<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
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[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Pathogenesis Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required.
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[_] Check box if any part of the fee is offset as provided by Exchange
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Notes:
<PAGE>
[LOGO]
PathoGenesis Corporation
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: Wednesday, May 31, 2000
Time: 4:00 p.m., Pacific Time
Place: 201 Elliott Avenue West
Seattle, Washington 98119
Purpose: 1. Elect three Class II directors
2. Approve an amendment to the PathoGenesis Corporation
Employee Stock Purchase Plan to increase the common
stock authorized for issuance under that plan by 250,000
shares to 450,000 shares
3. Ratify the selection of KPMG LLP as the company's
independent auditors for 2000
4. Transact any other business that may properly come
before the meeting
If you are a shareholder of record at the close of business on April 3,
2000, you are entitled to vote at the meeting.
Whether or not you plan to attend the meeting, please complete and return
the enclosed proxy card in the enclosed envelope. Returning the proxy card will
not affect your right to attend the meeting and vote.
Marvin B. Tepper
Secretary
Seattle, Washington
April 20, 2000
<PAGE>
PathoGenesis Corporation
____________________
PROXY STATEMENT
____________________
We are sending you these proxy materials because our board of directors is
soliciting your proxy to vote your shares at the 2000 annual meeting of
shareholders. We began mailing these proxy materials to shareholders on or about
April 20, 2000.
ABOUT THE MEETING
What is the purpose of the meeting? At the meeting, we will ask you to:
. elect three directors
. approve an amendment to our Employee Stock Purchase Plan to increase
the common stock authorized for issuance under that plan by 250,000
shares to 450,000 shares
. ratify the selection of KPMG LLP as our independent auditors.
Who may vote at the meeting? You are entitled to vote at the meeting if you
were a shareholder of record at the close of business on April 3, 2000. On any
matter properly brought before the meeting, you may cast one vote for each share
of PathoGenesis common stock you owned on the record date.
How do I vote? You can vote on matters at the meeting by signing and
returning the enclosed proxy card or by attending the meeting and casting your
vote there. If you vote by proxy, your proxy (one of the individuals named on
your proxy card) will vote your shares as you specify. If you do not otherwise
indicate, your proxy will vote your shares for the board's nominees for
directors and for each of the other proposals stated in the notice of the
meeting. If you hold your shares in "street name" (through a broker or other
nominee) and wish to vote in person at the meeting, you will need to bring a
copy of your account statement showing your stock ownership in PathoGenesis and
to check in at the registration desk at the meeting.
Can I change my vote after I return my proxy card? If you wish, you may
revoke your proxy at any time before it is voted by sending a written revocation
to Marvin B. Tepper, the company's Secretary, by providing a later dated proxy,
or by voting in person at the meeting.
What constitutes a quorum? The presence at the meeting, in person or by
proxy, of the holders of a majority of the common stock entitled to vote will
constitute a quorum for the transaction of business at the meeting. As of the
record date, 16,555,737 shares of common stock were outstanding. Abstentions and
broker non-votes are counted as shares present for determining if a quorum is
present.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
Our board of directors currently consists of ten members, who are divided
into three classes having three-year terms that expire in successive years.
You are asked to elect three Class II directors at the meeting. Class I and
Class III directors are not up for election this year and will continue in
office for the remainder of their terms. Biographical information on each
nominee for director and each continuing director appears below, including his
or her age at December 31, 1999.
The board of directors has nominated Wilbur H. Gantz, John L. Gordon and
Arthur W. Nienhuis, each of whom is a current Class II director, for re-election
to serve until the annual meeting in 2003 or until his successor is elected and
qualified. If a nominee is unable to serve, the proxy holders may vote for
another nominee proposed by the board.
What vote is required? The three nominees who receive the most votes at
the meeting will be elected to the three open directorships; abstentions and
broker non-votes will have no effect on the election.
- --------------------------------------------------------------------------------
The board recommends a vote FOR the election of each nominee for director.
- --------------------------------------------------------------------------------
Nominees for Election at the Meeting (Class II)
Wilbur H. Gantz Mr. Gantz, a founder of PathoGenesis, has
Age 62 been our Chief Executive Officer and
Director since March 1992 President since 1992 and Chairman since
Chairman, Chief Executive January 1998. Previously, he was President
Officer and President of Baxter International Inc. (healthcare
products company). He is a director of The
Gillette Company (personal care products
company), W.W. Grainger, Inc. (maintenance,
repair and operating supplies and services
provider), Harris Bancorp (bank holding
company) and Harris Trust and Savings Bank.
He is a former trustee of Princeton
University.
John L. Gordon, Ph.D., Sc.D. Dr. Gordon is founder and Chairman of
Age 55 Quercus Management Limited, a biotechnology
Director since November 1997 support company based in Oxford, England. He
was Chief Executive Officer of Neures
Limited (biotechnology company) from 1994 to
1996, and previously was Director of
Research of Neures' parent company, British
Biotech plc. He is a director of Finsbury
Life Sciences Investment Trust PLC, a
publicly held company in the U.K.
2
<PAGE>
Arthur W. Nienhuis, M.D. Dr. Nienhuis has been Director of St. Jude
Age 58 Children's Research Hospital since 1993.
Director since July 1998 Previously, he was chief of the Clinical
Hematology Branch at the National Heart,
Lung & Blood Institute at the National
Institutes of Health and held appointments
at Boston's Massachusetts General Hospital
and Harvard Medical School. He is a director
of the American Association of Cancer
Institutes and the author of more than 230
published scientific papers.
Continuing Directors Whose Terms Expire in 2001 (Class III)
Talat M. Othman Mr. Othman has been Chairman and Chief
Age 63 Executive Officer of Grove Financial, Inc.
Director since September 1992 (investment management company) since
September 1995. Previously, he was Chairman,
President and Chief Executive Officer of
Dearborn Financial, Inc. (investment
management company). He is a director of the
Middle East Policy Council in Washington,
D.C., a member of the Board of Governors of
St. Jude Children's Research Hospital and a
trustee of the Center for Excellence in
Education in Washington, D.C. Previously, he
was a director of Harken Energy Corporation
(oil and gas exploration company) and
Hartmarx Corporation (apparel manufacturer)
and President of the Arab Bankers
Association of North America.
Eugene L. Step Mr. Step was Executive Vice President, a
Age 70 director and a member of the Executive
Director since April 1992 Committee of Eli Lilly and Company
(pharmaceutical company) and President of
its Pharmaceutical Division prior to his
retirement in 1992. Since his retirement,
Mr. Step has been a private investor. He is
a former Chairman of the Pharmaceutical
Manufacturers Association (now PhRMA) and
former President of the International
Pharmaceutical Manufacturers Association. He
is a director of CellGenesys Inc.
(biotechnology company), DBT Online, Inc.
(data management company), Guidant Corp.
(medical device company), Medco Research
Inc. (medical research company) and Scios
Inc. (biotechnology company).
James R. Tobin Mr. Tobin is President, Chief Executive
Age 55 Officer and a director of Boston Scientific
Director since January 1999 Corporation (medical device manufacturer).
He was Chief Executive Officer of Biogen,
Inc. (biopharmaceutical company) from 1997
to 1998, and its President and Chief
Operating Officer from 1994 to 1997.
Previously, he was President and Chief
Operating Officer of Baxter International,
Inc. (healthcare products company). He is a
director of Creative BioMolecules Inc.
(biopharmaceutical company) and PE Corp.
(genomic and sequencing instrumentation
company).
3
<PAGE>
Fred Wilpon Mr. Wilpon, a founder of PathoGenesis, was
Age 63 Chairman of the Board from May 1995 to
Director since January 1992 January 1998. He is co-founder and Chairman
of the Board of Sterling Equities, Inc.
(real estate developer) and is President and
Chief Executive Officer of the New York Mets
baseball team. He is a director of Bear,
Stearns & Co. Inc. (investment bank).
Continuing Directors Whose Terms Expire in 2002 (Class I)
Elizabeth M. Greetham Ms. Greetham has been President of ACCL
Age 50 Financial Consultants Ltd. (pharmaceutical
Director since November 1996 consultants) and Chief Financial Officer of
Drug Abuse Sciences Inc. (pharmaceutical
company) since April 1999. Previously, she
was a Portfolio Manager for Weiss, Peck &
Greer, L.L.C. (investment adviser). She is a
director of various pharmaceutical
companies, including CliniChem Development
Corporation (a Canadian corporation),
Guilford Pharmaceuticals Inc. and SangStat
Medical Corporation.
Alan R. Meyer Mr. Meyer joined PathoGenesis in 1992 as
Age 46 Vice President and Chief Financial Officer
Director since December 1992 and a director. He became Senior Vice
Executive Vice President, President and Chief Financial Officer in
Chief Financial July 1995, when he also assumed the office
Officer, Treasurer and of Assistant Secretary, and became Executive
Assistant Secretary Vice President in January 1998 and Treasurer
in August 1999. Previously, he was chief
financial officer for several development
stage healthcare companies, held corporate
finance and corporate development positions
with Baxter Healthcare Corporation
(healthcare products company) and was a
management consultant with Arthur Andersen &
Co. (public accounting firm).
Michael J. Montgomery Mr. Montgomery is a Co-Managing Director of
Age 45 Digital Coast Partners (merchant bank).
Director since July 1995 Previously, he was the President and Chief
Executive Officer from May 1998 to September
1999, and President and Chief Operating
Officer from September 1996 to May 1998, of
Sega GameWorks L.L.C. (entertainment
company). He was a senior executive of
DreamWorks SKG (entertainment company) from
1995 to 1996. Previously, he was Executive
Vice President and Chief Financial Officer
of Euro Disney SCA (theme park operator) and
Vice President and Treasurer of The Walt
Disney Company (entertainment company). Mr.
Montgomery is a brother of A. Bruce
Montgomery, our Executive Vice President,
Research and Development.
How often did the board meet in 1999? Our full board met seven times in
1999. Each current director attended at least 75% of the number of meetings of
the board and of committees on which he or she served that were held during
1999.
4
<PAGE>
What committees has the board established? Our board has three committees:
the Audit/Finance Committee, the Compensation and Nominating Committee, and the
Executive Committee. Committees report their actions to the full board, usually
at the next regular meeting of the board or by written report.
The Audit/Finance Committee recommends the appointment of our independent
auditors. In addition, it reviews auditing arrangements with the independent
auditors, the scope and results of their audits, any problems they may identify
regarding internal accounting controls and their recommendations. It also meets
with our Chief Financial Officer to review our programs, policies and procedures
on financial controls and internal auditing. The Audit/Finance Committee also
reviews with our Chief Financial Officer our investment securities and cash
management programs and policies. The Audit/Finance Committee is prepared to
meet at any time at the request of the independent auditors or the Chief
Financial Officer to review any special situation that may arise relating to
audit/finance matters. Eugene L. Step (chair), Elizabeth M. Greetham, Michael J.
Montgomery and Arthur W. Nienhuis are members of this committee. In 1999, the
committee met once.
The Compensation and Nominating Committee administers the compensation and
benefit programs for our officers, employees and consultants, including our
stock option and stock purchase plans. It determines stock option grants to our
Chief Executive Officer and makes recommendations to the full board on the
compensation of our Chief Executive Officer and non-employee members of the
board. It also makes recommendations to the board of directors on any proposed
plan or program that would benefit the senior executives and regarding
candidates for the board and executive offices. The committee would consider
candidates for director suggested by shareholders who comply with the procedures
established in our by-laws. The procedures are described later in this proxy
statement under "Additional Information - How can a shareholder proposal be
submitted for the 2001 annual meeting?" Talat M. Othman (chair), John L. Gordon,
James R. Tobin and Fred Wilpon are members of this committee. The committee held
six meetings during 1999.
The Executive Committee has the authority to take any action that the board
of directors may take, subject to some restrictions imposed by law. Fred Wilpon
(chair), Wilbur H. Gantz, Talat M. Othman and Eugene L. Step are members of this
committee. The committee met on nine occasions and acted by written consent once
in 1999.
What compensation do directors receive? Under the PathoGenesis Corporation
1998 Compensation Program for Non-Employee Directors for the years 1998-2002, as
amended, each non-employee director is compensated in cash and options to
purchase common stock as follows:
Annual Retainer: Basic $15,000
Executive Committee chair supplement 10,000
Other committee chair supplement 5,000
Instead of receiving the basic annual retainer for the years
1998-2002 in cash, each non-employee director may elect, on
January 1, 1998 or, if later, upon initial election to the
board, to receive a stock option (in addition to the grant
described below) having an aggregate exercise price equal to
four times the amount of cash retainer waived. The options
will vest on the first day of each year (or portion of a
year) through 2002 in which the optionee was a director, to
the extent of a fraction of the entire option whose
numerator is the amount of the basic retainer for such year
represented by the option and whose denominator is the
amount of base retainer for
5
<PAGE>
all years during the term of the program. Each option
granted to a director has a ten-year term and is granted at
an exercise price equal to the fair market value of the
common stock on the grant date.
Meeting Fee: For each board or committee meeting $ 1,000
attended in person or by telephone
Option Grant: Initial Grant
20,000 shares upon initial election to the board
Subsequent Annual Grant
Basic 6,000 shares
Executive Committee chair supplement 2,000 shares
Other committee chair supplement 1,000 shares
Each such option is fully vested on the date of grant,
generally has a ten-year term and is granted at an exercise
price equal to the fair market value of the common stock on
the date of grant.
During 1999, our non-employee directors received grants of
fully vested options to purchase an aggregate of 150,000
shares of common stock at a weighted average exercise price
of $15.81 per share.
EXECUTIVE OFFICERS
In addition to Wilbur H. Gantz and Alan R. Meyer, our current executive
officers are as follows. (Ages are as of December 31, 1999 and other information
is as of the date of this proxy statement.)
A. Bruce Montgomery, M.D. Dr. Montgomery has been Executive Vice
Age 46 President, Research and Development since
Executive Vice President, January 1998. He joined PathoGenesis in 1993
Research and as Vice President of Medical and Regulatory
Development Affairs and was promoted to Senior Vice
President in July 1995. From 1989 to
November 1993, he was Associate Director of
Clinical Research at Genentech, Inc.
(biotechnology company), where he was
involved in the clinical development of
Pulmozyme, an inhaled drug for cystic
fibrosis patients. Previously, he was
Assistant Professor of Medicine and Director
of the Medical Intensive Care Unit,
Pulmonary Disease Section, Department of
Medicine, State University of New York,
Stony Brook, New York, and Assistant
Professor of Medicine in Residence,
University of California, San Francisco, and
Cardiovascular Research Institute, Chest
Service, San Francisco General Hospital. He
is co-inventor of two use patents related to
aerosolized pentamidine, a drug for an AIDS-
related infection. Dr. Montgomery is a
brother of Michael J. Montgomery, one of our
directors.
6
<PAGE>
Marc F. Wipperman Mr. Wipperman joined PathoGenesis in 1996 as
Age 48 Vice President, Manufacturing, and was
Senior Vice President, promoted to Senior Vice President,
Operations Operations in January 1998. He oversees the
development and commercialization of
manufacturing processes, from the sourcing
of raw materials to production, quality
control and distribution. From 1995 to 1996,
he was President of Certified Manufacturing
Corporation (pharmaceutical consulting
firm). Previously, he was a consultant to
the pharmaceutical industry and held a
variety of management, manufacturing and
engineering positions with Johnson & Johnson
(pharmaceutical company).
William R. Baker, Ph.D. Dr. Baker was promoted to his current
Age 48 position in November 1999. He joined the
Senior Vice President, company in 1993 as Director of Chemistry and
Research and Preclinical was promoted to Vice President of Research
Development in 1996. Previously, he held various
research management positions in the
Pharmaceutical Products Division of Abbott
Laboratories (pharmaceutical company).
Dinendra M. Sen Mr. Sen joined PathoGenesis as Senior Vice
Age 50 President, Sales and Marketing in January
Senior Vice President, 2000. He was Vice President of Sales and
Sales and Marketing Marketing of Schwarz Pharmaceuticals (U.S.
division of a German-based company of the
same name) from 1998 to January 1999,
Director, Oncology and ID Marketing of
Amgen, Inc. (pharmaceutical company) from
1995 to 1998, and its Marketing Manager,
Epogen from 1992 to 1995. Previously, he was
a consultant with The Alexander Group
(marketing consultants) and held a marketing
development position in the pharmaceutical
products division of Abbott Laboratories
(pharmaceutical company).
REPORT OF COMPENSATION AND NOMINATING COMMITTEE
ON EXECUTIVE COMPENSATION
The Compensation and Nominating Committee of the board of directors is
responsible for determining the compensation of our executive officers,
including the Named Executive Officers. In making its determinations, the
committee relies on input from an independent compensation consultant and
reviews appropriate decisions with all non-employee directors, who constitute a
majority of the full board. Six meetings of the committee were held during
1999.
What is our compensation philosophy?
Our executive compensation program reflects the philosophy that executives'
rewards should be structured to closely align their interests with those of
shareholders. The program emphasizes pay for performance, stock-based
incentives and stock ownership. We apply the same compensation philosophy to
other employees in the interests of motivation, teamwork and fairness.
Although individual performance and company performance are the primary
determinants of individual pay amounts, the committee uses compensation surveys
and external competitiveness as tests for reasonableness in view of our need to
compete for the best talent in our industry segment. We
7
<PAGE>
consider the primary competitive market to be other emerging biopharmaceutical
companies of comparable market value, size, operating complexity and growth
potential. Those include some but not all of the companies that are included in
the peer group index used in "Performance Comparison" below.
What are the elements of executive compensation?
Our executive compensation program in 1999 consisted of base salaries,
annual incentives and long-term incentives in the form of stock options. The
mix of compensation is weighted more heavily toward performance-based incentives
than base salaries as position level advances.
Base Salaries. The base salaries of our Named Executive Officers are set
to reflect the competitive market and individual responsibilities, experience,
leadership and contributions to the company's success. In 1999, the Named
Executive Officers received merit increases in base salary of 5% to 6%,
reflecting the committee's subjective assessment of those factors. Dr. Baker
also received an increase based on his promotion to Senior Vice President. The
committee believes that current base salaries of the Named Executive Officers
generally are in the median range for comparable positions, which is in
accordance with our goal to be competitive in recruiting and retaining talent.
Annual Incentives. Each executive officer is eligible to receive an annual
incentive award based on the committee's assessment of his or her individual
performance and the performance of the company. At the beginning of each fiscal
year, the committee establishes a target bonus level for each participating
executive to be paid after year-end if individual and company performance
expectations are fully achieved. In 1999, those target bonus levels ranged from
25% to 50% of base salary, and were intended, when added to base salaries, to
result in total annual compensation approximately comparable to the competitive
market. Following the end of each year, the committee determines the actual
incentive award for each executive, which may be above or below the target level
for that executive, based on the committee's subjective evaluation of individual
and company performance. The committee does not assign quantitative relative
weights to different factors or follow mathematical formulas. Rather, it makes
its determination in each case after considering the factors it deems relevant
at the time. No cash bonuses were awarded to any of the Named Executive
Officers for 1999 because sales and other company objectives were not met.
Long-Term Incentives. The company uses stock options as the primary long-
term incentive award to align employee interests with those of shareholders.
Stock options are normally granted annually. In general, they have ten-year
terms and vest cumulatively in equal installments on each of the first four
anniversaries of the grant date. Individual option grants are based on grant
guidelines designed to approximate the present value of median annual long-term
incentives for comparable companies and positions. Individual grants to the
Named Executive Officers have varied above and below the guidelines based upon
the committee's discretionary evaluation of individual performance, past grant
history and other relevant factors.
Regular annual option grants were made to executive officers and other
employees based on the competitive grant guidelines in January 1999, prior to a
significant decline in the company's stock price. In order to retain well-
qualified employees and provide strong incentives to regain shareholder value,
the committee made special one-time stock option grants to the general employee
population in May 1999. The special grants were for approximately two times the
number of shares under regular annual grants. It followed with similar grants to
executive officers, including each of the Named Executive Officers, in August
1999.
8
<PAGE>
How did we compensate the chief executive officer?
The committee increased Mr. Gantz's base salary by 6% in 1999. The
increase reflects the critical job responsibilities of the chief executive
officer and his successful contributions toward making the company a leader in
the market for inhaled drugs to treat lung infections. The committee believes
that Mr. Gantz's salary is in the median range for comparable positions. As
noted above, neither Mr. Gantz nor any of the other Named Executive Officers
received any annual incentive award for 1999, in view of the company's 1999
performance relative to its objectives. Based on the same formula as used for
the general employee population and other Named Executive Officers, he received
a regular annual option grant for 125,000 shares in January 1999 and a
subsequent special grant for 250,000 shares in August 1999.
Are we subject to limits on tax deductibility of compensation?
Section 162(m) of the Internal Revenue Code generally disallows a tax
deduction to public companies for compensation in excess of $1 million to a
company's chief executive officer or any of the four other most highly
compensated executive officers. Qualifying performance-based compensation is
not subject to the deduction limit if certain requirements are met. The
committee believes that stock options granted under our 1992 Stock Option Plan,
1997 Stock Option Plan and 1999 Stock Plan qualify as performance-based
compensation. Currently, none of the Named Executive Officers earns more than
$1 million in combined salary and annual incentive. The committee's present
intention is to comply with Section 162(m) to maximize tax deductibility to the
extent compatible with the company's pay philosophy and strategic goals.
Compensation and Nominating Committee
Talat M. Othman, Chair
John L. Gordon
James R. Tobin
Fred Wilpon
9
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Nominating Committee is composed of Talat M. Othman
(Chair), John L. Gordon, James R. Tobin and Fred Wilpon. None of our current or
past executive officers or employees serves on the Compensation and Nominating
Committee. None of our executive officers serves on the board or the
compensation committee of any entity whose directors or officers serve on our
Compensation and Nominating Committee.
EXECUTIVE COMPENSATION
The following table shows the compensation in the last three years of the
following executive officers (the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
------------------- ------------
Shares
Salary Bonus Underlying Options (#)
-------- -------- ----------------------
<S> <C> <C> <C> <C>
Wilbur H. Gantz 1999 $392,200 $ 0 375,000
Chairman, Chief Executive 1998 370,000 185,000 100,000
Officer and President 1997 302,320 175,000 75,000
A. Bruce Montgomery 1999 278,300 0 90,000
Executive Vice President, 1998 265,000 106,000 30,000
Research and Development 1997 201,660 85,000 80,000
Alan R. Meyer 1999 233,200 0 90,000
Executive Vice President, 1998 220,000 88,000 30,000
Chief Financial Officer, 1997 187,200 81,000 20,000
Treasurer and Assistant Secretary
Marc F. Wipperman 1999 227,900 0 75,000
Senior Vice President, 1998 215,000 72,550 20,000
Operations 1997 190,000 66,000 --
William R. Baker 1999 173,333 0 60,000
Senior Vice President,
Research and Preclinical
Development (1)
</TABLE>
(1) Dr. Baker was elected Senior Vice President, Research and Preclinical
Development in November 1999.
10
<PAGE>
Option Grants in 1999
<TABLE>
<CAPTION>
Potential Realizable
Percent of Value at Assumed
Number of Total Annual Rates of
Shares Options Stock Price
Underlying Granted to Exercise or Appreciation for
Options Employees Base Price Expiration Option Term(2)
--------------------------
Name Granted(1) in Year ($/Share) Date 5% 10%
---- ------------ ------------ ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Wilbur H. Gantz 125,000 7.6% $50.250 1/26/09 $3,950,244 $10,010,695
250,000 15.3 13.875 8/2/09 2,181,478 5,528,294
A. Bruce Montgomery 30,000 1.8 50.250 1/26/09 948,059 2,402,567
60,000 3.7 13.875 8/2/09 523,555 1,326,791
Alan R. Meyer 30,000 1.8 50.250 1/26/09 948,059 2,402,567
60,000 3.7 13.875 8/2/09 523,555 1,326,791
Marc F. Wipperman 25,000 1.5 50.250 1/26/09 790,049 2,002,139
50,000 3.1 13.875 8/2/09 436,296 1,105,659
William R. Baker 10,000 0.6 50.250 1/26/09 316,020 800,856
20,000 1.2 13.875 8/2/09 174,518 442,264
30,000 1.8 16.125 11/11/09 304,228 770,973
</TABLE>
(1) The exercise price of each option is the fair market value of the common
stock on the date of grant. Other than the option granted to Mr. Gantz on
January 26, 1999, which vested fully on the grant date, these options vest
cumulatively in four equal annual installments beginning on the first
anniversary of the grant date.
(2) These values are calculated using assumed annual rates of stock price
appreciation as required by the rules of the Securities and Exchange
Commission. The actual value of the options will vary according to the
market price of the common stock. This table does not suggest that any
amount shown will be realized.
Aggregated Option Exercises in 1999
and Year-End Option Values
No options were exercised by our Named Executive Officers in 1999. The
following table shows information regarding stock options held by each Named
Executive Officer at the end of 1999.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-The-Money Options
Options at Year-End At Year-End(1)
---------------------------------- -----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Wilbur H. Gantz 378,750 362,500 $1,674,922 $1,890,625
A. Bruce Montgomery 125,625 158,750 695,117 486,172
Alan R. Meyer 116,250 126,250 1,009,141 473,203
Marc F. Wipperman 46,250 103,750 258,984 464,453
William R. Baker 43,000 76,500 330,547 333,828
</TABLE>
(1) These figures are based on a price of $21.4375 per share, the closing price
of the common stock on December 31, 1999, as quoted on the Nasdaq National
Market, as reported by The Wall Street Journal (Midwest Edition).
11
<PAGE>
Employment Agreements
We have a month-to-month employment agreement with A. Bruce Montgomery,
under which Dr. Montgomery is entitled to receive an annual base salary and
bonus (up to 30% of the annual base salary) as the board of directors
determines. He also is entitled to receive benefits offered to our employees
generally. The agreement permits the company to terminate Dr. Montgomery's
employment for cause. The agreement also prohibits Dr. Montgomery from
competing with PathoGenesis for one year following termination of his
employment.
We have an employment agreement with Marc F. Wipperman, under which he is
entitled to receive an annual base salary and bonus (up to 25% of the annual
base salary) as the board of directors determines. He also is entitled to
receive benefits offered to our employees generally. The agreement permits the
company to terminate his employment for cause. The agreement also prohibits him
from competing with PathoGenesis for one year following termination of his
employment. The agreement will remain in effect until June 20, 2000, after
which it will be automatically renewed for successive quarterly terms unless
either party gives notice of termination at least 60 days before the expiration
of the then current term.
We have employment agreements with each of our senior executives, including
the Named Executive Officers. Each such agreement provides for the payment of
compensation and benefits if the executive's employment is terminated following
a change in control of PathoGenesis. Each executive whose employment is
terminated within two years following a change in control will receive
compensation under the agreement only if the termination was by the company
without cause or by the executive for good reason. Once effective, the
agreements provide, in addition to unpaid ordinary compensation and benefits, a
lump sum cash payment equal to two times (three times in the case of the Chief
Executive Officer) the executive's annual compensation and certain other
benefits, including assistance in outplacement.
12
<PAGE>
PERFORMANCE COMPARISON*
The graph below compares the cumulative total return on PathoGenesis common
stock from November 22, 1995 (the date the common stock began trading on the
Nasdaq National Market) through December 31, 1999 with the cumulative total
return of the Nasdaq Stock Market Total Return Index and the Nasdaq
Pharmaceuticals Stock Index. Cumulative total return values were calculated
assuming an investment of $100 on November 22, 1995 and reinvestment of
dividends. The historical stock price performance is not necessarily indicative
of future results.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Nasdaq Nasdaq
PathoGenesis Stock Market Pharmaceuticals
<S> <C> <C> <C>
11/22/95 $100.00 $100.00 $100.00
12/29/95 110.00 103.29 120.88
3/29/96 163.75 108.13 125.77
6/28/96 155.00 116.94 122.18
9/30/96 177.50 121.12 124.98
12/31/96 217.50 127.09 121.25
3/31/97 250.00 120.20 115.16
6/30/97 291.25 142.22 124.32
9/30/97 355.00 166.28 139.45
12/31/97 371.25 155.72 125.23
3/31/98 335.00 182.25 137.59
6/30/98 290.00 187.25 127.33
9/30/98 333.75 168.97 120.05
12/31/98 580.00 219.57 159.31
3/31/99 133.13 246.09 174.80
6/30/99 141.88 269.28 178.08
9/30/99 153.75 275.80 203.39
12/31/99 214.38 406.34 296.43
</TABLE>
<TABLE>
CRSP Total Returns for: 11/22/95 12/29/95 12/31/96 12/31/97 12/31/98 12/31/99
- ----------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
PathoGenesis Corporation $ 100.00 $ 110.00 $ 217.50 $ 371.30 $ 580.00 $ 214.40
Nasdaq Stock Market 100.00 103.30 127.10 155.70 219.60 406.30
Nasdaq Pharmaceuticals Stock Index 100.00 120.90 121.30 125.20 159.30 296.40
</TABLE>
*Source: Center for Research in Security Prices (CRSP)
13
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains certain information on beneficial ownership of
the common stock as of April 3, 2000, by (i) each of our directors and executive
officers, (ii) our Corporate Secretary, (iii) all of the foregoing individuals
as a group, and (iv) other owners of more than 5% of the outstanding
PathoGenesis common stock.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)(2)
-------------------------------
Name Number Percent(3)
- ---- ------ ----------
<S> <C> <C>
William R. Baker........................... 52,783 *
Wilbur H. Gantz(4)......................... 773,359 4.56
John L. Gordon............................. 41,848 *
Elizabeth M. Greetham...................... 42,771 *
Alan R. Meyer.............................. 152,558 *
Michael J. Montgomery(5)................... 53,880 *
Arthur W. Nienhuis......................... 26,000 *
Talat M. Othman............................ 43,572 *
Eugene L. Step............................. 59,500 *
James R. Tobin............................. 40,848 *
Fred Wilpon(6)............................. 892,598 5.37
A. Bruce Montgomery(7)..................... 182,878 1.09
Marc F. Wipperman.......................... 63,426 *
Marvin B. Tepper(8)........................ 867,348 5.22
All of the foregoing persons
as a group(2)(4)(5)(6)(7)(8)............ 3,293,370 16.23
Saul B. Katz(9)............................ 855,000 5.20
Lord, Abbett & Co.(10)..................... 822,500 5.01
</TABLE>
*Less than 1%.
(1) Unless otherwise indicated, the persons named in the table above have sole
voting and investment power over all shares beneficially owned by them,
subject to applicable community property laws. Beneficially owned shares
include shares subject to options exercisable within 60 days after April 3,
2000.
(2) Includes shares subject to options that were exercisable within 60 days of
April 3, 2000 as follows: Dr. Baker--51,625; Mr. Gantz--422,500; Dr.
Gordon--36,848; Ms. Greetham--40,000; Mr. Meyer--140,000; Mr. M.
Montgomery--45,098; Dr. Nienhuis--26,000; Mr. Othman--43,572; Mr. Step--
54,500; Mr. Tobin--28,348; Mr. Wilpon--73,598; Dr. A. B. Montgomery--
166,874; Mr. Wipperman--61,250; and Mr. Tepper--67,348.
(3) Based on 16,555,737 shares outstanding as of April 3, 2000, unless
otherwise indicated. In computing the percentages shown in the table,
shares subject to options held by a named person that are exercisable
within 60 days after April 3, 2000 are treated as outstanding in
determining the percentage ownership of that person.
(4) Includes (i) 18,750 shares held by The Wilbur H. Gantz 1992 Irrevocable GST
Trust, of which Mr. Gantz is Trustee and (ii) 112,500 shares held by The
Wilbur H. Gantz 1992 Irrevocable
14
<PAGE>
Children's Trust. Mr. Gantz disclaims beneficial ownership as to all of
such shares. Also includes 1,875 shares held by Mr. Gantz's wife and 25,850
shares held by a trust for her benefit, although Mr. Gantz disclaims
beneficial ownership of shares held by Mrs. Gantz and that trust.
(5) Includes 532 shares owned by Mr. Montgomery's minor children. Does not
include shares beneficially owned by A. Bruce Montgomery.
(6) Includes (i) 800,000 shares held by Sterling PathoGenesis Company, of which
Mr. Wilpon is managing partner; (ii) 9,000 shares held jointly with Mr.
Wilpon's wife; and (iii) 10,000 shares held jointly with a partner in
Sterling PathoGenesis Company. Mr. Wilpon disclaims beneficial ownership of
such 819,000 shares except to the extent of his pecuniary interest.
(7) Includes 6,400 shares owned by Dr. Montgomery's wife as custodian for minor
children, as to which Dr. Montgomery disclaims beneficial ownership. Does
not include shares beneficially owned by Michael J. Montgomery.
(8) Includes 800,000 shares held by Sterling PathoGenesis Company, of which Mr.
Tepper is a partner. Mr. Tepper disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest.
(9) Based on Amendment No. 1 to Schedule 13G filed on May 12, 1999 by Saul B.
Katz, c/o Sterling PathoGenesis Company, 575 Fifth Avenue, New York, New
York 10017, reporting beneficial ownership as of May 10, 1999 and includes
(i) 5,000 shares owned jointly with Mr. Katz's spouse, (ii) 800,000 shares
held by Sterling PathoGenesis Company, of which Mr. Katz is a partner (of
which Fred Wilpon, one of our directors, and Marvin B. Tepper, our
Corporate Secretary, are also partners), and (iii) 10,000 shares held
jointly with a partner in Sterling PathoGenesis Company. Mr. Katz disclaims
beneficial ownership as to all of such 815,000 shares except to the extent
of his pecuniary interest.
(10) Based on a Schedule 13G filed on February 8, 2000 by Lord, Abbett & Co., 90
Hudson Street, Jersey City, New Jersey 07302, reporting beneficial
ownership as of December 31, 1999.
Did directors and executive officers comply with Section 16(a) beneficial
ownership reporting requirements in 1999?
Based on our review of filings with the Securities and Exchange Commission
and written representations furnished to us, we believe that in 1999 our
directors and executive officers filed reports required under section 16(a) of
the Securities Exchange Act of 1934 on a timely basis.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO
OUR EMPLOYEE STOCK PURCHASE PLAN
In April 1998, our board of directors adopted the PathoGenesis Corporation
Employee Stock Purchase Plan (the "Purchase Plan"), a plan intended to qualify
as an Employee Stock Purchase Plan under Section 423 of the Internal Revenue
Code of 1986, as amended. The Purchase Plan, which our shareholders approved in
June 1998, authorized the offer of up to 200,000 shares of our common stock to
15
<PAGE>
eligible employees through periodic offerings to be made in the ten-year period
commencing July 1, 1998.
On April 6, 2000, our board adopted, subject to shareholder approval, an
amendment to the Purchase Plan to increase the number of shares authorized for
issuance under the Purchase Plan by 250,000 shares (the "Amendment"), to 450,000
shares. The board believes that the Purchase Plan is an important factor in
attracting, retaining and motivating qualified employees. Without an increase in
the number of shares of common stock reserved, the Purchase Plan likely will
have insufficient shares to meet anticipated employee purchases beyond calendar
year 2000. Many of our competitors offer similar plans, and the board believes
that we will be at a disadvantage if we do not continue to offer the Purchase
Plan to our employees. In light of historical usage, we expect that a 250,000
share increase should be adequate to meet the Purchase Plan's foreseeable
requirements.
During 1999, our employees purchased common stock under the Purchase Plan
in the following amounts (and at the weighted average prices per share shown):
Wilbur H. Gantz, 2,637 shares ($16.11); A. Bruce Montgomery, 1,154 shares
($14.80); Alan R. Meyer, 1,737 shares ($16.70); Marc F. Wipperman, 1,176 shares
($14.26); William R. Baker, 1,092 shares ($13.24), and all employees (excluding
the Named Executive Officers) as a group, 65,399 shares ($13.99).
As of February 29, 2000, an aggregate of 73,143 shares of common stock had
been issued and purchased by employees under the Purchase Plan. Based on
employee participation in currently outstanding offerings and anticipated
participation of offerings to be made in the rest of 2000, by year end we will
have issued approximately 185,000 shares, leaving an insufficient number of
shares for issuance in outstanding offerings.
A summary of the principal features of the Purchase Plan, as proposed to be
amended, follows. The summary is qualified in its entirety by the specific terms
of the Purchase Plan, a copy of which is attached as Appendix A to this proxy
statement.
Summary. Under the Purchase Plan, we may offer up to 450,000 shares of
common stock for sale to eligible employees through periodic offerings to be
made in the ten-year period commencing July 1, 1998. Each employee of the
company or a subsidiary on the date of any offering will be eligible to
participate in the Purchase Plan, except:
. an employee whose customary employment is for five months or less in
any calendar year
. an employee who either owns, or immediately after the grant of an
option would own, five percent or more of the shares of common stock
(including shares that the employee may purchase under outstanding
options under the Purchase Plan and otherwise)
. an employee of a subsidiary that is excluded from participation
(generally any foreign subsidiary).
The Purchase Plan is administered by the Compensation and Nominating
Committee of our board (the "Administrator"). The Administrator may delegate to
any officer, who in turn may delegate to other officers or employees, the
authority to determine all issues regarding the Purchase Plan (other than the
timing of offerings) and to interpret the Purchase Plan, subject to review by
the Administrator, whose decision will be final and binding.
16
<PAGE>
At present, a new offering commences on the first day of each calendar
quarter. An employee who is participating in one offering may elect to
participate in a later offering, but his or her participation in the earlier
offering shall terminate automatically.
The company may make one or more offerings to eligible employees. No
offering may last more than two years. During each offering period, the company
will give each participating employee an option to purchase shares of common
stock with a portion (from 1% to 15%, as selected by the employee) of the
employee's cash compensation during that period (or any shorter period of
participation elected by the employee). No employee may be granted an option
that permits the employee's rights to purchase common stock under the Purchase
Plan (or under any other stock purchase plan of the company established pursuant
to Section 423 of the Internal Revenue Code) to accrue at a rate exceeding
$25,000 of fair market value of such stock (determined as of the first day of
the offering) in any calendar year in which the option is outstanding at any
time.
The company establishes a payroll deduction account for each participating
employee and deducts the elected portion of cash compensation from the
employee's pay. The employee may change his or her payroll deduction by
complying with the procedures and limitations established by the Administrator
under the Purchase Plan, but not more often than once in any month. The employee
may cease participating at any time and may withdraw his or her entire account
balance when he or she ceases to participate. An employee who has stopped
participating (whether or not he or she has withdrawn the account balance) in an
offering may only resume participation in a subsequent offering.
Under the Purchase Plan, each participating employee receives an option to
buy as many shares of common stock as may be purchased by the amount elected by
the employee to be deducted from his or her pay. On the last day of each six-
month period during any offering, and at termination of each offering or of the
Purchase Plan, the account of the employee is totaled. If the account has
sufficient funds to buy one or more shares, the employee is deemed to have
exercised the option to buy such share or shares as of that date. Any balance
remaining in the account at the end of an offering period will be carried
forward in the account for the next offering period under the Purchase Plan or
under a successor Plan or, if there is none, is paid to the employee as soon as
practicable. The balance carried forward may not exceed the purchase price of
one share on the last day of the offering period.
The purchase price for each share purchased under the Purchase Plan
pursuant to a particular offering is the lesser of 85% of the fair market value
of the common stock at the beginning of the offering or 85% of the fair market
value at the time when the employee is deemed to have exercised the option to
purchase such share.
If a participating employee retires, dies or terminates employment with the
company or a subsidiary for any reason, payroll deduction ceases and no further
shares of common stock are purchased for the employee. If a custodian has been
appointed, the number of shares of common stock in the employee's account is
registered in the name of the employee, and the remaining cash balance in the
account is paid to the employee as soon as practicable.
A participating employee's right to purchase shares subject to an
outstanding option under the Purchase Plan becomes exercisable immediately prior
to the company's merger or consolidation with, or transfer of all or
substantially all of its assets to, another entity, unless the successor entity
assumes the Purchase Plan, or termination of the Purchase Plan following certain
change-in-control events.
17
<PAGE>
If shares of common stock are changed by a stock dividend, stock split or
combination, merger or consolidation with any other corporation or corporations,
or any other relevant change in the capitalization of the company, a
proportionate or equitable adjustment will be made to the number or kind of
shares subject to the Purchase Plan and the purchase price.
The board of directors may amend the Purchase Plan in any respect, except
that the approval of the holders of a majority of the outstanding shares of
common stock is required for any amendment to increase or decrease the number of
shares approved for the Purchase Plan or to reduce the purchase price per share
(in each case other than the adjustments described in the previous paragraph).
Federal Income Tax Consequences. The following discussion is only a summary
of general federal income tax consequences to the company and participating
employees, and does not cover all possible federal, state or local income tax
consequences of participation in the Purchase Plan.
The company understands that under existing law no income will be
recognized to an employee for federal income tax purposes solely by reason of
being granted the right to purchase shares of common stock under the Purchase
Plan or by reason of purchasing such shares. The amount deducted from the
employee's pay and used to purchase shares in the Purchase Plan will, however,
be subject to income tax.
The tax consequences to an employee of selling or disposing of the shares
generally depends on how long he or she has held the shares. If the employee
sells or disposes of the shares (other than by death) before the later of two
years after the beginning of the offering period or one year after the purchase
of shares, the employee will recognize ordinary income to the extent the fair
market value of the shares at the time they were purchased exceeded the purchase
price. Any additional gain is capital gain. The company will receive a tax
deduction equal to the amount of ordinary income recognized to the employee.
If, however, the employee sells or disposes of the shares after the later
of two years after the beginning of the offering period or one year after the
purchase of shares, the employee will recognize ordinary income only to the
extent of the 15% discount in the purchase price of the shares at the beginning
of the offering period (not to exceed the gain recognized in the sale or
disposition). Any additional gain is capital gain. In this case, the company
will not receive any tax deduction for the income recognized to the employee.
If the employee dies while holding shares acquired under the Purchase Plan,
there will be included in the employee's taxable income for the year of death
the amount of ordinary income described in the preceding paragraph, regardless
of whether the holding periods described above have been met.
In each case, the amount of ordinary income recognized to the employee will
increase the tax basis of the shares, reducing the amount of capital gain
realized (or producing a capital loss) upon taxable disposition of the shares.
What vote is required? The affirmative vote of the holders of a majority of
the shares of common stock issued and outstanding and entitled to vote at the
meeting is necessary to approve the Amendment. Abstentions and broker non-votes
will have the effect of a no vote on the proposal.
18
<PAGE>
- --------------------------------------------------------------------------------
The board recommends a vote FOR the approval of the Amendment to the
PathoGenesis Corporation Employee Stock Purchase Plan.
- --------------------------------------------------------------------------------
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
Our board of directors has selected KPMG LLP as independent auditors for
2000. KPMG LLP have been our independent auditors since the company was formed.
We ask you to ratify that selection at the annual meeting.
We expect representatives of KPMG LLP to be available at the meeting to
answer appropriate questions, and may make a statement if they desire to do so.
What vote is required? The affirmative vote of the holders of a majority of
the shares of common stock present in person or represented by proxy and
entitled to vote at the meeting is necessary to ratify the selection of KPMG LLP
as independent auditors. Abstentions will have the effect of a no vote, while
broker non-votes will not be counted as shares present and entitled to vote on
the proposal and thus will have no effect on the outcome of the vote on the
proposal.
- --------------------------------------------------------------------------------
The board recommends a vote FOR the ratification of the appointment of KPMG LLP
as independent auditors of PathoGenesis for 2000.
- --------------------------------------------------------------------------------
OTHER MATTERS
As of the date of this proxy statement, we do not know of any matter to be
acted on at the meeting other than those discussed in this proxy statement.
ADDITIONAL INFORMATION
Who pays for this proxy solicitation? PathoGenesis will bear the cost of
this proxy solicitation. In addition to mailing proxy solicitation material, our
officers and employees may solicit proxies in person or by facsimile, telephone
or other electronic means. They will not receive any special compensation for
that service, but PathoGenesis will reimburse them for any out-of-pocket
expenses. We will ask banks, brokers and other institutions, nominees and
fiduciaries to forward the proxy material to the beneficial owners to obtain
authority to execute proxies, and will reimburse those entities for reasonable
expenses. We have engaged Morrow & Co. to assist in the solicitation of proxies
from shareholders for a fee estimated at approximately $5,000, plus
reimbursement of out-of-pocket expenses.
How can a shareholder proposal be submitted for the 2001 annual meeting? If
a shareholder intends to present a proposal at our 2001 annual meeting of
shareholders, the proposal must be received by our Secretary no later than
December 21, 2000, and comply with other applicable rules of the Securities and
Exchange Commission, in order to be included in the proxy statement for that
meeting.
19
<PAGE>
Under the by-laws, in order for a shareholder to nominate a candidate for
election as director at an annual meeting of shareholders, timely notice of the
nomination must be received by the company's Secretary in advance of the
meeting. Ordinarily, that notice must be received at our principal office at 201
Elliott Avenue West, Seattle, Washington 98119 not less than 60 days nor more
than 90 days before the anniversary date of the previous year's meeting. If,
however, we advance or delay the annual meeting by more than 60 days from that
date, the notice must be received at our principal office not earlier than the
90th day before the annual meeting date and not later than the close of business
on the later of the 60th day before the annual meeting date or the 10th day
following the day we announce publicly the annual meeting date. The stockholder
submitting the notice of nomination must describe various matters concerning the
nominee, including such information as the name, address and occupation.
If a shareholder intends to bring other business before a shareholder
meeting without regard to whether it will be included in the proxy statement for
the meeting, the shareholder must give timely written notice to the company's
Secretary as described in the preceding paragraph. The notice must include,
among other things, a description of the proposed business and the reasons for
proposing the business. If a shareholder who wishes to present any business at
the meeting fails to give notice within the time limits described above, any
proxies that management solicits for the meeting will confer on the proxy
holders discretionary authority to vote on such proposal if it is properly
brought before the meeting.
If you would like a copy of our annual report to the Securities and
Exchange Commission on Form 10-K for 1999, please write to: Investor Relations,
PathoGenesis Corporation, 201 Elliott Avenue West, Seattle, Washington 98119.
The company will provide a copy of the report to you at no charge.
Marvin B. Tepper
Secretary
20
<PAGE>
Appendix A
PATHOGENESIS CORPORATION
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
-------------------------------------------------
The purpose of this Employee Stock Purchase Plan (the "Plan") is to benefit
PathoGenesis Corporation, a Delaware corporation (the "Company") and its
subsidiaries by offering eligible employees a favorable opportunity to become
shareholders of the Company over a period of years, thereby giving them a
proprietary interest in the anticipated growth and prosperity of the Company and
encouraging the continuance of their dedicated services to the Corporation and
its subsidiaries. Pursuant to the Plan, 450,000 shares of common stock, $0.001
par value per share, of the Company (the "Stock") may be offered for sale to
eligible employees through periodic offerings to be made during the ten-year
period commencing July 1, 1998.
The Plan is intended to qualify as an Employee Stock Purchase Plan under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"), and
the regulations promulgated thereunder.
1. Administration. The Plan will be administered by the Compensation and
--------------
Nominating Committee of the Board of Directors, or such other committee or
subcommittee of the Board of Directors as the Board shall determine (in either
case, the "Committee"). Notwithstanding the foregoing, an officer of the Company
designated by the Committee, or such other officers or employees as he or she
may designate, shall have the authority to determine all issues with respect to
the administration of the Plan (other than the timing of offerings), and to
interpret the provisions of the Plan and resolve all issues of eligibility or
participation, subject to the oversight of the Committee. Any determination or
interpretation made by the officer so designated may be appealed to the
Committee, and the Committee's decision with respect thereto shall be final and
binding on all parties.
2. Eligibility. All employees of the Company and its subsidiaries on the
-----------
date of any offering (as hereinafter described) shall be eligible to participate
in the Plan, except that the following classes of employees shall not be
eligible:
(a) employees whose customary employment is for five or fewer months in
any calendar year;
(b) employees who either own, or immediately after the grant of an option
under the Plan would own, stock of the Company possessing 5% or more
of the total combined voting power or value of all classes of stock of
the Company or its subsidiaries (for purposes of this subparagraph
(b), an employee shall be deemed to own any stock owned, directly or
indirectly, by or for his siblings, spouse, ancestors and lineal
descendants, and stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust, shall be deemed to be owned
proportionately by its shareholders, partners, or beneficiaries, all
in accordance with the Section 424(d) of the Code, and stock that the
employee may purchase under outstanding, options, whether under this
Plan or otherwise, shall be treated as stock owned by the employee);
and
(c) employees who are employed by a subsidiary that is excluded from
participation in the Plan (all subsidiaries shall participate provided
that, unless the Committee otherwise determines, subsidiaries
substantially all of whose employees are neither citizens nor
A-1
<PAGE>
resident aliens of the United States shall not participate; for all
purposes of this Plan, a subsidiary of the Company shall mean a
"subsidiary corporation" as defined in Section 424(f) of the Code).
3. Offerings. The Company will make one or more offerings to employees to
---------
purchase Stock under this Plan. Each offering period shall be not more than two
years in duration, and shall commence and end at such times as the Committee may
determine. Until the Committee otherwise determines, a new offering shall
commence on the first day of each calendar quarter beginning July 1, 1998, and
all offering periods shall be two years in duration. During each offering period
(or during such portion thereof as an employee may elect to participate), each
participating employee shall be given the option to purchase shares of Stock,
with a portion of such employee's compensation as set forth in more detail
below. For all purposes of this Plan, "compensation" shall mean the employee's
regular or basic compensation for employment with the Company or its
subsidiaries, including wage or salary payments, commission payments, extra cash
payments of overtime premium, and shift pay for Saturday, Sunday or holiday
work. Compensation shall not include irregular payments such as incentive
bonuses and discretionary cash incentives, noncash payments, welfare or fringe
benefits, or employer contributions to pension, profit-sharing or retirement
plans, but shall include voluntary deferrals to plans described in Section 125
or 401(k) of the Code (or similar amounts as determined by the Committee).
4. Participation. An employee eligible on the effective date of any
-------------
offering may participate in such offering as of such effective date by
completing the enrollment process prescribed by the Company; provided, however,
that if the employee is participating in a prior offering on such effective
date, his enrollment shall automatically terminate his payroll deductions under
the prior offering. The enrollment process will authorize a regular payroll
deduction from the employee's compensation, and will take effect on the next
payroll date after the enrollment date (or such later payroll date as the
Committee may determine by uniform rules).
5. Payroll Deductions. The Company will maintain a payroll deduction
------------------
account for each participating employee. With respect to any offering made under
this Plan, an employee may authorize a payroll deduction in terms of whole
number percentages from a minimum of 1% up to a maximum of 15% of the
compensation received by the employee during the offering period (or during such
portion thereof as an employee may elect to participate). Notwithstanding any
other provision of the Plan, no employee may be granted an option that permits
the employee's rights to purchase Stock under this Plan and any other stock
purchase plan (as defined in Section 423 of the Code) of the Company and any
subsidiary of the Company to accrue at a rate that exceeds $25,000 in any
calendar year in which the option is outstanding at any time, with rights being
valued at the fair market value of such underlying Stock (determined on the
effective date of the offering). For purposes of the preceding sentence, an
employee's right to purchase Stock accrues when the employee's option first
becomes exercisable, and the rules set forth in Section 423(b)(8) of the Code
shall apply.
6. Deduction Changes. An employee may at any time increase or decrease
-----------------
the employee's payroll deduction by filing a new payroll deduction authorization
form, subject to limitations on the number, frequency or timing of changes
established by the Committee, which shall apply uniformly to all participants.
Unless and until a different rule is established by the Committee, an employee
may not change his or her payroll deduction more than once in any month. A
change will not become effective sooner than the next pay period after receipt
of the form by the Company. An employee may suspend his or her payroll deduction
completely pursuant to this Section 6, but the employee's right to resume
participation during the same offering period shall be governed by the last
sentence of Section 7.
A-2
<PAGE>
7. Withdrawal of Funds. An employee may at any time and for any reason
-------------------
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an offering. An employee who ceases to
participate in an offering, either by withdrawing his or her funds pursuant to
this Section 7, by suspending his or her payroll deductions pursuant to Section
6, or by enrolling in a subsequent offering pursuant to Section 4, may not
resume participation in that offering, but may enroll in subsequent offerings as
provided in Section 4.
8. Purchase of Shares. Each employee participating in any offering under
------------------
this Plan will be granted an option, upon the effective date of such offering,
to purchase as many shares of Stock as may be purchased with the following
amounts:
(a) the compensation of the employee withheld during the applicable
offering period pursuant to Sections 5 and 6; and
(b) the balance (if any) in the employee's account carried forward from
the preceding offering period pursuant to the final paragraph of this
Section 8.
As of the last day of every sixth month period during any offering, and
upon termination of the offering or the Plan, the account of each participating
employee shall be totaled. If the account contains sufficient funds to purchase
one or more shares as of that date, the employee shall be deemed to have
exercised an option to purchase such share or shares as of that date. Any excess
amount shall either be used to purchase a fractional share or carried forward to
the next purchase date, as determined by uniform policy established by the
Committee. The employee's account shall be charged for the amount of the
purchase price and ownership of such share or shares shall be appropriately
entered in the books of the Company in the name of the employee (unless a
custodian is appointed as provided in Section 10). A participating employee may
not purchase a share in any offering beyond the end of the applicable offering
period. Any balance remaining in an employee's account at the end of an offering
period, if not used to purchase a fractional share, will be carried forward in
the account for the following offering period or, if there is none, shall be
paid to the employee as soon as practicable. In no event will the balance
carried forward exceed the purchase price of one share on the last day of the
last month of the offering period.
9. Purchase Price of Shares. The purchase price for each share purchased
------------------------
will be the lesser of 85% of the fair market value (as defined in Section 11) on
the effective date of the offering or 85% of the fair market value at the time
the option is exercised.
10. Appointment of Custodian. The Committee may, but shall not be
------------------------
obligated to, appoint a custodian who shall hold the Stock purchased under the
Plan and maintain records showing the number of shares of Stock owned by each
participating employee. Either the Committee or, with the Committee's consent,
the custodian, may also designate one or more broker/dealers (any one of which
may be the custodian or an affiliate of the custodian) to sell shares of Stock
credited to an employee's account at the employee's direction and distribute the
proceeds, net of commissions and other applicable expenses, to the employee. The
custodian shall distribute as soon as practicable all dividends or other
distributions received with respect to the Stock to the participating employees
in proportion to the number of shares credited to each of their accounts as of
the record date for such distributions, except for distributions of Stock which
shall be held by the Custodian and credited to the participating employees'
accounts. The custodian shall exercise all voting, tender and similar rights
with respect to the Stock in accordance with the instructions of the
participating employees or, in the absence of instructions, as directed by the
Committee. Upon an employee's termination of employment for any reason, the
shares of Stock credited to his or her account shall be registered on the books
of the Company in the name of
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the employee (or of the beneficiary appointed pursuant to Section 13.) Any Stock
registered in the name of an employee may be registered only in the name of the
employee, or, if the employee so indicates on the employee's payroll deduction
authorization form, in the employee's name jointly with a member of the
employee's family, with right of survivorship.
11. Fair Market Value. The "fair market value" for any day shall be the
-----------------
average of the high bid and low asked prices as quoted by the National
Association of Securities Dealers, Inc. Automated Quotation System ("Nasdaq") or
such other system then in use; provided that if the Stock shall become listed on
one or more national securities exchanges, the fair market value shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to the principal exchange on which the Stock is so listed. If such prices are
not available on a given day, then the Committee may use the prices of such
Stock on the next preceding trading day for which such prices are available. The
Committee may revise the method of determining the fair market value of Stock,
provided that such revisions are uniformly applied and consistent with the
requirements of Section 423 of the Code.
12. Rights as a Stockholder. None of the rights or privileges of a
-----------------------
stockholder of the Company shall exist with respect to shares purchased under
this Plan unless and until the Stock is registered in the name of the employee,
or the custodian on behalf of the employee, on the records of the Company.
13. Rights on Retirement, Death or Termination of Employment. In the
--------------------------------------------------------
event of a participating employee's retirement, death or termination of
employment for any reason, all payroll deductions shall cease and no further
shares of Stock shall be purchased for such employee. If a custodian has been
appointed to hold the Stock, the number of shares of Stock in the employee's
account shall be registered in the name of the employee, and the remaining cash
balance in the employee's account shall be paid to the employee as soon as
practicable thereafter. Each employee may designate one or more beneficiaries
who shall be entitled to receive the balance in the employee's account upon his
or her death, in accordance with procedures established, and subject to
limitations determined, by the Committee. An employee may change any of his or
her beneficiaries at any time without the consent of such beneficiary, provided
that no designation or change of a beneficiary shall have any effect or be
binding upon the Company until actually received, in writing, on the form
prescribed by the Committee. If a deceased employee has no surviving
beneficiary, or if the Committee is unable to determine the identity of his or
her beneficiary or to locate the beneficiary, the balance in the account shall
be paid instead to his or her estate.
14. Rights Not Transferable. Rights under this Plan are not transferable
-----------------------
by a participating employee other than by will or the laws of the descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
15. Application of Funds. All funds received or held by the Company under
--------------------
this Plan may be used for any corporate purpose.
16. Adjustment in Case of Changes Affecting Stock. The number of shares
---------------------------------------------
subject to the Plan and to options granted under the Plan shall be adjusted as
follows: (a) in the event that the Company's outstanding Stock is changed by any
stock dividend, stock split or combination of shares, the number of shares
subject to the Plan and to options theretofore granted thereunder shall be
proportionately adjusted; (b) in the event of any merger or consolidation of the
Company with any other corporation or corporations, there shall be substituted
for each share of the Company then subject to the
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<PAGE>
Plan, whether or not at the time subject to outstanding options, the number and
kind of shares of common stock or other voting securities to which the holders
of Stock will be entitled pursuant to the transaction; and (c) in the event of
any other relevant change in the capitalization of the Company, the Board of
Directors shall provide for an equitable adjustment in the number of shares of
Stock subject to the Plan, whether or not then subject to outstanding options.
In the event of any such adjustment, the purchase price per share shall be
adjusted appropriately.
17. Amendment of the Plan. The Board of Directors may at any time, or
---------------------
from time to time, amend this Plan in any respect, except that, without the
approval of a majority of the shares of Stock then issued and outstanding and
entitled to vote, no amendment shall be made (i) increasing or decreasing the
number of shares approved for issuance pursuant to this Plan (other than as
provided in Section 16) or (ii) decreasing the purchase price per share (other
than as provided in Section 16).
18. Termination of the Plan.
-----------------------
(a) This Plan and all rights of employees under any offering pursuant to
the Plan hereunder shall terminate:
(i) on the day that participating employees become entitled to purchase
a number of shares equal to or greater than the number of shares
remaining available for purchase (and if the number of shares so
purchasable is greater than the shares remaining available, the
available shares shall be allocated by the Committee on a pro rata
basis among the participants in proportion to their respective
account balance on that date); or
(ii) at any time, at the discretion of the Board of Directors.
No offering hereunder shall extend beyond June 30, 2008. Upon termination
of this Plan, any amount in the account of a participating employee shall be
carried forward into the employee's payroll deduction account under a successor
Plan, if any, or refunded to the employee as soon as practicable thereafter.
(b) Notwithstanding the foregoing, in the event that either (i) the
Company enters into an agreement to merge or consolidate with, or to transfer
all or substantially all of its assets and business to, another entity, and such
agreement does not provide for the successor entity to assume the Plan (with
appropriate changes pursuant to Section 16), or (ii) the Plan is terminated
following the occurrence of an event that causes the Preferred Stock Purchase
Rights declared by the Board of Directors on June 26, 1997 to become
exercisable, then each participating employee who has an option under the Plan
shall have the right under such option to purchase for cash a number of shares
of Stock up to the total number of shares the employee could have purchased
under such option had the Plan remained in effect for the balance of the
offering during which such event occurs. Such option shall be exercisable, in
accordance with administrative procedures specified by the Committee, either
immediately prior to the closing of the transaction described in clause (i) or
immediately prior to termination of the Plan following the event described in
clause (ii). The maximum number of shares each participating employee may
purchase pursuant to this subparagraph (b) shall be determined by multiplying
the amount withheld from the employee's compensation pursuant to Section 5 in
the last payroll period prior to termination of the Plan by the number of
payroll periods remaining in the term of the offering, plus the balance in the
employee's account. Each employee's right to purchase Stock shall be subject to
the last two sentences of Section 5, and if the total number of shares that
employees elect to purchase exceeds the maximum number of shares remaining
available under the Plan, the available shares shall be divided among the
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<PAGE>
electing employees in proportion to the number of shares they elect to purchase.
All other provisions of the Plan, as appropriate, shall apply to purchases of
Stock pursuant to this subparagraph (b).
19. Governmental Regulations. The Company's obligation to sell and
------------------------
deliver the Stock under this Plan is subject to the approval of any governmental
authority required in connection with the authorization, issuance or sale of
such Stock.
At the time of any exercise of any option by a participating employee, the
Company may, if the Company shall determine it necessary or desirable for any
reason, require the employee as a condition of the exercise thereof, to deliver
to the Company a written representation of present intention to purchase the
shares for investment and not for distribution. In the event such representation
is required to be delivered, an appropriate legend may be placed upon each
certificate delivered to the employee upon the exercise of the option and a stop
order may be placed with the transfer agent for the shares issued pursuant to
such exercise. If at any time the Company determines, in its discretion, that
the listing, registration or qualification of the shares subject to options
under the Plan upon any securities exchange or Nasdaq stock market or another
quotation service or under any state or federal law, or the consent or approval
of any government regulatory body is necessary or desirable as a condition of,
or in connection with, the issue or purchase of shares thereunder, no 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 conditions not acceptable by the Company.
20. Repurchase of Shares. The Company may repurchase outstanding shares
--------------------
of Stock, upon such terms as the Company may approve, for delivery under this
Plan.
21. Approval of Shareholders. This Plan shall be submitted to the
------------------------
shareholders of the Company for approval at the first annual meeting held after
approval of the Plan by the Board of Directors, or at a special meeting called
for such purpose. Anything else contained herein to the contrary
notwithstanding, no options shall be exercised until the Plan is approved by the
shareholders, and, if the Plan is not approved within 12 months after its
approval by the Board of Directors, the Plan shall be null and void and all
amounts held in the participants' accounts shall be refunded to them as soon as
practicable.
22. No Employment Guarantee. Neither the establishment of the Plan nor
-----------------------
any modification thereof shall be construed as giving to any participant or
other person any legal or equitable right against the Company or any other
participating employer except as herein provided. Under no circumstances shall
the terms of employment of any participant be modified or in any way affected
hereby. The maintenance of this Plan shall not constitute a contract of
employment with any participant, and participation in the Plan will not give any
participant a right to be retained as an employee of any employer.
A-6
<PAGE>
PROXY PROXY
PATHOGENESIS CORPORATION
SOLICITED BY THE BOARD OF DIRECTORS
ANNUAL MEETING/MAY 31, 2000
Wilbur H. Gantz, Alan R. Meyer and Marvin B. Tepper, or any one or more of
them, each with power of substitution, are authorized to vote the shares of
the undersigned at the annual meeting of shareholders of PathoGenesis
Corporation to be held May 31, 2000 and at any adjournment of that meeting.
They shall vote on the matters described in the proxy statement accompanying
the notice of meeting in accordance with the instructions on the reverse side
of this card, and in their discretion on such other matters as may come before
the meeting.
(continued on reverse side)
<PAGE>
PATHOGENESIS CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [X]
The board of directors recommends that you vote FOR the director nominees
listed below and FOR proposals 2 and 3.
1. Election of Directors
Nominees: 01 Wilbur H. Gantz, 02 John L. Gordon and
03 Arthur W. Nienhuis
*For all nominees except any whose name I have crossed out.
For Withheld For All
All All Except*
[_] [_] [_]
2. Approval of amendment to the PathoGenesis Corporation Employee Stock
Purchase Plan.
For Against Abstain
[_] [_] [_]
3. Ratification of the selection of KPMG LLP as independent auditors.
For Against Abstain
[_] [_] [_]
4. In their discretion, on any other matter that may properly come before the
meeting.
If no specific instructions are provided, this proxy will be voted for the
nominees for directors and for proposals 2 and 3.
Dated: , 2000
---------------------------------------------
Signature(s)
----------------------------------------------------
- ----------------------------------------------------------------
Please sign exactly as your name appears and return this proxy immediately in
the enclosed reply envelope.
