<PAGE>
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:
/ / 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-11(c) or Section
240.14a-12
NANOGEN, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(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:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[Company Logo]
10398 Pacific Center Court
San Diego, California 92121
Tel: (619) 546-7700 Fax: (619) 546-7717
May 27, 1999
Dear Stockholder:
You are cordially invited to attend our Annual Meeting of Stockholders
which will be held on June 30, 1999, at 9:00 a.m. at the Hilton La Jolla Torrey
Pines, located at 10950 North Torrey Pines Road, La Jolla, California 92037.
The formal notice of the Annual Meeting and the Proxy Statement have been
made a part of this invitation.
After reading the Proxy Statement, please mark, date, sign and return, at
an early date, the enclosed proxy in the prepaid envelope to ensure that your
shares will be represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU SIGN, DATE
AND RETURN THE ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of our Annual Report to Stockholders is also enclosed.
The Board of Directors and management look forward to seeing you at the
meeting.
Sincerely yours,
/s/ HOWARD C. BIRNDORF
Howard C. Birndorf
Chairman of the Board and Chief Executive Officer
<PAGE>
NANOGEN, INC.
------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 30, 1999
------------
The Annual Meeting of Stockholders of Nanogen, Inc. (the "Company") will be
held at the Hilton La Jolla Torrey Pines, located at 10950 North Torrey Pines
Road, La Jolla, California 92037 on June 30, 1999, at 9:00 a.m., for the
following purposes:
1. To elect two Class I directors.
2. To consider and vote upon a proposal to amend the 1997 Stock Incentive
Plan ("1997 Stock Plan") to increase the number of shares authorized
for issuance under the plan by 925,000 shares.
3. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors.
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment of the Annual Meeting.
The Board of Directors has fixed the close of business on May 3, 1999, as
the record date for determining the stockholders entitled to notice of and to
vote at the Meeting and any adjournment of the Annual Meeting. A complete list
of stockholders entitled to vote will be available at the offices of the
Secretary of the Company, 10398 Pacific Center Court, San Diego, California, for
ten days before the meeting.
WHETHER YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING OR NOT, WE URGE YOU
TO MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY.
By order of the
Board of Directors.
/s/ HARRY J. LEONHARDT
Harry J. Leonhardt
Vice President, General Counsel and Secretary
May 27, 1999
<PAGE>
NANOGEN, INC.
------------
PROXY STATEMENT
------------
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Nanogen, Inc., a Delaware corporation ("Nanogen" or
the "Company"), of proxies in the accompanying form to be used at the Annual
Meeting of Stockholders to be held at the Hilton La Jolla Torrey Pines, located
at 10950 North Torrey Pines Road, La Jolla, California 92037 on June 30, 1999,
and any adjournment of the Annual Meeting (the "Annual Meeting"). The shares
represented by the proxies received in response to this solicitation and not
revoked will be voted at the Annual Meeting. A proxy may be revoked at any time
before it is exercised by filing with the Secretary of the Company a written
revocation or a duly executed proxy bearing a later date or by voting in person
at the Annual Meeting. On the matters coming before the Annual Meeting for which
a choice has been specified by a stockholder by means of the ballot on the
proxy, the shares will be voted accordingly. If no choice is specified, the
shares will be voted FOR the election of the two nominees for Class I director
listed in this Proxy Statement and FOR approval of proposals 2 and 3 described
in the Notice of Annual Meeting and in this Proxy Statement.
Stockholders of record at the close of business on May 3, 1999 are entitled
to notice of and to vote at the Annual Meeting. As of April 27, 1999 the Company
had 18,836,341 shares of Common Stock outstanding and entitled to vote. Each
holder of Common Stock is entitled to one vote for each share held as of the
record date.
Directors are elected by a plurality vote. Accordingly, the two director
nominees who receive the most votes cast in their favor will be elected.
Proposals 2 and 3 will be decided by the affirmative vote of a majority of
shares present in person or represented by proxy and entitled to vote on each
such matter. Abstentions with respect to any matter are treated as shares
present or represented and entitled to vote on that matter and thus have the
same effect as negative votes. If shares are not voted by the broker who is the
record holder of the shares, or if shares are not voted in other circumstances
in which proxy authority is defective or has been withheld with respect to any
matter, these non-voted shares are not deemed to be present or represented for
purposes of determining whether stockholder approval of that matter has been
obtained.
The Company will bear the expense of printing and mailing proxy materials.
In addition to the solicitation of proxies by mail, solicitation may be made by
the Company's directors, officers or other employees by personal interview,
telephone or facsimile. No additional compensation will be paid to such persons
for such solicitation. The Company will reimburse brokerage firms and others for
their reasonable expenses in forwarding solicitation materials to beneficial
owners of the Company's Common Stock. Employees of Georgeson & Co. will also
solicit proxies at an anticipated fee of approximately $6,500 plus reasonable
out-of-pocket expenses.
This Proxy Statement and the accompanying form of proxy are being mailed to
stockholders on or about May 27, 1999.
IMPORTANT
WHETHER YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING OR NOT, WE
URGE YOU TO MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT AT
YOUR EARLIEST CONVENIENCE IN THE ENCLOSED POSTAGE-PREPAID RETURN
ENVELOPE. THIS WILL NOT LIMIT YOUR RIGHTS TO ATTEND OR VOTE AT THE
ANNUAL MEETING.
1
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Company has three classes of directors, Class I consisting of two
directors and Class II and Class III each consisting of three directors, serving
staggered three-year terms. Currently, one Class II director's seat and one
Class III director's seat are vacant, and such seats will remain vacant
following the Annual Meeting as the Nominating Committee has not yet identified
suitable candidates for such seats. Shares represented by the enclosed proxy
cannot be voted for a greater number of persons than the number of nominees
named. Two Class I directors are to be elected at the Annual Meeting for a term
of three years expiring at the Annual Meeting in 2002 or until each such
director's successor shall have been elected and qualified. The other directors
of the Company will continue in office for their existing terms, which expire in
2000 and 2001 for Class II and Class III directors, respectively.
UNLESS AUTHORITY TO VOTE FOR DIRECTORS IS WITHHELD, IT IS INTENDED THAT THE
SHARES REPRESENTED BY THE ENCLOSED PROXY WILL BE VOTED FOR THE ELECTION OF
MESSRS. BIRNDORF AND GARNER AS CLASS I DIRECTORS.
Set forth below is information regarding the nominees for Class I director
and the continuing directors of Class II and Class III, including information
furnished by them as to their principal occupations at present and for the past
five years, certain directorships held by each, their ages as of May 3, 1999,
and the year in which each became a director of the Company.
CLASS I
Howard C. Birndorf.................................................... 49
Mr. Birndorf, a founder of the Company, has served as Chairman of the Board and
Chief Executive Officer since October 1993. Mr. Birndorf also served as Chief
Financial Officer from December 1997 to July 1998 and from September 1993 to
October 1997. Mr. Birndorf was a co-founder and Chairman Emeritus of Ligand
Pharmaceuticals, Incorporated ("Ligand") where from January 1988 to November
1991 he was President and Chief Executive Officer. He was also a co-founder,
director and Executive Vice President of Gen-Probe Incorporated ("Gen-Probe"),
co-founder and Vice President of Corporate Development at Hybritech,
Incorporated ("Hybritech"), co-founder and director of IDEC Pharmaceuticals
Corporation ("IDEC Pharmaceuticals") and was involved in the formation of Gensia
Pharmaceuticals, Inc. (currently known as Gensia Sicor, Inc.) where he was a
director. From November 1991 to January 1994, Mr. Birndorf was President of
Birndorf Technology Development, an investment and consulting company. He is
currently a director of the Cancer Center of the University of California, San
Diego. Mr. Birndorf received an M.S. in Biochemistry from Wayne State
University.
Cam L. Garner......................................................... 51
Mr. Garner has been a director of the Company since September 1997. Since May
1990, Mr. Garner has been Chief Executive Officer of Dura Pharmaceuticals, Inc.
("Dura"), from 1990 to 1998 he served as President, and since 1995 he has served
as Dura's Chairman of the Board of Directors. Prior to joining Dura, Mr. Garner
served as President of Syntro Corporation, a biotechnology company, from
November 1987 to June 1989. Mr. Garner is currently a director of Safeskin
Corporation, a manufacturer of medical supplies, Cardio Dynamics International,
a manufacturer of medical devices, and Spiros Development Corporation II, Inc.,
a developer of pulmonary drug delivery systems. Mr. Garner received a B.S. in
Biology from Virginia Wesleyan College and an M.B.A. from Baldwin-Wallace
College.
2
<PAGE>
CLASS II
Brook H. Byers........................................................ 53
Mr. Byers has been a director of the Company since 1994. Mr. Byers is a general
partner of Kleiner Perkins Caufield & Byers ("KPCB"), a venture capital firm
which he joined in 1977. He was the founding president and chairman of four life
sciences companies: Hybritech, IDEC Pharmaceuticals, InSite Vision Inc. and
Ligand. Mr. Byers currently serves as a director of Axys Pharmaceuticals
Corporation and a number of privately held technology companies. Mr. Byers
serves on the Board of Directors of the University of California, San Francisco
Foundation and the California Healthcare Institute.
Tina S. Nova.......................................................... 45
Dr. Nova has been a director of the Company since April 1994 and has served as
President and Chief Operating Officer since February 1994. Dr. Nova began her
scientific career at Hybritech, where she was responsible for the development of
several diagnostic products commonly used in clinical laboratories today. She
joined Ligand as Executive Director of Development where she developed the
automated high-throughput screening assay utilized in their drug discovery
efforts. She then joined PRIZM Pharmaceuticals ("PRIZM"), where from 1992 to
February 1994 she was Vice President and Chief Operating Officer. Dr. Nova has
published in numerous scientific journals, and is an inventor on several patents
and patent applications in the area of assay development. Dr. Nova currently
serves on the Board of Directors of BIOCOM, the Cancer Center of the University
of California, San Diego and the Doris Howell Foundation for Women's Healthcare.
Dr. Nova received a Ph.D. in Biochemistry from the University of California,
Riverside followed by a postdoctoral fellowship in Dermatology and Pharmacology
at New York University Medical School.
CLASS III
David G. Ludvigson.................................................... 48
Mr. Ludvigson has been a director of the Company since 1996. Since August 1998,
Mr. Ludvigson has been Senior Vice President and Chief Financial Officer of
Matrix Pharmaceuticals, Inc. From February 1996 to June 1998, Mr. Ludvigson was
President and Chief Operating Officer of NeTpower. From 1992 to 1995, Mr.
Ludvigson was Senior Vice President and Chief Financial Officer of IDEC
Pharmaceuticals. Prior to that time, he served as Senior Vice President of Sales
and Marketing for Conner Peripherals and as Executive Vice President, Chief
Financial Officer and a director of MIPS Computer Systems, Inc., a RISC
microprocessor developer and systems manufacturer. Mr. Ludvigson received a B.S.
and an M.A.S. from the University of Illinois.
Thomas G. Lynch....................................................... 42
Mr. Lynch has been a director of the Company since February 1997. Mr. Lynch is
Executive Vice President, Chief Financial Officer and a director of Elan
Corporation, plc ("Elan"), a drug delivery and biopharmaceutical company
headquartered in Dublin, Ireland, where he is responsible for finance, treasury,
strategic planning and corporate and investor relations. He is also a member of
the executive committee of Elan's board of directors. Prior to his appointment
at Elan in 1993, Mr. Lynch was a partner with KPMG Peat Marwick where he
specialized in securities matters and business advisory and accounting services.
Mr. Lynch is also a director of Pembroke Capital Limited, Icon plc, Axogen
Limited and Warner Chilcott, plc.
3
<PAGE>
The Board of Directors held five meetings during 1998. Other than Mr.
Lynch, all Directors then in office attended at least 75% of the aggregate
number of meetings of the Board and of the Committees on which such Directors
serve during the periods of their respective Board and Committee memberships.
The Board of Directors has appointed a Compensation Committee and an Audit
Committee. In addition, during 1998 the Board of Directors appointed an ad hoc
committee (the "Ad Hoc Committee") to evaluate a loan and standstill agreement
proposed to be entered into with an entity in which certain directors had an
interest.
The current members of the Compensation Committee are Cam L. Garner and
Thomas G. Lynch. The Compensation Committee held seven meetings during 1998. The
Compensation Committee's functions are to determine and supervise compensation
to be paid to officers and directors of the Company. See "Report to Stockholders
on Executive Compensation."
The current members of the Audit Committee are David G. Ludvigson, Thomas
G. Lynch and Tina S. Nova, Ph.D. The Audit Committee held one meeting during
1998. The Audit Committee's functions are to monitor the effectiveness of the
audit effort, to supervise the Company's financial and accounting organization
and financial reporting and to select a firm of certified public accountants
whose duty it is to audit the books and accounts of the Company for the fiscal
year for which they are appointed.
The members of the Ad Hoc Committee were Cam L. Garner and David G.
Ludvigson. The Ad Hoc Committee held two meetings during 1998. The Ad Hoc
Committee's functions were to evaluate and approve the terms of a secured loan
by the Company to a corporation in exchange for an exclusive period to negotiate
for a license to certain intellectual property. Directors Birndorf, Byers and
Nova were interested directors in the transaction. See "Certain Transactions."
4
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of April 27, 1999 as to
shares of Common Stock beneficially owned by (i) each director and nominee for
director, (ii) the current officers of the Company named in the Summary
Compensation Table set forth herein, (iii) the directors and executive officers
of the Company as a group and (iv) each person known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock of
the Company. Except as otherwise indicated and subject to applicable community
property laws, each person has sole investment and voting power with respect to
the shares shown. Ownership information is based upon information furnished by
the respective individuals or entities, as the case may be.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK
----------------------------
NUMBER OF PERCENT
SHARES(1) OF CLASS(2)
--------- -----------
<S> <C> <C>
Entities Affiliated with Enterprise
Management Partners II, L.P.(3)............................... 1,635,397 8.7%
7979 Ivanhoe, Suite 550
La Jolla, CA 92037
Elan Corporation, plc(4)........................................ 1,287,878 6.8%
Lincoln House
Dublin 2
Ireland
Kleiner Perkins Caufield & Byers VI(5).......................... 1,243,109 6.6%
2750 Sand Hill Road
Menlo Park, CA 94025
Howard C. Birndorf (6)(15)...................................... 1,219,949 6.5%
Nanogen, Inc.
10398 Pacific Center Court
San Diego, CA 92121
Becton, Dickinson and Company .................................. 1,212,120 6.4%
1 Becton Drive
Franklin Lakes, NJ 07417-1880
Hoechst AG (7).................................................. 1,029,328 5.4%
D-65926 Frankfurt am Main
Germany
Entities Affiliated with Sprout Group(8)........................ 1,002,497 5.3%
3000 Sand Hill Road, Bldg. 4., Suite 270
Menlo Park, CA 94025
Thomas G. Lynch(4)(9)........................................... 1,326,766 7.0%
Brook H. Byers(5)............................................... 1,243,109 6.6%
Cam L. Garner(9)................................................ 27,777 *
David G. Ludvigson(10).......................................... 26,666 *
Tina S. Nova, Ph.D.(11)(15)..................................... 412,531 2.2%
James P. O'Connell, Ph.D.(12)(15)............................... 244,524 1.3%
W. J. Kitchen, Sc.D.(13)(15).................................... 235,977 1.2%
Kieran T. Gallahue(13)(15)...................................... 136,785 *
All Directors and Executive Officers
as a group (12 persons)(14)(15)............................... 5,172,487 27.1%
</TABLE>
- ----------
*Less than one percent
5
<PAGE>
(1) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property
laws where applicable and the information contained in the footnotes
to this table.
(2) For purposes of computing the percentage of outstanding shares held by
each person or group of persons named above on a given date, shares
which such person or group has the right to acquire within 60 days
after such date are deemed to be outstanding, but are not deemed to be
outstanding for the purposes of computing the percentage ownership of
any other person.
(3) Includes (i) 1,483,035 shares held by Enterprise Partners II, L.P.,
(ii) 145,062 shares held by Enterprise Partners II Associates, L.P.,
(iii) 6,820 shares held by Enterprise Partners III, L.P. and (iv) 480
shares held by Enterprise Partners III Associates, L.P.
(4) Includes 1,287,878 shares held by Elan International Services Limited
("Elan International"). Mr. Lynch, a director of the Company, is
Executive Vice President, Chief Financial Officer and a director of
Elan, the parent company of Elan International, and as such, may be
deemed to share voting and investment power with respect to the shares
held by Elan International. Mr. Lynch disclaims beneficial ownership
of all such shares except to the extent of his pecuniary interest
therein.
(5) Includes 20,000 shares issuable to KPCB VI upon the exercise of
outstanding warrants exercisable within 60 days of April 27, 1999. Mr.
Byers, a director of the Company, is a general partner of KPCB VI, and
as such, may be deemed to share voting and investment power with
respect to the shares held by such entity. Mr. Byers disclaims
beneficial ownership of all such shares except to the extent of his
pecuniary interest therein.
(6) Includes 2,064 shares issuable upon the exercise of options
exercisable within 60 days of April 27, 1999.
(7) Includes 120,238 shares issuable to Hoechst upon the exercise of
warrants issuable and exercisable within 60 days of April 27, 1999.
(8) Includes 76,518 shares held by Donaldson Lufkin & Jenrette Securities
Corporation ("DLJ"), 919,299 shares held by Sprout Capital VII, L.P.
("Sprout Capital") and 6,680 shares held by an affiliate of DLJ.
(9) Includes 16,666 shares issuable to each of Mr. Lynch and Mr. Garner
upon the exercise of options exercisable within 60 days of April 27,
1999, subject to repurchase of unvested shares.
(10) Includes 2,431 unvested shares subject to repurchase by the Company at
April 27, 1999.
(11) Includes 2,083 shares issuable upon the exercise of options
exercisable within 60 days of April 27, 1999.
(12) Includes 34,895 shares issuable upon the exercise of options
exercisable within 60 days of April 27, 1999, subject to repurchase of
unvested shares.
(13) Includes 1,562 shares issuable to each of Dr. Kitchen and Mr. Gallahue
upon the exercise of options exercisable within 60 days of April 27,
1999.
(14) Includes an aggregate of 203,131 shares issuable upon the exercise of
options exercisable within 60 days of April 27, 1999, subject to
repurchase of unvested shares, and an aggregate of 20,000 shares
issuable upon the exercise of outstanding warrants exercisable
within 60 days of April 27, 1999.
6
<PAGE>
(15) Includes unvested shares subject to repurchase by the Company at April
27, 1999, as follows: Mr. Birndorf, 240,363 shares; Dr. Nova, 86,656
shares; Dr. O'Connell, 55,259 shares; Dr. Kitchen, 162,055 shares; and
Mr. Gallahue, 94,652 shares.
7
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
EXECUTIVE OFFICERS
The names of and certain biographical information regarding the Company's
executive officers who are not also directors are set forth below:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
W. J. Kitchen, Sc.D. 57 Senior Vice President, Operations
Clare L. Bromley III 50 Senior Vice President, Marketing and Business Development
Daniel D. Burgess 37 Vice President and Chief Financial Officer
Harry J. Leonhardt, Esq. 42 Vice President, General Counsel and Secretary
James P. O'Connell, Ph.D. 52 Vice President, Science and Technology
Kieran T. Gallahue 35 Vice President, Strategic Marketing
</TABLE>
W. J. KITCHEN, Sc.D., joined the Company in December 1997 as Senior Vice
President, Operations. From May 1993 to December 1997, Dr. Kitchen served as
Corporate Vice President, Director of Technology and Quality of the Automotive,
Energy and Components Sector of Motorola, Inc. ("Motorola"). He joined
Motorola's Semiconductor Products Sector in 1982 where his various positions
included Vice President, Director Strategic R&D, Vice President Technology, Vice
President, Director, Advanced Technology Center, and Director, Semiconductor R&D
Laboratories. Prior to joining Motorola, Dr. Kitchen was a senior executive with
the National Security Agency where he was responsible for the development and
manufacturing of secure communications equipment. He received a B.S. in
Electrical Engineering from Virginia Military Institute, M.S. and Doctor of
Science degrees in Electrical Engineering from the University of Virginia and an
M.B.A. from the Industrial College of the Armed Forces.
CLARE L. BROMLEY III joined the Company in October 1998 as Senior Vice
President, Marketing and Business Development. From November 1995 to October
1998 Mr. Bromley served as Senior Vice President, Sales and Marketing for
Molecular Dynamics, Inc. ("Molecular Dynamics"). Prior to working at Molecular
Dynamics, Mr. Bromley held a variety of positions with Hewlett-Packard Company
("HP") in the Chemical Analysis Group. From November 1994 to November 1995, Mr.
Bromley was the Manager of Information Architecture, HP Chemical Analysis Group
Sales and Marketing. From July 1993 to November 1994 he was Worldwide Bioscience
Sales and Marketing Manager. From November 1988 to July 1993 he was Global
Accounts Marketing Manager, Chemical Analysis Group. Mr. Bromley holds a B.S. in
Natural Sciences with a Chemistry concentration from Mercer University.
DANIEL D. BURGESS joined the Company in August 1998 as Vice President and
Chief Financial Officer. From 1988 to 1998 Mr. Burgess was employed in a variety
of senior management positions with Gensia Sicor, Inc. ("Gensia Sicor") and
Gensia Automedics, Inc., a subsidiary of Gensia Sicor ("Gensia Automedics") that
was subsequently partially divested. His positions included President and a
director of Gensia Automedics, where his responsibilities included all aspects
of this medical products company and Vice President and Chief Financial Officer
of Gensia Sicor, where he was responsible for finance, investor relations,
business development and other administrative functions. Prior to joining Gensia
Sicor, Mr. Burgess held positions with Castle & Cooke, Inc. and Smith Barney,
Harris Upham and Co. He received an A.B. degree in economics from Stanford
University and an MBA from the Harvard Business School.
HARRY J. LEONHARDT, ESQ. has served as Vice President, General Counsel and
Secretary since July 1996. From 1990 to 1996, Mr. Leonhardt served in various
capacities at Allergan, Inc., as Senior Attorney and Head of Intellectual
Property Litigation, Assistant General Counsel and Head of Worldwide Litigation,
and during a two-year expatriate assignment at its European headquarters in
England, served as General Counsel for Allergan's European Operations. From 1983
to 1990, Mr. Leonhardt was an associate attorney with the patent firm of Lyon &
8
<PAGE>
Lyon LLP in Los Angeles, where he represented a number of high technology
clients in the fields of biotechnology, pharmaceuticals, diagnostic devices,
genetic probes and genetic engineering. Mr. Leonhardt received a B.Sc. in
Pharmacy from the Philadelphia College of Pharmacy and Science and a J.D. from
the University of Southern California Law Center.
JAMES P. O'CONNELL, PH.D. has served as Vice President, Science and
Technology, since January 1999. He previously served as Vice President of
Research and Product Development from December 1994 to January 1999. From August
1988 to December 1994, Dr. O'Connell was Vice President, Research and
Development and Central Operations for Ortho Diagnostic Systems, a Johnson &
Johnson Company, where he was responsible for general management of research and
development, manufacturing and industrial engineering, purchasing and
procurement. Dr. O'Connell was also responsible for the research activities of
the Johnson & Johnson Biotechnology Center in La Jolla, California. Prior to
October 1988, Dr. O'Connell was Director of Immunodiagnostics Research and
Development at Becton Dickinson. He received a M.S. and Ph.D. in Microbiology
and Public Health from the University of North Carolina.
KIERAN T. GALLAHUE has served as Vice President, Strategic Marketing since
January 1998. From 1995 to 1997, he served as Vice President of the Critical
Care Business Unit for Instrumentation Laboratory ("IL") where he was
responsible for the worldwide strategic sales and marketing, and research and
development efforts for this business unit. From 1992 to 1995, he held a variety
of sales and marketing positions within IL. In addition, Mr. Gallahue held
various marketing positions within Procter & Gamble from 1991 to 1992 and the
General Electric Company from 1985 to 1989. Mr. Gallahue holds an MBA from the
Harvard Business School.
SUMMARY COMPENSATION INFORMATION
Information is set forth below concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal years
ended December 31, 1996, 1997 and 1998 of those persons who were at December 31,
1998 (a) the Chief Executive Officer and (b) the other four most highly
compensated executive officers of the Company whose salary and bonus exceeded
$100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ------------------------
AWARDS
------------------------
OTHER RESTRICTED SECURITIES ALL OTHER
NAME AND ANNUAL STOCK UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS(#) SATION($)
- ------------------ ---- --------- -------- --------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard C. Birndorf 1998 $300,000 $170,000 -- -- -- --
Chief Executive 1997 285,000 75,000 -- -- 437,496 --
Officer............... 1996 270,000 60,000 -- -- 183,332 --
Tina S. Nova, Ph.D. 1998 250,000 55,000 -- -- -- --
President and Chief 1997 225,000 60,000 -- -- 160,378 --
Operating Officer.... 1996 198,000 39,600 -- -- 49,999 --
W. J. Kitchen, Sc.D. 1998 250,000 143,000 $124,798(1) -- -- --
Senior Vice President, 1997 4,808(2) -- 6,660(1) -- 233,333 --
Operations............
James P. O'Connell, Ph.D. 1998 230,000 27,000 16,710(1) -- -- --
Vice President, 1997 218,000 35,000 -- -- 106,096 --
Science and Technology 1996 206,000 38,600 19,428(1) -- 33,333 --
Kieran T. Gallahue, 1998 223,421 32,000 120,324(1) -- 133,332 --
Vice President,
Strategic
Marketing.............
</TABLE>
- -------------------
9
<PAGE>
(1) Amount represents reimbursement of expenses and related income taxes
incurred in relocating to San Diego, and includes a $9,000 housing
allowance in 1998 for each of Dr. Kitchen and Mr. Gallahue.
(2) Dr. Kitchen joined the Company in December 1997, and his salary for 1997
reflects a partial month of service.
EMPLOYMENT AND SEVERANCE AGREEMENTS
On January 5, 1994, the Company entered into an agreement with Dr. Tina
Nova relating to her employment as President and Chief Operating Officer of the
Company. The agreement provided for an initial annual base salary of $170,000
(since increased to $267,500). Additionally, the agreement entitled Dr. Nova to
purchase 100,071 shares of Company Common Stock at $.075 per share, and an
additional 100,000 shares of Common Stock at $.15 per share as the Company
achieved its first round financing and certain other milestones. Dr. Nova is
also entitled to a severance payment equal to six months salary in the event her
employment with the Company is terminated without cause.
On November 15, 1994, the Company entered into an agreement with Dr. James
P. O'Connell relating to his employment as a Vice President of the Company. The
agreement provided for an initial annual base salary of $196,000 (since
increased to $240,000) and a guaranteed bonus of at least $30,000 during Dr.
O'Connell's first two years of employment with the Company. The agreement also
entitled Dr. O'Connell to purchase 66,666 shares of Company Common Stock at
$.075 per share. Additionally, Dr. O'Connell is entitled to a severance payment
of six months salary if his employment is terminated without cause or if Dr.
O'Connell terminates his employment for good reason.
On October 28, 1997, the Company entered into an agreement with Dr. W. J.
Kitchen relating to his employment as Senior Vice President, Operations of the
Company. The agreement provided for an initial annual base salary of $250,000
(since increased to $263,750) and a guaranteed bonus of $110,000. It also
provides for an additional bonus of up to $40,000 upon the achievement of
certain milestones such that Dr. Kitchen is provided with a minimum potential of
$400,000 in total compensation per year over his first four years of employment.
In addition, Dr. Kitchen was entitled to purchase 233,333 shares of Company
Common Stock at $.90 per share, of which 200,000 shares vest ratably on a
monthly basis over four years, except that the initial 25% of such shares would
not vest until Dr. Kitchen's first anniversary of employment, and the remaining
33,333 vest in equal installments over six years upon the attainment of certain
milestones. The agreement further provides for a relocation loan of $200,000
which is forgivable over four years and is secured by a deed of trust. Dr.
Kitchen is also entitled to a severance payment of up to two years salary in the
event his employment is terminated without cause during his first two years of
employment.
On December 16, 1997, the Company entered into an agreement with Mr. Kieran
T. Gallahue relating to his employment as Vice President, Strategic Marketing of
the Company. The agreement provided for an initial annual base salary of
$225,000 (since increased to $235,000) and eligibility for a bonus of $40,000
for 1998 based upon the achievement of certain milestones. In addition, Mr.
Gallahue was entitled to purchase 133,332 shares of Company Common Stock at fair
market value, of which 116,666 shares vest ratably on a monthly basis over four
years, except that the initial 25% of such shares would not vest until Mr.
Gallahue's first anniversary of employment, and the remaining 16,666 shares vest
in equal installments over six years upon the attainment of certain milestones.
The agreement further provides for a relocation loan of $40,000 which is
forgivable over four years and is secured by a deed of trust. Mr. Gallahue is
also entitled to a severance payment of up to six months salary in the event his
employment is terminated without cause during his first year of employment.
COMPENSATION OF DIRECTORS
Non-Employee Directors receive $1,500 per Board meeting attended or $500
per Board meeting participated in by phone, $500 per committee meeting attended
or participated in by phone, and are reimbursed for certain expenses incurred in
connection with attendance at Board and Committee meetings. In addition,
continuing non-employee Directors receive automatic grants of options to
purchase 10,000 shares of Common Stock on the date of each annual meeting of
stockholders, which options vest in full upon completion of one year of service
from the date of grant, and new non-employee Directors receive a one-time grant
of options to purchase 25,000 shares of the Company's common stock, which
options vest on a
10
<PAGE>
monthly basis (provided that no vesting occurs until the optionee has completed
at least one year of service from the date of grant). Directors are also
eligible to participate in the Company's 1997 Stock Plan described below.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee during 1998 were Cam
Garner and Thomas Lynch.
Mr. Lynch is Executive Vice President, Chief Financial Officer and a
director of Elan, an entity which owns 1,287,878 shares of Company Common Stock
and with which the Company entered into a collaborative research and development
agreement in December 1997. In 1998, the Company recorded revenues of
approximately $929,000 pursuant to such agreement.
11
<PAGE>
STOCK OPTIONS
The following tables summarize option grants to and exercises by the
Company's Chief Executive Officer and the Named Executive Officers during fiscal
1998, and the value of the options held by such persons at the end of fiscal
1998. The Company does not grant stock appreciation rights.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------- POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL OPTIONS EXERCISE ANNUAL RATES OF
UNDERLYING GRANTED TO OR BASE STOCK APPRECIATION
OPTIONS EMPLOYEES IN PRICE EXPIRATION FOR OPTION TERM(3)
NAME GRANTED(#) FISCAL YEAR 1998 ($/SH)(1) DATE(2) -------------------
---- ---------- ---------------- --------- ------- 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Howard C. Birndorf......... -- -- -- -- -- --
Tina S. Nova, Ph.D......... -- -- -- -- -- --
W. J. Kitchen, Sc.D........ -- -- -- -- -- --
James P. O'Connell, Ph.D... -- -- -- -- -- --
Kieran T. Gallahue......... 133,332 9.9% $3.00 1/29/08 $251,555 $637,491
</TABLE>
- ----------
(1) The exercise price on the date of grant was equal to 100% of the fair
market value on the date of grant.
(2) All options granted in 1998 have been exercised in full, however, the
shares issued upon exercise are subject to repurchase by the Company. The
Company's right of repurchase lapses as the shares vest.
(3) The 5% and 10% assumed rates of appreciation are suggested by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future common stock price. There can be no
assurance that any of the values reflected in the table will be achieved.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND VALUE OF OPTIONS
AT END OF FISCAL 1998
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
VALUE OPTIONS AT END OF OPTIONS AT END OF
REALIZED FISCAL 1998(#) FISCAL 1998($)
SHARES ACQUIRED ---------- ------------------------- -------------------------
NAME ON EXERCISE(#) ($)(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Howard C. Birndorf......... -- -- -- --
Tina S. Nova, Ph.D......... -- -- -- --
W. J. Kitchen, Sc.D........ -- -- -- --
James P. O'Connell, Ph.D... -- -- -- --
Kieran T. Gallahue......... 133,332(2) -- -- --
</TABLE>
- --------------
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the exercise price.
(2) In connection with the acquisition of shares, Mr. Gallahue received a loan
from the Company pursuant to a five-year full recourse promissory note,
which note is secured by the shares acquired.
OPTION REPRICING
As discussed in the "Report of the Compensation Committee on Annual
Compensation", on September 25, 1998 the Company exchanged certain employee
stock options granted on or after April 1, 1998 with an exercise price higher
than the market price at such time for options with an exercise price equal to
the then current market value. This exchange required that an employee surrender
options having an exercise price greater than $3.8125 for the same number of
options at the current market price. No Named Executive Officer participated in
the exchange. The following table sets forth certain information concerning all
repricings of options since the Company became subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") held by executive officers of the Company:
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
Length of
Number of Market Original
Securities Price Option Term
Underlying of Stock at Exercise Price Remaining at
Name and Option Time of at Time of New Exercise Date of
Position Date Repriced(#) Repricing($) Repricing($) Price($) Repricing
- -------- ---- ----------- ------------ ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Daniel D. Burgess, 09/25/98 25,000 $3.8125 $7.50 $3.8125 118 months
Vice President and 09/25/98 125,000 $3.8125 $7.00 $3.8125 118 months
Chief Financial
Officer.......
</TABLE>
REPORT TO STOCKHOLDERS ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of the Company (the
"Committee") is pleased to present its report on executive compensation. This
report is provided by the Committee to assist stockholders in understanding the
Committee's objectives and procedures in establishing the compensation of the
Company's executive officers and describes the basis on which compensation
determinations for 1998 were made by the Committee. In making its determination,
the Committee has relied, in part, on geographic and competitive considerations,
independent surveys of compensation of management of companies in the
biotechnology industry,
13
<PAGE>
including companies included in the Nasdaq Pharmaceutical Stock Index used in
the Company's Stock Price Performance Graph set forth in this proxy statement,
and recommendations of management.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Committee believes that compensation of the Company's executive
officers should:
- Encourage creation of stockholder value and achievement of strategic
corporate objectives.
- Integrate compensation with the Company's annual and long-term
corporate objectives and strategy, and focus executive behavior on the
fulfillment of those objectives.
- Recognize individual initiative, effort and accomplishment.
- Provide a competitive total compensation package that enables the
Company to attract and retain, on a long-term basis, high caliber
personnel.
- Provide a total compensation opportunity that is competitive with
companies in the biotechnology industry, taking into account relative
company size, stage of development, performance and geographic
location as well as individual responsibilities and performance.
- Align the interests of management and stockholders and enhance
stockholder value by providing management with longer term incentives
through equity ownership by management.
KEY ELEMENTS OF EXECUTIVE COMPENSATION
The Compensation Committee has determined that compensation of executive
officers will be based, in part, on the Company's achievements of its objectives
established with the Board of Directors, the individual contributions and
achievements of each executive officer and the financial position of the
Company. The Company's existing compensation structure for executive officers
generally includes a combination of base salary, bonus, and stock options.
BASE SALARY
Compensation levels are largely determined through comparisons with
companies of similar size and complexity in the biotechnology industry and
companies with which the Company competes for key personnel. Cash compensation
for the Company's executive officers is generally targeted at the median of the
companies reviewed. In establishing base salaries for 1998 the Committee
considered, among other things, the Company's achievements in advancing its
products and accomplishing other business objectives, and the individual
contributions and achievements of each executive officer. Actual compensation is
based on an evaluation of job responsibilities for the position, comparisons of
compensation levels, Company achievements and individual performance. Individual
performance is evaluated by reviewing organizational and management development
progress against individual contributions and achievements and the degree to
which teamwork and Company values are fostered. At the beginning of fiscal 1998,
goals were established for the Company and approved by the Board of Directors.
Goals set for 1998 included: completion of an initial public offering;
achievement of certain research and development milestones; continued
development of the Company's intellectual property portfolio; and progress in
its corporate collaborations. Compensation levels for the executive officers are
competitive within a range that the Committee considers to be reasonable and
necessary.
14
<PAGE>
BONUS
The Committee may award bonuses at the end of the fiscal year based on the
Company's achievements and the individual's contributions to those achievements,
if it deems such an award to be appropriate. Based on the Company's achievement
of a number of key objectives in 1998 that were important for the continued
growth and development of the Company, including: completing an initial public
offering and a concurrent private placement generating aggregate proceeds of
approximately $63.9 million; achieving research milestones in its joint ventures
with Becton, Dickinson and Aventis Research and Technologies; progress in its
research and development programs; and obtaining key patents covering its
microelectronic array and optical memory and storage technology, the Committee
decided to award cash bonuses for 1998 to officers and certain key employees.
STOCK OPTIONS
The Company's 1997 Stock Plan is administered by the Company's Compensation
Committee, which is a committee of outside directors of the Company. The
Compensation Committee believes that by providing those persons who have
substantial responsibility for the management and growth of the Company with an
opportunity to increase their ownership of Company stock, the best interests of
stockholders and executives will be closely aligned. Therefore, executive
officers, as well as all employees, are eligible to receive stock options from
time to time, giving them the right to purchase shares of Common Stock of the
Company at a specified price. The number of stock options granted to executive
officers, including the Chief Executive Officer, is based on the Company's
achievements during the year and the individual's contributions to those
achievements, individual performance and a review of data on the range of
aggregate annual option grants compared to the number of shares of stock
outstanding for officers with similar duties and titles at biotechnology
companies taking into account differences in such companies' stock prices, stage
of development, achievements and the like.
CHIEF EXECUTIVE OFFICER COMPENSATION
The salary paid to Howard Birndorf, the Company's Chief Executive Officer,
was $300,000 in 1998. In establishing Mr. Birndorf's base salary, the
Compensation Committee reviewed the results of a survey of executive salaries of
the officers of similar companies in the biotechnology industry. In addition,
the Committee recognized Mr. Birndorf's efforts in advancing the development and
growth of the Company and the corporate objectives achieved in 1998.
Specifically, corporate objectives achieved included the initial public offering
and concurrent private placement, research and development milestones, corporate
collaborations and financial performance. The Committee determined that these
accomplishments were critical to the Company's future growth and enhancement of
stockholder value and, accordingly, determined to compensate Mr. Birndorf for
his efforts on behalf of the Company.
Mr. Birndorf is a member of the Board of Directors, but did not participate
in matters involving the evaluation of his own performance or the setting of his
own compensation.
COMPENSATION COMMITTEE REPORT ON OPTION REPRICING
In September 1998, the Compensation Committee of the Company unanimously
approved resolutions authorizing the exchange of certain outstanding stock
options held by employees of the Company, including executive officers, on the
terms described below. The overall purpose of the Company's 1997 Plan had been
to attract and retain the services of the Company's employees and to provide
incentives to such persons to exert exceptional efforts for the Company's
success. The Committee concluded that the decline in the market value of the
Company's Common Stock had frustrated these purposes and diminished the value of
the Company's stock option program as an element of the Company's compensation
arrangements. Accordingly, the Committee approved the exchange program described
below:
15
<PAGE>
Employees of the Company who had been granted stock options between April
1, 1998 and September 25, 1998, including one executive officer, were given the
opportunity to exchange those unexercised options granted on or after April 1,
1998, with an exercise price above $3.8125 per share, the closing price on
September 25, 1998 (the "Old Options"), for new options ("New Options") on a
one-for-one basis. The exercise price of the New Options is $3.8125 per share.
The term of the New Options is ten years from September 25, 1998. The optionee
must be employed by, or under contract to, the Company through September 25,
1999 in order to exercise the New Options and the New Options are not
exercisable until after September 25, 1999, regardless of the Old Options'
vesting schedule, unless the holder is terminated involuntarily and without
cause prior to September 25, 1999 or in certain other circumstances. Daniel D.
Burgess was the only executive officer eligible to participate in this repricing
program.
This Compensation Committee Report 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 the Company specifically
incorporates this report by reference, and shall not otherwise be deemed filed
under such Acts.
COMPENSATION COMMITTEE
Cam L. Garner
Thomas G. Lynch
16
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph illustrates a quarterly comparison of the cumulative
total stockholder return (change in stock price plus reinvested dividends) of
the Company's Common Stock with the CRSP Total Return Index for The Nasdaq Stock
Market (U.S. and Foreign) (the "Nasdaq Composite Index") and the CRSP Total
Return Index for Nasdaq Pharmaceutical Stocks (the "Nasdaq Pharmaceutical
Index") since April 14, 1998 (the effective date of the Company's initial public
offering). The comparisons in the graph are required by the Securities and
Exchange Commission and are not intended to forecast or be indicative of
possible future performance of the Company's Common Stock.
[GRAPH]
<TABLE>
<CAPTION>
4/16/98 6/30/98 9/30/98 12/31/98 3/31/99
------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Nanogen, Inc. $100.00 $ 59.66 $33.24 $ 36.36 $87.50
Nasdaq Composite 100.00 101.28 90.51 116.47 128.26
Nasdaq Pharmaceutical 100.00 96.11 90.95 120.761 136.99
</TABLE>
Assumes a $100 investment on April 14, 1998 in each of the Company's Common
Stock, the securities comprising the Nasdaq Composite Index, and the securities
comprising the Nasdaq Pharmaceutical Index.
The Nasdaq Pharmaceutical Index includes all companies listed on The Nasdaq
Stock Market within SIC Code 283. A list of those companies included in the
Nasdaq Pharmaceutical Index may be obtained by contacting the Company's
corporate secretary at Nanogen, Inc., 10398 Pacific Center Court, San Diego, CA
92121.
17
<PAGE>
CERTAIN TRANSACTIONS
In June 1995, Howard Birndorf and Tina Nova, Ph. D. each purchased 100,000
shares of common stock at $.15 per share. In connection with the purchase of
these shares, the Company loaned each of Mr. Birndorf and Dr. Nova $15,000 at an
interest rate of 6.72% per annum pursuant to five-year full recourse promissory
notes, which notes are secured by their respective shares purchased. In August
1996, Mr. Birndorf purchased an additional 183,332 shares and Dr. Nova purchased
an additional 49,999 shares of Common Stock at $.15 per share. In connection
with such purchases, the Company loaned Mr. Birndorf and Dr. Nova $27,500 and
$7,500, respectively, at an interest rate of 6.36% per annum pursuant to
five-year full recourse promissory notes, which notes are secured by their
respective shares purchased.
In November and December 1997 and March 1998, certain officers and
directors of the Company exercised options to purchase an aggregate of 1,155,835
shares of the Company's Common Stock. As consideration for such shares the
Company received full recourse promissory notes, bearing interest at 6.01%, from
directors and officers Birndorf (an aggregate of 437,496 shares for $393,747)
and Nova (an aggregate of 160,378 shares for $144,341) and executive officers
Leonhardt (85,200 shares for $76,680), O'Connell (106,096 shares for $95,486),
Kitchen (233,333 shares for $209,650) and Gallahue (133,332 shares for
$399,800). The principal and accrued interest on such five-year promissory notes
will be payable in 2002 or 2003, as appropriate. The payment of each promissory
note is secured by a pledge of the shares purchased by such director and/or
executive officer.
In March 1998, the Company loaned W. J. Kitchen $200,000 pursuant to a
four-year promissory note in connection with his relocation to San Diego. The
loan, which bears interest at 6.01% per annum and is secured by a deed of trust,
is forgivable by the Company over four years. Additionally, in April 1998, the
Company made a relocation loan to Kieran Gallahue of $40,000 pursuant to a
four-year promissory note. The loan, which bears interest at 6.01% per annum and
is secured by a deed of trust, is also forgivable by the Company over four
years.
As of May 3, 1999, aggregate outstanding indebtedness of directors and
executive officers in favor of the Company was as follows: Mr. Birndorf,
$481,384; Dr. Nova, $185,424; Dr. O'Connell, $104,356; Dr. Kitchen, $381,659;
Mr. Gallahue, $454,387; and Mr. Leonhardt, $83,803.
In December 1997, the Company entered into a collaborative research and
development agreement with Elan. Thomas G. Lynch, a director of the Company, is
Executive Vice President, Chief Financial Officer and a director of Elan. The
Company recorded revenues of approximately $929,000 in 1998 pursuant to such
agreement.
In January 1998 the Company acquired its former parent corporation,
Nanotronics, Inc., a California corporation ("Nanotronics"). Nanotronics' assets
are primarily intellectual property and certain government grants. Andrew
Senyei, a former director of Nanogen, was a director of Nanotronics and an
affiliate of the principal Nanotronics shareholders. Mr. Birndorf was also a
shareholder of Nanotronics. In connection with the acquisition, Nanogen issued
to the stockholders of Nanotronics an aggregate of 132,334 shares of its Series
D Preferred Stock and a warrant for the purchase of 993 shares of Series D
Preferred Stock.
In April 1998, concurrent with its initial public offering, the Company
completed a private placement of an aggregate of 1,909,089 shares of its Common
Stock to Becton, Dickinson & Company, Hoechst AG (through a subsidiary) and
Elan, resulting in net proceeds to the Company of $6.0 million, $10.0 million
and $5.0 million, respectively.
In November 1998 the Company entered into a Standstill Agreement and Right
of First Negotiation with Graviton, Inc. ("Graviton") granting the Company an
exclusive period of time to negotiate a license to certain technologies licensed
to and/or developed by Graviton. In exchange for such agreement, the Company
advanced to Graviton a secured loan in the amount of $500,000. If a license
agreement is entered into, the $500,000 loan will be creditable against any
license fees due thereunder. Messrs. Birndorf and Byers, both directors of the
Company, are also directors of and investors in Graviton. Additionally, Dr. Tina
Nova, a director and the Company's President and Chief Operating Officer, is the
spouse of Dr. Michael Nova, the president of Graviton. Together,
18
<PAGE>
Messrs. Birndorf, Byers and Nova hold a controlling ownership interest in
Graviton. Given the interrelationship among the parties, the Company's Board
appointed a committee of disinterested Board members to evaluate this
opportunity. After full disclosure of the above-referenced interrelationships,
the Committee determined that it was in the best interests of the Company to
proceed as outlined.
The Company believes that the foregoing transactions were in its best
interests. It is the Company's current policy that all transactions by the
company with officers, directors, 5% stockholders or their affiliates will be
entered into only if such transactions are approved by a majority of the
disinterested directors, and are on terms no less favorable to the Company than
could be obtained from unaffiliated parties.
19
<PAGE>
PROPOSAL 2
APPROVAL OF THE AMENDMENT OF THE
NANOGEN, INC. 1997 STOCK INCENTIVE PLAN
The 1997 Stock Incentive Plan (the "1997 Stock Plan") was adopted by the
Board of Directors and was approved by the stockholders as of August 1, 1997.
The 1997 Plan replaced the 1993 Stock Plan and 1995 Stock Option/Stock Issuance
Plans (collectively, the "Prior Stock Plans"). At the date of adoption of the
1997 Stock Plan a total of 342,419 shares of Common Stock were available for
future issuance under the Prior Stock Plans, which shares are available for
grants under the 1997 Stock Plan. If any option granted under the Prior Stock
Plans expires or terminates for any reason without having been exercised in
full, then the unpurchased shares subject to that option will become available
for additional option grants under the 1997 Stock Plan. Although all future
awards will be made under the 1997 Stock Plan, awards made under the Prior Stock
Plans will continue to be administered in accordance with the 1993 Stock Plan or
the 1995 Stock Option/Issuance Plan, as applicable (the 1997 Stock Plan together
with the Prior Stock Plans are referred to as the "Stock Option Plans"). On
January 22, 1999 the Board of Directors amended the plan to reserve an
additional 925,000 shares for issuance under the 1997 Stock Plan, subject to the
approval of the Company's stockholders at the Annual Meeting.
The following is a summary of the material terms and provisions of the 1997
Stock Plan. The summary, however, does not purport to be a complete description
of all the provisions of the 1997 Stock Plan. Copies of the actual plan document
may be obtained by any stockholder upon written request to the Secretary of the
Company at the corporate offices in San Diego, California.
DESCRIPTION OF THE 1997 STOCK PLAN
PURPOSE
The purpose of the 1997 Stock Plan is to promote the interests of the
Company and its stockholders by encouraging key individuals to acquire stock or
to increase their proprietary interest in the Company. By providing the
opportunity to acquire stock or receive other incentives, the Company seeks to
attract and retain those key employees upon whose judgment, initiative and
leadership the success of the Company largely depends. The Company's Board of
Directors believes that the 1997 Stock Plan will constitute an important means
of compensating key employees.
SHARES SUBJECT TO THE 1997 STOCK PLAN
The total number of restricted shares, stock units, options and SARs
available for grant under the 1997 Stock Plan is 3,508,760 (which number
includes the 925,000 share increase that stockholders are being asked to
approve). This amount will be increased by any forfeited or unexercised shares
under the Prior Stock Plans. Also, forfeited or unexercised shares under the
1997 Stock Plan generally become available for new grants under the 1997 Stock
Plan. If any restricted shares, stock units, options or SARs are forfeited, or
if options or SARs terminate for any other reason prior to exercise (other than
the exercise of a related SAR or option, and including any forfeiture or
termination under the 1997 Stock Plan), then they again become available for
awards under the 1997 Stock Plan.
OUTSTANDING GRANTS
As of April 27, 1999, an aggregate of 1,294,665 options were outstanding
under the Stock Option Plans. As of April 27, 1999, approximately 137 employees,
4 directors and 10 consultants or advisors were eligible to participate in the
Plan. On April 27, 1999, the closing price of the Company's Common Stock on the
Nasdaq National Market was $7.75 per share. Of the 4,123,408 options granted
under the Stock Option Plans, 2,683,486 have been exercised. As of April 27,
1999, an aggregate of 87,187 shares (which number excludes the 925,000 share
increase that stockholders are being asked to approve) are authorized, but
unissued under the Stock Option Plans.
20
<PAGE>
As of April 27, 1999, the following persons or groups had in total received
restricted stock, stock units and/or options under the Stock Option Plans:
(i) the Chief Executive Officer and the other remaining officers named in the
Summary Compensation Table: Mr. Birndorf 745,828 shares; Dr. Nova 330,377
shares; Dr. Kitchen 248,333 shares; Dr. O'Connell 254,428 shares; and Mr.
Gallahue 148,332 shares; (ii) all current executive officers of the Company
as a group: 2,202,914 shares; (iii) all current directors who are not
executive officers as a group: 49,998 shares; (iv) the nominees for Class I
director: Mr. Birndorf 745,828 shares and Mr. Garner 16,666 shares; (v) each
associate of any of such current directors, executive officers or nominees:
no shares; (vi) each person who has received five percent of options granted
other than those included above: no shares; and (vii) all employees and
consultants of the Company: approximately 4,073,410 shares.
ADMINISTRATION
The 1997 Stock Plan is administered by the Board of Directors or its
delegate, currently the Compensation Committee. The Board of Directors, or its
delegate, selects the employees of the Company who will receive awards,
determines the size of any award and establishes any vesting or other
conditions. Employees, directors, consultants and advisors of the Company (or
any subsidiary of the Company) are eligible to participate in the 1997 Stock
Plan, although incentive stock options may be granted only to employees. No
individual may receive options or stock appreciation rights ("SARs") covering
more than 500,000 shares in any calendar year. The participation of the outside
directors of the Company is limited to 25% of shares available under the 1997
Stock Plan.
The 1997 Stock Plan provides for awards in the form of restricted shares,
stock units, options or SARs, or any combination thereof. No payment is required
upon receipt of an award, except that a recipient of newly issued restricted
shares must pay the par value of such restricted shares to the Company.
RESTRICTED STOCK
Restricted shares are shares of Common Stock that are subject to repurchase
by the Company at the employee's purchase price in the event that the applicable
vesting conditions are not satisfied, and they are nontransferable prior to
vesting (except for certain transfers to a trustee). Restricted shares have the
same voting and dividend rights as other shares of Common Stock.
The recipient of restricted shares or stock units may pay all projected
withholding taxes relating to the award with Common Stock rather than cash if
permitted by the Compensation Committee.
OPTIONS
Options may include nonstatutory stock options ("NSOs") as well as
incentive stock options ("ISOs") intended to qualify for special tax treatment.
The term of an ISO cannot exceed 10 years (five years for 10% stockholders), and
the exercise price of an ISO must be equal to or greater than the fair market
value of the Common Stock on the date of grant (or 110% of fair market value at
the date of grant for 10% stockholders). The exercise price of an NSO must be
equal to or greater than the par value of the Common Stock on the date of grant.
The exercise price of an option may be paid in any lawful form permitted by
the Board of Directors or its delegate, including (without limitation) the
surrender of shares of Common Stock or restricted shares already owned for at
least six months by the optionee. The Board of Directors or its delegate may
likewise permit optionees to satisfy their withholding tax obligation upon
exercise of an NSO by surrendering a portion of their option shares to the
Company. The 1997 Stock Plan also allows the optionee to pay the exercise price
of an option by giving "exercise/sale" or "exercise/pledge" directions or by
promissory note.
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STOCK APPRECIATION RIGHTS
An SAR permits the participant to elect to receive any appreciation in the
value of the underlying stock from the Company, either in shares of Common Stock
or in cash or a combination of the two, with the Board of Directors or its
delegate having the discretion to determine the form in which such payment will
be made. The amount payable on exercise of an SAR is measured by the difference
between the market value of the underlying stock at exercise and the exercise
price. SARs may, but need not, be granted in conjunction with options. Upon
exercise of an SAR granted in tandem with an option, the corresponding portion
of the related option must be surrendered and cannot thereafter be exercised.
Conversely, upon exercise of an option to which an SAR is attached, the SAR may
no longer be exercised to the extent that the corresponding option has been
exercised. A participant may receive not more than 200,000 SARs within one
calendar year. Unless otherwise permitted by the Board of Directors or its
delegate, all options and SARs are nontransferable prior to the optionee's
death.
VESTING
The Board of Directors or its delegate determines the number of restricted
shares, stock units, options or SARs to be included in the award as well as the
vesting and other conditions. The vesting conditions may be based on the
employee's service, his or her individual performance, the Company's performance
or other appropriate criteria. In general, the vesting conditions will be based
on the employee's service after the date of grant. Vesting may be accelerated in
the event of the employee's death, disability or retirement or in the event of a
change in control with respect to the Company. The Board of Directors has in the
past granted and may in the future grant options which provide for mandatory
acceleration of vesting in the event of a change in control.
OTHER PROVISIONS
For purposes of the 1997 Stock Plan, the term "change in control" is
defined as any one of the following: (i) any person is or becomes the beneficial
owner, directly or indirectly, of at least 50% of the combined voting power of
the Company's outstanding securities ordinarily having the right to vote at
elections of directors; (ii) upon a merger or consolidation of the Company with
or into another corporation or entity or any other corporate reorganization in
which over 50% of the combined voting power of the continuing or surviving
entity immediately after the merger, consolidation or reorganization is owned by
persons who were not stockholders of the Company immediately prior to the
merger, consolidation or reorganization; or (iii) a change in the composition of
the Board of Directors in which fewer than half of the incumbent Directors had
been Directors 24 months prior to the change or were elected or nominated with
the affirmative votes of Directors 24 months prior to the change.
The 1997 Stock Plan provides that if any payment (or transfer) by the
Company causes the employee to recognize a "golden parachute" excise tax under
Section 4999 of the Internal Revenue Code, then the Company shall make such cash
payments as are necessary to reimburse the employee for all additional taxes
caused thereby.
The Board of Directors is authorized, within the provisions of the 1997
Stock Plan, to amend the terms of outstanding restricted shares or stock units,
to modify or extend outstanding options or SARs or to exchange new options for
outstanding options, including outstanding options with a higher exercise price
than the new options.
Members of the Company's Board of Directors who are not employees of the
Company are eligible for awards under the 1997 Stock Plan. However, such outside
directors are not eligible for ISO grants. Total shares available to outside
directors is limited to 25% of total shares available under the 1997 Stock Plan.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the federal income tax consequences of the 1997
Stock Plan as it relates to share awards, nonqualified stock options and
incentive stock options is intended to be a summary of applicable federal law.
State and local tax consequences may differ.
SHARE AWARDS
If a participant is awarded or purchases shares, the amount by which the
fair market value of the shares on the date of award or purchase exceeds the
amount paid for the shares will be taxed to the participant as ordinary income.
The Company will be entitled to a deduction in the same amount provided it makes
all required withholdings on the compensation element of the sale or award. The
participant's tax basis in the shares acquired is equal to the share's fair
market value on the date of acquisition. Upon a subsequent sale of any shares,
the participant will realize capital gain or loss (long-term or short-term,
depending on whether the shares were held for more than one year before the
sale) in an amount equal to the difference between his or her basis in the
shares and the sale price.
If a participant is awarded or purchases shares that are subject to a
vesting schedule, the participant is deemed to receive an amount of ordinary
income equal to the excess of the fair market value of the shares at the time
they vest over the amount (if any) paid for such shares by the participant. The
Company is entitled to a deduction equal to the amount of the income recognized
by the participant.
Code Section 83(b) permits a participant to elect, within 30 days after the
transfer of any shares subject to a vesting schedule to him or her, to be taxed
at ordinary income rates on the excess of the fair market value of the shares at
the time of the transfer over the amount (if any) paid by the participant for
such shares. Withholding taxes apply at that time. If the participant makes a
Section 83(b) election, any later appreciation in the value of the shares is not
taxed as ordinary income, but instead is taxed as capital gain when the shares
are sold or transferred.
OPTIONS
Incentive stock options and nonqualified stock options are treated
differently for federal income tax purposes. Incentive stock options are
intended to comply with the requirements of Section 422 of the Code.
Nonqualified stock options need not comply with such requirements.
An optionee is generally not taxed on the grant or exercise of an incentive
stock option. The difference between the exercise price and the fair market
value of the shares on the exercise date will, however, be a preference item for
purposes of the alternative minimum tax. If an optionee holds the shares
acquired upon exercise of an incentive stock option for at least two years
following grant and at least one year following exercise, the optionee's gain,
if any, upon a subsequent disposition of such shares is a capital gain (or
loss). The measure of the gain is the difference between the proceeds received
on disposition and the optionee's basis in the shares (which generally equals
the exercise price). If an optionee disposes of stock acquired pursuant to
exercise of an incentive stock option before satisfying the one and two-year
holding periods described above, the optionee will recognize both ordinary
income and capital gain (or loss) in the year of disposition. The amount of the
ordinary income will be the lesser of (i) the amount realized on disposition
less the optionee's adjusted basis in the stock (usually the option price) or
(ii) the difference between the fair market value of the stock on the exercise
date and the option price. The balance of the consideration received on such a
disposition will be capital gain if the stock had been held for at least one
year following exercise of the incentive stock option. The Company is not
entitled to an income tax deduction on the grant or exercise of an incentive
stock option or on the optionee's disposition of the shares after satisfying the
holding period requirement described above. If the holding periods are not
satisfied, the Company will be entitled to a deduction in the year the optionee
disposes of the shares, in an amount equal to the ordinary income recognized by
the optionee.
23
<PAGE>
An optionee is not taxed on the grant of a nonqualified stock option. On
exercise, however, the optionee recognizes ordinary income equal to the
difference between the option price and the fair market value of the shares on
the date of exercise. The Company is entitled to an income tax deduction in the
year of exercise in the amount recognized by the optionee as ordinary income.
Any gain on subsequent disposition of the shares is a capital gain if the shares
are held for at least one year following exercise. The Company does not receive
a deduction for this gain.
STOCK INCENTIVE PLAN BENEFITS
The Board is authorized, within the provisions of the 1997 Stock Plan, to
amend the terms of outstanding restricted shares or stock units, to modify or
extend outstanding options or SARs or to exchange new options for outstanding
options, including outstanding options with a higher exercise price than the new
options. Therefore, the benefits and amounts that will be received by each of
the Named Executive Officers as a group and all other key employees are not
determinable.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF THE AMENDMENT
OF THE NANOGEN, INC. 1997 STOCK INCENTIVE PLAN.
24
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PROPOSAL 3
RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors, upon recommendation of the Audit Committee, has
appointed the firm of Ernst & Young LLP ("Ernst & Young") as the Company's
independent auditors for the fiscal year ended December 31, 1999, subject to
ratification by the stockholders. Representatives of Ernst & Young are expected
to be present at the Company's Annual Meeting. They will have an opportunity to
make a statement, if they desire to do so, and will be available to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF ERNST & YOUNG LLP.
STOCKHOLDER PROPOSALS
Proposals of stockholders submitted pursuant to Rule 14a-8 under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") and
intended to be presented for consideration at the Company's 2000 Annual Meeting
of Stockholders must be received by the Company not later than January 4, 2000
in order to be considered for inclusion in the Company's proxy materials for
that meeting.
The Company's bylaws also establish an advance notice procedure with
respect to certain stockholder proposals and director nominations. If a
stockholder wishes to have a stockholder proposal considered at the Company's
next annual meeting, the stockholder must give timely notice of the proposal in
writing to the Secretary of the Company. To be timely, a stockholder's notice of
the proposal must be delivered to, or mailed and received at the executive
offices of the Company not less than 50 days nor more than 75 days prior to the
proposed date of the annual meeting; provided, however, that if less than 65
days notice or prior public disclosure of the date of the annual meeting is
given or made to stockholders, notice of the proposal to be timely must be
received no later than the 15th day following the day on which such notice of
the date of the annual meeting is mailed or public disclosure of the meeting
date is given.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's directors, executive officers, and any persons
holding more than 10% of the Company's Common Stock are required to report their
initial ownership of the Company's Common Stock and any subsequent changes in
that ownership to the SEC. Specific due dates for these reports have been
established and the Company is required to identify in this Proxy Statement
those persons who failed to timely file these reports. In 1998, all of the
Company's directors, executive officers and 10% stockholders timely filed such
reports, with the exception of Daniel D. Burgess, who filed on August 19, 1998 a
Form 3 due on August 13, 1998.
OTHER MATTERS
The Board of Directors knows of no other business that will be presented at
the Annual Meeting. If any other business is properly brought before the Annual
Meeting, it is intended that proxies in the enclosed form will be voted in
accordance with the judgment of the persons voting the proxies.
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her to
participate at the Annual Meeting may request reasonable assistance or
accommodation from the Company by contacting Nanogen, Inc., 10398 Pacific Center
Court, San Diego, California 92121, (619) 546-7700. To provide the Company
sufficient time to arrange for reasonable assistance or accommodation, please
submit all requests by June 15, 1999.
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Whether you intend to be present at the Annual Meeting or not, we urge you
to return your signed proxy promptly.
By order of the Board of Directors.
/s/ HARRY J. LEONHARDT
Harry J. Leonhardt
Vice President, General Counsel and Secretary
26
<PAGE>
NANOGEN, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR ANNUAL MEETING ON JUNE 30, 1999
HARRY J. LEONHARDT, ESQ. and DANIEL D. BURGESS, or each of them, each with
the power of substitution, are hereby authorized to represent as proxies and
vote all shares of stock of Nanogen, Inc. (the "Company") the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company to be held
at the Hilton La Jolla Torrey Pines, located at 10950 North Torrey Pines Road,
La Jolla, California 92037 on June 30, 1999 at 9:00 a.m. or at any postponement
or adjournment thereof, and instructs said proxies to vote as follows:
Shares represented by this proxy will be voted as directed by the stockholder.
IF NO SUCH DIRECTIONS ARE INDICATED, THE PROXIES WILL HAVE AUTHORITY TO VOTE FOR
THE ELECTION OF THE TWO NOMINEES FOR CLASS I DIRECTORS AND FOR ITEMS 2 AND 3.
(continued and to be signed on reverse side)
- --------------------------------------------------------------------------------
=FOLD AND DETACH HERE=
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE 2 NOMINEES FOR
CLASS I DIRECTOR AND FOR ITEMS 2 AND 3.
-------------------
Please mark your
votes as indicated
in this example
FOR AGAINST ABSTAIN
X
-------------------
FOR WITHHOLD
all nominees listed AUTHORITY
below (except as to vote for all
marked to the contrary) nominees listed below
1. ELECTION OF DIRECTORS 2. To approve an amendment of the 1997
Stock Plan to increase the number of
shares authorized for issuance
Nominees: Howard C. Birndorf thereunder by 925,000 shares:
Cam L. Garner
3. To ratify the appointment of Ernst &
Young LLP as the Company's
independent auditors:
(INSTRUCTION: To withhold authority to vote
for any individual nominee, write that
nominee's name in the space provided below.)
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE.
Signature(s)___________________________________________ Dated:___________ , 1999
Please sign exactly as your name or name(s) appear on this proxy. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such. If shares are held jointly, each holder should sign.
- --------------------------------------------------------------------------------
=FOLD AND DETACH HERE=
