SCHEDULE 14A
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PATHOGENESIS CORPORATION
- -----------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
PATHOGENESIS CORPORATION
- -----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -----------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
- -----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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Set forth the amount on which the filing fee is calculated and state how
it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- -----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PATHOGENESIS CORPORATION
201 ELLIOTT AVENUE WEST
SEATTLE, WASHINGTON 98119
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of PathoGenesis Corporation:
The Annual Meeting of Stockholders of PathoGenesis Corporation (the
"Company") will be held at the offices of the Company, at 6:00 p.m., Pacific
Daylight Savings Time, on July 10, 1996, for the following purposes:
1. To elect two Directors to the Board of Directors for three-year terms.
2. To consider and act upon a proposal to adopt the Company's 1996 Stock
Option Plan for Non-Employee Directors.
3. To ratify the appointment of KPMG Peat Marwick LLP as the independent
accountants for the Company for the year ending December 31, 1996.
4. To transact such other business as may properly come before the
meeting.
All stockholders are invited to attend the meeting. Stockholders of record
at the close of business on May 13, 1996, the record date fixed by the Board
of Directors, are entitled to notice of, and to vote at, the meeting. A
complete list of stockholders entitled to notice of, and vote at, the meeting
will be open to examination by the stockholders beginning ten days prior to
the meeting for any purpose germane to the meeting during normal business
hours at the office of the Secretary of the Company at 201 Elliott Avenue
West, Seattle, Washington 98119.
Whether or not you intend to be present at the meeting, please sign and
date the enclosed proxy and return it in the enclosed envelope.
BY ORDER OF THE BOARD OF DIRECTORS
MARVIN B. TEPPER
Secretary
Seattle, Washington
May 20, 1996
<PAGE>
PATHOGENESIS CORPORATION
201 Elliott Avenue West
Seattle, Washington 98119
(206) 467-8100
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of
PathoGenesis Corporation (the "Company") for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 6:00 p.m., Pacific Daylight
Savings Time, on July 10, 1996, at the offices of the Company, and any
adjournment thereof.
VOTING SECURITIES; PROXIES
The Company will bear the cost of solicitation of proxies. In addition to
the solicitation of proxies by mail, certain officers and employees of the
Company, without additional remuneration, may also solicit proxies personally
by telefax and by telephone. In addition to mailing copies of this material
to stockholders, the Company may request persons, and reimburse them for
their expenses in connection therewith, who hold stock in their names or
custody or in the names of nominees for others to forward such material to
those persons for whom they hold stock of the Company and to request their
authority for execution of the proxies.
A majority of the outstanding shares of Common Stock, par value $.001 per
share (the "Common Stock"), present in person or represented by proxy shall
constitute a quorum at the Annual Meeting. The approval of a plurality of the
outstanding shares of Common Stock present in person or represented by proxy
at the Annual Meeting is required for election of the nominees as Directors.
In all matters other than the election of Directors, the affirmative vote of
the majority of the outstanding shares of Common Stock present in person or
represented by proxy at the Annual Meeting is required for adoption of such
matters, unless the vote of a greater number is required by the Company's
Certificate of Incorporation, the Company's By-Laws or the General
Corporation Law of the State of Delaware.
The form of proxy solicited by the Board of Directors affords stockholders
the ability to specify a choice among approval of, disapproval of, or
abstention with respect to each matter to be acted upon at the Annual
Meeting. Shares of Common Stock represented by the proxy will be voted,
except as to matters with respect to which authority to vote is specifically
withheld. Where the solicited stockholder indicates a choice on the form of
proxy with respect to any matter to be acted upon, the shares will be voted
as specified. Abstentions and broker non-votes will not have the effect of
votes in opposition to a Director or "against" any other proposal to be
considered at the Annual Meeting.
All shares of Common Stock represented by properly executed proxies which
are returned and not revoked will be voted in accordance with the
instructions, if any, given therein. If no instructions are provided in a
proxy, the shares of Common Stock represented by such proxy will be voted FOR
the Board's nominees for Director, FOR the approval of Proposal 2, FOR the
approval of Proposal 3 and in accordance with the proxy-holder's best
judgment as to any other matters raised at the Annual Meeting.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice of such revocation to the Secretary of the
Company, executing and delivering to the Company a later dated proxy
reflecting contrary instructions or appearing at the Annual Meeting and
taking appropriate steps to vote in person.
At the close of business on May 13, 1996, 13,735,927 shares of Common
Stock were outstanding and eligible for voting at the meeting. Each
stockholder of record is entitled to one vote for each share of Common Stock
held on all matters that come before the meeting. Only stockholders of record
at the close of business on May 13, 1996 are entitled to notice of, and to
vote at, the meeting.
This proxy material is being mailed to stockholders commencing on or about
May 20, 1996.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The By-Laws of the Company provide that each Director serves from the date
of election until the annual meeting of stockholders held in the third year
following the year of his election and until his successor is elected and
qualified. Each class consists, as nearly as practicable, of one-third of the
total number of Directors serving on the Board of Directors. The specific
number of Directors is set by a resolution adopted by a majority of the
entire Board of Directors. The number of Directors is currently fixed at
eight. The Company has nominated Alan R. Meyer and Michael J. Montgomery,
each a current Director, for re-election to the Board of Directors for full
three-year terms expiring in 1999. Officers are elected for one-year terms by
the Board of Directors.
The persons named in the accompanying proxy intend to vote for the
election as Director of the nominees listed herein. Each nominee has
consented to serve if elected. The Board of Directors has no reason to
believe that either nominee will not serve if elected, but if either of them
should become unavailable to serve as a Director, and if the Board of
Directors designates a substitute nominee or nominees, the persons named as
proxies will vote for the substitute nominee or nominees designated by the
Board of Directors.
The following table sets forth certain information with respect to each
person who is currently a Director or executive officer of the Company and
the individuals nominated and recommended to be elected by the Board of
Directors of the Company and is based on the records of the Company and
information furnished to it by such persons. Reference is made to "Security
Ownership of Certain Beneficial Owners and Management" for information
pertaining to stock ownership by each Director and executive officer of the
Company and the nominees.
DIRECTORS AND OFFICERS OF THE COMPANY
The Directors and executive officers of the Company, their positions held
with the Company, their ages, and for Directors, the year their term as
Director expires, are as follows:
<TABLE>
<CAPTION>
YEAR TERM AS
NAME AGE POSITIONS DIRECTOR EXPIRES
- ------------------------- ----- -------------------------------------- ----------------
<S> <C> <C> <C>
Wilbur H. Gantz(1) 58 Chief Executive Officer, President and 1997
Director
Alan R. Meyer 43 Senior Vice President, Chief Financial 1996
Officer, Treasurer, Assistant
Secretary and Director
A. Bruce Montgomery, M.D. 42 Senior Vice President, Research and
Development
Marvin B. Tepper 64 Secretary
Lawrence C. Hoff(2) 67 Director 1997
Edward J. Mathias(3) 54 Director 1997
Michael J. Montgomery(3) 41 Director 1996
Talat M. Othman(1)(2) 60 Director 1998
Eugene L. Step(1)(3) 67 Director 1998
Fred Wilpon(1)(2)(3) 59 Director, Chairman of the Board 1998
</TABLE>
- ------------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit/Finance Committee.
2
<PAGE>
The following is a brief summary of the background of each Director and
executive officer of the Company:
WILBUR H. GANTZ has been the Chief Executive Officer, President and a
Director of the Company since March 1992. Prior to joining the Company, he
was President of Baxter International Inc. ("Baxter"). Mr. Gantz joined
Baxter in 1966 as Assistant to the President of the International Division.
In 1975, he was promoted to President of the International Division, and in
1978, elected to the Board of Directors of Baxter. He was named President of
Baxter in 1987, which position he held until joining the Company. Mr. Gantz
resigned from the Board of Directors of Baxter in December 1993. In addition,
Mr. Gantz is a director of the Gillette Company, W.W. Grainger, Inc. and Bank
of Montreal.
ALAN R. MEYER has been Senior Vice President, Treasurer and Assistant
Secretary of the Company since July 1995, Chief Financial Officer and a
Director of the Company since December 1992 and was a Vice President of the
Company from December 1992 to July 1995. From 1991 to 1992, Mr. Meyer was
Vice President and Chief Financial Officer of Oculon Corporation, a
biopharmaceutical company. From 1989 to 1990, he was Vice President and Chief
Financial Officer of HealthTech Services Corporation, a medical device
company. From 1987 to 1988, he was Chief Financial Officer of Memtec America
Corporation ("Memtec"), an industrial separations company. Before joining
Memtec, Mr. Meyer was employed by Baxter Healthcare Corporation and Arthur
Andersen & Co.
A. BRUCE MONTGOMERY, M.D. has been Senior Vice President, Research and
Development of the Company since July 1995 and was Vice President of Medical
and Regulatory Affairs of the Company from December 1993 to July 1995. From
1989 to November 1993, Dr. Montgomery was Associate Director of Clinical
Research at Genentech, Inc. where he was involved in the clinical development
of Pulmozyme, an inhaled drug for cystic fibrosis patients. From 1988 to 1989
he was Assistant Professor of Medicine, Director of the Medical Intensive
Care Unit, Pulmonary Disease Section, Department of Medicine, State
University of New York, Stony Brook, New York. Previously Dr. Montgomery was
Assistant Professor of Medicine in Residence, University of California, San
Francisco and Cardiovascular Research Institute, Chest Service, San Francisco
General Hospital. He is a co-inventor on two use patents related to
aerosolized pentamidine, a drug for an AIDS-related infection. Dr. Montgomery
is the brother of Michael J. Montgomery, a Director of the Company.
MARVIN B. TEPPER has been Secretary of the Company since September 1992.
He has been Executive Vice President and General Counsel of Sterling
Equities, Inc. ("Sterling Equities") since 1989. Previously, Mr. Tepper was a
partner in the law firm of Botein Hays & Sklar, New York, New York.
LAWRENCE C. HOFF has been a Director of the Company since April 1992. He
was President of The Upjohn Company ("Upjohn") from 1984 through 1991, Chief
Operating Officer from 1987 through 1991 and a director from 1973 until
Upjohn's merger in 1995. Mr. Hoff is also a director of Medimmune Inc.,
Curative Technologies Inc. and Alpha Beta Technologies, Inc. He is a past
Chairman of the Pharmaceutical Manufacturers Association.
EDWARD J. MATHIAS has been a Director of the Company since November 1994.
He has been a Managing Director of The Carlyle Group, a Washington, D.C.
merchant banking firm, since January 1994. Previously, Mr. Mathias was with
T. Rowe Price Associates, Inc. where he served on its Board of Directors and
was a member of its Management Committee for over ten years. In addition, he
is a director of U.S. Office Products Company and SIRROM Capital.
MICHAEL J. MONTGOMERY has been a Director of the Company since July 1995.
He has been a senior executive at DreamWorks SKG overseeing financial matters
since January 1995. He was Executive Vice President and Chief Financial
Officer of Euro Disney SCA from April 1993 to August 1994 and Vice President
of The Walt Disney Company from 1989 to 1993 and Treasurer from 1991 to 1993.
Previously, Mr. Montgomery was employed by Atlantic Richfield Company. Mr.
Montgomery is the brother of Dr. Montgomery, Senior Vice President, Research
and Development of the Company.
TALAT M. OTHMAN has been a Director of the Company since September 1992.
He has been Chairman and Chief Executive Officer of Grove Financial, Inc.
since September 1995. He was President of Dearborn Financial, Inc. from 1984
to August 1995 and Chairman and Chief Executive Officer from 1993 to August
3
<PAGE>
1995. He is also a director of Harken Energy Corporation, Hartmarx
Corporation, as well as a director for the Middle East Policy Council in
Washington, D.C. He also serves on the Advisory Board of Harvard University's
Institute for Social and Economic Policy in the Middle East. He was founding
President of the Mid-America Arab Chamber of Commerce as well as of the
Midwest Chapter of the Forex Association of North America. From 1985 to 1987,
he served as President of the Arab Bankers Association of North America.
EUGENE L. STEP has been a Director of the Company since April 1992. He was
Executive Vice President of Eli Lilly and Company ("Eli Lilly") from 1986 to
1992 and President of its Pharmaceutical Division from 1973 to 1992. He was
also a director and a member of the Executive Committee of Eli Lilly. Mr.
Step is a past Chairman of the Pharmaceutical Manufacturers Association and
past President of the International Pharmaceutical Manufacturers Association.
Mr. Step is currently a director of Medco Research Inc., CellGenesys Inc.,
Scios Inc., Guidant Corp. and GMIS Inc.
FRED WILPON has been a Director of the Company since January 1992 and
Chairman of the Board of Directors since May 1995. He is Co-Founder of and
has been Chairman of the Board of Sterling Equities for over 20 years, and
the President and Chief Executive Officer of the New York Mets baseball team
for over ten years. Mr. Wilpon's business interests include real estate as
well as other businesses. In addition, Mr. Wilpon is a director of Bear,
Stearns & Co. Inc.
COMMITTEES OF THE BOARD OF DIRECTORS -- BOARD MEETINGS
The Board of Directors has established an audit/finance, a compensation
and an executive committee to assist it in the discharge of its
responsibilities. The principal responsibilities of each committee and the
members of each committee are described in the succeeding paragraphs. Actions
taken by any committee of the Board are reported to the Board of Directors,
usually at its next meeting or by written report. The Company's Board of
Directors held six meetings during the fiscal year ended December 31, 1995.
The Board of Directors does not have a nominating committee. This function is
performed by the Executive Committee of the Board of Directors. All Directors
attended at least 75% of the meetings held during the fiscal year ended
December 31, 1995.
The Audit/Finance Committee currently consists of Messrs. Mathias,
Montgomery, Step (Chairman) and Wilpon, each of whom is an independent
Director. The Audit/Finance Committee held one meeting during the fiscal year
ended December 31, 1995. Each year it recommends the appointment of a firm of
independent public accountants to examine the financial statements of the
Company for the coming year. In making this recommendation, it reviews the
nature of audit services rendered, or to be rendered, to the Company. It
reviews with representatives of the independent public accountants the
auditing arrangements and scope of the independent public accountants'
examination of the financial statements, results of those audits, and any
problems identified by the independent public accountants regarding internal
accounting controls, together with their recommendations. It also meets with
the Company's Chief Financial Officer to review reports on the functioning of
the Company's programs for compliance with its policies and procedures
regarding ethics and those regarding financial controls and internal
auditing. This includes an assessment of internal controls within the Company
based upon the activities of the Company's internal auditing staff as well as
an evaluation of the performance of those staffs. The Audit/Finance Committee
is also prepared to meet at any time upon request of the independent public
accountants or the Chief Financial Officer to review any special situation
arising in relation to any of the foregoing subjects.
The Compensation Committee currently consists of Messrs. Hoff, Othman
(Chairman) and Wilpon, each of whom is an independent Director. The
Compensation Committee held two meetings during the fiscal year ended
December 31, 1995. This Committee makes recommendations to the Board of
Directors as to the salaries of the President and compensation of Directors.
It also sets the salaries of the other elected officers and reviews salaries
of certain other senior executives and employees of the Company. It grants
incentive compensation to elected officers and other senior executives and is
charged with the administration of the Company's 1992 Stock Option Plan and
incentive programs. It also reviews and approves or makes recommendations to
the Board of Directors on any proposed plan or program which would benefit
primarily the senior executive group.
4
<PAGE>
The Executive Committee currently consists of Messrs. Gantz (Chairman),
Othman, Step and Wilpon. The Executive Committee held 12 meetings during the
fiscal year ended December 31, 1995. The Executive Committee has the
authority to take all actions that the Board of Directors may take, subject
to certain restrictions imposed by law.
COMPENSATION OF DIRECTORS
The Directors do not receive cash compensation for service on the Board of
Directors or on any of its Committees, but Directors may be reimbursed for
certain expenses in connection with attendance at Board of Directors and
Committee meetings. In July 1995, the Company's non-employee Directors were
granted fully-vested options to purchase an aggregate of 62,500 shares of
Common Stock at an exercise price of $12.00 per share under the Company's
1992 Stock Option Plan. In addition, subject to adoption by the stockholders,
the Company's non-employee Directors will be entitled to receive annual
grants of options to purchase Common Stock under the Company's proposed 1996
Stock Option Plan for Non-Employee Directors. See Proposal 2.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or earned for the fiscal
years ended December 31, 1995, December 31, 1994 and December 31, 1993 for
those persons who were, at December 31, 1995, (i) the chief executive officer
and (ii) the two other most highly compensated executive officers of the
Company (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) COMPENSATION
- -------------------------------- ------ ---------- ---------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Wilbur H. Gantz 1995 $279,510 -- -- --
Chief Executive Officer and 1994 279,510 -- -- --
President 1993 266,200 $159,720 -- --
A. Bruce Montgomery, M.D.(2) 1995 $183,057 $ 63,665 -- --
Senior Vice President, Research 1994 170,000 24,000 -- $58,318(3)
and Development 1993 14,167 8,000 -- --
Alan R. Meyer 1995 $168,667 $ 58,800 -- --
Senior Vice President and 1994 160,417 24,000 -- --
Chief Financial Officer 1993 150,417 45,250 -- --
</TABLE>
- ------------
(1) Excludes items which are, in the aggregate, less than $50,000 or 10% of
the total annual salary and bonus.
(2) Dr. Montgomery was employed by the Company only for one month during
the fiscal year ended December 31, 1993.
(3) Represents amounts paid to Dr. Montgomery for moving expenses.
The following table sets forth certain information concerning options
granted to the Named Executive Officers during the fiscal year ended December
31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------------- VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
NUMBER OF PERCENT OF APPRECIATION FOR OPTION
SECURITIES TOTAL OPTIONS TERM
UNDERLYING GRANTED TO EXERCISE OR ------------------------
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ------------------------- ------------ --------------- ------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Wilbur H. Gantz 68,750 32% $12.00 7/6/05 $518,838 $1,314,838
A. Bruce Montgomery, M.D. 25,000 12 12.00 7/6/05 188,668 478,123
Alan R. Meyer 25,000 12 12.00 7/6/05 188,668 478,123
</TABLE>
- ---------------
(1) All options were granted at an exercise price equal to the fair market
value of the Common Stock on the date of grant.
6
<PAGE>
AGGREGATED OPTION EXERCISES DURING THE
FISCAL YEAR ENDED DECEMBER 31, 1995
AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information concerning the number
and value of securities underlying exercisable and unexercisable stock
options as of the fiscal year ended December 31, 1995 by the Named Executive
Officers. No options were exercised by any of the Named Executive Officers
during the fiscal year ended December 31, 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Wilbur H. Gantz 131,250 -- $62,500(2) --
A. Bruce Montgomery, M.D. 13,280 46,095 9,375(3) $ 9,375(3)
Alan R. Meyer 31,250 56,250 31,250(4) 31,250(4)
</TABLE>
- ------------
(1) These figures are based on a fair market value of the Common Stock at
December 29, 1995 of $11.00 per share, the closing price of the Common
Stock as reported on the NASDAQ National Market as of such date.
(2) On February 10, 1993, Wilbur H. Gantz was granted options to purchase
62,500 shares of Common Stock at a fair market value of $10.00 per
share. Only options related to the 62,500 shares have been included in
the "in-the-money" calculation as all other grants were at an exercise
price higher than the year-end closing price of Common Stock.
(3) On December 1, 1993, A. Bruce Montgomery was granted options to
purchase 18,750 shares of Common Stock at a fair market value of $10.00
per share of which 9,375 options were exercisable at year-end. Only the
options related to the 18,750 shares have been included in the
"in-the-money" calculations as all other grants were at an exercise
price higher than the year-end closing price of Common Stock.
(4) On February 9, 1993, Alan Meyer was granted options to purchase 62,500
shares of Common Stock at a fair market value of $10.00 per share of
which 31,250 options were exercisable at year-end. Only the options
related to the 62,500 shares have been included in the "in-the-money"
calculations as all other grants were at an exercise price higher than
the year-end closing price of Common Stock.
EMPLOYMENT AGREEMENTS
Wilbur H. Gantz has entered into a five-year employment agreement with the
Company which commenced in March 1992. Under the terms of Mr. Gantz's
employment agreement (the "Gantz Employment Agreement"), Mr. Gantz is
entitled to receive an annual base salary and bonus (up to 60% of his annual
base salary) as determined by the Board of Directors. Mr. Gantz is also
entitled to receive benefits offered to the Company's employees generally.
The Gantz Employment Agreement provides that the employment of Mr. Gantz may
be terminated by the Company for "cause." "Cause" is defined as (i) willful
and repeated failure by Mr. Gantz to perform his duties under the Gantz
Employment Agreement, which failure is not remedied within 30 days after
written notice from the Company; (ii) conviction of Mr. Gantz for a felony;
(iii) Mr. Gantz's dishonesty or willfully engaging in conduct that is
demonstrably and materially injurious to the Company; or (iv) willful
violation by Mr. Gantz of any provision of the Gantz Employment Agreement
which violation is not remedied within 30 days after written notice from the
Company. In addition, Mr. Gantz may terminate his employment if (i) the
Company substantially reduces his duties, position, authority or
responsibility under the Gantz Employment Agreement and does not reinstate
the same within 30 days or (ii) the Company breaches its obligations with
regard to Mr. Gantz's compensation, expenses and benefits.
7
<PAGE>
The Gantz Employment Agreement provides for successive renewal periods of
one year after the initial term unless either party elects not to renew such
agreement. The agreement also contains a provision prohibiting Mr. Gantz from
competing with the Company for a one year period following termination of his
employment.
In conjunction with the Gantz Employment Agreement, Mr. Gantz entered into
a Stock Subscription and Stock Repurchase Agreement (the "Stock Agreement")
pursuant to which he purchased 281,250 shares of Common Stock at $.08 per
share. The Stock Agreement provides for the repurchase of any such shares
issued to Mr. Gantz which have not yet vested at the time Mr. Gantz ceases to
be an employee of the Company. As of December 31, 1995, 56,250 shares of
Common Stock remain subject to repurchase by the Company.
A. Bruce Montgomery, M.D. has entered into an employment agreement with
the Company which extends until May 1997. Under the terms of Dr. Montgomery's
employment agreement (the "Montgomery Employment Agreement"), Dr. Montgomery
is entitled to receive an annual base salary and bonus (up to 30% of his
annual base salary) as determined by the Board of Directors. Dr. Montgomery
is also entitled to receive benefits offered to the Company's employees
generally. The Montgomery Employment Agreement provides that the employment
of Dr. Montgomery may be terminated by the Company for "cause." "Cause" is
defined as (i) willful and repeated failure by Dr. Montgomery to perform his
duties under the Montgomery Employment Agreement, which failure is not
remedied within 30 days after written notice from the Company; (ii)
conviction of Dr. Montgomery for a felony; (iii) Dr. Montgomery's dishonesty
or willfully engaging in conduct that is demonstrably and materially
injurious to the Company; or (iv) willful violation by Dr. Montgomery of any
provision of the Montgomery Employment Agreement which violation is not
remedied within 30 days after written notice from the Company. The agreement
also contains a provision prohibiting Dr. Montgomery from competing with the
Company for a one year period following termination of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee currently consists of Messrs. Hoff,
Othman (Chairman) and Wilpon. None of these individuals has ever served as an
executive officer or an employee of the Company. In addition, no executive
officer of the Company has ever served as (i) a member of the compensation
committee or equivalent of another entity, one of whose executive officers
served on the Compensation Committee, (ii) a director of another entity, one
of whose executive officers served on the Compensation Committee, or (iii) a
member of the compensation committee or equivalent of another entity, one of
whose executive officers served as a director of the Company.
COMPENSATION COMMITTEE REPORT TO STOCKHOLDERS
The Compensation Committee establishes objectives for the Company's senior
executive officers, sets the compensation of Directors, executive officers
and other employees of the Company and is charged with the administration of
the Company's 1992 Stock Option Plan.
GENERAL POLICIES REGARDING COMPENSATION OF EXECUTIVE OFFICERS
The Company's executive compensation policies are intended (1) to attract
and retain high quality managerial and executive talent and to motivate these
individuals to maximize shareholder returns, (2) to afford appropriate
incentives for executives to produce sustained superior performance, and (3)
to reward executives for superior individual contributions to the achievement
of the Company's business objectives. The Company's compensation structure
consists of base salary, annual cash bonuses and stock options. Together
these components link each executive's compensation directly to individual
and Company performance.
Salary. Base salary levels reflect individual positions, responsibilities,
experience, leadership, and potential contribution to the success of the
Company. Actual salaries vary based on the Compensation Committee's subject
assessment of the individual executive's performance and the Company's
performance.
8
<PAGE>
Bonuses. Executive officers are eligible to receive cash bonuses based on
the Compensation Committee's assessment of the respective executive's
individual performance and the performance of the Company. In its evaluation
of executive officers and the determination of incentive bonuses, the
Compensation Committee does not assign quantitative relative weights to
different factors and follow mathematical formula. Rather, the Compensation
Committee makes its determination in each case after considering the factors
it deems relevant.
Stock Options. Stock options, which are granted at the fair market value
of the Common Stock on the date of grant, are currently the Company's sole
long term compensation vehicle. The stock options are intended to provide
employees with sufficient incentive to manage from the perspective of an
owner with an equity stake in the business.
In determining the size of individual options grants, the Compensation
Committee considers the aggregate number of shares available for grant, the
number of individuals to be considered for an award of stock options, and the
range of potential compensation levels that the option awards may yield. The
number and timing of stock option grants to executive officers are decided by
the Compensation Committee based on its subjective assessment of the
performance of each grantee. In determining the size and timing of option
grants, the Compensation Committee weighs any factors it considers relevant
and gives such factors the relative weight it considers appropriate under the
circumstances then prevailing. While an ancillary goal of the Compensation
Committee in awarding stock options is to increase the stock ownership of the
Company's management, the Compensation Committee does not, when determining
the amount of stock options to award, consider the amount of stock already
owned by an officer. The Compensation Committee believes that to do so could
have the effect of inappropriately or inequitably penalizing or rewarding
executives based upon their personal decisions as to stock ownership and
option exercises.
In 1993, the Internal Revenue Code was amended to limit the deductibility
of compensation paid to certain executives in excess of $1 million.
Compensation not subject to the limitation includes certain compensation
payable solely because an executive attains performance goals
("performance-based compensation"). The Company's compensation deduction for
a particular executive's total compensation, including compensation realized
from the exercise of stock options, will be limited to $1 million. The
Compensation Committee believes that the compensation paid by the Company in
the fiscal year ended December 31, 1995 will not result in any material loss
of tax deductions for the Company.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Gantz's base salary for the fiscal year ended December 31, 1995 was
determined by the terms of his employment agreement for the five year period
which commenced in March 1992 described elsewhere in this proxy statement. In
July 1995, the Compensation Committee granted Mr. Gantz options pursuant to
the Company's 1992 Stock Option Plan to purchase 68,750 shares of Common
Stock at a fair market value of $12.00 per share in recognition of Mr.
Gantz's leadership and contributions during 1995 as the Company's Chief
Executive Officer and President. Mr. Gantz was instrumental in the
initiation, negotiation and successful completion of the Company's initial
public offering in November 1995. In addition, Mr. Gantz has maintained and
enhanced a strong record in technology, innovation, quality and management
efficiency and provided strong leadership to the Company's management team,
and aggressively pursued new areas for growth. The Compensation Committee
believes Mr. Gantz has made significant contributions to the Company's
development of its drug candidates and the future marketing of such proposed
products.
COMPENSATION COMMITTEE
Talat M. Othman (Chairman)
Lawrence C. Hoff
Fred Wilpon
9
<PAGE>
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Common Stock since November 21, 1995 (the date the Common Stock began trading
on NASDAQ National Market) through March 29, 1996 with the cumulative total
return on the NASDAQ National Market Total Return Index and the NASDAQ
Pharmaceutical Stocks Index. Total return values were calculated based on the
assumption of $100 invested and on cumulative total return values assuming
reinvestment of dividends. The stock price performance shown on the graph
below is not necessarily indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG PATHOGENESIS CORPORATION, NASDAQ STOCK MARKET TOTAL RETURN INDEX AND A
NASDAQ PHARMACEUTICAL STOCKS INDEX
(IN DOLLARS)
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
CRSP TOTAL RETURNS INDEX FOR: 11/22/95 11/30/95 12/29/95 1/31/96 2/29/96 3/29/96
- ----------------------------- ---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PathoGenesis Corp. Index 100.0 102.5 110.0 163.8 142.5 163.8
Nasdaq Market Index 100.0 103.9 103.3 103.9 107.8 108.1
Nasdaq Pharmaceuticals 100.0 104.7 120.8 130.8 128.4 125.7
SIC 2830-2839 US & Foreign
</TABLE>
10
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of May 13, 1996, by (i) each
person or group who is known by the Company to own beneficially more than
five percent of the Common Stock, (ii) each of the Company's Directors, (iii)
each of the Named Executive Officers and (iv) all current executive officers
and Directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
BENEFICIALLY BENEFICIALLY
NAME AND ADDRESS OWNED(1) OWNED
- ----------------------------------------------------- ------------------- --------------
<S> <C> <C>
PathoGenesis Investment Partners L.P. I and II(2) 711,525 5.2%
c/o The Carlyle Group
1001 Pennsylvania Avenue N.W.
Washington, D.C. 20004
Baxter Healthcare Corporation 700,000 5.1%
1 Baxter Parkway
Deerfield, Illinois 60015
Fred Wilpon(3) 687,500 5.0%
c/o Sterling PathoGenesis Company
575 Fifth Avenue
New York, New York 10017
Marvin B. Tepper(4) 681,250 5.0%
c/o Sterling PathoGenesis Company
575 Fifth Avenue
New York, New York 10017
Wilbur H. Gantz(5) 482,025 3.5%
c/o PathoGenesis Corporation
201 Elliott Avenue West
Seattle, Washington 98119
Lawrence C. Hoff(6) 11,250 *
12821 Marsh Landing
Palm Beach Gardens, Florida 33418
Edward J. Mathias(7) 6,250 *
c/o The Carlyle Group
1001 Pennsylvania Avenue N.W.
Washington, D.C. 20004
Alan R. Meyer(8) 50,875 *
c/o PathoGenesis Corporation
201 Elliott Avenue West
Seattle, Washington 98119
Michael J. Montgomery(9) 12,500 *
c/o DreamWorks SKG
100 Universal Plaza
Bungalow 477
Universal City, California 91608
Talat Othman(10) 12,500 *
c/o Grove Financial, Inc.
3800 N. Wilkie Rd., Suite 455
Arlington Hts., Illinois 60004
Eugene L. Step(11) 17,500 *
741 Round Hill Road
Indianapolis, Indiana 46260
A. Bruce Montgomery, M.D.(12) 22,930 *
c/o PathoGenesis Corporation
201 Elliott Avenue West
Seattle, Washington 98119
All Directors and Executive Officers as a group of 10
persons(3)(4)(5)(6)(7)(8)(9)(10)(11)(12) 1,315,830 9.6%
</TABLE>
(See footnotes on next page)
11
<PAGE>
- ------------
* Less than 1.0%
(1) Unless otherwise indicated, the persons named in the table above have
sole voting and investment power with respect to all Common Stock
beneficially owned by them, subject to applicable community property
laws.
(2) Includes 505,000 shares of Common Stock held by PathoGenesis
Investment Partners L.P. I and 176,042 shares of Common Stock held by
PathoGenesis Investment Partners L.P. II. Also includes warrants to
purchase 30,483 shares of Common Stock held by The Carlyle Group. The
Carlyle Group is the general partner of PathoGenesis Investment
Partners L.P. I and PathoGenesis Investment Partners L.P. II. The
Carlyle Group does not beneficially own any shares of Common Stock
other than through PathoGenesis Investment Partners L.P. I and
PathoGenesis Investment Partners L.P. II and through such warrants.
(3) Represents (i) 668,750 shares of Common Stock held by Sterling
PathoGenesis Company, of which Mr. Wilpon is managing partner and
(ii) options to purchase 18,750 shares of Common Stock.
(4) Represents (i) 668,750 shares of Common Stock held by Sterling
PathoGenesis Company, of which Mr. Tepper is a partner and (ii)
options to purchase 12,500 shares of Common Stock.
(5) Includes (i) 112,500 shares of Common Stock held by The Wilbur H.
Gantz 1992 Irrevocable Children's Trust, (ii) 18,750 shares of Common
Stock held by The Wilbur H. Gantz 1992 Irrevocable GST Trust, (iii)
3,750 shares of Common Stock held by The Wilbur H. Gantz Children's
Graduate School Trust and (iv) options to purchase 131,250 shares of
Common Stock. Mr. Gantz is the trustee of the foregoing trusts and
disclaims beneficial ownership of the Common Stock held thereby.
Includes 1,875 shares of Common Stock held by Mr. Gantz's wife and
23,900 shares of Common Stock held by the Linda T. Gantz Revocable
Trust. Does not include 15,000 shares of Common Stock held by certain
relatives of Mr. Gantz. Wilbur H. Gantz disclaims beneficial
ownership of the Common Stock held by his wife and relatives.
(6) Represents (i) 5,000 shares of Common Stock held by the Lawrence C.
Hoff Trust and (ii) options to purchase 6,250 shares of Common Stock.
(7) Includes options to purchase 6,250 shares of Common Stock. Does not
include 681,042 shares of Common Stock and warrants to purchase
30,483 shares of Common Stock held by The Carlyle Group. Mr. Mathias
is a managing director of The Carlyle Group. Mr. Mathias does not
have or share voting or investment power for the shares held by
PathoGenesis Investment Partners L.P. I and PathoGenesis Investment
Partners L.P. II.
(8) Includes options to purchase 46,875 shares of Common Stock.
(9) Includes options to purchase 6,250 shares of Common Stock. Does not
include shares beneficially owned by A. Bruce Montgomery.
(10) Represents options to purchase 12,500 shares of Common Stock.
(11) Includes options to purchase 12,500 shares of Common Stock.
(12) Includes options to purchase 8,594 shares of Common Stock. Does not
include shares beneficially owned by Michael J. Montgomery.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company rents office space in New York, New York from an affiliate of
Sterling PathoGenesis Company ("Sterling"), a founding stockholder of the
Company, pursuant to an oral lease, at an annual rental of $49,500. The
Company believes such annual rate to be comparable to a rate which could be
obtained from an independent third party. Messrs. Fred Wilpon and Marvin B.
Tepper are two of the partners of Sterling.
On November 4, 1992, the Company and Michael Hernandez entered into an
employment termination agreement. Pursuant to such agreement, Mr. Hernandez
resigned as an Executive Vice President and Chief Financial Officer of the
Company and was engaged as a consultant, at the rate of
12
<PAGE>
$220,000 per year. Such agreement terminated on April 4, 1995. Pursuant to
the agreement, the Company reacquired 71,875 of Mr. Hernandez's 181,250
shares of Common Stock for a total payment of $3,750 and the cancellation of
the $250,000 promissory note he had made in favor of the Company. With
respect to the 109,375 shares of Common Stock Mr. Hernandez retained, he will
have the opportunity to register those shares on a similar basis as the
Company's officers and Directors.
The founders, several Directors and members of management purchased an
aggregate of 1,870,000 shares of Common Stock at a price of $.08 per share
between December 1991 and April 1992. In addition, certain of these
individuals purchased an aggregate of 1,759,792 shares of Common Stock in the
1992 Private Placement and the 1994 Private Placement for $10.00 per share
and $12.00 per share, respectively, for an aggregate of $18,252,500.
In 1993, the Company entered into a license and manufacturing agreement
with Baxter International, Inc. ("Baxter") to obtain exclusive, worldwide
rights to a monoclonal antibody targeted against pseudomonas bacteria. Under
the agreement, the Company was to make certain fixed payments to Baxter
International upon accomplishment of certain milestones. The Company paid
$550,000 for these rights and the Company was responsible for clinical
trials, sales, marketing and regulatory affairs related to the antibody. In
1994, the Company decided to cease development of this drug candidate. The
Company believes that it has adequately provided for the costs associated
with this decision.
In 1993, the Company also entered into a development agreement with Baxter
Healthcare Corporation ("Baxter Healthcare") pursuant to which Baxter
Healthcare assisted the Company with its research and development activities
relating to tobramycin for inhalation. The Company paid Baxter Healthcare
research and development fees of $923,100. The Company has entered into an
additional development agreement dated as of August 15, 1994 with Baxter
Healthcare pursuant to which Baxter Healthcare will continue assisting the
Company in developing its tobramycin for inhalation product. As of December
31, 1995, the Company has paid Baxter Healthcare $209,500 under this
agreement.
On January 30, 1995, the Company entered into a consulting agreement with
Dr. George Todaro, former Senior Vice President and Scientific Director of
the Company, which agreement terminated on December 31, 1995. Until December
31, 1995, Dr. Todaro was compensated at an annualized rate of $161,000 and
received an additional $30,000 for reasonable out-of-pocket costs associated
with relocation and maintenance of an office facility. Dr. Todaro has
previously purchased 243,750 shares of Common Stock at a price of $.08 per
share, of which 45,000 shares did not vest and have been repurchased by the
Company at a price of $.08 per share.
On June 6, 1995, the Company entered into a new agreement with Dr. Robert
Nowinski, former Chairman of the Board of the Company, which will terminate
on April 30, 1998. Pursuant to such agreement, Dr. Nowinski serves as the
Chairman Emeritus of the Company and has agreed to provide the Company with
advice, assistance and consultation with regard to its scientific programs
and strategies, as well as its financing activities. Dr. Nowinski receives
annual compensation of $280,000 and, until April 30, 1996, payment of office
costs and associated expenses up to $6,250 per month. He is also entitled to
the same health, medical and dental insurance benefits that are generally
made available to all employees of the Company. The Company is obligated to
provide Dr. Nowinski with the full compensation and benefits which he
otherwise would be entitled to receive under this agreement regardless of
whether or not his services are utilized thereunder and regardless of whether
or not his service is terminated prior to the expiration of such agreement,
and irrespective of the reason for any such termination. In addition, Dr.
Nowinski has the right to accelerate the payments due in the third year of
his agreement to April 30, 1997, with such payment amount discounted based on
the present value thereof. Dr. Nowinski has previously purchased 281,250
shares of Common Stock at a price of $0.08 per share. He also holds
fully-vested options, exercisable through July 29, 1998, to purchase an
additional 125,000 shares of Common Stock at an exercise price of $10.00 per
share.
13
<PAGE>
PROPOSAL 2
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
APPROVAL OF THE 1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Company's Board of Directors has adopted the 1996 Stock Option Plan
for Non-Employee Directors (the "1996 Plan"). The 1996 Plan is being
submitted to stockholders for approval.
A description of the 1996 Plan, which is attached hereto as Annex A,
appears below.
The purpose of the 1996 Plan is to promote the interests of the Company
and its stockholders by increasing the proprietary and vested interest of
non-employee directors in the growth and performance of the Company.
The 1996 Plan provides for awards of nonqualified options to Directors
("Eligible Directors") of the Company who are not employees of the Company or
its affiliates and who have not, within one year immediately preceding the
determination of such Director's eligibility, received any award under any
other plan of the Company or its affiliates that entitles the participants
therein to acquire stock, stock options or stock appreciation rights of the
Company or its affiliates (other than options granted prior to the effective
date of the Company's initial public offering or options granted under any
other plan under which participants' entitlements are governed by provisions
meeting the requirements of Rule 16b-3(c)(2)(ii) promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act")). The options shall be
exercisable in whole or in part at all times during the period beginning on
the date of grant until the earlier of (i) ten years from the date of grant
and (ii) one year from the date on which an optionee ceases to be an Eligible
Director. The exercise price per share of Common Stock shall be 100% of the
fair market value per share on the date the option is granted.
Pursuant to the 1996 Plan, subject to stockholder approval, in January
1996, each non-employee Director was awarded an Annual Grant (as defined
below). In addition, upon first election or appointment to the Board, each
newly elected Eligible Director will be granted an option to purchase 10,000
shares of Common Stock (the "Initial Grant"). Immediately following each
Annual Meeting of the Stockholders commencing with the meeting following the
close of fiscal year 1996, (i) the Eligible Director serving as Chairman of
the Board will be granted an option to purchase 8,000 shares of Common Stock,
(ii) each Eligible Director serving on the Executive Committee of the Board,
will be granted an option to purchase 6,000 shares of Common Stock; and (iii)
each remaining Eligible Director, will be granted an option to purchase 4,000
shares of Common Stock (each grant under (i), (ii) and (iii), an "Annual
Grant"). No Director may be awarded more than one Initial Grant and no
Director may be awarded both an Initial Grant and an Annual Grant in any 12
month period.
The maximum number of shares of Common Stock in respect of which awards
may be granted under the 1996 Plan is 300,000. Shares of Common Stock subject
to awards that are forfeited, terminated, cancelled or settled without the
delivery of Common Stock will again be available for awards. Also, shares
tendered to the Company in satisfaction or partial satisfaction of the
exercise price of any award will increase the number of shares available for
awards to the extent permitted by Rule 16b-3 under the Exchange Act. The
shares of Common Stock to be delivered under the 1996 Plan will be made
available from the authorized but unissued shares of Common Stock or from
treasury shares.
The 1996 Plan will be administered by the Board of Directors. Subject to
the provisions of the 1996 Plan, the Board is authorized to interpret the
1996 Plan, to establish, amend, and rescind any rules and regulations
relating to it and to make all other determinations necessary or advisable
for its administration; provided, however, that the Board has no discretion
with respect to the selection of Directors to receive options, the number of
shares of Common Stock subject to any such options, the purchase price
thereunder or the timing of grants of options. The determinations of the
Board in the administration of the 1996 Plan, as described herein, shall be
final and conclusive.
The exercise price of options may be satisfied in cash or, unless
otherwise determined by the Board, by exchanging shares of Common Stock owned
by the optionee, or by a combination of cash and shares
14
<PAGE>
of Common Stock. The ability to pay the option exercise price in shares of
Common Stock would enable an optionee to engage in a series of successive
stock-for-stock exercises of an option and thereby fully exercise an option
with little or no cash investment.
The options granted under the 1996 Plan may not be assigned or
transferred, except by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order.
No award may be granted under the 1996 Plan after the day following the
tenth Annual Meeting of Stockholders at which Directors are elected
succeeding the annual meeting at which the 1996 Plan is approved by
stockholders.
NEW PLAN BENEFITS
The following table sets forth the stock options that the individuals and
groups referred to below will receive in 1996 if the 1996 Plan is approved by
the Company's stockholders at this Annual Meeting. Executive officers and
employee-directors of the Company are not eligible to participate in the 1996
Plan.
NEW PLAN BENEFITS
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE ($) NUMBER OF UNITS
- ------------------------------------------------------ ------------------ -------------------
<S> <C> <C>
Wilbur H. Gantz(a)
Chief Executive Officer and President -- --
A. Bruce Montgomery(a)
Senior Vice President, Research and Development -- --
Alan R. Meyer(a)
Senior Vice President and Chief Financial Officer -- --
Non-Executive Director Group (b) 32,000
Non-Executive Officer Employee Group -- --
</TABLE>
- ------------
(a) Mr. Gantz, Dr. Montgomery and Mr. Meyer are not eligible to participate
in the 1996 Plan.
(b) Dollar value is dependent upon the future share price of the Company's
Common Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE 1996 PLAN UNDER CURRENT LAW
When an optionee exercises an option, the difference between the option
price and any higher fair market value of the shares of Common Stock,
generally on the date of exercise, will be ordinary income to the optionee
and generally will be allowed as a deduction for federal income tax purposes
to the Company.
Any gain or loss realized by an optionee on disposition of the Common
Stock acquired upon exercise of an option generally will be capital gain or
loss to such optionee, long-term or short-term depending on the holding
period, and will not result in any additional tax consequences to the
Company. The optionee's basis in the shares for determining gain or loss on
the disposition will generally be the fair market value of such shares
determined generally at the time of exercise. Certain additional special
rules apply if the exercise price for an option is paid in shares of Common
Stock previously owned by the optionee rather than in cash.
The foregoing discussion summarizes the federal income tax consequences of
the 1996 Plan based on current provisions of the Internal Revenue Code which
are subject to change. This summary does not cover any state or local tax
consequences of participation in the 1996 Plan.
The 1996 Plan is not subject to any provision of ERISA and is not
qualified under Section 401(a) of the Code.
The Board of Directors recommends a vote FOR the approval of the 1996
Stock Option Plan for Non-Employee Directors, which is designated as Proposal
2 on the enclosed proxy card.
15
<PAGE>
PROPOSAL 3
RATIFICATION OF INDEPENDENT ACCOUNTANTS
The Board of Directors of the Company has appointed KPMG Peat Marwick LLP
as independent accountants for the 1996 fiscal year and to render other
professional services as required.
The appointment of KPMG Peat Marwick LLP is being submitted to
stockholders for ratification.
Representatives of KPMG Peat Marwick LLP will be present at the Annual
Meeting, where they will have the 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 a vote FOR the ratification of KPMG Peat
Marwick LLP as independent accountants of the Company, which is designated as
Proposal 3 on the enclosed proxy card.
ANNUAL REPORT
The Annual Report of the Company for the fiscal year ended December 31,
1995 is being mailed to stockholders with this proxy statement.
DEADLINE FOR STOCKHOLDER PROPOSALS FOR 1997
Stockholder proposals intended to be considered for inclusion in the proxy
statement for presentation at the Company's 1997 Annual Meeting of
Stockholders must be received at the Company's offices at 201 Elliott Avenue
West, Seattle, Washington 98119 no later than January 20, 1997, for inclusion
in the Company's proxy statement and form of proxy relating to such meeting.
All proposals must comply with applicable Commission rules and regulations.
OTHER MATTERS
The Board of Directors is not aware of any other matter other than those
set forth in this proxy statement that will be presented for action at the
meeting. If other matters properly come before the meeting, the persons named
as proxies intend to vote the shares they represent in accordance with their
best judgment in the interest of the Company.
THE COMPANY UNDERTAKES TO PROVIDE ITS STOCKHOLDERS WITHOUT CHARGE A COPY OF
THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS
AND SCHEDULES FILED THEREWITH. WRITTEN REQUESTS FOR SUCH REPORT SHOULD BE
ADDRESSED TO THE OFFICE OF THE SECRETARY, PATHOGENESIS CORPORATION, 201
ELLIOTT AVENUE WEST, SEATTLE, WASHINGTON 98119.
16
<PAGE>
ANNEX A TO PATHOGENESIS CORPORATION PROXY STATEMENT
FOR 1996 ANNUAL MEETING OF STOCKHOLDERS
PATHOGENESIS CORPORATION
1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE
The purpose of the PathoGenesis Corporation 1996 Stock Option Plan for
Non-Employee Directors (the "Plan") is to promote the interests of
PathoGenesis Corporation (the "Company") and its stockholders by increasing
the proprietary and vested interest of non-employee directors in the growth
and performance of the Company by granting such directors options to purchase
shares of Common Stock, par value $.001 per share (the "Shares"), of the
Company.
2. ADMINISTRATION
The Plan shall be administered by the Company's Board of Directors (the
"Board"). Subject to the provisions of the Plan, the Board shall be
authorized to interpret the Plan, to establish, amend and rescind any rules
and regulations relating to the Plan and to make all other determinations
necessary or advisable for the administration of the Plan; provided, however,
that the Board shall have no discretion with respect to the selection of
directors to receive options, the number of Shares subject to any such
options, the purchase price thereunder or the timing of grants of options
under the Plan. The determinations of the Board in the administration of the
Plan, as described herein, shall be final and conclusive. The Secretary of
the Company shall be authorized to implement the Plan in accordance with its
terms and to take such actions of a ministerial nature as shall be necessary
to effectuate the intent and purposes thereof. The validity, construction and
effect of the Plan and any rules and regulations relating to the Plan shall
be determined in accordance with the laws of the State of Delaware.
3. ELIGIBILITY
The class of individuals eligible to receive grants of options under the
Plan shall be directors of the Company who are not employees of the Company
or its affiliates and who have not, within one year immediately preceding the
determination of such director's eligibility, received any award under any
other plan of the Company or its affiliates that entitles the participants
therein to acquire stock, stock options or stock appreciation rights of the
Company or its affiliates (other than options granted prior to November 21,
1995 or options granted under any other plan under which participants'
entitlements are governed by provisions meeting the requirements of Rule
16b-3(c)(2)(ii) promulgated under the Securities Exchange Act of 1934)
("Eligible Directors"). Any holder of an option granted hereunder shall
hereinafter be referred to as a "Participant."
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 6, an aggregate of 300,000
Shares shall be available for issuance upon the exercise of options granted
under the Plan. The Shares deliverable upon the exercise of options may be
made available from authorized but unissued Shares or treasury Shares. If any
option granted under the Plan shall terminate for any reason without having
been exercised, the Shares subject to, but not delivered under, such option
shall be available for other options. If any option granted under the Plan is
exercised through the delivery of Shares, the number of Shares available for
issuance upon the exercise of options shall be increased by the number of
Shares surrendered, to the extent permissible under Rule 16b-3.
5. GRANT, TERMS AND CONDITIONS OF OPTIONS
(a) Effective January 25, 1996, subject to approval of the Plan by the
stockholders of the Company, (i) the Eligible Director serving as Chairman of
the Board will be granted an option to purchase 8,000
A-1
<PAGE>
Shares; (ii) each Eligible Director serving on the Executive Committee of the
Board will be granted an option to purchase 6,000 Shares; and (iii) each
remaining Eligible Director will be granted an option to purchase 4,000
Shares. No Eligible Director shall be awarded more than one grant pursuant to
this paragraph 5(a).
(b) Upon first election or appointment to the Board, each newly elected
Eligible Director will be granted an option to purchase 10,000 Shares.
(c) Immediately following each Annual Stockholders Meeting, commencing
with the meeting following the close of fiscal year 1996, (i) an Eligible
Director serving as Chairman of the Board, other than an Eligible Director
first elected to the Board within the 12 months immediately preceding and
including such meeting, will be granted an option to purchase 8,000 Shares;
(ii) each Eligible Director serving on the Executive Committee of the Board,
other than an Eligible Director first elected to the Board within the 12
months immediately preceding and including such meeting, will be granted an
option to purchase 6,000 Shares; and (iii) each remaining Eligible Director,
other than an Eligible Director first elected to the Board within the 12
months immediately preceding and including such meeting, will be granted an
option to purchase 4,000 Shares. No Eligible Director shall be entitled to
more than one grant per Annual Stockholders Meeting pursuant to this
paragraph 5(c).
(d) The options granted will be nonstatutory stock options not intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"), and shall have the following terms and
conditions:
(i) PRICE. The purchase price per Share deliverable upon the exercise
of each option shall be 100% of the Fair Market Value per Share on the
date the option is granted. For purposes of this Plan, Fair Market Value
shall be the closing sales price as reported on the Nasdaq National Market
on the date in question, or, if the Shares shall not have traded on such
date, the closing sales price on the first date prior thereto on which the
Shares were so traded.
(ii) PAYMENT. Options may be exercised only upon payment of the
purchase price thereof in full. Such payment shall be made in cash or,
unless otherwise determined by the Board, in Shares, which shall have a
Fair Market Value (determined in accordance with the rules of paragraph
(i) above) at least equal to the aggregate exercise price of the Shares
being purchased, or a combination of cash and Shares.
(iii) EXERCISABILITY AND TERM OF OPTIONS. Options shall be exercisable
in whole or in part at all times during the period beginning on the date
of grant until the earlier of ten years from the date of grant and the
expiration of the one year period provided in paragraph (iv) below.
(iv) TERMINATION OF SERVICE AS ELIGIBLE DIRECTOR. Upon termination of
a participant's service as a Director for any reason, all outstanding
options shall be exercisable in whole or in part for a period of one year
from the date upon which the participant ceases to be a Director, provided
that in no event shall the options be exercisable beyond the period
provided for in paragraph (iii) above.
(v) NONTRANSFERABILITY OF OPTIONS. No option may be assigned,
alienated, pledged, attached, sold or otherwise transferred or encumbered
by a participant otherwise than by will or the laws of descent and
distribution, and during the lifetime of the participant to whom an option
is granted it may be exercised only by the participant or by the
participant's guardian or legal representative. Notwithstanding the
foregoing, options may be transferred pursuant to a qualified domestic
relations order.
(vi) LISTING AND REGISTRATION. Each option shall be subject to the
requirement that if at any time the Board shall determine, in its
discretion, that the listing, registration or qualification of the Shares
subject to such option upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with,
the granting of such option or the issue or purchase of Shares thereunder,
no such option may be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected
or obtained free of any condition not acceptable to the Board.
A-2
<PAGE>
(vii) OPTION AGREEMENT. Each option granted hereunder shall be
evidenced by an agreement with the Company which shall contain the terms
and provisions set forth herein and shall otherwise be consistent with the
provisions of the Plan.
6. ADJUSTMENT OF AND CHANGES IN SHARES
In the event of a stock split, stock dividend, subdivision or combination
of the Shares or other change in corporate structure affecting the Shares,
the number of Shares authorized by the Plan shall be increased or decreased
proportionately, as the case may be, and the number of Shares subject to any
outstanding option shall be increased or decreased proportionately, as the
case may be, with appropriate corresponding adjustment in the purchase price
per Share thereunder.
7. NO RIGHTS OF STOCKHOLDERS
Neither a Participant nor a Participant's legal representative shall be,
or have any of the rights and privileges of, a shareholder of the Company in
respect of any Shares purchasable upon the exercise of any option, in whole
or in part, unless and until certificates for such Shares shall have been
issued.
8. PLAN AMENDMENTS
The Plan may be amended by the Board, as it shall deem advisable or to
conform to any change in any law or regulation applicable thereto; provided,
that the Board may not, without the authorization and approval of
stockholders of the Company: (i) increase the number of Shares which may be
purchased pursuant to options hereunder, either individually or in the
aggregate, except as permitted by Section 6, (ii) change the requirement of
Section 5(d) that option grants be priced at Fair Market Value, except as
permitted by Section 6, (iii) modify in any respect the class of individuals
who constitute Eligible Directors or (iv) materially increase the benefits
accruing to Participants hereunder. The provisions of Sections 3 and/or 5 may
not be amended more often than once every six months, other than to comport
with changes in the Internal Revenue Code, the Employee Retirement Income
Security Act or the rules under either such statute.
9. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective on the day of the Company's Annual
Stockholders Meeting at which the Plan is approved by Stockholders. The Plan
shall terminate the day following the tenth Annual Stockholders Meeting at
which Directors are elected succeeding the Annual Stockholders Meeting at
which the Plan was approved by Stockholders, unless the Plan is extended or
terminated at an earlier date by Stockholders or is terminated by exhaustion
of the Shares available for issuance hereunder.
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<PAGE>
PROXY PROXY
PATHOGENESIS CORPORATION
ANNUAL MEETING OF STOCKHOLDERS -- JULY 10, 1996
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder in PathoGenesis Corporation (the "Company")
hereby constitutes and appoints Wilbur H. Gantz and Alan R. Meyer, and each
them, his true and lawful attorneys and proxies, with full power of
substitution in and for each of them, to vote all shares of the Company which
the undersigned is entitled to vote at the Annual Meeting of Stockholders to
be held at the offices of the Company, on Wednesday, July 10, 1996, 6:00
p.m., Pacific Daylight Savings Time, or at any postponement or adjournment
thereof, on any and all of the proposals contained in the Notice of the
Annual Meeting of Stockholders, with all the powers the undersigned would
possess if present personally at said meeting, or at any postponement or
adjournment thereof.
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 ON THE REVERSE SIDE AND FOR THE
APPROVAL OF PROPOSALS 2 AND 3.
(Continued and to be signed and dated on the other side)
<PAGE>
PATHOGENESIS CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
[ ]
THE DIRECTORS RECOMMEND A VOTE
FOR ALL NOMINEES AND PROPOSALS 2 AND 3.
-------------------------------
COMMON
1. Election of Directors
FOR all nominees listed below For Withheld For All
(except as marked in the contrary, Except
see instruction below)
WITHHOLD AUTHORITY in vote for all [ ] [ ] [ ]
nominiees listed below
Alan R. Meyer and Michael J. Montgomery
INSTRUCTION: TO WITHHOLD AUTHORITY
TO VOTE FOR ANY INDIVIDUAL
NOMINEE,LINE THROUGH THE NAME OF
THE NOMINEE ABOVE.
2. Proposal to approve the For Against Abstain
PathoGenesis Corporation 1996
Stock Option Plan for [ ] [ ] [ ]
Non-Employee Directors.
3. Proposal to ratify For Against Abstain
the appointment of KPMG Peat
Marwick LLP as independent [ ] [ ] [ ]
accountants.
The above named proxies are
granted the authority, in their
discretion, to act upon such
other matters as may properly come
before the meeting or any
postponement or adjournment
thereof.
Date: ,1996
--------------------------------------
Signature(s)
------------------------------------
Signatures
--------------------------------------
Please sign exactly as your name appears and
return this proxy immediately in the enclosed
stamped self-addressed envelope.
2
