SCHEDULE 14A INFORMATION
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INTERLEUKIN GENETICS, INC.
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(Name of Registrant as Specified in its Charter)
INTERLEUKIN GENETICS, INC.
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INTERLEUKIN GENETICS, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Interleukin Genetics, Inc. (the "Company") will be held on Monday, June 17, 2002
at 9:00 a.m., Eastern Time, at the Company's executive offices, located at 135
Beaver Street, Waltham, MA 02452, for the following purposes:
1. To elect two (2) directors to serve until the 2005 Annual Meeting or
until their successors are elected and have qualified; and,
2. To consider and act upon any other matter which may properly come before
the meeting or any adjournment thereof. The Board of Directors is presently
unaware of any other business to be presented to a vote of the shareholders at
the Annual Meeting.
More information regarding the above matters is set forth in the Proxy
Statement that accompanies this Notice.
The Board of Directors of the Company has fixed the close of business on
April 22, 2002 as the record date for determining shareholders entitled to
notice of and to vote at the meeting. A complete list of the shareholders
entitled to vote at the meeting will be maintained at the Company's principal
executive offices during ordinary business hours for a period of ten (10) days
prior to the meeting. The list will be open to the examination of any
shareholder for any purpose germane to the meeting during this time. The list
will also be produced at the time and place of the meeting and will be open
during the whole time thereof.
By Order of the Board of Directors,
PHILIP R. REILLY
Chairman of the Board and Chief
Executive Officer
Waltham, Massachusetts
April 29, 2002
IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. EVEN IF
YOU PLAN TO BE PRESENT, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT
YOUR EARLIEST CONVENIENCE IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING, YOU MAY VOTE EITHER IN
PERSON OR BY YOUR PROXY.
INTERLEUKIN GENETICS, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 17, 2002
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy are furnished to the
shareholders of Interleukin Genetics, Inc., a Delaware corporation (the
"Company", "ILGN", "we", "us" or "our"), in connection with the solicitation by
the Board of Directors of proxies for use at the Annual Meeting of Shareholders
(the "Annual Meeting" or "Meeting") to be held on Monday, June 17, 2002 at 9:00
a.m., Eastern Time, at the Company's executive offices, located at 135 Beaver
Street, Waltham, MA 02452. If the Meeting is continued or postponed for any
reason, the proxies can be used at the continuation or new date for the purposes
defined in the preceding Notice of Annual Meeting of Shareholders. Properly
executed proxies received at, or prior to the Meeting will be voted.
Only holders of record of the Company's common stock, $0.001 par value per
share ("Common Stock"), at the close of business on April 22, 2002 (the "Record
Date") are entitled to vote at the Annual Meeting. On that date there were
outstanding and entitled to vote 21,434,342 shares of Common Stock, each of
which is entitled to one vote per share.
The Annual Report to Shareholders for the year ended December 31, 2001, has
been or is being furnished with this Proxy Statement, which is being mailed on
or about May 15, 2002, to the holders of record of Common Stock on the Record
Date. The Annual Report to Shareholders does not constitute a part of the proxy
materials.
VOTING AND PROXY PROCEDURES
Shareholders are urged to specify their choices on the proxy, but if no
choice is specified, eligible shares will be voted FOR the election of the two
nominees for director named in this Proxy Statement. At the date of this Proxy
Statement, we know of no other matters which are likely to be brought before the
Annual Meeting.
You retain the right to revoke your proxy at any time up to and including
the time of the Annual Meeting by filing a later-dated proxy or by written
notice filed with our Secretary at our executive offices or by voting your
shares in person at the Annual Meeting. Our executive offices are located at 135
Beaver Street, Waltham, MA 02452.
A quorum of shareholders is required to hold a valid meeting. If the
holders of a majority of the total shares of Common Stock entitled to vote are
either present in person or represented by proxy, then a quorum will exist.
Abstentions and broker non-votes are each included in the number of shares
present at the Annual Meeting for purposes of establishing a quorum. The
affirmative vote of the holders of a plurality of the shares of Common Stock
present in person or represented by proxy and entitled to vote is required for
the election of directors and thus, abstentions and broker non-votes have no
effect on the outcome of the election of directors.
The Company will pay the cost of solicitation of proxies. In addition to
solicitation by mail, proxies may be solicited by our directors, officers and
employees, without additional compensation (other than reimbursement of
out-of-pocket expenses), by personal interview, telephone, telegram or
otherwise. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries who hold the voting securities of record
for the forwarding of solicitation materials to the beneficial owners of Common
Stock. We will reimburse such brokers, custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them.
OWNERSHIP OF COMMON STOCK
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table outlines certain information as of February 28, 2002
regarding shareholders a) who are known to us to beneficially own at least 5% of
our Common Stock, b) who are our directors, c) who are named in the Summary
Compensation Table and d) all of our directors and executive officers as a
group. Such persons have sole voting power and sole dispositive power with
respect to all shares set forth in the table unless otherwise specified in the
footnotes to the table.
AMOUNT
AND NATURE
OF BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2) PERCENT(3)
--------------------------------------- ------------- ----------
Hathaway and Associates LTD................................. 1,890,000(4) 8.82%
119 Rowayton Avenue
Rowayton, CT 06853
Special Situations Fund..................................... 1,750,000(5) 7.94%
153 E 53rd Street, 55th Floor
New York, NY 10022
Cathy Fine.................................................. 1,553,000(6) 7.25%
131 Talmadge Hill Road
New Canann, CT 06840
Stephen Garofalo............................................ 1,534,967(7) 7.16%
6 Teal Court
New City, NY 10956
Gary L. Crocker............................................. 1,275,000(8) 5.93%
Kenneth S. Kornman.......................................... 1,160,204(9) 5.37%
Philip R. Reilly............................................ 748,676(10) 3.39%
Edward M. Blair, Jr......................................... 495,000(11) 2.30%
Thomas A. Moore............................................. 125,000(12) *
Fenel M. Eloi............................................... 122,001(13) *
Paul (Kip) Martha........................................... 94,166(14) *
John Garofalo............................................... 85,000(15) *
All executive officers and directors as a group (eight
persons, including the executive officers and directors
listed above)............................................. 4,105,047(16) 18.02%
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(1) Except as otherwise noted, the street address of the named beneficial owner
is care of Interleukin Genetics, Inc. 135 Beaver Street, Waltham MA 02452.
(2) Beneficial ownership of the Company's Common Stock is determined in
accordance with the rules of the Securities and Exchange Commission and
includes shares for which the shareholder has sole or shared voting or
dispositive power. Shares of the Company's Common Stock subject to options
or warrants currently exercisable or which become exercisable within 60
days after February 28, 2002 are deemed to be beneficially owned and
outstanding by the person holding the options or warrants and are included
for purposes of computing the percentage ownership of that person, but are
not deemed outstanding for purposes of computing the percentage ownership
of any other person.
(3) Percentage ownership is based on a total of 21,427,699 shares of Common
Stock issued and outstanding on February 28, 2002.
(4) Based solely on a Schedule 13G filed on January 24, 2002 with the
Securities and Exchange Commission by Hathaway & Associates, Ltd.
(5) Based solely on a Schedule 13G filed jointly on February 13, 2002 with the
Securities and Exchange commission by (i) Special Situations Fund III, L.P.
("SSF III"), (ii) Special Situations Private Equity Fund, L.P. ("SSPE"),
(iii) Special Situations Cayman Fund, L.P. (the "Cayman Fund"),
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(iv) MGP Advisors Limited Partnership ("MGP"), (v) MG Advisors L.L.C.
("MG"), (vi) AWM Investment Company, Inc. ("AWM"), (vii) Austin W. Marxe,
and (viii) David M. Greenhouse. MGP is the general partner and investment
advisor to SSF III. MG is the general partner and investment advisor to
SSPE. AWM is the general partner of MGP and the general partner and
investment advisor to the Cayman Fund. Messrs. Marxe and Greenhouse are
officers, directors and members or principal shareholders of each of MGP,
MG and AWM. Mssrs. Marxe and Greenhouse beneficially own 1,750,000 shares,
including 600,000 shares issuable pursuant to currently exercisable
warrants. Of these 1,750,000 shares, SSF III also beneficially owns 990,000
shares including 330,000 shares issuable pursuant to currently exercisable
warrants; SSPE beneficially owns 430,000 shares, including 160,000 shares
issuable pursuant to currently exercisable warrants; and the Cayman Fund
beneficially owns 330,000 shares, including 110,000 shares issuable
pursuant to currently exercisable warrants. SSF III, SSPE and the Cayman
Fund and their respective general partners claim sole voting and
dispositive power with respect to the shares beneficially owned as set
forth above. Messrs. Marxe and Greenhouse claim shared voting and
dispositive power with respect to all 1,750,000 shares.
(6) Based solely on information received by the Company from Ms. Fine.
(7) Based on information received by the Company from Mr. Garofalo and on a
Schedule 13G jointly filed on August 9, 2001 with the Securities and
Exchange Commission by (i) Mr. Garofalo and (ii) First Global Technology
Corp. ("First Global"). Mr Garofalo is the sole shareholder of First
Global. Mr. Garofalo beneficially owns 720,000 shares and First Global
beneficially owns 814,967 shares. Mr. Garofalo and First Global claim
shared voting and dispositive power with respect to all 1,534,967 shares.
(8) Includes 75,000 shares of Common Stock issuable pursuant to options held by
Mr. Crocker.
(9) Includes 918,723 shares of Common Stock held by a limited partnership of
which Dr. Kornman is a general partner. As such, Dr. Kornman may be deemed
the beneficial owner of these shares. Dr. Kornman disclaims beneficial
ownership of these shares. Includes 144,031 shares of Common Stock issuable
pursuant to options held by Dr. Kornman and 20,000 shares of Common Stock
issuable pursuant to warrants held by Dr. Kornman.
(10) Includes 67,000 shares of Common Stock held in trust for Dr. Reilly's
children and 660,676 shares of Common Stock issuable pursuant to options
held by Dr. Reilly. Dr. Reilly disclaims beneficial ownership of the shares
held in trust for his children.
(11) Includes 100,000 shares of Common Stock held in trusts, of which Mr. Blair
is a co-trustee, and as such may be deemed the beneficial owner of such
shares. Mr. Blair disclaims beneficial ownership of these shares. Includes
75,000 shares of Common Stock issuable pursuant to options held by Mr.
Blair.
(12) Includes 110,000 shares of Common Stock issuable pursuant to options and
15,000 shares of Common Stock issuable pursuant to warrants held by Mr.
Moore.
(13) Includes 115,001 shares of Common Stock issuable pursuant to options held
by Mr. Eloi.
(14) Includes 94,166 shares of Common Stock issuable pursuant to options held by
Dr. Martha.
(15) Includes 50,000 shares of Common Stock issuable pursuant to options held by
Dr. Garofalo.
(16) See footnotes 8 through 15 above.
MATTERS TO COME BEFORE THE ANNUAL MEETING
PROPOSAL 1: ELECTION OF DIRECTORS
The two directors assigned to Class II have been nominated to serve for a
three-year term. Both of the nominees named below are now directors of the
Company. The nominees have consented to be named and have indicated their intent
to serve if elected.
The table below provides information about each nominee and about each
director whose term continues after the meeting.
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DIRECTORS WHOSE TERM EXPIRES IN 2004:
Class I
POSITIONS AND OFFICES SERVED AS A
NAME AGE WITH THE COMPANY DIRECTOR SINCE
---- --- --------------------- --------------
Philip R. Reilly..................... 54 Chairman of the Board of Directors and 1998
Chief Executive Officer
John Garofalo........................ 47 Director 2000
NOMINEES FOR TERM EXPIRING IN 2005:
Class II
Kenneth S. Kornman................... 54 President, Chief Scientific Officer and 1986
Director
Thomas A. Moore...................... 51 Director 1997
DIRECTORS WHOSE TERM EXPIRES IN 2003:
Class III
Edward M. Blair, Jr.................. 59 Director 1999
Gary L. Crocker...................... 50 Director 1999
Biographical information on the nominees is contained in the section titled
"Further Information -- Board of Directors and Executive Officers" beginning on
page 8.
It is the intention of the people named in the enclosed proxy card to vote
the proxy for the election of the nominees. We do not contemplate that either of
the nominees will become unavailable for any reason, but if they did become
unavailable before the meeting, proxies that do not withhold authority to vote
for directors will be voted for another nominee, or other nominees, in
accordance with the best judgment of the person or persons appointed to vote the
proxy.
The enclosed form of proxy provides a means for the holders of Common Stock
to vote for each of the nominees listed, to withhold authority to vote for one
or both of the nominees or to withhold authority to vote for all nominees. Each
properly executed proxy received in time for the Meeting will be voted as
specified, or if a shareholder does not specify in his or her executed proxy how
the shares represented by his or her proxy are to be voted, the shares will be
voted for the nominees listed or for other nominees as provided above. The
director nominees receiving the affirmative vote of a plurality of the total
shares of Common Stock present in person or represented by proxy and entitled to
vote will be elected as directors. Abstentions and broker non-votes will not be
included in the vote totals and, therefore, will not affect the outcome of the
election.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Company is managed under the direction of the Board of Directors. Our
Board of Directors has established two standing committees: Audit and
Compensation.
The Audit Committee recommends to the Board of Directors the engagement of
the independent auditors and reviews the independence of the auditors and the
scope and results of our procedures for the adequacy of the system of internal
accounting controls. The Audit Committee consists of three non-employee
directors: Thomas A. Moore, Edward M. Blair, Jr. and Gary L. Crocker. For more
information regarding our Audit Committee, see the section titled "Further
Information -- Audit Committee Report to the Board of Directors."
The Compensation Committee reviews our compensation philosophy and
programs, exercises authority with respect to the payment of direct salaries and
incentive compensation to our directors and officers and makes recommendations
to the Board of Directors regarding stock option grants under the Company's 2000
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Employee Stock Compensation Plan (the "Incentive Plan"). The Compensation
Committee consists of three non-employee directors: Thomas A. Moore, Gary L.
Crocker and John Garofalo.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During 2001, the Board of Directors met five times the Audit Committee met
four times and the Compensation Committee met three times. Each of the directors
of the Company attended at least 75% of the aggregate of the meetings of the
Board of Directors and committees of which he was a member.
COMPENSATION OF DIRECTORS
Directors who are not employees receive $500 in cash compensation for each
meeting of the Board of Directors attended in person and 25,000 fully vested
stock options each year.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
OF THE INDIVIDUALS NOMINATED FOR ELECTION AS DIRECTORS
FURTHER INFORMATION
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is biographical and other information with respect to each
director and executive officer of the Company as of February 28, 2002. The
executive officers are elected by the Board of Directors.
NAME AGE POSITION
---- --- --------
Philip R. Reilly.......................... 54 Chairman of the Board of Directors and Chief
Executive Officer
Kenneth S. Kornman........................ 54 President, Chief Scientific Officer and Director
Fenel M. Eloi............................. 43 Chief Operating Officer and Chief Financial Officer
Paul (Kip) Martha......................... 48 Chief Medical and Regulatory Officer
Thomas A. Moore........................... 51 Director(1)(2)
Edward M. Blair, Jr....................... 59 Director(1)
Gary L. Crocker........................... 50 Director(1)(2)
John Garofalo............................. 47 Director(2)
---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
PHILIP R. REILLY, M.D., J.D. became Interleukin Genetic's Chief Executive
Officer in December of 1999. In June 1999, Dr. Reilly had accepted the positions
of Chairman of the Board of Directors and Interim Chief Executive Officer of the
Company. He became a Director of the Company in 1998. Prior to joining the
Company as Chief Executive Officer, Dr. Reilly held the position of Executive
Director of the Eunice Kennedy Shriver Center for Mental Retardation, Inc., a
not-for-profit organization located in Massachusetts, a position he had held
since 1990. Dr. Reilly has held numerous teaching positions, including Assistant
Professor of Neurology at Harvard Medical School and Adjunct Professor of both
Legal Studies and Biology at Brandeis University. He is a Past President (2000)
and current member of the American Society of Law, Medicine, and Ethics. From
1994-1997, he was on the Board of Directors of the American Society of Human
Genetics. He is a current member of the American College of Medical Genetics,
Massachusetts Bar Association, and American Association for the Advancement of
Science. Dr. Reilly has served on many national committees chartered to explore
public policy issues raised by advances in genetics. He is the author of four
books and has published more than 100 articles in scholarly journals. Dr. Reilly
holds a BA from Cornell University, a J.D. from Columbia University and an M.D.
from Yale University.
KENNETH S. KORNMAN, D.D.S., PH.D. is a co-founder, officer and Director of
the Company and currently holds the positions of President and Chief Scientific
Officer. Prior to founding the Company in 1986, he was a
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Department Chair and Professor at The University of Texas Health Science Center
at San Antonio. He has also been a consultant and scientific researcher for many
major oral care and pharmaceutical companies. Dr. Kornman currently holds
academic appointments at The University of Texas Health Science Center and
Harvard University. Dr. Kornman holds six patents in the pharmaceutical area,
has published two books and more than 100 articles and abstracts and has
lectured and consulted worldwide on the transfer of technology to clinical
practice. Dr. Kornman holds a BA in Economics from Duke University. He obtained
a D.D.S. from Emory University. Dr. Kornman also holds an MS (Periodontics) and
a Ph.D. (Microbiology-Immunology) from the University of Michigan.
FENEL M. ELOI is currently the Chief Operating Officer and Chief Financial
Officer of the Company, positions he has held since June of 2000. Prior to
joining Interleukin Genetics, Mr. Eloi was Senior Vice President and Chief
Financial Officer for LifeCell Corporation since 1999. Before joining LifeCell,
he was employed at Genome Therapeutics Corporation, where he served as Senior
Vice President and Chief Financial Officer from 1991 to 1999, and Corporate
Controller from 1989 to 1991. From 1984 to 1989, Mr. Eloi held the position of
Business Unit Financial Manager at GTE/Verizon Corporation. He also held various
positions at Haemonetics Corporation and Simplex Corporation. Mr. Eloi has an
MBA from Anna Maria College in Paxton, Massachusetts, as well as a BA from Lee
University in Cleveland Tennessee.
PAUL (KIP) M. MARTHA, JR., M.D., joined the Company in November 2000 and
currently serves as its Chief Medical and Regulatory Officer. Prior to joining
Interleukin, Dr. Martha served as Vice President in the Department of Clinical
R&D at PRAECIS Pharmaceuticals, Inc., a position he held for almost three years.
From 1993-1998, he held various senior-level positions at Genetech, Inc.,
including Director of Endocrinology, one of the company's four therapeutic focus
areas. Prior to joining Genetech, Dr. Martha served on the medical school
faculties of the Tufts University School of Medicine, and the University of
Virginia Health Sciences Center. The author or co-author of over 100 published
articles, book chapters and abstracts in the medical literature, Dr. Martha has
also delivered invited presentations and lectures at numerous medical schools,
hospitals, and scientific meetings throughout the United States and Europe. He
received his M.D. from the University of Connecticut School of Medicine and his
BS from Trinity College.
THOMAS A. MOORE became a Director of the Company in 1997. Mr. Moore is the
Chief Executive Officer and President of Nelson Communications Worldwide, one of
the largest providers of health care marketing services globally and a division
of Publicis Groupe, S.A. Prior to joining Nelson Communications as President in
1996, Mr. Moore was President of Procter & Gamble's $3 billion worldwide
prescription and over-the-counter healthcare business and Group Vice President
of the Procter & Gamble Company. He joined Procter & Gamble in 1973 and held
positions of increasing responsibility in the company's cleaning products,
beauty care, Richardson-Vicks and personal care divisions. He is Chairman of the
American Health Foundation -- a non-profit organization that researched the
nutritional and environmental factors in cancer and other diseases. Mr. Moore is
a Director of Alteon, Inc., a biopharmaceutical company. Mr. Moore holds a BA
(History) from Princeton University.
GARY L. CROCKER became a Director of the Company in 1999. Mr. Crocker has
served as President of Crocker Ventures, LLC, a private venture capital firm,
since 1997, and as Chairman of the Board of ARUP Laboratories, a privately held
specialty diagnostic testing firm, since January 1999. From 1983 to 1997, Mr.
Crocker served as the President and CEO of Research Medical, Inc., a
manufacturer of cardiovascular specialty devices, which was acquired by Baxter
International in 1997. Mr. Crocker holds a BA and MBA from Harvard University.
EDWARD M. BLAIR, JR. became a Director of the Company in 1999. Mr. Blair is
a principal with the investment-banking firm of William Blair & Company, L.L.C.,
Chicago Illinois. His focus for the last seven years has been healthcare where
he has worked on a series of financing transactions in the healthcare industry.
Mr. Blair served as a trustee for Chicago Dock & Canal Trust from 1986 through
1997 and as a director of Research Medical, Inc. from 1984 and 1998. Mr. Blair
is on the board of the University of Chicago Hospital where he is head of the
audit committee and is Chairman of the Chicago Zoological Society. He also
serves on the board of the Pullman Foundation. Mr. Blair holds a BA (Political
Science) from Stanford University and an MBA from Harvard University.
6
JOHN GAROFALO, M.D. became a Director of the Company in June of 2000. Dr.
Garofalo has had a private practice in Obstetrics and Gynecology in Norwalk, CT
for 17 years. He maintains a license to practice in both Connecticut and New
York. Dr. Garofalo did his residency at Beth Israel Medical Center in New York.
He received his M.D. from New York Medical College, and his BA in Biology from
New York University. Dr. Garofalo was certified as a diplomat of the American
Board of Obstetrics and Gynecology in 1985, and has continued on the Board,
having been most recently re-certified in 2000. He has also been a member of
several medical societies including the American Medical Association, the
Fairfield County Medical Society and the Connecticut State Medical Society. He
holds a Senior Attending appointment at Norwalk Hospital in Norwalk, CT, as well
as committee memberships on that hospital's Executive Committee and Quality
Improvement Committee.
AUDIT COMMITTEE REPORT TO THE BOARD OF DIRECTORS
The Audit Committee of the Board of Directors of the Company, which
consists entirely of Directors who are "independent" as defined by Rule 4200
(a)(15) of the NASD listing standards, serves as the representative of the Board
for general oversight of our financial accounting and reporting process, system
of internal control, audit process, and process for monitoring compliance with
laws and regulations. The Audit Committee of the Board is responsible for
providing independent, objective oversight of the Company's accounting functions
and internal controls. Our management has primary responsibility for preparing
the financial statements and our financial reporting process. Our independent
accountants for the year ended December 31, 2001, Arthur Andersen LLP, were
responsible for expressing an opinion on the conformity of our audited financial
statements to generally accepted accounting principles.
The Audit Committee operates under a written charter adopted and approved
by the Board of Directors in March 2001. The Audit Committee reviews the
Company's financial reporting process on behalf of the Board. In fulfilling its
responsibilities, the Audit Committee has reviewed and discussed the audited
financial statements contained in the 2001 Annual Report in Form 10-K with
management and the independent auditors. The Audit Committee discussed with the
independent auditors matters required to be discussed by the Statement on
Auditing Standards No. 61, "Communication with Audit Committees". In addition,
the Company's independent accountants provided to the Audit Committee the
written disclosures required by the Independence Standards Board Standard No. 1,
"Independence Discussions with Audit Committees," and the Audit Committee
discussed with independent accountants their independence.
In reliance on the discussions referred to above, the Audit Committee
recommended to the Board (and the Board has approved) that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, for filing with the SEC.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
GARY L. CROCKER
THOMAS A. MOORE
EDWARD M. BLAIR, JR.
INFORMATION REGARDING THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has served as our independent public accountants for
the past four years. The Company has customarily asked its shareholders to
ratify the appointment of its independent public accountants. However, as a
result of the recent events affecting Arthur Andersen LLP, and the uncertainty
relating to the future of Arthur Andersen LLP, the Audit Committee and the Board
of Directors believe that it is prudent to retain flexibility to deal with
events as they unfold and have not yet selected independent public accountants
for fiscal 2002. The Company expects Arthur Andersen to review its financial
statements for the first quarter of 2002. The Audit Committee and the Board of
Directors will continue, however, to monitor developments regarding Arthur
Andersen LLP. If, in the judgment of the Audit Committee and the Board of
Directors, it becomes necessary or advisable to engage different independent
public accountants for 2002, the
7
Company would anticipate that it would appoint an accounting firm with a
national operation, that has experience auditing and reviewing other publicly
traded corporations.
For audit services rendered in connection with the Company's financial
statements and reports for the year ended December 31, 2001 and for other
services rendered to the Company during 2001, the Company was billed the
following amounts by Arthur Andersen LLP:
Audit Fees. Arthur Andersen LLP billed the Company an aggregate of $ 35,000
in fees for professional services related to (i) the audit of the Company's
financial statements for the year ended December 31, 2001 and (ii) the
review of the unaudited financial statements included in the Company's
quarterly reports on Form 10-Q during 2001.
Financial Information Systems Design and Implementation Fees. No fees were
billed by Arthur Andersen LLP for professional services during 2001 in
connection with financial information systems design and implementation.
All Other Fees. The aggregate of all other fees billed by Arthur Andersen
for services rendered during 2001 was $ 22,000. These services consisted of
assisting with the completion of federal and state tax returns.
All audit and non-audit services provided by Arthur Andersen LLP were
approved by the Company's Audit Committee, which considers whether the provision
of non-audit services is compatible with maintaining the independence of the
independent public accountants.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting. They will have an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions from
shareholders.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for making all compensation
decisions for the Company's executive officers including determining base salary
and annual incentive compensation amounts and making recommendations to the
Board of Directors regarding stock options and other stock-based compensation
under our 2000 Employee Stock Compensation Plan (the "Incentive Plan").
Overall Objectives of the Executive Compensation Program
The purpose of our compensation plan is to attract, retain and motivate key
management employees. It is our philosophy to pay our executives at levels
commensurate with both Company and individual performance. A primary
consideration in developing our executive compensation programs is to link the
long-term financial interests of executives with those of the Company and its
shareholders. The Compensation Committee reviews compensation for comparable
organizations in order to establish the Company's total compensation program and
determine awards under the Incentive Plan.
In 2001, the total compensation program for our top executives, approved by
the Company's Board of Directors, consisted of a base salary for each of these
executives.
Base Salary Program
It is the Company's policy to establish salaries at a level approximating
the average of the competitive levels in comparable organizations and to provide
annual salary increases reflective of the executive's performance, level of
responsibility and position with the Company.
Annual Incentive
Each year, the Compensation Committee evaluates the performance of the
Company as a whole, as well as the performance of each individual executive.
Factors considered include implementation of the business plan, revenue growth,
net profitability and cost control. The Compensation Committee does not utilize
8
formalized mathematical formulae, nor does it assign weightings to these
factors. The Compensation Committee, in its sole discretion, determines the
amount, if any, of incentive payments to each executive. The Compensation
Committee believes that the Company's growth in revenue and profitability
requires subjectivity on the part of the Committee when determining incentive
payments. The Compensation Committee believes that specific formulae restrict
flexibility.
Equity Incentive Plan
In 2000, we adopted the Incentive Plan which permits us to make grants of
stock options, stock appreciation rights or restricted stock awards as part of
our overall incentive compensation program. The Incentive Plan is intended to
attract, retain and motivate key management personnel and to align the interest
of the executives with those of shareholders. The overall long-term incentive
grant levels are established by reviewing the number of shares reserved for such
plans by comparable organizations. Individual long-term incentive grants are
based on the employee's position and responsibility level. In 2001, the Company
granted options to purchase 100,000 shares of Common Stock to Mr. Eloi and Mr.
Martha and options to purchase 150,000 shares of Common Stock to Dr. Reilly and
Dr. Kornman under the Incentive Plan.
Section 162(m)
Section 162(m) of the Code currently imposes a $1 million limitation on the
deductibility of certain compensation paid to each of our five highest paid
executives. Excluded from this limitation is compensation that is "performance
based." For compensation to be performance based it must meet certain criteria,
including being based on predetermined objective standards approved by
shareholders. In general, we believe that compensation relating to options
granted under the Incentive Plan should be included in the $1 million limitation
calculation. Compensation relating to our incentive compensation awards do not
currently qualify for exclusion from the limitation, given the discretion that
is provided to the Committee in establishing the performance goals for such
awards. The Compensation Committee believes that maintaining the discretion to
evaluate the performance of our management is an important part of its
responsibilities and inures to the benefit of our shareholders. The Compensation
Committee, however, intends to take into account the potential application of
Section 162(m) with respect to incentive compensation awards and other
compensation decisions made by it in the future.
CEO Compensation
The Committee established Dr. Reilly's' base salary at $325,000, which
approximates the median level of CEOs at comparable companies in the Boston
area. As of December 31, 2001, Dr. Reilly had beneficial ownership of 648,042
shares of stock (includes 560,042 shares of which he has a right to receive
pursuant to stock options exercisable at December 31, 2001).
Conclusion
The Compensation Committee believes these executive compensation policies
serve the interests of the shareholders and the Company effectively. The
Committee believes that the various pay vehicles offered are appropriately
balanced to provide increased motivation for executives to contribute to the
Company's overall future successes, thereby enhancing the value of the Company
for the shareholders' benefit.
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
THOMAS A. MOORE
GARY L. CROCKER
JOHN GAROFALO
EXECUTIVE COMPENSATION
The following table summarizes all compensation awarded to, earned by or
paid for services rendered to the Company in all capacities during the years
ended December 31, 1999, 2000 and 2001, by our Chief
9
Executive Officer and our three other most highly compensated executive officers
who received in excess of $100,000 in salary and bonus from the Company during
2001 (the "named executive officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(#) COMPENSATION
--------------------------- ------ -------- ------ ------------ ------------ ------------
Philip R. Reilly............. 2001 $325,000 $ 0 $ 7,200(1) 150,000 $3,174(3)
Chief Executive Officer 2000 $301,250 $ 0 $ 5,400(1) 0 $ 253
1999 $ 19,167 $ 0 $ 0 740,000 $ 0
Kenneth S. Kornman........... 2001 $276,250 $ 0 $30,884(2) 150,000 $3,174(3)
President and Chief 2000 $273,964 $9,310 $82,132(4) 0 $2,875
Scientific Officer 1999 $148,020 $ 0 $ 0 53,750 $2,720
Fenel M. Eloi................ 2001 $195,000 $ 0 $ 0 100,000 $ 780(3)
Chief Operating Officer, 2000 $105,625 $ 0 $ 0 200,000 $ 107
Chief Financial Officer, 1999 $ 0 $ 0 $ 0 0 $ 0
Secretary and Treasurer
Paul (Kip) Martha............ 2001 $195,000 $ 0 $ 0 100,000 $ 360(3)
Chief Medical Officer 2000 $ 23,000 $ 0 $ 0 200,000 $ 30
1999 $ 0 $ 0 $ 0 0 $ 0
---------------
(1) Represents auto allowance paid to Dr. Reilly.
(2) Represents moving expenses paid for by the Company on behalf of Dr. Kornman
in the amount of $23,684 and auto allowance in the amount of $7,200 paid by
the Company.
(3) Represents life insurance premiums paid for by the Company.
(4) Represents moving expenses paid for by the Company on behalf of Dr. Kornman
in the amount of $74,932 and auto allowance in the amount of $7,200 paid by
the Company.
STOCK OPTION GRANTS IN FISCAL 2001
The following table provides certain information related to options granted
by the Company to the named executive officers during fiscal 2001.
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERMS ($)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) FISCAL 2000 ($/SH) DATE 5% 10%
---- ----------- ------------ ----------- ---------- --------- ---------
Phil R. Reilly.............. 150,000 16.6 1.219 4/4/11 114,993 291,416
Kenneth S. Kornman.......... 150,000 16.6 1.219 4/4/11 114,993 291,416
Fenel M. Eloi............... 100,000 11.1 1.219 4/4/11 76,662 194,277
Paul (Kip) Martha........... 100,000 11.1 1.219 4/4/11 76,662 194,277
---------------
(1) Amounts represent hypothetical gains that could be achieved for the options
if exercised at the end of the option term. Those gains are based on assumed
rates of stock price appreciation of 5% and 10% compounded annually from the
date the respective options were granted to their expiration dates. Actual
gains, if any, on stock options, exercises and Common Stock holdings are
dependent on future performance of the Common Stock.
10
AGGREGATED OPTION EXERCISES IN FISCAL 2001 AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to options exercised by
the named executive officers of the Company during fiscal 2001 and the number
and value of options held at fiscal year end.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY-OPTIONS
ACQUIRED OPTIONS AT FY-END(#) AT FY-END($)(1)
UPON OPTION VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
Philip R. Reilly....... 20,000 18,400 560,042 362,958 191,820 21,150
Kenneth S. Kornman..... 0 0 94,031 150,000 8,333 21,150
Fenel M. Eloi.......... 0 0 65,000 235,000 0 14,100
Paul (Kip) Martha...... 0 0 44,165 255,835 0 14,100
---------------
(1) Represents the product of (a) the number of shares underlying options
granted multiplied by (b) the difference between (i) the fair market value
of Common Stock on December 31, 2001 ($1.36), and (ii) the exercise price of
the options.
(2) Represents the number of shares exercised multiplied by the difference
between the exercise price and the fair market value of the Common Stock on
the date of exercise.
EMPLOYMENT AGREEMENTS AND CHANGE-OF-CONTROL ARRANGEMENTS
In December 1999, the Company entered into employment agreement with
Kenneth S. Kornman which provides for a three-year initial term. This employment
agreement is subject to early termination by Dr. Kornman upon one (1) month
prior written notice and by the Company for cause. The employment agreement
provides for a minimum base salary of $276,250 per year.
In April 2000, the Company entered into an employment agreement with Philip
R. Reilly which provides for a minimum annual base salary of $325,000 and an
award of options to purchase 500,000 (awarded in fiscal 1999) shares of Common
Stock at a per share exercise price of $2.875. These options vest over a period
of 36 months in equal increments commencing December 1, 1999, unless Dr.
Reilly's employment is terminated prior to expiration of the 36-month period.
This employment agreement is terminable by Dr. Reilly upon one (1) month prior
written notice and by the Company for cause.
In June 2000, the Company entered into an employment agreement with Fenel
M. Eloi which provides for a minimum annual base salary of $195,000 and an award
of options to purchase an aggregate of 200,000 shares of Common Stock as
follows: 105,828 shares at a per share exercise price of $3.75 and 94,172 shares
at a per share exercise price of $4.72. These options vest over a period of 48
months unless Mr. Eloi's employment is terminated prior to the end of the
48-month period. This employment agreement is terminable by Mr. Eloi upon one
(1) month prior written notice and by the Company for cause.
In November 2000, the Company entered into an employment agreement with Dr.
Paul (Kip) Martha which provides for a minimum annual base salary of $195,000
and an award of options to purchase an aggregate of 200,000 shares of Common
Stock as follows: 106,665 shares at per share exercise price of $3.75 and 93,335
shares at a per share exercise price of $4.63. These options vest over a period
of 48 months unless Dr. Martha's employment is terminated prior to the end of
the 48-month period. This employment agreement is terminable by Dr. Martha upon
one (1) month prior written notice and by the Company for cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently comprised of Thomas A. Moore, Gary
L. Crocker and John Garofalo. None of our executive officers serve on the board
of directors or compensation committee of any entity that has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee. There is no family relationship between or among the
Directors and Executive Officers.
11
PERFORMANCE GRAPH
Our Common Stock has been traded publicly since November 26, 1997. Prior to
such date, there was no established market for our Common Stock. The following
Performance Graph compares the Company's cumulative total shareholder return on
its Common Stock from November 26, 1997, through December 31, 2001, to the
NASDAQ Stock Market Index and to the JP Morgan H & Q Biotechnology Index over
the same period. The following graph is based on historical data and is not
necessarily indicative of future performance. This graph shall not be deemed to
be "soliciting material" or to be "filed" with the Commission or subject to
Regulations 14A and 14C under the Exchange Act or to the liabilities of Section
18 under the Exchange Act.
[PERFORMANCE GRAPH]
CUMULATIVE TOTAL RETURN
---------------------------------------------------------------------------------
11/25/97 12/97 12/98 12/99 12/00 12/01
---------------------------------------------------------------------------------
Interleukin
Genetics, Inc. 100.00 62.50 11.11 69.10 35.42 15.11
Nasdaq Stock Market
(U.S.) 100.00 99.07 139.68 259.57 156.13 123.89
JP Morgan H & Q
Biotechnology 100.00 98.68 150.26 321.20 345.31 287.20
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that our directors, executive
officers and persons who own more than 10 percent of a registered class of the
Company's equity securities file with the Commission initial reports of
ownership and reports of changes in ownership of Common Stock and other equity
securities of the Company. Directors, executive officers and greater than 10
percent shareholders are required by Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of reports
furnished to us and written representations from the Company's officers,
directors and greater than 10% stockholders, during the fiscal year ended
December 31, 2001, all Section 16(a) filing requirements were complied with
except for the following:
- Options to purchase 25,000 shares of common stock granted on June 30,
2000 to each of our outside board members, Edward M. Blair, Jr., Gary L.
Crocker, Thomas A. Moore and John M. Garafalo, which were required to be
reported on a Form 5 for the year ended December 31, 2000 were reported
late on the Form 5 for December 31, 2001;
12
- The sale of 63,054 shares of common stock in December 2001 by Thomas A.
Moore was reported late on the Form 5 for the year ended December 31,
2001.
CERTAIN TRANSACTIONS
In the year ended December 31, 2001, the Company was not a party to any
transaction or business relationship in which the amount involved exceeded
$60,000 involving any of its officers, directors or 5 percent shareholders.
PROPOSALS FOR NEXT ANNUAL MEETING
To be considered for inclusion in the proxy statement relating to the 2003
Annual Meeting of Shareholders, shareholder proposals must be received no later
than January 15, 2003. To be considered for presentation at such meeting,
although not included in the proxy statement, proposals must be received no
later than April 18, 2003. All shareholder proposals should be marked for the
attention of Secretary, Interleukin Genetics, Inc., 135 Beaver Street, Waltham,
MA 02452.
OTHER MATTERS
As of the date of this Proxy Statement, management does not intend to
present any other items of business and is not aware of any matters to be
presented for action at the Annual Meeting other than those described above.
However, if any other matters should come before the Annual Meeting, it is the
intention of the persons named as proxies in the accompanying proxy card to vote
in accordance with their best judgment on such matters.
By order of the Board of Directors,
PHILIP R. REILLY
Chairman of the Board and Chief
Executive Officer
Waltham, Massachusetts
April 29, 2002
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER
31, 2001 (OTHER THAN EXHIBITS THERETO) FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, WHICH PROVIDES ADDITIONAL INFORMATION ABOUT THE COMPANY, IS
AVAILABLE TO BENEFICIAL OWNERS OF THE COMPANY'S COMMON STOCK WITHOUT CHARGE UPON
WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY AT INTERLEUKIN GENETICS, INC.,
135 BEAVER STREET, WALTHAM, MA 02452.
13
INTERLEUKIN GENETICS, INC.
PROXY -- ANNUAL MEETING OF STOCKHOLDERS -- JUNE 17, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Please mark, sign, date and return in the enclosed envelope.
The undersigned stockholder of Interleukin Genetics, Inc. (the "Company")
hereby appoints Kenneth S. Kornman and Philip R. Reilly, or each of them,
proxies of the undersigned with full power of substitution to vote at the Annual
Meeting of Stockholders of the Company to be held on Monday, June 17, 2002, at
9:00 a.m., Eastern Time, at the Company's executive offices, located at 135
Beaver Street, Waltham, Massachusetts and at any adjournment thereof, the number
of votes which the undersigned would be entitled to cast if personally present:
1. ELECTION OF DIRECTORS
[ ] FOR [ ] WITHHOLD AUTHORITY
all nominees listed below to vote for all nominees listed below
(except as marked below)
Kenneth S. Kornman Thomas A. Moore
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, DRAW A
LINE THROUGH OR STRIKE OUT THAT NOMINEE'S NAME AS SET FORTH ABOVE.
2. TO CONSIDER AND ACT UPON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE
THE MEETING OR ANY ADJOURNMENT THEREOF; ALL AS MORE PARTICULARLY DESCRIBED IN
THE PROXY STATEMENT DATED APRIL 29, 2002, RELATING TO SUCH MEETING, RECEIPT OF
WHICH IS HEREBY ACKNOWLEDGED.
(Continued, and to be signed on reverse side)
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. If no direction is made, this proxy will
be voted FOR the nominees listed in Proposal 1, and, at the discretion of the
proxies, upon such other business as may properly come before the Annual
Meeting.
----------------------------------
Signature of Stockholder(s)
----------------------------------
Signature of Stockholder(s)
Please sign your name exactly as
it appears hereon. Joint owners
must each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
your full title as it appears
hereon.
Dated _____________________, 2002.