March 14,
2008
TO OUR
STOCKHOLDERS:
I am
pleased to invite you to attend the 2008 annual meeting of stockholders of
Lexicon Pharmaceuticals, Inc. to be held on Wednesday, April 23, 2008 at 1:30
p.m., local time, at The Marriott Woodlands Waterway Hotel and Convention
Center, 1601 Lake Robbins Drive, The Woodlands, Texas.
Your vote
is important, regardless of the number of shares that you
hold. Whether or not you plan to attend the annual meeting, I hope
you will vote as soon as possible, either electronically on the Internet, by
telephone or by signing and returning the enclosed proxy card. Your
proxy will not be used if you are present at the annual meeting and prefer to
vote in person or if you revoke your proxy.
Thank you
for your ongoing support of and continued interest in Lexicon
Pharmaceuticals. We look forward to seeing you at the annual
meeting.
Sincerely,
|
|
|
|
/s/ Arthur T. Sands,
M.D., Ph.D.
|
|
|
|
Arthur T.
Sands, M.D., Ph.D.
|
|
President and Chief Executive
Officer
|
|
LEXICON
PHARMACEUTICALS, INC.
8800
Technology Forest Place
The
Woodlands, Texas 77381
(281)
863-3000
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD APRIL 23, 2008
TO OUR
STOCKHOLDERS:
The
annual meeting of stockholders of Lexicon Pharmaceuticals, Inc. will be held on
Wednesday, April 23, 2008 at 1:30 p.m., local time, at The Marriott Woodlands
Waterway Hotel and Convention Center, 1601 Lake Robbins Drive, The Woodlands,
Texas, to:
·
|
elect
four Class II directors;
|
·
|
ratify
and approve the appointment of Ernst & Young LLP as our independent
auditors for the fiscal year ending December 31, 2008;
and
|
·
|
act
on any other business that properly comes before the annual
meeting.
|
You are
entitled to vote at the annual meeting only if you are the record owner of
shares of our common stock at the close of business on February 26,
2008.
It is
important that your shares be represented at the annual meeting whether or not
you plan to attend.
Please cast
your vote electronically on the Internet, by telephone or by signing and
returning the enclosed proxy card as promptly as possible.
If
you are present at the annual meeting, and wish to do so, you may revoke the
proxy and vote in person.
By
order of the board of directors,
|
|
|
|
/s/ Jeffrey L.
Wade
|
|
|
|
Jeffrey L.
Wade
|
|
Secretary
|
|
The
Woodlands, Texas
March 14,
2008
LEXICON
PHARMACEUTICALS, INC.
8800
Technology Forest Place
The
Woodlands, Texas 77381
(281)
863-3000
PROXY
STATEMENT
FOR
ANNUAL
MEETING OF STOCKHOLDERS
To
Be Held April 23, 2008
GENERAL
INFORMATION
Purpose
of this Proxy Statement
We have
prepared this proxy statement to solicit proxies on behalf of our board of
directors for use at our 2008 annual meeting of stockholders and any adjournment
or postponement of such meeting.
Notice
of Internet Availability of Proxy Materials
As
permitted by rules recently adopted by the Securities and Exchange Commission,
we have elected to provide access to our proxy materials over the
Internet. Accordingly, on or about March 14, 2008, we are
mailing to our stockholders a notice containing instructions on how to access
our proxy materials, including our proxy statement and annual report, and vote
electronically over the Internet. The notice also provides
instructions on how stockholders may request a paper copy of our proxy materials
free of charge. Our proxy materials may be accessed by stockholders
at any time after the date of mailing of the notice.
Time
and Place of Annual Meeting
The
annual meeting will be held on Wednesday, April 23, 2008 at 1:30 p.m., local
time, at The Marriott Woodlands Waterway Hotel and Convention Center, 1601 Lake
Robbins Drive, The Woodlands, Texas.
Matters
to Be Considered at the Annual Meeting
At the
annual meeting, our stockholders will be asked to consider and act upon the
following matters:
·
|
the
election of four Class II directors;
and
|
·
|
a
proposal to ratify and approve the appointment of Ernst & Young LLP as
our independent auditors for the fiscal year ending December 31,
2008.
|
Our board
of directors does not intend to bring any other matters before the annual
meeting and has not been informed that any other matters are to be presented by
others. Our bylaws contain several requirements that must be
satisfied in order for any of our stockholders to bring a proposal before one of
our annual meetings, including a requirement of delivering proper advance notice
to us. Stockholders are advised to review our bylaws if they intend
to present a proposal at any of our annual meetings.
Record
Date for Determining Entitlement to Vote
You are
entitled to vote at the annual meeting if you were the record owner of shares of
our common stock as of the close of business on February 26, 2008, the record
date for the annual meeting established by our board of directors.
How
to Vote Your Shares
You may
vote in person at the annual meeting or by proxy. To ensure that your
shares are represented at the annual meeting, we recommend you vote by proxy
even if you plan to attend the annual meeting in person. Even if you
vote by proxy, if you wish, you can revoke your proxy and vote in person at the
annual meeting. If you want to vote at the annual meeting but your
shares are held by an intermediary, such as a broker or bank, you will need to
obtain from the intermediary either proof of your ownership of such shares as of
February 26, 2008 or a proxy from such intermediary authorizing you to vote your
shares at the meeting.
You may
receive more than one proxy depending on how you hold your shares. If
you hold your shares through an intermediary, such as a broker or bank, you may
receive materials from them asking you how you want your shares to be voted at
the annual meeting.
Voting
by Proxy
By Internet or
Telephone.
You may vote electronically on the Internet or by
telephone by following the instructions contained on the notice of Internet
availability of our proxy materials. If you hold your shares through
an intermediary, such as a broker or bank, please follow the voting instructions
contained on the voting card used by the intermediary.
By Mail
. If you
request a paper copy of our proxy materials, you may vote by mail by completing,
dating and signing the proxy card provided and mailing it in the pre-addressed
envelope enclosed with the paper copy of our proxy materials.
Quorum
We must
have a quorum to conduct any business at the annual meeting. This means that at
least a majority of our outstanding shares eligible to vote at the annual
meeting must be represented at the annual meeting, either in person or by
proxy. Abstentions are counted for purposes of determining whether a
quorum is present. In addition, shares of our common stock held by
intermediaries that are voted for at least one matter at the annual meeting will
be counted as being present for purposes of determining a quorum for all
matters, even if the beneficial owner’s discretion has been withheld for voting
on some or all other matters (commonly referred to as a “broker
non-vote”).
Outstanding
Shares
On the
record date, we had 136,795,346 shares of our common stock
outstanding. If you were the record owner of shares of our common
stock on the record date, you will be entitled to one vote for each share of
stock that you own on each matter that is called to vote at the annual
meeting.
Vote
Needed to Approve Proposals
Our Class
II directors will be elected by a plurality vote. As a result, if a
quorum is present at the annual meeting, the four persons receiving the greatest
number of votes will be elected to serve as our Class II directors. Withholding
authority to vote for a director nominee will not affect the outcome of the
election of directors.
The
ratification and approval of the appointment of Ernst & Young LLP as our
independent auditors for the year ending December 31, 2008 will require the
affirmative vote of a majority of the votes cast with respect to such
matter. Any other business that may properly come before the annual
meeting for a vote will require the affirmative vote of a majority of the votes
cast with respect to such matter unless a greater vote is required by law or our
charter or bylaws. On any such matter, any abstention from voting or
broker non-vote will not count as a vote for or against these proposals and will
not be considered in calculating the number of votes necessary for their
approval.
How
Your Proxy Will Be Voted
Giving us
your proxy means that you are authorizing us to vote your shares at the annual
meeting in the manner you direct. You may vote for our nominees for election as
Class II directors or withhold your vote for any one or more of those
nominees. You may vote for or against the appointment of Ernst &
Young LLP as our independent auditors for the year ending December 31, 2008 or
abstain from voting on that proposal.
If you
vote by proxy and do not withhold authority to vote for the election of our
nominees for election as Class II directors, all of your shares will be voted
for the election of those nominees. If you withhold authority to vote
for one or more of our nominees for election as Class II directors, none of your
shares will be voted for those nominees.
If any of
our nominees for election as Class II directors become unavailable for any
reason before the election, we may reduce the number of directors serving on our
board of directors, or our board of directors may designate substitute nominees,
as necessary. We have no reason to believe that any of our nominees
for election as Class II directors will be unavailable. If our board of
directors designates any substitute nominees, the persons receiving your proxy
will vote your shares for such substitute(s) if they are instructed to do so by
our board of directors or, in the absence of any such instructions, in
accordance with their own best judgment.
If you
vote by proxy but do not specify how you want your shares voted, your shares
will be voted in favor of our nominees for election as Class II directors and in
favor of the appointment of Ernst & Young LLP as our independent auditors
for the year ending December 31, 2008.
If you
vote by proxy and any additional business properly comes before the annual
meeting, the persons receiving your proxy will vote your shares on those matters
as instructed by our board of directors or, in the absence of any such
instructions, in accordance with their own best judgment. As of the date of this
proxy statement, we are not aware of any other matter to be raised at the annual
meeting.
How
to Revoke Your Proxy
You may
revoke your proxy at any time before your shares are voted by providing our
corporate secretary with either a new proxy with a later date or a written
notice of your desire to revoke your proxy at the following
address:
Lexicon
Pharmaceuticals, Inc.
8800
Technology Forest Place
The
Woodlands, Texas 77381
Attention:
Corporate Secretary
You may
also revoke your proxy at any time prior to your shares having been voted by
attending the annual meeting in person and notifying the inspector of election
of your desire to revoke your proxy. Your proxy will not automatically be
revoked merely because you attend the annual meeting.
Inspector
of Election
Broadridge
Financial Solutions, Inc. will count votes and provide a representative who will
serve as an inspector of election for the annual meeting.
List
of Stockholders Entitled to Vote
A list of
our stockholders entitled to vote at the annual meeting will be available for
inspection at the annual meeting. The stockholder list will also be
available for inspection for ten days prior to the annual meeting at our
corporate offices located at 8800 Technology Forest Place, The Woodlands,
Texas. Any inspection of this list at our offices will need to be
conducted during ordinary business hours. If you wish to conduct an
inspection of the stockholder list, we request that you please contact our
corporate secretary before coming to our offices.
Solicitation
of Proxies and Expenses
We are
asking for your proxy on behalf of our board of directors. We will
bear the entire cost of preparing, printing and soliciting
proxies. We will send notices of Internet availability of proxy
materials and, if requested, paper copies of our proxy materials to all of our
stockholders of record as of the record date and to all intermediaries, such as
brokers and banks, that held any of our shares on that date on behalf of
others. These intermediaries will then forward the notices and, if
requested, paper copies of our proxy materials to the beneficial owners of our
shares, and we will reimburse them for their reasonable out-of-pocket expenses
for forwarding such materials. Our directors, officers and employees
may solicit proxies by mail, in person or by telephone or other electronic
communication. Our directors, officers and employees will not receive
additional compensation for their solicitation efforts, but they will be
reimbursed for any out-of-pocket expenses they incur.
Householding
As
permitted by rules adopted by the Securities and Exchange Commission, we are
delivering a single notice of Internet availability of proxy materials, annual
report and proxy statement, as applicable, to any household at which two or more
stockholders reside if we believe the stockholders are members of the same
family, unless otherwise instructed by one or more of the
stockholders. We will promptly deliver separate copies of these
documents upon the written or oral request of any stockholder at a shared
address to which a single copy of the documents were delivered.
If your
household received a single set of any of these documents, but you would prefer
to receive your own copy, or if you share an address with another stockholder
and together both of you would like to receive only a single set of these
documents, please follow these instructions:
·
|
If
your shares are registered in your own name, please contact our transfer
agent, BNY Mellon Shareowner Services, and inform them of your request by
calling them at (800) 635-9270 or writing them at 480 Washington
Boulevard., Jersey City, New Jersey 07310. If you would like to
request any additional copies of our proxy materials, you will also need
to contact Broadridge and inform them of your request by calling them at
(800) 542-1061 or writing them at Householding Department,
51 Mercedes Way, Edgewood, New York
11717.
|
·
|
If
an intermediary, such as a broker or bank, holds your shares, please
contact Broadridge and inform them of your request by calling them at
(800) 542-1061 or writing them at Householding Department,
51 Mercedes Way, Edgewood, New York 11717. Be sure to
include your name, the name of your brokerage firm and your account
number.
|
PROPOSAL
NUMBER 1:
ELECTION
OF DIRECTORS
Our board
of directors, which currently has ten members, is divided or “classified” into
three classes. Directors in each class are elected to hold office for
a term ending on the date of the third annual meeting following the annual
meeting at which they were elected. The current term of our Class II
directors will expire at this annual meeting. The current terms of our Class III
and Class I directors will expire at our 2009 and 2010 annual meetings of
stockholders, respectively.
The board
of directors has nominated and urges you to vote for the election of the
individuals identified below, who have been nominated to serve as Class II
directors until our 2011 annual meeting of stockholders or until their
successors are duly elected and qualified. Each of these individuals
is a member of our present board of directors. Your signed proxy will
be voted for the nominees named below unless you specifically indicate on the
proxy that you are withholding your vote.
Nominees
for Class II Directors
The
following individuals are nominated for election as Class II
directors:
Name
|
|
Age
|
|
Position with the
Company
|
|
Year
First
Became a
Director
|
Samuel
L. Barker, Ph.D.
|
|
65
|
|
Chairman
of the Board of Directors (Class II)
|
|
2000
|
Christopher
J. Sobecki
|
|
49
|
|
Director
(Class II)
|
|
2007
|
Judith
L. Swain, M.D.
|
|
59
|
|
Director
(Class II)
|
|
2007
|
Kathleen
M. Wiltsey
|
|
52
|
|
Director
(Class II)
|
|
2007
|
Samuel L. Barker, Ph.D.
has
been a director since March 2000 and became chairman of our board of directors
in March 2005. In March 2001, Dr. Barker co-founded Clearview Projects, Inc., a
provider of partnering and transaction services to biopharmaceutical companies,
and served as its president and chief executive officer from July 2003 until
November 2004. Dr. Barker served in a series of leadership positions at
Bristol-Myers Squibb Company until his retirement in 1999. His positions at
Bristol-Myers Squibb included service as executive vice president, Worldwide
Franchise Management and Strategy during 1998; president, United States
Pharmaceuticals from 1992 to 1997; and president, Bristol-Myers Squibb
Intercontinental Commercial Operations from 1990 to 1992. Prior to
1990, Dr. Barker held executive positions in research and development,
manufacturing, finance, business development and sales and marketing at Squibb
Pharmaceuticals. Dr. Barker currently serves as a director of
AtheroGenics, Inc. and Cadence Pharmaceuticals, Inc. Dr. Barker
received his B.S. from Henderson State College, his M.S. from the University of
Arkansas and his Ph.D. from Purdue University.
Christopher J.
Sobecki
has been a director since August 2007 and is a managing
director of The Invus Group, LLC, which he joined in 1989. Mr.
Sobecki is currently a director of Weight Watchers International, Inc. and
NitroMed, Inc., as well as a number of private companies in which Invus has
invested. He holds a B.S. in industrial engineering from Purdue University
and an M.B.A. from Harvard University. Mr. Sobecki is a designee
of Invus, L.P. pursuant to our stockholders’ agreement with Invus described
under the heading “Transactions with Related Persons — Arrangements with
Invus.”
Judith L. Swain, M.D.
has
been a director since September 2007. Dr. Swain is the executive
director of the Singapore Institute for Clinical Sciences within A*STAR, and the
Lien Chow Professor of Medicine at the National University of
Singapore. From 2005 to 2006, she was the dean for translational
medicine at the University of California, San Diego, where she continues to
maintain an appointment as an adjunct professor of medicine. Dr.
Swain served as chair of the Department of Medicine at Stanford University from
1997 to 2005, and previously served on the medical faculties of the University
of Pennsylvania and Duke University. Dr. Swain is currently a
director of the Burroughs Wellcome Fund, a member of the Academic Research
Council in Singapore and on the Scientific Advisory Board of the Doris Duke
Charitable Foundation. She has served in a number of national and
international leadership roles and as a director or member of the scientific
advisory boards for a number of biomedical technology companies and is
co-founder of Synecor, LLC. Dr. Swain received her B.S. from the
University of California, Los Angeles and her M.D. from the University of
California, San Diego.
Kathleen M. Wiltsey
has been
a director since February 2007. From 1984 through 1998, Ms. Wiltsey served in a
series of senior marketing and business development positions at Amgen Inc.,
including as co-product development team leader and marketing director for
EPOGEN ® and as vice president with responsibility for Amgen’s product licensing
function. From May to October 2006, Ms. Wiltsey served the X Prize Foundation as
executive director for the development and launch of the Archon X PRIZE for
Genomics, a global technology competition to dramatically reduce the cost of
sequencing human genomes and accelerate personalized medicine. Ms. Wiltsey has
served in a variety of business and corporate development advisory roles for
numerous biotechnology companies and is currently a director of Sequenom, Inc.
and president of the board of The Associates of the California Institute of
Technology. She holds a B.S. from the Colorado School of Mines and an M.B.A.
from Harvard University.
The
Board of Directors recommends that stockholders vote “FOR” the foregoing
nominees for election as Class II directors.
Current
and Continuing Directors
The
current directors of the Company are identified below:
Name
|
|
Age
|
|
Position with the
Company
|
Arthur
T.
Sands
, M.D., Ph.D.
|
|
46
|
|
President
and Chief Executive Officer and Director (Class III)
|
Samuel L. Barker, Ph.D
.
(1)
|
|
65
|
|
Chairman
of the Board of Directors (Class II)
|
Philippe J. Amouyal
(2)
|
|
49
|
|
Director
(Class III)
|
Raymond Debbane
(3)
|
|
53
|
|
Director
(Class I)
|
Robert J. Lefkowitz, M.D.
(3)
|
|
64
|
|
Director
(Class I)
|
Alan S. Nies, M.D.
(2)
|
|
70
|
|
Director
(Class I)
|
Frank P. Palantoni
(1)
(2)
|
|
50
|
|
Director
(Class III)
|
Christopher
J. Sobecki
|
|
49
|
|
Director
(Class II)
|
Judith L. Swain, M.D.
(3)
|
|
59
|
|
Director
(Class II)
|
Kathleen M. Wiltsey
(1)
|
|
52
|
|
Director
(Class II)
|
(1)
|
Member
of the Audit Committee
|
(2)
|
Member
of the Compensation Committee
|
(3)
|
Member
of the Corporate Governance
Committee
|
Information
regarding the business experience of Dr. Barker, Mr. Sobecki, Dr. Swain and Ms.
Wiltsey is set forth above under the heading “— Nominees for Class II
Directors.”
Arthur T. Sands, M.D., Ph.D.
co-founded our company and has been our president and chief executive officer
and a director since September 1995. At Lexicon, Dr. Sands pioneered the
development of large-scale gene knockout technology for use in drug
discovery. Before founding Lexicon, Dr. Sands served as an American
Cancer Society postdoctoral fellow in the Department of Human and Molecular
Genetics at Baylor College of Medicine. Dr. Sands is a member of the
board of directors of the Texas Institute for Genomic Medicine. He
received his B.A. in economics and political science from Yale University and
his M.D. and Ph.D. from Baylor College of Medicine.
Philippe J. Amouyal
has
been a director since August 2007 and is a managing director of The Invus Group,
LLC, a position he has held since 1999. Previously, Mr. Amouyal was a vice
president and director of The Boston Consulting Group, Inc. in Boston,
Massachusetts, where he coordinated the global technology and electronics
practice through most of the 1990s. Mr. Amouyal is a director of Weight
Watchers International, Inc., as well as a number of private companies in which
Invus has invested. He holds an M.S. in engineering and a DEA in management
from Ecole Centrale de Paris and was a research fellow at the Center for Policy
Alternatives of the Massachusetts Institute of Technology. Mr.
Amouyal is a designee of Invus, L.P. pursuant to our stockholders’ agreement
with Invus described under the heading “Transactions with Related Persons —
Arrangements with Invus.”
Raymond Debbane
has been
a director since August 2007. Mr. Debbane is president and chief
executive officer of The Invus Group, LLC, which he founded in New York in 1985
as the exclusive investment advisor of Benelux-based Artal Group S.A. In
1999, Artal became the controlling shareholder of Weight Watchers International,
Inc., for which Mr. Debbane serves as chairman of the board of
directors. He also serves as chairman or director of a number of
private companies in which Invus and Artal Group S.A. have
invested. Before founding The Invus Group, Mr. Debbane was a
manager in the Paris office of The Boston Consulting Group, Inc., where he did
consulting work for a number of major European and international
companies. Mr. Debbane holds an
M.B.A. from Stanford University, an M.S. in food science and
technology from the University of California at Davis, and a B.S in agricultural
sciences and agricultural engineering from American University of
Beirut. Mr. Debbane is a designee of Invus, L.P. pursuant to our
stockholders’ agreement with Invus described under the heading “Transactions
with Related Persons — Arrangements with Invus.”
Robert J. Lefkowitz, M.D.
has
been a director since February 2001 and a consultant to our company since March
2003. Dr. Lefkowitz is the James B. Duke Professor of Medicine,
professor of biochemistry and a Howard Hughes Medical Institute investigator at
Duke University Medical Center, where he has served on the faculty since 1973.
He is a member of the National Academy of Sciences. Dr. Lefkowitz received his
B.A. from Columbia University and his M.D. from Columbia University College of
Physicians and Surgeons.
Alan S. Nies, M.D.
has been a
director since November 2003 and chairman of our medical advisory board since
March 2003. From 1992 through September 2002, Dr. Nies served in a
series of senior management positions at Merck & Co. Inc., most
recently as senior vice president, clinical sciences from 1999 to 2002. Prior to
joining Merck, Dr. Nies spent fifteen years as professor of medicine and
pharmacology and head of the Division of Clinical Pharmacology at the University
of Colorado Health Sciences Center. Dr. Nies holds a B.S. from
Stanford University and an M.D. from Harvard Medical School.
Frank P. Palantoni
has been a
director since November 2004. Mr. Palantoni served as chief executive officer of
Prestige Brands Holding, Inc. from April to June 2006 and as a director from
January to June 2006. From 1998 to 2004, Mr. Palantoni held a variety
of senior management positions with Novartis AG, most recently as president and
chief executive officer, worldwide of its Gerber Products Company, Novartis
Infant and Baby Division. Mr. Palantoni also served as president and chief
executive officer for North American operations of Novartis Consumer Health
Division from 2000 to 2001. Prior to joining Novartis, he held a series of
senior management positions with The Danone Group. He holds a B.S. from Tufts
University and an M.B.A. from Columbia University.
PROPOSAL
NUMBER 2:
RATIFICATION
AND APPROVAL OF INDEPENDENT AUDITORS
The board
of directors has appointed the firm of Ernst & Young LLP as our independent
auditors to make an examination of our accounts for the fiscal year ending
December 31, 2008, subject to ratification by our
stockholders. Representatives of Ernst & Young LLP, are expected
to be present at the annual meeting, will have an opportunity to make a
statement if they desire to do so and are expected to be available to respond to
appropriate questions.
The
Board of Directors recommends that stockholders vote “FOR” ratification and
approval of the appointment of Ernst & Young LLP as our independent auditors
for the fiscal year ending December 31, 2008.
Compensation
of Independent Auditors
The
following table presents the estimated aggregate fees billed and to be billed by
Ernst &
Young
LLP for services performed during our
last two fiscal years.
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
Audit
fees
(1)
|
|
$
|
446,000
|
|
|
$
|
317,500
|
|
|
|
Audit-related
fees
(2)
|
|
|
22,000
|
|
|
|
20,500
|
|
|
|
Tax
fees
|
|
|
—
|
|
|
|
—
|
|
|
|
All
other fees
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
$
|
468,000
|
|
|
$
|
338,000
|
|
|
|
(1)
|
“Audit
fees” include professional services rendered for (i) the audit of our
management’s assessment of effective internal control over financial
reporting, as required by the Sarbanes-Oxley Act of 2002, for the fiscal
years ended December 31, 2006 and 2007, (ii) the audit of our annual
financial statements for the fiscal years ended December 31, 2006 and
2007, (iii) the reviews of the financial statements included in our
quarterly reports on Form 10-Q for such years and (iv) the issuance of
consents and other matters relating to registration statements filed by
us.
|
|
|
|
|
|
|
(2)
|
“Audit-related
fees” include assurance or related services reasonably related to our
audit for the fiscal years ended December 31, 2006 and
2007. These fees related to the audit of the financial
statements of our 401(k) plan and consultation concerning financial
accounting and reporting standards.
|
|
The audit
committee reviewed and approved all the fees described above. As part
of its duties, the audit committee has determined that the provision by Ernst
& Young LLP of the non-audit services described above is compatible with
maintaining the auditors’ independence.
Audit
Committee Pre-Approval Policies and Procedures
The audit
committee has adopted policies and procedures requiring the pre-approval of all
audit and non-audit services rendered by our independent auditors, either as
part of the audit committee’s approval of the scope of the engagement of the
independent auditors or on a case-by-case basis before the independent auditors
are engaged to provide each service. The audit committee’s
pre-approval authority may be delegated to one or more of its members, but any
pre-approval decision must be reported to the full audit committee at its next
regularly scheduled meeting.
Audit
Committee Report
The role
of the audit committee is to assist the board of directors in its oversight of
our financial reporting process. The audit committee reviews our
internal accounting procedures and consults with, and reviews the services
provided by, our independent auditors.
The
management of our company is responsible for the preparation, presentation and
integrity of our financial statements, our accounting and financial reporting
principles and internal controls and procedures designed to assure compliance
with the accounting standards and applicable laws and
regulations. Our independent auditors are responsible for auditing
our financial statements and expressing an opinion as to their conformity with
generally accepted accounting principles.
In the
performance of its oversight function, the audit committee has reviewed and
discussed the audited financial statements with management. The
committee has also discussed with our independent auditors the matters required
to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit
Committees,
as currently in effect. Finally, the committee has
received the written disclosures and the letter from our independent auditors
required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit
Committees,
as currently in effect, and has discussed with our
independent auditors their independence.
Based
upon the review and discussions described in this report, and subject to the
limitations on the role and responsibilities of the audit committee referred to
in the audit committee charter, the committee recommended to the board of
directors that the audited financial statements be included in our annual report
on Form 10-K for the year ended December 31, 2007.
Audit
Committee
Samuel L.
Barker, Ph.D. (Chairman)
Frank P.
Palantoni
Kathleen
M. Wiltsey
The
foregoing audit committee report shall not be deemed “filed” for purposes of
Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the
liabilities of that section, nor shall it be deemed incorporated by reference by
any general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that we specifically incorporate this compensation
committee report by reference, and shall not otherwise be deemed filed under
such acts.
STOCK
OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
The
following table presents information regarding the beneficial ownership of our
common stock as of February 26, 2008 by:
·
|
each
of the individuals listed in “Executive and Director Compensation —
Summary Compensation Table”;
|
·
|
each
person, or group of affiliated persons, who is known by us to own
beneficially five percent or more of our common stock;
and
|
·
|
all
current directors and executive officers as a
group.
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission computing the number of shares beneficially owned by a
person and the percentage ownership of that person. Shares of common
stock under options held by that person that are currently exercisable or
exercisable within 60 days of February 26, 2008 are considered
outstanding. These shares, however, are not considered outstanding
when computing the percentage ownership of each other person.
Except as
indicated in the footnotes to this table and pursuant to state community
property laws, each stockholder named in the table has sole voting and
investment power for the shares shown as beneficially owned by them. Percentage
of ownership is based on 136,795,346 shares of common stock outstanding on
February 26, 2008. Unless otherwise indicated in the footnotes, the address of
each of the individuals named below is: c/o Lexicon Pharmaceuticals, Inc.,
8800 Technology Forest Place, The Woodlands, Texas 77381.
|
|
Beneficial
Ownership
|
|
|
|
Number
of Shares Beneficially Owned
|
|
|
Shares
Issuable Pursuant to Options Exercisable within 60 Days of
February 26, 2008
|
|
|
Percentage
Ownership
|
|
Invus,
L.P., Invus Public Equities, L.P. and
related
parties
(1)
|
|
|
54,716,094
|
|
|
─
|
|
|
|
40.0%
|
|
Royce
& Associates, LLC
(2)
|
|
|
9,196,977
|
|
|
─
|
|
|
|
6.7%
|
|
Arthur
T. Sands, M.D., Ph.D.
(3)
|
|
|
1,560,162
|
|
|
|
2,433,815
|
|
|
|
2.9%
|
|
Julia
P. Gregory
(4)
|
|
|
55,047
|
|
|
|
872,732
|
|
|
|
*
|
|
Alan
J. Main, Ph.D.
|
|
─
|
|
|
|
571,975
|
|
|
|
*
|
|
Jeffrey
L. Wade, J.D.
|
|
|
3,000
|
|
|
|
884,022
|
|
|
|
*
|
|
Brian
P. Zambrowicz, Ph.D.
|
|
|
101,600
|
|
|
|
1,153,863
|
|
|
|
*
|
|
Samuel
L. Barker, Ph.D.
|
|
|
7,000
|
|
|
|
114,000
|
|
|
|
*
|
|
Philippe
J. Amouyal
|
|
─
|
|
|
|
3,500
|
|
|
|
*
|
|
Raymond Debbane
(5)
|
|
|
54,716,094
|
|
|
|
3,500
|
|
|
|
40.0%
|
|
Robert
J. Lefkowitz, M.D.
|
|
─
|
|
|
|
78,000
|
|
|
|
*
|
|
Alan
S. Nies, M.D.
|
|
|
5,000
|
|
|
|
65,000
|
|
|
|
*
|
|
Frank
P. Palantoni
|
|
─
|
|
|
|
40,500
|
|
|
|
*
|
|
Christopher
J. Sobecki
|
|
|
1,000
|
|
|
|
3,500
|
|
|
|
*
|
|
Judith
L. Swain, M.D.
|
|
─
|
|
|
|
3,500
|
|
|
|
*
|
|
Kathleen
M. Wiltsey
|
|
─
|
|
|
|
7,000
|
|
|
|
*
|
|
All
directors and executive officers
as a
group
(3)(4)(5)
(18 persons)
|
|
|
56,462,103
|
|
|
|
7,297,149
|
|
|
|
44.2%
|
|
*
Represents beneficial ownership of less than 1 percent.
(1)
|
Based
upon a Schedule 13D filed with the SEC on June 27, 2007, and amended on
August 24 and August 29, 2007, reflecting the beneficial ownership of (a)
50,824,986 shares of our common stock by Invus, L.P., Invus Advisors,
L.L.C., Ulys, L.L.C. and Raymond Debbane, each of which may be deemed to
have sole voting and investment power with respect to such shares, and (b)
3,891,108 shares of our common stock by Invus Public Equities, L.P., Invus
Public Equities Advisors, LLC, Ulys, L.L.C. and Mr. Debbane, each of which
may be deemed to have sole voting and investment power with respect to
such shares. Such shares are subject to certain voting
restrictions pursuant to our stockholders’ agreement with Invus, L.P.
described under the heading “Transactions with Related Persons —
Arrangements with Invus.” The address for Invus, L.P., Invus
Advisors, L.L.C., Invus Public Equities, L.P., Invus Public Equities
Advisors, LLC, Ulys, L.L.C. is 750 Lexington Avenue, 30th Floor, New York,
New York 10022. The address for Mr. Debbane is c/o Ulys,
L.L.C., 750 Lexington Avenue, 30th Floor, New York, New York
10022.
|
(2)
|
Based
upon a Schedule 13G filed with the SEC on February 1, 2008,
reflecting the beneficial ownership of our common stock by Royce &
Associates, LLC. The address for Royce & Associates, LLC is
1414 Avenue of the Americas, New York, New York
10019.
|
(3)
|
The
number of shares beneficially owned by Dr. Sands includes 60,000 shares
held in the name of minor children and 817,500 shares owned by Sands
Associates LP. The general partners of Sands Associates LP are
ATS Associates, L.L.C., owned by Dr. Sands, and MES Associates, L.L.C.,
owned by Dr. Sands’ wife.
|
(4)
|
The
number of shares beneficially owned by Ms. Gregory includes 4,847 shares
held in the name of dependent children and trusts for their benefit of
which she serves as a trustee.
|
(5)
|
Based
upon a Schedule 13D filed with the SEC on June 27, 2007, and amended on
August 24 and August 29, 2007, reflecting the beneficial ownership of our
common stock by Mr. Debbane. The address for Mr. Debbane is
c/o Ulys, L.L.C., 750 Lexington Avenue,
30th
Floor, New York, New York 10022.
|
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our directors and executive officers, and
persons who own more than 10% of our common stock, to file initial reports of
ownership and reports of changes in ownership of our common stock with the
Securities and Exchange Commission. Directors, executive officers and
greater than 10% stockholders are required by Securities and Exchange Commission
regulations to furnish us with copies of all such forms that they
file.
To our
knowledge, based solely on our review of the copies of such reports received by
us and on written representations by certain reporting persons that no reports
on Form 5 were required, we believe that during the fiscal year ended December
31, 2007, all Section 16(a) filing requirements applicable to our executive
officers, directors and 10% stockholders were complied with in a timely
manner.
CORPORATE
GOVERNANCE
Independence
of the Board of Directors
After
reviewing all relevant transactions and relationships involving each member of
the board of directors (and his or her family), the board of directors has
affirmatively determined that Samuel L. Barker, Ph.D., Philippe J. Amouyal,
Raymond Debbane, Robert J. Lefkowitz, M.D., Alan S. Nies, M.D., Frank P.
Palantoni, Christopher J. Sobecki, Judith L. Swain, M.D. and Kathleen M.
Wiltsey, which members constitute a majority of the board of directors, are
“independent” in accordance with the applicable listing standards of The Nasdaq
Stock Market, Inc. After such review, the board of directors also
determined that Barry Mills, J.D., Ph.D. and Clayton S. Rose, who each resigned
from our board of directors effective September 30, 2007, were each
“independent” in accordance with the applicable listing standards of The Nasdaq
Stock Market, Inc. during their service as directors.
In making
such determinations, the board of directors considered our consulting agreements
with Robert J. Lefkowitz, M.D., under which Dr. Lefkowitz serves as a consultant
to us on matters relating to our drug discovery and development efforts, and
with Alan S. Nies, M.D., under which Dr. Nies serves as chairman of our medical
advisory board.
Board
Committees
Audit
Committee.
Our audit committee has been established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 and
monitors the integrity of our financial statements, reviews our internal
accounting procedures and oversees the qualifications, independence and
performance of our independent auditors. The audit committee operates
pursuant to a charter that was last amended and restated by the board of
directors on October 26, 2005, a copy of which appears on our website at
www.lexpharma.com
under the
caption “Investor Relations — Corporate Governance.”
The
current members of our audit committee are Samuel L. Barker, Ph.D. (chair),
Frank P. Palantoni and Kathleen M. Wiltsey. The board of directors,
in its business judgment, has determined that Dr. Barker, Mr. Palantoni and Ms.
Wiltsey are “independent” in accordance with the applicable listing standards of
The Nasdaq Stock Market, Inc. The board of directors, in its business
judgment, has also determined that Clayton S. Rose was “independent” in
accordance with the applicable listing standards of The Nasdaq Stock Market,
Inc. during his service as a member of the audit committee during
2007. The board of directors, in its business judgment, has also
determined that Samuel L. Barker, Ph.D. is an “audit committee financial expert”
as defined in Item 407(d)(5) of Regulation S-K.
Compensation
Committee.
Our compensation committee evaluates the
performance of management, determines the compensation of our executive officers
and reviews general policy relating to compensation and benefits of our
employees. The compensation committee also administers the issuance of stock
options and other awards under our 2000 Equity Incentive Plan. The compensation
committee operates pursuant to a charter that was approved by the board of
directors on February 11, 2004, a copy of which appears on our website at
www.lexpharma.com
under the
caption “Investor Relations — Corporate Governance.”
The
compensation committee may delegate any of its authority to subcommittees
consisting of one or more compensation committee members, with all subcommittee
decisions being presented to the full compensation committee at its next
scheduled meeting. The compensation committee did not delegate any
such authority with respect to 2007 compensation matters. The
compensation committee may retain compensation consultants or other advisors to
assist in its evaluation of executive compensation. Although the
compensation committee has engaged consultants to advise the committee on
matters relating to executive compensation in prior years, the compensation
committee did not engage any consultants with respect to 2007 compensation
matters.
The
compensation committee meets in connection with most regularly scheduled
meetings of the board of directors, and on at least two occasions after the
commencement of each year specifically devoted to making compensation decisions
regarding the year just ended. In preparation for such decisions, our
president and chief executive officer reviews the performance of executive
officers other than himself and, in consultation with the compensation committee
and at its direction, makes certain recommendations to the compensation
committee relating to their compensation. The compensation committee
reviews such recommendations and makes changes to such recommendations as it
deems appropriate. All executive compensation determinations are made
by the compensation committee in the absence of management.
During
the meetings at which determinations were made regarding 2006 bonus awards and
annual stock option grants and 2007 base salaries and bonus targets, the members
of the compensation committee were Clayton S. Rose (chair), Samuel L. Barker,
Ph.D., Barry Mills, J.D., Ph.D. and Frank P.
Palantoni. Determinations regarding 2007 bonus awards and annual
stock option grants and 2008 base salaries and bonus targets were made by the
current members of the compensation committee, Mr. Palantoni (chair), Philippe
J. Amouyal and Alan S. Nies, M.D. The board of directors, in its
business judgment, has determined that Mr. Palantoni, Mr. Amouyal and Dr. Nies
are “independent” in accordance with the applicable listing standards of The
Nasdaq Stock Market, Inc. In making such determinations, the board of
directors considered our consulting agreement with Dr. Nies described under the
heading “Corporate Governance — Independence of the Board of
Directors.” The board of directors, in its business judgment, has
also determined that Mr. Rose, Dr. Barker and Dr. Mills were also “independent”
in accordance with the applicable listing standards of The Nasdaq Stock Market,
Inc. during their service as members of the compensation committee during
2007.
Corporate Governance
Committee.
Our corporate governance committee identifies
individuals qualified to become members of our board of directors, selects
candidates or nominees for director positions to be filled by the board of
directors or our stockholders and develops appropriate corporate governance
principles. The corporate governance committee operates pursuant to a
charter that was approved by the board of directors on February 11, 2004, a copy
of which appears on our website at
www.lexpharma.com
under the
caption “Investor Relations — Corporate Governance.”
The
corporate governance committee has not established any specific minimum
qualifications for membership on our board of directors. Rather, the
committee will generally consider all relevant factors, which may include
independence, experience, diversity, leadership qualities and strength of
character. The corporate governance committee uses its available
network of contacts when compiling a list of potential director candidates and
may also engage outside consultants when appropriate. The committee
also considers potential director candidates recommended by stockholders and
other parties and all potential director candidates are evaluated based on the
above criteria. Because the corporate governance committee makes no
distinction in its evaluation of candidates based on whether such candidates are
recommended by stockholders or other parties, no formal policy or procedure has
been established for the consideration of director candidates recommended by
stockholders.
Any
stockholder wishing to propose a potential director candidate may submit a
recommendation in writing within the time frame specified in our
bylaws. All such communications should be sent to 8800 Technology
Forest Place, The Woodlands, Texas 77381, Attn: Corporate Governance
Committee. Submissions should include the full name of the proposed
candidate and a detailed description of the candidate’s qualifications, business
experience and other relevant biographical information.
The
current members of the corporate governance committee are Raymond Debbane
(chair), Robert J. Lefkowitz, M.D. and Judith L. Swain, M.D. The
board of directors, in its business judgment, has determined that Mr. Debbane,
Dr. Lefkowitz and Dr. Swain are “independent” in accordance with the
applicable listing standards of The Nasdaq Stock Market, Inc. In
making such determinations, the board of directors considered our consulting
agreement with Dr. Lefkowitz described under the heading “Corporate Governance —
Independence of the Board of Directors.” The board of directors, in
its business judgment, has also determined that Barry Mills, J.D., Ph.D. was
also “independent” in accordance with the applicable listing standards of The
Nasdaq Stock Market, Inc. during his service as a member of the corporate
governance committee during 2007.
Board
and Committee Meetings and Attendance in 2007
The board
of directors met ten times in 2007 and took certain additional actions by
unanimous written consent. The audit committee met five times in 2007
and took certain additional actions by unanimous written consent. The
compensation committee met six times in 2007 and took certain additional actions
by unanimous written consent. The corporate governance committee met
three times in 2007 and took certain additional actions by unanimous written
consent. During 2007, none of our incumbent directors attended fewer
than 75 percent of the aggregate number of meetings of the board of directors
and committees during the period served.
It is our
policy to encourage the members of our board of directors to attend all annual
meetings of stockholders. Six members of our board of directors
attended our 2007 annual meeting of stockholders.
Code
of Business Conduct and Ethics
We have
adopted a code of business conduct and ethics that applies to all of our
directors, officers and employees, the text of which appears on our website at
www.lexpharma.com
under
the caption “Investor Relations — Corporate Governance.” We
intend to disclose on our website the nature of any amendment to or waiver from
our code of business conduct and ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions within four business days
following the date of such amendment or waiver. In the case of any
such waiver, including an implicit waiver, we also intend to disclose the name
of the person to whom the waiver was granted and the date of the
waiver. To date, we have not granted any waivers under our code of
business conduct and ethics.
Corporate
Governance Guidelines
We have
adopted corporate governance guidelines, including, among other things,
guidelines with respect to the structure of our board of directors, director
selection and qualifications, and non-employee director
compensation. The text of our corporate governance guidelines appears
on our website at
www.lexpharma.com
under the
caption “Investor Relations — Corporate Governance.”
Stockholder
Communications with the Board of Directors
We
believe that our stockholders are currently provided a reasonable means to
communicate with our board of directors and individual directors. As
a result, our board of directors has not established a formal process for
stockholders to send communications to the board of directors or individual
directors. However, the corporate governance committee will consider,
from time to time, whether adoption of a formal process for such stockholder
communications has become necessary or appropriate. Stockholders may
send communications to the board of directors or individual directors by mail at
8800 Technology Forest Place, The Woodlands, Texas 77381, Attn: Board of
Directors or any individual director.
Compensation
Committee Interlocks and Insider Participation
During
2007, Philippe J. Amouyal, Samuel L. Barker, Ph.D., Barry Mills, J.D., Ph.D.,
Alan S. Nies, M.D., Frank P. Palantoni and Clayton S. Rose served as members of
the compensation committee of our board of directors. Mr. Amouyal is
a designee of Invus, L.P. pursuant to our stockholders’ agreement with Invus
described under the heading “Transactions with Related Persons — Arrangements
with Invus.” During 2007, none of our executive officers served as a
member of the board of directors or compensation committee of another entity,
one of whose executive officers served as a member of our board of directors or
compensation committee.
TRANSACTIONS
WITH RELATED PERSONS
Arrangements
with Invus
In June
2007, we entered into a securities purchase agreement with Invus, L.P., pursuant
to which Invus purchased 50,824,986 shares of our common stock for approximately
$205.4 million in August 2007. This purchase resulted in Invus’
ownership of 40% of the post-transaction outstanding shares of our common
stock. Pursuant to the securities purchase agreement, Invus also has
the right to require us to initiate up to two pro rata rights offerings to our
stockholders, which would provide all stockholders with non-transferable rights
to acquire shares of our common stock, in an aggregate amount of up to
$344.5 million, less the proceeds of any “qualified offerings” that we may
complete in the interim involving the sale of our common stock at prices above
$4.50 per share. Invus may exercise its right to require us to
conduct the first rights offering by giving us notice within a period of 90 days
beginning on November 28, 2009 (which we refer to as the first rights offering
trigger date), although we and Invus may agree to change the first rights
offering trigger date to as early as August 28, 2009 with the approval of the
members of our board of directors who are not affiliated with
Invus. Invus may exercise its right to require us to conduct the
second rights offering by giving us notice within a period of 90 days beginning
on the date that is 12 months after Invus’ exercise of its right to require us
to conduct the first rights offering or, if Invus does not exercise its right to
require us to conduct the first rights offering, within a period of 90 days
beginning on the first anniversary of the first rights offering trigger
date. The initial investment and subsequent rights offerings,
combined with any qualified offerings, were designed to achieve up to
$550 million in proceeds to us. Invus would participate in each
rights offering for up to its pro rata portion of the offering, and would commit
to purchase the entire portion of the offering not subscribed for by other
stockholders.
Board of
Directors
. Concurrently with the execution of the securities
purchase agreement, we entered into a stockholders’ agreement with Invus under
which Invus currently has the right to designate three members of our board of
directors and pursuant to which Invus has designated Philippe J. Amouyal,
Raymond Debbane and Christopher J. Sobecki. Mr. Debbane is president
and chief executive officer of The Invus Group, LLC, an affiliate of Invus, and
Mr. Amouyal and Mr. Sobecki are each managing directors of The Invus Group,
LLC.
From and
after August 28, 2008, Invus will have the right to designate the greater
of three members or 30% (or the percentage of all the outstanding shares of our
common stock owned by Invus and its affiliates, if less than 30%) of all members
of our board of directors, rounded up to the nearest whole number of
directors. In the event that the number of shares of our common stock
owned by Invus and its affiliates ever exceeds 50% of the total number of shares
of our common stock then outstanding (not counting for such purpose any shares
acquired by Invus from third parties in excess of 40% (or, if higher, its then
pro rata amount) of the total number of outstanding shares of common stock, as
permitted by the standstill provisions of the stockholders’ agreement), from and
after that time, Invus will have the right to designate a number of directors
equal to the percentage of all the outstanding shares of our common stock owned
by Invus and its affiliates (not counting for such purpose any shares acquired
by Invus from third parties in excess of 40% (or, if higher, its then pro rata
amount) of the total number of outstanding shares of common stock, as permitted
by the standstill provisions of the stockholders’ agreement), rounded up to the
nearest whole number of directors. The directors appointed by Invus
have proportionate representation on the compensation committee and corporate
governance committee of our board of directors.
Invus’
rights with respect to the designation of members of our board of directors and
its compensation and corporate governance committees will terminate if the
percentage of all the outstanding shares of our common stock owned by Invus and
its affiliates falls below 10%. Invus will also have the right to
terminate these provisions at any time following the date on which the
percentage of all the outstanding shares of our common stock owned by Invus and
its affiliates exceeds 50% (not counting for such purpose any shares acquired by
Invus and its affiliates from third parties in excess of 40% (or, if higher, its
then pro rata amount) of the total number of outstanding shares of our common
stock, as permitted by the standstill provisions of the stockholders’
agreement).
Preemptive
Rights
. Invus has preemptive rights under the stockholders’
agreement to participate in future equity issuances by us (including any
qualified offering), subject to certain exceptions, so as to maintain its
then-current percentage ownership of our capital stock. Subject to
certain limitations, Invus will be required to exercise its preemptive rights in
advance with respect to certain marketed offerings, in which case it will be
obligated to buy its pro rata share of the number of shares being offered in
such marketed offering, including any overallotment (or such lesser amount
specified in its exercise of such rights), so
long as the sale
of the shares were priced within a range within 10% above or below the market
price on the date we notified Invus of the offering and we met certain other
conditions.
The
provisions of the stockholders’ agreement relating to preemptive rights will
terminate on the earlier to occur of August 28, 2017 and the date on which the
percentage of all the outstanding shares of our common stock owned by Invus and
its affiliates falls below 10%.
Standstill
Provisions
. Invus is subject to standstill provisions
restricting its ability to purchase or otherwise acquire additional shares of
common stock from third parties to an amount that would result in its ownership
of our common stock not exceeding 49% of the total number of shares
outstanding. These standstill provisions will not apply to the
acquisitions of securities by way of stock splits, stock dividends,
reclassifications, recapitalizations, or other distributions by us, acquisitions
contemplated by the securities purchase agreement and the stockholders’
agreement, including in the rights offerings and upon Invus’ exercise of
preemptive rights under the stockholders’ agreement.
Except
for acquisitions pursuant to the provisions described above, and subject to
certain exceptions, Invus has agreed that it will not, and will cause its
affiliates not to, without the approval of our unaffiliated board, directly or
indirectly:
·
|
solicit
proxies to vote any of our voting securities or any voting securities of
our subsidiaries;
|
·
|
submit
to our board of directors a written proposal for any merger,
recapitalization, reorganization, business combination or other
extraordinary transaction involving an acquisition of us or any of our
subsidiaries or any of our or our subsidiaries’ securities or assets by
Invus and its affiliates;
|
·
|
enter
into discussions, negotiations, arrangements or understandings with any
third party with respect to any of the foregoing;
or
|
·
|
request
us or any of our representatives, directly or indirectly, to amend or
waive any of these standstill
provisions.
|
The
standstill provisions of the stockholders’ agreement will terminate on the
earliest to occur of (a) August 28, 2017, (b) the date on which the percentage
of all the outstanding shares of our common stock owned by Invus and its
affiliates falls below 10%, (c) the date on which the percentage of all of the
outstanding shares of our common stock owned by Invus and its affiliates exceeds
50% (not counting for such purpose any shares acquired by Invus from third
parties in excess of 40% (or, if higher, its then pro rata amount) of the total
number of outstanding shares of common stock, as permitted by the standstill
provisions of the stockholders’ agreement), (d) the date on which any third
party makes a public proposal to acquire (by purchase, exchange, merger or
otherwise) assets or business constituting 50% or more of our revenues, net
income or assets or 50% of any class of our equity securities of our board of
directors recommends or approves, or proposes to recommend or approve, any such
transaction or (e) the date on which any third party acquires beneficial
ownership (by purchase, exchange, merger or otherwise) of assets or business
constituting 20% or more of our revenues, net income or assets or 20% of any
class of our equity securities or our board of directors recommends or approves,
or proposes to recommend or approve, any such transaction.
Sales to Third
Parties
. Subject to certain exceptions, Invus has agreed that
neither it nor its affiliates will sell any shares of common stock to third
parties that are not affiliated with Invus if, to Invus’ knowledge, such
transfer would result in any such third party (or any person or group
including such third party) owning more than 14.9% of the total number of
outstanding shares of our common stock.
The
provisions of the stockholders’ agreement relating to sales to third parties
will terminate on the earliest to occur of (a) August 28, 2017,
(b) the date on which the percentage of all the outstanding shares of our
common stock owned by Invus and its affiliates falls below 10%, and (c) the
date on which the percentage of all the outstanding shares of our common stock
owned by Invus and its affiliates exceeds 50% (not counting for such purpose any
shares acquired by Invus and its affiliates from third parties in excess of 40%
(or, if higher, its then pro rata amount) of the total number of outstanding
shares of our common stock, as permitted by the standstill provisions of the
stockholders’ agreement).
Voting of
Shares
. In any election of persons to serve on our board of
directors, Invus will be obligated to vote all of the shares of common stock
held by it and its affiliates in favor of the directors nominated by our board
of directors, as long as we have complied with our obligation with respect to
the designation of members of our board of directors described above and the
individuals designated by Invus for election to our board of directors have been
nominated, and, if applicable, are serving on our board of
directors. With respect to all other matters submitted to a vote of
the holders of our common stock, Invus will be obligated to vote any shares that
it acquired from third parties in excess of 40% (or, if higher, its then pro
rata amount) of the total number of outstanding shares of common stock, as
permitted by the standstill provisions of the stockholders’ agreement, in the
same proportion as all the votes cast by other holders of our common stock,
unless Invus and we (acting with the approval of the unaffiliated board) agree
otherwise. Invus may vote all other shares of our common stock held
by it in its sole discretion.
The
provisions of the stockholders’ agreement relating to voting will terminate on
the earliest to occur of (a) August 28, 2017, (b) the date on which
the percentage of all the outstanding shares of our common stock held by Invus
and its affiliates falls below 10%, (c) the date on which the percentage of
all outstanding shares of our common stock owned by Invus and its affiliates
exceeds 50% (not counting for such purpose any shares acquired by Invus from
third parties in excess of 40% (or, if higher, its then pro rata amount) of the
total number of outstanding shares of our common stock, as permitted by the
provisions of the stockholders’ agreement), and (d) the termination of the
standstill provisions in accordance with the stockholders’
agreement.
Minority
Protections
. Invus is entitled to certain minority
protections, including consent rights over (a) the creation or issuance of any
new class or series of shares of our capital stock (or securities convertible
into or exercisable for shares of our capital stock) having rights, preferences
or privileges senior to or on parity with our common stock, (b) any amendment to
our certificate of incorporation or bylaws, or amendment to the certificate of
incorporation or bylaws of any of our subsidiaries, in a manner adversely
affecting Invus’ rights under the securities purchase agreement and the related
agreements, (c) the repurchase, retirement, redemption or other acquisition of
our or our subsidiaries’ capital stock (or securities convertible into or
exercisable for shares of our or our subsidiaries’ capital stock), (d) any
increase in the size of our board of directors to more than 12 members and (e)
the adoption or proposed adoption of any stockholders’ rights plan, “poison
pill” or other similar plan or agreement, unless Invus is exempt from the
provisions of such plan or agreement.
The
provisions of the stockholders’ agreement relating to minority protections will
terminate on the earlier to occur of August 28, 2017 and the date on which Invus
and its affiliates hold less than 15% of the total number of outstanding shares
of our common stock.
Registration
Rights
. Concurrently with the execution of the securities
purchase agreement, we entered into a registration rights agreement with Invus,
pursuant to which Invus has certain demand and piggyback registration rights
with respect to shares of our common stock acquired by Invus under the
securities purchase agreement.
Related
Party Transaction Policies
We have
adopted written policies and procedures for the review, approval and
ratification of interested transactions with related parties. Subject
to certain exceptions provided in Item 404(a) of Regulation S-K, an “interested
transaction” means any transaction, arrangement or relationship in which we are
a participant and the amount involved will or may be expected to exceed $120,000
in any calendar year, and in which any related party has or will have a direct
or indirect material interest. A “related party” means (a) any
executive officer, director, nominee for election as a director or any person
beneficially owning five percent or more of our common stock and (b) any
immediate family member of such parties.
All
interested transactions are subject to the review and approval of our audit
committee and if advance audit committee approval is not feasible, then the
interested transaction will be considered for ratification at the audit
committee’s next regularly scheduled meeting. In determining whether
to approve or ratify any interested transaction, the audit committee will
consider, among other factors it may deem appropriate, whether the interested
transaction is on terms no less favorable than terms generally available to an
unaffiliated third party under similar circumstances and the extent of the
related party’s interest in the transaction. No director participates
in any discussion or approval of an interested transaction for which he or she
is a related party. On at least an annual basis, the audit committee
reviews and assesses any ongoing interested transactions to ensure that the
transaction remains appropriate.
EXECUTIVE
AND DIRECTOR COMPENSATION
Compensation
Discussion and Analysis
We have
developed a compensation policy that is designed to attract and retain key
executives responsible for our success and motivate management to enhance
long-term stockholder value. The annual compensation package for
executive and other officers consists primarily of three elements:
·
|
a
base salary, which reflects the responsibilities relating to the position
and individual performance;
|
·
|
variable
annual cash bonus awards tied to the achievement of specified corporate
and individual goals and milestones, relative to pre-established bonus
targets expressed as a percentage of base salary;
and
|
·
|
long-term
stock-based incentive awards, historically in the form of stock
options.
|
We
generally seek to set targeted total cash compensation, consisting of base
salaries and annual cash bonus award targets, and total direct compensation,
consisting of targeted total cash compensation and long-term stock-based
incentive awards, at or near the median of a peer group of biopharmaceutical
companies if such compensation level is justified by company performance,
individual performance and prevailing financial conditions.
In
determining peer group compensation, we use available survey data from several
sources, relying principally on data from a comprehensive survey of the
compensation practices of several hundred companies in the biopharmaceutical
industry. We expand on this survey data with reviews of the
publicly-disclosed compensation practices of a group of biopharmaceutical
companies selected for comparison purposes based on one or more factors,
including number of employees, revenues, stage of development, and market
capitalization. In 2007, this group of companies consisted of Arena
Pharmaceuticals, Inc., Array Biopharma Inc., Curagen Corporation, deCODE
genetics, Inc., Exelixis, Inc., Human Genome Sciences, Inc., Incyte Corporation,
Medarex, Inc., Neurocrine Biosciences, Inc., Vertex Pharmaceuticals Incorporated
and ZymoGenetics, Inc. The peer group of biopharmaceutical companies
for which we obtained survey data and the additional group of companies listed
above do not necessarily coincide with the companies comprising the Nasdaq
Biotechnology Index. In general, the compensation committee has
employed the 50
th
and
60
th
percentile of the broad survey data, along with averages reported by the
selected group of biopharmaceutical companies, in evaluating base salaries and
bonus targets. Although we acknowledge the inherent limitations in
comparing our compensation practices with the compensation practices of these
companies, we believe that these comparisons are useful and important points of
reference in making compensation determinations.
All
compensation decisions are made by our compensation committee pursuant to
authority delegated by our board of directors. In making compensation
determinations and reviewing comparative data, the compensation committee
reviews total direct compensation in its totality, assigning dollar values to
each of the elements of such compensation, including base salary, annual cash
bonus award targets and long-term stock-based incentive awards. The
committee generally allocates a greater percentage of total direct compensation
to long-term stock-based incentive awards in acknowledgment of the unique
challenges present in the biopharmaceutical industry and in order to reinforce
the alignment of interests between our executive and other officers and our
stockholders.
In
determining the level and composition of compensation of each of our executive
and other officers, we take into account various qualitative and quantitative
indicators of corporate and individual performance. Among the
challenges faced by us and other companies in the biopharmaceutical industry is
the unique combination of the relatively long time period typically necessary to
discover, develop and commercialize drugs and the historically low success rate
in doing so. As a result, in evaluating the performance of
management, the compensation committee takes into consideration such factors as
the progress exhibited by our drug candidates in human clinical trials, the
number and quality of drug candidates in clinical trials, the pipeline of
potential drug candidates for which the required regulatory filings for the
initiation of clinical trials may be filed, the value and scope of strategic
collaborations and alliances with leading pharmaceutical companies, and the
ability to otherwise finance our operations from external sources. In
addition, the compensation committee recognizes performance and achievements
that are more difficult to quantify, such as the successful supervision of major
corporate projects and demonstrated leadership ability.
The
compensation committee may also retain compensation consultants or other
advisors when it deems appropriate to assist in its evaluation of executive
compensation. Pursuant to such authority, the compensation committee
engaged Aon Consulting, Inc. in 2005 as an independent compensation consultant
to advise the committee on matters relating to executive
compensation. The compensation committee did not engage any
consultants with respect to 2006 or 2007 compensation matters.
Company
Performance Criteria
We
generally make executive compensation determinations in February of each year,
taking into account company and individual performance over the preceding year,
as well as prevailing financial conditions. The compensation
committee typically meets to discuss considerations relating to executive
compensation determinations several times in advance of the meeting in which
such determinations are actually made.
In
February 2007, the compensation committee made determinations regarding 2006
bonus awards and annual stock option grants and 2007 base salaries and bonus
targets, taking into account the following factors in its evaluation of
corporate performance in 2006:
·
|
the
submission of the required regulatory filings and initiation of Phase 1
clinical trials for our most advanced drug candidate,
LX6171;
|
·
|
the
submission of the required regulatory filings for the initiation of
clinical trials for another drug candidate,
LX1031;
|
·
|
our
progress relative to our objectives in advancing our other drug discovery
and development programs;
|
·
|
our
performance relative to our objectives for our net use of cash in
operations and for capital expenditures;
and
|
·
|
our
cash and investments at the end of
2006.
|
The
committee’s compensation determinations in February 2007 reflected its
assessment that we largely achieved our objectives relating to our drug
discovery and development programs, collectively representing what the committee
considered to be our most important objectives, fell short of our objectives
relating to net use of cash in operations and for capital expenditures, and
achieved our objectives relating to cash and investments at the end of the
year.
In
February 2008, the compensation committee made determinations regarding 2007
bonus awards and annual stock option grants and 2008 base salaries and bonus
targets, taking into account the following factors in its evaluation of
corporate performance in 2007:
·
|
the
completion of Phase 1 clinical trials and initiation of a Phase 2 clinical
trial of our most advanced drug candidate,
LX6171;
|
·
|
the
completion of a Phase 1a and initial Phase 1b clinical trial of another
drug candidate, LX1031, with an additional Phase 1b clinical trial to be
conducted in 2008;
|
·
|
the
submission of the required regulatory filings for the initiation of
clinical trials for two of our other drug candidates, LX2931 and LX1032,
with the initiation of a Phase 1 clinical trial of
LX2931;
|
·
|
our
progress relative to our objectives in advancing our other drug discovery
and development programs;
|
·
|
our
performance relative to our objectives for our net use of cash in
operations and for capital expenditures;
and
|
·
|
our
cash and investments relative to our objectives at the end of 2007,
reflecting the completion of our financing arrangement with Invus, L.P.
described under the heading “Transactions with Related Persons —
Arrangements with Invus” and the establishment of our financing
arrangement with Symphony Icon Holdings LLC and Symphony Icon, Inc. for
the clinical development of LX6171, LX1031 and
LX1032.
|
The
committee’s compensation determinations in February 2008 reflected its
assessment that we achieved our objectives relating to our drug discovery and
development programs, collectively representing what the committee considered to
be our most important objectives, fell short of our objectives relating to net
use of cash in operations and for capital expenditures and exceeded our
objectives relating to cash and investments at the end of the
year. Taking into account the balance of factors described above, it
was the committee’s assessment that our overall corporate objectives were
achieved.
Base
Salary
Base
salary of executive and other officers is established through negotiation
between the company and the officer at the time he or she is hired, and then
subsequently adjusted when the officer’s base compensation is subject to review
or reconsideration. While we have entered into employment agreements
with certain of our executive officers, these agreements provide that base
salaries after the initial year will be reviewed and determined by the
compensation committee. When establishing base salary levels for
executive and other officers, the compensation committee, in accordance with its
general compensation policy, considers numerous factors, including the
responsibilities relating to the position, the qualifications of the executive
and the relevant experience the individual brings to the company, strategic
goals for which the executive has responsibility, and compensation levels of
companies at a comparable stage of development who compete with us for business,
scientific and executive talents. When considering increases to base
salary levels for officers, which typically occurs each February, we consider
individual and company performance in addition to the foregoing factors. No
pre-determined weights are given to any one of these factors.
We left
2006 and 2005 base salaries of each of our executive officers unchanged from the
rate established in February 2004. We increased the base salaries of
each of our executive officers in February 2007 and 2008. The base salaries of
our executive officers are generally competitive with those paid by our peer
group companies, with most falling near the median for such peer group
companies. In establishing base salaries for 2006, 2007 and 2008, we
considered the competitiveness of our cash compensation arrangements for
executive officers and our cash position and needs for the applicable
year.
Incentive
Compensation
Cash
Bonus Awards
In
addition to base salary, we may award variable annual cash bonus awards to
executive and other officers depending on the extent to which certain predefined
corporate and personal performance goals are achieved. These
performance goals include those discussed generally above, as well as strategic
and operational goals for the company as a whole. We typically
consider the award of cash bonuses each February relating to performance for the
preceding year. For each of our officers, the compensation committee
establishes a bonus target, expressed as a percentage of base salary, which is
used to determine the cash bonus amount, assuming that corporate and individual
goals are fully achieved. The compensation committee retains broad
discretion over the amount and payment of such awards.
In
determining the cash bonus awards paid in February 2007 with respect to 2006
performance, the compensation committee included the relevant factors described
above under “— Company Performance Criteria” in its evaluation of corporate
performance. After taking into account these factors, the
compensation committee determined that our objectives for the year had been
largely but not fully achieved, and awarded bonuses for 2006 performance to
executive officers other than our president and chief executive officer in
amounts reflecting such partial achievement. In determining the bonus
payable to Dr. Sands, our president and chief executive officer, the
compensation committee also took into account the competitiveness of his overall
level of compensation and his contributions to the company, and awarded a bonus
for 2006 performance above his bonus target for the year.
In
determining the cash bonus awards paid in February 2008 with respect to 2007
performance, the compensation committee included the relevant factors described
above under “— Company Performance Criteria” in its evaluation of corporate
performance. After taking into account these factors, the
compensation committee determined that our objectives for the year had been
achieved, and awarded a bonus for 2007 performance to Dr. Sands, our president
and chief executive officer, in an amount reflecting such
achievement. In determining the bonus payable to executive officers
other than Dr. Sands, the compensation committee also took into account their
contributions to the company, and awarded bonuses for 2007 performance above
their bonus targets for the year.
Stock-Based
Awards
All of
our employees, including our executive and other officers, are eligible to
receive long-term stock-based incentive awards under our 2000 Equity Incentive
Plan as a means of providing such individuals with a continuing proprietary
interest in our success. These grants are typically awarded each
February and align the interests of our employees and our stockholders by
providing significant incentives for our employees to achieve and maintain high
levels of performance. Our 2000 Equity Incentive Plan enhances our
ability to attract and retain the services of qualified individuals. Factors
considered in determining whether and in what amounts such awards are granted to
an officer include the executive’s position, his or her performance and
responsibilities, the amount of stock options currently held by the officer, the
vesting schedules of any such options and the officer’s other
compensation. While we do not adhere to any firmly established
formulas or schedules for the issuance of awards such as options or restricted
stock, we take into account, in making award decisions, the total direct
compensation objectives described above. In addition, we will
generally tailor the terms of any such grant to achieve its goal as a long-term
incentive award by providing for a vesting schedule encompassing several
years.
In
February 2007 and 2008, the compensation committee approved annual stock option
grants to executive officers and other employees who satisfied eligibility
requirements, including time of service. In making such grants, the
compensation committee considered corporate and individual performance in the
prior year, total direct compensation objectives for individual officers, and
information regarding stock option grants made by other companies in the
biotechnology industry.
Summary
Compensation Table for 2007
The
following table presents summary information regarding the compensation of each
of Arthur T. Sands, M.D., Ph.D., our president and chief executive officer,
Julia P. Gregory, our executive vice president and chief financial officer, and
our three other most highly compensated executive officers for the year ended
December 31, 2007. We have entered into employment agreements with
each of the named executive officers and the material terms of those employment
agreements are described below.
Based on
the summary compensation information provided below, “Salary” accounted for
approximately 36% and 37% of the total compensation paid to the named executive
officers in 2006 and 2007, respectively, and “Bonus” accounted for approximately
14% and 16% of the total compensation paid to the named executive officers for
2006 and 2007, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Option
Awards
(1)
|
|
|
All
Other
Compensation
(2)
|
|
|
Total
|
|
|
Arthur
T. Sands, M.D., Ph.D.
|
|
2007
|
|
$
|
522,875
|
|
|
$
|
265,000
|
|
|
$
|
908,842
|
|
|
$
|
6,339
|
|
|
$
|
1,703,056
|
|
|
President, Chief Executive
Officer and Director
|
|
2006
|
|
$
|
473,000
|
|
|
$
|
300,000
|
|
|
$
|
792,267
|
|
|
$
|
373,466
|
(3)
|
|
$
|
1,938,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Julia
P. Gregory
|
|
2007
|
|
$
|
334,250
|
|
|
$
|
120,000
|
|
|
$
|
344,121
|
|
|
$
|
6,106
|
|
|
$
|
804,477
|
|
|
Executive Vice President
and Chief Financial Officer
|
|
2006
|
|
$
|
329,000
|
|
|
$
|
80,000
|
|
|
$
|
332,168
|
|
|
$
|
5,974
|
|
|
$
|
747,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
J. Main, Ph.D.
|
|
2007
|
|
$
|
323,375
|
|
|
$
|
130,000
|
|
|
$
|
244,633
|
|
|
$
|
6,090
|
|
|
$
|
704,098
|
|
|
Executive Vice President of
Pharmaceutical Research
|
|
2006
|
|
$
|
312,000
|
|
|
$
|
90,000
|
|
|
$
|
220,103
|
|
|
$
|
5,949
|
|
|
$
|
628,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
L. Wade, J.D.
|
|
2007
|
|
$
|
316,500
|
|
|
$
|
130,000
|
|
|
$
|
326,967
|
|
|
$
|
6,079
|
|
|
$
|
779,546
|
|
|
Executive Vice President
and General Counsel
|
|
2006
|
|
$
|
292,000
|
|
|
$
|
80,000
|
|
|
$
|
290,675
|
|
|
$
|
5,920
|
|
|
$
|
668,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
P. Zambrowicz, Ph.D.
|
|
2007
|
|
$
|
340,875
|
|
|
$
|
140,000
|
|
|
$
|
449,001
|
|
|
$
|
6,114
|
|
|
$
|
935,990
|
|
|
Executive Vice President
and Chief Scientific Officer
|
|
2006
|
|
$
|
312,000
|
|
|
$
|
120,000
|
|
|
$
|
362,435
|
|
|
$
|
5,949
|
|
|
$
|
800,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects
the dollar amount recognized for financial statement reporting purposes
for the years ended December 31, 2006 and 2007 in accordance with FAS
123(R) (but disregarding forfeiture estimates related to service-based
vesting conditions) and, accordingly, includes amounts from options
granted prior to 2006. See the information appearing under the
heading entitled “Stock-Based Compensation” in footnote 2 to our
consolidated financial statements included as part of our Annual Report on
Form 10-K for the year ended December 31, 2007 for certain assumptions
made in the valuation of options granted in the years ended December 31,
2007, 2006 and 2005. See the information appearing under the
heading entitled “Stock-Based Compensation” in footnote 12 to our
consolidated financial statements included as part of our Annual Report on
Form 10-K for the year ended December 31, 2004 for certain assumptions
made in the valuation of options granted in the years ended December 31,
2004, 2003 and 2002.
|
(2)
|
Includes
the following amounts in respect of company matching contributions under
our 401(k) plan and company-paid premiums for group term life
insurance. The company-paid life insurance premiums reflect
payments for group term life policies maintained for the benefit of all
employees.
|
|
Year
|
|
Company
401(k)
Matching
Contribution
|
|
|
Company-Paid
Group
Term
Life
Insurance Premiums
|
|
Arthur
T. Sands, M.D., Ph.D.
|
2007
|
|
$
|
5,625
|
|
|
$
|
714
|
|
|
2006
|
|
$
|
5,500
|
|
|
$
|
681
|
|
|
|
|
|
|
|
|
|
|
|
Julia
P. Gregory
|
2007
|
|
$
|
5,625
|
|
|
$
|
481
|
|
|
2006
|
|
$
|
5,500
|
|
|
$
|
474
|
|
|
|
|
|
|
|
|
|
|
|
Alan
J. Main, Ph.D.
|
2007
|
|
$
|
5,625
|
|
|
$
|
465
|
|
|
2006
|
|
$
|
5,500
|
|
|
$
|
449
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
L. Wade, J.D.
|
2007
|
|
$
|
5,625
|
|
|
$
|
454
|
|
|
2006
|
|
$
|
5,500
|
|
|
$
|
420
|
|
|
|
|
|
|
|
|
|
|
|
Brian
P. Zambrowicz, Ph.D.
|
2007
|
|
$
|
5,625
|
|
|
$
|
489
|
|
|
2006
|
|
$
|
5,500
|
|
|
$
|
449
|
|
(3)
|
Reflects a February
2006 agreement with Dr. Sands terminating our obligation under his
employment agreement to fund a split-dollar life insurance policy for his
benefit, pursuant to which we (a) agreed to forego our right under the
split-dollar agreement with the trust that owns the policy to the
reimbursement of $147,828 in premiums that we previously paid for such
policy prior to 2002 and (b) made a payment to Dr. Sands of $219,457
enabling him to pay, for his own account, the premiums under the policy
for 2004 and 2005 and the taxes associated with the termination of the
trust’s reimbursement obligations under the split-dollar
agreement. We entered into the employment agreement with Dr.
Sands in October 1999 and entered into the split-dollar agreement with the
trust that owns the policy in October
2000
.
|
Employment
Agreements
In
October 1999, we entered into an employment agreement with Arthur T. Sands,
M.D., Ph.D., our president and chief executive officer, which was subsequently
restated in February 2006. Under the agreement, Dr. Sands receives a base
salary, currently $560,000 a year, subject to adjustment, with an annual
discretionary bonus based upon specific objectives to be determined by the
compensation committee. The employment agreement is at-will and contains a
non-competition agreement. The agreement also provides for certain severance
payments upon the termination of Dr. Sands’ employment, as described below under
the heading “Executive and Director Compensation — Potential Payments upon
Termination or Change in Control.”
In
February 2000, we entered into an employment agreement with Julia P. Gregory to
serve as our executive vice president and chief financial officer starting in
February 2000. Under the agreement, Ms. Gregory receives a base
salary, currently $350,000 a year, subject to adjustment, with an annual
discretionary bonus based upon specific objectives to be determined by the
compensation committee. The employment agreement is at-will and
contains a non-competition agreement. The agreement also provides for certain
severance payments upon the termination of Ms. Gregory’s employment, as
described below under the heading “Executive and Director Compensation —
Potential Payments upon Termination or Change in Control.”
In July
2001, we entered into an employment agreement with Alan J. Main, Ph.D., then our
senior vice president, Lexicon Pharmaceuticals. In February 2007, Dr. Main was
named executive vice president of pharmaceutical research. Under the agreement,
Dr. Main receives a base salary, currently $340,000 a year, subject to
adjustment, with an annual discretionary bonus based upon specific objectives to
be determined by the compensation committee. The employment agreement is at-will
and contains a non-competition agreement. The agreement also provides for
certain severance payments upon the termination of Dr. Main’s employment, as
described below under the heading “Executive and Director Compensation —
Potential Payments upon Termination or Change in Control.”
In
December 1998, we entered into an employment agreement with Jeffrey L. Wade,
J.D. to serve as our senior vice president and chief financial officer starting
in January 1999. In February 2000, Mr. Wade was named executive vice president
and general counsel. Under the agreement, Mr. Wade receives a base salary,
currently $340,000 a year, subject to adjustment, with an annual discretionary
bonus based upon specific objectives to be determined by the compensation
committee. The employment agreement is at-will and contains a
non-competition agreement. The agreement also provides for certain severance
payments upon the termination of Mr. Wade’s employment, as described below under
the heading “Executive and Director Compensation — Potential Payments upon
Termination or Change in Control.”
In
February 2000, we entered into an employment agreement with Brian P. Zambrowicz,
Ph.D., then our senior vice president of genomics. Dr. Zambrowicz was named
executive vice president of research in August 2002 and executive vice president
and chief scientific officer in February 2007. Under the agreement,
Dr. Zambrowicz receives a base salary, currently $365,000 a year, subject to
adjustment, with an annual discretionary bonus based upon specific objectives to
be determined by the compensation committee. The employment agreement
is at-will and contains a non-competition agreement. The agreement also provides
for certain severance payments upon the termination of Dr. Zambrowicz’s
employment, as described below under the heading “Executive and Director
Compensation — Potential Payments upon Termination or Change in
Control.”
Grants
of Plan-Based Awards in 2007
The
following table presents each grant of stock options in 2007 to the individuals
named in the summary compensation table.
Name
|
|
Grant
Date
|
|
Number
of Securities Underlying Options
|
|
Exercise
Price
of
Option
Awards
|
|
Closing
Market Price
on
the
Grant
Date
|
|
|
Grant
Date Fair Value of Options
|
Arthur
T. Sands, M.D., Ph.D.
|
|
2/13/2007
|
|
340,000
|
|
$
|
3.94
|
|
|
|
$
|
3.95
|
|
|
$
|
999,532
|
Julia
P. Gregory
|
|
2/13/2007
|
|
100,000
|
|
$
|
3.94
|
|
|
|
$
|
3.95
|
|
|
$
|
293,980
|
Alan
J. Main, Ph.D.
|
|
2/13/2007
|
|
100,000
|
|
$
|
3.94
|
|
|
|
$
|
3.95
|
|
|
$
|
293,980
|
Jeffrey
L. Wade, J.D.
|
|
2/13/2007
|
|
120,000
|
|
$
|
3.94
|
|
|
|
$
|
3.95
|
|
|
$
|
352,776
|
Brian
P. Zambrowicz, Ph.D.
|
|
2/13/2007
|
|
200,000
|
|
$
|
3.94
|
|
|
|
$
|
3.95
|
|
|
$
|
587,960
|
Each of
the options in the foregoing table was granted under our 2000 Equity Incentive
Plan and expires on the tenth anniversary of the grant date. Each
option vests with respect to 25% of the shares underlying the option on the
first anniversary of the grant date and 1/48
th
per
month for each month of service thereafter. Each option becomes fully
vested with respect to all remaining unvested shares upon a change in control of
our company. In accordance with the process for determination of fair
market value under the plan, the exercise price for each option is equal to the
closing price of our common stock, as quoted on the Nasdaq Global Market, on the
last trading day prior to the grant date. The exercise price for each
option may be paid in cash or in shares of our common stock valued at fair
market value on the exercise date or through a cashless exercise procedure
involving a same-day sale of the purchased shares.
Outstanding
Equity Awards at December 31, 2007
The
following table presents information about unexercised options that were held by
each of the individuals listed in the summary compensation table as of December
31, 2007.
|
|
|
Number
of Securities
Underlying
Unexercised Options
|
|
|
|
|
|
|
|
|
|
Exercisable
|
|
|
Unexercisable
(1)
|
|
|
|
Option
Exercise
Price
|
|
Option
Expiration
Date
|
Arthur
T. Sands, M.D., Ph.D.
|
|
|
|
900,000
|
|
|
|
—
|
|
|
|
$
|
2.50
|
|
9/29/2008
|
|
|
|
|
555,000
|
|
|
|
—
|
|
|
|
$
|
2.50
|
|
2/3/2010
|
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
$
|
14.44
|
|
2/2/2011
|
|
|
|
|
170,000
|
|
|
|
—
|
|
|
|
$
|
9.38
|
|
2/19/2012
|
|
|
|
|
135,000
|
|
|
|
—
|
|
|
|
$
|
3.90
|
|
2/14/2013
|
|
|
|
|
143,784
|
|
|
|
6,216
|
|
|
|
$
|
7.59
|
|
2/12/2014
|
|
|
|
|
106,272
|
|
|
|
43,728
|
|
|
|
$
|
5.76
|
|
2/18/2015
|
|
|
|
|
174,192
|
|
|
|
205,808
|
|
|
|
$
|
4.00
|
|
2/1/2016
|
|
|
|
|
—
|
|
|
|
340,000
|
|
|
|
$
|
3.94
|
|
2/13/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Julia
P.
Gregory
|
|
|
|
433,000
|
|
|
|
—
|
|
|
|
$
|
2.50
|
|
2/8/2010
|
|
|
|
|
60,000
|
|
|
|
—
|
|
|
|
$
|
14.44
|
|
2/2/2011
|
|
|
|
|
90,000
|
|
|
|
—
|
|
|
|
$
|
9.38
|
|
2/19/2012
|
|
|
|
|
72,000
|
|
|
|
—
|
|
|
|
$
|
3.90
|
|
2/14/2013
|
|
|
|
|
71,892
|
|
|
|
3,108
|
|
|
|
$
|
7.59
|
|
2/12/2014
|
|
|
|
|
53,136
|
|
|
|
21,864
|
|
|
|
$
|
5.76
|
|
2/18/2015
|
|
|
|
|
45,840
|
|
|
|
54,160
|
|
|
|
$
|
4.00
|
|
2/1/2016
|
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
$
|
3.94
|
|
2/13/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alan
J. Main,
Ph.D.
|
|
|
|
49,001
|
|
|
|
—
|
|
|
|
$
|
1.97
|
|
12/14/2009
|
|
|
|
|
300,000
|
|
|
|
—
|
|
|
|
$
|
10.93
|
|
7/12/2011
|
|
|
|
|
15,000
|
|
|
|
—
|
|
|
|
$
|
9.38
|
|
2/19/2012
|
|
|
|
|
54,000
|
|
|
|
—
|
|
|
|
$
|
3.90
|
|
2/14/2013
|
|
|
|
|
47,928
|
|
|
|
2,072
|
|
|
|
$
|
7.59
|
|
2/12/2014
|
|
|
|
|
35,424
|
|
|
|
14,576
|
|
|
|
$
|
5.76
|
|
2/18/2015
|
|
|
|
|
29,796
|
|
|
|
35,204
|
|
|
|
$
|
4.00
|
|
2/1/2016
|
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
$
|
3.94
|
|
2/13/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
L. Wade,
J.D.
|
|
|
|
372,500
|
|
|
|
—
|
|
|
|
$
|
2.50
|
|
1/13/2009
|
|
|
|
|
135,000
|
|
|
|
—
|
|
|
|
$
|
2.50
|
|
2/3/2010
|
|
|
|
|
50,000
|
|
|
|
—
|
|
|
|
$
|
14.44
|
|
2/2/2011
|
|
|
|
|
65,000
|
|
|
|
—
|
|
|
|
$
|
9.38
|
|
2/19/2012
|
|
|
|
|
54,000
|
|
|
|
—
|
|
|
|
$
|
3.90
|
|
2/14/2013
|
|
|
|
|
57,513
|
|
|
|
2,487
|
|
|
|
$
|
7.59
|
|
2/12/2014
|
|
|
|
|
42,508
|
|
|
|
17,492
|
|
|
|
$
|
5.76
|
|
2/18/2015
|
|
|
|
|
55,008
|
|
|
|
64,992
|
|
|
|
$
|
4.00
|
|
2/1/2016
|
|
|
|
|
—
|
|
|
|
120,000
|
|
|
|
$
|
3.94
|
|
2/13/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brian
P. Zambrowicz, Ph.D.
|
|
|
|
480,000
|
|
|
|
—
|
|
|
|
$
|
2.50
|
|
9/29/2008
|
|
|
|
|
210,000
|
|
|
|
—
|
|
|
|
$
|
2.50
|
|
2/3/2010
|
|
|
|
|
50,000
|
|
|
|
—
|
|
|
|
$
|
14.44
|
|
2/2/2011
|
|
|
|
|
75,000
|
|
|
|
—
|
|
|
|
$
|
9.38
|
|
2/19/2012
|
|
|
|
|
63,000
|
|
|
|
—
|
|
|
|
$
|
3.90
|
|
2/14/2013
|
|
|
|
|
67,099
|
|
|
|
2,901
|
|
|
|
$
|
7.59
|
|
2/12/2014
|
|
|
|
|
49,593
|
|
|
|
20,407
|
|
|
|
$
|
5.76
|
|
2/18/2015
|
|
|
|
|
77,928
|
|
|
|
92,072
|
|
|
|
$
|
4.00
|
|
2/1/2016
|
|
|
|
|
—
|
|
|
|
200,000
|
|
|
|
$
|
3.94
|
|
2/13/2017
|
(1)
|
Each
option vests with respect to 25% of the shares underlying the option on
the first anniversary of the grant date and 1/48
th
per month for each month of service
thereafter.
|
Option
Exercises in 2007
The
following table presents information about option exercises in 2007 by each of
the individuals listed in the summary compensation table. Amounts
shown under the column “Value Realized on Exercise” are based on the market
price of our common stock on the date of exercise, without taking into account
any taxes that may be payable in connection with the transaction, less the
exercise price paid for the purchased shares.
Name
|
|
Number of Shares
Acquired
on Exercise
|
|
|
Value Realized on
Exercise
|
|
Arthur
T. Sands, M.D., Ph.D.
|
|
|
300,000
|
|
|
$
|
603,999
|
|
Julia
P. Gregory
|
|
|
—
|
|
|
|
—
|
|
Jeffrey
L. Wade, J.D.
|
|
|
—
|
|
|
|
—
|
|
Brian
P. Zambrowicz, Ph.D.
|
|
|
90,000
|
|
|
$
|
192,000
|
|
Alan
J. Main, Ph.D.
|
|
|
—
|
|
|
|
—
|
|
Potential
Payments upon Termination or Change in Control
Employment
Agreements
Arthur T. Sands, M.D.,
Ph.D
. Our employment agreement with Dr. Sands provides that if
we terminate his employment without “cause,” if Dr. Sands terminates his
employment for “good reason,” or if his employment is terminated at the end of
any renewal term through notice of non-renewal, we will pay Dr. Sands his
then-current salary for twelve months pursuant to our normal payroll procedures,
plus an additional single sum payment equal to his full target bonus for the
year in which the termination occurred.
Under our
employment agreement with Dr. Sands, “good reason” means any of the following,
without Dr. Sands’ prior written consent:
·
|
any
reduction in Dr. Sands’ salary, followed by Dr. Sands terminating his
employment for “good reason” within 120 days after receiving notice of
such reduction;
|
·
|
any
breach by our company of any material provision of the agreement, followed
by Dr. Sands terminating his employment for “good reason” within 120 days
after receiving notice of such
breach;
|
·
|
a
substantial and adverse change in Dr. Sands’ duties, control, authority,
status or position, or the assignment to Dr. Sands of any duties or
responsibilities which are materially inconsistent with such status or
position, or a material reduction in the duties and responsibilities
exercised by Dr. Sands, or a loss of title, loss of office, loss of
significant authority, power or control, or any removal of Dr. Sands from,
or any failure to reappoint or reelect him to his positions as chief
executive officer and director, followed by Dr. Sands terminating his
employment for “good reason” within 120 days after receiving notice of any
such action;
|
·
|
following
a “change in control,” the failure by the surviving entity to expressly
assume and agree to continue and perform the agreement in the same manner
as we would otherwise be required to perform if the “change in control”
had not occurred, followed by Dr. Sands terminating his employment for
“good reason” within six months after receiving actual notice of such
failure; or
|
·
|
following
a “change in control,” the failure by the surviving entity to continue any
pension, medical, health-and-accident, life insurance, or disability
income plan or program in which Dr. Sands was participating at the time of
the “change in control,” or the taking of any action by the surviving
entity that would adversely affect Dr. Sands’ participation in or
materially reduce his benefits under any such plan that was enjoyed by him
immediately prior to the “change in control,” followed by Dr. Sands
terminating his employment for “good reason” within six months after
receiving actual notice of such failure or
action.
|
Julia P.
Gregory
. Our employment agreement with Ms. Gregory provides
that if we terminate her employment without “cause” or if Ms. Gregory terminates
her employment for “good reason,” we will pay Ms. Gregory her then-current
salary for twelve months pursuant to our normal payroll procedures, plus an
additional single sum payment equal to 50% of her target bonus for the year in
which the termination occurred. If her employment is terminated at
the end of any renewal term through notice of non-renewal, we will pay Ms.
Gregory her then-current salary for six months pursuant to our normal payroll
procedures.
Under our
employment agreement with Ms. Gregory, “good reason” means any of the following,
without Ms. Gregory’s prior written consent:
·
|
any
reduction in Ms. Gregory’s salary, followed by Ms. Gregory terminating her
employment for “good reason” within 120 days after receiving notice of
such reduction;
|
·
|
any
breach by our company of any material provision of the agreement, followed
by Ms. Gregory terminating her employment for “good reason” within 120
days after receiving notice of such
breach;
|
·
|
following
a “change in control,” the failure by the surviving entity to expressly
assume and agree to continue and perform the agreement in the same manner
as we would otherwise be required to perform if the “change in control”
had not occurred, followed by Ms. Gregory terminating her employment for
“good reason” within 12 months after receiving actual notice of such
failure;
|
·
|
any
material reduction of Ms. Gregory’s duties or responsibilities, followed
by Ms. Gregory terminating her employment for “good reason” within 12
months after receiving actual notice of such reduction;
or
|
·
|
following
a “change in control,” the failure by the surviving entity to continue any
pension, medical, health-and-accident, life insurance, or disability
income plan or program in which Ms. Gregory was participating at the time
of the “change in control,” or the taking of any action by the surviving
entity that would adversely affect Ms. Gregory’s participation in or
materially reduce her benefits under any such plan that was enjoyed by her
immediately prior to the “change in control,” followed by Ms. Gregory
terminating her employment for “good reason” within 12 months after
receiving actual notice of such failure or
action.
|
Alan J. Main,
Ph.D
. Our employment agreement with Dr. Main provides that if
we terminate his employment without “cause” or if Dr. Main terminates his
employment for “good reason,” we will pay Dr. Main his then-current salary for
twelve months pursuant to our normal payroll procedures, plus an additional
single sum payment equal to 50% of his target bonus for the year in which the
termination occurred. If his employment is terminated at the end of
any renewal term through notice of non-renewal, we will pay Dr. Main his
then-current salary for six months pursuant to our normal payroll
procedures.
Under our
employment agreement with Dr. Main, “good reason” means any of the following,
without Dr. Main’s prior written consent:
·
|
any
reduction in Dr. Main’s salary, followed by Dr. Main terminating his
employment for “good reason” within 120 days after receiving notice of
such reduction;
|
·
|
any
breach by our company of any material provision of the agreement, followed
by Dr. Main terminating his employment for “good reason” within 120 days
after receiving notice of such
breach;
|
·
|
any
material reduction of Dr. Main’s authority, duties or responsibilities,
followed by Dr. Main terminating his employment for “good reason” within
120 days after receiving actual notice of such
reduction;
|
·
|
following
a “change in control,” the failure by the surviving entity to expressly
assume and agree to continue and perform the agreement in the same manner
as we would otherwise be required to perform if the “change in control”
had not occurred, followed by Dr. Main terminating his employment for
“good reason” within 12 months after receiving actual notice of such
failure; or
|
·
|
following
a “change in control,” the failure by the surviving entity to continue any
pension, medical, health-and-accident, life insurance, or disability
income plan or program in which Dr. Main was participating at the time of
the “change in control,” or the taking of any action by the surviving
entity that would adversely affect Dr. Main’s participation in or
materially reduce his benefits under any such plan that was enjoyed by him
immediately prior to the “change in control,” followed by Dr. Main
terminating his employment for “good reason” within 12 months after
receiving actual notice of such failure or
action.
|
Jeffrey L. Wade,
J.D
. Our employment agreement with Mr. Wade provides that if
we terminate his employment without “cause” or if Mr. Wade terminates his
employment for “good reason,” we will pay Mr. Wade his then-current salary for
twelve months pursuant to our normal payroll procedures, plus an additional
single sum payment equal to 50% of his target bonus for the year in which the
termination occurred, provided that if such termination occurs within 120 days
following a reduction in his salary, the salary continuation payments shall be
based on Mr. Wade’s salary prior to such reduction. If his employment
is terminated at the end of any renewal term through notice of non-renewal, we
will pay Mr. Wade his then-current salary for six months pursuant to our normal
payroll procedures.
Under our
employment agreement with Mr. Wade, “good reason” means any of the following,
without Mr. Wade’s prior written consent:
·
|
any
reduction in Mr. Wade’s salary, followed by Mr. Wade terminating his
employment for “good reason” within 120 days after receiving notice of
such reduction;
|
·
|
any
breach by our company of any material provision of the agreement, followed
by Mr. Wade terminating his employment for “good reason” within 120 days
after receiving notice of such
breach;
|
·
|
following
a “change in control,” the failure by the surviving entity to expressly
assume and agree to continue and perform the agreement in the same manner
as we would otherwise be required to perform if the “change in control”
had not occurred, followed by Mr. Wade terminating his employment for
“good reason” within 12 months after receiving actual notice of such
failure;
|
·
|
any
material reduction of Mr. Wade’s duties or responsibilities, followed by
Mr. Wade terminating his employment for “good reason” within 12 months
after receiving actual notice of such reduction;
or
|
·
|
following
a “change in control,” the failure by the surviving entity to continue any
pension, medical, health-and-accident, life insurance, or disability
income plan or program in which Mr. Wade was participating at the time of
the “change in control,” or the taking of any action by the surviving
entity that would adversely affect Mr. Wade’s participation in or
materially reduce his benefits under any such plan that was enjoyed by him
immediately prior to the “change in control,” followed by Mr. Wade
terminating his employment for “good reason” within 12 months after
receiving actual notice of such failure or
action.
|
Brian P. Zambrowicz,
Ph.D
. Our employment agreement with Dr. Zambrowicz provides
that if we terminate his employment without “cause” or if Dr. Zambrowicz
terminates his employment for “good reason,” we will pay Dr. Zambrowicz his
then-current salary for twelve months pursuant to our normal payroll procedures,
plus an additional single sum payment equal to 50% of his target bonus for the
year in which the termination occurred. If his employment is
terminated at the end of any renewal term through notice of non-renewal, we will
pay Dr. Zambrowicz his then-current salary for six months pursuant to our normal
payroll procedures.
Under our
employment agreement with Dr. Zambrowicz, “good reason” means any of the
following, without Dr. Zambrowicz’s prior written consent:
·
|
any
reduction in Dr. Zambrowicz’s salary, followed by Dr. Zambrowicz
terminating his employment for “good reason” within 120 days after
receiving notice of such reduction;
|
·
|
any
breach by our company of any material provision of the agreement, followed
by Dr. Zambrowicz terminating his employment for “good reason” within 120
days after receiving notice of such
breach;
|
·
|
following
a “change in control,” the failure by the surviving entity to expressly
assume and agree to continue and perform the agreement in the same manner
as we would otherwise be required to perform if the “change in control”
had not occurred, followed by Dr. Zambrowicz terminating his employment
for “good reason” within 12 months after receiving actual notice of such
failure;
|
·
|
any
material reduction of Dr. Zambrowicz’s duties or responsibilities,
followed by Dr. Zambrowicz terminating his employment for “good reason”
within 12 months after receiving actual notice of such reduction;
or
|
·
|
following
a “change in control,” the failure by the surviving entity to continue any
pension, medical, health-and-accident, life insurance, or disability
income plan or program in which Dr. Zambrowicz was participating at the
time of the “change in control,” or the taking of any action by the
surviving entity that would adversely affect Dr. Zambrowicz’s
participation in or materially reduce his benefits under any such plan
that was enjoyed by him immediately prior to the “change in control,”
followed by Dr. Zambrowicz terminating his employment for “good reason”
within 12 months after receiving actual notice of such failure or
action.
|
Under
each of our employment agreements with the individuals named in the summary
compensation table, “cause” means any of the following:
·
|
the
individual having engaged in intentional misconduct causing our material
violation of any state or federal
laws;
|
·
|
the
individual having engaged in a theft of corporate funds or corporate
assets or in a material act of fraud upon
us;
|
·
|
an
act of personal dishonesty taken by the individual that was intended to
result in personal enrichment of the individual at our
expense;
|
·
|
the
individual’s final conviction in a court of competent jurisdiction of a
felony; or
|
·
|
a
breach by the individual during his or her employment of the conflict of
interest, confidential information and non-competition covenants under the
agreement, if such breach results in a material injury to our
company.
|
Under
each of our employment agreements with the individuals named in the summary
compensation table, a “change in control” shall have occurred upon any of the
following events:
·
|
any
person, other than certain specified persons, becomes the beneficial owner
of securities representing 35% or more of the combined voting power of our
outstanding voting securities;
|
·
|
the
approval by our stockholders of a reorganization, merger, or consolidation
pursuant to which our stockholders immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter,
own or control more than 50% of the combined voting power of the surviving
entity’s outstanding voting securities in substantially the same
proportions as prior to such reorganization, merger or
consolidation;
|
·
|
our
liquidation or dissolution or the sale of all or substantially all of our
assets;
|
·
|
the
election by our stockholders of any person to our board of directors who
has not been nominated for election by a majority of the board of
directors or any duly appointed committee
thereof;
|
·
|
following
the election or removal of directors, a majority of the board of directors
consists of individuals who were not members of the board of directors two
years before such election or removal, unless the election of such
individuals to the board of directors has been approved in advance by
directors representing a majority of the directors then in office who were
directors at the beginning of the two-year period;
or
|
·
|
any
other corporate event affecting the company deemed to be a “change in
control” by the board of directors.
|
Stock
Option Agreements
Our stock
option agreements with the individuals named in the summary compensation table
provide that all remaining unvested stock options shall become fully vested upon
a change in control of our company. Under the stock option
agreements, a “change in control” shall have occurred upon any of the following
events:
·
|
any
person other than Invus, L.P. and its affiliates becomes the beneficial
owner of securities representing 35% or more of the combined voting power
of our outstanding voting
securities;
|
·
|
Invus,
L.P. and its affiliates become the beneficial owner of securities
representing 50% or more of the combined voting power of our outstanding
voting securities;
|
·
|
the
approval by our stockholders of a reorganization, merger, or consolidation
pursuant to which our stockholders immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter,
own or control more than 50% of the combined voting power of the surviving
entity’s outstanding voting securities in substantially the same
proportions as prior to such reorganization, merger or
consolidation;
|
·
|
our
liquidation or dissolution or the sale of all or substantially all of our
assets;
|
·
|
the
election by our stockholders of any person to our board of directors who
has not been nominated for election by a majority of the board of
directors or any duly appointed committee
thereof;
|
·
|
following
the election or removal of directors, a majority of the board of directors
consists of individuals who were not members of the board of directors two
years before such election or removal, unless the election of such
individuals to the board of directors has been approved in advance by
directors representing a majority of the directors then in office who were
directors at the beginning of the two-year period;
or
|
·
|
any
other corporate event affecting the company deemed to be a “change in
control” by the compensation
committee.
|
The
following table reflects the amounts the individuals named in the summary
compensation table would have been entitled to receive if the foregoing
termination and change-in-control events had occurred on December 31, 2007 and
does not take into account any taxes that may have been payable in connection
with those payments:
Name
|
|
Aggregate
Salary Continuation
|
|
|
Bonus
(6)
|
|
|
Accelerated
Portion of Stock
Options
(7)
|
|
Arthur
T. Sands, M.D., Ph.D.
|
|
$
|
530,000
|
(1)
|
|
$
|
265,000
|
|
|
$
|
—
|
|
Julia
P. Gregory
|
|
$
|
335,000
|
(2)
|
|
$
|
58,625
|
|
|
$
|
—
|
|
Alan
J. Main, Ph.D.
|
|
$
|
325,000
|
(3)
|
|
$
|
56,875
|
|
|
$
|
—
|
|
Jeffrey
L. Wade, J.D.
|
|
$
|
320,000
|
(4)
|
|
$
|
56,000
|
|
|
$
|
—
|
|
Brian
P. Zambrowicz, Ph.D.
|
|
$
|
345,000
|
(5)
|
|
$
|
69,000
|
|
|
$
|
—
|
|
(1)
|
Reflects
aggregate salary continuation payments due as a result of our termination
of Dr. Sands’ employment without “cause,” Dr. Sands’ termination of his
employment for “good reason,” or the termination of Dr. Sands’ employment
at the end of a renewal term through notice of
non-renewal.
|
(2)
|
Reflects
aggregate salary continuation payments due as a result of our termination
of Ms. Gregory’s employment without “cause” or Ms. Gregory’s termination
of her employment for “good reason.” If Ms. Gregory’s
employment had been terminated at the end of a renewal term through notice
of non-renewal, the aggregate salary continuation payment for Ms. Gregory
would have been $167,500.
|
(3)
|
Reflects
aggregate salary continuation payments due as a result of our termination
of Dr. Main’s employment without “cause” or Dr. Main’s termination of his
employment for “good reason.” If Dr. Main’s employment had been
terminated at the end of a renewal term through notice of non-renewal, the
aggregate salary continuation payment for Dr. Main would have been
$162,500.
|
(4)
|
Reflects
aggregate salary continuation payments due as a result of our termination
of Mr. Wade’s employment without “cause” or Mr. Wade’s termination of his
employment for “good reason.” If Mr. Wade’s employment had been
terminated at the end of a renewal term through notice of non-renewal, the
aggregate salary continuation payment for Mr. Wade would have been
$160,000.
|
(5)
|
Reflects
aggregate salary continuation payments due as a result of our termination
of Dr. Zambrowicz’s employment without “cause” or Dr. Zambrowicz’s
termination of his employment for “good reason.” If Dr.
Zambrowicz’s employment had been terminated at the end of a renewal term
through notice of non-renewal, the aggregate salary continuation payment
for Dr. Zambrowicz would have been
$172,500.
|
(6)
|
Reflects
single-sum bonus payments due as a result of our termination of the named
individual’s employment without “cause,” the named individual’s
termination of his or her employment for “good reason,” or in the case of
Dr. Sands, the termination of his employment at the end of a renewal term
through notice of non-renewal.
|
(7)
|
Based
on the closing price of our common stock on the Nasdaq Global Market on
December 31, 2007 of $3.03 per share, less the exercise price payable with
respect to the stock options for which vesting would have been
accelerated.
|
Director
Compensation in 2007
Each
non-employee member of our board of directors currently receives the following
cash compensation:
·
|
an
annual retainer of $15,000 for service on the board of directors ($30,000
for service as non-executive chairman of the board of directors), prorated
for any partial year of service;
|
·
|
an
annual retainer of $2,500 for service on each committee of the board of
directors of which he or she is a member ($5,000 for service as chairman
of any such committee), prorated for any partial year of
service;
|
·
|
a
fee of $2,500 for each meeting of the board of directors that he or she
attends in person ($500 for each telephonic meeting of the board of
directors in which he or she participates);
and
|
·
|
a
fee of $1,000 for each committee meeting that he or she attends in person
other than in connection with a meeting of the full board of directors
($500 for each telephonic committee meeting in which he or she
participates).
|
Arthur T.
Sands, M.D., Ph.D., our president and chief executive officer, does not receive
additional compensation for his service as a director. We make
additional cash payments to Dr. Lefkowitz for his consulting services and to Dr.
Nies for his consulting services as chairman of our medical advisory
board.
Our 2000
Non-Employee Directors’ Stock Option Plan provides for the grant of options to
purchase shares of common stock to our non-employee
directors. Non-employee directors first elected after the closing of
our initial public offering in April 2000 receive an initial option to purchase
30,000 shares of common stock. In addition, all non-employee
directors who have served in such capacity for six months receive an annual
option to purchase 10,000 shares of common stock. All options granted
under the non-employee directors’ plan have an exercise price equal to the fair
market value of our common stock on the date of grant.
The
chairman of our board of directors receives an additional annual option under
our 2000 Equity Incentive Plan to purchase 10,000 shares of common
stock. All such options have an exercise price equal to the fair
market value of our common stock on the date of grant.
The
following table presents summary information for the year ended December 31,
2007 regarding the compensation of the non-employee members of our board of
directors. Mr. Rose and Dr. Mills resigned as directors effective
September 30, 2007. Ms. Wiltsey was elected as a director on February
26, 2007. Mr. Amouyal, Mr. Debbane and Mr. Sobecki were elected as
directors on August 28, 2007. Dr. Swain was elected as a director on
September 24, 2007.
Name
|
|
Fees
Earned or Paid in Cash
|
|
|
Option Awards
(1)
(2) (3)
|
|
|
All
Other Compensation
|
|
|
Total
|
|
Samuel
L. Barker, Ph.D.
|
|
$
|
49,279
|
|
|
$
|
63,176
|
|
|
|
—
|
|
|
$
|
112,455
|
|
Philippe
J. Amouyal
|
|
$
|
12,522
|
|
|
$
|
4,631
|
|
|
|
—
|
|
|
$
|
17,153
|
|
Raymond
Debbane
|
|
$
|
11,999
|
|
|
$
|
4,631
|
|
|
|
—
|
|
|
$
|
16,630
|
|
Robert
J. Lefkowitz, M.D.
|
|
$
|
28,500
|
|
|
$
|
31,588
|
|
|
$
|
50,000
|
(4)
|
|
$
|
110,088
|
|
Barry
Mills, J.D., Ph.D.
|
|
$
|
26,557
|
|
|
$
|
25,436
|
|
|
|
—
|
|
|
$
|
51,993
|
|
Alan
S. Nies, M.D.
|
|
$
|
31,477
|
|
|
$
|
57,811
|
|
|
$
|
75,000
|
(5)
|
|
$
|
164,288
|
|
Frank
P. Palantoni
|
|
$
|
41,483
|
|
|
$
|
64,446
|
|
|
|
—
|
|
|
$
|
105,929
|
|
Clayton
S. Rose
|
|
$
|
27,168
|
|
|
$
|
45,671
|
|
|
|
—
|
|
|
$
|
72,839
|
|
Christopher
J. Sobecki
|
|
$
|
10,661
|
|
|
$
|
4,631
|
|
|
|
—
|
|
|
$
|
15,292
|
|
Judith
L. Swain, M.D.
|
|
$
|
7,519
|
|
|
$
|
3,755
|
|
|
|
—
|
|
|
$
|
11,274
|
|
Kathleen
M. Wiltsey
|
|
$
|
24,243
|
|
|
$
|
16,140
|
|
|
|
—
|
|
|
$
|
40,383
|
|
(1)
|
Reflects
the dollar amount recognized for financial statement reporting purposes
for the year ended December 31, 2007 in accordance with FAS 123(R) (but
disregarding forfeiture estimates related to service-based vesting
conditions) and, accordingly, includes amounts from options granted prior
to 2007. See the information appearing under the heading
entitled “Stock-Based Compensation” in footnote 2 to our consolidated
financial statements included as part of our Annual Report on Form 10-K
for the year ended December 31, 2007 for certain assumptions made in the
valuation of options granted in the years ended December 31, 2007, 2006
and 2005. See the information appearing under the heading
entitled “Stock-Based Compensation” in footnote 12 to our consolidated
financial statements included as part of our Annual Report on Form 10-K
for the year ended December 31, 2004 for certain assumptions made in the
valuation of options granted in the years ended December 31, 2004, 2003
and 2002.
|
(2)
|
The
non-employee members of our board of directors who held such position on
December 31, 2007 held the following aggregate number of unexercised
options as of such date:
|
Name
|
|
Number
of Securities Underlying Unexercised Options
|
|
Samuel
L. Barker, Ph.D.
|
|
|
114,000
|
|
Philippe
J. Amouyal
|
|
|
30,000
|
|
Raymond
Debbane
|
|
|
30,000
|
|
Robert
J. Lefkowitz, M.D.
|
|
|
78,000
|
|
Alan
S. Nies, M.D.
|
|
|
68,500
|
|
Frank
P. Palantoni
|
|
|
50,000
|
|
Christopher
J. Sobecki
|
|
|
30,000
|
|
Judith
L. Swain, M.D.
|
|
|
30,000
|
|
Kathleen
M. Wiltsey
|
|
|
30,000
|
|
(3)
|
The
following table presents the fair value of each grant of stock options in
2007 to non-employee members of our board of directors, computed in
accordance with FAS 123(R):
|
Name
|
|
Grant
Date
|
|
Number
of Securities Underlying Options
|
|
|
Exercise
Price
of
Option Awards
|
|
|
Grant
Date
Fair
Value of Options
|
|
|
Samuel
L. Barker, Ph.D.
|
|
4/26/2007
|
|
|
10,000
|
|
|
$
|
3.77
|
|
|
$
|
27,995
|
|
|
|
4/26/2007
|
|
|
10,000
|
|
|
$
|
3.77
|
|
|
$
|
27,995
|
|
Philippe
Amouyal
|
|
8/28/2007
|
|
|
30,000
|
|
|
$
|
3.21
|
|
|
$
|
67,908
|
|
Raymond
Debbane
|
|
8/28/2007
|
|
|
30,000
|
|
|
$
|
3.21
|
|
|
$
|
67,908
|
|
Robert
J. Lefkowitz, M.D.
|
|
4/26/2007
|
|
|
10,000
|
|
|
$
|
3.77
|
|
|
$
|
27,995
|
|
Barry
Mills, J.D., Ph.D.
|
|
4/26/2007
|
|
|
10,000
|
|
|
$
|
3.77
|
|
|
$
|
27,995
|
|
Alan
S. Nies, M.D.
|
|
4/26/2007
|
|
|
10,000
|
|
|
$
|
3.77
|
|
|
$
|
27,995
|
|
Frank
P. Palantoni
|
|
4/26/2007
|
|
|
10,000
|
|
|
$
|
3.77
|
|
|
$
|
27,995
|
|
Clayton
S. Rose
|
|
4/26/2007
|
|
|
10,000
|
|
|
$
|
3.77
|
|
|
$
|
27,995
|
|
Christopher
J. Sobecki
|
|
8/28/2007
|
|
|
30,000
|
|
|
$
|
3.21
|
|
|
$
|
67,908
|
|
Judith
L. Swain, M.D.
|
|
9/24/2007
|
|
|
30,000
|
|
|
$
|
3.31
|
|
|
$
|
70,062
|
|
Kathleen
M. Wiltsey
|
|
2/26/2007
|
|
|
30,000
|
|
|
$
|
4.26
|
|
|
$
|
95,355
|
|
(4)
|
Consists
of amounts payable to Dr. Lefkowitz for his consulting
services.
|
(5)
|
Consists
of amounts payable to Dr. Nies for his consulting services as chairman of
our medical advisory board.
|
Compensation
Committee Report
The
compensation committee of our board of directors is responsible for evaluating
the performance of management, determining the compensation of our executive and
other officers and administering our 2000 Equity Incentive Plan, under which
stock option grants and other stock awards may be made to our
employees.
In
performing these functions, the compensation committee has reviewed and
discussed with the management of our company the information set forth above
under the heading “Executive and Director Compensation — Compensation Discussion
and Analysis.” Based upon that review and discussion, the
compensation committee has recommended to the board of directors that the
information set forth above under the heading “Executive and Director
Compensation — Compensation Discussion and Analysis” be included in this proxy
statement and incorporated by reference into our annual report on Form 10-K for
the year ended December 31, 2007.
Compensation
Committee
Frank P.
Palantoni (chair)
Philippe
J. Amouyal
Alan S.
Nies, M.D.
The
foregoing compensation committee report shall not be deemed “filed” for purposes
of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to
the liabilities of that section, nor shall it be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that we specifically
incorporate this compensation committee report by reference.
PROPOSALS
OF STOCKHOLDERS
In order
for a stockholder proposal to be considered for inclusion in our proxy statement
for next year’s annual meeting, we must receive the written proposal at our
principal executive offices no later than November 15, 2008. Any such
proposal must also comply with Securities and Exchange Commission regulations
regarding the inclusion of stockholder proposals in company-sponsored proxy
materials. Similarly, in order for any stockholder proposal to be
otherwise raised during next year’s annual meeting, we must receive written
notice of the proposal, containing the information required by our bylaws, at
our principal executive offices no later than November 15, 2008. You
may contact the corporate secretary at our principal executive offices for a
copy of the relevant bylaw provisions for making stockholder
proposals.
FINANCIAL
INFORMATION
Our
annual report to stockholders, including financial statements, accompanies this
proxy statement but does not constitute a part of the proxy solicitation
materials.
You may obtain,
without charge, a copy of our annual report on Form 10-K, including the
financial statements and exhibits thereto, by written request to Corporate
Communications, Lexicon Pharmaceuticals, Inc., 8800 Technology Forest Place, The
Woodlands, Texas 77381.
By
order of the board of directors,
|
|
|
|
/s/ Jeffrey L.
Wade
|
|
|
|
Jeffrey L.
Wade
|
|
Secretary
|
|
March 14,
2008
The
Woodlands, Texas
|
|
VOTE
BY INTERNET -
www.proxyvote.com
|
LEXICON
PHARMACEUTICALS, INC.
8800
TECHNOLOGY FOREST PLACE
THE
WOODLANDS, TX 77381-4287
|
|
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|
|
|
|
|
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ELECTRONIC
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VOTE
BY PHONE - 1-800-690-6903
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Use any touch-tone
telephone to transmit your voting instructions up until
11:59
P.M. Eastern Time the day before the cut-off date or meeting date. Have
your proxy card in hand when you call and then follow the
instructions.
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VOTE
BY MAIL
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Mark,
sign and date your proxy card and return it in the postage-paid envelope
we have provided or return it to Lexicon Pharmaceuticals, Inc., c/o
Broadridge, 51 Mercedes Way, Edgewood, NY
11717.
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TO
VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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LEXPH1
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KEEP
THIS PORTION FOR YOUR RECORDS
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DETACH
AND RETURN THIS PORTION ONLY
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THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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LEXICON
PHARMACEUTICALS, INC.
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THE
BOARD OF DIRECTORS RECOMMENDS A VOTE
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“FOR”
ITEMS 1 AND 2.
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Vote on Directors
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1.
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ELECTION
OF CLASS II DIRECTORS
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For
All
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Withhold
All
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For
All
Except
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To
withhold authority to vote for any individual nominee(s), mark “For All
Except” and write the number(s) of the nominee(s) on the line
below.
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Nominees:
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01) Samuel L. Barker, Ph.D.
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02) Christopher
J. Sobecki
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0
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0
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0
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03) Judith
L. Swain, M.D.
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04) Kathleen
M. Wiltsey
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