<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
Axys Pharmaceuticals, 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)(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> 2
[AXYS.LOGO]
180 KIMBALL WAY
SOUTH SAN FRANCISCO, CALIFORNIA 94080
Dear Stockholders,
I am pleased to invite you to attend our annual meeting of stockholders to
be held at 8:00 a.m. on Wednesday, May 24, 2000, at Axys' headquarters located
at 180 Kimball Way, South San Francisco, California.
Legal documents are often times confusing, so this year we decided again to
write a jargon-free "plain English" proxy notice and proxy statement. With this
letter we are including the notice for our annual meeting, the proxy statement,
the proxy card and the 1999 annual report. We hope you find its simplified
format helpful and we welcome your comments.
Your vote is important to us and I look forward to seeing you on May 24.
Whether you plan to attend the annual meeting in person or not, I hope you will
vote as soon as possible.
Sincerely,
John P. Walker
Chairman and Chief Executive Officer
<PAGE> 3
AXYS PHARMACEUTICALS, INC.
180 KIMBALL WAY
SOUTH SAN FRANCISCO, CA 94080
(650) 829-1000
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, MAY 24, 2000
TIME: 8:00 a.m.
PLACE: Axys Pharmaceuticals' Headquarters
180 Kimball Way
South San Francisco, California
MATTERS TO BE
VOTED ON: (1) To elect the Board of Directors
(2) To ratify the appointment of Ernst & Young LLP as the
Company's independent auditors
(3) To approve a 1,500,000 share increase in the number of
shares issuable under Axys' 1997 Equity Incentive Plan
(4) To transact any other business properly coming before the
meeting
RECORD DATE: You may vote at the meeting if you were a stockholder at the
close of business on Monday, April 10, 2000, the record date.
If on April 10, 2000, your shares were held of record in your
brokerage firm or another similar organization, you may vote at
the annual meeting if you obtain a valid proxy card from them
issued in your name.
VOTING BY PROXY: Please return your proxy as soon as possible so that your
shares can be voted at the meeting in accordance with your
instructions. For more instructions, please see the Questions
and Answers beginning on page 1 of this proxy statement and the
instructions on the proxy card.
By Order of the Board of Directors
William J. Newell
Senior Vice President, General Counsel
and Secretary
April 23, 2000
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Questions and Answers about the Proxy....................... 1
Proposals to be Voted Upon.................................. 5
Biographies of Nominees for Directors....................... 5
Board Committees............................................ 6
Compensation of Non-Employees Directors..................... 7
Beneficial Ownership of Directors and Management............ 8
Compensation of Executive Officers.......................... 10
Options Grants in 1999...................................... 11
Employment Agreements and Change In Control Arrangements.... 12
Report of the Compensation Committee........................ 13
General Description of the 1997 Equity Incentive Plan....... 15
Performance Graph........................................... 19
Other Matters............................................... 20
Directions to the Annual Meeting............................ 21
</TABLE>
i
<PAGE> 5
QUESTIONS AND ANSWERS ABOUT THIS PROXY MATERIAL
AND THE ANNUAL MEETING
WHY AM I RECEIVING THESE MATERIALS?
The Board of Directors (the "Board") of Axys Pharmaceuticals, Inc.
(sometimes referred to as the "Company" or "Axys") is providing these proxy
materials for you in connection with Axys' annual meeting of stockholders which
will take place on May 24, 2000. You are invited to attend the meeting and are
requested to vote on the proposals described in this proxy statement. The
Company intends to mail this proxy statement and accompanying proxy card on or
about April 24, 2000, to all stockholders of record entitled to vote at the
annual meeting.
WHO MAY ATTEND THE MEETING?
All Axys stockholders are invited to attend, including stockholders whose
shares are held by their brokerage firm or another similar organization.
WHAT INFORMATION IS CONTAINED IN THESE MATERIALS?
The information included in this proxy statement relates to the proposals
to be voted on at the annual meeting, the voting process, the compensation of
directors and our most highly paid officers, and certain other required
information. Our 1999 Annual Report is also enclosed.
WHO IS PAYING FOR THIS PROXYS SOLICITATION PROCESS?
The enclosed proxy is solicited on behalf of the Board and Axys is paying
for the entire cost of the proxy voting process. Copies of this material will be
given to banks, brokerage houses and other institutions that hold Axys' stock
that is beneficially owned by others. Axys will reimburse these banks, brokerage
houses and other institutions for their reasonable out of pocket expenses in
forwarding these proxy materials to stockholders who are beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone,
telegram, or personal solicitation by directors, officers, or other employees of
the Company and by MacKenzie Partners. No additional compensation will be paid
to directors, officers or other Axys employees for soliciting proxies, but, if
hired by the Company, MacKenzie Partners may be paid it customary fee of
approximately $5,000 plus expenses.
WHAT AM I VOTING ON?
There are three known matters to be voted on at the annual meeting:
- The election of the Board of Directors;
- The ratification of Ernst & Young LLP as the Company's independent
auditors for 1999; and
- A proposed 1,500,000 share increase in the number of shares of Common
Stock authorized to be issued under the Company's 1997 Equity Incentive
Plan.
WHAT ARE THE BOARD'S VOTING RECOMMENDATIONS?
Our Board of Directors recommends that you vote your shares "FOR" each of
the Board's nominees to the Board of Directors and "FOR" each of the other
proposals.
WHO CAN VOTE AT THE ANNUAL MEETING?
Stockholders of record at the close of business on April 10, 2000 (the
"Record Date"). Also, if on April 10, 2000 your shares were held in the name of
your brokerage firm, you may vote at the annual meeting if you obtain a valid
proxy from them in your name.
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<PAGE> 6
WHAT IS THE DIFFERENCE BETWEEN HOLDING SHARES AS A STOCKHOLDER OF RECORD AND AS
A BENEFICIAL OWNER?
Most Axys stockholders hold their shares in an account at a brokerage firm,
bank or other nominee holder, rather than holding share certificates directly in
the stockholder's own name. As summarized below, there are some distinctions
between shares held of record and those owned beneficially.
Stockholder of Record
If on April 10, 2000 your shares were registered directly in your name with
Axys' transfer agent, Harris Trust Company of California, you are a stockholder
of record who may vote at the annual meeting and these proxy materials are being
sent directly to you by Axys. As the stockholder of record,you have the right to
direct the voting of your shares by returning the enclosed proxy card to Axys or
to vote in person at the meeting. Whether or not you plan to attend the meeting,
please complete, date and sign the enclosed proxy card to ensure that your vote
is counted. Each share is entitled to one vote for each item to be voted on.
Beneficial Owner
If on April 10, 2000 your shares were held in an account at a brokerage
firm or at a bank or other nominee holder, you are considered the beneficial
owner of shares held "in street name" and these proxy materials are being
forwarded to you by your broker or nominee who is considered the stockholder of
record for the purposes of voting at the annual meeting. As the beneficial
owner, you have the right to direct your broker on how to vote your shares and
are also invited to attend the annual meeting. However, since you are not the
stockholder of record, you may not vote these shares in person at the annual
meeting unless you receive a valid proxy from your brokerage firm, bank or other
nominee holder. To obtain a valid proxy, you must make a special request of your
brokerage firm, bank or other nominee holder. If you do not make this request,
you can still vote by a voting instruction card enclosed for you to use.
HOW MANY VOTES MUST THE BOARD NOMINEES RECEIVE TO BE ELECTED?
The seven nominees receiving the highest number of "yes" votes will be
elected as directors. This number is called a plurality.
WHAT HAPPENS IF A NOMINEE IS UNABLE TO STAND FOR RE-ELECTION?
The Board may, by vote, decide on reducing the size of the Board or name a
substitute nominee. If a substitute is named, shares represented by proxies may
be voted for a substitute nominee.
HOW MANY VOTES MUST THE RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
RECEIVE IN ORDER TO BE APPROVED?
The ratification of the appointment of Ernst & Young LLP as the Company's
auditors for the fiscal year ending December 31, 2000 must receive a "yes" vote
of a majority of the shares present in person or represented by valid proxies at
the meeting.
HOW MANY VOTES MUST THE 1,500,000 SHARE INCREASE FOR THE 1997 EQUITY INCENTIVE
PLAN RECEIVE IN ORDER TO BE APPROVED?
In order to be approved, the proposal to increase the number of shares for
the 1997 Equity Incentive Plan shares must receive a "yes" vote of a majority of
the shares present in person or represented by valid proxies at the meeting.
HOW ARE THE VOTES COUNTED?
You may vote either "for" each nominee for director or you may "withhold
authority" (abstain) to vote for any nominee you specify. You may vote "for,"
"against," or "abstain" on the ratification of independent auditors and the
proposed share increase for the 1997 Equity Incentive Plan. If you abstain from
voting, it will
2
<PAGE> 7
have the same effect as a vote against a proposal and will be counted towards
the tabulation of votes cast on a proposal. A vote "for" any nominee or any
proposal is the same as a "yes" vote.
WILL MY SHARES BE VOTED IF I DO NOT SIGN AND RETURN MY PROXY CARD?
If you are a stockholder of record and you do not sign and return your
proxy card, your shares will not be voted. If you are the beneficial owner and
you do not sign and return your proxy card, the stockholder of record may either
vote your shares on routine matters or "non-vote" your shares. These non-voted
shares, known as broker non-votes, are counted for purposes of establishing a
quorum to conduct business at the meeting, but are not counted for purposes of
determining the outcome of any matter voted on.
HOW DO I VOTE?
The simplest way for both beneficial owners and stockholders of record to
vote is to sign and date the enclosed proxy card or voting instruction card and
return it in the enclosed postage-prepaid envelope. The shares represented by a
signed and dated proxy card or a properly completed voting instruction card will
be voted in accordance with the directions given. If you return a signed and
dated proxy card or voting instruction card without marking any selections, your
shares will be voted in favor of the three proposals. If you are a stockholder
of record and return your proxy card, you may revoke your proxy any time before
the meeting by 1) notifying the Company's Secretary (William J. Newell) in
writing or 2) submitting to the Company a proxy with a later date. Of course,
you also may revoke your proxy by attending the annual meeting and voting in
person. If you are a beneficial owner, you can vote your shares through your
broker or by using the enclosed proxy card.
WHO WILL COUNT THE VOTE?
Representatives of Harris Trust Company of California, Axys' transfer
agent, will perform the initial vote count and will assist Mark Lucky, Axys'
Controller, who will serve as the inspector of the election and report the final
vote count.
WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
It may indicate that your shares are registered under more than one name or
that you have multiple accounts in which you hold your shares. Please complete,
sign and return all proxy cards to ensure that your vote is counted.
WHAT IS A QUORUM AND WHAT CONSTITUTES A QUORUM?
For the annual meeting to begin, a quorum of stockholders must attend the
meeting, either in person or by proxy. A majority of the outstanding shares as
of the record date -- present at the annual meeting or represented by valid
proxies -- constitutes a quorum for the annual meeting. If you submit a valid
proxy card or attend the annual meeting, you will be considered part of the
quorum.
However, if there is no quorum, a majority of the shares present and
represented at the annual meeting may adjourn the annual meeting to another
date, time and place.
At the record date (April 10, 2000), there were approximately 547
stockholders of record. There were 35,247,893 shares of Axys common stock
outstanding and entitled to vote at the annual meeting.
HOW CAN I FIND OUT THE RESULTS OF THE VOTING AT THE ANNUAL MEETING?
The Company will announce preliminary voting results at the annual meeting
and publish final results in our quarterly report on Form 10-Q for the second
quarter of 2000.
3
<PAGE> 8
WHEN ARE STOCKHOLDER PROPOSALS DUE?
To be eligible for inclusion in next year's proxy statement and proxy,
stockholder proposals must be submitted in writing by December 26, 2000, to
William J. Newell, Secretary, Axys Pharmaceuticals, Inc., 180 Kimball Way, South
San Francisco, CA 94080 (or email to bill _ [email protected]). As stated in
the Company's bylaws, stockholder proposals for next year's annual meeting or
nominations for director may be properly raised at next year's annual meeting
even if they are not to be included in next year's proxy statement and proxy.
However, to do so, they must be submitted to the Company's Secretary (William J.
Newell) between February 25, 2001 and March 27, 2001.
COMPLIANCE WITH REPORTING REQUIREMENTS OF SECTION 16
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires directors, executive officers and holders of more than 10% of Axys'
common stock to file reports with the Securities and Exchange Commission (the
"SEC") regarding their ownership and changes in ownership of Axys' Common Stock.
Axys believes that during 1999, its officers, directors and 10% stockholders
complied with all Section 16(a) filing requirements.
4
<PAGE> 9
PROPOSALS TO BE VOTED UPON
1. ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The Board of Directors currently consists of seven directors of Axys who
are elected annually. All nominees listed below are current directors of Axys.
The Board recommends a vote FOR these nominees. The term of office for directors
elected at the 2000 annual meeting will expire upon the election of the Board at
the 2001 annual meeting. See below for biographical information on the Board
nominees.
2. RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(ITEM 2 ON PROXY CARD)
Stockholders will vote on the ratification of Ernst & Young LLP, certified
public accountants, to audit Axys' books, records and accounts for the year
ending December 31, 2000. Both the Audit Committee and the Board recommend a
vote FOR the adoption of this proposal. Representatives of Ernst & Young LLP
will be present at the annual meeting to answer appropriate questions. If the
stockholders do not ratify this appointment, the Board will reconsider the
selection of the auditors.
3. APPROVAL OF A 1,500,000 SHARE INCREASE IN THE NUMBER OF SHARES OF COMMON
STOCK AUTHORIZED FOR ISSUANCE UNDER AXYS' 1997 EQUITY INCENTIVE PLAN.
(ITEM 3 ON PROXY CARD)
Axys is requesting approval for 1,500,000 additional shares of the
Company's common stock to become available for issuance under its 1997 Equity
Incentive Plan.
4. TO TRANSACT OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING.
(ITEM 4 ON PROXY CARD)
Stockholders will also vote on any other matters of business that are
properly brought to the annual meeting.
NOMINEES FOR DIRECTORS
JOHN P. WALKER -- DIRECTOR SINCE 1993
Mr. Walker, 51, has been the Chairman of Axys since 1998 and Chief
Executive Officer since 1993. Prior to joining Axys, Mr. Walker was the Chairman
and Chief Executive Officer of Vitaphore Corporation, a medical device Company
that was sold to Union Carbide in 1990. Prior to that, he spent 15 years as an
executive with American Hospital Supply Corporation, most recently serving as
President of the Hospital Company. Mr. Walker also serves as Chairman of Signal
Pharmaceuticals, Inc. and Microcide Corporation and is on the Board of Directors
of Geron Corporation and the Biotechnology Industry Organization.
ANN M. ARVIN, M.D. -- DIRECTOR SINCE 1997
Dr. Arvin, 54, is a Lucile Salter Packard Professor of Pediatrics and
Microbiology/Immunology at Stanford University School of Medicine, Stanford,
California. Dr. Arvin is also Associate Chair for Academic Affairs, Department
of Pediatrics, and Chief of the Infectious Disease Service of the Lucile Salter
Packard Children's Hospital at Stanford. Since 1978, Dr. Arvin has taught at the
Stanford University School of Medicine. She is also currently a member of the
Scientific Advisory Board of Aviron.
5
<PAGE> 10
VAUGHN M. KAILIAN -- DIRECTOR SINCE 1995
Mr. Kailian, 55, is President, Chief Executive Officer and a director of
COR Therapeutics, Inc., a biotechnology company. He has served in these
capacities since March 1990. Mr. Kailian also serves as a director of Amylin
Pharmaceuticals, Inc.
DONALD KENNEDY, PH.D. -- DIRECTOR SINCE 1996
Dr. Kennedy, 68, is the Bing Professor of Environmental Science and
President Emeritus at Stanford University where he co-directs the Center for
Environmental Science and Policy. He has served in such capacities since
September 1993. From September 1980 to September 1992, Dr. Kennedy was the
President of Stanford University. He served previously as Commissioner of the
U.S. Food and Drug Administration. In June, 2000 he will become editor-in-chief
of Science magazine.
IRWIN LERNER -- DIRECTOR SINCE 1998
Mr. Lerner, 69, was Chairman of the Board of Sequana Therapeutics, Inc.,
from May 1995 until January 1998 when Axys acquired Sequana. Mr. Lerner served
as Chairman of the Board and of the Executive Committee of Hoffmann-La Roche
Inc., a pharmaceutical and health care Company, from January 1993 until his
retirement in September 1993. He also served as its President and Chief
Executive Officer from 1980 through 1992. Mr. Lerner also serves on the Boards
of Directors of Public Service Enterprise Group, Humana Inc., Covance Inc., V.I.
Technologies, Inc., several private companies and is Chairman of the Board of
Medarex Inc. He is currently a Distinguished Executive-in-Residence at Rutgers
University Graduate School of Management.
ALAN C. MENDELSON, J.D. -- DIRECTOR SINCE 1999
Mr. Mendelson, 52, has been a partner of Cooley Godward LLP, a private law
firm and counsel to the Company, since 1980 and served as the managing partner
of its Palo Alto office from May 1990 to March 1995 and November 1996 to October
1997. Mr. Mendelson served as Secretary of the Company from July 1993 through
August 1998, with the exception of several months in 1994. Mr. Mendelson
formerly served as a director of the Company from May 1997 to January 1998, when
he resigned in connection with the Company's acquisition of Sequana. Mr.
Mendelson also served as Acting General Counsel of Cadence Design Systems, Inc.,
an electronic design automation software company, from November 1995 to June
1996. Mr. Mendelson is currently a director of USSearch.com, Inc., and Isis
Pharmaceuticals, Inc.
J. LEIGHTON READ, M.D. -- DIRECTOR SINCE 1998
Dr. Read, 49, has been Chairman of the Board and Chief Executive Office of
Aviron, a biopharmaceutical company founded by Dr. Read, since 1992. From 1991
to 1993, he was a partner in Interhealth Limited, an investment partnership. In
1987, Dr. Read co-founded Affymax N.V. with Dr. Alejandro Zaffaroni, serving
initially as its Executive Vice President and Chief Operating Officer and later
as President of the Pharma Division and as a Managing Director of the parent
Company. Dr. Read has served on the boards of a number of private biotechnology
companies and currently serves on the board of CV Therapeutics, Inc., and is a
member of the Executive Committee of the Biotechnology Industry Organization
Board of Directors and Emerging Companies Section Governing Body.
BOARD COMMITTEES
Audit Committee: Reviews Axys' auditing, accounting, financial reporting
and internal audit functions and meets with the Company's independent auditors
from time to time. Also recommends the selection of independent auditors to the
Board. The members of the Audit Committee are Mr. Lerner (Chairman), Dr. Arvin
and Dr. Kennedy.
Compensation Committee: Reviews and approves the compensation of Axys'
executive officers and is responsible for the Company's employee benefit plans
and programs, including their establishment, modifica-
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<PAGE> 11
tion and administration. All members are non-employee directors. The members of
the Compensation Committee are Mr. Kailian and Dr. Read.
Option Committee. Reviews and administers the Company's 1997 Equity
Incentive Plan and the 1997 Non-Officer Equity Incentive Plan for stock option
grants to non-executive officer employees. The Option Committee has the
authority to approve the price and terms of these options, within the limits set
by the Board. Mr. Walker is only member of this committee.
During 1999, there were five regular meetings of the Board, one meeting of
the Compensation Committee and two meetings of the Audit Committee. Each of the
director-nominees who served on the Board of Axys in 1999 attended at least 75
percent of all Board meetings. Collectively, the Board and committee members
attended an average of 94 percent of all of the Board and applicable committee
meetings held.
The Board does not have a Nominating Committee or a committee serving a
similar function. Nominations of directors are considered by the Board as a
whole.
COMPENSATION OF NON-EMPLOYEE DIRECTORS
Compensation. In 1999, compensation for non-employee directors was $12,000
per year, payable at the rate of $3,000 per quarter, plus reimbursement of
expenses. Mr. Walker, who is an employee of the Company, receives no
compensation for his services as a director.
Stock Options. According to the Company's Non-Employee Directors' Stock
Option Plan established in 1994, non-employee directors of Axys receive
automatic stock option grants. Options granted under this plan are non-qualified
stock options. The terms of the Non-Employee Directors' Stock Option Plan
provide that each non-employee elected for the first time to Axys' Board will be
granted an option to purchase 30,000 shares of common stock upon the date of his
or her initial election. On the date of each annual meeting subsequent to a
director's election, each non-employee Board member who has served for at least
three months, is automatically granted an option to purchase 5,000 shares of
common stock of the Company. No other options may be granted at any time under
this plan. The exercise price of the options that are granted is 100% of the
fair market value of the common stock on the date of the option grant. Options
granted under the plan generally vest at a rate of 25% per year for four years.
The term of the options that are granted is ten years. In the event of a
change-in-control of Axys, such as a merger with or into another corporation or
a consolidation, the vesting of these options will accelerate and the options
expire if not exercised prior to the change-in-control. As of February 29, 2000,
none of the options granted under the plan had been exercised.
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<PAGE> 12
STOCK OWNERSHIP OF BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table provides information regarding the ownership of Axys'
common stock as of February 29, 2000. Included in the table are each director
and nominee for director of the Company, each executive officer named in the
Executive Compensation table (page 10), all directors and executive officers as
a group, and stockholders that are known to be beneficial owners of more than
five percent of Axys' common stock.
<TABLE>
<CAPTION>
NUMBER OF
BENEFICIAL
OWNERSHIP PERCENT OF
BENEFICIAL OWNER SHARES TOTAL(1)
---------------- ---------- ----------
<S> <C> <C>
Ann M. Arvin, M.D.(2)....................................... 16,250 *
Vaughn M. Kailian(3)........................................ 24,699 *
Donald Kennedy, Ph.D.(4).................................... 15,000 *
Irwin Lerner(5)............................................. 94,284 *
Alan C. Mendelson(6)........................................ 39,371 *
J. Leighton Read, M.D.(7)................................... 19,250 *
Daniel Hoth, M.D.(8)........................................ 37,751 *
William J. Newell, J.D.(9).................................. 70,860 *
Daniel H. Petree, J.D.(10).................................. 10,158 *
Michael C. Venuti, Ph.D.(11)................................ 141,002 *
John P. Walker(12).......................................... 479,163 1.37
All directors and executive officers as a group (12
persons)(13).............................................. 1,001,163 2.86
</TABLE>
- ---------------
* Less than 1 percent
(1) Percentage of beneficial ownership is based on 34,946,051 shares of common
stock outstanding as of February 29, 2000. Shares of common stock subject
to options currently exercisable, or exercisable within 60 days after
February 29, 2000, are deemed outstanding for purposes of computing the
percentage of ownership of the person holding such options, but are not
deemed outstanding for computing the percentage of ownership of any other
person.
(2) Consists of 16,250 shares issuable upon the exercise of outstanding options
exercisable within 60 days of February 29, 2000.
(3) Consists of 24,699 shares issuable upon the exercise of outstanding options
exercisable within 60 days of February 29, 2000.
(4) Consists of 15,000 shares issuable upon the exercise of outstanding options
exercisable within 60 days of February 29, 2000.
(5) Includes 26,459 shares issuable upon the exercise of outstanding options
exercisable within 60 days of February 29, 2000 and 1,350 shares
beneficially owned by Mr. Lerner's wife.
(6) Includes 16,042 shares issuable upon the exercise of outstanding options
exercisable within 60 days of February 29, 2000, and 15,500 shares held in
the CGCH&T Trust FBO Alan C. Mendelson. Also includes 5,000 shares held by
Cooley Godward LLP which Mr. Mendelson disclaims beneficial ownership of
except to the extent of his pecuniary interest therein.
(7) Includes 16,250 shares issuable upon the exercise of outstanding options
exercisable within 60 days of February 29, 2000,
(8) Includes 26,042 shares issuable upon the exercise of outstanding options
exercisable within 60 days of February 29, 2000 and 1,209 shares held in
the Axys Pharmaceuticals, Inc. 401(k) Plan Trust. Also includes 10,500
shares acquired pursuant to a restricted stock grant, of which 9,625 will
be subject to repurchase by the Company within 60 days from February 29,
2000.
(9) Includes 52,292 shares issuable upon the exercise of outstanding options
exercisable within 60 days of February 29, 2000 and 1,328 shares held in
the Axys Pharmaceuticals, Inc. 401(k) Plan Trust. Also
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<PAGE> 13
includes 12,250 shares acquired pursuant to a restricted stock grant, of
which 9,187 will be subject to repurchase by the Company within 60 days
from February 29, 2000.
(10) Includes 2,425 shares held by Daniel H. Petree and Susan M. Toeniskoetter,
Trustees u/a/d 7/25/97, 2 shares held by Mr. Petree's children and 2,759
shares held in the Axys Pharmaceuticals, Inc. 401(k) Plan Trust.
(11) Includes 116,959 shares issuable upon the exercise of outstanding options
exercisable within 60 days of February 29, 2000. Also includes 15,500
shares acquired pursuant to a restricted stock grant, of which 11,625 will
be subject to repurchase by the Company within 60 days from February 29,
2000.
(12) Includes 278,201 shares issuable upon the exercise of outstanding options
exercisable within 60 days of February 29, 2000, 10,059 shares held in the
Walker Living Trust, 2,759 shares held in the Axys Pharmaceuticals, Inc.
401(k) Plan Trust and 8,574 shares beneficially owned by Mr. Walker's wife
as trustee of educational trusts for his children.
(13) Includes an aggregate of 636,139 shares issuable upon exercise of
outstanding options exercisable within 60 days of February 29, 2000 and an
aggregate of 38,250 shares subject to repurchase by the Company within 60
days from February 29, 2000.
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<PAGE> 14
COMPENSATION OF EXECUTIVE OFFICERS
Compensation. The following table discloses the compensation of the
Company's Chairman and Chief Executive Officer and the four other most highly
paid executive officers of Axys for the last three-years ending December 31,
1999. These executive officers are referred to as the Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------------- --------------------------
OTHER
ANNUAL RESTRICTED SECURITIES ALL OTHER
SALARY BONUS COMPENSATION STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) AWARDS OPTIONS(#)(1) ($)(2)
- --------------------------- ---- ------- ------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
John P. Walker.............. 1999 410,000 0 247,250(3) 0 85,000 7,979
Chairman and Chief 1998 390,000 135,000 261,252(3) -- 435,000(4) 6,150
Executive Officer 1997 361,250 127,300 128,382(3) -- 100,000 696
Daniel H. Petree............ 1999 275,203 41,738 10,502(5) 0 45,000 5,775
President, Chief Operating 1998 250,000 65,625 27,945(5) -- 300,000(4) 5,406
Officer 1997 204,500 41,105 15,551(3) -- 55,000 408
Michael C. Venuti, Ph.D. ... 1999 250,000 0 -- 112,375(6) 103,000 1,188
Senior Vice President, 1998(3) 235,000 47,000 -- -- 197,000(4) 696
Research and Preclinical 1997 10,383 35,510 -- -- 10,000 425
Development, Chief
Technical Officer
William J. Newell,
J.D.(7)................... 1999 238,417 0 -- 88,812(6) 115,000 5,703
Senior Vice President, 1998 102,404 22,559 -- -- 75,000 --
Corporate and Business 1997 -- -- -- -- -- --
Development, General
Counsel & Secretary
Daniel F. Hoth, M.D.(8)..... 1999 151,666 0 76,125(6) 150,000 5,327
Senior Vice President, 1998 -- -- -- -- -- --
Chief Medical Officer 1997 -- -- -- -- -- --
</TABLE>
- ---------------
(1) These shares are subject to exercise under stock options granted under the
Company's stock option plans.
(2) Consists of Company matching contributions under the Company's 401(k)
retirement plan and life insurance premiums.
(3) Consists of indebtedness forgiven including the interest rate reduction on
one promissory note. See "Compensation of Executive Officers."
(4) Includes stock options which were canceled and regranted in connection with
the Company's stock option repricing in 1998, as follows: Mr. Walker,
375,000 shares; Mr. Petree, 200,000 shares; and Dr. Venuti, 147,000 shares.
(5) Consists of relocation expenses.
(6) Fair market value of restricted stock bonus at the time of grant. These
officers voluntarily agreed to receive restricted shares, which may not be
sold for one year after grant except in limited circumstances, in lieu of a
cash bonus that they otherwise would have been entitled to receive. Dan Hoth
received 10,500 shares, William Newell received 12,250 shares, and Michael
Venuti received 15,500 shares.
(7) Mr. Newell joined the Company in July of 1998.
(8) Dr. Hoth joined the Company in June of 1999.
10
<PAGE> 15
Stock Option Grants and Exercises. The Company grants options to the Named
Executive Officers under its 1997 Equity Incentive Plan. The following tables
show information regarding options granted to and exercised by the Named
Executive Officers for the year ended December 31, 1999.
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS EXERCISE OR APPRECIATION FOR OPTION
UNDERLYING GRANTED TO BASE TERM(1)
OPTIONS GRANTED EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME (#) FISCAL YEAR(2) ($/SH)(3) DATE 5% ($) 10% ($)
---- --------------- -------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John P. Walker................. 85,000(4) 5.08% 4.63 2/26/09 247,234.20 628,540.00
Daniel H. Petree, J.D. ........ 45,000(4) 2.69% 4.63 2/26/09 130,888.69 331,697.65
Michael C. Venuti, Ph.D. ...... 28,000(4) 1.67% 4.63 2/26/09 81,441.85 206,389.65
75,000(4) 4.48% 3.56 12/14/09 168,056.37 425,887.83
William J. Newell, J.D. ....... 40,000(4) 2.39% 4.63 2/26/09 116,345.51 294,842.36
75,000(4) 4.48% 3.56 12/14/09 168,056.37 425,887.83
Daniel F. Hoth, M.D. .......... 150,000(5) 8.96% 3.56 6/21/09 336,112.73 851,775.66
</TABLE>
- ---------------
(1) Potential realizable value is based on the assumption that the common stock
of the Company appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the ten-year option term. The
5% and 10% assumed rates of appreciation are mandated by the rules of the
Securities and Exchange Commission and do not reflect the Company's estimate
or projection of the future common stock price.
(2) Based on options to purchase 1,699,539 shares of common stock granted in
1999.
(3) Options granted at a price equal to the fair market value of the Company's
common stock on the date of grant. Fair market value is determined by
reference to the closing sale price of the common stock on the Nasdaq
National Market.
(4) Vests in equal monthly installments over four years from the date of grant.
(5) One-eighth of the shares vest after six months, the remaining shares vest in
equal monthly installments over the following three and one half years.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES DECEMBER 31, 1999(#) DECEMBER 31, 1999($)
ACQUIRED ON VALUE ------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---- ----------- ----------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
John P. Walker.............. -- -- 256,408/203,592 0/0
Daniel H. Petree, J.D. ..... -- -- 144,791/0 1,316/0
Michael C. Venuti, Ph.D. ... -- -- 93,333/156,667 0/37,500
William J. Newell, J.D. .... -- -- 34,895/155,105 0/37,500
Daniel F. Hoth, M.D. ....... -- -- 18,750/131,250 9,375/65,625
</TABLE>
- ---------------
(1) Based on the fair market value of the common stock as of December 31, 1999
($4.0625), minus the exercise price, multiplied by the number of shares
underlying the option.
11
<PAGE> 16
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
John Walker's Employment Agreement. Mr. Walker has an employment agreement
with the Company to serve as the Company's Chairman and Chief Executive Officer
(the "1999 Employment Agreement"). In brief, the 1999 Employment Agreement
provides for the following:
- An initial annual base salary of $410,000, beginning January 1, 1999.
- An annual bonus of up to fifty percent of Mr. Walker's base salary, if
Mr. Walker achieves certain target goals specified by the Board, and up
to an additional fifty percent for overachievement of those goals.
- A split dollar life insurance policy with a benefit payable to Mr. Walker
of approximately $1.2 million.
- Issuance by Mr. Walker to the Company of a new promissory note in the
principal amount of $560,000, with approximately $83,000 in accrued
interest and an interest rate of 4.71%, compounded annually. This new
note is due and payable on January 31, 2003, is full-recourse and is
secured by 130,236 shares of the Company's common stock. The new note
replaced a 1997 note from Mr. Walker which pertained to indebtedness owed
to the Company in connection with the purchase of his principal
residence. During 1999, the largest aggregate amount outstanding of
principal and interest on Mr. Walker's indebtedness to the Company was
$823,682.
- On the condition that Mr. Walker continues to provide his services to the
Company through January 31, 2003, the entire principal and accrued
interest under the new note will be forgiven by the Company, with
$160,000 of principal plus accrued interest forgiven on February 1, 2000
and the remaining principal and accrued interest being forgiven in equal
amounts each year thereafter. Mr. Walker is entitled to a specified
lump-sum tax gross-up payment following each forgiveness date. All
remaining principal and accrued interest under the new promissory note
becomes immediately due and payable upon Mr. Walker's termination of
service for any reason or upon Mr. Walker's breach of a covenant not to
compete with the Company.
- The term of the 1999 Employment Agreement ends on January 31, 2003,
subject to additional one-year extensions unless either the Company or
Mr. Walker give notice to the contrary.
- Under the 1999 Employment Agreement, Mr. Walker's employment can be
terminated by Mr. Walker or the Company at any time for any reason
whatsoever, with or without "Cause" or advance notice. If the Company
terminates Mr. Walker's employment without Cause or if Mr. Walker resigns
for "Good Reason" and Mr. Walker executes an effective release of claims
in favor of the Company, he will continue to receive his base salary and
an amount equal to his annual bonus for a period of two years, paid in
installments. In addition, the Company will reimburse Mr. Walker for all
costs associated with the continuation of benefits pursuant to COBRA for
the shorter of: (i) two years or (ii) the maximum legal period for which
COBRA would be available to Mr. Walker following his termination. Mr.
Walker will not receive these benefits, or any other benefits under the
1999 Employment Agreement, if his employment terminates due to his death
or disability, if he is terminated for Cause or if he resigns without
Good Reason.
- Under the 1999 Employment Agreement, if during or for two years
immediately following Mr. Walker's employment, Mr. Walker, without prior
approval of the Company, directly or indirectly engages or prepares to
engage in any activities in competition with the Company, or accepts
employment or establishes a business relationship with a business engaged
in or preparing to engage in competition with the Company, then (i) a
100,000 share stock option grant originally made to Mr. Walker in August
1997 will, to the extent not previously exercised or terminated pursuant
to its terms, immediately terminate, and (ii) the February 1999 note
issued by Mr. Walker to the Company will become immediately due and
payable in full.
William Newell's Employment Agreement. In December 1999, the Company
entered into an agreement with Mr. Newell to continue to serve as Axys' senior
vice president, corporate and business development and general counsel and
secretary. The agreement provides, among other things, for a starting salary of
$243,000
12
<PAGE> 17
per year and eligibility for a bonus in an amount determined solely by the
Company. In addition, Mr. Newell was granted an option to purchase 75,000 shares
of the Company's common stock at a purchase price equal to the fair market value
of the stock on the date of grant. The option will vest over four years in equal
monthly amounts. In the event of a change in control of the Company, and in the
event Mr. Newell is terminated without cause, the vesting of any then unvested
shares under such option grant will be accelerated and he will be entitled to
one year's salary as severance. In addition to Mr. Newell's Employment
Agreement, the Company has a prior agreement with Mr. Newell which provides that
in the event of a change in control of the Company, the vesting of any then
unvested shares under his initial stock option grant will be accelerated,
provided that Mr. Newell's services are not deemed to be critical to an acquirer
of the Company. The agreement also provides that the Company will pay a portion
of Mr. Newell's current life insurance premiums.
Michael Venuti's Employment Agreement. In December 1999, the Company
entered into an agreement with Dr. Venuti to continue to serve as Axys' senior
vice president, research and preclinical development and chief technical
officer. The agreement provides, among other things, for a starting salary of
$250,000 per year and eligibility for a bonus in an amount determined solely by
the Company. In addition, Dr. Venuti was granted an option to purchase 75,000
shares of the Company's common stock at a purchase price equal to the fair
market value of the stock on the date of grant. The option will vest over four
years in equal monthly amounts. In the event of a change in control of the
Company and in the event Dr. Venuti is terminated, without cause, the vesting of
any then unvested shares under such option grant will be accelerated and he will
be entitled to one year's salary as severance.
REPORT OF THE COMPENSATION COMMITTEE
WHAT IS THIS REPORT?
The SEC requires that public companies disclose all procedures and
mechanisms that are used to establish officer compensation. This report explains
the criteria that the Company used to determine the compensation of its officers
in 1999.
WHO SERVES ON THE COMPENSATION COMMITTEE?
The Compensation Committee consists of directors who are not employees of
the Company. In January 1999, the Committee was composed of Mr. Byers and Dr.
Evnin. In February 1999, Mr. Kailian replaced Mr. Byers on the Committee. In
May, 1999 Dr. Evnin retired from the Board and from the Compensation Committee
and Dr. Read was appointed as his successor.
WHAT ARE THE COMPENSATION COMMITTEE'S RESPONSIBILITIES?
The Compensation Committee is responsible for establishing and implementing
policies and programs to compensate the Company's executives. The Committee met
one time in 1999 to review and recommend compensation levels and certain stock
grants for all executive officers for 1999. The Committee submits its
recommendations to the entire Board for approval. The Board adopted the
Committee's recommendations without modification.
WHAT IS OUR COMPENSATION PHILOSOPHY?
The primary objective of our executive compensation program is to attract,
retain and reward executive officers and other employees who contribute to the
long-term success of the Company and to motivate those individuals to enhance
long-term stockholder value. The Compensation Committee accomplishes this by:
1. Establishing salaries competitive with those of leading
biotechnology and pharmaceutical companies with which the Company competes
for talent.
2. Maintaining incentive opportunities designed to motivate and reward
achievement of the Company's and each individual's goals. These incentives
consist of cash bonuses and stock options, and are designed to bring the
total compensation for key employees to competitive levels within the
industry.
13
<PAGE> 18
3. Providing significant equity-based incentives for executives and
other key employees to ensure that these individuals are motivated over the
long term and respond to challenges and opportunities as owners and not
just as employees.
HOW IS EXECUTIVE BASE COMPENSATION DETERMINED?
Salary. The base salary for all employees, including executive officers, is
based upon a review of an employee's salary level against the compensation of
employees in similar positions in other biotechnology and pharmaceutical
companies, in accordance with a published survey of the employee compensation of
companies of comparable size to the Company and in the same geographical region.
Base salaries are targeted at the third quartile for comparable positions in the
other companies. Salary adjustments for 1999 were based on each individual's
performance ranking. In December 1998, based on this information and on each
individual's performance in 1998, the Compensation Committee recommended 1999
base salary increases of 2.5% to 5.0% over 1998 base salaries for executive
officers, including the Chief Executive Officer. In establishing base salaries
for the Company's executive officers, the Compensation Committee carefully
reviewed the progress made in the programs headed by each executive officer in
1999, together with the achievements of each executive officer and the
departments reporting to such executive officer, during 1999, and the dependence
of the Company on these executive officers for scientific and business
development and executive leadership.
IS THERE A BONUS PROGRAM?
Cash. A portion of the cash compensation is paid to the Company's executive
officers and other senior management personnel in the form of an annual bonus.
Bonus payments for 1999 were based 50% on the attainment of goals established
for the Company as a whole, and 50% on the attainment of goals established for
each executive officer, and were limited (except in cases of overachievement) to
a percentage of each executive officer's base salary, which ranged from 25% to
50% of an executive officer's respective base salary. General corporate goals in
1999 included, among other items, continued progress in the Company's
preclinical and clinical programs, expanding the Company's oncology pipeline,
creating value in the Company's affiliated businesses, achievement of financial
targets and increasing stockholder value. Except for Mr. Petree who left the
Company at the end of 1999, none of the executive officers received a cash bonus
for 1999. The executive officers opted to receive instead, bonuses in the form
of restricted stock grants, which vest in equal monthly amounts over 12 months
and which may not be sold, except in certain limited circumstances, for one year
after grant. Based on its review of the degrees of attainment of Company and
personal goals, the Compensation Committee recommended and the Board approved
individual restricted stock grants ranging from approximately 5,000 to 15,000
shares of common stock and a cash bonus for Mr. Petree.
Stock Options. One of the primary components of Axys' long-term incentive
program are its stock option plans. Through stock option grants that are based
on performance, executives receive significant equity incentives to build
long-term stockholder value. Stock option grants are also used to retain these
officers in light of the increasing demands placed on them due to the Company's
growth. The grants typically vest over a four-year period and are generally set
at the fair market value of Axys' common stock on the date of the grant. The
Committee does consider the number of options previously granted to an executive
in determining the size of a new grant. For 1999 all Named Executive Officers
received stock option grants. In February 2000 additional stock options were
granted to all the Named Executive Officers, except Mr. Petree, at levels
reflecting, among other things, their contributions to the achievement of the
Company's and their personal goals in 1999 and the level of stock grants
recently awarded to them. In addition, Dr. Hoth received an initial stock grant
when he joined the Company in June 1999 as contemplated by his employment offer.
Dr. Venuti and Mr. Newell also received additional stock options in December
1999 in connection with their employment agreements.
HOW IS THE CHIEF EXECUTIVE OFFICER COMPENSATED?
Mr. Walker, Axys' Chief Executive Officer, joined the Company in February
1993. His initial salary, potential bonus and stock option grants were
determined on the basis of negotiations between the Board and Mr. Walker, while
taking into account his experience, competitive salary information and market
conditions at
14
<PAGE> 19
the time. In 1999, the Company entered into an amended Employment Agreement with
Mr. Walker. Based on the same criteria described above for all executive
officers of the Company, the Compensation Committee recommended an increase of
5% in Mr. Walker's base salary for 1999 over his 1998 base salary. Other
compensation in the form of forgiveness of indebtedness and the procurement of
certain life insurance was paid in accordance with the terms of the 1999
employment agreement. Also in accordance with the Company's bonus program
outlined above, Mr. Walker was additionally eligible for a targeted bonus of 50%
of his 1999 base salary. Ordinarily, the Compensation Committee would have taken
into account the extent to which the Company had achieved its goals in 1999 to
determine Mr. Walker's cash bonus. However, in light of the 1999 performance of
the Company's common stock, Mr. Walker recommended, and the Compensation
Committee and the Board concurred, that no cash bonus or restricted stock grant
be given to Mr. Walker. However, the Compensation Committee recommended and the
Board approved the grant of options to purchase 100,000 shares of the Company's
common stock under the 1997 Equity Incentive Plan, at the fair market value of
the Company's common stock on the grant date in recognition of the Company's and
Mr. Walker's other achievements during 1999. The 100,000 shares subject to the
option vest over four years from the grant date at the rate of 1/48 of the
shares subject to the option each month following the grant date.
HOW HAVE WE RESPONDED TO IRS LIMITS ON DEDUCTIBILITY OF COMPENSATION?
The Compensation Committee has reviewed the Company's compensation
structure in light of Section 162(m) of the Internal Revenue Code, which limits
the amount of compensation that the Company may deduct in determining its
taxable income for any year to $1,000,000 for any of its five most highly
compensated executive officers. In 1999, no executive officer's compensation
exceeded the limitation set by Section 162(m).
GENERAL DESCRIPTION OF THE 1997 EQUITY INCENTIVE PLAN
In November 1997, the Axys Board of Directors adopted, Axys' 1997 Equity
Incentive Plan (the "Equity Incentive Plan") and reserved 2,500,000 shares of
Axys Common Stock for issuance thereunder. As described in the third proposal
for the annual meeting, the Board is seeking approval to increase the number of
shares of Axys Common Stock reserved for issuance under the Equity Incentive
Plan by 1,500,000 shares.
GENERAL
The Equity Incentive Plan provides for the grant of both incentive and
nonstatutory stock options as well as restricted stock purchase rights.
Incentive stock options granted are intended to qualify as "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). Nonstatutory stock options are not intended to qualify
as incentive stock options under the Code.
Why does Axys offer the Equity Incentive Plan? The purpose of the Equity
Incentive Plan is to attract and retain qualified personnel, to provide
additional incentives to employees, officers, directors and consultants of Axys
and to promote the success of Axys' business. Pursuant to the Equity Incentive
Plan, Axys may grant or issue incentive stock options to employees and officers
and nonstatutory stock options or stock purchase rights to employees, officers,
consultants and directors.
Who is in charge of the Equity Incentive Plan? The Equity Incentive Plan is
administered by the Board of Directors. The Axys Board of Directors has the
power to construe and interpret the Equity Incentive Plan and, subject to the
provisions of the Equity Incentive Plan, to determine the persons to whom and
the dates on which awards will be granted, the number of shares to be subject to
each award, the time or times during the term of each award within which all or
a portion of such award may be exercised, the exercise price, the type of
consideration and other terms of the award. The Axys Board of Directors is
authorized to delegate administration of the Equity Incentive Plan to a
committee and has delegated such authority to the Compensation Committee and,
for grants to employees other than executive officers, the Option Committee. As
used herein with respect to the Equity Incentive Plan, the "Axys Board of
Directors" refers to the Compensation Committee and the Option Committee, as
well as to the Axys Board of Directors itself.
15
<PAGE> 20
Axys currently limits the directors who may serve as members of the
Compensation Committee to those who are "outside directors," as such term is
defined in Section 162(m) of the Code. This limitation excludes from the
Compensation Committee (i) current employees of Axys, (ii) former employees of
Axys receiving compensation for past services (other than benefits under a
tax-qualified retirement plan), (iii) current and former officers of Axys, (iv)
directors currently receiving direct or indirect compensation from Axys in any
capacity (other than as a director), unless any such person is otherwise
considered an "outside director" under applicable federal regulations under the
Code.
Who is Eligible to Participate in the Equity Incentive Plan? Generally
speaking, employees, officers, directors and certain consultants of Axys are
eligible to participate in the Equity Incentive Plan.
Notwithstanding the foregoing, no incentive stock option may be granted
under the Equity Incentive Plan to any person who, at the time of the grant,
owns (or is deemed to own) stock possessing more than 10% of the total combined
voting power of Axys or any affiliate of Axys, unless the option exercise price
is at least 110% of the fair market value of the stock subject to the option at
the date of grant, and the term of the option does not exceed five years from
the date of grant. In addition, the aggregate fair market value, determined at
the time of grant, of the shares of Common Stock with respect to which incentive
stock options are exercisable for the first time by an optionee during any
calendar year (under all such plans of Axys and its affiliates) may not exceed
$100,000.
Under the Equity Incentive Plan, no individual may be granted options
covering more than 500,000 shares of Common Stock in any calendar year. The
purpose of such a per-employee limitation is to comply with regulations under
the Code that permit certain performance-based compensation, including
compensation attributable to stock options that meet specified criteria, to be
exempt from the $1,000,000 limitation under Section 162(m) of the Code on the
amount that may be deducted by publicly held corporations for compensation paid
to certain employees. See "Federal Income Tax Information." Axys does not
currently have any intention of granting such number of options to any
individual. There can be no assurance, however, that the Axys Board of Directors
will not determine in some future circumstances that it would be in the best
interests of Axys and its stockholders to grant options to purchase such number
of shares to a single employee during a calendar year.
What are the terms of the Options granted?
Exercise Price; Payment. The exercise price of stock options granted under
the Equity Incentive Plan may not be less than the fair market value of the
Common Stock subject to the option on the date of the option grant, and in the
case of options granted to certain individuals (see "Who is Eligible to
Participate in the Equity Incentive Plan" above), may not be less than 110% of
such fair market value.
The exercise price of options granted under the Equity Incentive Plan must
be paid either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Axys Board of Directors: (i) by delivery of other Common Stock
of Axys, (ii) pursuant to a deferred payment arrangement, or (c) in any other
form of legal consideration acceptable to the Axys Board of Directors.
Option Exercise. Options granted under the Equity Incentive Plan may become
exercisable in cumulative increments ("vest") as determined by the Axys Board of
Directors. Shares covered by currently outstanding options under the Equity
Incentive Plan typically vest at the rate of 12.5% of the shares subject to the
option at the end of the first six months and 1/48 of the shares subject to the
option each month for 42 months thereafter, for initial grants to employees.
Subsequent grants to employees generally vest monthly over 48 months. Shares
covered by options granted in the future under the Equity Incentive Plan may be
subject to different vesting terms. The Axys Board of Directors has the power to
accelerate the time during which an option may be exercised. To the extent
provided by the terms of an option, an optionee may satisfy any federal, state
or local tax withholding obligation relating to the exercise of such option by a
cash payment upon exercise, by authorizing Axys to withhold a portion of the
stock otherwise issuable to the optionee, by delivering already owned stock of
Axys or by a combination of these means.
Term. The maximum term of options granted under the Equity Incentive Plan
is 10 years, except that, in the case of options granted to certain individuals
(see "Who is Eligible to Participate in the Equity
16
<PAGE> 21
Incentive Plan"), the maximum term is five years. Options under the Equity
Incentive Plan terminate ninety (90) days after termination of the optionee's
employment or relationship as a consultant or director of Axys or any subsidiary
of Axys, unless (a) such termination is due to such person's permanent and total
disability (as defined in the Code), in which case the option may, but need not,
provide that it may be exercised at any time within twelve (12) months of such
termination; (b) the optionee dies while employed by or serving as a consultant
of Axys or any affiliate of Axys, or within ninety (90) days after termination
of such relationship, in which case the option may, but need not, provide that
it may be exercised (to the extent the option was exercisable at the time of the
optionee's death) within twelve (12) months of the optionee's death by the
person or persons to whom the rights to such option pass by will or by the laws
of descent and distribution; or (c) the option by its terms specifically
provides otherwise. Individual options by their terms may provide for exercise
within a longer period of time following termination of employment or the
consultant or director relationship. The option term may also be extended in the
event that exercise of the option within these periods is prohibited for
specified reasons.
What Happens if There is a Change in the Stock Subject to the Equity
Incentive Plan? If there is any change in the stock subject to the Equity
Incentive Plan or subject to any option granted under the Equity Incentive Plan
(through merger, consolidation, reorganization, recapitalization, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or otherwise), the Equity Incentive Plan and options outstanding
thereunder will be appropriately adjusted as to the class and the maximum number
of shares subject to such plan, the maximum number of shares which may be
granted to an employee during a calendar year, and the class, number of shares
and price per share of stock subject to such outstanding options.
What Happens in the Event of Certain Corporate Transactions? The Equity
Incentive Plan provides that, in the event of a merger of Axys, such options
shall be assumed or equivalent options substituted by each successor corporation
or a parent or subsidiary of such successor corporation or in the event that the
successor corporation refuses to assume or replace, then such options shall
accelerate and become immediately exercisable in full and will subsequently
terminate if not exercised prior to the completion of the corporate transaction.
In the event of a dissolution or liquidation of Axys, outstanding options will
terminate.
What is the Duration of the Equity Incentive Plan and Can it be Amended or
Terminated? The Axys Board of Directors may suspend or terminate the Equity
Incentive Plan without stockholder approval at any time. Unless sooner
terminated, the Equity Incentive Plan will terminate in November 2007.
The Axys Board of Directors may also amend the Equity Incentive Plan at any
time or from time to time. However, no amendment will be effective unless
approved by the stockholders of Axys within twelve months before or after its
adoption by the Axys Board of Directors if such modification requires
stockholder approval in order to comply with Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), or satisfy the
requirements of Section 422 of the Code or any Nasdaq or securities exchange
listing requirements. The Axys Board of Directors may submit any other amendment
to the Equity Incentive Plan for stockholder approval, including, but not
limited to, amendments intended to satisfy the requirements of Section 162(m) of
the Code regarding the exclusion of performance-based compensation from the
limitation on the deductibility of compensation paid to certain employees
What are the Tax Implications to Participants in the Equity Incentive Plan?
Incentive Stock Options. Incentive stock options under the Equity Incentive
Plan are intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
Axys by reason of the grant or exercise of an incentive stock option. However,
the exercise of an incentive stock option may result in the imposition of or an
increase in liability of the optionee for the alternative minimum tax.
If an optionee holds stock acquired through exercise of an incentive stock
option for more than two years from the date on which the option is granted and
more than one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be a capital gain or loss. Generally, if the optionee disposes of the
stock before the expiration of either of these
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<PAGE> 22
holding periods (a "disqualifying disposition"), at the time of disposition the
optionee will recognize taxable ordinary income equal to the lesser of (i) the
excess of the stock's fair market value on the date of exercise over the
exercise price, or (ii) the optionee's actual gain, if any, on the purchase and
sale. The optionee's additional gain, or any loss, upon the disqualifying
disposition will be a capital gain or loss. Capital gains currently are
generally subject to lower tax rates than ordinary income. The maximum capital
gains rate for federal income tax purposes is currently 28% while the maximum
ordinary income rate is effectively 39.6% at the present time. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, Axys will generally be entitled (subject to the
requirement of reasonableness, the provisions of Section 162(m) of the Code and
the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
Equity Incentive Plan generally have the following federal income tax
consequences:
There are no tax consequences to the optionee or Axys by reason of the
grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, Axys is required to
withhold from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Subject to the requirement of reasonableness, the
provisions of Section 162(m) of the Code and the satisfaction of a tax reporting
obligation, Axys will generally be entitled to a business expense deduction
equal to the taxable ordinary income realized by the optionee. Upon disposition
of the stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon exercise of the option.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Restricted Stock. Restricted stock granted under the Equity Incentive Plan
generally has the following federal income tax consequences:
Upon acquisition of stock under a restricted stock award the recipient
normally will recognize taxable ordinary income equal to the excess of the
stock's fair market value over the purchase price, if any. However, to the
extent the stock is subject to certain types of vesting restrictions, the
taxable event will be delayed until the vesting restrictions lapse unless the
recipient elects to be taxed on receipt of the stock. With respect to employees,
Axys is required to withhold from regular wages or supplemental wage payments an
amount based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, Axys will generally be entitled to a
business expense deduction equal to the taxable ordinary income realized by the
recipient. Upon disposition of the stock, the recipient will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock, if any, plus any amount recognized as ordinary
income upon acquisition (or vesting) of the stock. Slightly different rules may
apply to persons who acquire stock subject to forfeiture under Section 16(b) of
the Exchange Act.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Internal Revenue Code
to add Section 162(m), which denies a deduction to any publicly held corporation
for compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to awards under the Equity Incentive Plan, when
combined with all other types of compensation received by a covered employee
from Axys, may cause this limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Department of Treasury regulations issued under Section 162(m)
of the Code, compensation attributable to stock options will qualify as
performance-based compensation, provided that: (i) the stock award plan contains
a per-employee limitation on the number of
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<PAGE> 23
shares for which stock options may be granted during a specified period; (ii)
the per-employee limitation is approved by the stockholders; (iii) the award is
granted by a compensation committee comprised solely of outside directors; and
(iv) the exercise price of the award is no less than the fair market value of
the stock on the date of grant. Restricted stock qualifies as performance-based
compensation under these Department of Treasury regulations only if: (i) the
award is granted by a compensation committee comprised solely of "outside
directors"; (ii) the award is granted (or exercisable) only upon the achievement
of an objective performance goal established in writing by the compensation
committee while the outcome is substantially uncertain: (iii) the compensation
committee certifies in writing prior to the granting (or exercisability) of the
award that the performance goal has been satisfied; and (iv) prior to the
granting (or exercisability) of the award, stockholders have approved the
material terms of the award (including the class of employees eligible for such
award, the business criteria on which the performance goal is based, and the
maximum amount (or formula used to calculate the amount) payable upon attainment
of the performance goal).
PERFORMANCE GRAPH
The graph below shows a five-year comparison of cumulative total returns
from an initial $100 investment in Axys, the Nasdaq Composite and the AMEX
Biotechnology Index. All values include reinvestment of dividends, except for
Axys' values because Axys has never paid dividends.
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
AXYS NASDAQ US INDEX AMEX
PHARMACEUTICALS --------------- BIOTECHNOLOGY
INC INDEX
--------------- -------------
<S> <C> <C> <C>
Dec 94 100.00 100.00 100.00
Dec 95 207.69 139.92 163.01
Dec 96 207.69 171.69 175.85
Dec 97 128.85 208.83 197.93
Dec 98 90.38 291.60 225.60
Dec 99 62.50 541.16 477.02
</TABLE>
19
<PAGE> 24
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 Board's intention to vote on such matters in
accordance with their best judgment.
By Order of the Board of Directors
John P. Walker
Chairman and Chief Executive Officer
April 23, 2000
20
<PAGE> 25
DIRECTIONS TO AXYS
FROM THE NORTH (SAN FRANCISCO):
- - Take 101 South to the Grand Avenue exit.
- - At the first stop light, turn left on Airport Boulevard.
- - Turn left at the next stop light onto East Grand Avenue.
- - Continue east until you reach Kimball Way (approximately 1 mile).
- - Make a right turn on Kimball Way and you will be at 180 Kimball Way, a
two-story gray and blue building.
FROM THE SOUTH (SAN FRANCISCO INTERNATIONAL AIRPORT):
- - Take 101 North to South San Francisco Grand Avenue exit (about 3 miles).
- - Turn right at the end of the off ramp.
- - Continue to follow East Grand Avenue for approximately 1 mile, passing two
stoplights.
- - Make a right turn on Kimball Way and you will be at 180 Kimball Way, a
two-story gray and blue building.
21
<PAGE> 26
PROXY PROXY
AXYS PHARMACEUTICALS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD ON MAY 24, 2000
John P. Walker and William J. Newell, or either of them, each with full power
of substitution, are hereby authorized to represent and vote as designated on
the reverse side all of the shares of the undersigned at the Annual Meeting of
Stockholders of Axys Pharmaceuticals, Inc. to be held on Wednesday, May 24,
2000, at 8:00 a.m., local time, at the company's offices located at 180 Kimball
Way, South San Francisco, California, or at any adjournment or postponement of
the Annual Meeting, with all powers that the undersigned would possess if
personally present with respect to the following matters and with discretionary
authority as to any and all other matters that may properly come before the
meeting.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
STOCKHOLDERS. IF NO DIRECTIONS ARE INDICATED, THE PROXIES WILL HAVE AUTHORITY TO
VOTE FOR THE ELECTION OF DIRECTORS AND FOR PROPOSALS 2 AND 3.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued on reverse side)
- --------------------------------------------------------------------------------
<PAGE> 27
AXYS PHARMACEUTICALS, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<CAPTION>
[ ]
<S> <C> <C> <C>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
PROPOSALS 1, 2 AND 3.
1. ELECTION OF DIRECTORS - For Withhold For All
All All Except*
Nominees: 01-John P. Walker, 02-Ann M. Arvin, M.D., [ ] [ ] [ ]
03-Vaughn M. Kailian,
04-Donald Kennedy, Ph.D, 05-Irwin Lerner,
06-Alan C. Mendelson, J.D.,
07-J. Leighton Read, M.D.
----------------------------------------------------------------
*INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the line provided above.
----------------------------------------------------------------
2. To ratify the selection of Ernst & Young For Against Abstain
LLP as independent auditors of Axys for [ ] [ ] [ ]
its fiscal year ending December 31, 2000.
3. Approval of a 1,500,000 share increase in For Against Abstain
the number of shares of common stock [ ] [ ] [ ]
authorized for issuance under Axys' 1997
Equity Incentive Plan.
4. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Dated:_______________________________, 2000
Signature(s)___________________________________________________________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
</TABLE>
- --------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
