregate of 1,100,372 shares had been issued
upon the exercise of options or were issuable upon the exercise of options
outstanding under the 2000 Plan. On February 15, 2001, the closing market price
per share of the Company's Common Stock was $9.31, as reported in the NASDAQ
National Market System.
Federal Income Tax Considerations
The following is a description of certain U.S. federal income tax
consequences of the issuance and exercise of options under the 2000 Plan:
Incentive Stock Options. An optionee is generally not taxed on the grant or
exercise of an incentive stock option. The difference between the exercise
price and the fair market value of the shares on the exercise date will,
however, be a preference item for purposes of the alternative minimum tax. If
an optionee holds the shares acquired upon the exercise of an incentive stock
option final for at least two years following grant and at least one year
following exercise, the optionee's gain, if any, upon a subsequent disposition
of such shares is a capital gain (or loss). The measure of the gain is the
difference between the proceeds received on disposition and the optionee's
basis in the shares (which generally equals the exercise price). If an optionee
disposes of stock acquired pursuant to exercise of an incentive stock option
before satisfying the one and two-year holding periods described above, the
optionee will recognize both ordinary income and capital gain (or loss) in the
year of disposition. The amount of the ordinary income will be lesser of (i)
the amount realized on disposition less than optionee's adjusted basis in the
stock (usually the option price) or (ii) the difference between the fair market
value of the stock on the exercise date and the option price. The balance of
the consideration received on such a disposition will be capital gain if the
stock had been held for at least one year following exercise of the incentive
stock option. The Company is not entitled to an income tax deduction on the
grant or exercise of an incentive stock option or on the optionee's disposition
of the shares after satisfying the holding period requirement described above.
If the holding periods are not satisfied, the Company will be entitled to a
deduction in the year the optionee disposes of the shares, in an amount equal
to the ordinary income recognized by the optionee.
Non-Qualified Stock Options. The grant of a non-qualified option will not
result in taxable income to the optionee or deduction to the Company at the
time of grant. The optionee will recognize taxable compensation, and the
Company will have a corresponding deduction, at the time of exercise in the
amount of the excess of the then fair market value of the shares acquired over
the option price. Upon disposition of the shares, the optionee will generally
realize capital gain or loss, and his basis for determining gain or loss will
be the sum of the option price paid for the shares plus the amount of
compensation income recognized on exercise of the option.
The affirmative vote of a majority of the votes cast affirmatively or
negatively at the Meeting is required to approve the increase in the aggregate
number of shares of Common Stock available under the 2000 Plan.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE ADOPTION OF AN AMENDMENT
TO THE 2000 PLAN TO INCREASE BY 3,000,000 SHARES THE AGGREGATE NUMBER OF SHARES
FOR WHICH STOCK OR STOCK OPTIONS MAY BE GRANTED UNDER THE 2000 PLAN, AND
PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR OF SUCH AMENDMENT UNLESS
A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
22
AMENDMENT OF THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO INCREASE
FROM 50,000,000 SHARES TO 100,000,000 SHARES THE AGGREGATE NUMBER OF SHARES OF
COMMON STOCK AUTHORIZED TO BE ISSUED BY THE COMPANY
(Notice Item 3)
The Board of Directors has determined that it is advisable to increase the
Company's authorized Common Stock from 50,000,000 shares to 100,000,000 shares,
and has voted to recommend that the stockholders adopt an amendment to the
Company's Restated Certificate of Incorporation effecting the proposed
increase. The full text of the proposed amendment to the Restated Certificate
of Incorporation is attached to this Proxy Statement as Appendix B.
As of February 15, 2001, approximately 33,443,293 shares of Common Stock
were issued and outstanding (excluding treasury shares) and approximately an
additional 6,160,138 shares were reserved for issuance upon the conversion of
existing securities and exercise of options granted under the Company's various
stock-based plans. Accordingly, a total of approximately 10,417,486 shares of
Common Stock are available for future issuance.
The Board of Directors believes it continues to be in the best interest of
the Company to have sufficient additional authorized but unissued shares of
Common Stock available for issuance in order to provide flexibility for
corporate action in the future, including possible acquisitions of other
companies, financings, or other corporate purposes, as the Board of Directors
deems necessary to sustain and grow the Company. This increase will avoid
repeated separate amendments to the Company's Restated Certificate of
Incorporation and the delay and expense that would be incurred in holding
special meetings of Stockholders to approve such amendments. There are at
present no specific understandings, arrangements or agreements with respect to
any future acquisitions that would require the Company to issue a material
amount of new shares of its Common Stock. The Board of Directors believes that
the currently available unissued shares do not provide sufficient flexibility
for corporate action in the future.
No further authorization by vote of the stockholders will be solicited for
the issuance of the additional shares of Common Stock proposed to be
authorized, except as might be required by law, regulatory authorities or rules
of the Nasdaq or any other stock exchange on which the Company's shares may
then be listed. The issuance of additional shares of Common Stock could have
the effect of diluting existing stockholder earnings per share, book value per
share and voting power. The stockholders of the Company do not have any
preemptive right to purchase or subscribe for any part of any new or additional
issuance of the Company's securities.
The affirmative vote of a majority of the outstanding shares of the
Company's Common Stock is required to approve the amendment to the Company's
Restated Certificate of Incorporation to effect the proposed increase in the
Company's authorized shares.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE AMENDMENT TO THE
COMPANY'S RESTATED CERTIFICATE OF INCORPORATION, AND PROXIES SOLICITED BY THE
BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED
OTHERWISE ON THE PROXY.
23
INDEPENDENT PUBLIC ACCOUNTANTS
(Notice Item 4)
The Board of Directors has appointed KPMG LLP, independent public
accountants, to audit the financial statements of the Company for the fiscal
year ending December 31, 2001. The Board proposes that the stockholders ratify
this appointment. KPMG LLP audited the Company's financial statements for the
fiscal year ended December 31, 2000. The Company expects that representatives
of KPMG LLP will be present at the Meeting, with the opportunity to make a
statement if they so desire, and will be available to respond to appropriate
questions.
Audit Fees
The Company paid KPMG LLP a total of $450,000 for their audit of the
Company's annual financial statements for the fiscal year ended December 31,
2000 and for their review of the Company's Quarterly Reports on Form 10-Q filed
during the last fiscal year.
Financial Information Systems Design and Implementation Fees
During the Company's fiscal year ended December 31, 2000, the Company paid
no fees to KPMG LLP for the provision of information technology services.
All Other Fees
During the Company's fiscal year ended December 31, 2000, the Company paid
KPMG LLP a total of $1,076,000 for their provision of other services including
the review of SEC registration statements, issuance of comfort letters and
consents, acquisition due diligence assistance, consultation regarding the
effect of various accounting transactions, financial integration consulting
services and tax consultation and compliance.
The Audit Committee has considered whether the provision of the services
described above under the caption(s) Financial Information Systems Design and
Implementation Fees and All Other Fees is compatible with maintaining KPMG's
independence.
In the event that ratification of the appointment of KPMG LLP as the
independent public accountants for the Company is not obtained at the Meeting,
the Board of Directors will reconsider its appointment.
The affirmative vote of a majority of the shares of Common Stock voted
affirmatively or negatively at the Meeting is required to ratify the
appointment of the independent public accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS, AND PROXIES
SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS
INDICATED OTHERWISE ON THE PROXY.
24
OTHER MATTERS
The Board of Directors knows of no other business which will be presented to
the Meeting. If any other business is properly brought before the Meeting, it
is intended that proxies in the enclosed form will be voted in respect thereof
in accordance with the judgment of the persons voting the proxies.
STOCKHOLDER PROPOSALS
To be properly brought before the Company's annual meeting of stockholders
to be held in 2002, stockholder proposals must be delivered to the Secretary of
the Company no earlier than March 15, 2002 nor later than the close of business
on April 15, 2002, unless the annual meeting to be held in 2002 is more than 30
days before or more than 60 days after such dates, in which case such
stockholder proposals must be delivered to the Secretary of the Company no
earlier than 90 days prior to and no later than 60 days prior to such annual
meeting or the close of business on the tenth (10th) day following the day on
which the Company publicly announces such annual meeting. Proposals received
after that date will not be voted on at the annual meeting. If a proposal is
received before that date, the proxies that management solicits for the meeting
may still exercise discretionary voting authority on the proposal under
circumstances consistent with the proxy rules of the Securities and Exchange
Commission. All stockholder proposals should be marked for the attention of
Donald R. Marvin, Senior Vice President, CFO and COO, Orchid BioSciences, Inc.,
303 College Road East, Princeton, New Jersey 08540.
Princeton, New Jersey
May 11, 2001
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2000 (other than exhibits thereto) filed with the Securities and Exchange
Commission, which provides additional information about the Company, is
available to beneficial owners of the Company's Common Stock without charge
upon written request to Investor Relations Office, Orchid BioSciences, Inc.,
303 College Road East, Princeton, New Jersey 08540.
25
APPENDIX A
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
I. AUDIT COMMITTEE PURPOSE
The Audit Committee shall provide assistance to the Board of Directors of
the Company (the "Board") in fulfilling their responsibility to the
shareholders, potential shareholders, and investment community relating to
corporate accounting, reporting practices of the Company, and the quality and
integrity of the financial reports of the Company. The Audit Committee's
primary responsibilities and duties are to:
. Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting and legal
compliance.
. Monitor the independence and performance of the Company's independent
auditors and internal auditing department.
. Provide and avenue of communication among the independent auditors,
management, the internal auditing department, and the Board of
Directors.
The Audit Committee shall have the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and shall have direct access to
the independent auditors as well as anyone in the organization. The Audit
Committee shall have the ability to retain, at the Company's expense, special
legal, accounting, or other consultants or experts it deems necessary in the
performance of its duties.
II. AUDIT COMMITTEE COMPOSITION AND MEETINGS
Audit Committee members shall meet the requirements of the National
Association of Securities Dealers (the "NASD"). Unless otherwise permitted by
the requirements of the NASD, the Audit Committee shall be comprised of three
or more Directors as determined by the Board, each of whom shall be independent
non-executive Directors, and free from any relationship that, in the opinion of
the Board, would interfere with the exercise of his or her independent judgment
as a member of the Audit Committee. All members of the Audit Committee shall
have a basic understanding of finance and accounting and be able to read and
understand fundamental financial statements, and at least one member of the
Audit Committee shall have past employment experience or expertise in finance
or accounting or other comparable experience or background which has resulted
in such member's financial sophistication.
The members of the Audit Committee shall be elected by the Board at the
annual organizational meeting of the Board or until successors shall be duly
elected and qualified. If an Audit Committee Chairperson has not been elected
by the full Board, the members of the Audit Committee may designate a
Chairperson by majority vote of the Audit Committee membership.
The Audit Committee shall meet at least four times annually, or more
frequently as circumstances dictate. The Audit Committee Chair shall prepare
and/or approve an agenda in advance of each meeting. The Audit Committee should
meet privately in an executive session at least annually with management, the
director of the internal auditing department, the independent auditors, and as
a committee to discuss any matters that the Audit Committee or each of these
groups believe should be discussed. In addition, the Audit Committee, or at
least its Chairperson, should communicate with management and the independent
auditors quarterly to review the Company's financial statements and significant
findings based upon the auditors' limited review procedures.
III. AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually. Submit
any changes to this Charter to the Board of Directors for approval and have
the Audit Committee Charter published at least every three years in
accordance with SEC regulations (i.e. as an appendix to the proxy
statement).
A-1
2. Review the Company's annual audited financial statements prior to filing or
distribution. Review should include discussion with management and
independent auditors of significant issues regarding accounting principles,
practices, and judgments.
3. Review with financial management and the independent auditors the results
of the audit and Company's quarterly financial results prior to filing
prior to the release of earnings and/or the Company's quarterly financial
statements prior to filing or distribution. Review 10-Qs or 10-Ks prior to
filing with the Securities and Exchange Commission. Discuss any significant
changes to the Company's accounting principles and any items require to be
communicated by the independent auditors in accordance with SAS 61. The
Chairperson of the Committee may represent the entire Audit Committee for
purposes of this review.
4. Review the MD&A and other sections of the annual report before its release
and consider whether the information is adequate and consistent with the
Audit Committee members' knowledge about the Company and its operations.
Independent Auditors
5. Review the independence and performance of the auditors. Annually recommend
to the Board the appointment of the independent auditors or approve any
discharge of auditors when circumstances warrant. The Audit Committee and
the Board have the ultimate authority and responsibility to select,
evaluate, and where appropriate, replace the outside auditor. The
independent auditors are ultimately accountable to the Audit Committee and
the Board of Directors, as representatives of shareholders, for their
review of the financial statements and controls of the Company.
6. Oversee independence of the auditors by:
. receiving from the auditors, on a periodic basis, a formal written
statement delineating all relationships between the auditors and the
Company consistent with Independence Standards Board Standard 1 ("ISB
No. 1");
. reviewing, and actively discussing with the Board, if necessary, and the
auditors, on a periodic basis, any disclosed relationships or services
between the auditors and the Company or any other disclosed
relationships or services that may impact the objectivity and
independence of the auditors; and
. recommending, if necessary, that the Board take certain action to
satisfy itself of the auditors' independence.
General Responsibilities
7. Prepare or assist in the preparation of an annual report to shareholders as
required by the Securities and Exchange Commission. The report should be
included in the Company's annual proxy statement.
8. Perform any other activities consistent with this Charter, the Company's
bylaws, and governing law, as the Audit Committee or the Board deems
necessary or appropriate.
9. Maintain minutes of meetings and periodically report to the Board on
significant results of the foregoing activities.
10. Report through its Chairperson to the Board following meetings of the
Audit Committee.
IV. OTHER ACTIVITIES OF THE AUDIT COMMITTEE
To the extent necessary to fulfill its responsibilities and duties described
in Articles I and II above, the Audit Committee may:
1. Approve the fees and other significant compensation to be paid to the
independent auditors.
A-2
2. Review the independent audit plan--discuss scope, staffing, locations,
reliance upon management, and internal audit and general audit approach.
3. Discuss the results of the audit with independent auditors, prior to
releasing the year-end earnings. Discuss certain matters required to be
communicated to audit committees in accordance with AICPA SAS 61.
4. Consider the independent auditors' judgment about the quality and
appropriateness of the Company's accounting principles as applied in its
financial reporting.
Internal Audit Department
5. Review the budget, plan, changes in plan, activities, organizational
structure and qualifications of the internal audit department, as needed.
6. Review the appointment and performance of the senior internal audit
executive.
7. Review significant reports prepared by the internal audit department
together with management's response and follow-up to these reports.
Financial Reporting Process
8. Review, in consultation with the independent accountants and the internal
auditors, the integrity of the Company's financial reporting processes,
both internal and external.
9. Consider and approve, if appropriate, major changes to the Company's
auditing and accounting principles and practices as suggested by the
independent auditors, management, or the internal auditing department.
10. Establish regular systems of reporting to the Audit Committee by each of
management, the independent auditors and the internal auditors regarding
any significant judgments made in management's preparation of the
financial statements and any significant difficulties encountered during
the course of the review or audit, including any restrictions on the scope
of work or access to required information.
11. Review any significant disagreement among management and the independent
auditors or the internal auditing department in connection with the
preparation of the financial statements.
Legal Compliance
12. Review, with the Company's counsel, any legal matter that could have a
significant impact on the Company's financial statements.
A-3
APPENDIX B
CERTIFICATE OF AMENDMENT
of the
RESTATED CERTIFICATE OF INCORPORATION
of
ORCHID BIOSCIENCES, INC.
It is hereby certified that:
FIRST:The name of the corporation is Orchid BioSciences, Inc. (the
"Corporation").
SECOND: The Restated Certificate of Incorporation of the Corporation is
hereby amended by striking out the first paragraph of Article Fourth
in its entirety and by substituting in lieu of the following:
"FOURTH:
A. Designation and Number of Shares.
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue is 105,000,000 shares,
consisting of 100,000,000 shares of Common Stock, $.001 par value
per share (the "Common Stock") and 5,000,000 shares of Preferred
Stock, $.001 par value per share (the "Preferred Stock")."
THIRD: The amendment of the Certificate of Incorporation herein certified
has been duly adopted in accordance with the provisions of Section
228 and Section 242 of the General Corporation Law of the State of
Delaware.
EXECUTED, effective as of this day of , 2001.
Orchid Biosciences, Inc.
By: _________________________________
NAME:
TITLE:
B-1
ORCHID BIOSCIENCES, INC.
THIS PROXY IS BEING SOLICITED BY ORCHID BIOSCIENCES, INC.'S
BOARD OF DIRECTORS
The undersigned, hereby appoints Dale R. Pfost, Ph.D. and Donald R. Marvin, and
each of them (with full power to act alone), the attorneys and proxies of the
undersigned, with power of substitution to each, to vote all shares of the
Common Stock of Orchid BioSciences, Inc. (the "Company") registered in the name
provided herein which the undersigned is entitled to vote at the 2001 Annual
Meeting of Stockholders to be held at the Princeton Marriott Forrestal Village,
201 Village Boulevard, Princeton, NJ 08540, at 10:00 a.m. local time on
Wednesday, June 12, 2001, and at any adjournments thereof, with all the powers
the undersigned would have if personally present. Without limiting the general
authorization hereby given, said proxies are, and each of them is, instructed to
vote or act as follows on the proposals set forth in said Proxy.
This proxy when executed will be voted in the manner directed herein. If no
direction is made with respect to a proposal, this Proxy will be voted FOR such
proposal.
(To be Signed on Reverse Side) SEE REVERSE
SIDE
1. Election of Sidney M. Hecht, Ph.D. as a Class I Director.
|_| FOR |_| WITHHELD
2. Proposal to increase the aggregate number of shares of the Company's Common
Stock, $.001 par value per share (the "Common Stock"), authorized for
issuance under the Company's 2000 Employee, Director, Consultant Stock Plan
from 1,500,000 shares to 4,500,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
3. Proposal to amend the Company's Restated Certificate of Incorporation to
increase the aggregate number of shares of Common Stock authorized to be
issued by the Company from 50,000,000 shares to 100,000,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
4. Proposal to ratify the appointment of KPMG LLP as the Company's independent
public accountants for the fiscal year ending December 31, 2001.
|_| FOR |_| AGAINST |_| ABSTAIN
In their discretion, the proxies are authorized to vote upon such other matters
as may properly come before the meeting or any adjournments thereof.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS, JUST SIGN AND DATE ABOVE. YOU NEED NOT MARK ANY BOXES.
Signature ________________________________ Date_________________
Note: Please sign exactly as name(s) appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.