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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 [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement.
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
LEXICON GENETICS INCORPORATED
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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)(1) 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 25, 2003
TO OUR STOCKHOLDERS:
I am pleased to invite you to attend the 2003 annual meeting of
stockholders of Lexicon Genetics Incorporated to be held on Wednesday, April 30,
2003 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:
o an official notice of the annual meeting;
o a proxy statement that describes the matters to be considered
and acted upon at the annual meeting; and
o 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 30, 2003
TO OUR STOCKHOLDERS:
The annual meeting of stockholders of Lexicon Genetics Incorporated
will be held on Wednesday, April 30, 2003 at 1:30 p.m., local time, at The
Marriott Woodlands Waterway Hotel and Convention Center, 1601 Lake Robbins
Drive, The Woodlands, Texas, to:
o elect three Class III directors;
o ratify and approve the appointment of Ernst & Young LLP as our
independent auditors for the fiscal year ending December 31,
2003; and
o 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 10,
2003.
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 25, 2003
LEXICON GENETICS INCORPORATED
8800 TECHNOLOGY FOREST PLACE
THE WOODLANDS, TEXAS 77381
(281) 863-3000
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PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 30, 2003
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 2003 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 25, 2003.
TIME AND PLACE OF ANNUAL MEETING
The annual meeting will be held on Wednesday, April 30, 2003 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:
o the election of three Class III directors; and
o a proposal to ratify and approve the appointment of Ernst &
Young LLP as our independent auditors for the fiscal year
ending December 31, 2003.
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 10,
2003, 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 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
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obtain from the intermediary either proof of your ownership of such shares as of
March 10, 2003 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 52,370,730 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 III directors will be elected by a plurality vote. As a
result, if a quorum is present at the annual meeting, the three persons
receiving the greatest number of votes will be elected to serve as our Class III
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 appointment of Ernst & Young LLP
as our independent auditors for the year ending December 31, 2003, 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 III directors or withhold your vote for any one
or more of those nominees. You may vote for or against the proposal to ratify
and approve the appointment of Ernst & Young LLP as our independent auditors for
the year ending December 31, 2003, or abstain from voting on that proposal.
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 III
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 III directors, none of your shares will be voted for those nominees.
If any of our nominees for election as Class III 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 III 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 III directors and in favor of the proposal to ratify and
approve the appointment of Ernst & Young LLP as our independent auditors for the
year ending December 31, 2003.
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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 recently approved a new rule
concerning the delivery of annual disclosure documents. The rule allows 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
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together both of you would like to receive only a single set of our annual
disclosure documents, follow these instructions:
o 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.
o 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 BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information regarding the beneficial
ownership of our common stock as of March 10, 2003 by:
o each of the individuals listed in "Executive Compensation -
Summary Compensation Table";
o each of our directors;
o each person, or group of affiliated persons, who is known by
us to own beneficially five percent or more of our common
stock; and
o 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 10, 2003 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 52,370,730 shares of common stock
outstanding on March 10, 2003. 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.
BENEFICIAL OWNERSHIP
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SHARES ISSUABLE
NUMBER OF SHARES PURSUANT TO OPTIONS
BENEFICIALLY EXERCISABLE WITHIN 60 PERCENTAGE
OWNED DAYS OF MARCH 10, 2003 OWNERSHIP
---------------- ---------------------- ----------
Mary H. Cain and James D. Weaver(1) ...... 13,002,000 8,500 24.8%
Royce & Associates, Inc.(2) .............. 6,575,300 -- 12.6%
Baylor College of Medicine(3) ............ 4,461,105 -- 8.5%
Arthur T. Sands, M.D., Ph.D.(4) .......... 1,032,300 2,465,297 4.8%
Julia P. Gregory(5) ...................... 75,047 440,936 *
Jeffrey L. Wade, J.D. .................... 3,000 535,602 1.0%
Alan J. Main, Ph.D. ...................... -- 243,733 *
Brian P. Zambrowicz, Ph.D. ............... -- 895,474 1.7%
C. Thomas Caskey, M.D(6) ................. 683,200 140,623 1.6%
Sam L. Barker, Ph.D. ..................... 7,000 30,500 *
Patricia M. Cloherty ..................... -- 25,500 *
Robert J. Lefkowitz, M.D. ................ -- 19,000 *
William A. McMinn(7) ..................... 12,046,091 12,000 23.0%
All directors and executive
officers as a group (18 persons) ...... 2,902,854 6,081,197 15.4%
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* Represents beneficial ownership of less than 1 percent.
(1) The number of shares beneficially owned by Mrs. Cain and Mr. Weaver
includes 10,987,000 shares held by the estate of Gordon A. Cain, of which
Mrs. Cain and Mr. Weaver are co-executors; 2,000,0000 shares owned by the
Gordon and Mary Cain Foundation, of which Mrs. Cain is Chairman and Mr.
Weaver is President; and 15,000 shares owned by Mr. Weaver. The shares held
by the estate of Gordon A. Cain are subject to a proxy held by William A.
McMinn, as described in note 7 below. The address for Mrs. Cain and Mr.
Weaver is c/o Gordon Cain & Associates, 8 Greenway Plaza, Suite 702,
Houston, Texas 77046.
(2) Based upon a Schedule 13G filed on February 3, 2003, reflecting the
beneficial ownership of our common stock by Royce & Associates, Inc. The
address for Royce & Associates, Inc. is 1414 Avenue of the Americas, New
York, New York 10019.
(3) Based upon a Schedule 13G filed on January 15, 2003, 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 222,280 shares
owned by BCM Technologies, Inc. The address of Baylor College of Medicine
is One Baylor Plaza, T-128, Houston, Texas 77030-3498.
(4) 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.
(5) The number of shares beneficially owned by Ms. Gregory includes 6,647
shares held in the name of minor children and trusts for their benefit of
which she serves as a trustee.
(6) The number of shares beneficially owned by Dr. Caskey includes 679,400
shares owned by Cogene Biotech Ventures, L.P., of which Dr. Caskey is
President and Chief Executive Officer. Dr. Caskey disclaims beneficial
ownership of these shares.
(7) The number of shares beneficially owned by Mr. McMinn includes 10,987,000
shares owned by the estate of Gordon A. Cain, which 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.
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.
Except as set forth below, 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, 2002, with the exception of late
filings reporting three purchases by Dr. Caskey of an aggregate of 1,000 shares,
all Section 16(a) filing requirements applicable to our officers, directors and
10% stockholders were complied with in a timely manner.
PROPOSAL NUMBER 1:
ELECTION OF DIRECTORS
Our Board of Directors, which currently has seven 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 III
directors will expire at this annual meeting. The current terms of our Class I
and Class II directors will expire at our 2004 and 2005 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 III directors until our 2006 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.
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NOMINEES FOR CLASS III DIRECTORS
The following individuals are nominated for election as Class III
directors:
YEAR FIRST
NAME AGE POSITION WITH THE COMPANY BECAME A DIRECTOR
---- --- ------------------------- -----------------
Arthur T. Sands, M.D., Ph. D. 41 Director (Class III) 1995
C. Thomas Caskey, M.D. 64 Director (Class III) 2000
William A. McMinn 72 Director (Class III) 1997
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. From
1992 to September 1995, Dr. Sands served as an American Cancer Society
postdoctoral fellow in the Department of Human and Molecular Genetics at Baylor
College of Medicine, where he studied the function of the p53 gene in cancer
formation and created the XPC knockout mouse, a model for skin cancer. 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. became Chairman of our Board of Directors in
April 2000. Dr. Caskey has been President and Chief Executive Officer of CoGene
Biotech Ventures, Ltd., a venture capital firm, since April 2000. He served as
Senior Vice President, Research at Merck Research Laboratories 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.
William A. McMinn has been a director since September 1997 and was the
Chairman of our Board of Directors from July 1999 until April 2000. Mr. McMinn
has served as Chairman of the Board of Texas Petrochemicals Corporation since
1996. He was Corporate Vice President and Manager of the Industrial Chemical
Group of FMC Corporation, a manufacturer of machinery and chemical products,
from 1973 through 1985. He became President and Chief Executive Officer of Cain
Chemical Inc. in 1987, and served in that capacity until its acquisition by
Occidental Petroleum in May 1988. He became Chairman of the board of directors
of Arcadian Corporation in August 1990 and served in that capacity until it was
sold in April 1997. Mr. McMinn received his B.S. from Vanderbilt University.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
FOREGOING NOMINEES FOR ELECTION AS CLASS III DIRECTORS.
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. ......... 41 President and Chief Executive Officer and Director (Class III)
C. Thomas Caskey, M.D. ............... 64 Chairman of the Board of Directors (Class III)
William A. McMinn(1) ................. 72 Director (Class III)
Sam L. Barker, Ph.D.(1)(2) ........... 60 Director (Class II)
Patricia M. Cloherty(1)(2) ........... 60 Director (Class II)
Robert J. Lefkowitz, M.D. ............ 59 Director (Class I)
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(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Information regarding the business experience of Dr. Sands, Dr. Caskey
and Mr. McMinn are set forth above under the heading "--Nominees for Class III
Directors."
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Sam L. Barker, Ph.D. has been a director since March 2000. Since March
2001, Dr. Barker has served as a founder and principal of Clearview Projects,
Inc., a company engaged in providing partnering and transaction services to
biotechnology companies. Dr. Barker served in a series of senior domestic and
international management positions at Bristol-Myers Squibb until his retirement
in 1998. His positions at Bristol-Myers Squibb included service as Executive
Vice President, Worldwide Franchise Management and Strategy during 1998,
President, U.S. Pharmaceutical Group from 1995 to 1997 and President, U.S.
Pharmaceuticals from 1992 to 1995. 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 U.S. Russia Investment Fund, established by the
United States government to invest in Russian companies, since she was appointed
by the President to that position in 1995. 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
U.S. Small Business Administration from 1977 to 1978 and has served as Director
of the U.S. Russia Investment Fund since 1995. 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.
Robert J. Lefkowitz, M.D. has been a director since February 2001. Dr.
Lefkowitz is the James B. Duke Professor of Medicine, Professor of 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.
BOARD COMMITTEES
Audit Committee. Our audit committee reviews our internal accounting
procedures and consults with, and reviews the services provided by, our
independent auditors. Current members of our audit committee are William A.
McMinn, Sam L. Barker, Ph.D. and Patricia M. Cloherty.
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. Current members
of the compensation committee are Patricia M. Cloherty and Sam L. Barker, Ph.D.
BOARD AND COMMITTEE MEETINGS IN 2002
The Board of Directors met four times in 2002 and took certain
additional actions by unanimous written consent in lieu of meetings. The audit
committee and compensation committee each met four times in 2002. During 2002,
none of our directors attended fewer than 75 percent of the meetings of the
Board of Directors or committee during the period served.
DIRECTOR COMPENSATION
Each non-employee director currently receives a fee of $2,000 for each
meeting of the Board of Directors that he or she attends in person, and $500 for
each committee meeting (other than a committee meeting held at the same time as
a meeting of the full Board of Directors) or telephonic meeting of the Board of
Directors in which he or she participates. Directors who are also employees,
currently Arthur T. Sands, M.D., Ph.D. and C. Thomas Caskey, M.D., do not
receive additional compensation for their service as directors. Dr. Caskey
receives a salary of $150,000 per year for his service as an employee and
Chairman of our Board of Directors. 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
automatic 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
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addition, all non-employee directors receive an annual option to purchase 6,000
shares of common stock. 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.
Options to purchase 6,000 shares of common stock at an exercise price
of $7.40 per share, the fair market value of our common stock on the date of
grant as determined in accordance with the terms of the plan, were granted to
each of Dr. Barker, Ms. Cloherty, Dr. Lefkowitz and Mr. McMinn in April 2002
under the non-employee directors' plan at the time of our 2002 annual meeting of
stockholders.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2002, Patricia M. Cloherty and Sam 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 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, 2003, 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, 2003.
COMPENSATION OF INDEPENDENT AUDITORS
Audit Fees
The estimated aggregate fees billed and to be billed by Ernst & Young
LLP for professional services rendered for the audit of our annual financial
statements for the fiscal year ended December 31, 2002 and for the reviews of
the financial statements included in our quarterly reports on Form 10-Q for that
fiscal year were $176,000. These fees constitute 78% of the total fees owed to
Ernst & Young LLP for services rendered for the fiscal year ended December 31,
2002.
Audit-Related Fees
The estimated aggregate fees billed and to be billed by Ernst & Young
LLP for assurance or related services reasonably related to our audit for the
fiscal year ended December 31, 2002 were $17,282 and constitute 8% of the total
fees owed to Ernst & Young LLP for that period. These fees related to an audit
of our 401(k) plan.
Tax Fees
The estimated aggregate fees billed and to be billed by Ernst & Young
LLP for professional services related to the preparation of our tax returns, tax
planning and other tax advice for the fiscal year ended December 31, 2002 were
$32,309. These fees constitute 14% of the total fees owed to Ernst & Young LLP
for services rendered for the fiscal year ended December 31, 2002.
All Other Fees
Other than the services described above under "Audit Fees,"
"Audit-Related Fees" and "Tax Fees," Ernst & Young LLP did not provided
additional services to us for the fiscal year ended December 31, 2002.
8
Policies and Procedures of the Audit Committee of the Board of Directors
As part of its duties, the audit committee of our Board of Directors
has considered whether the provision of services other than audit services
during the fiscal year ended December 31, 2002 by Ernst & Young LLP is
compatible with maintaining the accountants' independence. It is the policy of
the audit committee to discuss such services with our auditors and pre-approve,
if appropriate, the provision of any such services.
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The audit committee of our Board of Directors currently consists of
William A. McMinn, Sam L. Barker, Ph.D. and Patricia M. Cloherty. The Board of
Directors, in its business judgment, has determined that all members of the
audit committee are "independent," as required by applicable listing standards
of The Nasdaq Stock Market, Inc. The committee has furnished the following
report for 2002:
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 March
15, 2000.
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, 2002.
AUDIT COMMITTEE
William A. McMinn
Sam L. Barker, Ph.D.
Patricia M. Cloherty
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.
9
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. .............. 41 President and Chief Executive Officer and Director
Julia P. Gregory .......................... 50 Executive Vice President and Chief Financial Officer
Jeffrey L. Wade, J.D. ..................... 38 Executive Vice President and General Counsel
Brian P. Zambrowicz, Ph.D. ................ 40 Executive Vice President of Research
Walter F. Colbert ......................... 53 Senior Vice President of Human Resources and Corporate
Services
Alan J. Main, Ph.D. ....................... 49 Senior Vice President, Lexicon Pharmaceuticals
James R. Piggott, Ph.D. ................... 48 Senior Vice President of Pharmaceutical Biology
Randall B. Riggs .......................... 36 Senior Vice President of Business Development
David A. Boulton .......................... 45 Vice President of Technology Operations, Lexicon
Pharmaceuticals
Lance K. Ishimoto, Ph.D., J.D. ............ 43 Vice President of Intellectual Property
S. David Kimball, Ph.D. ................... 53 Vice President of Medicinal Chemistry
Stephen J. McAndrew, Ph.D. ................ 49 Vice President of Pharmaceutical Business Development
Christophe Person ......................... 36 Vice President of Informatics
Information regarding the business experience of Dr. Sands is set forth
above under the heading "Election of Directors--Nominees for Class III
Directors."
Julia P. Gregory has been our Executive Vice President and Chief
Financial Officer since February 2000. 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 with Prime Charter Ltd. and then
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., a member of the board of directors of the Cynthia Woods
Mitchell Pavilion and a member of The International Council for George
Washington'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. 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 as Senior Scientist from April 1996 to January
1998. From 1993 to April 1996, Dr. Zambrowicz served as an 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.
10
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 from
Stanford University and his M.A. in International Affairs from The Fletcher
School of Law and Diplomacy at Tufts 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, U.S. Research at Novartis Pharmaceuticals
Corporation, where he worked for 20 years before joining Coelacanth. Dr. Main
holds 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, most
recently as Senior Vice President-Research Biology. 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.
Randall B. Riggs has been our Senior Vice President of Business
Development since February 2000 and served as our Vice President of Business
Development from December 1998 to February 2000. From January through November
1998, Mr. Riggs was director of Business Development for the Infectious Disease
Business Unit of GeneMedicine, Inc. From 1992 to January 1998, Mr. Riggs was
employed by Eli Lilly and Company, for the last two years as Manager, Corporate
Business Development at Eli Lilly's Indianapolis, Indiana headquarters. Before
joining Eli Lilly, Mr. Riggs' experience included service as a business analyst
for the National Aeronautics and Space Administration and a subsidiary of Amoco
Production Company. He received his B.B.A. from Texas A&M University and his
M.B.A. from The University of Houston.
David A. Boulton has been our Vice President of Technology Operations,
Lexicon Pharmaceuticals since July 2001. Mr. Boulton co-founded Coelacanth and
served as its Vice President of Technology Operations from October 1996 until
our acquisition of Coelacanth in July 2001. From April 1994 to October 1996, Mr.
Boulton was Senior Director of Automated Synthesis at ArQule, Inc., where he was
instrumental in developing ArQule's chemical automation platform. Before joining
ArQule, he served for 15 years in chemistry research and development at Merck &
Co., Inc. and was a founding member of Merck's automated synthesis group. He
holds a B.S. in Chemistry from Lafayette College.
Lance K. Ishimoto, J.D., Ph.D. has been our Vice President of
Intellectual Property since July 1998. From 1994 to July 1998, Dr. Ishimoto was
a biotechnology patent attorney at the Palo Alto, California office 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.
S. David Kimball, Ph.D. has been our Vice President of Medicinal
Chemistry since August 2002 and served as our Senior Director of Medicinal
Chemistry from August 2001 to August 2002. Before joining Lexicon, Dr. Kimball
spent 19 years at the Bristol-Myers Squibb Pharmaceutical Research Institute,
most recently as Research Fellow in the Division of Medicinal Chemistry,
Princeton, New Jersey. During his tenure at the Institute, Dr. Kimball led
several significant drug discovery and development research efforts involving
molecular targets in oncology, serine protease inhibitors of blood coagulation
and ion channel modulators for the treatment of hypertension and angina. Dr.
Kimball has been an Associate Member of the Graduate Faculty at Rutgers
University
11
School of Pharmacy since 1989. Dr. Kimball earned a Ph.D. in Organic
Chemistry/Chemical Biology from the State University of New York at Stony Brook.
Stephen J. McAndrew, Ph.D. has been our Vice President of
Pharmaceutical Business Development since January 2002. From March 1990 to
December 2001, he held increasing levels of responsibility at Bristol-Myers
Squibb Company, leading to his final position of Director of Biotechnology
Licensing at the Bristol-Myers Squibb Pharmaceutical Research Institute. In this
position, he was primarily responsible for identifying, evaluating and
negotiating numerous pre-clinical lead compound collaborations and platform
technology alliances. Before his 11-year career at Bristol-Myers Squibb, Dr.
McAndrew spent seven years conducting basic research at the Roche Institute of
Molecular Biology at Hoffmann LaRoche. He received his B.S. from State
University College at Oswego, New York and holds a Ph.D. in molecular and
cellular biology from Ohio University.
Christophe Person has been our Vice President of Informatics since
November 1999 and served as our Director of Informatics from May 1997 to
November 1999. From 1994 to May 1997, Mr. Person was the Senior Scientific
Programmer for the Center for Theoretical Neurosciences at Baylor College of
Medicine. From 1990 to 1994, Mr. Person was the CEPH Database Manager at the
Human Polymorphism Studies Center in Paris, France. Mr. Person received his
degree in Electrical Engineering from Groupe ESTE/ESIEE (Ecole Superieure de
Technologie Electronique/Ecole Superieure d'Ingenieurs en Electrotechnique et
Electronique).
SUMMARY COMPENSATION TABLE
The following table presents summary information for the years ended
December 31, 2002, 2001 and 2000 regarding the compensation of each of our five
most highly compensated executive officers.
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------ SECURITIES
UNDERLYING ALL OTHER
NAME AND POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
----------------- ---- ---------- ---------- ------------ ---------------
Arthur T. Sands, M.D., Ph.D.(2) ............. 2002 $ 429,333 $ 243,675 170,000 $ 5,600
President, Chief Executive Officer and 2001 $ 400,000 $ 250,000 100,000 $ 79,644
Director 2000 $ 270,833 $ 175,812 555,000 $ 78,824
Julia P. Gregory(3) ......................... 2002 $ 283,833 $ 86,800 90,000 $ 5,600
Executive Vice President and Chief 2001 $ 260,000 $ 125,000 60,000 $ 5,680
Financial Officer 2000 $ 179,615 $ 75,000 555,000 $ 17,829
Jeffrey L. Wade, J.D. ....................... 2002 $ 264,896 $ 70,100 65,000 $ 5,600
Executive Vice President and General Counsel 2001 $ 250,000 $ 85,000 50,000 $ 5,730
2000 $ 198,333 $ 56,277 135,000 $ 4,778
Brian P. Zambrowicz, Ph.D. .................. 2002 $ 276,858 $ 80,200 75,000 $ 5,600
Executive Vice President of Research 2001 $ 250,000 $ 100,000 50,000 $ 5,730
2000 $ 206,250 $ 47,953 210,000 $ 4,778
Alan J. Main, Ph.D.(4) ...................... 2002 $ 296,208 $ 186,700 15,000 $ 5,440
Senior Vice President, Lexicon 2001 $ 145,235 $ 168,050 349,001 $ 592
Pharmaceuticals
(1) Other compensation during 2002, 2001 and 2000 includes the following
amounts in respect of company matching contributions under our 401(k) plan,
company-paid premiums for group term life insurance, and payment or
reimbursement of relocation expenses. In addition, other compensation in
2000 and 2001 includes company-paid premiums paid under a split-dollar life
insurance arrangement for Dr. Sands:
12
COMPANY-PAID COMPANY-PAID
COMPANY 401(k) GROUP TERM SPLIT-DOLLAR
MATCHING LIFE INSURANCE LIFE INSURANCE RELOCATION
YEAR CONTRIBUTION PREMIUMS PREMIUMS EXPENSES
---- -------------- -------------- -------------- ----------
Arthur T. Sands, M.D., Ph.D. ....... 2002 $ 5,000 $ 600 $ -- $ --
2001 $ 5,250 $ 480 $ 73,914 $ --
2000 $ 4,250 $ 660 $ 73,914 $ --
Julia P. Gregory.................... 2002 $ 5,000 $ 600 $ -- $ --
2001 $ 5,200 $ 480 $ -- $ --
2000 $ -- $ 440 $ -- $ 17,389
Jeffrey L. Wade, J.D................ 2002 $ 5,000 $ 600 $ -- $ --
2001 $ 5,250 $ 480 $ -- $ --
2000 $ 4,250 $ 528 $ -- $ --
Brian P. Zambrowicz, Ph.D........... 2002 $ 5,000 $ 600 $ -- $ --
2001 $ 5,250 $ 480 $ -- $ --
2000 $ 4,250 $ 528 $ -- $ --
Alan J. Main, Ph.D.................. 2002 $ 5,000 $ 440 $ -- $ --
2001 $ 592 $ -- $ -- $ --
The company-paid life insurance premiums in the foregoing table reflect
payments for group term life policies maintained for the benefit of all
employees, with the exception of the additional premiums paid in 2001 and
2000 under a split-dollar life insurance arrangement for Dr. Sands under
his employment agreement with us. Upon the death of Dr. Sands, we will
receive cash under the policy in an amount equal to the aggregate premiums
we paid for the policy, and the balance of the proceeds will be paid to the
trust that is the beneficiary of the policy.
(2) The amount reflected as bonus compensation for Dr. Sands in 2002 includes
our payment of a $61,375 bonus to Dr. Sands to enable him to make, for his
own account, the minimum premium payment required to maintain the
split-dollar life insurance arrangement for Dr. Sands under his employment
agreement with us. Unlike the premiums we paid under the policy in 2001 and
2000, we will not receive any cash under the policy upon Dr. Sands' death
in respect of such bonus amount or the premiums paid by Dr. Sands, for his
own account, under such policy.
(3) Ms. Gregory joined us in February 2000. Her base salary for 2000 reflects
compensation at an annualized rate of $200,000 for the portion of the year
she was an employee.
(4) Dr. Main joined us in July 2001 in connection with our acquisition of
Coelacanth Corporation. His base salary for 2001 reflects compensation at
an annualized rate of $287,000 for the portion of the year, following the
completion of such acquisition, that he was an employee. The amount
reflected as bonus compensation for Dr. Main in 2002 and 2001 includes
retention bonus payments, each in the amount of $125,000, in July 2002 and
July 2001, respectively, under an arrangement entered into in connection
with our acquisition of Coelacanth Corporation. Dr. Main is obligated to
repay to us a portion of the retention bonus he received in July 2002 on a
pro rata basis, under certain circumstances, if his employment terminates
prior to July 2003.
OPTION GRANTS IN 2002
The following table presents each grant of stock options in 2002 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 PER EXPIRATION ---------------------------
NAME GRANTED IN 2002 SHARE DATE 5% 10%
---- ---------- ---------- -------- ---------- ---------- ----------
Arthur T. Sands, M.D., Ph.D. ... 170,000 8.8% $9.38 2/19/2012 $1,002,835 $2,541,382
Julia P. Gregory ............... 90,000 4.7% $9.38 2/19/2012 $ 530,913 $1,345,437
Jeffrey L. Wade, J.D. .......... 65,000 3.4% $9.38 2/19/2012 $ 383,437 $ 971,705
Brian P. Zambrowicz, Ph.D. ..... 75,000 3.9% $9.38 2/19/2012 $ 442,427 $1,121,198
Alan J. Main, Ph.D. ............ 15,000 0.8% $9.38 2/19/2012 $ 88,485 $ 224,239
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
13
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 2002" are based on an aggregate of 1,928,573 options granted to our
employees under our 2000 Equity Incentive Plan during 2002.
AGGREGATED OPTION EXERCISES IN 2002 AND OPTION VALUES AT DECEMBER 31, 2002
The following table presents information about:
o option exercises in 2002 by each of the individuals listed in
the summary compensation table; and
o 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,
2002.
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, 2002" are based on the closing price of our common stock
on The Nasdaq National Market on December 31, 2002 of $4.73 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
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 2002 DECEMBER 31, 2002
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
Arthur T. Sands, M.D., Ph.D ....... 22,500 $ 233,799 2,361,933 345,567 $ 7,120,923 $ 270,738
Julia P. Gregory .................. 19,000 $ 128,071 420,622 214,378 $ 876,653 $ 204,897
Jeffrey L. Wade, J.D .............. 7,500 $ 59,160 497,756 124,744 $ 1,058,884 $ 72,841
Brian P. Zambrowicz, Ph.D ......... 15,000 $ 152,471 851,982 148,018 $ 2,140,092 $ 102,442
Alan J. Main, Ph.D ................ -- -- 197,769 166,232 $ 105,954 $ 29,289
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 received an initial base salary of $200,000 a year, subject
to adjustment, with an annual discretionary bonus based upon specific objectives
to be determined by the compensation committee. Dr. Sands' current annual salary
is $432,000, unchanged from 2002. 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. Under the agreement, Ms. Gregory received an initial
base salary of $200,000 a year, subject to adjustment, with an annual
discretionary bonus based upon specific objectives to be determined by the
compensation committee. Ms. Gregory's current annual salary is $286,000,
unchanged from 2002. 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.
14
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 received an initial
base salary of $170,000 a year, subject to adjustment, with an annual
discretionary bonus based upon specific objectives to be determined by the
compensation committee. Mr. Wade's current annual salary is $266,250, unchanged
from 2002. 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.
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 received an initial base salary of $200,000 a year,
subject to adjustment, with an annual discretionary bonus based upon specific
objectives to be determined by the compensation committee. Dr. Zambrowicz's
current annual salary is $285,000, unchanged from 2002. 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 received an initial base salary of $287,000 a year, subject
to adjustment, with an annual discretionary bonus based upon specific objectives
to be determined by the compensation committee. Dr. Main's current annual salary
is $297,045, unchanged from 2002. 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 and Sam L. Barker, Ph.D., neither 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 2002:
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:
o a cash salary, which reflects the responsibilities relating to
the position and individual performance;
o variable performance awards payable in cash or stock and tied
to the achievement of certain individual and corporate goals
and milestones; and
o 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
15
salaries at the median to high end of the range in comparison to peer group
companies. In setting such salaries, 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.
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 2002 were near the median to high end of the range in
comparison to our peer group companies, with most falling in a range around the
60th to 75th percentile for such peer group companies. In establishing base
compensation for 2002, the committee included in its evaluation the significant
progress made by the company in 2001, including the substantial increase in our
revenues as compared to 2000, our successful acquisition and integration of
Coelacanth Corporation into our drug discovery efforts, the establishment of our
therapeutic protein discovery alliance and LexVision(R) collaboration with
Incyte Genomics, Inc., 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 2002, the committee included in its evaluation the progress
made by the company in 2002, including the increase in our revenues as compared
to 2001, the establishment of a major new significant drug discovery alliance
with Genentech, Inc., and the continuing advancement of our 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 2002, 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
16
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 of the Company, was initially set at $200,000
pursuant to an employment agreement effective in October 1999, reflecting his
salary in effect prior to the signing of that agreement, and was increased by
$50,000 (or approximately 25 percent) to $250,000 in February 2000 in
recognition of the company's progress in 1999. In October 2000, the committee
increased Dr. Sands' base salary by $150,000 (or approximately 60 percent) to
$400,000 to keep pace with salaries being paid to other chief executive officers
of similar public companies and in recognition of the company's substantial
progress in 2000. In March 2002, the committee increased Dr. Sands' base salary
by $32,000 (or approximately eight percent) to $432,000 on the basis of the
company's achievements in 2001. In light of continuing uncertainty as to whether
company-paid split-dollar life insurance premiums might be considered advances
of credit, in November 2002, the committee approved the payment to Dr. Sands of
a bonus in the amount of $61,375 to enable him to make, for his own account, the
minimum premium payment required to maintain the split-dollar life insurance
arrangement under his employment agreement with the company. In February 2003,
the committee awarded a bonus to Dr. Sands for 2002 in the amount of $182,300 on
the basis of his and the company's achievements in 2002 relative to performance
goals established at the outset of the year. At the same time, the committee
elected to leave Dr. Sands' base salary for 2003 unchanged from 2002 as a result
of the uncertain economic environment.
The committee granted a stock option to Dr. Sands in February 2002, at
the same time annual grants were made to other employees. The stock option
entitles Dr. Sands to purchase an aggregate of 170,000 shares of common stock at
an exercise price of $9.38 per share. In making the option grant to Dr. Sands,
the committee considered the factors described above with respect to the
February 2002 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
Sam L. Barker, Ph.D.
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.
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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, 2002. 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, 2000 DECEMBER 31, 2000 DECEMBER 31, 2001 DECEMBER 31, 2002
------------- ----------------- ----------------- -----------------
Lexicon Genetics
Incorporated 100 76 52 22
Nasdaq Composite Index 100 56 44 30
Nasdaq Biotechnology Index 100 96 81 44
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.
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 25, 2003. 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 25, 2003.
You may contact the Corporate Secretary at our principal executive offices for a
copy of the relevant Bylaw provisions for making stockholder proposals.
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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 25, 2003
The Woodlands, Texas
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PROXY
LEXICON GENETICS INCORPORATED
ANNUAL MEETING OF STOCKHOLDERS
APRIL 30, 2003
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 30, 2003, 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)
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ADDRESS CHANGE/COMMENTS (Mark the corresponding box on the reverse side)
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
Please [ ]
Mark Here
for Address
Change or
Comments
SEE REVERSE SIDE
THIS PROXY WILL BE VOTED AS DIRECTED OR,
IF NO DIRECTION IS INDICATED, WILL BE VOTED:
"FOR" the election of the nominees for Class III FOR AGAINST ABSTAIN
Director; and 2. Ratification and approval of the appointment [ ] ] ] [ ]
"FOR" the proposal to ratify and approve the Ernst & Young LLP as the Company's
appointment of Ernst & Young LLP as the Company's independent auditors for the fiscal year
independent public accountants for the fiscal year ending December 31, 2003.
ending December 31, 2003.
1. ELECTION OF CLASS III DIRECTORS: FOR WITHHOLD
all nominees listed AUTHORITY
except as indicated to vote for all nominees
Nominees: 01 Arthur T. Sands, M.D., Ph.D. [ ] [ ]
02 C. Thomas Caskey, M.D. IF YOU PLAN TO [ ]
03 William A. McMinn ATTEND THE MEETING IN PERSON,
PLEASE MARK THE FOLLOWING BOX.
INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name on the following line.
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Dated:______________________________________________, 2003
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(Signature)
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(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.
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