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:
/ / 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 Sec. 240.14a-11(c) or Sec. 240.14a-12
Lynx Therapeutics, 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):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) or Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
- ----------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- ----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
- ----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ----------------------------------------------------------------------------
(5) Total fee paid:
- ----------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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<PAGE>
LYNX THERAPEUTICS, INC.
3832 Bay Center Place
Hayward, California 94545
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 13, 1997
TO THE STOCKHOLDERS OF LYNX THERAPEUTICS, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Lynx
Therapeutics, Inc., a Delaware corporation (the "Company" or "Lynx"), will be
held on Tuesday, May 13, 1997, at 11:00 a.m. local time at the Company's
principal executive offices, 3832 Bay Center Place, Hayward, California, for the
following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To ratify the selection of Ernst & Young LLP as independent
auditors of the Company for its fiscal year ending December 31,
1997.
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 24,
1997, as the record date for the determination of stockholders entitled to
notice of and to vote at this Annual Meeting and at any adjournment or
postponement thereof.
By Order of the Board of Directors
James C. Kitch, Secretary
Hayward, California
April 9, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE>
LYNX THERAPEUTICS, INC.
3832 Bay Center Place
Hayward, California 94545
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Lynx Therapeutics, Inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on May 13, 1997, at 11:00 a.m. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at the Company's principal executive office,
3832 Bay Center Place, Hayward, California.
Solicitation
The Company will bear the entire cost of solicitation of proxies
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
The Company intends to mail this Proxy Statement and the accompanying
Proxy Card on or about April 9, 1997, to all stockholders entitled to vote at
the Annual Meeting.
Voting Rights and Outstanding Shares
Only holders of record of Common Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock at the close of business
on March 24, 1997, will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on March 24, 1997, the Company had outstanding
and entitled to vote 3,140,672 shares of Common Stock, 332,288 shares of Series
B Preferred Stock, 123,299 shares of Series C Preferred Stock and 40,000 shares
of Series D Preferred Stock, each share of which is presently convertible into
ten shares of Common Stock. The holders of Common Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock will vote together
as a class (on an as-if-converted to Common Stock basis) on each proposal
described in this Proxy Statement. Each holder of record of Common Stock on such
date will be entitled to one vote for each share held on all matters to be voted
upon at the Annual Meeting. Each holder of record of Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock on such date will be
entitled to ten votes for each share held on all matters to be voted upon at the
Annual Meeting.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
2.
<PAGE>
Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office, 3832
Bay Center Place, Hayward, California 94545, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
Stockholder Proposals
Proposals of stockholders that are intended to be presented at the
Company's next Annual Meeting of Stockholders must be received by the Company
not later than December 1, 1997, in order to be included in the proxy statement
and proxy relating to that Annual Meeting. Stockholders are also advised to
review the Company's By-laws, which contain additional requirements with respect
to advance notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
There are six nominees for the six Board positions presently authorized
in the Company's By-laws. Each director to be elected will hold office until the
next annual meeting of stockholders and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal. Each
nominee listed below is currently a director of the Company.
Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the six nominees named below. In the
event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected and management has no reason to believe that any
nominee will be unable to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.
Nominees
<TABLE>
The names of the nominees and certain information about them are set
forth below:
<CAPTION>
Name Position Age Director Since
---- -------- --- --------------
<S> <C> <C> <C>
Sam Eletr, Ph.D. Chairman of the Board and 57 1992
Chief Executive Officer
William K. Bowes, Jr.(1) Director 70 1994
Sydney Brenner, M.B., D. Phil. Director 69 1993
James C. Kitch(1) Director and Secretary 49 1993
Kathleen D. La Porte(2) Director 35 1994
Craig C. Taylor(2) Director and Acting Chief 46 1994
Financial Officer
<FN>
----------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
</FN>
</TABLE>
3.
<PAGE>
Dr. Eletr has served as Chairman of the Board of the Company since
February 1992 and resumed the position of Chief Executive Officer of the Company
in November 1996, a position he held from February 1992 through January 1996. In
1981, Dr. Eletr founded Applied Biosystems, Inc., ("ABI"), a manufacturer of
instruments and consumables for life science research and related applications,
now a wholly-owned subsidiary of Perkin Elmer Corporation, and served as
Chairman of the Board of Directors and in various executive positions at ABI
from its inception until March 1987. Dr. Eletr acted as a consultant to ABI from
September 1990 until July 1992, during which time he undertook to assume the
leadership of the Company.
Mr. Bowes has served as a director of the Company since March 1994. He
has been a general partner of U.S. Venture Partners, a venture capital
partnership, since 1981. He currently serves as a director of Amgen, Inc., XOMA
Corporation and several of U.S. Venture Partners' privately owned portfolio
companies.
Dr. Brenner has served as a director of the Company since October 1993.
In July 1996 he was appointed the Director and President of The Molecular
Sciences Institute, a non-profit research institute in La Jolla, California. In
September 1996 he retired from his position of Honorary Professor of Genetic
Medicine, University of Cambridge Clinical School. From 1986 to his retirement
in 1991, Dr. Brenner directed the Medical Research Council Unit of Molecular
Genetics. He was a member of the Scripps Research Institute in La Jolla,
California until December 1994.
Mr. Kitch has served as a director of the Company since February 1993
and Secretary of Lynx since February 1992. He was a director of ABI, Lynx's
predecessor, from August 1986 to February 1993. He is a partner at Cooley
Godward LLP, a law firm which has provided legal services to the Company.
Ms. La Porte has served as a director of the Company since March 1994.
She is a general partner of the Sprout Group, the venture capital affiliate of
Donaldson, Lufkin and Jenrette. From 1987 to 1993, Ms. La Porte was a principal
at Asset Management Company. She currently serves as a director of Onyx
Pharmaceuticals, Inc., Fem Rx, Inc. and several private companies.
Mr. Taylor has served as a director of the Company since March 1994 and
Acting Chief Financial Officer since July 1994. He has been active in venture
capital since 1977 when he joined Asset Management Company. He is a general
partner of AMC Partners 89 L.P., which serves as the general partner of Asset
Management Associates 1989 L.P., a private venture capital partnership. He
currently serves as a director of Metra BioSystems, Inc., Pharmacyclics, Inc.
and several private companies.
Board Committees and Meetings
In March 1994, the Board of Directors established an Audit Committee
and a Compensation Committee. The Board of Directors does not have a standing
nominating committee.
The Audit Committee recommends engagement of the Company's independent
auditors and reviews the plan of the annual audit, the results of the audit, and
the adequacy of internal accounting controls. The Audit Committee is composed of
Messrs. Bowes and Kitch. The Audit Committee held one meeting during 1996.
The Compensation Committee reviews and recommends salaries for officers
and key employees. The Compensation Committee also serves as the Stock Option
Committee for the 1992 Stock Option Plan for the employees of the Company and in
that capacity approves employee stock option grants. The members of the
Compensation Committee are Ms. La Porte and Mr. Taylor. The Compensation
Committee did not meet during 1996.
During the fiscal year ended December 31, 1996 the Board of Directors
held eight meetings. Each Board member attended 75% or more of the aggregate of
the meetings of the Board and of the committees on which he or she served.
4.
<PAGE>
PROPOSAL 2
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has audited the Company's financial statements since its inception in 1992.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they so desire and will
be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to ratify the selection of Ernst & Young LLP.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth certain information regarding beneficial
ownership of each class of the Company's voting stock as of February 28, 1997,
by (i) each stockholder who is known by the Company to own beneficially more
than 5% of the Common Stock; Series B Preferred Stock; Series C Preferred Stock
and Series D Preferred Stock; (ii) each Named Executive Officer of the Company;
(iii) each director of the Company; and (iv) all directors and executive
officers of the Company as a group. All Series D Preferred Stock is held by
Hoechst Marion Roussel as reflected in the Common Stock table and as noted in
Note 5.
<CAPTION>
Series B Series C
Common Stock(1) Preferred Stock(1) Preferred Stock(1)
Name and Address --------------- ------------------ ------------------
of Beneficial Owners Number Percent(2) Number Percent(2) Number Percent(2)
- -------------------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Entities affiliated with the
Sprout Group(3) 729,980 18.9% 49,999 15.0% 22,999 18.7%
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
Entities affiliated with
U.S. Venture Partners IV, L.P.(4) 730,000 18.9% 50,000 15.0% 23,000 18.7%
2180 Sand Hill Road
Suite 300
Menlo Park, CA 94025
Cannon Street Fund Ltd. 565,000 15.3% 40,000 12.0% 16,500 13.4%
c/o Meridian Venture Group
R.R. Box 272
Charlottesville, VA 22314
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Series B Series C
Common Stock(1) Preferred Stock(1) Preferred Stock(1)
Name and Address --------------- ------------------ ------------------
of Beneficial Owners Number Percent(2) Number Percent(2) Number Percent(2)
- -------------------- ------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Biotechnology Investments Limited 545,000 14.8% 40,000 12.0% 14,500 11.8%
c/o Old Court Limited
P.O. Box 58
St. Julian's Court
St. Peter Port
Guernsey, Channel Islands
Singapore Bio-Innovations Pte, Ltd. 420,000 11.8% 42,000 12.6% 0 **
250 North Bridge Road
24-00 Raffles City Tower
Singapore 0617
Hoechst Marion Roussel(5) 400,000 11.3% 0 ** 0 **
9300 Ward Parkway
Kansas City, MO 64114
Asset Management Associates 360,000 10.3% 36,000 10.8% 0 **
1989 L.P.(6)
2275 East Bayshore Rd., #150
Palo Alto, CA 94303
Applied Biosystems a Division of 353,800 10.7% 0 ** 0 **
Perkin Elmer Corporation(7)
850 Lincoln Centre Drive
Foster City, CA 94404
Chiron Corporation 300,000 9.6% 0 ** 0 **
4360 Horton Street
Emeryville, CA 94608
Entities affiliated with
Partech International(8) 300,000 8.7% 15,000 4.5% 15,000 12.2%
101 California Ave., Suite 3150
San Francisco, CA 94111
New York Life Insurance Company 270,000 7.9% 20,000 6.0% 7,000 5.7%
51 Madison Avenue, Room 203
New York, NY 10010
Becton Dickinson & Company 233,689 7.4% 0 ** 0 **
One Becton Drive
Franklin Lakes, NJ 07417
Sam Eletr, Ph.D.(9) 413,759 12.3% 0 ** 0 **
William K. Bowes, Jr.(10) 747,721 19.3% 50,000 15.0% 23,000 18.7%
Sydney Brenner, M.D., D. Phil.(11) 275,375 8.7% 0 ** 0 **
Timothy G. Geiser(12) 160,327 4.9% 0 ** 0 **
James C. Kitch(13) 15,818 ** 700 ** 300 **
Kathleen D. La Porte(3) 729,980 18.9% 49,999 15.0% 22,999 18.7%
David W. Martin, Jr., M.D 92,500 2.9% 0 ** 0 **
Karoly Nikolich, Ph.D.(14) 100,000 3.1% 0 ** 0 **
Craig C. Taylor(15) 371,499 10.6% 36,000 10.8% 0 **
Gerald Zon, Ph.D.(16) 160,806 4.9% 0 ** 0 **
All directors and officers 3,175,303 57.0% 136,699 41.1% 46,299 37.6%
as a group (11 persons)(17)
<FN>
**Less than one percent.
6.
<PAGE>
(1) Except as otherwise noted, and subject to community property laws where
applicable, each person or entity named in the table has sole voting
and investment power with respect to all shares shown as beneficially
owned by him, her or it. Beneficial ownership of Common Stock reflects
beneficial ownership of Series B Preferred Stock, Series C Preferred
Stock and Series D Preferred Stock as set forth in the table or, with
respect to Hoechst Marion Roussel, as set forth in Note 5.
(2) Percentage of beneficial ownership is based on 3,140,672 shares of
Common Stock, 332,288 shares of the Company's Series B Preferred Stock,
123,299 shares of the Company's Series C Preferred Stock and 40,000
shares of the Company's Series D Preferred Stock outstanding as of
February 28, 1997, except as otherwise noted in the footnotes. The
Series B, Series C and Series D Preferred Stock is convertible into
Common Stock on a ten-for-one basis. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission
and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options currently
exercisable or exercisable within 60 days of February 28, 1997, are
deemed outstanding for computing the percentage of the person holding
such option but are not deemed outstanding for computing the percentage
of any other person.
(3) Includes 49,999 shares of Series B Preferred Stock and 22,999 shares of
Series C Preferred Stock held by entities affiliated with Sprout Group.
Ms. La Porte, a director of the Company, is a general partner of the
Sprout Group, an entity affiliated with Sprout Capital VI, Sprout
Capital VII and DLJ Capital. Ms. La Porte shares the power to vote and
control the disposition of shares held by Sprout Capital VI, Sprout
Capital VII and DLJ Capital and therefore may be deemed to be the
beneficial owner of such shares. Ms. La Porte disclaims beneficial
ownership of such shares, except to the extent of her prorata interest
therein.
(4) Includes 50,000 shares of Series B Preferred Stock and 23,000 shares of
Series C Preferred Stock held by entities affiliated with U.S. Venture
Partners IV, L.P. ("U.S.V.P. IV"). Mr. Bowes, a director of the
Company, is a general partner of Presidio Management Group IV, the
general partner of U.S.V.P. IV. Mr. Bowes shares the power to vote and
control the disposition of shares held by U.S.V.P. IV and therefore may
be deemed to be the beneficial owner of such shares. Mr. Bowes
disclaims beneficial ownership of such shares, except to the extent of
his prorata interest therein.
(5) Consists solely of 40,000 shares of Series D Preferred Stock, which
constitutes 100% of the shares of Series D Preferred Stock outstanding.
(6) Includes 36,000 shares of Series B Preferred Stock held by Asset
Management Associates 1989 L.P. ("Asset 1989 L.P."). Mr. Taylor, a
director of the Company, is a general partner of AMC Partners 89, which
is the general partner of Asset 1989 L.P. Mr. Taylor shares the power
to vote and control the disposition of shares held by Asset 1989 L.P.
and therefore may be deemed to be the beneficial owner of such shares.
Mr. Taylor disclaims beneficial ownership of such shares, except to the
extent of his prorata interest therein.
(7) Includes 152,400 shares of Common Stock issuable upon exercise of Lynx
option held by Applied Biosystems that is exercisable immediately.
(8) Includes 15,000 shares of Series B Preferred Stock and 15,000 shares
Series C Preferred Stock held by entities affiliated with Partech
International.
(9) Includes 217,500 shares of Common Stock issuable upon exercise of Lynx
stock options held by Dr. Eletr that are exercisable within 60 days.
7.
<PAGE>
(10) See Note 4 above. Common Stock amount also includes 608 shares of
Common Stock issuable upon exercise of Perkin Elmer stock options held
by Mr. Bowes that are fully vested and exercisable.
(11) Includes 15,375 shares of Common Stock issuable upon exercise of Lynx
stock options held by Sydney Brenner that are exercisable within 60
days.
(12) Includes 123,500 shares of Common Stock issuable upon exercise of Lynx
stock options held by Dr. Geiser that are exercisable within 60 days.
Also includes 4 shares of Common Stock held of record by Dr. Geiser's
wife, to which shares Dr. Geiser disclaims beneficial ownership.
(13) Includes 700 shares of Series B Preferred Stock and 300 shares of
Series C Preferred Stock held by GC&H Investments, an investment
partnership of which Mr. Kitch is a general partner. Also includes
3,833 shares of Common Stock issuable upon the exercise of Lynx stock
option held by Mr. Kitch on behalf of Cooley Godward LLP, a law firm of
which Mr. Kitch is a general partner. Mr. Kitch shares the power to
vote and control the disposition of such shares and therefore may be
deemed to be the beneficial owner of such shares. Mr. Kitch disclaims
beneficial ownership of such shares, except to the extent of his
prorata interest therein.
(14) Includes 40,000 shares of Common Stock issuable upon exercise of Lynx
stock options held by Dr. Nikolich that are exercisable within 60 days.
(15) See Note 6 above. Common Stock amount also includes 1,000 shares of
Series C Preferred Stock held by Mr. Taylor and 369 shares of Common
Stock issuable upon exercise of Perkin Elmer stock options that are
fully vested and exercisable.
(16) Includes 130,750 shares of Common Stock issuable upon exercise of Lynx
stock options held by Dr. Zon that are exercisable within 60 days. Also
includes 105 shares of Common Stock held of record by Dr. Zon's wife
and 64 shares of Common Stock issuable upon exercise of Perkin Elmer
stock options held by Dr. Zon's wife that are fully vested and
exercisable, as to which shares Dr. Zon disclaims beneficial ownership.
(17) Common Stock amount includes 1,839,980 shares of Series B and Series C
Preferred Stock (common equivalent) held by entities affiliated with
certain directors and 585,999 shares of Common Stock issuable upon
exercise of Lynx stock options and Perkin Elmer stock options held by
directors and officers that are exercisable within 60 days. See Notes 9
through 16 above.
</FN>
</TABLE>
Compliance with the Reporting Requirements of Section 16(a)
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file with the Security
and Exchange Commission ("SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent (10%) stockholders are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company, during the calendar year ended December
31, 1996, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent (10%) beneficial owners were complied
with except for Mr. Taylor's acquisition of 239 shares through the exercise of a
stock option which was reported late.
8.
<PAGE>
EXECUTIVE COMPENSATION
Compensation of Directors
Directors are not compensated by the Company for service as directors,
but they may be reimbursed for their expenses incurred in connection with
attendance at board meetings.
Compensation of Executive Officers
<TABLE>
The following table sets forth certain compensation paid by the Company
during the calendar year ended December 31, 1996, 1995 and 1994, to its Chief
Executive Officer and each of the four other most highly compensated executive
officers whose compensation exceeded $100,000 (the "Named Executive Officers"):
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Awards
------
Securities
Annual Underlying All Other
Name and Principal Position Year Salary($)(1) Options (#) Compensation($)
- --------------------------- ---- ------------ ----------- ---------------
<S> <C> <C> <C> <C>
Sam Eletr, Ph.D. 1996 176,121 32,500 -
Chief Executive Officer and 1995 170,484 105,000 -
Chairman of the Board 1994 160,990 80,000 -
David W. Martin, Jr., M.D.(2) 1996 206,229 32,500 158,612(3)
President and Chief 1995 133,713(4) 250,000 750(5)
Executive Officer 1994 - - -
Timothy G. Geiser, Ph.D. 1996 153,818 - 750(5)
Vice President, Business 1995 142,674 60,000 750(5)
Development 1994 132,176 60,000 750(5)
Karoly Nikolich, Ph.D. 1996 150,210 30,000 750(5)
Vice President, Research 1995 37,085(6) 70,000 -
1994 - - -
Gerald Zon, Ph.D. 1996 154,168 - 750(5)
Vice President, Medicinal Chemistry 1995 143,130 60,000 750(5)
1994 132,468 60,000 750(5)
<FN>
(1) Includes amounts earned but deferred at the election of the Named
Executive Officer pursuant to the Company's 401(k) Plan.
(2) Dr. Martin terminated his relationship with the Company in November
1996. The Company will continue to pay Dr. Martin's annual base salary
for a period of time not to exceed (12) months pursuant to the terms of
the Separation Agreement between the Company and Dr. Martin.
9.
<PAGE>
(3) Includes $157,862 in principal and accrued interest due on the line of
credit that was forgiven as part of the Separation Agreement. Also
includes $750 in contributions made by the Company to the Company's
401(k) Plan on behalf of such employee.
(4) Dr. Martin joined the Company in May 1995. The 1995 annual salary
represents a partial year and is not comparable to 1996.
(5) Contributions made by the Company to the Company's 401(k) Plan on
behalf of such employee.
(6) Dr. Nikolich joined the Company in October 1995. The 1995 annual salary
represents a partial year and is not comparable to 1996.
</FN>
</TABLE>
Except as disclosed above, no compensation characterized as long-term
compensation, including restricted stock awards issued at a price below fair
market value or long-term incentive plan payouts, was paid by the Company
during the year ended December 31, 1996, to any of the Named Executive Officers.
Stock Option Grants and Exercises
<TABLE>
The following table sets forth, for each of the Named Executive
Officers in the Summary Compensation Table, certain information regarding
options granted during the year.
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(4)
----------------- ------------------
% of Total
Number of Options
Securities Granted to
Underlying Employees Exercise or
Options in Fiscal Base Price Expiration
Name Granted (1) Year (2) ($/sh)(3) Date 5%($) 10%($)
- ---------------------- ----------- -------- --------- ----------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Sam Eletr, Ph.D. 32,500 3.78% $1.54 08/06/2006 $373,463 $624,323
David W. Martin, Jr., M.D. 32,500(5)
Timothy G. Geiser, Ph.D. -
Karoly Nikolich, Ph.D. 30,000 3.49% $4.00 11/18/2006 $75,467 $191,249
Gerald Zon, Ph.D. -
<FN>
(1) Officers of the Company were granted the right to exercise their
options prior to vesting, subject to the Company's right of repurchase
at the original issue price, which lapses ratably over five years.
Options granted generally vest over a five-year period. The term of the
options is ten years.
(2) Based on an aggregate of 859,858 options granted to employees of and
consultants to the Company during the year ended December 31, 1996,
including the Named Executive Officers.
10.
<PAGE>
(3) The exercise price per share of each option is equal to the fair market
value as determined by the Board of Directors, except for the grants
pursuant to the Agreement of Merger between the Company and Spectragen,
Inc., for which the exercise price is the original Spectragen grant
price, as adjusted pursuant to the terms of the Agreement of Merger.
See. "Certain Transactions - Transactions with Directors and Executive
Officers."
(4) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated by assuming
that the fair market value of the stock as determined by the Board of
Directors on the date of grant appreciated at the indicated annual rate
compounded annually for the entire term of the option and that the
option is exercised and sold on the last day of its term for the
appreciated stock price. These amounts represent certain assumed rates
of appreciation only, in accordance with the rules of the SEC, and do
not reflect the Company's estimate or projection of future stock price
performance. Actual gains, if any, are dependent on the actual future
performance of the Company's Common Stock and no gain to the optionee
is possible unless the stock price increases over the option term,
which will benefit all stockholders.
(5) Dr. Martin's shares were canceled in November 1996 due to the
termination of his relationship with the Company.
</FN>
</TABLE>
<TABLE>
The following table sets forth, for each of the Named Executive
Officers in the Summary Compensation Table, the shares acquired and the value
realized on each exercise of stock options during the year and number of
unexercised options:
<CAPTION>
AGGREGATED OPTION EXERCISES IN THE YEAR ENDED
DECEMBER 31, 1996 AND OPTION VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options Options at
at Year-End Year-End ($)
Shares ----------- -----------------
Acquired on Value (Exercisable/ (Exercisable/
Name Exercise(#) Realized($)(1) Unexercisable)(2) Unexercisable)(3)
---- ----------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Sam Eletr, Ph.D. 130,000(4) 630,500 217,500/0 489,950/0
David W. Martin, Jr., M.D. - - - -
Timothy G. Geiser, Ph.D. - - 123,500/0 288,150/0
Karoly Nikolich, Ph.D. - - 40,000/0 5,000/0
Gerald Zon, Ph.D. - - 130,750/0 311,925/0
<FN>
(1) Represents the fair market value of the Company's Common Stock on the
date of exercise, minus the exercise price of the option, multiplied by
the number of shares underlying the option.
(2) Includes unvested shares from grants which allow exercises of unvested
shares.
(3) Fair market value, as determined by the Board of Directors, of the
Company's Common Stock at December 31, 1996 ($4.00), less the exercise
price.
(4) Shares exercised are subject to a Stock Purchase Agreement between the
optionee and the Company. The shares are subject to repurchase by the
Company at the original purchase price in the event of termination of
employment. The shares will be released from the Company's repurchase
option ratably over a five year period.
</FN>
</TABLE>
11.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION(1)
General
The Company became a public reporting company in December l993 when the
Company registered its Common Stock and Series A Preferred Stock under the
Exchange Act and the Compensation Committee of the Board of Directors was
established in March l994. Accordingly, the Compensation Committee made the
primary compensation determinations for the Company's officers during the year
ended December 31, 1996, including the establishment of base salaries,
consideration of bonuses and stock option grants. During 1996, the members of
the Compensation Committee included Kathleen La Porte and Craig Taylor. The
committee has provided the following with respect to the compensation of
executive officers during the year ended December 31, 1996:
Compensation Philosophy
The Company and its Compensation Committee believe that the
compensation of all employees, including executive officers, must be sufficient
to attract and retain highly qualified personnel and that the Company must align
compensation with short-term and long-term business strategies and performance
goals. The current compensation philosophy is to emphasize stockholder value
linked with incentives such as stock options over salary increases. The basic
elements of executive officer compensation are as follows:
Salary. To insure that its compensation practices remain competitive,
the Company compares its compensation of executives with that of executives of
other companies of similar industry, size and geographic location. Salary
increases are generally granted on an annual basis and are based on both
individual performance and the standard percentage of salary increases granted
to other employees.
Bonuses. During 1996, the Compensation Committee did not consider
bonuses when establishing executive compensation, focusing instead on base
salary and long-term incentives as the primary compensation vehicles appropriate
to the early stages of the Company's development. As part of its general
compensation philosophy, however, the Company believes that executive
performance may be maximized via a system of annual incentive awards and the
Company may consider such awards in the future.
Long-term Incentives. The Company believes that equity ownership
provides significant motivation to executive officers to maximize value for the
Company's stockholders. The Compensation Committee grants stock to executive
officers and other key employees based on a variety of factors, including the
financial performance of the Company and assessment of personal performance.
Through stock option grants, executives receive significant equity incentives to
build long-term stockholder value. The exercise price of options generally is
100% of the fair value of the underlying stock on the date of grant. Employees
receive value from these grants only if the Company's Common Stock appreciates
in the long term.
Employment and Severance Agreements. On joining the Company in May
1995, David W. Martin, Jr., M.D., former President and Chief Executive Officer
of the Company entered into an Employment Agreement with the Company. Pursuant
to his employment agreement, Dr. Martin is receiving, as severance, continued
payment of his base salary ($200,000 per year) for twelve (12) months from the
date of his termination, reduced by any earned income he may receive from other
sources. Also under the terms of the agreement, Dr. Martin received three stock
option grants. The first was a fully vested option to purchase 25,000 shares of
Lynx Common Stock at an exercise price of $1.00. The second
- ----------------------------
(1) The material in this report is not "soliciting material," is not deemed
"filed" with the SEC, and is not to be incorporated by reference into any filing
of the Company under the 1933 Act or 1934 Act, whether made before or after the
date hereof and irrespective of any general incorporation language contained in
such filing.
12.
<PAGE>
was an option to purchase 175,000 shares of Common Stock at an exercise price of
$1.00 per share and the third was an option to purchase 50,000 shares of Common
Stock at an exercise price of $5.00 per share. The second and third grants
vested over a five year period from the date of grant. Dr. Martin exercised all
of the grants subject to the Company's right to repurchase unvested shares upon
his termination. A further term of Dr. Martin's employment was a line of credit
whereby he could borrow up to $25,000 per quarter during the first two years of
employment. The principal and interest due on the line of credit ($157,862) were
forgiven upon Dr. Martin's separation from the Company in November 1996. Dr.
Martin is not entitled to any additional compensation or benefits beyond what is
described in this paragraph. See. "Certain Transactions Transactions with
Directors and Executive Officers."
Chief Executive Officer Compensation
Dr. Eletr's compensation was established in accordance with the
criteria described above and was determined by the Board of Directors primarily
on the basis of the salary received by Dr. Eletr in 1995 and pursuant to
discussions between the Board of Directors and Dr. Eletr, with particular
consideration given to Dr. Eletr's equity ownership position in the Company.
Because of his ownership position in the Company, the salary established by the
Board of Directors may not reflect a salary that would otherwise be required to
competitively compensate and retain Dr. Eletr and may not be indicative of
future compensation.
Certain Tax Considerations
Section 162(m) of the Code limits the Company to a deduction for
federal income tax purposes of not more than $1 million of compensation paid to
certain executive officers in a taxable year. Compensation above $1 million may
be deducted if it is "performance-based compensation" within the meaning of the
Code. The Board of Directors has not yet established a policy for determining
which forms of incentive compensation awarded to executive officers shall be
designed to qualify as performance based compensation.
From the members of the Compensation Committee:
Kathleen La Porte
Craig Taylor
Performance Measurement Comparison
The Company's Common Stock was subject to certain restrictions on
transfer as set forth in the Company's By-laws, which restrictions expired on
September 30, 1994. The Company has not listed its Common Stock on any exchange
or on the Nasdaq National Market, nor is the Company aware of an established
public trading market for the Common Stock. The Company therefore has not
included a Performance Measurement Graph in this proxy statement because such a
graph will not provide meaningful information to the Company's stockholders.
13.
<PAGE>
CERTAIN TRANSACTIONS
Transactions with Directors and Executive Officers
In November 1996, Lynx and its majority owned subsidiary, Spectragen,
Inc. ("Spectragen"), a Delaware corporation, entered into an Agreement of Merger
pursuant to which Spectragen was merged with and into Lynx and the separate
corporate existence of Spectragen ceased (the "Merger"). Each share of
Spectragen Common Stock outstanding at the time of Merger was converted into 1.3
shares of Lynx Common Stock and all vested and unvested options to purchase
shares of Spectragen Common Stock were assumed by Lynx and converted into
options to purchase Lynx Common Stock at the same ratio. Dr. Eletr, a former
stockholder and optionholder of Spectragen, received 130,000 shares of Lynx
Common Stock and an option to purchase 32,500 shares of Lynx Common Stock as a
result of the merger. Dr. Brenner, a former stockholder and optionholder of
Spectragen, received 260,000 shares of Lynx Common Stock and an option to
purchase 65,000 shares of Lynx Common Stock as a result of the merger.
In May and June 1995, the Company entered into three separate loan
agreements with David W. Martin, Jr., M.D., who was then the Company's
President. The first loan of $450,000 was a promissory note secured by a second
mortgage on real property. The principal and interest on this loan were repaid
according to the terms of the note in September 1996, upon sale of the property.
The second loan of $450,000 was issued under a Stock Purchase Agreement for the
purchase of 250,000 shares of Common Stock whereby all the shares issued under
the agreement were pledged as collateral. Of the 250,000 shares, 225,000 shares
were subject to the Company's right of repurchase which lapsed ratably over five
years. The loan agreement specified that upon termination, after the Company's
right of repurchase was exercised, the remaining principal and interest on the
loan were due and payable. In November 1996, the officer left the Company and
the stock purchase loan was repaid in full. The third loan was a line of credit
agreement whereby Dr. Martin could borrow from the Company up to $25,000 per
calendar quarter during the first two years of employment. The line was secured
by shares of the Company's Common Stock owned by Dr. Martin. The principal and
accrued interest due on the line of credit, an aggregate of $157,862, was
forgiven upon Dr. Martin's separation from the Company.
In October 1995, the Company entered into a loan agreement with another
officer of the Company. The note receivable of $210,000 was issued under a Stock
Purchase Agreement for the purchase of 60,000 shares of Common Stock whereby all
the shares issued under the agreement are pledged as collateral. The outstanding
principal amount is due and payable in full on October 1, 2000, subject to an
obligation to prepay under specified circumstances. Interest is payable upon the
expiration or termination of the note and accrues at the rate of 6.38% per
annum. As of February 28, 1997, the outstanding principal and accrued interest
under the note was $228,906.
The Company currently has no other employment contracts with any Named
Executive Officers, and the Company has no other compensatory plan or
arrangement with Named Executive Officers where the amounts to be paid exceed
$100,000 and which are activated upon resignation, termination or retirement of
any such executive officer or upon a change in control of the Company.
For legal services rendered during the calendar year ended December 31,
1996, the Company paid approximately $468,937 to Cooley Godward LLP, the
Company's counsel, of which Mr. Kitch, a director of the Company, is a partner.
The Company has entered into indemnity agreements with certain officers
and directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he or she may
be required to pay in actions or proceedings which he or she is or may be made a
party by reason of his or her position as a director, officer or other agent of
the Company, and otherwise to the full extent permitted under Delaware law and
the Company's By-laws.
14.
<PAGE>
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If any other matters are properly
brought before the meeting, it is the intention of the persons named in the
accompanying proxy to vote on such matters in accordance with their best
judgment.
By Order of the Board of Directors
James C. Kitch, Secretary
April 9, 1997
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the period ended December 31, 1996, is available
without charge upon written request to: Investor Relations, Lynx Therapeutics,
Inc., 3832 Bay Center Place, Hayward, California 94545.
<PAGE>
APPENDIX A
PROXY LYNX THERAPEUTICS, INC. PROXY
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 13, 1997
The undersigned hereby appoints Sam Eletr and James C. Kitch, and each of
them, as attorneys and proxies of the undersigned, with full power of
substitution, to vote all of the shares of stock of Lynx Therapeutics, Inc. (the
"Company") which the undersigned may be entitled to vote at the Annual Meeting
of Stockholders of Lynx Therapeutics, Inc. to be held at the Company's principal
executive offices, 3832 Bay Center Place, Hayward, CA 94545 on May 13, 1997 at
11:00 a.m. (local time), and at any and all postponments, continuations and
adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2 AND MORE SPECIFICALLY DESCRIBED
IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED, THIS PROXY WILL
BE VOTED IN ACCORDANCE THEREWITH.
(Continued and to be signed on the other side)
1
<PAGE>
[X] Please mark
your votes
as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTORS LISTED
ABOVE AND A VOTE FOR PROPOSAL 2.
1. To elect directors to serve for the ensuing year and until their successors
are elected.
NOMINEES: Sam Eletr, William K. Bowes, Jr., Sydney Brenner,
James C. Kitch, Kathleen D. La Porte, Craig C. Taylor
FOR WITHHELD
[ ] [ ]
[ ]
------------------------------------
For all nominees except as noted above
2. To ratify the selection of Ernst & Young LLP as independent auditors of the
Company for its fiscal year ending December 31, 1997.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To transact such other business as may properly come before the meeting or
any adjourment or postponement thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Signature(s) ____________________________________ Dated _________________, 1997
Please vote, date and promptly return this proxy in the enclosed return envelope
which is postage prepaid if mailed in the United States.
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership please sign in
partnership name by authorized person.
