<PAGE> 1
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
Xenometrix, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(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:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
[ ] 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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-----------------------------------------------------------------------
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(4) Date Filed:
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<PAGE> 2
XENOMETRIX, INC.
2425 N. 55TH STREET
BOULDER, CO 80301
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 18, 1998
TO THE STOCKHOLDERS OF XENOMETRIX, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
XENOMETRIX, INC., a Delaware corporation (the "Company"), will be held on
Wednesday, November 18, 1998 at 10:00 a.m. local time at the Company, 2425 N.
55th Street, Boulder, Colorado 80301.
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof. The foregoing
items of business are more fully described in the Proxy Statement
accompanying this Notice.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on October 9,
1998, as the record date for the determination of stockholders entitled to
notice of and to vote at this Annual Meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors
/s/ Ronald L. Hendrick
Ronald L. Hendrick
Executive Vice President,
Chief Financial Officer and Secretary
Boulder, Colorado
October 16, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
INVESTORS MAY REQUEST ADDITIONAL INFORMATION REGARDING XENOMETRIX,
INC., INCLUDING A COPY OF THE FORM 10-KSB FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, FREE OF CHARGE. PLEASE ADDRESS YOUR REQUEST TO: INVESTOR RELATIONS,
XENOMETRIX, INC., 2425 N. 55TH STREET, BOULDER, COLORADO 80301.
<PAGE> 3
XENOMETRIX, INC.
2425 N. 55TH STREET
BOULDER, CO 80301
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
XENOMETRIX, INC., a Delaware corporation (the "Company") for use at the Annual
Meeting of Stockholders to be held on November 18, 1998 at 10:00 a.m. local time
(the "Annual Meeting"), or at any adjournment or postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting. The
Annual Meeting will be held at the Company, 2425 N. 55th Street, Boulder,
Colorado 80301. The Company intends to mail this proxy statement and
accompanying proxy card on or about October 16, 1998, to all stockholders
entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
October 9, 1998 will be entitled to notice of and to vote at the Annual Meeting.
At the close of business on October 9, 1998 the Company had outstanding and
entitled to vote 2,948,135 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to
one vote for each share held on all matters to be voted upon at the Annual
Meeting.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Abstentions and broker non-votes are
counted towards a quorum but are not counted for any purpose in determining
whether a matter is approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office,
Xenometrix, Inc., 2425 N. 55th Street, Boulder, Colorado 80301 a written notice
of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person.
Attendance at the meeting will not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 1999 annual
meeting of stockholders pursuant to Rule 14a-8, "Shareholder Proposals," of the
Securities and Exchange Commission's Regulation 14A is June 17, 1999. The date
after which notice of a stockholder proposal submitted outside the procedures of
Rule 14a-8 is considered untimely, in accordance with the advance notification
procedures of the Company's bylaws, is September 19, 1999.
1
<PAGE> 4
PROPOSAL 1
ELECTION OF DIRECTORS
There are five candidates being nominated for election to Board
positions by the Board of Directors in accordance with the Company's Certificate
of Incorporation and Bylaws. The Company's Certificate of Incorporation and
Bylaws authorize between five and nine board positions. Each director to be
elected will hold office until the next annual meeting of stockholders and until
his successor is elected and has qualified, or until such director's earlier
death, resignation or removal. Each nominee listed below is currently a director
of the Company.
Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the five nominees named below. In the
event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected and management has no reason to believe that any
nominee will be unable to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
NOMINEES
The names of the nominees and certain information about them are set
forth below:
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION / POSITION HELD WITH THE COMPANY
- ----------------------------------------- ----- ------------------------------------------------------------
<S> <C> <C>
Stephen J. Sullivan 51 Chief Executive Officer, President and Director
Walter M. Lovenberg, Ph.D. (3) 64 Chief Executive Officer, Helicon Therapeutics, Inc./Director
John K.A. Prendergast, Ph.D. (1)(2)(3) 44 President and Chief Executive Officer of Summercloud Bay,
Inc./Director
Randal P. Schumacher (2) 47 Chairman of Jefferson Government Relations, LLC/Director
Ralph Z. Sorenson, D.B.A. (1)(3) 65 Former Dean of the College of Business at the University of
Colorado at Boulder/Director
</TABLE>
- -------------
(1) Member of the Compensation and Benefits Committee
(2) Member of the Audit Committee
(3) Member of the Nominating Committee
Mr. Sullivan joined Xenometrix in January of 1997 as President and
Chief Executive Officer at which time he also was appointed to the Company's
Board of Directors. From 1987 to 1997 he held a number of positions with Abbott
Laboratories, including Divisional Vice President of Worldwide Marketing For
Diagnostics, Divisional Vice President and General Manager, Diagnostic Assay
Sector and General Manager of the Infectious, Disease, Immunology and
Microbiology business units. During 1987, Mr. Sullivan served as Senior Vice
President for Lyphomed (now Fujisawa Pharmaceuticals) and from 1985 to 1986 he
was Senior Vice President and President of the Health Care Sector of Dart and
Kraft, Inc. He received his B.S. in Education and Political Science from the
University of Dayton in 1969 and his M.B.A. in Marketing and Finance from
Rutgers University in 1976.
Dr. Lovenberg joined the Xenometrix Board in July 1993. He is presently
the Chief Executive Officer at Helicon Therapeutics, Inc. He served as Executive
Vice President of Marion Merrell Dow Inc. and President of the Merrell Dow
2
<PAGE> 5
Research Institute from 1989 to 1993 and Vice President of the Merrell Dow
Research Institute from 1986 to 1989. For over two decades, Dr. Lovenberg held
various positions with the National Institutes of Health. Dr. Lovenberg received
his B.S. in Agriculture and his M.S. in Agricultural Biochemistry from Rutgers
University, and his Ph.D. in Biochemistry from George Washington University. He
has also been President of Lovenberg Associates, Inc. since 1993. He currently
serves on the Board of Directors of OSI Pharmaceuticals, Inc., Cytolclonal
Pharmaceuticals, Inc., Inflazyme Pharmaceuticals, Ltd., and Helicon
Therapeutics, Inc.
Dr. Prendergast is a co-founder of the Company and has served as a
Director since its inception. He is currently President and Chief Executive
Officer of Summercloud Bay, Inc., a biotechnology consulting business. He was a
Managing Director of Paramount Capital Investments LLC and The Castle Group,
Ltd. from October 1991 through December 1997. From 1988 to 1991, he held
Post-Doctoral Fellowships in the Department of Biochemistry and Molecular
Biology, at Harvard University and the Institute for Blood Diseases at
L'Hospital St. Louis in Paris, France. Dr. Prendergast received his M.Sc. and
Ph.D. degrees from the University of New South Wales, Sydney, Australia, and his
C.S.S. in Administration and Management from Harvard University. Dr. Prendergast
currently serves on the Board of Directors of Atlantic Pharmaceuticals, Inc.,
Avax Technologies, Inc., Avigen, Inc., Ingenex, Inc. and Palatin Technologies,
Inc.
Mr. Schumacher has been a Director since March 1996. He is Chairman of
Jefferson Government Relations, LLC, Washington, D.C., a consulting firm
providing its clients with corporate counseling, legislative and regulatory
representation, and facilities consultation. From 1979 to 1989 he was Director
of Health, Safety and Chemical Regulations for the Chemical Manufacturers
Association. From 1977 to 1979 he worked for Eastman Kodak Company, assisting in
both corporate and facility health, safety and environmental programs. He
received his M.S. in toxicology from the University of Rochester and a law
degree from The Catholic University of America. He was appointed to the board
pursuant to the Underwriting Agreement between the Company and Barington Capital
Group, L.P. ("Barington"), dated October 17, 1995 related to the Company's
initial public offering.
Dr. Sorenson has served as a Director since October 1994. Currently, he
is on leave from a position as a professor in the College of Business at the
University of Colorado at Boulder. From June 1992 to July 1993 he served as Dean
of the College of Business at the University of Colorado at Boulder. From 1989
to 1992 he was Adjunct Professor at the Harvard Business School. From 1981 to
1989, he served as Chairman, President and CEO of Barry Wright Corporation, a
diversified manufacturing company based in Massachusetts. Dr. Sorenson currently
serves as a director of Polaroid Corporation, Houghton Mifflin Company, Eaton
Vance, Inc., Exabyte Corporation, Whole Foods Market, Inc. and Sweetwater, Inc.
Dr. Sorenson received his M.B.A. and D.B.A. from the Harvard University School
of Business Administration.
The Company has agreed that until October 25, 2000, at the request of
Barington, to nominate and use its best efforts (including the solicitation of
proxies) to elect two designees of Barington to the Board of Directors of the
Company. Mr. Schumacher is currently the only designee of Barington on the Board
of Directors of the Company.
In order to fund its operations, the Company has borrowed $1,500,000
under a short-term bridge financing line of credit. The due date on the Senior
promissory notes (the "Notes") issued under the line of credit has been extended
several times, most recently until October 25, 1998. At that time, the
$1,500,000 principal balance on the Notes, plus approximately $100,000 of
accrued and unpaid interest will be due and payable. The Company does not expect
to have sufficient cash resources to satisfy this obligation on October 25,
1998. Accordingly, it plans to attempt to negotiate a further extension of the
due date on the Notes. In the event such extension cannot be obtained, the
interest rate on the Note will increase to 18%, the Company's assets are subject
to foreclosure and the Note holders will have the right to appoint a majority of
the Board of Directors of the Company.
3
<PAGE> 6
THE BOARD OF DIRECTORS RECOMMENDS A
VOTE IN FAVOR OF EACH NAMED NOMINEE.
BOARD COMMITTEES AND MEETINGS
During the year ended June 30, 1998 the Board of Directors held
thirteen meetings. The Board has an Audit Committee, a Compensation and Benefits
Committee and a Nominating Committee. The Audit Committee held two meetings, the
Compensation and Benefits Committee held two meetings and the Nominating
Committee held no meetings during the year ended June 1998.
The Audit Committee meets with the Company's independent accountants to
review the results of the annual audit and discuss the financial statements,
recommends to the Board the independent accountants to be retained and receives
and considers the independent accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of two non-employee
directors: Dr. Prendergast and Mr. Schumacher.
The Compensation and Benefits Committee makes recommendations
concerning salaries and incentive compensation, awards stock options to
employees and consultants under the Company's stock option plans and otherwise
determines compensation levels and performs such other functions regarding
compensation as the Board may delegate. The Compensation and Benefits Committee
is currently composed of two non-employee directors: Drs.
Prendergast and Sorenson.
The Nominating Committee makes recommendations concerning the size and
composition of the Company's Board. No procedure has been established for the
consideration of nominees recommended by stockholders. The Nominating Committee
is currently composed of Drs. Lovenberg, Prendergast and Sorenson.
During the year ended June 30, 1998, each Director attended 75% or more
of the aggregate of the meetings of the Board and of the committees on which he
served held during the period for which he was a Director or committee member,
respectively.
4
<PAGE> 7
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of September 30, 1998 by: (i) each
nominee for director; (ii) the executive officers named in the Summary
Compensation Table; (iii) all executive officers and directors of the Company as
a group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED OWNED (1)(2)
- -------------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Lindsay A. Rosenwald, M.D. (3)................................... 666,691 19.2%
787 Seventh Avenue
New York, NY 10019
Invesco Trust Company (4)........................................ 406,648 13.8%
7800 East Union Avenue, Suite 800
Denver, CO 80237
Barington Capital Group, L.P. (5)................................ 220,000 6.9%
888 Seventh Avenue, 17th Floor
New York, NY 10019
Mark B. Benjamin, Sc.D. (12) .................................... 25,445 *
Pauline Gee, Ph.D. (13) ......................................... 20,052 *
Ronald L. Hendrick (11).......................................... 37,598 1.3%
Walter M. Lovenberg, Ph.D. (6)................................... 10,932 *
John K.A. Prendergast, Ph.D. (7)................................. 38,432 1.3%
Randal P. Schumacher (8)......................................... 9,125 *
Ralph Z. Sorenson, D.B.A. (9).................................... 11,894 *
Stephen J. Sullivan (10)........................................ 54,352 1.8%
All executive officers and directors as a group
(8 persons) (14)............................................ 208,230 6.7%
</TABLE>
- ---------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable
within sixty (60) days of September 30, 1998, are deemed outstanding
for computing the percentage of the person or entity holding such
securities but are not outstanding for computing the percentage of any
other person or entity. Except as indicated by footnote, and subject to
community property laws where applicable, the persons named in the
table above have sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by them.
(2) Percentage of beneficial ownership is based on 2,948,135 shares of
Common Stock outstanding as of September 30, 1998.
(3) Includes 12,000 shares and warrants exercisable for 180,333 shares held
by the Aries Domestic Fund L.P. and 22,000 shares and warrants
exercisable for 349,662 shares held by the Aries Fund, a Cayman Islands
Trust. Dr. Rosenwald is the President of Paramount Capital Asset
Management, LLC, the General Partner of the Aries Domestic Fund L.P.,
and investment advisor to the Aries Fund, a Cayman Islands Trust. Dr.
Rosenwald disclaims beneficial ownership of such shares except to the
extent of his pecuniary interest, if any. Does not included an
aggregate of 65,858 shares owned by Dr. Rosenwald's spouse and trusts
5
<PAGE> 8
for the benefit of his children, of which Dr. Rosenwald disclaims
beneficial ownership. Does not include an aggregate of 117,951 shares
owned by Dr. Rosenwald's brothers and sister, his spouse's sister, an
investment firm controlled by his father in law, and trusts for the
benefit of his spouses sister's children, of which Dr. Rosenwald
disclaims beneficial ownership.
(4) Includes 261,007 shares owned by The Global Health Sciences Fund and
145,641 shares owned by Invesco Strategic Portfolios, Inc.--Health
Sciences Portfolio, for which Invesco Trust Company acts as investment
adviser or sub adviser, and therefore shares investment and voting
power.
(5) Includes options and warrants to purchase 220,000 shares exercisable
within sixty (60) days.
(6) Includes options to purchase 10,932 shares exercisable within sixty
(60) days.
(7) Includes options to purchase 10,932 shares exercisable within sixty
(60) days.
(8) Includes options to purchase 9,125 shares exercisable within sixty (60)
days.
(9) Includes options to purchase 10,932 shares exercisable within sixty
(60) days.
(10) Includes options to purchase 51,852 shares exercisable within sixty
(60) days.
(11) Includes options to purchase 37,198 shares exercisable within sixty
(60) days.
(12) Includes options to purchase 25,445 shares exercisable within sixty
(60) days.
(13) Includes options to purchase 20,052 shares exercisable within sixty
(60) days.
(14) Includes options to purchase 176,468 shares exercisable within sixty
(60) days.
6
<PAGE> 9
MANAGEMENT
EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning the
executive officers and certain key employees of the Company as of October 9,
1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- ------- ---------------------------------------------------
<S> <C> <C>
Stephen J. Sullivan 51 Chief Executive Officer, President and Director
Ronald L. Hendrick, CPA 52 Executive Vice President, Chief Financial Officer
and Secretary
Pauline Gee, Ph.D. 43 Vice President, Research and Development
Mark B. Benjamin, Ph.D. 37 Vice President, Business Development
</TABLE>
See "Proposal 1 -- Election of Directors" for the biography of Mr. Sullivan.
Mr. Hendrick joined Xenometrix as Vice President, Chief Financial
Officer in March 1995. In March 1997, he was promoted to Executive Vice
President and Chief Financial Officer. In June 1998, he was appointed to the
additional position of Secretary of the Company. From 1993 to 1995, he was Vice
President, Corporate Controller with Alexander & Alexander Services, Inc. a NYSE
financial services firm. From 1984 to 1993, Mr. Hendrick held various positions
at the Adolph Coors Company including Corporate Controller, Director of Treasury
Operations and President of a Coors subsidiary in the occupational health
business. He received his M.B.A. in finance from the University of Colorado and
his B.A. in accounting from Michigan State University. Mr. Hendrick is a
Certified Public Accountant in both Colorado and Michigan. He is a former
director of the University of Colorado Foundation and the Denver World Trade
Center.
Dr. Gee joined Xenometrix in January 1994 as Associate Lab Director,
was promoted to Director of Research and Development in May 1994, and became
Vice President of Research and Development in July 1995. She received her Ph.D.
in Neurobiology and Free Radical Chemistry from Simon Fraser University, B.C.
Canada and a B.Sc. in Marine Biology and Human Physiology. From 1985 to 1987,
she served as a Canadian Medical Research Council Fellow in the Biochemistry
Department at the University of California, Berkeley. From 1987 to 1989, she
worked with Dr. Philip Hanawalt as a Visiting Scholar in the Department of
Biological Sciences, Stanford University. From 1989 to 1993, she was a
Biochemistry Specialist in the Department of Molecular and Cellular Biology at
the University of California, Berkeley. She is a member of the Scientific
Advisory Board of Biomed Diagnostics.
Dr. Benjamin joined Xenometrix in October 1992, and was Director of
Scientific Affairs from 1994 to 1997 before he was promoted to Vice President of
Product Development and Scientific Affairs in March 1997. In June 1997 he was
named Vice President of Business Development. He completed concurrent
Postdoctoral Fellowships at both the Department of Neurobiology and at the
Department of Cancer Biology at Harvard University in October 1992. Dr. Benjamin
was awarded his Sc.D. in June 1991, from the Department of Cancer Biology at
Harvard University, and his B.Sc. (with First Class Honors) in Genetics from
Queen Mary College at the University of London.
7
<PAGE> 10
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Company receives stock option grants
under the Directors' Plan. Only non-employee directors of the Company or
affiliates of such directors (as defined in the Internal Revenue Code) are
eligible to receive options under the Directors' Plan. Options granted under the
Directors' Plan do not qualify as incentive stock options under the Code.
Each non-employee director receives (i) a grant of an option to
purchase 10,000 shares of Common Stock on the date such person is first elected
or appointed as a director, and (ii) an annual grant of additional stock options
to purchase a minimum of 10,000 shares of Common Stock per year. The options
generally vest 20% on the date of grant and 20% per year at the end of each of
the next four years. In addition, each director is entitled to be reimbursed for
all reasonable travel expenses to attend meetings.
During the last fiscal year, the Company granted options covering
60,000 shares to the non-employee directors of the Company, at a weighted
average exercise price per share of $0.375, which was equal to the fair market
value on the date of each grant (based on the closing sales price reported on
the Nasdaq Over The Counter Bulletin Board). As of June 30, 1998, 10,500 options
had been exercised under the Directors' Plan. See "1993 Non-Employee Directors'
Stock Option Plan."
8
<PAGE> 11
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth, for the fiscal year ended June 1998,
certain compensation, including salary, bonuses, stock options and certain other
compensation, awarded or paid to, or earned by, the Company's Chief Executive
Officer and its other most highly compensated executive officers at June 30,
1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------- --------------
SECURITIES ALL OTHER
FISCAL SALARY BONUS UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (1) OPTIONS ($)
- --------------------------------- -------- ------------ ----------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
Stephen J. Sullivan 1998 241,735 67,500 303,416 11,922 (2)
Chief Executive Officer, 1997 110,602 33,750 232,540 6,756 (3)
President and Director
Ronald L. Hendrick, 1998 140,000 21,000 167,738 1,239 (4)
Executive Vice President, 1997 126,154 35,000 83,997 269 (4)
Chief Financial Officer and 1996 82,000 55,000 32,273 --
Secretary
Pauline Gee, Ph.D. (5) 1998 93,165 14,400 112,434 700 (4)
Vice President, Research and
Development
Mark B. Benjamin, Sc.D. (5) 1998 100,000 15,000 130,433 808 (4)
Vice President, Business
Development
</TABLE>
- --------------
(1) Bonuses earned in the fiscal year ended June 30, 1998 are subject to further
review and adjustment by the Board of Directors and will not be paid until
the Board determines that sufficient funds are available.
(2) Includes $9,764 of expenses reimbursed by the Company for travel between
Lake Forest, Illinois and Boulder, Colorado, pursuant to his employment
agreement, and $2,158 of expenses related to Company matching contributions
to the Xenometrix 401-k Plan.
(3) Includes $6,384 of temporary living expenses and expenses for travel between
Lake Forest, Illinois and Boulder, Colorado, pursuant to his employment
agreement, and $372 of expenses related to the Company matching
contributions to the Xenometrix 401-k Plan.
(4) Represents expenses related to Company matching contributions to the
Xenometrix 401-k Plan.
(5) Fiscal year 1998 was the first year Drs. Gee and Benjamin earned in excess
of $100,000 total annual compensation.
9
<PAGE> 12
OPTION GRANTS IN FISCAL 1998
The following table sets forth for the Named Executive Officers certain
information regarding options granted for the year ended June 30, 1998:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENT OF TOTAL
GRANT UNDERLYING OPTION GRANTED IN FISCAL EXPIRATION
NAME DATE GRANTS 1998 (1) EXERCISE PRICE DATE
- ----------------------- ------- ------------------- ------------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Stephen J. Sullivan 12/9/97 70,100 (2) 7.4% 1.500 12/8/07
2/27/98 6,336 0.7% 0.156 2/26/08
6/25/98 75,000 7.9% 0.375 1/12/07
6/25/98 99,405 10.5% 0.375 6/9/07
6/25/98 52,575 5.6% 0.375 12/8/07
Ronald L. Hendrick 12/9/97 42,400 (2) 4.5% 1.500 12/8/07
2/27/98 6,336 0.7% 0.156 2/26/08
6/25/98 13,636 1.4% 0.375 7/17/05
6/25/98 6,818 0.7% 0.375 8/10/05
6/25/98 3,750 0.4% 0.375 6/19/06
6/25/98 12,000 1.3% 0.375 3/10/07
6/25/98 50,998 5.4% 0.375 6/9/07
6/25/98 31,800 3.4% 0.375 12/8/07
Mark B. Benjamin 12/9/97 38,700 (2) 4.1% 1.500 12/8/07
2/27/98 6,336 0.7% 0.156 2/26/08
6/25/98 1,975 0.2% 0.375 11/18/02
6/25/98 3,138 0.3% 0.375 8/10/05
6/25/98 6,000 0.6% 0.375 3/10/07
6/25/98 45,259 4.8% 0.375 6/9/07
6/25/98 29,025 3.1% 0.375 12/8/07
Pauline Gee 12/9/97 35,000 (2) 3.7% 1.500 12/8/07
2/27/98 6,336 0.7% 0.156 2/26/08
6/25/98 1,705 0.2% 0.375 6/13/04
6/25/98 1,705 0.2% 0.375 1/26/05
6/25/98 3,409 0.4% 0.375 7/27/05
6/25/98 3,409 0.4% 0.375 8/10/05
6/25/98 34,620 3.7% 0.375 6/9/07
6/25/98 26,250 2.8% 0.375 12/8/07
</TABLE>
- ----------------
(1) A total of 946,713 options were granted to employees during the year
ended June 30, 1998. On June 25, 1998, the Board of Directors approved
a stock option exchange plan, under which the Company issued 585,717
stock options to all employees of the Company at an exercise price of
$0.375, which represented the fair market value of the Company's stock
on that date. As consideration for the issuance of these new options,
holders of all previously issued options with exercises prices in
excess of $0.375 per share surrendered a total of 780,956 options for
cancellation.
(2) These options were subsequently cancelled on June 25, 1998. See Note
(1) above.
10
<PAGE> 13
AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND
FISCAL YEAR END OPTION VALUES
The following table sets forth for the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options during
the year ended June 30, 1998 and the fiscal year end number and value of
unexercised options:
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
SHARES NUMBER OF UNEXERCISED MONEY OPTIONS AT JUNE 30,
ACQUIRED OPTIONS AT JUNE 30, 1998 (#) 1998 ($)(1)
ON VALUE ------------------------------ ------------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ---------- ---------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Stephen J. Sullivan -- -- 51,852 181,464 -- $594
Ronald L. Hendrick -- -- 35,493 89,845 -- $594
Mark B. Benjamin -- -- 24,660 71,618 $636 $594
Pauline Gee -- -- 18,348 59,086 -- $594
</TABLE>
- ------------------
(1) Based on the fair market value of the Common Stock as of June 30, 1998 of
$0.25 per share minus the exercise price of "in-the-money" unexercised options,
multiplied by the number of shares represented by such options.
STOCK OPTION EXCHANGES
On June 25, 1998, the Board of Directors approved a stock option
exchange plan for all employees and directors who held stock options at exercise
prices in excess of $0.375 per share. The exchange plan allowed employees and
directors to exchange stock options with exercise prices in excess of $0.375 per
share for a lesser number (75%) of replacement options with an exercise price at
the then current market value of the Company's stock of $0.375 per share. All
other terms and conditions of the original options remained in force for the
replacement options. All employees and directors accepted the exchange and the
Company issued 585,717 replacement stock options. As consideration for the
issuance of these new options, a total of 780,956 options were surrendered for
cancellation.
The following table shows certain information concerning the repricing of
options received by the Named Executive Officers during the last ten years.
TEN YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Weighted
Average
Length of
Number of Weighted Original
Securities Average Option Term
Underlying Market Price of Exercise Price New Remaining at
Options Stock at Time at Time of Exercise Date of
Name Date Repriced (#) of Repricing ($) Repricing ($) Price ($) Repricing
- ----------------------- ------- ------------ ---------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Stephen J. Sullivan 6/25/98 226,980 $0.375 $4.86 $0.375 8.9 Years
Ronald L. Hendrick 6/25/98 119,002 $0.375 $4.14 $0.375 8.7 Years
Mark B. Benjamin 6/25/98 85,397 $0.375 $3.54 $0.375 8.9 Years
Pauline Gee 6/25/98 71,098 $0.375 $3.24 $0.375 8.8 Years
</TABLE>
11
<PAGE> 14
EMPLOYMENT AGREEMENTS
Xenometrix has an employment agreement with its Chief Executive Officer,
Stephen J. Sullivan. The Company is currently in negotiations for employment
agreements to replace those which recently expired on October 5, 1998 with its
Executive Vice President, Chief Financial Officer and Secretary, Ronald L.
Hendrick, its Vice President of Research and Development, Dr. Pauline Gee and
its Vice President of Business Development, Dr. Mark Benjamin. All of these
individuals have expressed their intent to enter into new employment agreements
and have previously signed the Company's standard form of confidentiality
agreement.
Mr. Sullivan's agreement covers his employment with the Company commencing
on January 13, 1997 and continuing through the third anniversary of that date.
The agreement provides for an annual salary of $225,000 during the first year of
employment, with subsequent adjustments from time to time by the Board of
Directors. Mr. Sullivan also is entitled to participate in an annual cash bonus
plan paying not less than $33,750 for the first year and up to 30% of his annual
salary thereafter, based on the achievement of performance goals established by
the Board. In addition, upon joining the Company, Mr. Sullivan was granted
options to purchase 100,000 shares of the Company's Common Stock, which vest in
four equal annual installments after the grant date. The Company reimburses Mr.
Sullivan for his housing expenses in Boulder, Colorado and for the expenses of
two round trips per month from Boulder to Lake Forest, Illinois. He is also
entitled to be reimbursed for reasonable relocation expenses if he elects to
relocate to Boulder, Colorado. He is eligible to participate in the Company's
group health, life insurance and disability insurance plans on the same basis as
other employees or, at his option, to not participate in these plans and be
reimbursed for the cost the Company would have incurred if he had elected to
participate.
During Mr. Sullivan's employment period and for a two year period
thereafter, he is prohibited from soliciting or accepting business or employment
from a competitor of Xenometrix. In addition, he is prevented from hiring,
enticing, soliciting or attempting to persuade any employee, independent
contractor or agent of the Company to discontinue their relationship or violate
any agreement with Xenometrix. If his employment should be terminated due to
death he is entitled to any accrued but unpaid salary, a pro rata portion of any
cash bonus due under the Company's incentive plan and payment of all
reimbursable expenses. Upon the termination of his employment without cause, due
to a change of duties or due to a sale of the Company or its assets, the Company
would be required to pay Mr. Sullivan any accrued but unpaid salary, a pro rata
portion of any cash bonus due under the Company's incentive plan and all
reimbursable expenses. In addition, the Company must continue to pay his regular
salary for twelve months after the date of termination, provided however, that
the Company's obligation to pay such amount terminates when Mr. Sullivan
commences other full-time employment.
The agreements for Mr. Hendrick, Dr. Benjamin and Dr. Gee are expected to
cover the period from October 6, 1998 through October 5, 1999, and provide for
minimum annual salaries during the year which are comparable with their current
annual salaries, participation in an annual cash bonus plan based on the
achievement of criteria to be established by the Board and participation in the
Company's group health, life insurance and disability insurance plans.
CERTAIN TRANSACTIONS
Under the policies of Harvard University and the University of California
at Berkeley, faculty members who are named inventors on a patent assigned to the
University are entitled to receive a portion of royalties received by the
University for the licensing of such patents. Dr. Gee is a named inventor on
certain patents licensed by the University of California at Berkeley to the
Company, and accordingly will be entitled to share in any royalties received by
that University from the Company.
In December 1996, the Company entered into a consulting agreement (the
"Consulting Agreement") with Summercloud Bay, Inc., ("Summercloud"), an entity
controlled by Dr. John Prendergast, one of the Company's directors. The term of
the Consulting Agreement was from September 1, 1996 through August 31, 1997.
12
<PAGE> 15
Subsequent to August 31, 1997, Dr. Prendergast provided additional consulting
services to the Company on a limited basis. Under the terms of the Consulting
Agreement, Dr. Prendergast provided up to 20% of his time, or a minimum of
thirty hours per month assisting Xenometrix with its commercial, technical and
business development programs. In consideration for these services, the Company
paid Summercloud a consulting fee of $4,500 per month. For the fiscal year ended
June 30, 1998, the Company paid Summercloud $18,000 in consideration for these
services.
In July 1997, the Company entered into an agreement with OSI
Pharmaceuticals, Inc., ("OSIP") forming a strategic technology alliance to
jointly develop automated, high throughput gene profiling technologies for use
in drug discovery and development. The agreement included the cross-licensing of
certain intellectual property rights. Dr. Walter Lovenberg, one of the Company's
directors, is also on the Board of Directors of OSIP.
In September 1997, the Company entered into a Senior Line of Credit
Agreement (the "Agreement") with the Aries Domestic Fund L.P. (the "Fund") and
the Aries Fund, a Cayman Islands Trust (the "Trust"). Dr. Lindsay Rosenwald, a
former director of the Company, is the President of Paramount Capital Asset
Management, LLC, the investment advisor to the Fund and the General Partner of
the Trust. The Agreement provides for a line of credit for up to $1,500,000.
Between June 20, 1997 and January 12, 1998, Xenometrix issued senior promissory
notes (the "Notes") in the total amount of $1,500,000 to serve as bridge
financing. The Notes are collateralized by a security interest in all of the
assets of the Company. The Notes were originally due March 25, 1998. The
maturity date on the Notes was extended until June 25, 1998, at an interest rate
of 18% and was again extended at the original interest rate of 12% until October
25, 1998. In the event of a sale of the Company prior to October 25, 1998, the
Notes are due at the closing of such sale. In connection with the issuance of
these Notes, the Xenometrix issued warrants to purchase 499,995 shares of common
stock. The warrants are exercisable during the ten-year period after the date of
issue. Holders of these warrants are entitled to "demand" and "piggyback"
registration rights with respect to the common shares issuable upon exercise of
these warrants. In consideration for the most recent extension of the due date
on the Notes, the exercise price of the warrants was reduced to $0.37 per share
and the Company agreed to pay 38.5% of all gross licensing revenues received
during the extension period to the Note holders, as payment against the accrued
interest and principal due on the Notes. In the event of default by the Company
on the Notes, the interest rate will increase to 18% per annum, the Note holders
will have the right to appoint a majority of the Board of Directors of the
Company and the Company's assets will be subject to foreclosure.
Management believes the terms of the foregoing transactions were fair to
the Company. All future transactions with affiliates will be subject to the
approval of the Company's disinterested directors and are therefore expected to
be on terms believed by such directors to be no less favorable to the Company
than those available from unaffiliated third parties.
SECTION 16(a) COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's Directors and executive officers, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file with
the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, Directors and
greater than ten percent stockholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended June 30, 1998, all Section
16(a) filing requirements applicable to its officers, Directors and greater than
ten percent beneficial owners were complied with.
13
<PAGE> 16
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
/s/ Ronald L. Hendrick
Ronald L. Hendrick
Executive Vice President,
Chief Financial Officer and Secretary
October 16, 1998
14
<PAGE> 17
- --------------------------------------------------------------------------------
PROXY XENOMETRIX, INC. PROXY
2425 N. 55TH STREET, BOULDER, COLORADO 80301
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
FOR THE ANNUAL MEETING OF STOCKHOLDERS -- NOVEMBER 18, 1998
The undersigned hereby constitutes and appoints Stephen J. Sullivan and
Ronald L. Hendrick, and each of them, his true and lawful agents and proxies
with full power of substitution in each, to represent the undersigned at the
Annual Meeting of Stockholders of Xenometrix to be held at the Company, 2425 N.
55th Street, Boulder, Colorado 80301, on Wednesday, November 18, 1998 at 10:00
a.m. local time and at any adjournments thereof, on all matters coming before
said meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY
STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN
ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES LISTED BELOW.
PROPOSAL 1:To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
<TABLE>
<S> <C> <C> <C>
[ ] FOR all nominees listed below (except as marked [ ] WITHHOLD AUTHORITY to vote for all nominees
to the contrary below). listed below.
</TABLE>
NOMINEES:Stephen J. Sullivan, Walter M. Lovenberg, John K.A. Prendergast, Randal
P. Schumacher, Ralph Z. Sorenson.
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH NOMINEE(S)' NAME(S)
BELOW:
(Continued and to be signed on the other side)
- --------------------------------------------------------------------------------
<PAGE> 18
- --------------------------------------------------------------------------------
(Continued from other side.)
Dated , 1998
-----------------------
-----------------------------------
-----------------------------------
Signature(s)
PLEASE MARK, SIGN AND RETURN
PROMPTLY USING THE ENCLOSED
ENVELOPE. EXECUTORS,
ADMINISTRATORS, TRUSTEES, ETC.
SHOULD GIVE A TITLE AS SUCH. IF THE
SIGNER IS A CORPORATION, PLEASE
SIGN FULL CORPORATE NAME BY DULY
AUTHORIZED OFFICER.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
- --------------------------------------------------------------------------------
