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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
LEXICON GENETICS INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
[LEXICON LOGO]
March 28, 2005
TO OUR STOCKHOLDERS:
I am pleased to invite you to attend the 2005 annual meeting of
stockholders of Lexicon Genetics Incorporated to be held on Wednesday, April 27,
2005 at 1:30 p.m., local time, at The Marriott Woodlands Waterway Hotel and
Convention Center, 1601 Lake Robbins Drive, The Woodlands, Texas. We have
enclosed with this letter:
- an official notice of the annual meeting;
- a proxy statement that describes the matters to be considered
and acted upon at the annual meeting; and
- a form of proxy that we are asking you to complete and return
to us, indicating your vote with respect to the matters
described in the proxy statement.
Your vote is important, regardless of the number of shares that you hold.
Whether or not you plan to attend the annual meeting, I hope you will vote as
soon as possible by signing and returning the enclosed form of proxy in the
postage-paid envelope we have provided for that purpose.
Thank you for your ongoing support of and continued interest in Lexicon
Genetics. We look forward to seeing you at the annual meeting.
Sincerely,
/s/ Arthur T. Sands
---------------------------------
Arthur T. Sands, M.D., Ph.D.
President and Chief Executive Officer
LEXICON GENETICS INCORPORATED
8800 TECHNOLOGY FOREST PLACE
THE WOODLANDS, TEXAS 77381
(281) 863-3000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 2005
TO OUR STOCKHOLDERS:
The annual meeting of stockholders of Lexicon Genetics Incorporated will
be held on Wednesday, April 27, 2005 at 1:30 p.m., local time, at The Marriott
Woodlands Waterway Hotel and Convention Center, 1601 Lake Robbins Drive, The
Woodlands, Texas, to:
- elect two Class II directors;
- ratify and approve an amendment to our 2000 Non-Employee
Directors' Stock Option Plan increasing the number of shares
of common stock underlying each annual option grant from 6,000
shares to 10,000 shares;
- ratify and approve the appointment of Ernst & Young LLP as our
independent auditors for the fiscal year ending December 31,
2005; and
- act on any other business that properly comes before the
annual meeting.
You are entitled to vote at the annual meeting only if you are the record
owner of shares of our common stock at the close of business on March 8, 2005.
It is important that your shares be represented at the annual meeting
whether or not you plan to attend. PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY
AND RETURN IT IN THE ACCOMPANYING POSTPAID ENVELOPE AS PROMPTLY AS POSSIBLE. If
you are present at the annual meeting, and wish to do so, you may revoke the
proxy and vote in person.
By order of the Board of Directors,
/s/ Jeffrey L. Wade
------------------------------
Jeffrey L. Wade
Secretary
The Woodlands, Texas
March 28, 2005
LEXICON GENETICS INCORPORATED
8800 TECHNOLOGY FOREST PLACE
THE WOODLANDS, TEXAS 77381
(281) 863-3000
---------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 27, 2005
GENERAL INFORMATION
PURPOSE OF THIS PROXY STATEMENT
We have prepared this proxy statement to solicit proxies on behalf of our
Board of Directors for use at our 2005 annual meeting of stockholders and any
adjournment or postponement thereof. We are mailing this proxy statement and the
accompanying notice of annual meeting of stockholders and form of proxy to our
stockholders on or about March 28, 2005.
TIME AND PLACE OF ANNUAL MEETING
The annual meeting will be held on Wednesday, April 27, 2005 at 1:30 p.m.,
local time, at The Marriott Woodlands Waterway Hotel and Convention Center, 1601
Lake Robbins Drive, The Woodlands, Texas.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the annual meeting, our stockholders will be asked to consider and act
upon the following matters:
- the election of two Class II directors;
- a proposal to ratify and approve an amendment to our 2000
Non-Employee Directors' Stock Option Plan increasing the
number of shares of common stock underlying each annual option
grant from 6,000 shares to 10,000 shares; and
- a proposal to ratify and approve the appointment of Ernst &
Young LLP as our independent auditors for the fiscal year
ending December 31, 2005.
Our Board of Directors does not intend to bring any other matters before
the annual meeting and has not been informed that any other matters are to be
presented by others. Our bylaws contain several requirements that must be
satisfied in order for any of our stockholders to bring a proposal before one of
our annual meetings, including a requirement of delivering proper advance notice
to us. Stockholders are advised to review our bylaws if they intend to present a
proposal at any of our annual meetings.
RECORD DATE FOR DETERMINING ENTITLEMENT TO VOTE
You are entitled to vote at the annual meeting if you were the record
owner of shares of our common stock as of the close of business on March 8,
2005, the record date for the annual meeting established by our Board of
Directors.
HOW TO VOTE YOUR SHARES
You may vote in person at the annual meeting or by proxy. To ensure that
your shares are represented at the annual meeting, we recommend you vote by
proxy even if you plan to attend the annual meeting in person. Even if you
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vote by proxy, if you wish, you can revoke your proxy and vote in person at the
annual meeting. If you want to vote at the annual meeting but your shares are
held by an intermediary, such as a broker or bank, you will need to obtain from
the intermediary either proof of your ownership of such shares as of March 8,
2005 or a proxy to vote your shares.
You may receive more than one proxy depending on how you hold your shares.
If you hold your shares through someone else, such as a broker or a bank, you
may get materials from them asking you how you want your shares to be voted at
the annual meeting.
QUORUM
We must have a quorum to conduct any business at the annual meeting. This
means that at least a majority of our outstanding shares eligible to vote at the
annual meeting must be represented at the annual meeting, either in person or by
proxy. Abstentions are counted for purposes of determining whether a quorum is
present. In addition, shares of our common stock held by intermediaries that are
voted for at least one matter at the annual meeting will be counted as being
present for purposes of determining a quorum for all matters, even if the
beneficial owner's discretion has been withheld for voting on some or all other
matters (commonly referred to as a "broker non-vote").
OUTSTANDING SHARES
On the record date, we had 63,538,171 shares of our common stock
outstanding. If you were the record owner of shares of our common stock on the
record date, you will be entitled to one vote for each share of stock that you
own on each matter that is called to vote at the annual meeting.
VOTE NEEDED TO APPROVE PROPOSALS
Our Class II directors will be elected by a plurality vote. As a result,
if a quorum is present at the annual meeting, the two persons receiving the
greatest number of votes will be elected to serve as our Class II directors.
Withholding authority to vote for a director nominee will not affect the outcome
of the election of directors.
The ratification and approval of the amendment to our 2000 Non-Employee
Directors' Stock Option Plan, the appointment of Ernst & Young LLP as our
independent auditors for the year ending December 31, 2005 and any other
business that may properly come before the annual meeting for a vote, will
require a majority of the votes cast with respect to such matter (unless a
greater vote is required by law or our charter or bylaws). On any such matter,
an abstention from voting will have the same effect as a vote against the
proposal. Broker non-votes do not count as votes for or against these proposals
and are not considered in calculating the number of votes necessary for
approval.
HOW YOUR PROXY WILL BE VOTED
Giving us your proxy means that you are authorizing us to vote your shares
at the annual meeting in the manner you direct. You may vote for our nominees
for election as Class II directors or withhold your vote for any one or more of
those nominees. You may vote for or against the proposals to ratify and approve
the amendment to our 2000 Non-Employee Directors' Stock Option Plan and the
appointment of Ernst & Young LLP as our independent auditors for the year ending
December 31, 2005, or abstain from voting on those proposals.
If you sign and return the enclosed proxy card and do not withhold
authority to vote for the election of our nominees for election as Class II
directors, all of your shares will be voted for the election of those nominees.
If you withhold authority to vote for one or more of our nominees for election
as Class II directors, none of your shares will be voted for those nominees.
If any of our nominees for election as Class II directors become
unavailable for any reason before the election, we may reduce the number of
directors serving on our Board of Directors, or our Board of Directors may
designate substitute nominees, as necessary. We have no reason to believe that
any of our nominees for election as Class II directors will be unavailable. If
our Board of Directors designates any substitute nominees, the persons named in
the enclosed proxy card will vote your shares for such substitute(s) if they are
instructed to do so by our Board of Directors or, in the absence of any such
instructions, in accordance with their own best judgment.
If you sign and return the enclosed proxy but do not specify how you want
your shares voted, your shares will be voted in favor of our nominees for
election as Class II directors and in favor of the proposals to ratify and
approve the
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amendment to our 2000 Non-Employee Directors' Stock Option Plan and the
appointment of Ernst & Young LLP as our independent auditors for the year ending
December 31, 2005.
If you sign and return the enclosed proxy and any additional business
properly comes before the annual meeting, the persons named in the enclosed
proxy will vote your shares on those matters as instructed by our Board of
Directors or, in the absence of any such instructions, in accordance with their
own best judgment. As of the date of this proxy statement, we are not aware of
any other matter to be raised at the annual meeting.
HOW TO REVOKE YOUR PROXY
You may revoke your proxy at any time before your shares are voted by
providing our Corporate Secretary with either a new proxy with a later date or a
written notice of your desire to revoke your proxy at the following address:
Lexicon Genetics Incorporated
8800 Technology Forest Place
The Woodlands, Texas 77381
Attention: Corporate Secretary
You may also revoke your proxy at any time prior to your shares having
been voted by attending the annual meeting in person and notifying the inspector
of election of your desire to revoke your proxy. Your proxy will not
automatically be revoked merely because you attend the annual meeting.
INSPECTOR OF ELECTION
Mellon Investor Services L.L.C., our transfer agent and registrar, will
count votes and provide a representative who will serve as an inspector of
election for the annual meeting.
LIST OF STOCKHOLDERS ENTITLED TO VOTE
A list of our stockholders entitled to vote at the annual meeting will be
available for inspection at the annual meeting. The stockholder list will also
be available for inspection for ten days prior to the annual meeting at our
corporate offices located at 8800 Technology Forest Place, The Woodlands, Texas.
Any inspection of this list at our offices will need to be conducted during
ordinary business hours. If you wish to conduct an inspection of the stockholder
list, we request that you please contact our Corporate Secretary before coming
to our offices.
SOLICITATION OF PROXIES AND EXPENSES
We are asking for your proxy on behalf of our Board of Directors. We will
bear the entire cost of preparing, printing and soliciting proxies. We will send
proxy solicitation materials to all of our stockholders of record as of the
record date and to all intermediaries, such as brokers and banks, that held any
of our shares on that date on behalf of others. These intermediaries will then
forward solicitation materials to the beneficial owners of our shares, and we
will reimburse them for their reasonable out-of-pocket expenses for forwarding
such materials. Our directors, officers and employees may solicit proxies by
mail, in person or by telephone or other electronic communication. Our
directors, officers and employees will not receive additional compensation for
their solicitation efforts, but they will be reimbursed for any out-of-pocket
expenses they incur.
HOUSEHOLDING OF ANNUAL DISCLOSURE DOCUMENTS
The Securities and Exchange Commission has approved a rule allowing us to
send a single set of our annual report and proxy statement to any household at
which two or more stockholders reside if we believe the stockholders are members
of the same family. This rule benefits both you and us by reducing the volume of
duplicate information received at your household and helping to reduce our
expenses. The rule applies to our annual reports, proxy statements and
information statements. Each stockholder will continue to receive a separate
proxy card or voting instruction card.
If your household received a single set of disclosure documents for this
year, but you would prefer to receive your own copy, please contact our transfer
agent, Mellon Investor Services L.L.C., by calling their toll-free number, (800)
635-9270. If you would like to receive your own set of our annual disclosure
documents in future years, follow the instructions described below. Similarly,
if you share an address with another stockholder and together both of you would
like to receive only a single set of our annual disclosure documents, follow
these instructions:
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- If your shares are registered in your own name, please contact
our transfer agent, Mellon Investor Services, and inform them
of your request by calling them at (800) 635-9270 or writing
them at 85 Challenger Road, Ridgefield Park, New Jersey 07660.
- If a broker or other nominee holds your shares, please contact
ADP and inform them of your request by calling them at (888)
603-5847 or writing them at Householding Department, 51
Mercedes Way, Edgewood, New York 11717. Be sure to include
your name, the name of your brokerage firm and your account
number.
STOCK OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
The following table presents information regarding the beneficial
ownership of our common stock as of March 8, 2005 by:
- each of the individuals listed in "Executive Compensation -
Summary Compensation Table";
- each of our directors;
- each person, or group of affiliated persons, who is known by
us to own beneficially five percent or more of our common
stock; and
- all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission computing the number of shares beneficially
owned by a person and the percentage ownership of that person. Shares of common
stock under options held by that person that are currently exercisable or
exercisable within 60 days of March 8, 2005 are considered outstanding. These
shares, however, are not considered outstanding when computing the percentage
ownership of each other person.
Except as indicated in the footnotes to this table and pursuant to state
community property laws, each stockholder named in the table has sole voting and
investment power for the shares shown as beneficially owned by them. Percentage
of ownership is based on 63,538,171 shares of common stock outstanding on March
8, 2005. Unless otherwise indicated in the footnotes, the address of each of the
individuals named below is: c/o Lexicon Genetics Incorporated, 8800 Technology
Forest Place, The Woodlands, Texas 77381.
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BENEFICIAL OWNERSHIP
----------------------------------------------------------
SHARES ISSUABLE
PURSUANT TO OPTIONS
NUMBER OF SHARES EXERCISABLE WITHIN 60 PERCENTAGE
BENEFICIALLY OWNED DAYS OF MARCH 8, 2005 OWNERSHIP
------------------ --------------------- ----------
Royce & Associates, LLC (1)............ 7,913,700 - 12.5%
Robert C. McNair (2)................... 5,949,400 - 9.3%
Mary H. Cain, James D. Weaver and
William A. McMinn (3)............... 4,561,091 - 7.2%
Barclays Global Investors, NA. and
Barclays Global Fund Advisors (4)... 4,190,688 - 6.6%
Baylor College of Medicine (5)......... 4,055,960 - 6.4%
Arthur T. Sands, M.D., Ph.D. (6)....... 1,028,362 2,789,001 5.8%
Julia P. Gregory (7)................... 66,047 625,147 1.1%
Jeffrey L. Wade, J.D. ................. 3,000 655,724 1.0%
Brian P. Zambrowicz, Ph.D. ............ - 1,038,935 1.6%
Alan J. Main, Ph.D. ................... - 395,375 *
Samuel L. Barker, Ph.D. ............... 7,000 53,500 *
C. Thomas Caskey, M.D (8).............. 1,683,900 213,500 3.0%
Patricia M. Cloherty................... - 49,000 *
Robert J. Lefkowitz, M.D. ............. - 42,500 *
Alan S. Nies, M.D. .................... - 15,750 *
Frank Palantoni........................ - 3,000 *
Clayton S. Rose........................ 10,000 4,500 *
All directors and executive officers
as a group (6)(7)(8) (15 persons)... 2,805,609 6,651,922 13.5%
------------------
* Represents beneficial ownership of less than 1 percent.
(1) Based upon a Schedule 13G filed with the SEC on January 31, 2005,
reflecting the beneficial ownership of our common stock by Royce &
Associates, LLC. The address for Royce & Associates, LLC is 1414 Avenue of
the Americas, New York, New York 10019.
(2) Based upon a Schedule 13D filed with the SEC on July 18, 2003, reflecting
the beneficial ownership of our common stock by RCM Financial Services,
L.P. (4,250,000 shares), Cogene Biotech Ventures, L.P. (1,679,400 shares)
and Palmetto Partners, Ltd. (20,000 shares). Mr. McNair has sole voting
and investment power with respect to all of such shares. The address for
Mr. McNair is 4400 Post Oak Parkway, Suite 1400, Houston, Texas 77027.
(3) Based upon a Schedule 13D/A filed with the SEC on January 2, 2004 and
certain representations made to us by the Estate of Gordon A. Cain and the
Gordon and Mary Cain Foundation. Reflects the beneficial ownership of our
common stock by the Estate of Gordon A. Cain (2,937,000 shares), the
Gordon and Mary Cain Foundation (550,000 shares), Mr. Weaver (15,000
shares) and Mr. McMinn (1,059,091 shares). Mrs. Cain and Mr. Weaver are
co-executors of the Estate of Gordon A. Cain and share investment power
with respect to the shares held by it. The shares held by or issuable to
the Estate of Gordon A. Cain are subject to a proxy granted to Mr. McMinn
by Mr. Cain to vote these shares in the event of Mr. Cain's incapacity or
death. The proxy will terminate upon the distribution of the shares from
Mr. Cain's estate. Mr. McMinn disclaims beneficial ownership of these
shares. Mrs. Cain is Chairman and Mr. Weaver is President of the Gordon
and Mary Cain Foundation and share voting and investment power with
respect to the shares held by it. The address for Mrs. Cain, Mr. Weaver
and Mr. McMinn is c/o Gordon Cain and Associates, 8 Greenway Plaza, Suite
702, Houston, Texas 77046.
(4) Based upon a Schedule 13G filed with the SEC on February 14, 2005,
reflecting the beneficial ownership of our common stock by Barclays Global
Investors, NA. (3,116,439 shares) and Barclays Global Fund Advisors
(1,074,249 shares). Barclays Global Investors, NA. has sole voting power
with respect to 2,721,420 shares and sole investment power with respect to
3,116,439 shares. Barclays Global Fund Advisors has sole voting and
investment power with respect to 1,074,249 shares. The address for
Barclays Global Investors, NA. and Barclays Global Fund Advisors is 45
Fremont Street, San Francisco, California 94105.
(5) Based upon a Schedule 13G/A filed with the SEC on January 6, 2005,
reflecting the beneficial ownership of our common stock by Baylor College
of Medicine and BCM Technologies Inc., a wholly owned subsidiary of Baylor
College of Medicine. The number of shares beneficially owned includes
28,940 shares owned by BCM Technologies, Inc. The address of Baylor
College of Medicine is One Baylor Plaza, T-140, Houston, Texas 77030-3498.
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(6) The number of shares beneficially owned by Dr. Sands includes 60,000
shares held in the name of minor children and 817,500 shares owned by
Sands Associates LP. The general partners of Sands Associates LP are ATS
Associates, L.L.C., owned by Dr. Sands, and MES Associates, L.L.C., owned
by Dr. Sands' wife.
(7) The number of shares beneficially owned by Ms. Gregory includes 4,847
shares held in the name of dependent children and trusts for their benefit
of which she serves as a trustee.
(8) The number of shares beneficially owned by Dr. Caskey includes 1,679,400
shares owned by Cogene Biotech Ventures, L.P., of which Dr. Caskey is
Managing Director, and 200 shares held in the name of minor children. Dr.
Caskey disclaims beneficial ownership of the shares owned by Cogene
Biotech Ventures, L.P.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and officers, and
persons who own more than 10% of our common stock, to file initial reports of
ownership and reports of changes in ownership of our common stock with the
Securities and Exchange Commission. Directors, officers and greater than 10%
stockholders are required by Securities and Exchange Commission regulations to
furnish us with copies of all such forms that they file.
To our knowledge, based solely on our review of the copies of such reports
received by us and on written representations by certain reporting persons that
no reports on Form 5 were required, we believe that during the fiscal year ended
December 31, 2004, all Section 16(a) filing requirements applicable to our
officers, directors and 10% stockholders were complied with in a timely manner.
EQUITY COMPENSATION PLAN INFORMATION
The following table presents aggregate summary information as of December
31, 2004 regarding the common stock that may be issued upon exercise of options,
warrants and rights under all of our existing equity compensation plans,
including our 2000 Equity Incentive Plan, 2000 Non-Employee Directors' Stock
Option Plan and Coelacanth Corporation 1999 Stock Option Plan.
(a) (b) (c)
WEIGHTED
AVERAGE EXERCISE NUMBER OF SECURITIES REMAINING
NUMBER OF SECURITIES PRICE PER SHARE OF AVAILABLE FOR FUTURE ISSUANCE UNDER
TO BE ISSUED UPON EXERCISE OF OUTSTANDING EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OPTIONS, WARRANTS (EXCLUDING SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS COLUMN (a))
------------------------------- ----------------------------- ------------------ -----------------------------------
Equity compensation plans
approved by security
holders (1) ............... 13,224,084 $ 6.2232 1,920,070(3)(4)(5)
Equity compensation plans
not approved by security
holders (2) ............... 74,821 2.3263 -
---------- ---------- ---------
Total................... 13,298,905 $ 6.2013 1,920,070
----------
(1) Consists of shares of our common stock issued or remaining available for
issuance under our 2000 Equity Incentive Plan and 2000 Non-Employee
Directors' Stock Option Plan.
(2) Consists of shares of our common stock issuable upon the exercise of
options granted under the Coelacanth Corporation 1999 Stock Option Plan,
which we assumed in connection with our July 2001 acquisition of
Coelacanth Corporation, but does not include warrants to purchase 16,483
shares of common stock at a weighted average exercise price of $11.93 per
share, which we also assumed in connection with our acquisition of
Coelacanth.
(3) Includes 1,518,070 shares available for future issuance under our 2000
Equity Incentive Plan, some or all of which may be awarded as stock
bonuses.
(4) Our 2000 Equity Incentive Plan provides that on each January 1, the number
of shares available for issuance under the plan will be automatically
increased by the greater of (i) five percent of our outstanding shares on
a fully-diluted basis or (ii) the number of shares that could be issued
under awards granted under the plan during the prior year. Our Board of
Directors may provide for a lesser increase in the number of shares
available for issuance under the plan.
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(5) Our 2000 Non-Employee Directors' Stock Option Plan provides that on the
day following each annual meeting of stockholders, the number of shares
available for issuance under the plan will be automatically increased by
the greater of (i) 0.3% of our outstanding shares on a fully-diluted basis
or (ii) the number of shares that could be issued under options granted
under the plan during the prior year. Our Board of Directors may provide
for a lesser increase in the number of shares available for issuance under
the plan.
PROPOSAL NUMBER 1:
ELECTION OF DIRECTORS
Our Board of Directors, which currently has eight members, is divided or
"classified" into three classes. Directors in each class are elected to hold
office for a term ending on the date of the third annual meeting following the
annual meeting at which they were elected. The current term of our Class II
directors will expire at this annual meeting. The current terms of our Class III
and Class I directors will expire at our 2006 and 2007 annual meetings of
stockholders, respectively.
The Board of Directors has nominated and urges you to vote for the
election of the individuals identified below, who have been nominated to serve
as Class II directors until our 2008 annual meeting of stockholders or until
their successors are duly elected and qualified. Each of these individuals is a
member of our present Board of Directors. Your signed proxy will be voted for
the nominees named below unless you specifically indicate on the proxy that you
are withholding your vote.
It is our policy to encourage the members of our Board of Directors to
attend all annual meetings of stockholders. Five members of our Board of
Directors attended our 2004 annual meeting of stockholders.
NOMINEES FOR CLASS II DIRECTORS
The following individuals are nominated for election as Class II
directors:
YEAR FIRST
NAME AGE POSITION WITH THE COMPANY BECAME A DIRECTOR
----------------------- --- --------------------------------------------- -----------------
Samuel L. Barker, Ph.D. 62 Chairman of the Board of Directors (Class II) 2000
Patricia M. Cloherty 62 Director (Class II) 1998
Samuel L. Barker, Ph.D. has been a director since March 2000 and became
Chairman of our Board of Directors in March 2005. In March 2001, Dr. Barker
co-founded Clearview Projects, Inc., a provider of partnering and transaction
services to biopharmaceutical companies, and served as its President and Chief
Executive Officer from July 2003 until November 2004. Dr. Barker served in a
series of leadership positions at Bristol-Myers Squibb Company until his
retirement in 1999. His positions at Bristol-Myers Squibb included service as
executive vice president, Worldwide Franchise Management and Strategy during
1998; president, United States Pharmaceuticals from 1992 to 1997; and president,
Bristol-Myers Squibb Intercontinental Commercial Operations from 1990 to 1992.
Prior to 1990, Dr. Barker held executive positions in research and development,
manufacturing, finance, business development and sales and marketing at Squibb
Pharmaceuticals. Dr. Barker received his B.S. from Henderson State College, his
M.S. from the University of Arkansas and his Ph.D. from Purdue University.
Patricia M. Cloherty has been a director since May 1998. Ms. Cloherty has
served as Chairman of the United States Russia Investment Fund, established by
the United States government to invest in Russian companies, since President
Clinton appointed her to that position in 1995. In July 2003, Directors of the
Fund also elected her to the position of Chief Executive Officer, a full-time
position she currently holds in Moscow, Russia. From 1973 through 1999, she was
General Partner of Patricof & Co. Ventures, Inc., an international venture
capital company, and successively served as Senior Vice President, President and
Co-Chairman of that company. Ms. Cloherty served as deputy administrator of the
United States Small Business Administration from 1977 to 1978. She is past
president and chairman of the National Venture Capital Association. Ms. Cloherty
serves as a director of several private companies and philanthropies. She holds
a B.A. from the San Francisco College for Women and an M.A. and an M.I.A. from
Columbia University.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
FOREGOING NOMINEES FOR ELECTION AS CLASS II DIRECTORS.
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CURRENT AND CONTINUING DIRECTORS
The current directors of the Company are identified below:
NAME AGE POSITION WITH THE COMPANY
----------------------------- --- --------------------------------------------------------------
Arthur T. Sands, M.D., Ph.D. 43 President and Chief Executive Officer and Director (Class III)
Samuel L. Barker, Ph.D.(1)(2) 62 Chairman of the Board of Directors (Class II)
C. Thomas Caskey, M.D. 66 Director (Class III)
Patricia M. Cloherty(1)(2) 62 Director (Class II)
Robert J. Lefkowitz, M.D.(3) 61 Director (Class I)
Alan S. Nies, M.D. 67 Director (Class I)
Frank Palantoni(2)(3) 47 Director (Class III)
Clayton S. Rose(1)(2) 46 Director (Class I)
----------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Corporate Governance Committee
Information regarding the business experience of Dr. Barker and Ms.
Cloherty is set forth above under the heading "- Nominees for Class II
Directors."
Arthur T. Sands, M.D., Ph.D. co-founded our company and has been our
President and Chief Executive Officer and a director since September 1995. At
Lexicon, Dr. Sands pioneered the development of large-scale gene knockout
technology for use in drug discovery. Before founding Lexicon, Dr. Sands served
as an American Cancer Society postdoctoral fellow in the Department of Human and
Molecular Genetics at Baylor College of Medicine. He received his B.A. in
Economics and Political Science from Yale University and his M.D. and Ph.D. from
Baylor College of Medicine.
C. Thomas Caskey, M.D. has been a director since April 2000 and was the
Chairman of our Board of Directors from April 2000 to March 2005. Dr. Caskey has
been Managing Director of Cogene Biotech Ventures, Ltd., a venture capital firm,
since March 2005 and served as President and Chief Executive Officer of the firm
from April 2000 to March 2005. He served as Senior Vice President, Research at
Merck Research Laboratories, a division of Merck & Co., Inc., from 1995 to March
2000 and as President of the Merck Genome Research Institute from 1996 to March
2000. Before joining Merck, Dr. Caskey served 25 years at Baylor College of
Medicine in a series of senior positions, including Chairman, Department of
Human and Molecular Genetics and Director, Human Genome Center. He is a member
of the National Academy of Sciences. Dr. Caskey serves as a director of Luminex
Corporation and several private companies. He received his B.A. from the
University of South Carolina and his M.D. from Duke University Medical School.
Robert J. Lefkowitz, M.D. has been a director since February 2001 and a
consultant to our company since March 2003. Dr. Lefkowitz is the James B. Duke
Professor of Medicine and Biochemistry and a Howard Hughes Medical Institute
investigator at Duke University Medical Center, where he has served on the
faculty since 1973. He is a member of the National Academy of Sciences. Dr.
Lefkowitz received his B.A. from Columbia University and his M.D. from Columbia
University College of Physicians and Surgeons.
Alan S. Nies, M.D. has been a director since November 2003 and Chairman of
our Medical Advisory Board since March 2003. From 1992 through September 2002,
Dr. Nies served in a series of senior management positions at Merck & Co. Inc.,
most recently as Senior Vice President, Clinical Sciences from 1999 to 2002.
Prior to joining Merck, Dr. Nies spent fifteen years as Professor of Medicine
and Pharmacology and Head of the Division of Clinical Pharmacology at the
University of Colorado Health Sciences Center. Dr. Nies holds a B.S. from
Stanford University and an M.D. from Harvard Medical School.
Frank Palantoni has been a director since November 2004. From 1998 to
2004, Mr. Palantoni held a variety of senior management positions with Novartis
AG, most recently as president and chief executive officer, worldwide of its
Gerber Products Company, Novartis Infant and Baby Division. Mr. Palantoni also
served as president and chief executive officer for North American operations of
Novartis Consumer Health Division from 2000 to 2001. Prior to joining Novartis,
he held a series of senior management positions with The Danone Group. Mr.
Palantoni currently serves as a
8
director of Gerber Life Insurance Company. He holds a B.S. from Tufts University
and an M.B.A. from Columbia University.
Clayton S. Rose has been a director since July 2004. Mr. Rose has been an
adjunct professor at Columbia University's Graduate School of Business and New
York University's Stern School of Business since 2002. From 1981 through 2000,
Mr. Rose worked at JP Morgan & Co, Inc. He held a series of senior management
positions at JP Morgan, including heading each of the firm's Global Investment
Banking and Global Equities divisions and serving as a member of the firm's
executive committee. He also served as Vice Chairman and Chief Operating Officer
of the investment bank of JP Morgan Chase & Co. following the merger of the two
firms. Mr. Rose serves as a director of Mercantile Bankshares Corporation, the
YMCA of Greater New York and Public/Private Ventures and is a member of the
Visiting Committee for the College and the Council for the Graduate School of
Business at the University of Chicago. He received his A.B and M.B.A. from the
University of Chicago.
INDEPENDENCE OF THE BOARD OF DIRECTORS
After reviewing all relevant transactions and relationships between each
member of the Board of Directors (and his or her family) and us, our senior
management and our independent auditors, the Board of Directors has
affirmatively determined that Samuel L. Barker, Ph.D., Patricia M. Cloherty,
Robert J. Lefkowitz, M.D., Frank Palantoni and Clayton S. Rose, which members
constitute a majority of the Board of Directors, are "independent" in accordance
with the applicable listing standards of The Nasdaq Stock Market, Inc.
BOARD COMMITTEES
Audit Committee. Our audit committee monitors the integrity of our
financial statements, reviews our internal accounting procedures and oversees
the qualifications, independence and performance of our independent auditors.
The current members of our audit committee are Clayton S. Rose (chair), Samuel
L. Barker, Ph.D. and Patricia M. Cloherty. The Board of Directors, in its
business judgment, has determined that Mr. Rose, Dr. Barker and Ms. Cloherty are
"independent" in accordance with the provisions of the Securities Exchange Act
of 1934, including all rules and regulations promulgated thereunder. The Board
of Directors has further determined that Mr. Rose, Dr. Barker and Ms. Cloherty
are "independent" in accordance with the applicable listing standards of The
Nasdaq Stock Market, Inc. The Board of Directors, in its business judgment, has
also determined that Mr. Rose and Ms. Cloherty are "audit committee financial
experts" as defined in Item 401(h) of Regulation S-K.
Compensation Committee. Our compensation committee evaluates the
performance of management, determines the compensation of our executive officers
and reviews general policy relating to compensation and benefits of our
employees. The compensation committee also administers the issuance of stock
options and other awards under our 2000 Equity Incentive Plan. The current
members of the compensation committee are Patricia M. Cloherty (chair), Samuel
L. Barker, Ph.D., Frank Palantoni and Clayton S. Rose. The Board of Directors,
in its business judgment, has determined that Ms. Cloherty, Dr. Barker, Mr.
Palantoni and Mr. Rose are "independent" in accordance with the applicable
listing standards of The Nasdaq Stock Market, Inc.
Corporate Governance Committee. Our corporate governance committee
identifies individuals qualified to become members of our Board of Directors,
selects candidates or nominees for director positions to be filled by the Board
of Directors or our stockholders and develops appropriate corporate governance
principles. The corporate governance committee operates pursuant to a charter
that was approved by the Board of Directors on February 11, 2004, a copy of
which appears on our website at www.lexicon-genetics.com under the caption
"Investor Relations - Corporate Governance."
The corporate governance committee has not established any specific
minimum qualifications for membership on our Board of Directors. Rather, the
committee will generally consider all relevant factors, which may include
independence, experience, diversity, leadership qualities and strength of
character. The corporate governance committee uses its available network of
contacts when compiling a list of potential director candidates and may also
engage outside consultants when appropriate. The committee also considers
potential director candidates recommended by stockholders and other parties and
all potential director candidates are evaluated based on the above criteria.
Because the corporate governance committee makes no distinction in its
evaluation of candidates based on whether such candidates are recommended by
stockholders or other parties, no formal policy or procedure has been
established for the consideration of director candidates recommended by
stockholders.
9
Any stockholder wishing to propose a potential director candidate may
submit a recommendation in writing within the timeframe specified in our bylaws.
All such communications should be sent to 8800 Technology Forest Place, The
Woodlands, Texas 77381, Attn: Corporate Governance Committee. Submissions should
include the full name of the proposed candidate and a detailed description of
the candidate's qualifications, business experience and other relevant
biographical information.
The current members of the corporate governance committee are Frank
Palantoni (chair) and Robert J. Lefkowitz, M.D. The Board of Directors, in its
business judgment, has determined that Mr. Palantoni and Dr. Lefkowitz are
"independent" in accordance with the applicable listing standards of The Nasdaq
Stock Market, Inc.
BOARD AND COMMITTEE MEETINGS IN 2004
The Board of Directors met five times in 2004 and took certain additional
actions by unanimous written consent. The audit committee and compensation
committee each met four times and the corporate governance committee met two
times in 2004. During 2004, none of our directors attended fewer than 75 percent
of the aggregate number of meetings of the Board of Directors and committees
during the period served.
DIRECTOR COMPENSATION
Each director other than Arthur T. Sands, M.D., Ph.D. currently receives
the following cash compensation:
- an annual retainer of $15,000 for service on the Board of
Directors (prorated for any partial year of service);
- an annual retainer of $2,500 for service on each committee of
the Board of Directors of which he or she is a member
(prorated for any partial year of service) ($5,000 for service
as chairman of any such committee);
- a fee $2,500 for each meeting of the Board of Directors that
he or she attends in person ($500 for each telephonic meeting
of the Board of Directors in which he or she participates);
and
- a fee of $1,000 for each committee meeting that he or she
attends in person (other than in connection with a meeting of
the full Board of Directors) ($500 for each telephonic
committee meeting in which he or she participates).
Dr. Sands does not receive additional compensation for his service as a
director. Dr. Nies receives payment of $75,000 per year for his service as
Chairman of our Medical Advisory Board. Until March 2005, Dr. Caskey received
payment of $150,000 per year for his service as non-executive Chairman of our
Board of Directors. Dr. Caskey currently receives payment of $75,000 per year
for his consulting services. Dr. Lefkowitz receives payment of $50,000 per year
for his consulting services. All directors are reimbursed for expenses in
connection with attendance at Board of Directors and committee meetings.
Our 2000 Non-Employee Directors' Stock Option Plan provides for the grant
of options to purchase shares of common stock to our directors who are not
employees. Non-employee directors first elected after the closing of our initial
public offering receive an initial option to purchase 30,000 shares of common
stock. In addition, all non-employee directors who have served in such capacity
for six months currently receive an annual option to purchase 6,000 shares of
common stock. The proposed amendment to the non-employee directors' plan would
increase the number of shares underlying the annual option grants from 6,000
shares to 10,000 shares. All options granted under the non-employee directors'
plan have an exercise price equal to the fair market value of our common stock
on the date of grant.
At the time of our annual meeting of stockholders in May 2004, each of Dr.
Caskey, Dr. Barker, Ms. Cloherty, Dr. Lefkowitz and Dr. Nies received options
under the 2000 Non-Employee Directors' Stock Option Plan to purchase 6,000
shares of common stock at an exercise price of $6.84 per share, the fair market
value of our common stock on the date of grant as determined in accordance with
the plan. In July 2004, in connection with his election as a director, Mr. Rose
received an initial option under the 2000 Non-Employee Directors' Stock Option
Plan to purchase 30,000 shares of common stock at an exercise price of $5.92 per
share, the fair market value of our common stock on the date of grant as
determined in accordance with the plan. In November 2004, in connection with his
election as a director, Mr. Palantoni received an initial option under the 2000
Non-Employee Directors' Stock Option Plan to purchase 30,000 shares of
10
common stock at an exercise price of $6.79 per share, the fair market value of
our common stock on the date of grant as determined in accordance with the plan.
STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS
We believe that our stockholders are currently provided a reasonable means
to communicate with our Board of Directors or individual directors. As a result,
our Board of Directors has not established a formal process for stockholders to
send communications to the Board of Directors or individual directors. However,
the corporate governance committee will consider, from time to time, whether
adoption of a formal process for such stockholder communications has become
necessary or appropriate. Stockholders may send communications to the Board of
Directors or individual directors by mail at 8800 Technology Forest Place, The
Woodlands, Texas 77381, Attn: Board of Directors.
CODE OF BUSINESS CONDUCT AND ETHICS
We have adopted a code of business conduct and ethics that applies to all
of our directors, officers and employees, the text of which appears on our
website at www.lexicon-genetics.com under the caption "Investor Relations -
Corporate Governance." We intend to disclose on our website the nature of any
amendment to or waiver from our code of business conduct and ethics that applies
to our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions within
five business days following the date of such amendment or waiver. In the case
of any such waiver, including an implicit waiver, we also intend to disclose the
name of the person to whom the waiver was granted and the date of the waiver.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2004, Patricia M. Cloherty and Samuel L. Barker, Ph.D. served as
members of the compensation committee of our Board of Directors. No member of
the compensation committee serves as a member of the board of directors or
compensation committee of any other entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
PROPOSAL NUMBER 2:
RATIFICATION AND APPROVAL OF AMENDMENT TO
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
We use stock option awards as a part of our overall compensation program
in order to align the long-term interests of the non-employee members of our
Board of Directors with those of our stockholders. These awards are made under
our 2000 Non-Employee Directors' Stock Option Plan, the purpose of which is to
secure and retain the services of non-employee directors, and to provide them
with incentives to exert maximum efforts for the company's success by giving
them the opportunity through the granting of nonstatutory stock options to
benefit from increases in the value of our common stock. The plan was adopted by
our Board of Directors on February 3, 2000 and approved by our stockholders on
March 15, 2000.
The plan currently provides that all non-employee directors who have
served in such capacity for six months shall be granted an annual option to
purchase 6,000 shares of common stock. We are asking that stockholders ratify
and approve an amendment to the plan increasing the number of shares underlying
the annual option grants to 10,000 shares so that this portion of our overall
compensation program remains competitive in comparison to the compensation
programs of our peer group companies.
The terms of the 2000 Non-Employee Directors' Stock Option Plan are
summarized below and the complete text of the plan is set forth in Appendix A to
this proxy statement, in each case, reflecting the amendment described above.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
RATIFICATION AND APPROVAL OF THE AMENDMENT TO THE 2000 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN.
11
ADMINISTRATION OF THE PLAN
The plan is administered by our Board of Directors, which oversees the
grant of options under the plan and determines the provisions of each option
granted, to the extent not specified in the plan.
AWARDS UNDER THE PLAN
The plan only permits the award of nonstatutory stock options. Stock
options granted under the plan are evidenced by agreements that specify the
terms and conditions under which they are granted. All stock options granted
under the plan are subject to the terms and conditions contained in the
applicable agreement and the plan.
ELIGIBILITY
Stock options are granted to non-employee directors under the plan. Upon
the date of his or her initial election or appointment to the Board of
Directors, each non-employee director is granted an option to purchase 30,000
shares of our common stock. Further, on the day following each annual meeting of
stockholders, beginning in 2001, each person who is then a non-employee director
and has been a non-employee director for at least six months is granted an
option to purchase 10,000 shares of our common stock. Seven of the eight members
of our Board of Directors are currently eligible to participate in the plan.
SHARES SUBJECT TO THE PLAN
We have reserved an aggregate of 600,000 shares of our common stock for
issuance under the plan. The plan provides that, on the day following the annual
meeting of stockholders of each year for ten years, beginning in 2000, the
number of shares reserved for issuance under the plan will be automatically
increased by the greater of:
- 0.3% of our outstanding shares on a fully-diluted basis; or
- that number of shares that could be issued under stock options
granted under the Plan during the prior year.
However, our Board of Directors may provide for a smaller annual increase in the
number of shares reserved for issuance under the plan. In each of the last five
years, the Board of Directors has limited the number of shares reserved for
issuance under the plan to the 600,000 shares initially reserved under the plan.
If any stock option expires, lapses, or is terminated or forfeited for any
reason, the shares subject to that stock option will continue to be available
for the grant of stock options under the plan. Common stock issued on the
exercise of stock options under the plan may be either authorized and unissued
shares or reacquired shares.
As of March 1, 2005, there were options outstanding under the plan to
purchase a total of 198,000 shares of our common stock and 402,000 shares
remained available for issuance of new options. To date, no shares have been
issued upon the exercise of options granted under the plan.
STOCK OPTIONS
The stock options granted under the plan are evidenced by agreements that
specify the number of shares of our common stock which may be purchased at a
certain specified price and contain other terms and conditions, such as vesting
and termination provisions. All stock options granted under the plan are subject
to the terms and conditions contained in the applicable stock option agreement
and the plan.
Vesting and Exercisability
Stock options granted under the plan "vest," or become exercisable, as
follows:
- Initial grants of options to purchase 30,000 shares of our
common stock provide for vesting of 1/60th of the shares
subject to the option each month after grant for five years
after the date of grant.
- Annual grants of options to purchase 10,000 shares of our
common stock provide for vesting of 1/12th of the shares
subject to the option each month after grant for twelve months
after the date of the grant.
12
Expiration and Termination
Stock options granted under the plan have a term of ten years from the
date of grant, subject to earlier termination upon the occurrence of certain
events. In no event, however, may a stock option be exercised more than ten
years after the date the option is granted.
Option Exercise Price
Stock options awarded under the plan have an exercise price of 100% of the
fair market value of our common stock on the date of grant. The fair market
value of a share of common stock on a particular date is equal to the previous
day's closing sales price (or the closing bid price, if no sales were reported)
of the common stock if the common stock is listed on any established stock
exchange or traded on the Nasdaq Stock Market. If there is no regular public
trading market for the common stock, the fair market value of the common stock
is determined by our Board of Directors.
Consideration for Exercise of Options
The consideration to be paid for shares to be issued upon exercise of a
stock option, including the method of payment, may be paid, to the extent
permitted by law, in any combination of (1) cash or (2) delivery of other shares
of our common stock (which must have been held at least six months).
OTHER PROVISIONS
Limits on Transfer of Stock Options
In general, non-employee directors may not sell, pledge, assign, transfer
or otherwise dispose of any stock options other than (i) by will or the laws of
descent or distribution, (ii) in certain circumstances, by instrument to an
inter vivos or testamentary trust and (iii) by gift to a member of such
non-employee director's immediate family.
Adjustments on Changes in Capital Structure or on Change of Control
If we effect a stock split, reverse stock split, stock dividend,
redemption, combination, reclassification or other similar change affecting our
capital stock, adjustments reflecting the change will be made in (1) the
aggregate number of shares of common stock authorized for issuance under the
plan; (2) the number of shares underlying each outstanding stock option; and (3)
the exercise price per share subject to each outstanding stock option.
If a change in control transaction shall occur, the surviving or acquiring
corporation shall assume all stock options or provide or substitute similar
stock options. If the surviving or acquiring corporation refuses to so provide
such assumption or substitution, then the vesting of stock options granted under
the plan will be accelerated in full and the stock options will subsequently
terminate if not exercised.
If a change in control transaction shall occur and the surviving or
acquiring corporation assumes the stock options granted under the plan, but any
non-employee director is not elected or appointed to the Board of Directors of
the surviving or acquiring corporation, then the vesting of that non-employee
director's stock options shall be accelerated by 18 months.
Amendment or Termination of the Plan
The Board of Directors may at any time amend, alter, suspend or
discontinue the plan but no amendment, alteration, suspension or discontinuation
which would impair the rights of a non-employee director under any previous
grant may be made without such non-employee director's consent.
Term of the Plan
No stock options may be granted under the plan after February 3, 2010.
13
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the federal income tax
consequences of certain transactions under the plan based on current federal
income tax laws. This summary is not intended to be exhaustive and does not
describe state or local tax consequences. Additional or different federal tax
consequences to the non-employee director or to us may result depending on
considerations other than those described below.
In general, optionholders will not recognize any taxable income at the
time they are granted a nonstatutory stock option. When an optionholder
exercises a nonstatutory stock option, he or she will recognize ordinary income
measured by the excess of the then fair market value of the shares over the
exercise price and we will be entitled to a deduction for a corresponding
amount. Different rules apply to options that have a "readily ascertainable fair
market value," as that phrase is defined in regulations promulgated under
Section 83 of the Internal Revenue Code of 1986.
When an optionholder sells or otherwise disposes of shares that were
acquired by exercising a nonstatutory stock option, any amount the optionholder
receives in excess of the sum of (1) the exercise price of the shares as of the
date of exercise and (2) the amount includable in income with respect to such
option, if any, such sum being the optionholder's "basis" in the shares, will,
in general, be treated as a long term or short term capital gain, depending on
the holding period of the shares. We are not entitled to any tax deduction in
connection with an optionholder's sale or disposition of the shares. If an
optionholder receives less than his or her basis in the shares, the loss will,
in general, be treated as a long term or short term capital loss, depending on
the holding period of the shares.
The foregoing summary does not constitute a definitive statement of the
federal income tax effects of stock options granted under the plan.
PROPOSAL NUMBER 3:
RATIFICATION AND APPROVAL OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of Ernst & Young LLP as our
independent auditors to make an examination of our accounts for the fiscal year
ending December 31, 2005, subject to ratification by our stockholders.
Representatives of Ernst & Young LLP, are expected to be present at the annual
meeting, will have an opportunity to make a statement if they desire to do so
and are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
RATIFICATION AND APPROVAL OF THE APPOINTMENT OF ERNST & YOUNG LLP AS OUR
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005.
COMPENSATION OF INDEPENDENT AUDITORS
The following table presents the estimated aggregate fees billed and to be
billed by Ernst & Young LLP for services performed during our last two fiscal
years.
YEARS ENDED DECEMBER 31,
---------------------------
2004 2003
----------- ----------
Audit fees(1)...................................... $ 300,322 $ 194,180
Audit-related fees(2) ............................. 45,326 40,255
Tax fees(3)........................................ 30,660 33,800
All other fees(4).................................. 375 --
----------- ----------
$ 376,683 $ 268,235
=========== ==========
(1) "Audit fees" include professional services rendered for (i) the
audit of our management's assessment of effective internal control
over financial reporting for the fiscal year ended December 31,
2004, (ii) the audit of our annual financial statements for the
fiscal years ended December 31, 2003 and 2004, (iii) the reviews of
the financial statements included in our quarterly reports on Form
10-Q for such years and (iv) the issuance of consents and other
matters relating to registration statements filed by us.
(2) "Audit-related fees" include assurance or related services
reasonably related to our audit for the fiscal years ended December
31, 2003 and 2004. These fees related to the audit of the financial
statements of our 401(k) plan and consultation concerning financial
accounting and reporting standards.
14
(3) "Tax fees" include professional services related to the preparation
of our tax returns, tax planning and other tax advice for the fiscal
years ended December 31, 2003 and 2004.
(4) "All other fees" include products and services other than those
disclosed as Audit fees, Audit-related fees and Tax fees.
The audit committee approved all the fees described above. As part of its
duties, the audit committee has determined that the provision by Ernst & Young
LLP of the non-audit services described above is compatible with maintaining the
auditors' independence.
Pre-Approval Policies and Procedures
The audit committee has adopted policies and procedures requiring the
pre-approval of all audit and non-audit services rendered by our independent
auditors, either as part of the audit committee's approval of the scope of the
engagement of the independent auditors or on a case-by-case basis before the
independent auditors are engaged to provide each service. The audit committee's
pre-approval authority may be delegated to one or more of its members, but any
pre-approval decision must be reported to the full audit committee at its next
regularly scheduled meeting.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The role of the audit committee is to assist the Board of Directors in its
oversight of our financial reporting process. The audit committee reviews our
internal accounting procedures and consults with, and reviews the services
provided by, our independent auditors. The committee operates pursuant to a
charter that was last amended and restated by the Board of Directors on February
11, 2004.
The management of our company is responsible for the preparation,
presentation and integrity of our financial statements, our accounting and
financial reporting principles and internal controls and procedures designed to
assure compliance with the accounting standards and applicable laws and
regulations. Our independent auditors are responsible for auditing our financial
statements and expressing an opinion as to their conformity with generally
accepted accounting principles.
In the performance of its oversight function, the audit committee has
considered and discussed the audited financial statements with management and
our independent auditors. The committee has also discussed with our independent
auditors the matters required to be discussed by Statement on Auditing Standards
No. 61, Communication with Audit Committees, as currently in effect. Finally,
the committee has received the written disclosures and the letter from the
independent auditors required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees, as currently in effect, and has
discussed with the independent auditors their independence.
Based upon the reports and discussions described in this report, and
subject to the limitations on the role and responsibilities of the audit
committee referred to in the audit committee charter, the committee recommended
to the Board of Directors that the audited financial statements be included in
our annual report on Form 10-K for the year ended December 31, 2004.
AUDIT COMMITTEE
Samuel L. Barker, Ph.D.
Patricia M. Cloherty
Clayton S. Rose
The foregoing report of the audit committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent that we specifically
incorporate this information by reference, and shall not otherwise be deemed
filed under such acts.
15
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
The executive officers of the Company and their ages and positions are
listed below.
NAME AGE POSITION WITH THE COMPANY
------------------------------------------- --- ---------------------------------------------------------
Arthur T. Sands, M.D., Ph.D. .............. 43 President and Chief Executive Officer and Director
Julia P. Gregory........................... 52 Executive Vice President, Corporate Development and Chief
Financial Officer
Jeffrey L. Wade, J.D. ..................... 40 Executive Vice President and General Counsel
Brian P. Zambrowicz, Ph.D. ................ 42 Executive Vice President of Research
Walter F. Colbert.......................... 55 Senior Vice President of Human Resources and Corporate
Services
Lance K. Ishimoto, Ph.D., J.D. ............ 45 Senior Vice President of Intellectual Property
Alan J. Main, Ph.D. ....................... 51 Senior Vice President, Lexicon Pharmaceuticals
James R. Piggott, Ph.D. ................... 50 Senior Vice President of Pharmaceutical Biology
Information regarding the business experience of Dr. Sands is set forth
above under the heading "Election of Directors -- Current and Continuing
Directors."
Julia P. Gregory has been our Executive Vice President, Corporate
Development and Chief Financial Officer since August 2003 and served as our
Executive Vice President and Chief Financial Officer from February 2000 until
August 2003. From 1998 to February 2000, Ms. Gregory served as the Head of
Investment Banking for Punk, Ziegel & Company, a specialty investment banking
firm focusing on technology and healthcare and, from 1996 to February 2000, as
the Head of the firm's Life Sciences practice. From 1980 to 1996, Ms. Gregory
was an investment banker, primarily with Dillon, Read & Co., Inc., where she
represented life sciences companies beginning in 1986. Ms. Gregory is a member
of the board of directors and the scientific advisory board of the Estee Lauder
Foundation's Institute for the Study of Aging, Inc. and a member of The
International Council for George Washington University's Elliott School of
International Affairs. She received her B.A. in International Affairs from
George Washington University and her M.B.A. from the Wharton School of the
University of Pennsylvania.
Jeffrey L. Wade, J.D. has been our Executive Vice President and General
Counsel since February 2000 and was our Senior Vice President and Chief
Financial Officer from January 1999 to February 2000. From 1988 through December
1998, Mr. Wade was a corporate securities and finance attorney with the law firm
of Andrews & Kurth L.L.P., for the last two years as a partner, where he
represented companies in the biotechnology, information technology and energy
industries. Mr. Wade is a member of the boards of directors of the Texas
Healthcare and Bioscience Institute and the Texas Life Sciences Foundation. He
received his B.A. and J.D. from The University of Texas.
Brian P. Zambrowicz, Ph.D. co-founded our company and has been our
Executive Vice President of Research since August 2002. Dr. Zambrowicz served as
our Senior Vice President of Genomics from February 2000 to August 2002, Vice
President of Research from January 1998 to February 2000 and Senior Scientist
from April 1996 to January 1998. From 1993 to April 1996, Dr. Zambrowicz served
as a National Institutes of Health, or NIH, postdoctoral fellow at The Fred
Hutchinson Cancer Center in Seattle, Washington, where he studied gene trapping
and gene targeting technology. Dr. Zambrowicz received his B.S. in Biochemistry
from the University of Wisconsin. He received his Ph.D. from the University of
Washington, where he studied tissue-specific gene regulation using transgenic
mice.
Walter F. Colbert has been our Senior Vice President of Human Resources
and Corporate Services since May 2002. Mr. Colbert served as our Vice President
of Human Resources from December 2000 to May 2002. From September 1997 to
December 2000, Mr. Colbert was Vice President, Human Resources and Public
Affairs at the Sony Technology Center -- San Diego of Sony Electronics Inc. From
September 1995 to September 1997, Mr. Colbert served as Vice President, Human
Resources for The NutraSweet Kelco Company, Monsanto Company's food ingredients
business unit. From 1976 through September 1995, Mr. Colbert served in a variety
of human resources positions in the United States and Europe with Ford Motor
Company and Monsanto Company. He received his B.A. in Political Science
16
from Stanford University and his M.A. in International Affairs from The Fletcher
School of Law and Diplomacy at Tufts University.
Lance K. Ishimoto, J.D., Ph.D. has been our Senior Vice President of
Intellectual Property since February 2004. Dr. Ishimoto served as our Vice
President of Intellectual Property from July 1998 to February 2004. From 1994 to
July 1998, Dr. Ishimoto was a biotechnology patent attorney at the Palo Alto,
California office of the law firm of Pennie & Edmonds LLP. Dr. Ishimoto received
his B.A. and Ph.D. from the University of California at Los Angeles, where he
studied molecular mechanisms of virus assembly and the regulation of virus
ultrastructure. After receiving his Ph.D., Dr. Ishimoto served as an NIH
postdoctoral fellow at University of Washington School of Medicine. He received
his J.D. from Stanford University.
Alan J. Main, Ph.D. has been our Senior Vice President, Lexicon
Pharmaceuticals since July 2001. Dr. Main was President and Chief Executive
Officer of Coelacanth Corporation, a leader in using proprietary chemistry
technologies to rapidly discover new chemical entities for drug development,
from January 2000 until our acquisition of Coelacanth in July 2001. Dr. Main was
formerly Senior Vice President, United States Research at Novartis
Pharmaceuticals Corporation, where he worked for 20 years before joining
Coelacanth. Dr. Main holds a B.S. from the University of Aberdeen, Scotland and
a Ph.D. in Organic Chemistry from the University of Liverpool, England and
completed postdoctoral studies at the Woodward Research Institute.
James R. Piggott, Ph.D. has been our Senior Vice President of
Pharmaceutical Biology since January 2000. From 1990 through October 1999, Dr.
Piggott worked for ZymoGenetics, Inc., a subsidiary of Novo Nordisk, a company
focused on the discovery, development and commercialization of therapeutic
proteins for the treatment of human disease, most recently as Senior Vice
President-Research Biology from 1997 to October 1999. Dr. Piggott's
pharmaceutical research experience also includes service at the Smith Kline &
French Laboratories Ltd. unit of SmithKline Beecham plc and the G.D. Searle &
Co. unit of Monsanto Company. Dr. Piggott received his B.A. and Ph.D. from
Trinity College, Dublin.
SUMMARY COMPENSATION TABLE
The following table presents summary information for the years ended
December 31, 2004, 2003 and 2002 regarding the compensation of each of our five
most highly compensated executive officers.
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
----------------- ---- ---------- ---------- ------------ ---------------
Arthur T. Sands, M.D., Ph.D. (2)...................... 2004 $ 469,583 $ 205,244 150,000 $ 5,914
President, Chief Executive Officer and Director 2003 $ 432,000 $ 309,536 135,000 $ 6,022
2002 $ 429,333 $ 243,675 170,000 $ 5,600
Julia P. Gregory...................................... 2004 $ 327,417 $ 98,891 75,000 $ 5,675
Executive Vice President, Corporate Development 2003 $ 286,000 $ 126,215 72,000 $ 5,711
and Chief Financial Officer 2002 $ 283,833 $ 86,800 90,000 $ 5,600
Jeffrey L. Wade, J.D. ................................ 2004 $ 289,854 $ 79,190 60,000 $ 5,612
Executive Vice President and General Counsel 2003 $ 266,250 $ 100,630 54,000 $ 5,631
2002 $ 264,896 $ 70,100 65,000 $ 5,600
Brian P. Zambrowicz, Ph.D. ........................... 2004 $ 309,750 $ 102,665 70,000 $ 5,645
Executive Vice President of Research 2003 $ 285,000 $ 109,140 63,000 $ 5,674
2002 $ 276,858 $ 80,200 75,000 $ 5,600
Alan J. Main, Ph.D. (3)............................... 2004 $ 310,754 $ 80,384 50,000 $ 5,647
Senior Vice President, Lexicon Pharmaceuticals 2003 $ 297,045 $ 83,780 54,000 $ 5,674
2002 $ 296,208 $ 186,700 15,000 $ 5,440
17
(1) Other compensation during 2004, 2003 and 2002 includes the following amounts
in respect of company matching contributions under our 401(k) plan and
company-paid premiums for group term life insurance. The company-paid life
insurance premiums reflect payments for group term life policies maintained
for the benefit of all employees.
COMPANY-PAID
COMPANY GROUP TERM
401(K) LIFE
MATCHING INSURANCE
YEAR CONTRIBUTION PREMIUMS
---- ------------ ------------
Arthur T. Sands, M.D., Ph.D. 2004 $ 5,125 $ 789
2003 $ 5,000 $ 1,022
2002 $ 5,000 $ 600
Julia P. Gregory 2004 $ 5,125 $ 550
2003 $ 5,000 $ 711
2002 $ 5,000 $ 600
Jeffrey L. Wade, J.D. 2004 $ 5,125 $ 487
2003 $ 5,000 $ 631
2002 $ 5,000 $ 600
Brian P. Zambrowicz, Ph.D. 2004 $ 5,125 $ 520
2003 $ 5,000 $ 674
2002 $ 5,000 $ 600
Alan J. Main, Ph.D. 2004 $ 5,125 $ 522
2003 $ 5,000 $ 674
2002 $ 5,000 $ 440
(2) The amount reflected as bonus compensation for Dr. Sands in 2003 and 2002
includes bonus payments to Dr. Sands of $59,706 and $61,375, respectively,
to enable him to make, for his own account, the minimum premium payments
required for him to maintain the split-dollar life insurance arrangement
under his employment agreement with us. We will not receive any cash under
the policy upon Dr. Sands' death in respect of such bonus amounts or the
premiums paid by Dr. Sands, for his own account, under such policy.
(3) Dr. Main joined us in July 2001 in connection with our acquisition of
Coelacanth Corporation. The amount reflected as bonus compensation for Dr.
Main in 2002 includes a retention bonus payment in the amount of $125,000
under an arrangement entered into in connection with our acquisition of
Coelacanth Corporation.
OPTION GRANTS IN 2004
The following table presents each grant of stock options in 2004 to the
individuals named in the summary compensation table.
PERCENTAGE POTENTIAL REALIZABLE VALUE
NUMBER OF OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS EXERCISE OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO PRICE FOR OPTION TERM
OPTIONS EMPLOYEES IN PER EXPIRATION ---------------------------
NAME GRANTED 2004 SHARE DATE 5% 10%
---- ---------- ------------ -------- ---------- --------- --------------
Arthur T. Sands, M.D., Ph.D. 150,000 8.1% $ 7.59 2/12/2014 $ 715,997 $ 1,814,476
Julia P. Gregory 75,000 4.1% $ 7.59 2/12/2014 $ 357,998 $ 907,238
Jeffrey L. Wade, J.D. 60,000 3.3% $ 7.59 2/12/2014 $ 286,399 $ 725,790
Brian P. Zambrowicz, Ph.D. 70,000 3.8% $ 7.59 2/12/2014 $ 334,132 $ 846,755
Alan J. Main, Ph.D. 50,000 2.7% $ 7.59 2/12/2014 $ 238,666 $ 604,825
The exercise price of each of the options in the foregoing table was equal
to the fair market value of our common stock as determined by our Board of
Directors on the date of grant. The exercise price for each option may be paid
in cash, promissory notes, in shares of our common stock valued at fair market
value on the exercise date or through a cashless exercise procedure involving a
same-day sale of the purchased shares.
The potential realizable value of these options is calculated based on the
ten-year term of the option at the time of grant. Stock price appreciation of 5%
and 10% is assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price performance.
Percentages shown under "Percentage of Total Options Granted to Employees
in 2004" are based on an aggregate of 1,844,500 options granted to our employees
under our 2000 Equity Incentive Plan during 2004.
18
AGGREGATED OPTION EXERCISES IN 2004 AND OPTION VALUES AT DECEMBER 31, 2004
The following table presents information about:
- option exercises in 2004 by each of the individuals listed in the
summary compensation table; and
- the number and value of the shares of common stock underlying
unexercised options that are held by each of the individuals
listed in the summary compensation table as of December 31, 2004.
Amounts shown under the column "Value Realized" are based on the market
price of our common stock on the date of exercise, without taking into account
any taxes that may be payable in connection with the transaction, less the
exercise price paid for the purchased shares.
Amounts shown under the column "Value of Unexercised In-the-Money Options
at December 31, 2004" are based on the closing price of our common stock on The
Nasdaq National Market on December 31, 2004 of $7.76 per share, without taking
into account any taxes that may be payable in connection with the transaction,
less the exercise price payable for these shares.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 2004 DECEMBER 31, 2004
ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ------------ -------------
Arthur T. Sands, M.D., Ph.D. -- -- 2,715,681 276,819 $ 15,016,157 $ 307,728
Julia P. Gregory 52,000 $211,100 587,280 142,720 $ 2,404,975 $ 163,275
Jeffrey L. Wade, J.D. -- -- 626,232 110,268 $ 2,764,997 $ 123,093
Brian P. Zambrowicz, Ph.D. -- -- 1,004,943 128,057 $ 5,005,256 $ 143,607
Alan J. Main, Ph.D. -- -- 362,535 105,466 $ 379,262 $ 121,393
EMPLOYMENT AGREEMENTS
In October 1999, we entered into an employment agreement with Arthur T.
Sands, M.D., Ph.D., our President and Chief Executive Officer. Under the
agreement, Dr. Sands receives a base salary, currently $473,000 a year, subject
to adjustment, with an annual discretionary bonus based upon specific objectives
to be determined by the compensation committee. The employment agreement is
at-will and contains a non-competition agreement. The agreement also provides
that if we terminate Dr. Sands' employment without cause or Dr. Sands
voluntarily terminates his employment for good reason, we will pay him his
then-current salary for 12 months.
In February 2000, we entered into an employment agreement with Julia P.
Gregory to serve as our Executive Vice President and Chief Financial Officer
starting in February 2000. In August 2003, Ms. Gregory was named Executive Vice
President, Corporate Development and Chief Financial Officer. Under the
agreement, Ms. Gregory receives a base salary, currently $329,000 a year,
subject to adjustment, with an annual discretionary bonus based upon specific
objectives to be determined by the compensation committee. The employment
agreement is at-will and contains a non-competition agreement. The agreement
also provides that if we terminate Ms. Gregory's employment without cause or Ms.
Gregory voluntarily terminates her employment for good reason, we will pay her
then-current salary for six months. If any such termination follows a change in
control of our company, we will pay Ms. Gregory her then-current salary for 12
months.
In December 1998, we entered into an employment agreement with Jeffrey L.
Wade, J.D. to serve as our Senior Vice President and Chief Financial Officer
starting in January 1999. In February 2000, Mr. Wade was named Executive Vice
President and General Counsel. Under the agreement, Mr. Wade receives a base
salary, currently $292,000 a year, subject to adjustment, with an annual
discretionary bonus based upon specific objectives to be determined by the
compensation committee. The employment agreement is at-will and contains a
non-competition agreement. The agreement also provides that if we terminate Mr.
Wade's employment without cause or Mr. Wade voluntarily terminates his
employment for good reason, we will pay him his then-current salary for six
months. If any such termination follows a change in control of our company, we
will pay Mr. Wade his then-current salary for 12 months.
19
In February 2000, we entered into an employment agreement with Brian P.
Zambrowicz, Ph.D., then our Senior Vice President of Genomics. In August 2002,
Dr. Zambrowicz was named Executive Vice President of Research. Under the
agreement, Dr. Zambrowicz receives a base salary, currently $312,000 a year,
subject to adjustment, with an annual discretionary bonus based upon specific
objectives to be determined by the compensation committee. The employment
agreement is at-will and contains a non-competition agreement. The agreement
also provides that if we terminate Dr. Zambrowicz's employment without cause or
Dr. Zambrowicz voluntarily terminates his employment for good reason, we will
pay him his then-current salary for six months. If any such termination follows
a change in control of our company, we will pay Dr. Zambrowicz his then-current
salary for 12 months.
In July 2001, we entered into an employment agreement with Alan J. Main,
Ph.D., our Senior Vice President, Lexicon Pharmaceuticals. Under the agreement,
Dr. Main receives a base salary, currently $312,000 a year, subject to
adjustment, with an annual discretionary bonus based upon specific objectives to
be determined by the compensation committee. The employment agreement is at-will
and contains a non-competition agreement. The agreement also provides that if we
terminate Dr. Main's employment without cause or Dr. Main voluntarily terminates
his employment for good reason, we will pay him his then-current salary for six
months. If any such termination follows a change in control of our company, we
will pay Dr. Main his then-current salary for 12 months.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The compensation committee of our Board of Directors currently consists of
Patricia M. Cloherty, Samuel L. Barker, Ph.D., Frank Palantoni and Clayton S.
Rose, none of whom is an officer or employee of the company.
The compensation committee is responsible for evaluating the performance
of management, determining the compensation of our executive officers and
administering our 2000 Equity Incentive Plan, under which stock option grants
and other stock awards may be made to our employees. The committee has furnished
the following report on executive compensation for 2004:
Executive Compensation Policies and Practices
Under the supervision of the compensation committee, our company has
developed a compensation policy that is designed to attract and retain key
executives responsible for our success and motivate management to enhance
long-term stockholder value. The annual compensation package for executive
officers primarily consists of:
- a cash salary, which reflects the responsibilities relating to the
position and individual performance;
- variable performance awards payable in cash or stock and tied to
the achievement of specified individual and corporate goals and
milestones; and
- long-term stock based incentive awards which strengthen the
mutuality of interests between our executive officers and our
stockholders.
In determining the level and composition of compensation of each of our
executive officers, the compensation committee takes into account various
qualitative and quantitative indicators of corporate and individual performance.
Although no specific target has been established, the committee generally seeks
to set total compensation, including base salaries and variable performance
award targets, at or above the median of the range in comparison to peer group
companies. In setting such total compensation, the committee considers our peer
group to be similarly sized companies in the biotechnology industry. This peer
group does not necessarily coincide with the companies comprising the Nasdaq
Biotechnology Index reflected in the performance graph in this proxy statement.
Because our business and technology are continuing to develop, the use of
certain traditional performance standards, such as profitability and return on
equity, are not currently appropriate in evaluating the performance of our
executive officers. Consequently, in evaluating the performance of management,
the committee takes into consideration such factors as our achievement of
specified milestones and goals with respect to our revenues, new business
development, and our research and development programs. In addition, the
committee recognizes performance and achievements that are more difficult to
quantify, such as the successful supervision of major corporate projects and
demonstrated leadership ability.
20
Base Compensation
Base compensation is established through negotiation between the company
and the executive officer at the time the executive is hired, and then
subsequently adjusted when the officer's base compensation is subject to review
or reconsideration. While we have entered into employment agreements with
certain of our executive officers, these agreements provide that base salaries
after the initial year will be reviewed and determined by the committee. When
establishing or reviewing base compensation levels for executive officers, the
committee, in accordance with its general compensation policy, considers
numerous factors, including the responsibilities relating to the position, the
qualifications of the executive and the relevant experience the individual
brings to the company, strategic goals for which the executive has
responsibility, and compensation levels of companies at a comparable stage of
development who compete with us for business, scientific and executive talents.
No pre-determined weights are given to any one of these factors. The base
salaries for the executive officers generally, and the Chief Executive Officer
specifically, for 2004 were competitive with those paid by our peer group
companies, with most falling in a range around the 50th to 75th percentile for
such peer group companies. In establishing base compensation for 2004, the
committee included in its evaluation the significant progress made by the
company in 2003, including the significant increase in our revenues as compared
to 2002, the establishment of a major new drug discovery alliance with
Bristol-Myers Squibb Company, the completion of a significant public offering of
our common stock and the continuing advancement of our research and development
programs.
Incentive Compensation
In addition to base compensation, the committee may award cash bonuses and
option grants or other stock-based awards under our 2000 Equity Incentive Plan
to chosen executive officers depending on the extent to which certain defined
personal and corporate performance goals are achieved. These performance goals
include those discussed generally above, as well as strategic and operational
goals for the company as a whole. In determining bonus and stock option awards
for 2004, the committee included in its evaluation the progress made by the
company in 2004, including the advancement of two drug discovery programs into
preclinical development, the significant increase in our revenues as compared to
2003, the establishment of our drug discovery alliance with Takeda
Pharmaceutical Company Limited, our execution and performance under our existing
drug discovery alliances with Bristol Myers Squibb Company and Genentech, Inc.
and the continuing advancement of our other research and development programs.
All of our employees, including our executive officers, are eligible to
receive long-term stock-based incentive awards under our 2000 Equity Incentive
Plan as a means of providing such individuals with a continuing proprietary
interest in our success. These grants align the interests of our employees and
our stockholders by providing significant incentives for our employees to
achieve and maintain high levels of performance. Our 2000 Equity Incentive Plan
enhances our ability to attract and retain the services of qualified
individuals. Factors considered in determining whether such awards are granted
to an executive officer include the executive's position, his or her performance
and responsibilities, the amount of stock options currently held by the officer,
the vesting schedules of any such options and the executive officer's other
compensation. While the committee does not adhere to any firmly established
formulas or schedules for the issuance of awards such as options or restricted
stock, the committee will generally tailor the terms of any such grant to
achieve its goal as a long-term incentive award by providing for a vesting
schedule encompassing several years.
In February 2004, the committee approved annual stock option grants to
executive officers and other employees who satisfied eligibility requirements,
including time of service. In making such grants, the committee considered
corporate and individual performance over the year preceding the grant date and
information regarding stock option grants made by other companies in the
biotechnology industry.
Compensation of the Chief Executive Officer
The annual base salary of Arthur T. Sands, M.D., Ph.D., our President and
Chief Executive Officer, was $432,000 for 2003, unchanged from 2002. In February
2004, the committee increased Dr. Sands' base salary by $41,000 (or
approximately nine percent) to $473,000 and awarded a bonus to Dr. Sands for
2003 in the amount of $249,830, in each case on the basis of his and the
company's achievements in 2003 relative to performance goals established at the
outset of the year. In February 2005, the committee awarded a bonus to Dr. Sands
for 2004 in the amount of $205,244 on
21
the basis of his and the company's achievements in 2004 relative to performance
goals established at the outset of the year. At the same time, the committee
elected to leave Dr. Sands' annual base salary for 2005 unchanged from 2004.
The committee granted a stock option to Dr. Sands in February 2004, at the
same time annual grants were made to other employees. The stock option entitles
Dr. Sands to purchase an aggregate of 150,000 shares of common stock at an
exercise price of $7.59 per share. In making the option grant to Dr. Sands, the
committee considered the factors described above with respect to the February
2004 option grants generally.
Section 162(m)
Section 162(m) of the Internal Revenue Code places a $1 million cap per
executive on the deductible compensation that can be paid to certain executives
of publicly-traded corporations. Amounts that qualify as "performance based"
compensation under Section 162(m)(4)(c) of the Code are exempt from the cap and
do not count toward the $1 million limit. Generally, stock options will qualify
as performance based compensation. The committee has discussed and considered
and will continue to evaluate the potential impact of Section 162(m) on the
company in making compensation determinations, but has not established a set
policy with respect to future compensation determinations.
COMPENSATION COMMITTEE
Patricia M. Cloherty
Samuel L. Barker, Ph.D.
Frank Palantoni
Clayton S. Rose
The foregoing report of the compensation committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent that we specifically
incorporate this information by reference, and shall not otherwise be deemed
filed under such acts.
PERFORMANCE GRAPH
The following performance graph compares the performance of our common
stock to the Nasdaq Composite Index and the Nasdaq Biotechnology Index for the
period beginning April 7, 2000, the date of our initial public offering, and
ending December 31, 2004. The graph assumes that the value of the investment in
our common stock and each index was $100 at April 7, 2000, and that all
dividends were reinvested.
[PERFORMANCE GRAPH]
APRIL 7, DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
2000 31, 2000 31, 2001 31, 2002 31, 2003 31, 2004
-------- -------- -------- -------- -------- --------
Lexicon Genetics Incorporated 100 76 52 22 27 35
Nasdaq Composite Index 100 56 44 30 45 49
Nasdaq Biotechnology Index 100 96 81 44 64 68
The foregoing stock price performance comparisons shall not be deemed
incorporated by reference by any general statement incorporating by reference
this proxy statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent that we specifically
incorporate such comparisons by reference, and shall not otherwise be deemed
filed under such acts.
22
PROPOSALS OF STOCKHOLDERS
In order for a stockholder proposal to be considered for inclusion in our
proxy statement for next year's annual meeting, we must receive the written
proposal at our principal executive offices no later than November 28, 2005. Any
such proposal must also comply with Securities and Exchange Commission
regulations regarding the inclusion of stockholder proposals in
company-sponsored proxy materials. Similarly, in order for any stockholder
proposal to be otherwise raised during next year's annual meeting, we must
receive written notice of the proposal, containing the information required by
our Bylaws, at our principal executive offices no later than November 28, 2005.
You may contact the Corporate Secretary at our principal executive offices for a
copy of the relevant Bylaw provisions for making stockholder proposals.
FINANCIAL INFORMATION
Our annual report to stockholders, including financial statements,
accompanies this proxy statement but does not constitute a part of the proxy
solicitation materials. YOU MAY OBTAIN, WITHOUT CHARGE, A COPY OF OUR ANNUAL
REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND EXHIBITS THERETO, BY
WRITTEN REQUEST TO CORPORATE COMMUNICATIONS, LEXICON GENETICS INCORPORATED, 8800
TECHNOLOGY FOREST PLACE, THE WOODLANDS, TEXAS 77381.
By Order of the Board of Directors,
/s/ Jeffrey L. Wade
-----------------------------------
Jeffrey L. Wade
Secretary
March 28, 2005
The Woodlands, Texas
23
APPENDIX A
LEXICON GENETICS INCORPORATED
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
(RESTATED TO REFLECT SPLIT PRIOR TO IPO)
1. PURPOSES.
(a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options
are the Non-Employee Directors of the Company.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by
which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of its Non-Employee Directors, to secure and retain the services of
new Non-Employee Directors and to provide incentives for such persons to exert
maximum efforts for the success of the Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "ANNUAL GRANT" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to subsection 6(b) of the
Plan.
(c) "ANNUAL MEETING" means the annual meeting of the stockholders of the
Company.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMON STOCK" means the common stock, par value $.001 per share, of
the Company.
(g) "COMPANY" means Lexicon Genetics Incorporated, a Delaware
corporation.
(h) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated by the Company for their
services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
(i) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from a
Non-Employee Director of the Company to a Consultant of an Affiliate or an
Employee of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
A-1
APPENDIX A
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market
with the greatest volume of trading in the Common Stock) on the last
market trading day prior to the day of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(o) "INITIAL GRANT" means an Option granted to a Non-Employee Director
who meets the specified criteria pursuant to subsection 6(a) of the Plan.
(p) "IPO DATE" means the effective date of the initial public offering
of the Common Stock.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(s) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(w) "PLAN" means this Lexicon Genetics Incorporated 2000 Non-Employee
Directors' Stock Option Plan.
(x) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(y) "SECURITIES ACT" means the Securities Act of 1933, as amended.
A-2
APPENDIX A
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement,
in a manner and to the extent it shall deem necessary or expedient to make
the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of
the Company that are not in conflict with the provisions of the Plan.
(c) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in the Common Stock, the Common Stock that may be
issued pursuant to Options shall not exceed in the aggregate Six Hundred
Thousand (600,000) shares of Common Stock.
(b) EVERGREEN SHARE RESERVE INCREASE.
(i) Notwithstanding subsection 4(a) hereof, on the day after each
Annual Meeting (the "Calculation Date") for a period of ten (10) years,
commencing with the Annual Meeting in 2000, the aggregate number of shares
of Common Stock that is available for issuance under the Plan shall
automatically be increased by that number of shares equal to the greater
of (1) three-tenths of one percent (0.3%) of the Diluted Shares
Outstanding or (2) the number of shares of Common Stock subject to Options
granted during the prior 12-month period; provided, however, that the
Board, from time to time, may provide for a lesser increase in the
aggregate number of shares of Common Stock that is available for issuance
under the Plan.
(ii) "Diluted Shares Outstanding" shall mean, as of any date, (1)
the number of outstanding shares of Common Stock of the Company on such
Calculation Date, plus (2) the number of shares of Common Stock issuable
upon such Calculation Date assuming the conversion of all outstanding
Preferred Stock and convertible notes, plus (3) the additional number of
dilutive Common Stock equivalent shares outstanding as the result of any
options or warrants outstanding during the fiscal year, calculated using
the treasury stock method.
(c) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such
Option shall revert to and again become available for issuance under the Plan.
(d) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
A-3
APPENDIX A
5. ELIGIBILITY.
The Options as set forth in section 6 automatically shall be granted under
the Plan to all Non-Employee Directors.
6. NON-DISCRETIONARY GRANTS.
(a) INITIAL GRANTS. Without any further action of the Board, each person
who is elected or appointed for the first time to be a Non-Employee Director
automatically shall, upon the date of his or her initial election or appointment
to be a Non-Employee Director, be granted an Initial Grant to purchase Thirty
Thousand (30,000) shares of Common Stock on the terms and conditions set forth
herein.
(b) ANNUAL GRANTS. Without any further action of the Board, on the day
following each Annual Meeting, commencing with the Annual Meeting in 2001, each
person who is then a Non-Employee Director, and has been a Non-Employee Director
for at least six (6) months, automatically shall be granted an Annual Grant to
purchase Ten Thousand (10,000) shares of Common Stock on the terms and
conditions set forth herein.
7. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such additional
terms and conditions, not inconsistent with the Plan, as the Board shall deem
appropriate. Each Option shall include (through incorporation of provisions
hereof by reference in the Option or otherwise) the substance of each of the
following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check, or (ii) delivery to the
Company of other Common Stock. The purchase price of Common Stock acquired
pursuant to an Option that is paid by delivery to the Company of other Common
Stock acquired, directly or indirectly from the Company, shall be paid only by
shares of the Common Stock of the Company that have been held for more than six
(6) months (or such longer or shorter period of time required to avoid a charge
to earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
(d) TRANSFERABILITY. An Option is not transferable, except (i) by will
or by the laws of descent and distribution, (ii) by instrument to an inter vivos
or testamentary trust, in a form accepted by the Company, in which the Option is
to be passed to beneficiaries upon the death of the trustor (settlor) and (iii)
by gift, in a form accepted by the Company, to a member of the "immediate
family" of the Optionholder as that term is defined in 17 C.F.R. 240.16a-1(e).
In addition, Optionholder may, by delivering written notice to the Company, in a
form satisfactory to the Company, designate a third party who, in the event of
the death of the Optionholder, shall thereafter be entitled to exercise the
Option.
(e) VESTING. Options shall vest as follows:
(i) Initial Grants shall provide for vesting of 1/60th of the
shares subject to the Option each month after grant for five (5) years
after the date of the grant.
A-4
APPENDIX A
(ii) Annual Grants shall provide for vesting of 1/12th of the
shares subject to the Option each month after grant for twelve (12) months
after the date of the grant.
(f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as of the date of termination) but
only within such period of time ending on the earlier of (i) the date six (6)
months following the termination of the Optionholder's Continuous Service, or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or her
Option within the time specified in the Option Agreement, the Option shall
terminate.
(g) EXTENSION OF TERMINATION DATE. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other than
upon the Optionholder's death or Disability) would be prohibited at any time
solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in subsection
7(a) or (ii) the expiration of a period of three (3) months after the
termination of the Optionholder's Continuous Service during which the exercise
of the Option would not be in violation of such registration requirements.
(h) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified herein, the Option
shall terminate.
(i) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the three-month period after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise the
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the Option upon the Optionholder's death, but only
within the period ending on the earlier of (1) the date eighteen (18) months
following the date of death or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
A-5
APPENDIX A
10. MISCELLANEOUS.
(a) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
(b) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Optionholder any right to
continue to serve the Company as a Non-Employee Director or shall affect the
right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(c) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(d) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i) tendering a
cash payment; (ii) authorizing the Company to withhold shares from the shares of
the Common Stock otherwise issuable to the Optionholder as a result of the
exercise or acquisition of stock under the Option, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject both to the
Plan pursuant to subsection 4(a) and to the nondiscretionary Options specified
in Section 5, and the outstanding Options will be appropriately adjusted in the
class(es) and number of securities and price per share of stock subject to such
outstanding Options. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(b) CHANGE IN CONTROL -- DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Options shall
terminate immediately prior to such event.
A-6
APPENDIX A
(c) CHANGE IN CONTROL -- ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER.
(i) In the event of (i) a sale, lease or other disposition of all
or substantially all of the assets of the Company, (ii) a merger or
consolidation in which the Company is not the surviving corporation or
(iii) a reverse merger in which the Company is the surviving corporation
but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether
in the form of securities, cash or otherwise, then any surviving
corporation or acquiring corporation shall assume any Options outstanding
under the Plan or shall substitute similar Options (including an option to
acquire the same consideration paid to the stockholders in the transaction
described in this subsection 11(c) for those outstanding under the Plan).
(ii) In the event any surviving corporation or acquiring
corporation refuses to assume such Options or to substitute similar
Options for those outstanding under the Plan, then the vesting of such
Options and the vesting of any shares of Common Stock acquired pursuant to
such Options shall be accelerated in full, and the Options shall terminate
if not exercised at or prior to such event.
(iii) In the event any surviving corporation or acquiring
corporation assumes such Options or substitutes similar Options for those
outstanding under the Plan but the Optionholder is not elected or
appointed to the board of directors of the surviving corporation or
acquiring corporation at the first meeting of such board of directors
after such change in control event, then the vesting of such Options and
the vesting of any shares of Common Stock acquired pursuant to such
Options shall be accelerated by eighteen (18) months on the day after the
first meeting of the board of directors of the surviving corporation or
acquiring corporation.
(iv) In the event any surviving corporation or acquiring
corporation assumes such Options or substitutes similar Options for those
outstanding under the Plan and the Optionholder is elected or appointed to
the board of directors of the surviving corporation or acquiring
corporation at the first meeting of such board of directors after such
change in control event, then the vesting of such Options and the vesting
of any shares of Common Stock acquired pursuant to such Options shall not
be accelerated.
12. AMENDMENT OF THE PLAN AND OPTIONS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or
securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval.
(c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or
A-7
APPENDIX A
approved by the stockholders of the Company, whichever is earlier. No Options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Option granted while the Plan is in
effect except with the written consent of the Optionholder.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the IPO Date, but no Option shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before or after the
date the Plan is adopted by the Board.
15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation of
this Plan shall be governed by the law of the State of Delaware, without regard
to such state's conflict of laws rules.
A-8
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL BE
VOTED:
"FOR" the election of the nominees for Class II Director;
"FOR" the proposal to ratify and approve an amendment to the Company's 2000
Non-Employee Directors' Stock Option Plan increasing the number of shares of
common stock underlying each annual option grant from 6,000 shares to 10,000
shares; and
"FOR" the proposal to ratify and approve the appointment of Ernst & Young LLP as
the Company's independent public accountants for the fiscal year ending December
31, 2005.
1. ELECTION OF CLASS II DIRECTORS: FOR WITHHOLD
all nominees listed AUTHORITY
except as indicated to vote for
all nominees
Nominees: 01 Sam L. Barker, Ph.D. [ ] [ ]
02 Patricia M. Cloherty
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the following line.
Please [ ]
Mark Here
for Address
Change or
Comments
SEE REVERSE SIDE
FOR AGAINST ABSTAIN
2. Ratification and approval of an [ ] [ ] [ ]
amendment to the Company's 2000
Non-Employee Directors' Stock
Option Plan increasing the
number of shares of common stock
underlying each annual option
grant from 6,000 shares to
10,000 shares.
FOR AGAINST ABSTAIN
3. Ratification and approval of the [ ] [ ] [ ]
appointment of Ernst & Young LLP
as the Company's independent
auditors for the fiscal year
ending December 31, 2005.
IF YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE [ ]
MARK THE FOLLOWING BOX.
Dated: ________________________________________, 2005
_____________________________________________________
(Signature)
_____________________________________________________
(Signature if held jointly)
Please date, sign as name appears at the left, and return promptly. If the
shares are registered in the names of two or more persons, each should
sign. When signing as Corporate Officer, President, Executor,
Administrator, Trustee or Guardian, please give full title. Please note
any changes in your address alongside the address as it appears in the
proxy.
- FOLD AND DETACH HERE -
PROXY
LEXICON GENETICS INCORPORATED
ANNUAL MEETING OF STOCKHOLDERS
APRIL 27, 2005
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
LEXICON GENETICS INCORPORATED
The undersigned hereby appoints Arthur T. Sands and Jeffrey L. Wade, and
each of them, as proxies and attorneys-in-fact, with the power to act without
the other and with power of substitution, to represent the undersigned at the
Annual Meeting of Stockholders of Lexicon Genetics Incorporated (the "Company")
to be held at The Marriott Woodlands Waterway Hotel and Convention Center, 1601
Lake Robbins Drive, The Woodlands, Texas, on April 27, 2005, at 1:30 p.m., local
time, and any adjournments or postponements thereof, and to vote all of the
shares of stock the undersigned would be entitled to vote if personally present
at such meeting (1) as provided on the other side of this proxy and (2), in
their discretion, on such other business as may properly come before such
meeting or any adjournment or postponement thereof.
(CONTINUED AND TO BE MARKED, DATED AND SIGNED ON OTHER SIDE)
ADDRESS CHANGE/COMMENTS (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
- FOLD AND DETACH HERE -