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:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12
Lynx Therapeutics, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box)
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
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paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid:
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PRELIMINARY COPY
LYNX THERAPEUTICS, INC.
25861 Industrial Blvd.
Hayward, California 94545
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2000
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"), will be held on
Thursday, May 25, 2000, at 9:00 a.m., local time, at the Company's principal
executive offices, located at 25861 Industrial Blvd., Hayward, California 94545,
for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected.
2. To approve the Company's 1992 Stock Option Plan, as amended, to
increase the aggregate number of shares of common stock authorized
for issuance under such plan by 600,000.
3. To approve the Company's Amended and Restated Certificate of
Incorporation to increase the authorized number of shares of common
stock from 20,000,000 to 60,000,000 shares.
4. To ratify the selection of Ernst & Young LLP as independent auditors
of the Company for its fiscal year ending December 31, 2000.
5. 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 April 5, 2000,
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
Edward C. Albini
Secretary
Hayward, California
April 14, 2000
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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.
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LYNX THERAPEUTICS, INC.
25861 Industrial Blvd.
Hayward, California 94545
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 2000
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 ("Lynx" or the "Company"), for
use at the Annual Meeting of Stockholders to be held on Thursday, May 25, 2000,
at 9:00 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 offices, located at 25861 Industrial Blvd., Hayward,
California 94545. The Company intends to mail this proxy statement and
accompanying proxy card on or about April 14, 2000, to all stockholders entitled
to vote at the Annual Meeting.
Solicitation
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of the Company's common stock
beneficially owned by others to forward to such beneficial owners. The Company
may reimburse persons representing beneficial owners of common stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
Voting Rights and Outstanding Shares
Only holders of record of common stock at the close of business on April
5, 2000, will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on April 5, 2000, the Company had outstanding __________
shares of common stock. Each holder of record of common stock on such date will
be entitled to one vote for each share held on all matters to be voted upon at
the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Except for Proposal 3, broker non-votes
are counted towards a quorum, but are not counted for any purpose in determining
whether a matter has been approved. With respect to Proposal 3, abstentions and
broker non-votes will have the same effect as negative votes.
Voting Via the Internet or by Telephone
For Shares Registered in the Name of a Broker or Bank. Most beneficial
owners whose stock is held in street name receive voting instruction forms from
their banks, brokers or other agents, rather than the Company's proxy card. A
number of brokers and banks are participating in a program provided through ADP
Investor Communication Services that offers telephone and Internet voting
options. If your shares are held in an account with a broker or bank
participating in the ADP Investor Communication Services program, you may vote
those shares telephonically by calling the telephone number shown on the voting
form received from your broker or bank, or via the Internet at ADP Investor
Communication Services' voting Web site (www.proxyvote.com).
2.
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Submitting your proxy via the Internet or by telephone will not affect
your right to vote in person should you decide to attend the Annual Meeting.
The telephone and Internet voting procedures are designed to authenticate
stockholders' identities, to allow stockholders to give their voting
instructions and to confirm that stockholders' instructions have been recorded
properly. Stockholders voting via the Internet should understand that there may
be costs associated with electronic access, such as usage charges from Internet
access providers and telephone companies, that must be borne by the stockholder.
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 offices, 25861
Industrial Blvd., 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
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2001 annual
meeting of stockholders pursuant to Rule 14a-8 of the Securities and Exchange
Commission is December 16, 2000. Unless a stockholder who wishes to bring a
matter before the stockholders at the Company's 2001 annual meeting of
stockholders notifies the Company of such matter prior to March 1, 2001,
management will have discretionary authority to vote all shares for which it has
proxies in opposition to such matter. Stockholders are also advised to review
the Company's Bylaws, which contain additional requirements with respect to
advance notice of stockholder proposal 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 who was previously
elected by the stockholders.
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.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMEND A VOTE
IN FAVOR OF EACH NAMED NOMINEE.
3.
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Nominees
The names of the nominees and certain information about them are set forth
below:
Principal Position Director
Name with the Company Age Since
-------------------- ---------------------- ---- ----------
Sam Eletr, Ph.D. Chairman of the Board 60 1992
Norman J. W. Russell, Ph.D. President, Chief 47 1999
Executive Officer
and Director
William K. Bowes, Jr.(1)(2) Director 73 1994
Sydney Brenner, M.B., D. Phil. Director and Principal 72 1993
Scientific Advisor
James C. Kitch(1) Director 52 1993
Craig C. Taylor(2) Director 49 1994
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(1) Member of the Audit Com mittee
(2) Member of the Compensat ion Committee
Sam Eletr, Ph.D., has served as Chairman of the Board of Lynx since
February 1992. He resumed the position of Chief Executive Officer of Lynx from
November 1996 to October 1999, a position he previously held from February 1992
through January 1996. In 1981, Dr. Eletr founded Applied Biosystems, Inc., a
manufacturer of instruments and consumables for life science research and
related applications, now a wholly-owned subsidiary of PE Biosystems, and served
as Chairman of the Board of Directors and in various executive positions at
Applied Biosystems from its inception until March 1987.
Norman J. W. Russell, Ph.D., joined Lynx in October 1999 as President and
Chief Executive Officer and was elected to the Board of Directors in December
1999. Prior to joining Lynx, he was Head of Biological Science and Technology at
AstraZeneca Pharmaceuticals. His previous positions in 20 years at Zeneca
included Head of Target Discovery, Head of International Genomics and Head of
Biotechnology. Dr. Russell earned a Ph.D. in Physiology from Glasgow University,
Scotland.
William K. Bowes, Jr., has served as a director of Lynx 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., a
biotechnology company, AMCC, an integrated circuit company, XOMA Corporation, a
biotechnology company, and one U.S. Venture Partners privately owned portfolio
company.
Sydney Brenner, M.B., D.Phil., has served as a director of Lynx since
October 1993. In July 1996, he was appointed the Director and President of The
Molecular Sciences Institute, a non-profit research institute in Berkeley,
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. Dr. Brenner is the
principal inventor of Lynx's bead-based technologies.
James C. Kitch has served as a director of Lynx since February 1993 and
Secretary of Lynx from February 1992 to December 1997. Since 1979, he has been a
partner at Cooley Godward LLP, a law firm, which has provided legal services to
Lynx.
Craig C. Taylor has served as a director of Lynx since March 1994 and
served as Acting Chief Financial Officer from July 1994 to April 1997. 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 Pharmacyclics, Inc., a
biotechnology company, and several private companies.
4.
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Board Committees and Meetings
During the calendar year ended December 31, 1999, the Board of Directors
held five meetings. The Board has an Audit Committee and a Compensation
Committee. The Board does not have a standing Nominating Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements, recommends to the Board the independent auditors to be retained and
receives and considers the accountants' comments as to controls, adequacy of
staff and management performance and procedures in connection with audit and
financial controls. The Audit Committee is composed of two non-employee
directors, Messrs. Bowes and Kitch. It met one time during such calendar year.
The Compensation Committee reviews and recommends salaries and incentive
compensation for officers and key employees. The Compensation Committee also
serves as the Stock Option Committee for the Company's 1992 Stock Option Plan
for the employees of the Company and in that capacity approves employee stock
option grants. The Compensation Committee is currently composed of two
non-employee directors: Messrs. Bowes and Taylor. Mr. Bowes joined the
Compensation Committee in February 2000, following the resignation of Ms.
Kathleen La Porte, who served on this committee until her resignation from the
Company's Board of Directors in February 2000. The Compensation Committee did
not meet during this calendar year.
During the calendar year ended December 31, 1999, all directors except,
Dr. Brenner, attended at least 75% of the aggregate of the meetings of the Board
and of the committees on which they served, held during the period for which
they were a director or committee member, respectively.
5.
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PROPOSAL 2
APPROVAL OF THE 1992 STOCK OPTION PLAN, AS AMENDED
In July 1992, the Board of Directors of the Company (the "Board") adopted,
and the stockholders subsequently approved, the Company's 1992 Stock Option Plan
(the "1992 Plan"). As a result of a series of amendments, there are currently
4,200,000 shares of the Company's common stock authorized for issuance under the
1992 Plan. In May 1996, the Board adopted, and the stockholders subsequently
approved, an amendment to the 1992 Plan to extend the term of the 1992 Plan
until March 2006. At March 1, 2000, options covering an aggregate of 3,719,905
shares, less canceled shares, of common stock had been granted under the 1992
Plan, and approximately 323,305 shares remained available for future grants.
In December 1999, the Board approved an amendment to the 1992 Plan,
subject to stockholder approval, to enhance the flexibility of the Board in
granting stock options under the 1992 Plan. The amendment increases the number
of shares authorized for issuance under the 1992 Plan by 600,000 shares from a
total of 4,200,000 to 4,800,000 shares. The Board adopted this amendment to
ensure that the Company can continue to grant stock options at levels determined
appropriate by the Board. During the last fiscal year, the Company granted
options under the 1992 Plan (i) to current executive officers and directors to
purchase 220,000 shares of common stock at exercise prices of $11.31 to $11.50
per share, and (ii) to all employees and consultants as a group (excluding
executive officers) to purchase 419,000 shares of common stock at exercise
prices of $9.38 to $20.00 per share.
Stockholders are requested in this Proposal 2 to approve the 1992 Plan, as
amended. If the stockholders fail to approve this Proposal 2, options granted
under the 1992 Plan after the Annual Meeting will not qualify as
performance-based compensation and, in some circumstances, the Company may be
denied a business expense deduction for compensation recognized in connection
with the exercise of these stock options. 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 meeting will be required to approve the 1992 Plan, as amended.
Abstentions will be counted toward 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 this matter has been approved.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMEND A VOTE
IN FAVOR OF PROPOSAL 2.
The essential features of the 1992 Plan are outlined below:
General
The 1992 Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the 1992 Plan 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 granted under the 1992 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Tax Information" for a discussion of
the tax treatment of incentive and nonstatutory stock options.
Purpose
The 1992 Plan was adopted to provide a means by which selected officers,
directors, employees of, and consultants to the Company and its affiliates could
be given an opportunity to purchase stock in the Company, to assist in retaining
the services of employees holding key positions, to secure and retain the
services of persons capable of filling such positions and to provide incentives
for such persons to exert maximum efforts for the success of the Company. All of
the Company's approximately 107 employees and its consultants are currently
eligible to participate in the 1992 Plan.
6.
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Administration
The 1992 Plan is administered by the Board. Subject to the provisions of
the 1992 Plan, the Board has the power to construe and interpret the 1992 Plan
and to determine the persons to whom, and the dates on which, options will be
granted, the number of shares of common stock to be subject to each option, the
time or times during the term of each option within which all or a portion of
such option may be exercised, the exercise price, the type of consideration and
other terms of the option.
The 1992 Plan is administered by the Board unless and until the Board
delegates administration to a committee composed of two or more Board members,
all of the members of which committee may be non-employee directors (as such
term is defined in Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and/or outside directors (as such term is
defined in the Treasury regulations promulgated under Section 162(m) of the
Code). If administration is delegated to a committee, such committee will have,
in connection with the administration of the 1992 Plan, the powers possessed by
the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the 1992 Plan, as may be adopted from time to time by the Board.
The Board or the committee may delegate to a committee of one or more members of
the Board the authority to grant options to eligible persons who are not then
subject to Section 16 of the Exchange Act and/or who are either (i) not then
employees covered by Code Section 162(m) and are not expected to be covered by
Section 162(m) at the time of recognition of income resulting from such option,
or (ii) not persons with respect to whom the Company wishes to avoid the
application of Section 162(m). The Board may abolish such committee at any time
and revest in the Board the administration of the 1992 Plan. The Board has
delegated administration of the 1992 Plan to the Compensation Committee of the
Board. As used herein with respect to the 1992 Plan, the "Board" refers to the
Compensation Committee as well as to the Board itself.
Eligibility
Incentive stock options may be granted under the 1992 Plan only to
selected key employees (including officers) of the Company and its affiliates.
Selected key employees (including officers) and consultants are currently
eligible to receive nonstatutory stock options under the 1992 Plan. Subject to
stockholder approval of this Proposal 2, all of the Company's directors
(including specifically all non-employee directors) will also be eligible to
receive nonstatutory stock options under the 1992 Plan.
No incentive stock option may be granted under the 1992 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 the Company or any affiliate of
the Company, unless the option exercise price is at least 110% of the fair
market value of the stock subject to the option on the date of grant, and the
term of the option does not exceed five years from the date of grant. For
incentive stock options granted under the 1992 Plan (and all such other plans of
the Company and its affiliates), the aggregate fair market value, determined at
the time of grant, of the shares of common stock with respect to which such
options are exercisable for the first time by an optionholder during any
calendar year (under all such plans of the Company and its affiliates) may not
exceed $100,000. No employee may be granted options under the 1992 Plan covering
more than 1,000,000 shares of common stock during any calendar year.
Stock Subject to the 1992 Plan
Subject to stockholder approval of this Proposal 2, an aggregate of
4,800,000 shares of common stock are authorized for issuance under the 1992
Plan. If options granted under the 1992 Plan expire or otherwise terminate
without being exercised, the shares of common stock not acquired pursuant to
such options again become available for issuance under the 1992 Plan.
Terms of Options
The following is a description of the permissible terms of options under
the 1992 Plan. Individual option grants may be more restrictive as to any or all
of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1992 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 some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of
7.
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nonstatutory options under the 1992 Plan may not be less than 85% of the fair
market value of the common stock subject to the option on the date of the option
grant. At March 1, 2000, the closing price of the Company's common stock as
reported on the Nasdaq National Market was $96.88 per share.
The exercise price of options granted under the 1992 Plan must be paid
either: (a) in cash at the time the option is exercised; (b) at the discretion
of the Board, by delivery of other common stock of the Company or pursuant to a
deferred payment arrangement, or (c) in any other form of legal consideration
acceptable to the Board.
Option Exercise. Options granted under the 1992 Plan may become
exercisable ("vest") in cumulative increments as determined by the Board. Shares
covered by options granted in the future under the 1992 Plan may be subject to
different vesting terms. Options granted to date under the 1992 Plan typically
vest in cumulative increments over a period of five years during the
optionholder's employment or service with the Company. The Board has the power
to accelerate the time during which an option may be exercised. In addition,
options granted under the 1992 Plan may permit exercise prior to vesting, but in
such event the optionholder may be required to enter into an early exercise
stock purchase agreement that allows the Company to repurchase shares not yet
vested should the optionholder leave the employ of the Company before vesting.
To the extent provided by the terms of an option, an optionholder 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 the Company to
withhold a portion of the stock otherwise issuable to the optionholder, by
delivering already-owned stock of the Company or by a combination of these
means.
Term. The maximum term of options under the 1992 Plan is 10 years, except
that in certain cases (see "Eligibility") the maximum term is five years.
Options under the 1992 Plan terminate three months after the optionholder ceases
to be in continuous service with the Company or any affiliate of the Company,
unless (a) the termination of service 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 12 months of such
termination; (b) the optionholder dies while in service with the Company or any
affiliate of the Company, 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 optionholder's death) within 12 months of the optionholder'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
service relationship. The option term may also be extended in the event that
exercise of the option within these periods is prohibited for specified reasons.
Adjustment Provisions
If any change is made in the stock subject to the 1992 Plan or subject to
any option without the receipt of consideration by the Company (through merger,
consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the 1992 Plan will be appropriately adjusted in the class(es) and
maximum number of securities subject to the 1992 Plan pursuant to subsection
4(a) of the 1992 Plan and the maximum number of securities subject to award to
any person pursuant to subsection 5(c) of the 1992 Plan, and outstanding options
will be appropriately adjusted in the class(es) and number of securities and
price per share of stock subject to such outstanding options. Such adjustments
shall be made by the Board, the determination of which shall be final, binding
and conclusive. (The conversion of any convertible securities of the Company
shall not be treated as a transaction "without receipt of consideration" by the
Company.)
Effect of Certain Corporate Events
The 1992 Plan provides that, in the event of a specified type of merger or
other corporate reorganization, to the extent permitted by law, any surviving
corporation shall assume any options outstanding under the 1992 Plan or
substitute similar options for those outstanding under such plan, or such
outstanding options will continue in full force and effect. In the event that
any surviving corporation refuses to assume or continue options outstanding
under the 1992 Plan, or to substitute similar options, then with respect to
optionholders whose service has not terminated, the vesting and the time during
which such options may be exercised shall be accelerated. In such a case, an
outstanding option will terminate if the optionholder does not exercise it
before the change in control.
8.
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Duration, Amendment and Termination.
The Board may suspend or terminate the 1992 Plan without stockholder
approval or ratification at any time. Unless sooner terminated, the 1992 Plan
will terminate on March 11, 2006.
The Board may also amend the 1992 Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within 12 months before or after its adoption by the Board to the
extent stockholder approval is necessary to satisfy the requirements of Section
422 of the Code, Rule 16b-3 promulgated under the Exchange Act, or any Nasdaq or
other securities exchange listing requirements. The Board may in its sole
discretion submit any other amendment to the 1992 Plan for stockholder approval.
Restrictions on Transfer
Under the 1992 Plan, an incentive stock option may not be transferred by
the optionholder otherwise than by will or by the laws of descent and
distribution. During the lifetime of an optionholder, an incentive stock option
may be exercised only by the optionholder. A nonstatutory stock option is
transferable to the extent provided in the option agreement. If the option
agreement for a nonstatutory stock option does not provide for transferability,
then the nonstatutory stock option is not transferable except by will or by the
laws of descent and distribution and is exercisable during the lifetime of the
optionholder only by the optionholder. In addition, shares subject to repurchase
by the Company under an early exercise stock purchase agreement may be subject
to restrictions on transfer which the Board deems appropriate.
Federal Income Tax Information
Long-term capital gains currently are generally subject to lower tax rates
than ordinary income or short-term capital gains. The maximum long-term capital
gains rate for federal income tax purposes is currently 20% while the maximum
ordinary income rate and short-term capital gains rate is effectively 39.6%.
Slightly different rules may apply to optionholders who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Incentive Stock Options. Incentive Stock options under the 1992 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 optionholder
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the
optionholder's alternative minimum tax liability, if any.
If an optionholder holds stock acquired through exercise of an incentive
stock option for at least two years from the date on which the option is granted
and at least one year from the date on which the shares are transferred to the
optionholder upon exercise of the option, any gain or loss on a disposition of
such stock will be a long-term capital gain or loss if the optionholder held the
stock for more than one year. Generally, if the optionholder disposes of the
stock before the expiration of either of these holding periods (a "disqualifying
disposition"), at the time of disposition, the optionholder will realize taxable
ordinary income equal to the lesser of (a) the excess of the stock's fair market
value on the date of exercise over the exercise price, or (b) the optionholder's
actual gain, if any, on the purchase and sale. The optionholder's additional
gain or any loss upon the disqualifying disposition will be a capital gain or
loss which will be long-term or short-term depending on whether the stock was
held for more than one year. Slightly different rules may apply to optionholders
who acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
To the extent the optionholder recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness and the satisfaction of a tax reporting
obligation) to a corresponding business expense deduction in the tax year in
which the a disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under
the 1992 Plan generally have the following federal income tax consequences:
9.
<PAGE>
There are no tax consequences to the optionholder or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionholder normally will recognize taxable ordinary income
equal to the excess, if any, of the stock's fair market value on the date of
exercise over the option exercise price. Generally, with respect to employees,
the Company 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 and the satisfaction of any tax reporting
obligation, the Company will generally be entitled to a business expense
deduction equal to the taxable ordinary income realized by the optionholder.
Upon disposition of the stock, the optionholder 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. Such gain or loss will be long-term or short-term depending on
whether the stock was held for more than one year. Slightly different rules may
apply to optionholders who acquire stock subject to certain repurchase options
or who are subject to Section 16(b) of the Exchange Act.
Potential Limitation on Company Deductions. Section 162(m) of the Code
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 stock options, when combined with all other types of compensation received by
a covered employee from the Company, 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 Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a compensation committee comprised solely
of "outside directors" and either: (i) the option plan contains a per-employee
limitation on the number of shares for which options may be granted during a
specified period, the per-employee limitation is approved by the stockholders,
and the exercise price of the option is no less than the fair market value of
the stock on the date of grant; or (ii) the option is granted (or exercisable)
only upon the achievement (as certified in writing by the compensation
committee) of an objective performance goal established in writing by the
compensation committee while the outcome is substantially uncertain, and the
option is approved by stockholders.
10.
<PAGE>
PROPOSAL 3
APPROVAL OF AMENDED AND RESTATED ARTICLES OF INCORPORATION INCREASING THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Proposed Amendment
In February 2000, the Board of Directors adopted, subject to stockholder
approval, an amendment and restatement of the Company's Amended and Restated
Certificate of Incorporation to increase the Company's authorized number of
shares of common stock from 20,000,000 shares to 60,000,000 shares.
The additional common stock to be authorized by adoption of the amendment
would have rights identical to the currently outstanding common stock of the
Company. Adoption of the proposed amendment and issuance of the common stock
would not affect the rights of the holders of currently outstanding common stock
of the Company, except for effects incidental to increasing the number of shares
of the Company's common stock outstanding, such as dilution of the earnings per
share and voting rights of current holders of common stock. If the amendment is
adopted, it will become effective upon filing of the Company's Amended and
Restated Certificate of Incorporation with the Secretary of State of the State
of Delaware.
In addition to the 11,309,828 shares of common stock outstanding at March
1, 2000, approximately 734,959 shares were issuable upon exercise of outstanding
options or purchase rights and approximately 323,305 shares were reserved for
future grants under the Company's stock option plans.
Although, at present, the Board of Directors has no other plans to issue
the additional shares of common stock, it desires to have such shares available
to provide additional flexibility to use its capital stock for business and
financial purposes in the future. The Company believes it is important to retain
a significant reserve of authorized but unissued common stock that could be used
to raise additional capital through the sale of securities, declare stock
dividends or stock splits, acquire another company or its business or assets,
create negotiating leverage and flexibility in the event of an unfriendly
takeover bid or establish a strategic relationship with a corporate partner,
among other uses. In particular, the Company believes that maintaining a
sufficient reserve of authorized but unissued common stock is important to
preserving the Company's flexibility to enter into future financing
opportunities. The Company expects to seek to raise additional capital through
equity or debt financing, collaborations or through other sources.
If approved, the proposed Amended and Restated Certificate of
Incorporation would authorize additional shares of common stock that will be
available in the event that the Board of Directors determines to authorize stock
dividends or stock splits, to raise additional capital through the sale of
securities, to acquire another company or its business or assets, to create
negotiating leverage and flexibility in the event of an unfriendly takeover bid
or to establish a strategic relationship with a corporate partner, among other
uses. Any additional equity financings may be dilutive to shareholders, and a
debt financing, if available, may involve restrictions on stock dividends and
other restrictions on the Company.
If the Amended and Restated Certificate of Incorporation is adopted,
40,000,000 additional shares of common stock of the Company will be available
for issuance at the discretion of the Board of Directors, except that certain
large issuances of shares may require shareholder approval in accordance with
the requirements of the Nasdaq National Market and certain stock-based employee
benefit plans may require stockholder approval in order to obtain desirable
treatment under tax or securities laws and accounting regulations.
The Board of Directors believes it desirable that the Company have the
flexibility to issue the additional shares as described above. As is typical in
publicly held technology companies, the holders of common stock have no
preemptive rights to purchase any stock of the Company. Stockholders should be
aware that the issuance of additional shares could have a dilutive effect on
earnings per share and on the equity ownership of the present holders of common
stock. No actions are currently being taken with respect to any large issuance
of additional shares.
The flexibility of the Board of Directors to issue additional shares of
stock could also enhance the Board's ability to negotiate on behalf of the
stockholders in an unfriendly takeover situation. Although it is not the purpose
of the proposed Amended and Restated Certificate of Incorporation, the
authorized but unissued shares of common
11.
<PAGE>
stock (as well as the existing authorized but unissued shares of preferred
stock) also could be used by the Board of Directors to discourage, delay or make
more difficult a change in the control of the Company. The Board of Directors is
not aware of any pending or proposed effort to acquire control of the Company.
The affirmative vote of the holders of a majority of the shares of common
stock of the Company will be required to approve the Amended and Restated
Certificate of Incorporation. As a result, abstentions and broker non-votes will
have the same effect as negative votes.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMEND A VOTE
IN FAVOR OF PROPOSAL 3.
12.
<PAGE>
PROPOSAL 4
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, 2000 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. Abstentions will be
counted toward the tabulation of votes cast on proposals presented to
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 this matter has been approved.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMEND A VOTE
IN FAVOR OF PROPOSAL 4.
13.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of February 15, 2000, by (i) each
stockholder who is known by the Company to own beneficially more than 5% of the
common stock; (ii) each Named Executive Officer of the Company listed on the
Summary Compensation Table; (iii) each director of the Company; and (iv) all
directors and executive officers of the Company as a group.
Common Stock(1)
------------------------------
Number
Name of Beneficial Owner of Shares Percent
- ------------------------ --------- -------
Cannon Street Fund Ltd. 565,000 5.0%
c/o Meridian Venture Group
R.R. Box 272
Charlottesville, VA 22314
Sam Eletr, Ph.D.(2) 441,259 3.9%
Edward C. Albini(3) 71,553 **
William K. Bowes, Jr.(4) 175,163 1.6%
Sydney Brenner, M.B., D. Phil.(5) 336,000 3.0%
James C. Kitch(6) 12,120 **
Stephen C. Macevicz, Ph.D.(7) 84,887 **
Norman J. W. Russell, Ph.D -- **
Craig C. Taylor(8) 379,601 3.4%
All directors and officers as a
group (8 persons)(9) 1,500,583 13.0%
- -------------------------
** Less than one percent.
(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. Percentage of beneficial ownership is based on 11,264,850
shares of common stock outstanding as of February 15, 2000, except as
otherwise noted in the footnotes. 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 15, 2000, are deemed outstanding
for computing the percentage of the person holding such options but are
not deemed outstanding for computing the percentage of any other person.
(2) Includes 198,000 shares of common stock issuable upon exercise of stock
options held by Dr. Eletr that are exercisable within 60 days of February
15, 2000.
(3) Includes 20,833 shares of common stock issuable upon exercise of stock
options held by Mr. Albini that are exercisable within 60 days of February
15, 2000.
(4) Includes 35,401 shares of common stock held by Mr. Bowes and 17,606 shares
of common stock held by the William K. Bowes Charitable Remainder Trust.
Also includes 122,156 shares of common stock held by entities affiliated
with U.S. Venture Partners IV, L.P. or U.S.V.P. IV. Mr. Bowes, a director
of Lynx, 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 pro-rata interest
therein.
14.
<PAGE>
(5) Includes 76,000 shares of common stock issuable upon exercise of stock
options held by Dr. Brenner that are exercisable within 60 days of
February 15, 2000.
(6) Includes 2,287 shares of common stock and 9,833 shares of common stock
issuable upon the exercise of stock options held by Mr. Kitch that are
exercisable within 60 days of February 15, 2000. Mr. Kitch holds this
option on behalf of Cooley Godward LLP. He 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 pro-rata interest
therein.
(7) Includes 48,666 shares of common stock issuable upon exercise of stock
options held by Dr. Macevicz that are exercisable within 60 days of
February 15, 2000.
(8) Includes 15,497 shares of common stock held by Mr. Taylor. Also includes
364,104 shares of common stock held by Asset Management Associates 1989
L.P. Mr. Taylor, a director of Lynx, 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 pro-rata interest therein.
(9) Includes 503,866 shares of common stock held by entities affiliated with
certain directors and 353,332 shares of common stock issuable upon
exercise of stock options held by directors and officers that are
exercisable within 60 days of February 15, 2000. See Notes 2 through 8
above.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934 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 Securities 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,
1999, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent (10%) beneficial owners were complied
with, except that (i) one report, covering the disposition of 4,000 shares, was
filed late by Dr. Macevicz, and (ii) three reports, covering an aggregate of
three transactions, were filed late by Ms. Kathleen D. La Porte, a former
director of the Company.
EXECUTIVE COMPENSATION
Executive Officers
The executive officers of the Company and certain information about them
as of December 31, 1999 are listed below:
Name Age Company Positions
---- --- -----------------
Sam Eletr, Ph.D. 60 Chairman of the Board
Norman J. W. Russell, Ph.D. 47 President and Chief Executive
Officer
Edward C. Albini 42 Chief Financial Officer and
Secretary
Stephen C. Macevicz, Ph.D. 50 Vice President, Intellectual
Property
Sam Eletr, Ph.D., has served as Chairman of the Board of Lynx since
February 1992. He resumed the position of Chief Executive Officer of Lynx from
November 1996 to October 1999, a position he previously held from February 1992
through January 1996. In 1981, Dr. Eletr founded Applied Biosystems, Inc., a
manufacturer of instruments and consumables for life science research and
related applications, now a wholly-owned subsidiary of
15.
<PAGE>
PE Biosystems, and served as Chairman of the Board of Directors and in various
executive positions at Applied Biosystems from its inception until March 1987.
Norman J. W. Russell, Ph.D., joined Lynx in October 1999 as President and
Chief Executive Officer and was elected to the Board of Directors in December
1999. Prior to joining Lynx, he was Head of Biological Science and Technology at
AstraZeneca Pharmaceuticals. His previous positions in 20 years at Zeneca
included Head of Target Discovery, Head of International Genomics and Head of
Biotechnology. Dr. Russell earned a Ph.D. in Physiology from Glasgow University,
Scotland.
Edward C. Albini has served as Chief Financial Officer of Lynx since April
1997. He was elected Secretary in February 1998. From January 1983 to April
1997, Mr. Albini served in various financial management positions with
Genentech, Inc., a biotechnology company. His most recent role at Genentech was
as the Director of Financial Planning and Analysis. Mr. Albini holds a BS degree
in Accounting from Santa Clara University and an MBA degree from the Walter A.
Haas School of Business at the University of California, Berkeley. Mr. Albini is
also a certified public accountant.
Stephen C. Macevicz, Ph.D., joined Lynx in September 1995 as Vice
President, Intellectual Property. He was Senior Patent Attorney and chief patent
counsel at Applied Biosystems, Inc. from 1992 to August 1995 and, from 1986 to
1992, Patent Counsel at DNAX Research Institute of Molecular and Cellular
Biology, a research subsidiary of Schering-Plough Corporation. He received his
law degree from the University of California, Berkeley, Boalt Hall, and his
Ph.D. in Biophysics from the University of California, Berkeley.
Compensation Tables
Summary Compensation Table. The following table sets forth certain
compensation paid by the Company during the calendar years ended December 31,
1999, 1998 and 1997, to its Chief Executive Officer and the two other most
highly compensated executive officers whose compensation exceeded $100,000 (the
"Named Executive Officers"):
Summary Compensation Table
Long Term Other
Annual Compensation Annual
Name and Principal Position Year Salary(1) Options(#) Compensation
- --------------------------- ---- -------- ------------ ------------
Sam Eletr, Ph.D.(2) 1999 $236,716 -- $ --
Chairman of the Board 1998 $230,460 -- --
1997 $196,131 -- --
Norman J. W. Russell, Ph.D.(3) 1999 $109,527 200,000 $ 33,212(3)
President & Chief Executive
Officer -- $ 750(4)
Edward C. Albini 1999 $163,730
Chief Financial Officer 1998 $147,336 50,000 $ 750(4)
1997 $100,244(5) 50,000 --
Stephen C. Macevicz, Ph.D 1999 $176,549 20,000 $ 750(4)
Vice President, Intellectual 1998 $167,611 -- $ 750(4)
Property 1997 $155,886 -- $ 750(4)
- ------------------
(1) Includes amounts earned but deferred at the election of the Named
Executive Officer pursuant to the Company's 401(k) Plan.
(2) Dr. Eletr served as Chief Executive Officer of the Company until October
1999.
(3) Dr. Russell joined the Company as President and Chief Executive Officer on
October 18, 1999. Prior to this time, Dr. Russell was employed at Lynx
Therapeutics GmbH, a wholly owned subsidiary of the Company,
16.
<PAGE>
from July 1, 1999. Dr. Russell's compensation received while employed at
Lynx GmbH is reflected under Other Annual Compensation.
(4) Contributions made by the Company to the Company's 401(k) Plan on behalf
of such employee.
(5) Mr. Albini joined the Company on April 17, 1997.
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, 1999, to any of the Named Executive Officers.
Stock Option Grants and Exercises
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 ended December 31, 1999.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
-------------------------------------------------------------------- Annual Rates
Number of % of Total of Stock Price
Securities Options Granted Exercise or Appreciation
Underlying Options to Employees Base Price Expiration for Option Term(2)
Name Granted in Fiscal Year(1) ($/sh) Date 5%($) 10%($)
---- ------- ----------------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Stephen Macevicz 20,000 3.13% 11.50 12/08/09 144,646 366,561
Norman J. W. Russell 200,000 31.3% 11.31 07/01/09 1,422,560 3,605,045
</TABLE>
- ------------
(1) Based on an aggregate of 639,000 options granted to employees of, and
consultants to, the Company during the year ended December 31, 1999,
including the Named Executive Officer.
(2) 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 stock price on the date of grant appreciates at the indicated annual
rate, compounded annually for the entire term of the option, and that
option is exercised and sold on the last day of the term for the
appreciated stock price.
The following table sets forth certain information concerning the number
of options exercised by the Named Executive Officers during the year ended
December 31, 1999, and the number of shares covered by both exercisable and
unexercisable stock options held by the Named Executive Officers. Also reported
are values for "in-the-money" options that represent the positive spread between
the respective exercise prices of outstanding options and the fair market value
of the Company's common stock as of December 31, 1999 ($32.38 per share).
Aggregated Option Exercises in the Year Ended December 31, 1999 and Option
Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options at
Shares Options at Year-End Year-End (1)
Acquired on Value ---------------------------- ----------------------------
Name Exercise Realized(1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Sam Eletr -- $ -- 190,583 26,917 $5,784,645 $ 822,954
Norman J. W. Russell -- -- 0 200,000 0 4,214,000
Edward C. Albini -- -- 18,333 31,667 318,627 550,372
Stephen C. Macevicz -- -- 42,000 32,000 1,342,822 802,447
</TABLE>
- ------------
17.
<PAGE>
(1) Based on the fair market value of the Company's common stock at December
31, 1999 ($32.38), minus the exercise price of the options, multiplied by
the number of shares underlying the options.
Employment Severance and Change of Control Agreements
In October 1999, the Company entered into an employment agreement with Dr.
Norman J. W. Russell, President and Chief Executive Officer, providing for an
annual compensation of $255,000 per year and an option to purchase 200,000
shares of common stock at an exercise price of $11.31 per share subject to a
five-year vesting schedule. If Dr. Russell is terminated due to a change in
control of the Company, Dr. Russell's shares covered by the option shall
accelerate so that fifty percent of the then unvested shares covered by the
option shall immediately vest and become exercisable upon the effective date of
the change in control. The Company also provided Dr. Russell with a loan in the
amount of $250,000 for the sole purpose of the purchase of a house, which loan
shall be secured by the property, and is forgivable over a four-year period.
REPORT OF THE COMPENSATION COMMITTEE(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 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,
1999, including the establishment of base salaries, consideration of bonuses and
stock option grants. During 1999, the members of the Compensation Committee were
Kathleen La Porte and Craig Taylor. The Compensation Committee has provided the
following with respect to the compensation of executive officers during the year
ended December 31, 1999:
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 1999, 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 options 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
- ------------------------------
(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.
18.
<PAGE>
100% of the fair market value as quoted on the Nasdaq Stock Market on the last
market trading day prior to the day of determination. Employees receive value
from these grants only if the common stock appreciates in the long term.
Chief Executive Officer Compensation
Dr. Eletr's compensation was established in accordance with the criteria
described above and was determined by the Board primarily on the basis of the
salary received by Dr. Eletr in 1998 and pursuant to discussions between the
Board and Dr. Eletr, with particular consideration given to Dr. Eletr's equity
ownership position in the Company. In establishing compensation, the Board was
mindful of the near complete dependence on Dr. Eletr for the success and
direction of the Company given its early stage of operation as an independent
entity. Because of his ownership position in the Company, the salary established
by the Board 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.
Dr. Russell joined the Company as President and Chief Executive Officer in
October 1999. Pursuant to the terms of an employment agreement, Dr. Russell
receives an annual compensation of $255,000 per year and received an option to
purchase 200,000 shares of common stock at an exercise price of $11.31 per
share, subject to a five-year vesting schedule. Dr. Russell's compensation was
established in accordance with the criteria described above. The Compensation
Committee set Dr. Russell's total annual compensation at a level it believes is
competitive with that of other Chief Executive Officers at other companies in
the biotechnology industry, although at the middle of the range. In addition,
Dr. Russell's stock option grant is at a level and subject to terms that the
Compensation Committee believes will properly motivate and retain Dr. Russell as
the President and Chief Executive Officer of the Company.
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 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:
William K. Bowes, Jr. (effective February 22, 2000)
Kathleen D. LaPorte (resigned February 1, 2000)
Craig Taylor
Stock Performance Graph
The following graph compares the 24-month cumulative total stockholder
return on the common stock of the Company to that of the S&P Biotechnology
Index, the Nasdaq Stock Market and the Hambrecht & Quist Biotechnology Index.*
19.
<PAGE>
COMPARISON OF 24 MONTH CUMULATIVE TOTAL RETURN
AMONG LYNX THERAPEUTICS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX,
THE S & P BIOTECHNOLOGY INDEX AND THE CHASE H & Q BIOTECHNOLOGY INDEX
[LINEAR GRAPH PLOTTED FROM DATA IN TABLE BELOW]
LYNX THERAPEUTICS INC
- --------------------------------------------------------------------------------
12/30/97 12/97 12/98 12/99
LYNX THERAPEUTICS, INC. 100.00 126.21 89.32 251.46
NASDAQ STOCK MARKET (U.S.) 100.00 98.28 138.58 256.45
S & P BIOTECHNOLOGY 100.00 105.87 204.52 469.90
CHASE H & Q BIOTECHNOLOGY 100.00 98.54 150.05 320.74
- ---------------------------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the
Company under the Securities Act or the Exchange Act, whether made before
or after the date hereof and irrespective of any general incorporation
language in any such filing.
20.
<PAGE>
Compensation Committee Interlocks and Insider Participation
As noted above, the Company's Compensation Committee was established in
March 1994 by two non-employee directors, Ms. Kathleen La Porte and Mr. Craig
Taylor. The Compensation Committee is currently composed of two non-employee
directors: Messrs. Bowes and Taylor. Mr. Bowes joined the Compensation Committee
in February 2000, following the resignation of Ms. La Porte, who served on the
committee until her resignation from the Company's Board of Directors in
February 2000. There were no officers or employees of the Company who
participated in deliberations of the Company's Compensation Committee concerning
executive officer compensation during the year ended December 31, 1999.
Certain Relationships and Related Transactions
In November 1999, the Company entered into a loan agreement with Norman J.
W. Russell, Ph.D., officer of the Company. The loan is in the amount of
$250,000, secured by a second mortgage on real property, with interest accruable
at the rate of 6.2% per annum, and subject to early repayment under specified
circumstances. The principal and interest on the loan will be forgiven, based on
Dr. Russell's continuous employment over a four-year period, in the following
amounts: 50% on the second anniversary date of employment; and 25% on each of
the third and fourth anniversary dates of employment.
In April 1997, the Company entered into a full-recourse loan agreement
with Edward C. Albini, an officer of the Company. A note receivable of $250,000
was issued under a stock purchase agreement for the purchase of 50,000 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 in April
2002, 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 6.49% per annum.
For legal services rendered during the calendar year ended December 31,
1999, the Company paid approximately $226,000 to Cooley Godward LLP, the
Company's counsel, of which Mr. Kitch, a director of the Company, is a partner.
The Company's Bylaws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its Bylaws to enter into indemnification agreements with its
directors and officers and to purchase insurance on behalf of any person whom it
is required or permitted to indemnify. Pursuant to this provision, the Company
has entered into indemnity agreements with each of its directors and executive
officers.
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
Edward C. Albini
Secretary
April 14, 2000
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the period ended December 31, 1999, is available
without charge upon written request to: Investor Relations, Lynx Therapeutics,
Inc., 25861 Industrial Blvd., Hayward, California 94545.
21.
<PAGE>
Research Data Group Total Return Worksheet
Begin: 12/30/1997
Period End: 12/31/1999
LYNX THERAPEUTICS INC End: 12/31/1999
<TABLE>
<CAPTION>
Beginning
Transaction Closing No. Of Dividend Dividend Shares Ending Cum. Tot.
Date* Type Price** Shares*** per Share Paid Reinvested Shares Return
- ----- ---- ------- --------- --------- ---- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
30-Dec-97 Begin 12.875 7.77 7.767 100.00
31-Dec-97 MonthEnd 16.250 7.77 7.767 126.21
31-Mar-98 MonthEnd 10.000 7.77 7.767 77.67
30-Jun-98 MonthEnd 9.375 7.77 7.767 72.82
30-Sep-98 MonthEnd 8.125 7.77 7.767 63.11
31-Dec-98 MonthEnd 11.500 7.77 7.767 89.32
31-Mar-99 MonthEnd 9.375 7.77 7.767 72.82
30-Jun-99 MonthEnd 11.313 7.77 7.767 87.86
30-Sep-99 MonthEnd 11.250 7.77 7.767 87.38
31-Dec-99 End 32.375 7.77 7.767 251.46
</TABLE>
* Specified ending dates or ex-dividends dates.
** All Closing Prices and Dividends are adjusted for stock splits and stock
dividends.
*** 'Begin Shares' based on $100 investment.
<PAGE>
LYNX THERAPEUTICS, INC.
1992 STOCK OPTION PLAN
Adopted July 1, 1992
Amended February 26, 1998
Approved By Stockholders May 18, 1998
Amended March 16, 199
Approved by the Stockholders May 12, 1999
Amended December 8, 1999
Termination Date: March 11, 2006
1. Purposes.
(a) Eligible Option Recipients. The persons eligible to receive Options are
the Employees, Directors and Consultants of the Company and its Affiliates.
(b) Available Options. The purpose of the Plan is to provide a means by
which eligible recipients of Options may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of the following
Options: (i) Incentive Stock Options, and (ii) Nonstatutory Stock Options.
(c) General Purpose. The Company, by means of the Plan, seeks to retain the
services of the group of persons eligible to receive Options, to secure and
retain the services of new members of this group and to provide incentives for
such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance with
subsection 3(c).
(e) "Common Stock" means the common stock of the Company.
(f) "Company" means Lynx Therapeutics, Inc., a Delaware corporation.
(g) "Consultant" means any person, including an advisor, (1) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (2) who is a member of the Board of Directors
of an Affiliate. However, the term
1.
<PAGE>
"Consultant" shall not include either Directors of the Company who are not
compensated by the Company for their services as Directors or Directors of the
Company who are merely paid a director's fee by the Company for their services
as Directors.
(h) "Continuous Service" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Optionholder's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Optionholder renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Optionholder
renders such service, provided that there is no interruption or termination of
the Optionholder's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
(i) "Covered Employee" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
(j) "Director" means a member of the Board of Directors of the Company.
(k) "Disability" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "Employee" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(n) "Fair Market Value" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
2.
<PAGE>
(o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "Non-Employee Director" means a Director of the Company who either (i)
is not a current Employee or Officer of the Company or its parent or a
subsidiary, does not receive compensation (directly or indirectly) from the
Company or its parent or a subsidiary for services rendered as a consultant or
in any capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K promulgated
pursuant to the Securities Act ("Regulation S-K")), does not possess an interest
in any other transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business relationship as to
which disclosure would be required under Item 404(b) of Regulation S-K; or (ii)
is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(q) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(r) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means an Incentive Stock Option or a Nonstatutory Stock Option
granted pursuant to the Plan.
(t) "Option Agreement" means a written agreement between the Company and an
Optionholder evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(u) "Optionholder" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
(v) "Outside Director" means a Director of the Company who either (i) is
not a current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the Code),
is not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(w) "Plan" means this Lynx Therapeutics, Inc. 1992 Stock Option Plan.
(x) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any
successor to Rule 16b-3, as in effect from time to time.
(y) "Securities Act" means the Securities Act of 1933, as amended.
3.
<PAGE>
(z) "Ten Percent Stockholder" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. Administration.
(a) Administration by Board. The Board will administer the Plan unless and
until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) Powers of Board. The board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under
the Plan shall be granted Options; when and how each Option shall be granted;
what type or combination of types of Option shall be granted; the provisions of
each Option granted (which need not be identical), including the time or times
when a person shall be permitted to receive stock pursuant to an Option; and the
number of shares with respect to which an Option shall be granted to each such
person.
(ii) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 11.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) Delegation to Committee.
(i) General. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) Committee Composition when Common Stock is Publicly Traded. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the
4.
<PAGE>
Code, and/or solely of two or more Non-Employee Directors, in accordance with
Rule 16b-3. Within the scope of such authority, the Board or the Committee may
(i) delegate to a committee of one or more members of the Board who are not
Outside Directors, the authority to grant Options to eligible persons who are
either (a) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Option or (b)
not persons with respect to whom the Company wishes to comply with Section
162(m) of the Code and/or (ii) delegate to a committee of one or more members of
the Board who are not Non-Employee Directors the authority to grant Options to
eligible persons who are not then subject to Section 16 of the Exchange Act.
4. Shares Subject to the Plan.
(a) Share Reserve. Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate four million eight hundred thousand
(4,800,000) shares of Common Stock less any shares of Common Stock remaining
outstanding which were originally issued to Employees, Officers or Directors of,
or Consultants to, the Company pursuant to stock purchase agreements or similar
compensatory arrangements approved by the Board.
(b) Reversion of Shares to the Share Reserve. If any Option shall for any
reason expire or otherwise terminate, in whole or in part, without having been
exercised in full, the stock not acquired under such Option shall revert to and
again become available for issuance under the Plan. If any Common Stock acquired
pursuant to the exercise of an Option shall for any reason be repurchased by the
Company under an unvested share repurchase option provided under the Plan, the
stock repurchased by the Company under such repurchase option shall not revert
to and again become available for issuance under the Plan.
(c) Source of Shares. The stock subject to the Plan may be unissued shares
or reacquired shares, bought on the market or otherwise.
5. Eligibility.
(a) Eligibility for Specific Options. Incentive Stock Options may be
granted only to Employees. Nonstatutory Stock Options may be granted to
Employees, Directors and Consultants.
(b) Ten Percent Stockholders. No Ten Percent Stockholder shall be eligible
for the grant of an Incentive Stock Option unless the exercise price of such
Option is at least one hundred ten percent (110%) of the Fair Market Value of
the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.
(c) Section 162(m) Limitation. Subject to the provisions of Section 10
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options covering more than One Million (1,000,000) shares of the
Common Stock during any calendar year.
(d) Consultants.
5.
<PAGE>
(i) A Consultant shall not be eligible for the grant of an Option if,
at the time of grant, a Form S-8 Registration Statement under the Securities Act
("Form S-8") is not available to register either the offer or the sale of the
Company's securities to such Consultant because of the nature of the services
that the Consultant is providing to the Company, or because the Consultant is
not a natural person, or as otherwise provided by the rules governing the use of
Form S-8, unless the Company determines both (i) that such grant (A) shall be
registered in another manner under the Securities Act (e.g., on a Form S-3
Registration Statement) or (B) does not require registration under the
Securities Act in order to comply with the requirements of the Securities Act,
if applicable, and (ii) that such grant complies with the securities laws of all
other relevant jurisdictions.
(ii) As of April 7, 1999 Form S-8 generally is available to
consultants and advisors only if (i) they are natural persons; (ii) they provide
bona fide services to the issuer, its parents, its majority-owned subsidiaries
or majority-owned subsidiaries of the issuer's parent; and (iii) the services
are not in connection with the offer or sale of securities in a capital-raising
transaction, and do not directly or indirectly promote or maintain a market for
the issuer's securities.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. The provisions of separate Options
need not be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of each
of the following provisions:
(a) Term. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) Exercise Price of an Incentive Stock Option. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of the stock subject to the Option on the date the Option
is granted. Notwithstanding the foregoing, an Incentive Stock Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) Exercise Price of a Nonstatutory Stock Option. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or
6.
<PAGE>
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(d) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by delivery to the
Company of other Common Stock, according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Optionholder or in any other
form of legal consideration that may be acceptable to the Board; provided,
however, that at any time that the Company is incorporated in Delaware, payment
of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) Transferability of an Incentive Stock Option. An Incentive Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who, in
the event of the death of the Optionholder, shall thereafter be entitled to
exercise the Option.
(f) Transferability of a Nonstatutory Stock Option. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing
provisions of this subsection 6(f), the Optionholder may, by delivering written
notice to the Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionholder, shall thereafter be
entitled to exercise the Option.
(g) Vesting Generally. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(h) Termination of Continuous Service. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise it as
7.
<PAGE>
of the date of termination) but only within such period of time ending on the
earlier of (i) the date three (3) months following the termination of the
Optionholder's Continuous Service (or such longer or shorter period specified in
the Option Agreement), or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate.
(i) Extension of Termination Date. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 6(a) or (ii) the expiration of a period of
three (3) months after the termination of the Optionholder's Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements.
(j) Disability of Optionholder. In the event an Optionholder's Continuous
Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement) or (ii) the expiration of the term of the Option as set forth
in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(k) Death of Optionholder. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death) by the
Optionholder's estate, by a person who acquired the right to exercise the Option
by bequest or inheritance or by a person designated to exercise the option upon
the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within
the period ending on the earlier of (1) the date twelve (12) months following
the date of death (or such longer or shorter period specified in the Option
Agreement) or (2) the expiration of the term of such Option as set forth in the
Option Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.
(l) Early Exercise. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased may be subject to an unvested share repurchase
option in favor of the Company or to any other restriction the Board determines
to be appropriate.
8.
<PAGE>
7. Covenants of the Company.
(a) Availability of Shares. During the terms of the Options, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such Options.
(b) Securities Law Compliance. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Options and to issue and sell shares of Common Stock
upon exercise of the Options; provided, however, that this undertaking shall not
require the Company to register under the Securities Act the Plan, any Option or
any stock issued or issuable pursuant to any such Option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory commission or
agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be relieved
from any liability for failure to issue and sell stock upon exercise of such
Options unless and until such authority is obtained.
8. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. Miscellaneous.
(a) Acceleration of Exercisability and Vesting. The Board shall have the
power to accelerate the time at which an Option may first be exercised or the
time during which an Option or any part thereof will vest in accordance with the
Plan, notwithstanding the provisions in the Option stating the time at which it
may first be exercised or the time during which it will vest.
(b) Stockholder Rights. No Optionholder shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares subject
to such Option unless and until such Optionholder has satisfied all requirements
for exercise of the Option pursuant to its terms.
(c) No Employment or other Service Rights. Nothing in the Plan or any
instrument executed or Option granted pursuant thereto shall confer upon any
Optionholder or other holder of Options any right to continue to serve the
Company or an Affiliate in the capacity in effect at the time the Option was
granted or shall affect the right of the Company or an Affiliate to terminate
(i) the employment of an Employee with or without notice and with or without
cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.
(d) Incentive Stock Option $100,000 Limitation. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of stock with
respect to which Incentive Stock Options are exercisable for the first time by
any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the
9.
<PAGE>
Options or portions thereof which exceed such limit (according to the order in
which they were granted) shall be treated as Nonstatutory Stock Options.
(e) Investment Assurances. The Company may require an Optionholder, as a
condition of exercising or acquiring stock under any Option, (i) to give written
assurances satisfactory to the Company as to the Optionholder's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable and
experienced in financial and business matters and that he or she is capable of
evaluating, alone or together with the purchaser representative, the merits and
risks of exercising the Option; and (ii) to give written assurances satisfactory
to the Company stating that the Optionholder is acquiring the stock subject to
the Option for the Optionholder's own account and not with any present intention
of selling or otherwise distributing the stock. The foregoing requirements, and
any assurances given pursuant to such requirements, shall be inoperative if
(iii) the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the stock.
(f) Withholding Obligations. To the extent provided by the terms of an
Option Agreement, the Optionholder may satisfy any federal, state or local tax
withholding obligation relating to the exercise or acquisition of stock under an
Option by any of the following means (in addition to the Company's right to
withhold from any compensation paid to the Optionholder by the Company) or by a
combination of such means: (i) tendering a cash payment; (ii) authorizing the
Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Optionholder as a result of the exercise or acquisition of stock
under the Option; or (iii) delivering to the Company owned and unencumbered
shares of the Common Stock.
10. Adjustments upon Changes in Stock.
(a) Capitalization Adjustments. If any change is made in the stock subject
to the Plan, or subject to any Option, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
subsection 4(a) and the maximum number of securities subject to award to any
person pursuant to subsection 5(c), and the outstanding Options will be
appropriately adjusted in the class(es) and number of securities and price per
share of stock subject to such outstanding Options. Such adjustments shall be
made by the Board, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a transaction "without receipt of consideration" by the
Company.)
10.
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(b) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then such Options shall be terminated
if not exercised (if applicable) prior to such event.
(c) Change in Control--Asset Sale, Merger, Consolidation or Reverse Merger.
In the event of (1) a sale of substantially all of the assets of the Company,
(2) a merger or consolidation in which the Company is not the surviving
corporation or (3) a reverse merger in which the Company is the surviving
corporation but the shares of Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise, then any surviving corporation or
acquiring corporation shall assume any Options outstanding under the Plan or
shall substitute similar Options (including an award to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection) for those outstanding under the Plan. In the event any surviving
corporation or acquiring corporation refuses to assume such Options or to
substitute similar Options for those outstanding under the Plan, then with
respect to Options held by Optionholders whose Continuous Service has not
terminated, the vesting shall be accelerated in full, and the Options shall
terminate if not exercised at or prior to such event. With respect to any other
Options outstanding under the Plan, such Options shall terminate if not
exercised prior to such event.
11. Amendment of the Plan and Options.
(a) Amendment of Plan. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 10 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) Stockholder Approval. The Board may, in its sole discretion, submit any
other amendment to the Plan for stockholder approval, including, but not limited
to, amendments to the Plan intended to satisfy the requirements of Section
162(m) of the Code and the regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) Contemplated Amendments. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) No Impairment of Rights. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(e) Amendment of Options. The Board at any time, and from time to time, may
amend the terms of any one or more Options; provided, however, that the rights
under any Option shall
11.
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not be impaired by any such amendment unless (i) the Company requests the
consent of the Optionholder and (ii) the Optionholder consents in writing.
12. Termination or Suspension of the Plan.
(a) Plan Term. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on March 11, 2006. No Options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) No Impairment of Rights. Rights and obligations under any Option
granted while the Plan is in effect shall not be impaired by suspension or
termination of the Plan, except with the written consent of the Optionholder.
13. Effective Date of Plan.
The Plan shall become effective as determined by the Board, but no Option
shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
12.
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LYNX THERAPEUTICS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2000
The undersigned hereby appoints Norman J. W. Russell, Ph.D. and Edward C.
Albini, 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, 25861 Industrial Blvd., Hayward, CA 94545 at 9:00
a.m. (local time), and at any and all postponements, 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 PROPOSALS 2, 3 AND 4 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTORS LISTED
BELOW AND A VOTE FOR PROPOSAL 2, 3 AND 4.
1. To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are elected.
NOMINEES: Sam Eletr, William K. Bowes, Jr., Sydney Brenner, James C.
Kitch, Norman J. W. Russell, Craig C. Taylor
2. To approve the Company's 1992 Stock Option Plan, as amended, to
increase the aggregate number of shares of common stock authorized for
issuance under such plan by 600,000.
3. To approve the Company's Amended and Restated Articles of Incorporation
to increase the number of authorized shares of common stock from
20,000,000 to 60,000,000.
4. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for its fiscal year ending December 31, 2000.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
