SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-
12
GENENTECH, INC.
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(Name of Registrant as Specified In Its Charter)
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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:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
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4) Proposed maximum aggregate value of transaction:
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1 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 0-1(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:
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<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
APRIL 13, 1995
To the Stockholders of Genentech, Inc.:
The Annual Meeting of the Stockholders (the "Annual Meeting") of
Genentech, Inc., a Delaware corporation ("Genentech"), will be held at the
Marriott Hotel, 1800 Old Bayshore Highway, Burlingame, California, on Thursday,
April 13, 1995, commencing at 10:00 a.m., local time, for the following
purposes:
(1) To elect five directors to the 1998 Class of the Board of Directors of
Genentech for a term of three years.
(2) To approve amendments to Genentech's 1991 Employee Stock Plan.
(3) To ratify the selection by the Board of Directors of Ernst & Young LLP
as Genentech's independent auditors for the year ending December 31,
1995.
(4) To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on February 24,
1995 as the record date for determining the stockholders entitled to receive
notice of, and to vote at, the Annual Meeting or any adjournment or
postponement thereof. A complete list of such stockholders will be available
at Genentech's headquarters, 460 Point San Bruno Boulevard, South San
Francisco, California 94080, for ten days before the meeting.
All stockholders are cordially invited to attend the meeting. To ensure your
representation at the meeting, however, you are urged to complete, date, sign
and return the enclosed Proxy as promptly as possible. A postage-prepaid
envelope is enclosed for that purpose. Any stockholder attending the meeting
may vote in person even if that stockholder has returned a Proxy.
By Order of the Board of Directors
JOHN P. McLAUGHLIN
Secretary
South San Francisco, California
March 17, 1995
<PAGE>
GENENTECH, INC.
460 Point San Bruno Boulevard
South San Francisco, CA 94080
-----------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 13, 1995
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited by the Board of Directors of Genentech,
Inc. ("Genentech" or the "Company") for use at the Annual Meeting of
Stockholders to be held on Thursday, April 13, 1995 (the "Annual Meeting"), or
at any adjournment or postponement of the Annual Meeting, for the purposes set
forth in the foregoing Notice of Annual Meeting of Stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries and
custodians to forward to beneficial owners of Redeemable Common Stock of
Genentech, par value $0.02 per share ("Redeemable Common Stock"), held in their
names. The cost of solicitation of Proxies, including expenses in connection
with preparing and mailing this Proxy Statement, will be borne by Genentech.
In addition, Genentech will reimburse brokerage firms and other persons
representing beneficial owners of Redeemable Common Stock for their expenses in
forwarding solicitation material to such beneficial owners. Original
solicitation of Proxies by mail may be supplemented by telephone, telegram and
personal solicitation by directors, officers or other regular employees of
Genentech. No additional compensation will be paid to directors, officers or
other regular employees for such services. This Proxy Statement and
accompanying Proxy will be mailed on or about March 17, 1995 to all
stockholders entitled to vote at the Annual Meeting.
VOTING RIGHTS AND OUTSTANDING SHARES
Stockholders of record at the close of business on February 24, 1995
("Record Date") will be entitled to notice of and to vote at the Annual
Meeting. On February 24, 1995, Genentech had outstanding 50,402,026 shares of
Redeemable Common Stock and 67,133,409 shares of Common Stock, par value $0.02
per share ("Common Stock"). Each holder of record of shares of Redeemable
Common Stock or Common Stock on the Record Date is entitled to one vote per
share on each matter to be considered at the Annual Meeting. An affirmative
vote of a majority of the shares present in person or represented by proxy and
entitled to vote is required for approval of all matters being submitted to the
stockholders for their consideration. All votes will be tabulated by the
inspector of election appointed for the meeting, who will separately tabulate
affirmative and negative votes, abstentions and broker non-votes. Abstentions
will be counted towards the tabulations of votes cast on proposals presented to
the stockholders and will have the same effect as negative votes, whereas
broker non-votes will not be counted for purposes of determining whether a
proposal has been approved or not.
Any stockholder giving a Proxy has the power to revoke it any time before
it is exercised. The Proxy may be revoked by filing with the Secretary of
Genentech, at the principal executive office of Genentech, 460 Point San Bruno
Boulevard, South San Francisco, California 94080, a notice of revocation or a
duly executed Proxy bearing a later date. It may also be revoked by attendance
at the Annual Meeting and voting in person.
<PAGE>
MERGER WITH ROCHE HOLDINGS, INC.
On September 7, 1990 (the "Effective Date"), a wholly owned subsidiary
("Merger Subsidiary") of Roche Holdings, Inc., a Delaware corporation
("Roche"), was merged with and into Genentech (the "Merger") pursuant to an
Agreement and Plan of Merger dated as of February 2, 1990 among Genentech,
Roche and Merger Subsidiary (the "Merger Agreement"). Roche is a wholly owned
subsidiary of Roche Finance Ltd, a Swiss corporation which is a wholly owned
subsidiary of Roche Holding Ltd, a Swiss corporation ("Roche Holding").
Genentech stockholders of record on the Effective Date received, for each share
of Common Stock that they owned, $18 in cash and one half share of newly issued
Redeemable Common Stock. In the Merger, Roche acquired one half of the
Company's outstanding Common Stock (42,699,458 shares) from the stockholders
for $1,537.2 million and 24,433,951 newly issued shares of Common Stock from
the Company for $487.3 million. The 67,133,409 shares of Common Stock that
Roche acquired in the Merger represents approximately fifty-seven percent of
the outstanding voting securities of the Company as of the Record Date.
On the Effective Date, Genentech and Roche entered into an agreement (the
"Governance Agreement") which contains terms relating to the corporate
governance of the Company after the Merger and the acquisition and disposition
of securities of the Company by Roche and its affiliates. Pursuant to the
Governance Agreement, the Company's Board of Directors was increased from
eleven to thirteen members and the Board elected two nominees of Roche, Dr.
Jurgen Drews and Dr. Armin Kessler, to serve on the Board. The Governance
Agreement provides that on and after July 1, 1995, Roche will have the right
under certain specified circumstances to designate and elect both a majority of
the Board of Directors of the Company and a majority of the Company's
"independent directors" (defined as individuals who are neither an officer of
Genentech nor an employee, director, principal stockholder or partner of Roche,
its affiliates or any entity (other than the Company and its subsidiaries) that
was dependent on Roche or its affiliates for more than 10% of its revenues or
earnings in the most recent fiscal year). Prior to July 1, 1995, Roche may not
designate more than two representatives to the Board unless it acquires 100%
ownership of Genentech. The Governance Agreement required the establishment of
a Nominations Committee with exclusive authority to nominate individuals to
serve on the Board. The Nominations Committee must have one director
designated by Roche and all nominations for members of the Board who are not
then serving as directors must be unanimous, except for representatives
designated by Roche pursuant to the terms of the Governance Agreement.
PRINCIPAL STOCKHOLDERS OF GENENTECH
The following table sets forth, as of February 7, 1995, unless otherwise
noted, certain information regarding all stockholders known by Genentech to be
the beneficial owners of more than five percent of any class of Genentech's
voting securities:
<TABLE>
<CAPTION>
Name and Address Number of Percent of
of Beneficial Owner Shares Class Class
<S> <C> <C> <C>
Roche Holdings, Inc. 67,133,409 Common Stock 100%
15 East North St.
Dover, DE 19901 9,330,600(1) Redeemable 18.5%
Common Stock
<PAGE>
<FN>
(1) Prior to July 1, 1995, Roche has the right under the Governance Agreement
to cause Genentech to redeem all outstanding shares of Redeemable Common
Stock if certain conditions are met.
</TABLE>
STOCKHOLDER PROPOSALS
Proposals of stockholders of Genentech that are intended to be presented
by such stockholders at Genentech's 1996 Annual Meeting must be received by the
Secretary of Genentech no later than November 10, 1995 in order that they may
be included in the Proxy Statement and form of Proxy relating to that meeting.
Stockholders are also advised to review the Company's Bylaws for additional
requirements regarding stockholder proposals.
<PAGE>
PROPOSAL 1--ELECTION OF DIRECTORS
NOMINEES
Genentech has three classes of directors serving staggered three-year
terms. The 1998 class consists of five directors, the 1997 class consists of
two directors, and the 1996 class consists of four directors. On March 13,
1995, Mr. Thomas J. Perkins resigned from Genentech's Board of Directors for
personal reasons. Mr. Perkins had served as Chairman of the Board of Genentech
from its founding in 1976 until 1990 and continued to serve as a director since
then. Genentech wishes to thank Mr. Perkins for his service to Genentech.
The 1998 class directors are to be elected at the Annual Meeting for three-year
terms expiring on the date of the Annual Meeting in 1998 or until each such
director's successor shall have been duly elected or appointed. It is intended
that the shares represented by the enclosed Proxy will be voted for the
election of Messrs. Drews, Kessler, Murfin, Potts and Raab, each of whom is
currently a member of the Board of Directors of Genentech, as the 1998 class
directors, unless the Proxy is marked in such a manner as to withhold authority
to vote for any of them. Under the terms of the Governance Agreement, Roche
agreed that in connection with the election of directors it would vote any of
its shares of Common Stock and Redeemable Common Stock in proportion to the
votes cast by the other holders of Redeemable Common Stock; provided, however,
Roche may cast all of its votes for any director nominee of Roche designated
under the Governance Agreement. Messrs. Drews and Kessler are Roche's director
nominees for the Board of Directors. The directors are elected by a plurality
of the votes of the Common Stock and Redeemable Common Stock, voting as a
class, present in person or represented by proxy and entitled to vote at the
Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE
In the event any of such nominees becomes unable or unwilling to serve,
the shares represented by the enclosed Proxy will be voted for the election of
the balance of those named and such other person as the Board of Directors may
select. The Board of Directors has no reason to believe that any such nominee
will be unable to serve.
The following table sets forth the name and age (as of the date of the
Annual Meeting) of the directors, the class to which each has been nominated
for election or elected, their principal occupations at present, the positions
and offices held by each with Genentech in addition to the position as a
director, and the period during which each has served as a director of
Genentech.
<PAGE>
<TABLE>
<CAPTION>
Served as
Principal Occupation--Position Director
Name Age Held Since
_____ ____ ______________________________________ __________
1998 CLASS
<S> <C> <C> <C>
Jurgen Drews 61 President, International Research and
Development of the Roche Group 1990
Armin M. Kessler 57 Chief Operating Officer of
F. Hoffmann-La Roche Ltd 1990
Donald L. Murfin 51 General Partner of Chemicals
and Materials Enterprise Associates, L.P. 1980
John T. Potts, Jr. 63 Physician-in-Chief at Massachusetts
General Hospital 1982
G. Kirk Raab 59 President and Chief Executive Officer of
Genentech, Inc. 1985
1997 Class
Herbert W. Boyer 58 Director of Genentech, Inc. 1976
Linda Fayne Levinson 53 President of Fayne Levinson Associates, Inc. 1992
1996 Class
J. Richard Munro 64 Chairman of the Executive Committee 1988
of the Board of Time Warner Inc.
C. Thomas Smith, Jr. 56 President and Chief Executive Officer of 1986
VHA, Inc.
Robert A. Swanson 47 Chairman of the Board of Genentech, Inc. 1976
David S. Tappan, Jr. 72 Director of Fluor Corporation 1981
</TABLE>
<PAGE>
1998 Class
Dr. Drews has been President, International Research and Development, and
a member of the Executive Committee, of the Roche Group, an international
health care concern, since 1991. Dr. Drews served as Chairman of the Research
Board and a member of the Executive Committee of F. Hoffmann-La Roche Ltd from
1986 to 1991, and served as the Director of Pharmaceutical Research at F.
Hoffmann-La Roche Ltd from 1985 to 1986. These Roche entities are affiliated
with Genentech. Dr. Drews served as Head of Pharmaceutical Research and
Development for Sandoz Ltd from 1982 to 1985, and as Head of the Sandoz
Research Institute from 1979 to 1982.
Dr. Kessler has been Chief Operating Officer of F. Hoffmann-La Roche Ltd
since 1990 and a member of the Board of Directors of Roche Holding Ltd, the
parent company of an international health care concern, since 1989. He has
served since 1986 as head of the Pharmaceutical Division of F. Hoffmann-La
Roche & Co. Ltd. In addition, he has had responsibility for the Diagnostics
Division of F. Hoffmann-La Roche & Co. Ltd since 1989. These Roche entities
are affiliated with Genentech. Dr. Kessler served as managing director of
Roche Products Ltd from 1985 to 1986, and as President, Chairman & CEO of
Givaudan Corporation, a Hoffmann La Roche subsidiary, from 1983 to 1985.
Mr. Murfin is General Partner of Chemicals and Materials Enterprise
Associates, L.P., a venture capital firm focusing on businesses based on
specialty chemicals and materials. Mr. Murfin was Managing Partner of Trident
Venture Partners from 1988 to 1989. Mr. Murfin served from 1979 to 1988 as
President of Lubrizol Enterprises, Inc., a venture development subsidiary of
The Lubrizol Corporation, a manufacturer of chemical additives for lubricants
and fuels and specialty chemicals for industrial applications, of which he was
Vice President from 1985 to 1988. Mr. Murfin served as Chairman of the Board
of Genex Corporation from 1990 to 1991. Mr. Murfin is a director of Targeted
Genetics Corporation and Corvita Corporation, a Trustee of the Edison
BioTechnology Center and serves on the boards of directors of a number of
private technology based businesses.
Dr. Potts has been Physician-in-Chief at Massachusetts General Hospital
and Jackson Professor of Clinical Medicine at Harvard Medical School since
1981. Dr. Potts also serves as a consultant to Genentech. Dr. Potts'
accomplishments have been recognized with a series of honors over the years,
including the prestigious Fred Conrad Koch Award of the Endocrine Society, the
Prize Andre Lichwitz, and the American Society of Bone and Mineral Research's
highest honor, the William F. Neumann Award. He holds many active and honorary
memberships in scientific and professional organizations, including the
Institute of Medicine, the American Academy of Arts and Sciences, and the
Association of Professors of Medicine.
Mr. Raab was elected Chief Executive Officer of Genentech in February 1990
and has been President and a director since 1985. Mr. Raab was President,
Chief Operating Officer and a director of Abbott Laboratories, a health care
company, from 1981 to 1985. He is Chairman of the Board of Directors of the
Biotechnology Industry Association and the California Health Care Institute.
He is also a member of the Board of Directors of the Pharmaceutical Research
and Manufacturers of America and Shaman Pharmaceuticals, Inc. He is a member
of the Board of Trustees of Colgate University, the San Francisco Ballet and
the San Francisco Symphony Orchestra.
<PAGE>
1997 Class
Dr. Boyer, a founder of Genentech, has been a director of Genentech since
1976 and is a consultant to Genentech. He served as Vice President of
Genentech from 1976 to 1991. Dr. Boyer, a Professor of Biochemistry at the
University of California at San Francisco from 1976 to 1991, demonstrated the
usefulness of recombinant DNA technology to produce medicines economically,
which laid the groundwork for Genentech's development. In 1993, Dr. Boyer
received the 1993 Helmut Horten Research Award. He also received the National
Medal of Science from President Bush in 1990, the National Medal of Technology
in 1989 and the Albert Lasker Basic Medical Research Award in 1980. He is an
elected member of the National Academy of Sciences and a Fellow in the American
Academy of Arts and Sciences.
Ms. Levinson has served as the President of Fayne Levinson Associates,
Inc., a general management consulting firm to consumer and financial service
organizations, since 1982. Ms. Levinson also serves as a member of the Board
of Egghead, Inc. Ms. Levinson was an executive at Creative Artists Agency,
Inc. from 1993 through February 1994 and was a partner of Wings Partners, a Los
Angeles-based merchant bank whose holdings include Northwest Airlines, from
1989 until 1993. Ms. Levinson was a Senior Vice President at American Express
Travel Related Services Co., Inc., from 1984 until 1987. In 1982, Ms. Levinson
served as Executive Vice President, Marketing, Hotel Group at John B. Coleman &
Co. Ms. Levinson was at McKinsey & Co., a worldwide general management
consulting firm, from 1972 through 1981, where she was made the first woman
partner in 1979.
1996 Class
Mr. Munro is Chairman of the Executive Committee of the Board of Directors
of Time Warner Inc., a media and entertainment company. Mr. Munro was
Chairman of Time, Inc., a predecessor of Time Warner Inc., from 1986 to 1989
and its Chief Executive Officer from 1980 to 1989. He is a director of Time
Warner Inc., Mobil Corporation, Kellogg Company, and K Mart Corporation. He is
a member of the National Coalition of AIDS Research (Washington, D.C.) and the
Counsel on Foreign Relations, Chairman of the Points of Light Foundation, a
director of the United Negro College Fund, and a trustee of Hamilton College,
St. Lawrence University, Teacher's College, Columbia University and the
Salisbury School.
Mr. Smith has been President and Chief Executive Officer of VHA, Inc., an
alliance of 1,150 healthcare organizations in 47 states, since 1991. Mr. Smith
served as President of Yale-New Haven Hospital, a nonprofit teaching hospital
affiliated with Yale University Medical School, from 1977 to 1991. Mr. Smith
was the 1991 Chairman of the Board of Trustees of the American Hospital
Association, and serves on the Board of VHA and the National Committee on
Quality of Health Care. Previously, he was on the Board of the Association of
American Medical Colleges. Mr. Smith was the 1991 Rene Sand lecturer at the
Congress of the International Hospital Federation, the third American to be so
honored.
Mr. Swanson, a founder of Genentech and its Chief Executive Officer from
1976 to 1990, has been Chairman of the Board since 1990. Prior to forming
Genentech, Mr. Swanson was a partner with Kleiner & Perkins venture capital
partnership in San Francisco, and from 1970 to 1974, he was an investment
officer with Citicorp Venture Capital Ltd. He serves on the Board of Fellows
of the Faculty of Medicine at Harvard University and is a member of the Biology
Visiting Committee of, and has served as a Trustee for, the Massachusetts
<PAGE>
Institute of Technology. Mr. Swanson is a member of the Royal Swedish Academy
of Engineering Sciences and a member of the Board of Molten Metal Technology,
Inc. He also serves as a trustee of the San Francisco Ballet, the San
Francisco Museum of Modern Art, and the Nueva School.
Mr. Tappan served as Chairman of the Board of Fluor Corporation ("Fluor"),
an international engineering, construction and technical services company, from
1984 through 1990, at which time he retired. He was Chief Executive Officer of
Fluor from 1984 to 1990. Mr. Tappan is a director of Beckman Instruments,
Inc., Advanced Tissue Sciences, Inc., and Allianz Insurance Company. He is a
member of the Board of Trustees of the University of Southern California and
The Scripps Research Institute Board of Trustees.
<PAGE>
COMMITTEES AND MEETINGS
During 1994, the standing committees of the Board of Directors included an
Audit Committee, a Compensation Committee, a Corporate Governance Committee, an
Executive Committee, a Nominations Committee, and a Special Committee. During
1994, the Board of Directors held six meetings, the Audit Committee held two
meetings, the Compensation Committee held four meetings, the Corporate
Governance Committee held two meetings, the Executive Committee held one
meeting, the Nominations Committee held two meetings and the Special Committee,
which was established in April 1994, held seven meetings. Each Board member
attended at least 75% of the aggregate meetings of the Board and the committees
of which he or she is a member. The Governance Agreement provides that each
committee of the Board (other than certain special committees) will at all
times include at least one director designated by Roche. The director
designated by Roche to serve on any committee will be entitled to designate as
his or her alternate another director designated by Roche.
In 1994, the members of the Audit Committee were Messrs. Drews, Murfin,
Perkins and Tappan, none of whom is an employee of Genentech. The Audit
Committee recommends the independent auditors to the Board and provides a
direct line of communication between the auditors and the Board. The Audit
Committee, with and without Company management present, meets with the
Company's independent auditors and general auditor to review and discuss
various matters including Genentech's financial statements, the report of the
independent auditors and accompanying management letter on the scope and
results of their work, and their recommendations concerning Genentech's
financial practices and procedures.
In 1994, the Compensation Committee was comprised of Messrs. Kessler,
Munro, Perkins and Swanson, none of whom is an employee of Genentech. The
Compensation Committee administers Genentech's stock option plans, stock
purchase plan, relocation loan plan, emergency loan program, employee incentive
compensation plan, supplemental retirement plan and 401(k) plan, and approves
salaries, bonuses and other compensation arrangements for Genentech's officers,
as well as loans or loan guarantees for Genentech's officers and employees.
In 1994, the Corporate Governance Committee was comprised of Ms. Levinson
and Messrs. Drews, Munro, Potts and Smith. The Corporate Governance Committee
reviews the Company's investor relations, government relations, legal and
regulatory relations and marketing and public relations programs.
In 1994, the Executive Committee was comprised of Messrs. Boyer, Kessler,
Perkins, Raab and Swanson. The Executive Committee was established to act when
the full Board of Directors is unavailable. It has all the authority of the
Board in the management of the business and affairs of Genentech, except those
powers that by law cannot be delegated by the Board of Directors.
In 1994, the Nominations Committee was comprised of Ms. Levinson and
Messrs,.Drews, Potts, Raab and Swanson. The purpose of the Nominations
Committee is to identify, review and recommend potential nominees to the Board
of Directors of Genentech, and to recommend executive officers of the Company
for election by the Board of Directors. The Nominations Committee will
consider nominees to the Board of Directors recommended by Genentech
stockholders. To be considered, Stockholders wishing to nominate a person to
the Board of Directors should send a letter to the Secretary of Genentech which
complies with the notification requirements of Genentech's Bylaws.
Stockholders of Genentech are also entitled to nominate candidates for director
at the Annual Meeting if they have complied with the advance notice procedures
contained in the Company's Bylaws.
<PAGE>
The Special Committee was established in April 1994 for the limited
purpose of performing an internal review of some of the Company's sales and
marketing programs and certain other programs. In 1994, the Special Committee
was comprised of Ms. Levinson and Messrs. Boyer, Perkins and Tappan. The
Special Committee was dissolved in October 1994.
<PAGE>
PROPOSAL 2--AMENDMENT OF 1991 EMPLOYEE STOCK PLAN
In December 1990, the Board of Directors adopted the 1991 Employee Stock
Plan under which 1,500,000 shares of the Company's Redeemable Common Stock were
initially reserved for issuance; in April 1991, Genentech's stockholders
approved the 1991 Plan. The 1991 Employee Stock Plan, as amended through the
date hereof, shall hereinafter be referred to as the "1991 Plan." Genentech
believes that the 1991 Plan is an important part of providing incentives and
retaining employees. In December 1992, the Board of Directors approved
amendments to the 1991 Plan to (i) increase the number of shares of Redeemable
Common Stock available for issuance under the 1991 Plan by an additional
1,400,000 shares to a total of 2,900,000 shares and (ii) increase the maximum
number of shares of Redeemable Common Stock that may be purchased by all
participating employees under the 1991 Plan during any calendar quarter in
which Genentech pays a regular annual bonus from 180,000 shares to 200,000
shares. In May 1993, Genentech's stockholders approved such amendments. By
January 3, 1995, Genentech had issued to participating employees 2,040,695 of
the 2,900,000 shares reserved under the 1991 Plan. In February 1995, the Board
of Directors approved an amendment to the 1991 Plan, as previously amended, to
increase the number of shares of Redeemable Common Stock available for issuance
under the 1991 Plan by an additional 900,000 shares to a total of 3,800,000
shares. The Board of Directors has adopted the 1995 amendment described above
to ensure that Genentech has shares available under the 1991 Plan to provide
continued incentives to its employees through the opportunity to purchase
Redeemable Common Stock of Genentech on a quarterly basis.
The affirmative vote of the holders of a majority of the Redeemable Common
Stock and Common Stock represented at the Annual Meeting, voting together as a
single class, is required for the approval of this proposal, provided that a
quorum is present.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF PROPOSAL 2
The material terms of the 1991 Employee Stock Plan are outlined below.
General Description of the 1991 Plan
The 1991 Plan is intended to qualify under Section 423 of the Code as an
employee stock purchase plan. On February 24, 1995, the closing price of
Redeemable Common Stock was $49.875 per share. Rights granted under the 1991
Plan run for a maximum of 27 months.
All full-time employees of Genentech are eligible to participate in the
1991 Plan, except for any employee who owns five percent or more of the total
combined voting power of all classes of stock of Genentech on the date of grant
of a right to purchase shares ("Right"). As of the date of this Proxy Statement
there are approximately 2,800 employees of Genentech eligible to participate in
the 1991 Plan. Participation by officers in the 1991 Plan is on the same basis
as that of any other employee. No employee may be granted a Right which permits
such employee to purchase shares under the 1991 Plan at a rate which exceeds
$25,000 worth of shares (determined at the date of grant of the Right) for each
calendar year in which such Right is outstanding. Rights are not transferable
otherwise than by will or the laws of descent and distribution, and are
exercisable during the lifetime of any employee only by such employee.
<PAGE>
Under the 1991 Plan, the maximum number of shares that may be purchased by
all participating employees in any calendar quarter in which Genentech pays a
regular annual bonus is 200,000 shares, and in any calendar quarter in which
Genentech does not pay a regular annual bonus the maximum is 180,000 shares.
Prior to the 1995 amendment, the total number of shares reserved for issuance
under the Plan was 2,900,000 shares. Under the 1995 amendment, an aggregate
total of 3,800,000 shares of Redeemable Common Stock would be reserved for
issuance under the 1991 Plan. In the event that Roche does not cause Genentech
to redeem its Redeemable Common Stock on or prior to June 30, 1995 in
accordance with Genentech's Certificate of Incorporation, as amended, all
purchases under the 1991 Plan on or after July 1, 1995 shall be shares of
Common Stock.
The Compensation Committee of the Board of Directors grants eligible
employees Rights from time to time to purchase shares under the 1991 Plan at
prices equal to 85% of the lesser of (i) the fair market value of the shares on
the date of grant or (ii) the fair market value of the shares on the date of
purchase. In addition, subject to the limits above, the Compensation Committee
establishes the duration of the Rights grant and the terms for participation
under the Plan.
During fiscal year 1994, the following persons purchased the following
number of shares under the 1991 Plan at the prices shown: Mr. Raab - 696 shares
at $30.49 per share; Dr. Levinson - 697 shares at $30.49 per share; Mr. Young -
697 shares at $30.49 per share; Mr. McLaughlin - 0 shares; Mr. Lavigne - 139
shares at $30.49 per share; all executive officers as a group (27 persons) -
18,152 shares at $30.49 per share; and all employees (excluding executive
officers) as a group - 492,173 shares at $30.49 to $42.18 per share.
Federal Tax Consequences of the 1991 Plan
The following is intended only as a general summary of the federal income
tax consequences in connection with participation in the 1991 Plan. All tax
matters discussed in this Proxy Statement should be verified with a tax
consultant. No taxable income is recognized by a participant either at the time
a Right is granted under the 1991 Plan or at the time the shares are purchased.
Instead, tax consequences are generally deferred until a participant disposes
of the shares (e.g., by sale or gift). The federal income tax consequences of a
sale of shares purchased under the 1991 Plan depend on the length of time the
shares are held after the relevant date of grant and date of exercise, as
described below.
If shares purchased under the 1991 Plan are held for more than one year
after the date of purchase and more than two years from the date of grant, the
participant generally will have taxable ordinary income on a sale or gift of
the shares to the extent of the lesser of: (i) 15% of the fair market value of
the stock at the date of grant; or (ii) the actual gain (the amount by which
the market value of the shares on the date of sale or gift exceeds the purchase
price). All additional gain upon the sale of stock is treated as long-term
capital gain. If the shares are sold for less than the purchase price, there is
no ordinary income, and the participant has a long-term capital loss for the
difference between the purchase price and the sale price.
If the stock is sold or gifted within either one year after the date of
purchase or two years after the date of grant (a "disqualifying disposition"),
the participant generally has taxable ordinary income at the time of the sale
or gift to the extent that the fair market value of the stock at the date of
purchase was greater than the purchase price. This amount will be taxable in
<PAGE>
the year of sale or disposition even if no gain is realized on the sale. A
capital gain would be realized for shares disposed of to the extent sales
proceeds exceed the fair market value of those shares on the date of purchase.
A capital loss would be realized to the extent the sales proceeds on the shares
disposed of is less than the purchase price. The capital gain or loss would be
long-term if the stock was held for more than one year. Special tax
consequences may follow from dispositions other than a sale or gift.
Ordinary income recognized by a participant upon a disqualifying
disposition constitutes taxable compensation which will be reported to the IRS,
but does not constitute "wages" subject to withholding by Genentech. The
Internal Revenue Service is studying this position and other related issues,
and may require withholding in the future. Genentech receives a deduction for
federal income tax purposes only to the extent that a participant realizes
ordinary income on a disqualifying disposition.
<PAGE>
Amendment of the 1991 Plan
The Board may amend, modify or terminate the 1991 Plan at any time without
notice provided that no such amendment, modification or termination may
adversely affect any existing Rights of any participating employee, except for
variations to conform with local laws in the case of foreign branches or
designated U.S. subsidiaries of the Company. In addition, subject to certain
appropriate adjustments to give effect to relevant changes in Genentech's
capital stock, no amendments to the 1991 Plan can be made without stockholder
approval if such amendment would increase the total number of shares offered
under the 1991 Plan or would render Rights "unqualified" for special tax
treatment under the Code.
<TABLE>
<CAPTION>
NEW PLAN BENEFITS
1991 Employee Stock Plan
________________________
Number of
Name and Position Dollar Value($)(1) Shares
__________________ __________________ ___________
<S> <C> <C>
G. Kirk Raab $13,318 696
President and Chief
Executive Officer
Arthur D. Levinson $12,571 697
Senior Vice President
William D. Young $12,507 697
Senior Vice President
John P. McLaughlin $0 0
Senior Vice President and
Secretary
Louis J. Lavigne $2,511 139
Senior Vice President and
Chief Financial Officer
Executive Group $323,930 18,152
Non-Executive Officer $8,879,311 492,173
Employee Group
<FN>
___________________
(1) Under the 1991 Employee Stock Plan, as amended through the date hereof
(the "Plan"), eligible employees of the Company may purchase shares under the
Plan at prices equal to 85% of the lesser of (i) the fair market value of the
shares on the date of grant or (ii) the fair market value of the shares on the
date of purchase. Non-employee members of the Company's Board of Directors are
not eligible to participate in the Plan. The Dollar Value represents the fair
market value per share of Redeemable Common Stock on the date of purchase less
the actual purchase price per share paid multiplied by the number of shares
purchased by each person or group on each of the four purchase dates in 1994
under the Plan. See also Proposal 2, Amendment of the 1991 Employee Stock Plan.
</TABLE>
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of shares of
Redeemable Common Stock and of the equity securities of Roche Holding Ltd as of
February 7, 1995, unless otherwise noted, of (i) each director of Genentech,
(ii) the Chief Executive Officer and each of Genentech's four other most highly
compensated executive officers at December 31, 1994 (the "Named Executive
Officers"), and (iii) all directors and executive officers of Genentech as a
group:
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
Genentech Equity Securities of
Redeemable Common Stock Roche Holding Ltd
___________________________ ____________________
Percent Percent
Name of Beneficial Owner Shares of Class Shares of Class
________________________ ____________ ____________ _________ ________
<S> <C> <C> <C> <C>
Herbert W. Boyer 789,570(1) 1.57% 0 0
Jurgen Drews(2) 25,200(3) *(4) 0 0
Armin M. Kessler(2) 25,000(3) * 50 **(5)
Louis J. Lavigne, Jr. 96,917(6) * 0 0
Arthur Levinson 218,813(7) * 0 0
Linda Fayne Levinson 10,200(8) * 0 0
John P. McLaughlin 141,253(9) * 0 0
J. Richard Munro 35,000(10) * 0 0
Donald L. Murfin 33,250(11) * 0 0
Thomas J. Perkins 221,694(12) * 0 0
John T. Potts, Jr. 40,667(13) * 0 0
G. Kirk Raab 252,759(14) * 0 0
C. Thomas Smith, Jr. 35,000(10) * 0 0
Robert A. Swanson 1,910,120(15) 3.78% 0 0
David S. Tappan, Jr. 37,000(16) * 0 0
William D. Young 178,752(17) * 0 0
All Directors and
Executive Officers as
a Group (38 persons) 4,930,125(18) 9.41% 50 **
<FN>
(1) Includes stock options outstanding on February 7, 1995 to purchase 25,000
shares of Redeemable Common Stock which are currently exercisable or will
be exercisable by April 8, 1995.
(2) Pursuant to the Merger, Roche, 15 East North St., Dover, Delaware 19901,
acquired 67,133,409 shares of Genentech's Common Stock, representing 100%
of the class, and in addition as of February 7, 1995 owns 9,330,600 shares
of Redeemable Common Stock, representing approximately 18.5% of the class.
Pursuant to the Governance Agreement, Roche appointed Messrs. Drews and
Kessler as its representatives on the Board of Directors of Genentech.
(3) Includes stock options outstanding on February 7, 1995 to purchase 25,000
shares of Redeemable Common Stock which are currently exercisable or will
be exercisable by April 8, 1995.
(4) Asterisk (*) indicates that the amount beneficially owned is less than one
percent (1%) of the outstanding shares of Redeemable Common Stock.
<PAGE>
(5) A double asterisk (**) indicates that the amount beneficially owned is
less than one percent (1%) of the outstanding equity securities of Roche
Holding Ltd.
(6) Includes stock options outstanding on February 7, 1995 to purchase 81,094
shares of Redeemable Common Stock which are currently exercisable or will
be exercisable by April 8, 1995.
(7) Includes stock options outstanding on February 7, 1995 to purchase 213,440
shares of Redeemable Common Stock which are currently exercisable or will
be exercisable by April 8, 1995.
(8) Includes stock options outstanding on February 7, 1995 to purchase 10,000
shares of Redeemable Common Stock which are currently exercisable or will
be exercisable by April 8, 1995.
(9) Includes stock options outstanding on February 7, 1995 to purchase 141,253
shares of Redeemable Common Stock which are currently exercisable or will
be exercisable by April 8, 1995.
(10) Includes stock options outstanding on February 7, 1995 to purchase 33,000
shares of Redeemable Common Stock which are currently exercisable or will
be exercisable by April 8, 1995.
(11) Includes stock options outstanding on February 7, 1995 to purchase 33,250
shares of Redeemable Common Stock which are currently exercisable or
will be exercisable by April 8, 1995.
(12) Includes 24,464 shares held in trust by Mr. Perkins as trustee of a
revocable trust between Mr. Perkins and Gerd Perkins as trustors and
trustees, and 110 shares held as trustee of a trust. Mr. Perkins
disclaims beneficial ownership of the shares held by the latter trust.
(13) Includes stock options outstanding on February 7, 1995 to purchase 36,334
shares of Redeemable Common Stock which are currently exercisable or will
be exercisable by April 8, 1995.
(14) Includes stock options outstanding on February 7, 1995 to purchase 248,128
shares of Redeemable Common Stock which are currently exercisable or will
be exercisable by April 8, 1995.
(15) Includes stock options outstanding on February 7, 1995 to purchase 231,190
shares of Redeemable Common Stock which are currently exercisable or will
be exercisable by April 8, 1995. Also includes 1,678,928 shares of
Redeemable Common Stock held as trustee of six trusts. Mr. Swanson
disclaims beneficial ownership of the 562,500 shares held by five of such
trusts. Excludes ownership of 150,000 shares held by a charitable
foundation of which Mr. Swanson is one of the directors.
(16) Includes stock options outstanding on February 7, 1995 to purchase 37,000
shares of Redeemable Common Stock which are currently exercisable or will
be exercisable by April 8, 1995.
(17) Includes stock options outstanding on February 7, 1995 to purchase 111,564
shares of Redeemable Common Stock which are currently exercisable or will
be exercisable by April 8, 1995.
<PAGE>
(18) Includes all shares of Redeemable Common Stock reflected in footnotes 1, 3
and 6 through 17 above and also includes outstanding stock options held by
22 other executive officers on February 7, 1995 to purchase 791,614 shares
of Redeemable Common Stock which are currently exercisable or will be
exercisable by April 8, 1995 and warrants issued in connection with the
formation of Genentech Clinical Partners IV exercisable for 72 shares of
Redeemable Common Stock.
</TABLE>
<PAGE>
Section 16 Reporting
In 1994 each of Arthur Levinson and Edmon Jennings, both of whom are
executive officers of Genentech, filed a Form 4 amending a Form 4 filed for
January 1992 which did not include 584 and 386 shares which are beneficially
owned by Messrs. Levinson and Jennings, respectively, under Genentech's 401(k)
plan. In 1994 Barry Sherman, an executive officer of Genentech, filed a Form 3
amending a Form 3 filed in 1989 to report indirect ownership of 50 shares owned
by Dr. Sherman's son. In 1994 Kimberly Popovits, an executive officer of
Genentech, filed a Form 3 amending a Form 3 filed earlier in 1994 which failed
to report beneficial ownership of an option to purchase 20,000 shares.
EXECUTIVE COMPENSATION
Compensation of Directors
In 1989, the Company entered into agreements with Mr. Swanson, then Chief
Executive Officer of Genentech, and certain other officers of the Company
governing certain terms and conditions of their employment. These 1989
agreements, as subsequently amended, are described in greater detail in the
Section below entitled "Employment Agreements." Effective in March 1992, Mr.
Swanson's 1989 agreement, as amended, was terminated and superseded by a new
agreement. This 1992 agreement governs the terms and conditions of Mr.
Swanson's continued service as Chairman of the Board and his compensation from
the Company. Mr. Swanson's 1992 agreement is also described in greater detail
in the Section below entitled "Employment Agreements."
In 1994, each of the directors of Genentech except Messrs. Raab and
Swanson were paid an annual retainer of $30,000 in quarterly installments. Mr.
Raab was not paid for his service as a director, and no additional fees were
paid to any director for service on Board committees. All directors were
reimbursed for expenses incurred in connection with their service on the Board.
Dr. Boyer and Dr. Potts also serve as consultants to Genentech and receive
compensation for their services. In 1994, Dr. Boyer and Dr. Potts received
$24,000 and $42,833, respectively, in consideration for their consulting
services.
In addition, in 1992 the Company established a Directors' Charitable Award
Program (the "Award Program") to acknowledge the service of directors to the
Company and enhance indirectly the ability of the Company to attract and retain
directors of the highest caliber. All members of the Board on or after May 1,
1992 are eligible for the Award Program, subject to vesting requirements. The
Award Program is funded by life insurance policies purchased by the Company
which provide for a $1 million death benefit on participating directors. Upon
the death of a participating director, the Company may donate $200,000 per year
for five years to up to four educational institutions or non-profit
organizations recommended by the director, provided that any such institution
or organization is approved by the Company in the year of the donation.
Individual directors derive no financial benefit from the Award Program since
all available insurance proceeds and tax deductions accrue solely to the
Company.
Under the Automatic Grant Program (the "1990 Grant Program") of the 1990
Plan, each individual who was a non-employee member of the Board on July 18,
1990, was automatically granted a Nonstatutory Option to purchase 15,000 shares
of Redeemable Common Stock. Pursuant to 1992 amendments to the 1990 Grant
Program, each individual who was a non-employee member of the Board on April
30, 1992, was automatically granted a Nonstatutory Option to purchase 15,000
shares of Redeemable Common Stock, and each non-employee member of the Board
<PAGE>
who was first elected to the position after April 30, 1992 but prior to April
30, 1995, would automatically be granted, on the date of such member's election
to the Board, a Nonstatutory Option for the same number of shares of Redeemable
Common Stock. Each option granted under the 1990 Grant Program, as amended in
1992, vests in increments of 5,000 shares on each of the first, second and
third anniversaries of the grant date and remains exercisable until the
expiration or earlier termination of the option term. Such options have a term
of ten years from the grant date, and are not assignable or transferable
otherwise than by will or by the laws of descent and distribution. All options
granted under the 1990 Grant Program have an exercise price equal to 100% of
the fair market value of the Redeemable Common Stock on the date of the option
grant. In 1994 no directors exercised options granted under the 1990 Grant
Program, except Mr. Perkins who exercised options representing 25,000 shares of
Redeemable Common Stock.
Under the Automatic Grant Program (the "1994 Grant Program") of the
Company's 1994 Stock Option Plan (the "1994 Plan"), on and after April 30, 1995
non-employee members of the Board will receive a Nonstatutory Option to
purchase 15,000 shares of Redeemable Common Stock. Under the 1994 Grant
Program, each individual who is a non-employee member of the Board on April 30,
1995, will automatically be granted a Nonstatutory Option to purchase 15,000
shares of Redeemable Common Stock, and each non-employee member of the Board
who is first elected to the position after April 30, 1995, will automatically
be granted, on the date of such member's election to the Board, a Nonstatutory
Option for the same number of shares of Redeemable Common Stock. Each option
granted under the 1994 Grant Program vests in increments of 5,000 shares on
each of the first, second and third anniversaries of the grant date and remains
exercisable until the expiration or earlier termination of the option term.
Such options have a term of ten years from the grant date, and are not
assignable or transferable otherwise than by will or by the laws of descent and
distribution. All options granted under the 1994 Grant Program have an
exercise price equal to 100% of the fair market value of the Redeemable Common
Stock on the date of the option grant. Under the terms of the 1994 Plan, on
and after April 30, 1995 non-employee members of the Board will no longer
receive automatic grants under the 1990 Grant Program.
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
Summary of Compensation
The following table shows for the fiscal years ending December 31, 1994,
1993, and 1992, certain compensation paid by Genentech to the Named Executive
Officers, including salary, bonuses, stock options, and certain other
compensation:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
__________________________________ _____________
Name and Principal Other Securities
Position Annual Underlying All Other
__________________ Salary(1) Bonus Compensation(2)Options(3) Compensation
Year ($) ($) ($) (#) ($)
_____________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
G. Kirk Raab 1994 $782,250 $400,000 $122,092(4) 250,000 $43,290(5)(6)
President and 1993 $745,000 $300,000 $196,268(4) 0 $45,700(5)(6)
Chief Executive 1992 $700,000 $160,000 $196,268(4) 250,000 $56,400(5)(6)
Officer
Arthur D. Levinson 1994 $350,000 $165,000 -- 150,000 $19,000(6)
Senior Vice 1993 $330,000 $125,000 -- 0 $16,000(6)
President 1992 $300,000 $ 70,000 -- 100,000 $16,000(6)
William D. Young 1994 $326,000 $165,000 -- 125,000 $18,040(6)
Senior Vice 1993 $310,000 $125,000 -- 0 $15,200(6)
President 1992 $292,000 $ 70,000 -- 100,000 $15,280(6)
John P. McLaughlin 1994 $315,000 $155,000 -- 125,000 $17,400(6)
Senior Vice 1993 $292,000 $120,000 -- 0 $14,480(6)
President and 1992 $275,000 $ 70,000 -- 120,000 $14,600(6)
Secretary
Louis J. Lavigne, Jr. 1994 $307,000 $155,000 -- 100,000 $17,080(6)
Senior Vice 1993 $292,000 $120,000 -- 0 $14,480(6)
President and 1992 $275,000 $ 70,000 -- 85,000 $14,400(6)
Chief Financial
Officer
____________________
<FN>
(1) Includes amounts earned but deferred at the election of the executive, such
as salary deferrals under Genentech's Tax Reduction Investment Plan (the
"401(k) Plan") established under Section 401(k) of the Code.
(2) As permitted by rules promulgated by the Securities and Exchange Commission
("SEC"), no amounts are shown with respect to certain "perquisites" (such
as imputed interest on loans at below market value rates), where such
amounts do not exceed the lesser of (i) 10% of the sum of the amounts of
Salary and Bonus for the Named Executive Officer, or (ii) $50,000.
<PAGE>
(3) Genentech has awarded no stock appreciation rights ("SARs").
(4) This amount represents foregone interest on loans to Mr. Raab as imputed
under the Code.
(5) This amount includes the greater of two amounts which have accrued to Mr.
Raab in each of fiscal years 1993 and 1992 pursuant to deferred
compensation agreements providing for aggregate payments to him based upon
his number of years of employment with Genentech. Since the $825,000
maximum amount payable to Mr. Raab under such agreements was reached on
March 1, 1994 and all such amounts were previously accrued to Mr. Raab, no
amounts have been accrued for 1994. The amounts accrued in fiscal year
1993 were $7,500 (termination for cause) and $9,500 (other termination).
The amounts accrued in fiscal year 1992 were $20,000 (termination for
cause) and $5,500 (other termination). See also "Employment Agreements"
below for a more detailed description of these agreements.
(6) Consists of Genentech's matching payments under its 401(k) Plan for 1994,
1993 and 1992 and Genentech's matching payments under its Supplemental Plan
for 1994, 1993 and 1992, except for additional amounts in the case of Mr.
Raab (see note 5 above). Each of the Named Executive Officers received
$6,000 in matching payments under the 401(k) Plan for 1994, and under the
Supplemental Plan Messrs. Raab, Levinson, Young, McLaughlin and Lavigne
received matching payments of $37,290, $13,000, $12,040, $11,400 and
$11,080, respectively, for 1994. Each of the Named Executive Officers
received $5,996 in matching payments under the 401(k) Plan for 1993, and
under the Supplemental Plan Messrs. Raab, Levinson, Young, McLaughlin and
Lavigne received matching payments of $30,204, $10,004, $9,204, $8,484 and
$8,484, respectively, for 1993. Each of the Named Executive Officers
received $5,819 in matching payments under the 401(k) Plan for 1992, and
under the Supplemental Plan Messrs. Raab, Levinson, Young, McLaughlin and
Lavigne received matching payments of $30,581, $10,181, $9,461, $8,781 and
$8,581, respectively, for 1992.
</TABLE>
<PAGE>
Stock Option Grants and Exercises
Genentech has options outstanding under its 1984 Incentive Stock Option
Plan, its 1984 Non-Qualified Stock Option Plan, its 1990 Plan and its 1994 Plan.
The following two tables show for the fiscal year ended December 31, 1994,
certain information regarding options granted to, exercised by, and held at
year end by, the Named Executive Officers:
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants
- ----------------------------------------------------------------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees Exercise Grant Date
Granted in Fiscal Price Expiration Present
Name (#)(1) Year(2) ($/Sh) Date Value($)(3)
_______ __________ ___________ ________ ____________ _______________
<S> <C> <C> <C> <C> <C>
G. Kirk Raab 250,000 4.87% $50.125 4/26/14 $6,300,000
Arthur D. Levinson 150,000 2.92% $50.125 4/26/14 $3,780,000
William D. Young 125,000 2.43% $50.125 4/26/14 $3,150,000
John P. McLaughlin 125,000 2.43% $50.125 4/26/14 $3,150,000
Louis J. Lavigne, Jr. 100,000 1.95% $50.125 4/26/14 $2,520,000
_____________________
<FN>
(1) All such options granted in 1994 were granted under the 1994 Plan and are
nonstatutory options with a term of twenty years. The options are subject to
monthly vesting as follows: no vesting during 1994 or 1995; 10% of total shares
subject to option vesting in the year ending December 31, 1996 in equal monthly
increments; 15% of total shares subject to option vesting in the year ending
December 31, 1997 in equal monthly increments; 25% of total shares subject to option
vesting in the year ending December 31, 1998 in equal monthly increments; and 50%
of total shares subject to option vesting in the year ending December 31, 1999 in
equal monthly increments. In addition, the options will fully vest upon the event
of a corporate transaction, as defined in the 1994 Plan, unless the acquiring
company assumes the options or substitutes similar options. In addition, the
options will fully vest upon a change of control, as defined in the 1994 Plan. The
Board of Directors may reprice the options under the terms of the 1994 Plan. The
1994 Plan does not provide for the grant of SARs.
(2) Based on an aggregate total of 5,137,055 options granted under all of the Company's
option plans in 1994.
(3) In determining grant date valuation, the Black-Scholes option pricing model was
used. The Company neither advocates nor necessarily agrees that the Black-Scholes
model can properly determine the value of a non-transferrable employee stock option.
Assumptions included: expected option term of 8 years; interest rate of 6.75%;
annual dividend rate of zero; and volatility for the one year period prior to the
April 26, 1994 grant date for all of the grants of 28.5%.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values(1)
Value of
Number of Unexercised
Securities Underlying In-the-Money
Unexercised Options at Options at
FY-End (#) FY-End ($)(3)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($)(2) Unexercisable Unexercisable
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
G. Kirk Raab 65,625 $2,148,431 232,503/437,500 $5,307,902/$3,585,938
Arthur D. Levinson 5,000 $176,875 200,940/250,000 $4,076,946/$1,800,000
William D. Young 0 0 105,314/200,000 $2,591,295/$1,434,375
John P. McLaughlin 0 0 133,753/215,000 $3,118,215/$1,721,250
Louis J. Lavigne, Jr. 25,000 $821,550 75,782/163,750 $1,623,456/$1,219,219
____________________
<FN>
(1) Genentech has awarded no SARS.
(2) Fair market value of Genentech's Redeemable Common Stock on the date of exercise
minus the exercise price.
(3) Fair market value of Genentech's Redeemable Common Stock at the close of business on
December 31, 1994 ($45.625) minus the exercise price of the options.
</TABLE>
<PAGE>
Employment Agreements
Mr. Raab had agreements with Genentech which provided that he would earn
an amount of deferred compensation based upon his number of years of
employment. The amount earned increased with the length of Mr. Raab's term of
employment, until March 1, 1994 when the maximum amount of $825,000 was
reached. In accordance with the terms of such agreements, on or about February
14, 1995, Mr. Raab was paid $825,000. In addition, Mr. Raab had an agreement
with Genentech which provided that if he was employed by Genentech on February
14, 1995, he would earn $160,000 in deferred compensation. Since Mr. Raab was
employed by Genentech on February 14, 1995, Mr. Raab earned, on that date,
$160,000 which will be paid to him on or about May 15, 1995. All of the
agreements described in this paragraph have expired under their respective
terms.
In October, 1989, the Board of Directors directed Genentech to enter into
agreements with Messrs. Swanson (then Chief Executive Officer of Genentech),
Raab, Young, Lavigne and McLaughlin, which provide certain benefits only in the
event of termination of their employment following or as a condition to a
change in control of Genentech (the "1989 Agreements"). The 1989 Agreements
provide that, subject to certain exceptions, if the covered employee's
employment is "involuntarily terminated," other than a "termination for cause,"
within thirty-six months following a "change in control," prior to but as a
condition of a change in control or at the request of a party to the change in
control (other than Genentech), or on or after a change in control and before
January 1, 1995, the terminated employee will be entitled to a lump sum
severance award equal to five times the sum of the terminated employee's annual
compensation including salary and bonus. In addition, upon involuntary
termination, the terminated employee and his eligible dependents will be
entitled to the continuation of medical and dental care benefits for a five-
year period and forgiveness of the entire unpaid balance (principal and accrued
interest) outstanding at the time of the employee's involuntary termination
under any outstanding Genentech loan or loans. "Involuntary termination" is
defined in the 1989 Agreements as termination of a person's employment (i) as a
result of an involuntary discharge or dismissal, (ii) voluntarily or
involuntarily due to a permanent disability, (iii) voluntarily following (A) a
change in the employee's position with Genentech which materially reduces the
person's offices, titles, responsibility, authority, duties, status or
reporting responsibilities, (B) a reduction in compensation as defined in the
1989 Agreements, or (C) a change in the person's place of employment which is
more than 50 miles from that in effect prior to the change in control, provided
and only if such change or reduction is effected without the person's written
concurrence. "Change in control" is defined in the 1989 Agreements as (i) the
acquisition by a person or a group, other than Genentech or certain related
entities, of securities possessing (whether immediately or upon subsequent
conversion or exercise) thirty percent or more of the total voting power of
Genentech's outstanding securities, (ii) the acquisition by a person or a
group, other than Genentech or certain related entities, of securities
possessing (whether immediately or upon subsequent conversion or exercise) the
right to elect a majority of Genentech's Board of Directors, (iii) the sale,
transfer or other disposition (other than in the ordinary course) of fifty
percent or more of the total fair market value of Genentech's assets, or (iv)
the first date within any period of thirty-six consecutive months or less on
which there is effected a change in the composition of the Board such that a
majority of the Board ceases to be comprised of individuals who either (I) have
been members of the Board continuously since the beginning of such period or
(II) have been elected or nominated for election as Board members during such
period by at least a majority of the Board members described in clause (I) who
<PAGE>
were still in office at the time such election or nomination was approved by
the Board; provided such transaction or event occurs prior to January 1, 1995.
The terms of Mr. Swanson's 1989 Agreement were identical to those described
above except that in the event of involuntary termination, Mr. Swanson would be
entitled to a special payment of $1,500,000 as a founder of Genentech.
The 1989 Agreements provide that if any payments made pursuant to the 1989
Agreements or otherwise (including in connection with stock options) will
subject the employee to an excise tax under Section 4999 of the Code, the
employee will receive an additional payment so that the employee is in the same
after-tax position he would have been in had such payments not resulted in such
excise tax.
In July 1990, the 1989 Agreements were amended to provide that stock
options held by persons who are parties to the 1989 Agreements are to be
treated in the same manner as all other employee stock options (i) with respect
to the Merger and (ii) with respect to any subsequent exercise by Roche of its
rights under the Governance Agreement to representation on the Board of
Directors (and its committees), or with respect to any subsequent acquisition
by Roche of securities of Genentech (whether by merger, tender offer, private
or market purchases or otherwise) not prohibited by the Governance Agreement
that might, in either case, constitute a change in ownership or effective
control of Genentech.
All of the 1989 Agreements, as amended, other than Mr. Swanson's and Mr.
Raab's expired in accordance with their terms on January 1, 1995. Mr.
Swanson's 1989 Agreement, as amended, was terminated and replaced with the 1992
Agreement as described and defined below, and the terms of Mr. Raab's 1989
Agreement, as amended, were renegotiated as described below.
The 1989 Agreement of Mr. Raab, as previously amended in 1990, was amended
again in October 1991 to reduce the lump sum severance award from an amount
equal to five times the sum of Mr. Raab's annual compensation (salary and
bonus) to an amount equal to one times his annual compensation in the event of
his involuntary termination (as defined in the 1989 Agreement) prior to age 60.
His 1989 Agreement was also amended to provide that, in the event of such
involuntary termination, the Company is required to make 180 monthly payments
to him. Each monthly payment will be equal to (i) a specified percentage of
the three year average of his annual compensation (salary and bonus), (ii)
divided by 12. The specified percentage of average annual compensation to be
paid is based upon Mr. Raab's age at the date of his involuntary termination:
age 56-16%; age 57-22%; age 58-28%; and age 59-34%. The monthly payments will
be adjusted periodically for cost-of-living increases and will terminate in the
event of Mr. Raab's death. The 1989 Agreement was further amended to state
that the Company will provide life insurance to Mr. Raab and medical and dental
benefits to Mr. Raab and his dependents for 15 years after his involuntary
termination. The provision of the 1989 Agreement forgiving any outstanding
loans was eliminated. Following his involuntary termination prior to age 60,
the amended 1989 Agreement provides that Mr. Raab will become a consultant to
the Company for a period of 15 years and that his stock options will continue
to vest and remain exercisable until the earlier of: (x) the expiration of the
term of his options, or (y) 90 days after the expiration of his consultancy.
The remaining provisions of the 1989 Agreement with Mr. Raab, as previously
amended in 1990, continue in effect.
In October 1991, the Board of Directors also directed Genentech to enter
into a Post-Employment Consulting Agreement ("Post-Employment Agreement") with
Mr. Raab which will make him a consultant to the Company for a period of 15
<PAGE>
years and which will provide to him certain benefits during that consultancy if
he remains employed by the Company until the attainment of the retirement age
of 60. In such event, the Post-Employment Agreement provides that the Company
is required to make 180 monthly payments to him. Each monthly payment will be
equal to: (i) 40% of the three year average of his annual compensation (salary
and bonus), (ii) divided by 12. The monthly payments will be reduced by
certain retirement income to which Mr. Raab becomes entitled. In addition, the
monthly payments will be subject to annual cost-of-living adjustments and will
be terminated in the event of Mr. Raab's death. The Post-Employment Agreement
also provides life insurance to Mr. Raab and medical and dental benefits to Mr.
Raab and his dependents for a period of up to 15 years after retirement. The
Post-Employment Agreement further provides that Mr. Raab's stock options will
continue to vest and remain exercisable until the earlier of: (x) the
expiration of the term of his options, or (y) the end of the calendar year of
the expiration of his consultancy. During the term of the consultancy, Mr.
Raab is subject to confidentiality, non-competition and non-solicitation
provisions.
In March 1992, the 1989 Agreement with Mr. Swanson, as previously amended
in 1990, was terminated and replaced with a new agreement ("1992 Agreement").
The 1992 Agreement, which expires on December 31, 1996, provides that Mr.
Swanson shall serve as Chairman of the Board of Directors and a member of the
Compensation, Executive and Nominations Committees during that time, sets his
duties and fixes his annual compensation at $600,000 per year subject to cost-
of-living adjustments ($631,100 in fiscal year 1994), provides for deferred
compensation equal to 4% of his annual compensation per year through the term
of the 1992 Agreement, provides for life insurance on behalf of Mr. Swanson and
medical and dental benefits on behalf of Mr. Swanson and his dependents until
the year 2012 (which totalled approximately $13,220 in taxable compensation to
Mr. Swanson in fiscal year 1994), continues the vesting and exercisability of
his stock options, and provides him with secretarial and office support until
1997. In the 1992 Agreement, Mr. Swanson covenants not to compete with the
Company under specified conditions. In the event of his "involuntary
termination" (as defined in the 1989 Agreement), the 1992 Agreement provides
for a lump sum severance award equal to a multiple of Mr. Swanson's annual and
deferred compensation. The multiple decreases over time: 1992-five times; 1993-
four times; 1994-three times; 1995-two times; and 1996-one times. The 1992
Agreement further provides that, upon Mr. Swanson's involuntary termination, he
shall become a consultant to the Company until 1997 and that his stock options
will continue to vest and remain exercisable until the earlier of: (a) the
expiration of the term of his options, or (b) 90 days after the expiration of
his consultancy. In the event of his death, the 1992 Agreement provides that
the vesting of Mr. Swanson's unvested stock options, if any, shall be
accelerated. Other than in the case of death and as described above, the 1992
Agreement provides for the same treatment of Mr. Swanson's stock options as set
forth in the 1989 Agreement and the 1990 amendments thereto and the same
payments in the event of a liability for excise tax under section 4999 of the
Code. The provisions of the 1989 Agreement forgiving any outstanding loans and
providing for a payment of $1.5 million are not contained in the 1992
Agreement.
Loans and Other Compensation
During 1985, Genentech lent $450,000 (the "1985 Loan") to Mr. Raab for the
purchase of a home in connection with his relocation to the San Francisco Bay
Area. In addition, in 1985 Genentech agreed to provide Mr. Raab with a
mortgage subsidy loan of $75,000 per year for four years payable in equal
monthly installments. In each of 1988, 1989 and 1990, Genentech lent Mr. Raab
an additional $75,000. The 1985, 1988, 1989 and 1990 loans are imputed to bear
<PAGE>
interest at rates ranging from 6.81% to 11.51%, and were repayable on February
14, 1995 (unless renewed by Genentech then) or within 6 months of termination.
In addition, in 1989 Genentech lent Mr. Raab $1,100,000. This loan was imputed
to bear interest at 9.13%. This loan was amended in 1993 to require repayment
on June 27, 1994; however, Mr. Raab paid in full the outstanding balance on
this loan in early March 1994. On February 14, 1995, Mr. Raab paid in full the
outstanding balance on all of the other loans described herein other than the
1985 Loan. In February 1995, Genentech amended the terms of the 1985 Loan to
require repayment of the 1985 Loan upon the earlier of February 14, 2000 or
within 30 days after the date on which Roche causes Genentech to redeem its
Redeemable Common Stock in accordance with the terms of its Certificate of
Incorporation. The largest amount outstanding under these loans during 1994
was $2,075,000, and $450,000 is outstanding as of the date of this Proxy
Statement. The imputed interest on these loans is compensatory to Mr. Raab and
amounted to $122,092 in 1994.
Between 1985 and 1992, Genentech lent Dr. Hugh D. Niall, Genentech's Vice
President, Research Discovery, a total of $185,720 under loan transactions
still outstanding, in connection with his relocation to the San Francisco Bay
Area. Of this amount, $111,627 was forgivable and was imputed to bear interest
at the rate of 10.88%. During 1994, the final $13,290 of the $111,627 was
forgiven. The remaining $74,093 was imputed to bear interest at the rate of
9.78%. In July 1994 the $74,093 was paid in full by Dr. Niall. In December
1994, Genentech lent Dr. Niall an additional $4,708 to compensate Dr. Niall for
his payment of taxes on the forgiven amounts described above. Such loan is
repayable in full on or before August 15, 1995, and interest is imputed thereon
at the rate of 7.53%. The largest amount outstanding under these loans during
1994 was $100,951 and a total of $4,316 is outstanding under the December 1994
loan as of the date of this Proxy Statement. The interest on these loans is
compensatory to Dr. Niall and amounted to $5,113 in 1994.
In 1990, Genentech lent $100,000 to Mr. Richard Brewer, Senior Vice
President, for the purchase of a home in the San Francisco Bay Area. The loan
is imputed to bear interest at a rate of 8.6% and is repayable in full on the
earlier of the fifth anniversary of the date of the loan or the date of
termination of Mr. Brewer's employment with Genentech. The largest amount
outstanding under this loan during 1994 was $108,785, and the entire principal
balance of this loan is outstanding as of the date of this Proxy Statement.
The interest on this loan is compensatory to Mr. Brewer and amounted to $8,785
in 1994.
In 1991, Genentech lent $75,000 to Mr. Edmon R. Jennings, Vice President,
Sales and Marketing, for the purchase of a home in connection with his
relocation to the San Francisco Bay Area. The loan is imputed to bear interest
at the rate of 7.73% and is repayable in full on the earlier of five years from
the date the loan was made or the date of termination of Mr. Jennings'
employment with Genentech. The largest amount outstanding under this loan
during 1994 was $80,910, and the entire principal balance of this loan is
outstanding as of the date of this Proxy Statement. The interest on this loan
is compensatory to Mr. Jennings and amounted to $5,910 in 1994.
In 1992, Genentech lent $150,000 to Mr. Gregory Baird, Vice President,
Corporate Communications, for the purchase of a home in connection with his
relocation to the San Francisco Bay Area. The loan is imputed to bear interest
at the rate of 6.88% and is repayable in full on the earlier of the fifth
anniversary of the date of the loan or the date of termination of Mr. Baird's
employment with Genentech. The largest amount outstanding under this loan
<PAGE>
during 1994 was $160,498, and the entire principal balance of this loan is
outstanding as of the date of this Proxy Statement. The imputed interest on
this loan is compensatory to Mr. Baird and amounted to $10,498 in 1994.
During 1994, Genentech lent $250,000 to Kimberly Popovits, Genentech's
Vice President-Sales, for the purchase of a home in connection with her
relocation to the San Francisco Bay Area, and during 1989 Genentech lent
$30,000 to Ms. Popovits in connection with a separate relocation. The 1994
loan is imputed to bear interest at the rate of 7.53%, and the 1989 loan is
imputed to bear interest at the rate of 8.25%. $150,000 of the 1994 loan is
repayable in full on the earlier of five years from the date the loan was made
or the date of Ms. Popovits' termination of employment with Genentech for any
reason other than those described below. $100,000 of the 1994 loan will be
forgiven in five equal amounts on the first anniversary dates of the loan if
Ms. Popovits is employed by Genentech on such anniversary dates. If within
three years of the date the 1994 loan was made, Ms. Popovits' employment with
Genentech is involuntarily terminated for any reason other than gross
misconduct or Ms. Popovits resigns due to a material diminishment of her
position, any outstanding principal balance under the 1994 loan on such date
shall be forgiven. The 1989 loan was due and payable in full on November 12,
1994; however, in January 1995 Genentech amended the terms of the 1989 loan to
forgive all amounts due under this loan in three equal installments in 1995,
1996 and 1997. If Ms. Popovits' employment with Genentech is terminated prior
to 1997, any amount outstanding under the 1989 loan will be forgiven at that
time. The largest amount outstanding under these loans during 1994 was
$284,079. The entire principal balance of the 1994 loan is outstanding as of
the date of this Proxy Statement. The imputed interest on these loans is
compensatory to Ms. Popovits and amounted to $4,079 in 1994.
Compensation Committee Report (1)
The Compensation Committee of the Board of Directors (the "Committee") is
composed of four non-employee directors. The Committee is responsible for
setting and administering the policies which govern annual executive salaries,
bonuses (if any) and stock ownership programs. The Committee annually
evaluates the performance, and determines the compensation, of the Chief
Executive Officer ("CEO"), and the other executive officers of Genentech based
upon a mix of the achievement of the corporate goals, individual performance
and comparisons with other pharmaceutical companies. The CEO is not present
during the discussion of his compensation.
__________________
1 The material in this report and under the caption "Performance Measurement
Comparison" are not "soliciting material," are not deemed filed with the SEC
and are not to be incorporated by reference in any filing of the Company under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, whether made before or after the date of this Proxy Statement and
irrespective of any general incorporation language therein.
The policies of the Committee with respect to executive officers,
including the CEO, are to provide compensation sufficient to attract, motivate
and retain executives of outstanding ability and potential and to establish an
appropriate relationship between executive compensation and the creation of
shareholder value. To meet these goals, the Committee has adopted a mix among
the compensation elements of salary, bonus and stock options, with a bias
toward stock options to emphasize the link between executive incentives and the
creation of shareholder value as measured by the equity markets. In general,
<PAGE>
the salaries and stock option awards of executive officers are not determined
by the Company's achievement of specific corporate performance criteria.
Instead the Committee determines the salaries for executive officers based upon
a review of salary surveys of other pharmaceutical companies performed for the
Committee. To provide the Compensation Committee with more information for
making compensation comparisons, Genentech surveys a broader group of
pharmaceutical companies than those companies included in the Standard & Poors
Drug Index shown on Genentech's Performance Measurement Comparison Graph.
Based upon such surveys, the executive officers' salaries are set in the mid-
range as compared to other pharmaceutical companies, while stock options are
set in the mid to high-range compared to other pharmaceutical companies. In
awarding stock options, the Committee considers individual performance, overall
contribution to Genentech, officer retention, the number of unvested stock
options and the total number of stock options to be awarded. In addition, the
Committee generally does not award stock options to executive officers more
frequently than biannually. Consistent with these policies, the Committee
considered the 1994 base salary for all executive officers in its December 1993
meeting and adopted an average merit increase in base salary for 1994 of 5.32%
for all executive officers except four (who received greater increases due to
promotions and adjustments) for an aggregate average increase in base salary of
7.08% for all executive officers. After considering the criteria relating to
awarding stock options and consistent with Genentech's biannual option grant
policy, in 1994 the Committee awarded executive officers, including the Named
Executive Officers, options to purchase an average of 73,846 shares of
Genentech's Redeemable Common Stock. In determining where a given officer's
total compensation, including the CEO's, is set within the ranges and in light
of the considerations described above, the Committee subjectively evaluates
such factors as the individual's performance and the profitability of Genentech
as measured by earnings per share.
Based on the surveys of other pharmaceutical companies described above,
bonuses are set in the low range compared to such companies. However, payment
of bonuses is also expressly linked to the attainment of specified corporate
goals which the Committee sets at each year's December meeting for the next
year. Among other things, these goals determine whether a bonus will be paid
to all employees and the amount of funding available for the bonus pool. For
the bonus for services rendered in 1994, the corporate performance goals, in
order of importance, related to: (i) achievement of corporate earnings
targets; (ii) initiation or completion of specified clinical trials
investigating the use of new products or new indications for marketed products;
and (iii) submission of regulatory filings such as an Investigational New Drug
Application or a New Drug Application for specified products or indications.
In setting these goals, the Committee is cognizant of the long development
cycle for human pharmaceuticals. The corporate performance goals for bonuses
selected by the Committee seek to balance the desire for immediate earnings and
the longer term goal of enhancing shareholder value by bringing to market many
of the potential therapies in Genentech's research and development pipeline.
In February, 1995, the Committee reviewed the corporate performance goals for
bonuses and determined that all of the corporate goals sufficient to fund the
maximum bonus pool were achieved. The Committee set a bonus of 51% of salary
for the bonus for the CEO based upon the achievement of all of the requisite
corporate goals. The Committee set a range of 0% to 53% of salary for bonuses
for all other executive officers. Within that range, the Committee set the
bonus for each executive officer based on the Committee's subjective evaluation
of the individual's performance. In the past nine years, based upon the
Company's degree of achievement of then specified corporate goals, there have
been two years when no bonuses were paid and two other years when the average
dollar bonus paid to each executive officer was less than the comparable bonus
paid in the previous year.
<PAGE>
The Committee uses the same procedures described above for the other
executive officers in setting the annual salary, bonus and stock option awards
for the CEO. The CEO's salary is determined based on comparisons with
pharmaceutical companies as described above. In awarding stock options, the
Committee considers the CEO's performance, overall contribution to Genentech,
retention, the number of unvested stock options and the total number of options
to be awarded. After considering the criteria relating to awarding stock
options and consistent with Genentech's biannual option grant policy, in 1994
the Committee awarded the CEO an option to purchase 250,000 shares of
Genentech's Redeemable Common Stock. The CEO's bonus is dependent on Genentech
achieving the performance goals outlined above and the Committee's subjective
evaluation of the CEO's performance. As described above, in determining where
the CEO's total compensation is set within the ranges and in light of the
considerations described above, the Committee subjectively evaluates such
factors as the individual's performance and the profitability of Genentech as
measured by earnings per share.
Compared to other pharmaceutical companies surveyed by Genentech, the CEO's
salary and stock options are in the mid range and his bonus is in the low
range.
Genentech has currently decided not to amend its stock option plans or
modify the administration thereof to comply with exclusions related to the
enactment of Section 162(m) of the Code relating to the non-deductibility of
compensation of Named Executive Officers in excess of $1,000,000 per year.
Compliance with one of the exclusionary requirements regarding oversight of
stock option plans by a committee of "outside directors" would necessitate
changes in the membership of the Compensation Committee that would contravene
the 1992 Agreement with Mr. Swanson and the Governance Agreement with Roche.
However, under proposed transition rules of the Internal Revenue Service,
Genentech will maintain the deductibility of any compensation paid to Named
Executive Officers in excess of $1,000,000 relating to options granted under
stock option plans, such as Genentech's stock option plans other than the 1994
Stock Option Plan (the "1994 Plan"), which were approved by stockholders before
December 20, 1993 pursuant to Rule 16b-3(b) of the Exchange Act until the
earlier of (i) the expiration or material modification of such plan, (ii) the
issuance of all stock allocated under such plan, or (iii) the first meeting of
stockholders subsequent to December 31, 1996 at which directors are elected
(the "1997 Annual Meeting"). So long as Genentech complies with such
transition rule, Genentech believes that compensation associated with the
exercise of any options granted under such option plans prior to the 1997
Annual Meeting will comply with the $1,000,000 compensation exclusions,
regardless of when such options are exercised. For all of Genentech's stock
option plans approved by its stockholders subsequent to December 20, 1993,
including the 1994 Plan, Genentech intends to draft such plans, to the extent
possible and pursuant to the proposed transition rules, to comply with the
$1,000,000 compensation exclusions related to Section 162(m) of the Code. One
of the proposed transition rules provides that stock option plans such as the
1994 Plan do not need to comply with the outside director oversight requirement
until the first meeting of stockholders on or subsequent to January 1, 1996 at
which directors are elected (the "1996 Annual Meeting"). So long as Genentech
complies with such transition rule, Genentech believes that compensation
<PAGE>
associated with the exercise of any options granted under the 1994 Plan prior
to the 1996 Annual Meeting will comply with the $1,000,000 compensation
exclusions, regardless of when such options are exercised.
From the members of the Compensation Committee of Genentech:
Armin M. Kessler
J. Richard Munro
Thomas J. Perkins
Robert A. Swanson
Compensation Committee Interlocks and Insider Participation
As noted above, during 1994 Genentech's Compensation Committee consisted
of Messrs. Kessler, Munro, Perkins and Swanson. Mr. Swanson served as Chief
Executive Officer of Genentech from 1976 to 1990 and has served as Genentech's
Chairman of the Board since 1990. Dr. Kessler has been Chief Operating Officer
of F. Hoffmann-La Roche Ltd. since 1990 and a member of the Board of Directors
of Roche Holding Ltd. Pursuant to the terms of the Governance Agreement, Dr.
Kessler is serving on Genentech's Compensation Committee as a designee of
Roche. See "Certain Relationships and Related Transactions" below for a
description of Genentech's relationship with Roche.
<PAGE>
Performance Measurement Comparison
The following chart shows a comparison of five year cumulative total
stockholder return among Genentech, the Standard & Poors Drug Index, and the
Standard & Poors 500 Index: (1)
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN
1989 1990 1991 1992 1993 1994
==================================================
<S> <C> <C> <C> <C> <C> <C>
Standard & Poors Drug Index 100 114 188 151 138 161
Standard & Poors 500 Index 100 97 126 136 150 152
Genentech, Inc. 100 139 200 231 313 283
<FN>
(1) The total return on investment (change in year end stock price plus
reinvested dividends) assumes $100 invested on December 31, 1989, in Genentech,
the Standard & Poors Drug Index (comprised of Eli Lilly & Company, Merck and
Company, Inc., Pfizer Inc., the Schering-Plough Corporation and The Upjohn
Company), and the Standard & Poors 500 Index.
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1980, Genentech and Hoffmann-La Roche Inc. ("Hoffmann-La
Roche") entered into an agreement regarding the development and
commercialization of human leukocyte ("alpha") and fibroblast ("beta")
interferons. Hoffmann-La Roche is a New Jersey corporation and a subsidiary of
Roche, and as such is affiliated with Genentech. Pursuant to this agreement, as
amended from time to time, Genentech granted Hoffmann-La Roche a sole and
exclusive, worldwide license to use and sell (and, under certain circumstances,
manufacture) alpha and beta interferons using organisms and knowhow developed
by Genentech and under patent rights belonging to Genentech, for a period of 20
years. Pursuant to this agreement, Genentech is entitled to royalties on sales
of interferons by Hoffmann-La Roche for 10 years after commercial introduction,
unless the period of exclusivity is extended for an additional 5 year, royalty-
bearing period. These royalties totaled $7.9 million in 1994.
In May 1991, Genentech entered into an agreement with Hoffmann-La Roche in
settlement of all disputes, including all issues in litigation between the
parties, relating to the Li patent on human growth hormone and methods for its
preparation. Under the settlement agreement, Genentech received a non-
exclusive license under the patent and will make payments and/or grant credits,
against future royalties under the interferon license described above, to
Hoffmann-La Roche totalling $4 million over a ten-year period. In addition,
Hoffman-La Roche received a paid-up non-exclusive license under certain
Genentech patents for specific product applications.
In March 1992, Genentech announced a collaborative agreement with F.
Hoffmann-LaRoche Ltd ("HLR") to establish Genentech Europe Limited and its
affiliates, intended to combine the resources of the two companies to focus on
commercialization of Genentech's drug Pulmozyme.
<PAGE>
HLR is a Swiss corporation and a subsidiary of Roche, and as such is
affiliated with Genentech. Pulmozyme is also being evaluated in both the
United States and Europe as a potential treatment for chronic obstructive
pulmonary diseases. Specifically, the agreement between Genentech and HLR
calls for the collaborative clinical development, registration and marketing of
Pulmozyme by Genentech and HLR in Western Europe. Genentech Europe Limited and
its affiliates are responsible for the manufacture and supply of Pulmozyme
throughout Europe and for the marketing of the product in certain European
countries. HLR provides technical support to Genentech and will make milestone
payments of up to $30 million to Genentech if certain conditions are met. The
two companies share the developmental costs and the marketing and selling
effort for Pulmozyme and profits from product sales. As of December 31, 1994,
Genentech has earned and received $19 million in milestone payments from HLR
(including $10.0 million earned in the fiscal year 1994) and also received
$10.5 million in payments in accordance with the profit sharing arrangement
between the companies (including $8.7 million accrued in fiscal year 1994).
Also as part of the agreement and in return for a royalty on product sales,
Genentech has granted HLR an exclusive license to sell Pulmozyme in the
countries outside of Western Europe, the United States, Canada and Japan under
a common Genentech trademark. Also, during fiscal year 1994 Genentech Europe
Limited sold $6.7 million worth of Pulmozyme to HLR.
In January 1992, Genentech entered into an agreement with HLR relating to
the development and supply of a recombinant tumor necrosis factor ("TNF")
receptor-fusion protein being evaluated for use in septic shock, rheumatoid
arthritis and multiple sclerosis. Pursuant to this Agreement, Genentech is
responsible for developing and scaling up a recombinant production process for
TNF receptor-fusion protein and for supplying preclinical and clinical
requirements of such material and, eventually, commercial requirements. HLR
reimburses Genentech for certain costs of developing and scaling its
manufacturing capability and will purchase manufactured TNF receptor-fusion
protein from Genentech; for calendar year 1994, such costs totalled
approximately $7.1 million. In addition, Genentech has the option to
participate in certain commercial opportunities with HLR.
In addition to the foregoing agreements, Genentech is developing a
mammalian cell line for HLR to produce a molecule that HLR is developing. HLR
will provide Genentech future services of an equivalent value in exchange for
Genentech's development efforts.
In 1994 Genentech entered into four R&D collaboration agreements with HLR
and Hoffmann-La Roche, each an affiliate of Genentech (collectively,
"HLR/Roche") which involve consideration in excess of $60,000. The four
collaborations are in the areas of oral IIb/IIIa antagonists, oral IL-8
antagonists, oral LFA/ICAM antagonists, and ras farnesltransferase inhibitors.
In general, under the oral IIb/IIIa antagonists collaboration agreement
Genentech will have marketing rights in the United States, Canada and Mexico
(the "Genentech Countries") to products developed through the collaboration,
and HLR/Roche will have marketing rights to products in the rest of the world
("ROW Countries"). In general, Genentech and HLR/Roche will share equally all
development costs of products for the Genentech Countries and Europe; however,
HLR/Roche will bear all such costs associated with other countries. In
general, Genentech will pay royalties to HLR/Roche on product sales in each of
the Genentech Countries, and HLR/Roche will pay an equivalent royalty rate to
Genentech on product sales in each of the ROW Countries. If under certain
circumstances one of the parties declines to participate and share in future
research and development of a product, royalties to be received by such party
shall be reduced. For the year ended December 31, 1994 no amounts have been
paid under this agreement.
<PAGE>
In general, under each of the oral IL-8 antagonists, oral LFA/ICAM
antagonists and ras farneysltransferase inhibitors collaboration agreements,
Genentech and HLR/Roche will share equally (i) the rights to market and sell
any products in the United States, Canada, Mexico and Europe (the
"Collaborative Countries") and (ii) any profits from product sales in the
Collaborative Countries. HLR/Roche will have the rights to market and sell any
products in the rest of the world, including, in certain circumstances, Japan
(the "Other ROW Countries"). In general, Genentech and HLR/Roche will share
equally all development costs of products for the Collaborative Countries;
however, HLR/Roche will bear all such costs associated with Other ROW
Countries. In general, if Genentech meets certain requirements as to its
development and sales efforts in Japan, each party will (i) share equally all
development costs for product in Japan, (ii) have the right to use, market and
sell such products in Japan, and (iii) pay a royalty to the other party on
product sales in Japan. Otherwise, Japan shall be considered part of
HLR/Roche's Other ROW Countries and HLR/Roche shall pay Genentech a royalty on
products sales in Japan. Under certain circumstances, each party has the
option to decline to participate and share in future research and development
of products (the "Other Optout Option"). If Genentech has not exercised its
Other Optout Option, HLR/Roche will pay a royalty to Genentech on sales of
products in each of the Other ROW Countries, and if Genentech has exercised its
Other Optout Option, HLR/Roche will pay a reduced royalty to Genentech on
worldwide sales of products. If HLR/Roche has exercised its Other Optout
Option, Genentech will pay a royalty to HLR/Roche on sales of products in each
of the Collaborative Countries. For the year ended December 31, 1994 no
amounts have been paid under these agreements.
<PAGE>
PROPOSAL 3-RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as Genentech's
independent auditors for the year ending December 31, 1995, and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. Ernst & Young LLP has
audited Genentech's financial statements since its inception in 1976.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as
Genentech's independent auditors is not required by the Bylaws or otherwise.
The Board of Directors has elected to seek such ratification as a matter of
good corporate practice. Should the stockholders fail to ratify the selection
of Ernst & Young LLP as independent auditors, the Board of Directors will
consider whether to retain that firm for the year ending December 31, 1995.
The affirmative vote of the holders of a majority of the Redeemable Common
Stock and Common Stock represented at the Annual Meeting, voting together as a
single class, is required for approval of this proposal, provided that a quorum
is present.
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
IN FAVOR OF SUCH RATIFICATION.
OTHER MATTERS
The Board of Directors knows of no other business to be presented at the
meeting, but if other matters do properly come before the meeting, it is
intended that the persons named in the Proxy will vote on such matters in
accordance with their best judgement.
<PAGE>
Graphics Appendix List
Page Description
- ---- -----------
21 A performance graph measuring the cumulative shareholder return
of Genentech, Inc., the Standard & Poor's 500 Stock Index and
the Standard & Poor's Drug Index for the five year period ending
December 31, 1994. Data points used in creating the performance
graph are listed in tabular form in the body of the electronic
document.
<PAGE>
FORM OF PROXY
GENENTECH, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 13, 1995
The undersigned hereby appoints John P. McLaughlin, as attorney and proxy of
the undersigned, with full power of substitution and resubstitution, to vote
all of the shares of Redeemable Common Stock of Genentech, Inc. ("Genentech")
which the undersigned may be entitled to vote at the Annual Meeting of
Stockholders of Genentech to be held at the Marriot Hotel, 1800 Old Bayshore
Highway, Burlingame, California on Thursday, April 13, 1995, commencing at 10
a.m., local time, and at any and all continuations and adjournments thereof,
with all powers that the undersigned would possess if personally present, upon
and in respect of the following matters and in accordance with the following
instructions.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES FOR DIRECTOR LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2 AND 3, AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH. YOU MAY REVOKE
THIS PROXY AT ANY TIME PRIOR TO THE VOTE AT THE ANNUAL MEETING.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT IN THE ACCOMPANYING
ENVELOPE.
X PLEASE MARK VOTES AS IN THIS EXAMPLE.
- --
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED
BELOW AND A VOTE FOR PROPOSALS 2 AND 3.
1. To elect five directors to hold office until the 1998 Annual Meeting of
Stockholders.
Nominees: Jurgen Drews, Armin M. Kessler, Donald L. Murfin,
John T. Potts, Jr.and G. Kirk Raab
For WITHHELD FROM ALL NOMINEES
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- ----- --------------------------
For all nominees except as noted above
2. To approve amendments to Genentech's 1991 Employee Stock Plan.
FOR AGAINST ABSTAIN
- ----- ------ ------
3. To ratify the selection of Ernst & Young, LLP as independent public
accountants of Genentech for the year ending December 31, 1995.
- ------- -------- -------
4. Discretionary authority on any other business that may properly come before
the meeting or any continuations and adjournments thereof.
<PAGE>
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT ----------
MARK HERE IF YOU PLAN TO ATTEND THE MEETING ------------
Please sign exactly as name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give full title. If more
than one trustee, all should sign. All joint owners must sign.
Signature: __________________________ Date ________ 1995
Signature: __________________________ Date ________ 1995
GENENTECH, INC.
1991 Employee Stock Plan, as Amended
1. Purpose
The purpose of this 1991 Employee Stock Plan (the "Plan") is to provide
employees of Genentech, Inc. (the "Company"), and its U.S. subsidiaries
designated by the Company's Board of Directors, who wish to become stockholders
of the Company an opportunity to purchase Redeemable Common Stock of the
Company (the "Shares"). The Plan is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code").
2. Eligible Employees
Subject to the provisions of Sections 7, 8 and 9 below, any individual who
is in the full-time employment of the Company on the day on which a Grant Date
(as defined in Section 3 below) occurs is eligible to participate in an
offering of Shares made by the Company hereunder. In addition, the board of
Directors may at any time designate one or more of the Company's U.S.
subsidiary corporations (as defined in Section 425(f) of the Code) to be
included in an offering of Shares under the Plan. Full-time employment shall
mean employment by the Company or its designated U. S. subsidiary for:
(a) 20 hours or more per week; and
(b) more than five months in the calendar year.
3. Grant Dates
From time to time, the Board of Directors may fix a date (a "Grant Date")
or a series of dates (each of which is a "Grant Date") on which the Company
will grant rights to purchase Shares ("Rights") to employees eligible to
participate.
4. Prices
The purchase price per Share for Shares covered by a grant of Rights
hereunder shall be determined by the Board of Directors, but in no event shall
be less than the lesser of:
(a) eighty-five percent (85%) of the fair market value of a Share on
the Grant Date on which such Right was granted; or
(b) eighty-five percent (85%) of the fair market value of a Share on
the date such Right is exercised as to that Share.
5. Exercise of Rights and Method of Payment
(a) Rights granted under the Plan will be exercisable on specific
dates as determined by the Board of Directors.
(b) The method of payment for Shares purchased upon exercise of
Rights granted hereunder shall be through regular payroll
deductions or by lump sum cash payment, or both, as determined
by the Board of Directors. No interest shall be paid upon
payroll deductions or other payments in exercise of Rights
unless specifically provided for by the Board of Directors.
<PAGE>
6. Terms of Rights
Rights granted hereunder shall be exercisable during a twenty-seven (27)
month period or such shorter period as determined by the Board of Directors.
All Rights granted to an employee shall terminate upon termination of full-time
employment of the employee. Any payments received by the Company from a
participating employee with respect to a Right granted hereunder and not
utilized for the purchase of Shares upon exercise of such Right shall be
promptly returned to such employee by the Company after termination of such
Right, except that amounts that were not so utilized because such amounts were
insufficient to purchase a whole Share may be applied toward the purchase of
Shares pursuant to a Right subsequently granted hereunder, if any.
7. Shares Subject to the Plan
No more than three million eight hundred thousand (3,800,000) Shares may
be sold pursuant to Rights granted under the Plan. Appropriate adjustments in
the above figure, in the number of Shares covered by outstanding Rights granted
hereunder, in the exercise price of the Rights and in the maximum number of
Shares which an employee may purchase (pursuant to Section 9 below) shall be
made to give effect to any mergers, consolidations, reorganizations,
recapitalizations, stock splits, stock dividends or other relevant changes in
the capitalization of the Company occurring after the effective date of the
Plan, provided that no fractional Shares shall be subject to a Right and each
Right shall be adjusted downward to the nearest full Share. Any agreement of
merger or consolidation will include provisions for protection of the then
existing Rights of participating employees under the Plan. Either authorized
and unissued Shares or issued Shares heretofore or hereafter reacquired by the
Company may be made subject to Rights under the Plan. If for any reason any
Right under the Plan terminates in whole or in part, Shares subject to such
terminated Right may again be subject to a Right under the Plan.
8. Limitations on Grants
Anything to the contrary notwithstanding, pursuant to Section 423 of the
Code:
(a) No employee shall be granted a Right hereunder if such employee,
immediately after the Right is granted, owns stock possessing
five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company, its parent
corporation (as defined in Section 425(c) of the Code) or any
subsidiary corporation, in each case computed in accordance with
Section 423(b)(3) of the Code.
(b) No employee shall be granted a Right which permits his Rights to
purchase Shares under all employee stock purchase plans of the
Company and its subsidiaries to accrue at a rate which exceeds
twenty-five thousand dollars ($25,000) (or such other maximum as
may be prescribed from time to time by the Code) of fair market
value of such Shares (determined at the time such Right is
granted) for each calendar year in which such Right is
outstanding at any time, all in accordance with the provisions
of Section 423(b)(8) of the Code.
9. Limits on Participation
(a) Participation shall be limited to eligible employees who enroll
under the Plan.
<PAGE>
(b) No Right granted to any participating employee shall cover more than
twelve thousand (12,000) Shares.
(c) No more than One Hundred Eighty Thousand (180,000) Shares may be
purchased during any calendar quarter upon the exercise of Rights
granted under the Plan; provided, however, that for those calendar
quarters in which the Company pays regular annual bonuses to
eligible employees, the maximum aggregate numbers of Shares which
may be purchased upon the exercise of Rights shall be Two Hundred
Thousand (200,000) Shares. If the aggregate purchases of Shares
upon exercises of Rights granted under the Plan would exceed the
applicable maximum number for a particular calendar quarter, the
maximum permitted number of Shares shall be allocated to the
exercising participants in proportion to the number of Shares they
would otherwise purchase during such calendar quarter.
10. Employee's Rights as Stockholder
No participating employee shall have any Rights as a stockholder in the
Shares covered by a Right granted hereunder until such Right has been
exercised, full payment has been made for the corresponding Shares and the
purchase has been entered in the records of the Transfer Agent for the Shares.
11. Rights Not Transferable
Rights under the Plan are not assignable or transferable by a
participating employee.
12. Amendments or Discontinuance of the Plan
The Board of Directors of the Company shall have the right to amend,
modify or terminate the Plan at any time without notice; provided, however,
that the then existing Rights of all participating employees shall not be
adversely affected thereby, except that in the case of a participating employee
of a foreign branch of the Company or a designated U.S. subsidiary corporation
the Plan may be varied to conform with local laws, and provided further that,
subject to the provisions of Section 7 above, no such amendment to the Plan
shall, without the approval of the stockholders of the Company:
(a) Increase the total number of Shares which may be offered under
the Plan;
(b) Amend the Plan in any manner which would render Rights granted
hereunder unqualified for special tax treatment under Section
421 of the Code.
13. Effective Date and Approvals.
The Plan shall become effective as of January 1, 1991. The Company's
obligation to offer, sell or deliver its Shares under the Plan is subject to
the approval of the Company's stockholders and any governmental approval
required in connection with the authorized issuance or sale of such Shares and
is further subject to the determination by the Company that all applicable
securities laws have been complied with.
<PAGE>
14. Administration of the Plan
The Board of Directors or any committee or person(s) to whom it delegates
its authority (the "Administrator") shall administer, interpret and apply all
provisions of the Plan. The Administrator may waive such provisions of the
Plan as it deems necessary to meet special circumstances not anticipated or
covered expressly by the Plan. Nothing contained in this Section shall be
deemed to authorize the Administrator to alter or administer the provisions of
the Plan in a manner inconsistent with the provisions of Section 423 of the
Code.