<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Definitive Proxy Statement
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
/ / Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2)
GENOME THERAPEUTICS CORP.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
GENOME THERAPEUTICS CORP.
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
GENOME THERAPEUTICS CORP.
------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
IN LIEU OF AN ANNUAL MEETING
TO BE HELD ON FEBRUARY 16, 1996
To the Shareholders of
GENOME THERAPEUTICS CORP.:
NOTICE IS HEREBY GIVEN that a Special Meeting in Lieu of an Annual Meeting
of Shareholders of Genome Therapeutics Corp. (the "Company") will be held on
February 16, 1996 at 1:00 p.m. at The Bank of Boston, 100 Federal Street, 35th
Floor, Boston, Massachusetts, for the following purposes:
A. To elect six directors.
B. To consider approval of the Company's 1995 Stock Option Plan.
C. To consider approval of the grant of a stock option to Robert J.
Hennessey.
D. To consider approval of the grant of a stock option to Philip Leder.
E. To consider approval of the grant of a stock option to Lawrence Levy.
F. To consider approval of the grant of a stock option to Donald J.
McCarren.
G. To consider approval of the grant of a stock option to Steven M.
Rauscher.
H. To ratify the selection of Arthur Andersen LLP as the Company's
auditors for the fiscal year ending August 31, 1996.
I. To transact such other business as may properly come before the meeting
or any adjournments of the meeting.
The Board of Directors has fixed the close of business on December 19, 1995
as the record date for the determination of shareholders entitled to notice of
and to vote at this meeting and at any adjourned session(s) thereof.
All shareholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign, date and
return the enclosed form of proxy as promptly as possible. Shareholders
attending the meeting may vote in person even if they have returned a proxy.
By Order of the Board of Directors,
DAVID C. CHAPIN, Clerk
January 16, 1996
Boston, Massachusetts
<PAGE> 3
GENOME THERAPEUTICS CORP.
PROXY STATEMENT
------------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited by the Board of Directors of Genome
Therapeutics Corp. (the "Company") for use at a Special Meeting in Lieu of an
Annual Meeting of Shareholders to be held on February 16, 1996 (the "Annual
Meeting"), or at any adjourned session(s) of that meeting, for the purposes set
forth in the foregoing Notice. The cost of solicitation of proxies, including
expenses in connection with preparing and mailing this Proxy Statement, will be
borne by the Company. This solicitation of proxies is being made by mail,
although it may be supplemented by telephone, facsimile or personal solicitation
by directors, officers, or other employees of the Company. No additional
compensation will be paid to such individuals for such services. This Proxy
Statement and accompanying proxy will be mailed on or about January 16, 1996, to
all shareholders entitled to vote at the meeting. The address of the Company is
100 Beaver Street, Waltham, Massachusetts, 02154.
Only shareholders of record at the close of business on December 19, 1995
will be entitled to notice of and to vote at the Annual Meeting. As of December
19, 1995, the Company had outstanding 13,729,761 shares of Common Stock, $.10
par value (the "Common Stock"). Each share of Common Stock is entitled to one
vote.
Any shareholder giving a proxy has the power to revoke it at any time
before it is exercised. It may be revoked by filing with the Clerk of the
Company an instrument of revocation or a duly executed proxy bearing a later
date. It may also be revoked by attending the meeting and electing to vote in
person.
A copy of the Company's 1995 Annual Report to Shareholders, including
financial statements, is being mailed concurrently with this Proxy Statement to
each shareholder entitled to vote at the Annual Meeting. THE COMPANY WILL
PROVIDE, WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR
FISCAL YEAR ENDED AUGUST 31, 1995 AND RELATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES TO EACH SHAREHOLDER ENTITLED TO VOTE AT THE ANNUAL MEETING
WHO REQUESTS A COPY OF SUCH IN WRITING. REQUESTS SHOULD BE SENT TO GENOME
THERAPEUTICS CORP., 100 BEAVER STREET, WALTHAM, MASSACHUSETTS, 02154, ATTENTION:
FENEL M. ELOI, VICE PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER.
QUORUM, REQUIRED VOTES AND METHOD OF TABULATION
Consistent with Massachusetts law and under the Company's by-laws, a
majority of the shares entitled to be cast on a particular matter, present in
person or represented by proxy, constitutes a quorum as to such matter. Votes
cast by proxy or in person at the Annual Meeting will be counted by persons
appointed by the Company to act as election inspectors for the Annual Meeting.
The Company will count shares represented by proxies that withhold
authority to vote for a nominee for election as a director, or that reflect
abstentions and "broker non-votes" (i.e., shares represented at the Annual
Meeting held by brokers and nominees as to which instructions have not been
received from the beneficial owners or persons entitled to vote, and the broker
or nominee does not have the discretionary voting power in the particular
matter) on any other matter, only as shares that are present and entitled to
vote for purposes of determining the presence of a quorum, but none of the
withheld votes, abstentions, or broker non-votes will be counted as "cast" or
have any effect on the outcome of voting on the particular matter, even though
persons analyzing the results of the voting may interpret the results
differently.
<PAGE> 4
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth, as of December 19, 1995, certain
information regarding all shareholders known by the Company to be the beneficial
owners of more than 5% of the Company's Common Stock, and the stock ownership of
the Company's current directors and nominees, the Company's executive officers
and of all directors and officers of the Company as a group:
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP OF CLASS
- --------------------------------------- ---------- --------
<S> <C> <C>
Orrie M. Friedman................................................... 2,720,481(2) 19.8%
Robert J. Hennessey................................................. 1,600,000(5) 10.4%
Biotechnology Value Fund, L.P. ..................................... 1,277,192(3) 9.3%
Philip Leder........................................................ 137,250(4) 1.0%
Lawrence Levy....................................................... 25,000(4) *
Donald J. McCarren.................................................. 25,000(4) *
Steven M. Rauscher.................................................. 25,000(4) *
Gerald F. Vovis, Ph.D............................................... 218,575(4) 1.6%
Fenel M. Eloi....................................................... 102,625(4) *
John P. Richard..................................................... 96,250(4) *
All directors and officers as a group (9 persons)................... 4,950,183(6) 31.1%
<FN>
- ---------------
* Less than 1%
(1) The address of all such persons is c/o the Company, 100 Beaver Street,
Waltham, Massachusetts, 02154, except Biotechnology Value Fund, L.P.
("BVF"), whose address is c/o Grosvenor Capital Management, L.P., 33 West
Wacker Drive, Suite 1600, Chicago, IL 60606.
(2) Includes 301,952 shares owned by, or in trust for, certain members of Dr.
Friedman's family. Dr. Friedman disclaims beneficial ownership of these
shares.
(3) Includes 447,014 shares owned by BVF; 373,560 shares owned by Biotech 1
Investment L.L.C. ("Biotech 1"); 265,036 owned by Biotech 2 Investment
L.L.C. ("Biotech 2"); and 191,582 shares owned by Investment 10 L.L.C.
("Investment 10"; and collectively with BVF, Biotech 1 and Biotech 2 the
"Funds"). BVI, Inc., a Delaware corporation ("BVI") is the general partner
of BVF Partners, L.P. ("BV Partners") a Delaware limited partnership which
is the general partner of BVF. BVI is an investment advisor to the Funds
and shares voting power and dispositive power with respect to the Common
Stock acquired by the Funds. Mark N. Lampert is the sole shareholder of
BVI, which controls BV Partners, and therefore he may be deemed the
beneficial owner of all of the Common Stock owned by the Funds.
(4) Includes 25,000 shares for each of Mr. Levy, Dr. McCarren and Mr. Rauscher,
137,250 shares for Dr. Leder, 102,625 shares for Mr. Eloi, 96,250 shares
for Mr. Richard and 171,575 shares for Dr. Vovis which are issuable upon
the exercise of vested options or options which are to become vested within
60 days following December 19, 1995. Excludes options which have been
granted to directors and officers but which will not become vested within
60 days following December 19, 1995.
(5) Includes 1,600,000 shares which are issuable upon the exercise of vested
options.
(6) Includes a total of 2,182,700 shares which may be issuable upon the exercise
of vested options or options which are to become vested 60 days following
December 19, 1995. Also includes 301,952 shares as to which Dr. Friedman
disclaims beneficial ownership. Excludes options which have been granted to
directors and officers but which will not become vested within 60 days
following December 19, 1995.
</TABLE>
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent of the Company's stock, to file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission and the
National Association of Securities Dealers. Executive officers, directors and
greater than ten percent
2
<PAGE> 5
beneficial owners are required by Securities and Exchange Commission regulations
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during fiscal 1995 all Section 16(a) filing
requirements applicable to its executive officers, directors and greater than
ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
<TABLE>
The following table sets forth the cash compensation paid by the Company to
its Chief Executive Officer and other executive officers who earned more than
$100,000 for the fiscal year ended August 31, 1995:
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------------- ------------
AWARDS
------------
SECURITIES
UNDERLYING
STOCK ALL
OPTIONS/ OTHER
FISCAL SALARY BONUS SARS COMPENSATION(1)
NAME AND PRINCIPAL POSITION YEAR $ $ # $
- ----------------------------------------------- ------ ------- ------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Robert J. Hennessey............................ 1995 258,655(2) 25,000 -- 1,000
Chairman, President/CEO 1994 244,116(3) 15,000 -- 288
1993 111,592(4) -- 1,600,000 --
Fenel M. Eloi.................................. 1995 108,800 -- 40,500 1,000
Vice President, 1994 102,600 -- 40,000 1,000
CFO & Treasurer 1993 94,950 5,000 45,000 654
John P. Richard................................ 1995 126,000(5) -- 40,000 1,000
Vice President 1994 117,892 -- 30,000 1,000
Business Development 1993 109,322(6) 7,500 10,000 885
Gerald F. Vovis................................ 1995 144,900 -- 5,100 1,000
Sr. Vice President 1994 140,000 -- 50,100 1,000
Research & Development 1993 131,875 10,000 16,600 1,000
- ---------------
<FN>
(1) These amounts represent Company contributions to the Company's 401(k) Plan.
(2) This amount includes $34,031 for temporary housing.
(3) This amount includes $36,608 for temporary housing.
(4) Mr. Hennessey joined the Company on March 15, 1993. This amount represents
approximately 24 weeks of salary and $17,313 for temporary housing.
(5) This amount includes $2,507 for relocation expenses.
(6) This amount includes $5,228 for relocation expenses.
</TABLE>
EXECUTIVE EMPLOYMENT AGREEMENT
Robert J. Hennessey, Chairman of the Board (since May, 1994), President and
Chief Executive Officer of the Company, has an employment agreement with the
Company which commenced March 15, 1993 and ends on March 15, 1996. The agreement
is subject to automatic extension annually thereafter unless prior written
notice of nonrenewal is given. Mr. Hennessey's current base salary is $235,000,
and is subject to increase each year, as determined by the Board of Directors or
Stock Option and Compensation Committee. The percentage of the increase must be
at least equal to the percentage increase, if any, during the preceding year in
the Consumer Price Index -- Boston Region. The agreement entitles Mr. Hennessey
to receive bonuses based on the Company's achievement of certain operating and
financial goals. The amount of any bonus shall be determined by the Board (or a
committee of the Board) pursuant to the agreement.
3
<PAGE> 6
Mr. Hennessey was also awarded non-qualified stock options to purchase 1,600,000
shares of Common Stock upon hiring, 1,200,000 of which were vested as of August
31, 1995, and the balance of which have vested since that date.
On December 21, 1995 the Board of Directors approved a new employment
agreement (the "New Agreement") for Robert J. Hennessey. The New Agreement
becomes effective on March 15, 1996, and terminates on March 15, 1998. The New
Agreement is subject to automatic extension annually thereafter unless prior
notice of nonrenewal is given. Mr. Hennessey will continue as Chairman of the
Board, President and Chief Executive Officer of the Company with an annual base
salary of $260,000, subject to increase each year as determined by the Board of
Directors or the Stock Option and Compensation Committee. The percentage of the
increase must at least be equal to the percentage increase, if any, during the
preceding year in the Consumer Price Index -- Boston Region. The New Agreement
entitles Mr. Hennessey to receive, on March 15, 1996, a bonus of $50,000 for his
efforts in the Company achieving operating and financial goals from March 15,
1995 to March 15, 1996. Mr. Hennessey was also awarded, subject to shareholder
approval, non-incentive stock options to purchase up to 300,000 shares of Common
Stock, at an exercise price of $8.87 per share, the fair market value of the
Common Stock on the date of the grant. The options by their terms vest on
December 21, 2000 or earlier as follows: (i) 75,000 options will vest if the
average closing price of the Common Stock for a period of 10 out of 20
consecutive trading days is $10.25 or higher; (ii) an additional 100,000 options
will vest if the average closing price of the Common Stock for a period of 10
out of 20 consecutive trading days is $12.25 or higher and (iii) an additional
125,000 options will vest if the average closing price of the Common Stock for a
period of 10 out of 20 consecutive trading days is $14.25 or higher. These
options shall become fully vested upon the occurrence of a change in control (as
defined). In addition, the agreement provides for the continuation of all
compensation and benefits for a period equal to the lesser of the remaining term
of the agreement or 8 months in the event that Mr. Hennessey's employment is
terminated without cause (as defined) or terminates with good reason (as
defined). In the event that Mr. Hennessey's employment is terminated by the
Company within 12 months following a change in control (as defined) for any
reason other than cause, the Company will pay him a lump sum cash payment equal
to two times the base salary and bonus paid to Mr. Hennessey for the calendar
year preceding the year in which the change in control occurs, and all accrued
obligations (as defined). The agreement contains customary confidentiality and
non-competition clauses.
4
<PAGE> 7
<TABLE>
The following table reflects the stock options granted by the Company to
the named executive officers for the fiscal year ending August 31, 1995:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<CAPTION>
POTENTIAL REALIZABLE
SECURITIES VALUE AT ASSUMED
UNDERLYING RATES OF STOCK PRICE
OPTIONS/ % OF TOTAL OPTIONS/ EXERCISE APPRECIATION FOR
SARS SARS GRANTED TO OR BASE OPTION TERM(1)
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------
NAME # FISCAL YEAR ($/SHARE) DATE 5% 10%
- ---------------------- ---------- ------------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Hennessey... -- -- -- -- -- --
Gerald F. Vovis....... 5,100(2) 1.4% $2.03 11/07/04 $ 6,522 $ 16,517
Fenel M. Eloi......... 15,500(2) 4.4% 2.03 11/07/04 19,821 50,199
Fenel M. Eloi......... 25,000(3) 7.0% 5.31 07/17/05 83,525 211,669
John P. Richard....... 15,000(2) 4.2% 2.03 11/07/04 19,182 48,580
John P. Richard....... 25,000(3) 7.0% 5.31 07/17/05 83,525 211,669
- ---------------
<FN>
(1) The amounts shown on this table represent hypothetical gains that could be
achieved for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock appreciation of 5%
and 10%, compounded annually from the date the respective options were
granted to their expiration date. The gains shown are net of the option
exercise price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock, the
optionholders' continued employment through the option period, and the date
on which the options are exercised.
(2) These incentive stock options were granted on November 7, 1994 and have a
term of ten years. The options vest in four equal installments over the
next four years on the anniversary of the date of grant.
(3) These non-incentive stock options were granted on July 17, 1995 and have a
term of ten years. The options vest in four equal installments over the
next four years on the anniversary of the date of grant.
</TABLE>
<TABLE>
The following table sets forth the aggregate dollar value of all options
exercised and the total number of unexercised options held on August 31, 1995 by
each of the named executive officers:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS/SARS AT
OPTIONS/SARS AT FISCAL YEAR-END
FISCAL YEAR-END (#) ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
- ------------------------ --------------- ------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Robert J. Hennessey..... -- -- 1,200,000/400,000 7,275,000/2,425,000
Gerald F. Vovis......... -- -- 190,075/58,725 1,123,405/363,346
Fenel M. Eloi........... -- -- 96,250/99,250 597,234/496,019
John P. Richard......... -- -- 82,500/92,500 518,294/496,756
- ---------------
<FN>
(1) The closing price of the Common Stock on August 31, 1995 was $7.69 as
reported by NASDAQ National Market. Value is calculated on the basis of the
difference between the option exercise price and $7.69 multiplied by the
number of shares of Common Stock underlying the option.
</TABLE>
5
<PAGE> 8
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934 that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following report and the Performance Graph
on page 7 shall not be incorporated by reference into any such filings.
REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE
The Stock Option and Compensation Committee of the Board of Directors (the
"Compensation Committee") of the Company consists of Drs. Friedman and McCarren
and Mr. Levy. The Compensation Committee's responsibilities include recommending
to the Board of Directors the compensation of the Company's executive officers,
administering the Company's stock option plans and approving the grant of stock
options to employees of, and consultants to, the Company. No member of the
Compensation Committee was an officer or employee of the Company during the year
ended August 31, 1995.
The Company's executive compensation programs reflect input and
recommendations from the Company's Chief Executive Officer. The Compensation
Committee reviews his proposals concerning executive compensation and makes a
recommendation to the Board of Directors concerning the scope and nature of
compensation arrangements. It is the Company's current policy to establish,
structure and administer compensation plans and arrangements so that the
deductibility to the Company of such compensation will not be limited under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Company and Mr. Hennessey are parties to an employment agreement.
During the year ended August 31, 1995 Mr. Hennessey received a salary of
$224,624 and a bonus of $25,000 under the agreement. Pursuant to the agreement,
in March 1993 Mr. Hennessey was granted an option to purchase up to 1,600,000
shares of the Company's Common Stock. See "Executive Compensation -- Executive
Employment Agreement".
Mr. Hennessey's base salary and bonus reflect Mr. Hennessey's and the
Company's accomplishments since his employment with the Company began in March
1993 and during fiscal 1995. During this period, Mr. Hennessey oversaw the
divestiture of the Company's unprofitable genetic testing business, completed
two private placement financings in which the Company received net proceeds
totaling approximately $3,600,000, and increased the Company's visibility in the
pharmaceutical and investment communities which led to a significant increase in
the price of the Company's Common Stock during the period. No specific weight
was assigned to any of these accomplishments by the Compensation Committee in
setting Mr. Hennessey's compensation.
EXECUTIVE OFFICER COMPENSATION
The Company maintains compensation and incentive programs designed to
motivate, retain and attract management. The compensation levels provided for
the Company's executive officers reflect consideration of the compensation
levels of comparable companies and the performance and potential of the officer.
Ongoing executive officer compensation is determined subjectively, in that
the Chief Executive Officer provides recommendations to the Compensation
Committee for the proposed remuneration of the Company's officers based on his
evaluation of those individuals' performance against objectives jointly
formulated by the Chief Executive Officer and the officers, any change in their
responsibilities, their potential to contribute to the success of the Company
and the compensation levels of similarly situated employees of comparable
companies. No specific weights have been assigned to these factors by the
Compensation Committee.
Officer compensation is generally composed of cash compensation and option
grants under the Company's stock option plans. The Company believes strongly in
the use of stock options to align the interests of its employees, particularly
its executive officers, with the interests of the Company's shareholders.
Options generally vest over a period of years, in order to serve as a future
incentive. There is no formula for the award of stock options to individual
executives. Factors considered in making option awards include the officer's
6
<PAGE> 9
existing equity or stock option position, the importance to the Company of
retaining the officer's services, the officer's potential to contribute to the
success of the Company and the officer's past contributions to the Company.
STOCK OPTION AND COMPENSATION COMMITTEE
Orrie M. Friedman
Donald J. McCarren
Lawrence Levy
PERFORMANCE GRAPH
NOTE: The stock price performance shown on the graph below is not necessarily
indicative of future price performance.
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG GENOME THERAPEUTICS CORP., THE S&P 500 INDEX
AND THE AMEX BIOTECHNOLOGY INDEX
The graph below compares the relative cumulative total returns to the
Company's shareholders with the cumulative total of the S&P 500 Index and the
Amex Biotechnology Index over the last five years.
<CAPTION>
Genome
Measurement Period Therapeutics AMEX BIO-
(Fiscal Year Covered) Corp. S & P 500 TECHNOLOGY
<S> <C> <C> <C>
8/90 100.00 100.00 100.00
8/91 92.00 127.00 253.00
8/92 88.00 137.00 228.00
8/93 85.00 158.00 180.00
8/94 123.00 166.00 152.00
8/95 477.00 202.00 175.00
</TABLE>
7
<PAGE> 10
PROPOSAL A
ELECTION OF SIX DIRECTORS
The Board of Directors has fixed the number of directors at six. It is
intended that the enclosed proxy will be voted for the election of the six
persons named below unless such authority has been withheld in the proxy. Each
director will hold office until the next annual meeting and until his successor
is elected and shall have been qualified. The six nominees for election as
directors who receive the greatest number of votes properly cast for the
election of directors shall be elected directors of the Company. If any nominee
should be unavailable for election at the time of the Annual Meeting (which is
not presently anticipated) the persons named as proxies may vote for another
person in their discretion or may vote for fewer than six directors. All of the
nominees are currently directors of the Company and were elected at the 1995
Annual Meeting. All have agreed to serve as directors if elected at the Annual
Meeting.
Directors of the Company who are not also employees receive an annual
retainer of $4,000 and a meeting attendance fee of $1,000 per meeting plus
out-of-pocket expenses.
The nominees for directors of the Company who are proposed for election at
the Annual Meeting, their ages, and a description of their principal occupations
are set forth in the following table. The principal occupations and business
experience of the nominees for the past five years have been with the employers
indicated, although in some cases they have held different positions with such
employers.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS SINCE
- ----------------------- --- ------------------------------------------------------ --------
<S> <C> <C> <C>
Robert J. Hennessey.... 53 Mr. Hennessey became Chief Executive Officer and 1993
President of the Company in March 1993 and was elected
Chairman of the Board in May 1994. From 1990 to March
1993, Mr. Hennessey was President of Hennessey &
Associates, Ltd., a consulting firm, and from 1980 to
1990 he was a Vice President of Sterling Drug, Inc., a
pharmaceutical company.
Orrie M. Friedman...... 80 Dr. Friedman, the founder and a director of the 1962
Company, served as President and Chief Executive
Officer of the Company until March 1993 and served as
Chairman of the Board until 1994. Dr. Friedman is
currently President of Grenfell Development
Corporation, a development stage biopharmaceutical
company.
Philip J. Leder........ 61 Dr. Leder, a director of the Company, has served as 1994
the John Emery Andrus Professor of Genetics and
Chairman of the Department of Genetics at Harvard
Medical School since 1980. He has also been a Senior
Investigator of the Howard Hughes Medical Institute
since 1986. Dr. Leder is a director of Monsanto
Company, Inc.
Lawrence Levy.......... 72 Mr. Levy, a director of the Company, is Chairman of 1986
the Board of Directors and President of Northern
Ventures Corporation, an international management and
business consulting firm. He has held this position
since 1982.
Donald J. McCarren..... 55 Dr. McCarren is a director of the Company and since 1993
October 1994 has been the President, Chief Executive
Officer and a director of Tacora Corp., a drug
delivery company. From 1992 to 1994, Dr. McCarren was
the President and Chief Operating Officer of
ImmunoGen, Inc., a biopharmaceutical company, and from
1990 to 1992 Dr. McCarren was the President of Adria
Laboratories, a division of Erbamont, N.V., a
biopharmaceutical company.
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND OTHER DIRECTORSHIPS SINCE
- ----------------------- --- ------------------------------------------------------ --------
<S> <C> <C> <C>
Steven M. Rauscher..... 42 Mr. Rauscher is a director of the Company and has been 1993
the Chief Executive Officer and a director of
Affiliated Research Centers, Inc. since 1995. From
1993 to 1995 Mr. Rauscher was President and Chief
Executive Officer of Pharmedic, Inc., a
biopharmaceutical company, and from 1976 to 1993, he
was Vice President of Abbott Laboratories, a
biopharmaceutical company.
</TABLE>
In connection with the purchase of Common Stock by The Dow Chemical Company
("Dow") in 1981, Dr. Friedman agreed that, as long as Dow owns at least 2% of
the Company's outstanding Common Stock, he will vote all shares of Common Stock
then owned by him and will otherwise use his best efforts to cause and maintain
the election to the Board of Directors of a mutually satisfactory representative
of Dow. Dow has advised Dr. Friedman that it does not wish to have a
representative on the Board at this time.
The Board of Directors held 7 meetings during fiscal 1995. In fiscal 1995,
each member of the Board of Directors attended at least 75% of the meetings of
the Board of Directors and of each committee on which they serve.
The Board of Directors has established an Audit Committee consisting of Mr.
Rauscher, Dr. McCarren, and Mr. Levy which held 1 meeting during fiscal 1995.
The duties of the Audit Committee consist of reviewing with the Company's
independent auditors and its management the scope and results of the annual
audit, the scope of other services provided by the Company's auditors, proposed
changes in the Company's financial and accounting standards and principles, the
Company's policies and procedures with respect to its internal accounting,
auditing and financial controls, and making recommendations to the Board of
Directors on the engagement of independent auditors.
The Board of Directors has established a Stock Option and Compensation
Committee, consisting of Drs. Friedman and McCarren and Mr. Levy. The duties of
the Stock Option and Compensation Committee consist of recommending to the Board
of Directors the compensation of the Company's executive officers, administering
the Company's stock option plans and approving the grant of stock options to
employees of, and consultants to, the Company. During fiscal 1995, the Stock
Option and Compensation Committee held 4 meetings.
The Board of Directors has established a Nominating Committee, consisting
of Mr. Levy and Drs. Friedman and Leder. The duties of the Nominating Committee
consist of considering and making recommendations regarding candidates for
election to the Board of Directors. The Nominating Committee was established in
November 1995, and held no meetings during fiscal 1995. The Nominating Committee
does not consider nominees recommended by shareholders.
THE BOARD OF DIRECTORS RECOMMENDS ELECTION OF THE SIX NOMINEES
DESCRIBED ABOVE.
EXECUTIVE OFFICERS
The executive officers of the Company who are not also directors of the
Company are as follows.
<TABLE>
<CAPTION>
NAME POSITION
------------------------- ------------------------------------------------------
<S> <C>
Fenel M. Eloi............ Vice President, Treasurer and Chief Financial Officer
John P. Richard.......... Vice President -- Business Development
Gerald F. Vovis, Ph.D.... Senior Vice President -- Research and Development
</TABLE>
Fenel M. Eloi joined the Company in September 1989 as Corporate Controller
and was promoted to his current position in 1991. Between 1984 and 1989, Mr.
Eloi held various financial management positions at GTE. Prior to 1984, he held
various financial positions, both domestic and international, with Haemonetics
Corporation and Simplex Time Recorder Co.
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<PAGE> 12
John P. Richard became Vice President - Business Development in June 1993.
From 1991 to June 1993, Mr. Richard served the Company as Vice President, Sales
and Marketing for Collaborative Diagnostics, a start-up genetic reference
laboratory wholly owned by the Company. In 1987, Mr. Richard founded IMPATH
Laboratories, a cancer pathology laboratory, located in New York City. He served
as President of IMPATH from 1987 to 1990. Prior to this, he held positions in
operations, corporate planning and marketing at Microbiological Associates and
Biogenex.
Gerald F. Vovis, Ph.D. has served as the Senior Vice President-Research and
Development since 1991. He has held positions of increasing responsibility since
joining the Company in 1980. Before joining the Company, Dr. Vovis spent ten
years in the Genetics Department of Rockefeller University in New York City as a
Research Associate and faculty member.
PROPOSAL B
ADOPTION OF 1995 STOCK OPTION PLAN
GENERAL
On November 16, 1995, the Board of Directors adopted the 1995 Stock Option
Plan (the "1995 Plan"), subject to shareholder approval. The 1995 Plan's
eligibility criteria are intended to encompass the employees, consultants and
advisers of the Company and its subsidiaries.
Subject to adjustment for stock splits and similar events, the total number
of shares of Common Stock that can be issued under the 1995 Plan is 750,000
shares. If any award under the 1995 Plan expires (or is terminated) without
having been exercised in full, the number of shares of Common Stock as to which
such award was not exercised will be available for future grants.
The proceeds received by the Company from exercises of awards under the
1995 Plan will be used for general corporate purposes. The shares of Common
Stock to be issued upon exercise of awards granted under the 1995 Plan will be
authorized but unissued shares or shares reacquired by the Company. No
fractional shares of Common Stock will be delivered under the 1995 Plan.
SUMMARY OF THE 1995 PLAN
The 1995 Plan is set forth as Exhibit A to this Proxy Statement. The
following description of certain features of the 1995 Plan is qualified in its
entirety by this reference.
Administration; Eligible Employees. The 1995 Plan will be administered by
the Compensation Committee of the Board of Directors, all of the members of
which are "disinterested persons" as that term is defined under rules
promulgated by the Securities and Exchange Commission, and "outside directors"
within the meaning of section 162(m) of the Code. All members of the
Compensation Committee serve at the pleasure of the Board.
The Compensation Committee has full power to select, from among the
personnel eligible for options, the individuals to whom options will be granted
and to determine the specific terms of each option, subject to the provisions of
the 1995 Plan. Persons eligible to participate in the 1995 Plan will be
employees, consultants, and advisers, whether or not they are officers or
directors, of the Company or any of its subsidiaries. Subject to certain
adjustments for stock splits and similar events, the maximum number of shares of
Common Stock with respect to which an award may be granted to any participant
during any single fiscal year is 500,000.
General Terms of Options. The 1995 Plan permits the granting of options
that qualify as incentive stock options under the Code ("incentive options" or
"ISOs"), stock options that do not so qualify ("nonstatutory options"), and
stock appreciation rights ("SARs"). The option exercise price of each option
shall be determined by the Compensation Committee but shall not be less than
100% of the fair market value of the shares on the date of grant in the case of
ISOs (110% in the case of ISOs granted to a ten percent or greater shareholder),
nor shall the exercise price be less, in the case of an original issue, than the
par value per share of the Common Stock.
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<PAGE> 13
The term of each option will be fixed by the Compensation Committee but may
not exceed ten years from the date of grant (five years in the case of an
incentive option granted to a ten percent or greater shareholder). The
Compensation Committee will determine at what time or times each option may be
exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Compensation Committee.
The exercise price of options granted under the 1995 Plan must be paid in
full in cash or check, bank draft or money order unless the Compensation
Committee permits payment by delivery of shares of Common Stock or an
unconditional and irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price.
Each SAR will entitle the participant to receive upon exercise the excess
of the share's value on the date of exercise over the share's fair market value
on the date it was granted. No SAR will be exercisable later than ten years
after the date of grant.
If an employee's employment terminates, other than because of death or
discharge for cause which in the opinion of the Compensation Committee casts
such discredit on the employee as to justify termination of the award, any award
held by the employee will be exercisable only to the extent the employee would
have been permitted to exercise the award at the date of such termination, and
then only within three months of the date of such termination (or such longer
period as the Compensation Committee may determine). In the case of a
participant who is not an employee, provisions relating to the exercisability of
awards following termination of service shall be specified in the award. If a
participant dies at a time when he is entitled to exercise an award, such award
may be exercised by such participant's legal representatives or beneficiaries at
any time within three years (or such shorter period as the Board or the
Compensation Committee may determine) after his death. In no event, however,
would any award be exercisable later than ten years from the date of grant.
Adjustment for Stock Dividends, Mergers, etc. The Compensation Committee
is required to make appropriate adjustments in connection with outstanding
awards and the maximum number of shares that may be delivered under the 1995
Plan to reflect stock dividends, stock splits, extraordinary distributions,
recapitalizations and similar events.
Nontransferability of Awards. Except as the Board may otherwise determine
in connection with gifts, no award granted under the 1995 Plan may be
transferred other than by will or by the laws of descent and distribution, and
during a participant's lifetime an award may be exercised only by the
participant (or, in the event of a participant's incapacity, the person or
persons legally appointed to act on the participant's behalf).
Changes in Stock. In the event of a stock dividend or other distribution
to common stock holders other than a normal cash dividend, stock split or
combination of shares, recapitalization or other change in the Company's capital
stock, the number and kind of shares of stock or securities of the Company
subject to awards then outstanding or subsequently granted under the Plan, the
exercise price of such awards, the maximum number of shares or securities that
may be delivered under the Plan, and other relevant provisions shall be
appropriately adjusted by the Board.
Tax Withholding. The Compensation Committee in its discretion may permit a
participant to elect to have the Company hold back from the shares to be
delivered upon exercise, or to deliver to the Company, shares of Common Stock
having a value sufficient to satisfy all federal, state and local withholding
tax requirements. Such withholding tax obligations would otherwise be required
to be paid in cash by the participant on the date of exercise.
Effect, Discontinuance, Cancellation, Amendment and Termination. Neither
adoption of the 1995 Plan nor the grant of awards to a participant will affect
the Company's right to grant such participant awards that are not subject to the
1995 Plan, to issue to such participant Common Stock as a bonus or otherwise, or
to adopt other plans or arrangements under which Common Stock may be issued.
The Compensation Committee may at any time discontinue granting awards
under the Plan. With the consent of the participant, the Compensation Committee
may at any time cancel an existing award in whole or in part and grant another
award for such number of shares as the Compensation Committee specified. The
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<PAGE> 14
Board may at any time or times amend the Plan or any outstanding award for the
purpose of satisfying the requirements of Section 422 of the Code or of any
changes in applicable laws or regulations or for any other purpose that may at
the time be permitted by law, or may at any time terminate the Plan as to any
further grants of awards, provided that (except to the extent expressly required
or permitted by the Plan) no such amendment shall, without the approval of the
shareholders of the Company effectuate a change for which shareholder approval
is required in order for the Plan to continue to qualify under Rule 16b-3 under
the Securities Exchange Act of 1934 or Section 422 of the Code, and no such
amendment shall adversely affect the rights of any participant (without his
consent) under any award previously granted. Currently, the incentive stock
option regulations would require shareholder approval for an increase in the
maximum number of shares issuable pursuant to incentive options under the 1995
Plan or a modification in eligibility requirements under the 1995 Plan. In order
to qualify for the exemption available under Rule 16b-3 an amendment would
currently require such approval if it materially increased benefits accruing to
directors or officers of the Company under the 1995 Plan, materially increased
the number of securities issuable under the 1995 Plan or materially modified
eligibility requirements under the 1995 Plan.
Effective Date of 1995 Plan. As of the date of this Proxy Statement, the
Compensation Committee has granted options to purchase 60,000 shares under the
1995 Plan subject to shareholder approval of the 1995 Plan. Upon approval by the
shareholders, the 1995 Plan will be effective as of November 16, 1995, and will
continue in effect through January 16, 2005, unless earlier terminated by the
Board.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Incentive Options. No taxable income is realized by the optionee upon the
grant or, in general, the exercise of an ISO. If no disposition of shares issued
to an optionee pursuant to the exercise of an ISO are sold more than two years
from the date of grant of the ISO and more than one year after the transfer of
such shares to the optionee, then (a) upon sale of such shares, any amount
realized in excess of the option price (the amount paid for the shares) will be
taxed to the optionee as a long-term capital gain and any loss sustained will be
a long-term capital loss, and (b) no deduction will be allowed to the Company
for federal income tax purposes. The exercise of an ISO may result in
alternative minimum tax liability for the optionee.
If shares of Common Stock acquired upon the exercise of an ISO are disposed
of prior to the expiration of the two-year or one-year holding periods described
above (a "disqualifying disposition"), generally (a) the optionee will realize
ordinary income in the year of disposition in an amount equal to the excess (if
any) of the fair market value of the shares at exercise (or, if less, the amount
realized on an arm's length sale of such shares) over the option price thereof,
and (b) the Company will be entitled to deduct such amount. Any further gain
realized will be taxed as short-term or long-term capital gain and will not
result in any deduction by the Company. Special rules will apply where all or a
portion of the exercise price of the ISO is paid by tendering shares of Common
Stock.
If an ISO is exercised at a time when it no longer qualifies for the tax
treatment described above, the option is treated as a nonstatutory stock option.
Generally, an ISO will not be eligible for the tax treatment described above if
it is exercised more than three months following termination of employment (one
year following termination of employment, in the case of termination by reason
of permanent and total disability), except in certain cases where the ISO is
exercised after the death of the optionee. Also, an ISO will not be eligible for
the tax treatment described above to the extent that it, together with other
ISOs granted to the same individual, first became exercisable in any calendar
year for shares of Common Stock having a fair market value (determined at time
of grant) in excess of $100,000.
Nonstatutory Options. With respect to nonstatutory options under the 1995
Plan, no income is realized by the optionee at the time the option is granted.
Generally, (a) at exercise, ordinary income is realized by the optionee in an
amount equal to the difference between the option price and the fair market
value of the shares on the date of exercise, and the Company may claim a tax
deduction for the same amount, and (b) at disposition, appreciation or
depreciation after the date of exercise is treated as either short-term or
long-term capital gain or loss depending on how long the shares have been held
(but no additional deduction will be
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<PAGE> 15
available to the Company). In the case of nonstatutory options granted to an
employee, the ordinary income associated with exercise constitutes wages subject
to withholding.
RECOMMENDATION
The Board of Directors believes that the 1995 Plan, by permitting further
grants of awards to acquire Common Stock of the Company, will benefit the
Company and assist it in meeting the competitive situation created by the
incentive compensation programs of other companies. Accordingly, the Board of
Directors believes that the proposal is in the best interests of the Company and
its shareholders and recommends that the shareholders approve the 1995 Plan.
It is the intention of the persons named as proxies to vote the shares to
which the proxy relates to approve the 1995 Plan, unless instructed to the
contrary. The 1995 Plan will not take effect unless it is approved by the
affirmative vote of the holders of a majority of the shares of Common Stock
represented and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL B.
PROPOSAL C
APPROVAL OF THE GRANT OF A STOCK OPTION TO ROBERT J. HENNESSEY
On December 21, 1995, the Board of Directors of the Company granted,
subject to shareholder approval, a non-incentive stock option covering 300,000
shares of Common Stock to Robert J. Hennessey, Chairman of the Board of the
Company in connection with the renewal of his employment agreement with the
Company. The exercise price of the option is $8.87 per share, the fair market
value on the date of the grant. The options by their terms vest on December 21,
2000 or earlier as follows: (i) 75,000 options will vest if the average closing
price of the Common Stock for a period of 10 out of 20 consecutive trading days
is $10.25 or higher; (ii) an additional 100,000 options will vest if the average
closing price of the Common Stock for a period of 10 out of 20 consecutive
trading days is $12.25 or higher and (iii) an additional 125,000 options will
vest if the average closing price of the Common Stock for a period of 10 out of
20 consecutive trading days is $14.25 or higher. These options shall become
fully vested upon the occurrence of a change in control, as defined in the New
Agreement.
Approval of the grant of Mr. Hennessey's stock option requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock represented and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL C.
PROPOSAL D
APPROVAL OF THE GRANT OF A STOCK OPTION TO DR. PHILIP LEDER
On November 16, 1995, the Board of Directors of the Company granted,
subject to shareholder approval, a non-incentive stock option covering 20,000
shares of Common Stock to Dr. Philip Leder, a director of the Company. The
exercise price of the option is $7.25 per share, the fair market value on the
date of grant. The option vests on November 16, 2000, or earlier as follows: (i)
50% will become fully vested if the average closing price of the Common Stock
for a period of 10 out of 20 consecutive trading days is $9.425 or higher; and
(ii) an additional 50% will become fully vested if the average closing price of
the Common Stock for a period of 10 out of 20 consecutive trading days is $11.60
or higher.
Approval of the grant of Dr. Leder's stock option requires the affirmative
vote of the holders of a majority of the shares of the Company's Common Stock
represented and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL D.
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<PAGE> 16
PROPOSAL E
APPROVAL OF THE GRANT OF A STOCK OPTION TO LAWRENCE LEVY
On November 16, 1995, the Board of Directors of the Company granted,
subject to shareholder approval, a non-incentive stock option covering 20,000
shares of Common Stock to Lawrence Levy, a director of the Company. The exercise
price of the option is $7.25 per share, the fair market value on the date of
grant. The option by its terms vests on November 16, 2000 or earlier as follows:
(i) 50% will become fully vested if the average closing price of the Common
Stock for a period of 10 out of 20 consecutive trading days is $9.425 or higher;
and (ii) an additional 50% will become fully vested if the average closing price
of the Common Stock for a period of 10 out of 20 consecutive trading days is
$11.60 or higher.
Approval of the grant of Mr. Levy's stock option requires the affirmative
vote of the holders of a majority of the shares of the Company's Common Stock
represented and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL E.
PROPOSAL F
APPROVAL OF THE GRANT OF A STOCK OPTION TO DONALD J. MCCARREN
On November 16, 1995, The Board of Directors of the Company granted,
subject to shareholder approval, a non-incentive stock option covering 20,000
shares of Common Stock to Donald J. McCarren, a director of the Company. The
exercise price of the option is $7.25 per share, the fair market value on the
date of grant. The option by its terms vests on November 16, 2000 or earlier as
follows: (i) 50% will become fully vested if the average closing price of the
Common Stock for a period of 10 out of 20 consecutive trading days is $9.425 or
higher; and (ii) an additional 50% will become fully vested if the average
closing price of the Common Stock for a period of 10 out of 20 consecutive
trading days is $11.60 or higher.
Approval of the grant of Dr. McCarren's stock option requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock presented at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL F.
PROPOSAL G
APPROVAL OF THE GRANT OF A STOCK OPTION TO STEVEN M. RAUSCHER
On November 16, 1995, the Board of Directors of the Company granted,
subject to shareholder approval, a non-incentive stock option covering 20,000
shares of Common Stock to Steven M. Rauscher, a director of the Company. The
exercise price is $7.25 per share, the fair market value on the date of grant.
The option by its terms vests on November 16, 2000 or earlier as follows: (i)
50% will become fully vested if the average closing price of the Common Stock
for a period of 10 out of 20 consecutive trading days is $9.425 or higher; and
(ii) an additional 50% will become fully vested if the average closing price of
the Common Stock for a period of 10 out of 20 consecutive trading days is $11.60
or higher.
Approval of the grant of Mr. Rauscher's stock option requires the
affirmative vote of the holders of a majority of the shares of the Company's
Common Stock represented and entitled to vote at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL G.
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<PAGE> 17
PROPOSAL H
RATIFICATION OF SELECTION OF AUDITORS
Arthur Andersen LLP, Boston, Massachusetts, has been selected by the Board
of Directors of the Company as auditors of the Company for the fiscal year
ending August 31, 1996. Unless otherwise indicated, proxies will be voted in
favor of ratifying the selection of Arthur Andersen as auditors. A
representative of Arthur Andersen will be present at the Annual Meeting if
requested by a shareholder (either in writing or by telephone) in advance of the
Annual Meeting. Such requests should be directed to the Clerk of the Company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL H.
CERTAIN TRANSACTIONS
Effective March 31, 1994, Dr. Leder agreed to serve as Chairman of the
Company's Scientific Advisory Committee. In consideration therefor, Dr. Leder
receives $1,000 per day for any days in excess of two days per quarter. Dr.
Leder has agreed to be available for such consulting at least one day per
calendar quarter. During fiscal 1995, Dr. Leder received $500 in consideration
of his consulting services.
Effective July 1, 1994, the Company entered into a consulting agreement
with Dr. Orrie Friedman as Scientific Advisor. In consideration therefor, Dr.
Friedman receives a cash retainer of $2,000 per month. In addition, the Company
provides Dr. Friedman with an office, health and dental insurance coverage.
During fiscal 1995, Dr. Friedman received $31,154 in consideration of his
consulting services.
On March 20, 1995 BVF, Investment 10 and Biotech 1 purchased, respectively,
261,490, 112,070 and 373,560 shares of Common Stock directly from the Company
for $2.43 per share. In connection with this private placement, BVF, Investment
10 and Biotech 2 acquired warrants (the "Warrants") to purchase, in the
aggregate, 896,544 additional shares of Common Stock at an exercise price of
$2.43 per share. On July 21, 1995, BVF, Investment 10 and Biotech 2 exercised
their Warrants using the cashless conversion feature contained therein. Pursuant
to such conversion, BVF acquired 185,524 shares of Common Stock, in
consideration for which it surrendered the right to acquire 128,265 shares of
Common Stock, Investment 10 acquired 79,512 shares of Common Stock, in
consideration for which it surrendered the right to acquire 54,972 shares of
Common Stock and Biotech 2 acquired 265,036 shares of Common Stock, in
consideration for which it surrendered the right to acquire 183,237 shares of
Common Stock. The exercise of the Warrants resulted in the net issuance of
530,072 shares of Common Stock. The net issuance represents the excess fair
market value of the shares purchasable pursuant to the Warrants on the date of
exercise over the total exercise price of such warrants.
SHAREHOLDER PROPOSALS
In order for any proposal that a shareholder intends to present at next
year's annual meeting of shareholders to be eligible for inclusion in the
Company's proxy material for that meeting, it must be received by the Clerk of
the Company at the Company's offices in Waltham, Massachusetts, no later than
September 20, 1996.
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 in respect thereof in
accordance with their best judgment.
In the event that sufficient votes in favor of any of the proposals set
forth in the accompanying Notice are not received by the time scheduled for the
meeting, the persons named as proxies may propose one or more adjournments of
such meeting for a period of not more than 60 days in the aggregate to permit
further solicitation of proxies with respect to any of such proposals. Any such
adjournments will require the
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affirmative vote of a majority of the votes cast on the question in person or by
proxy at the session of the meeting to be adjourned. The persons named as
proxies will vote in favor of such adjournment those proxies that they are
entitled to vote in favor of such proposals. They will vote against any such
adjournment those proxies required to be voted against any of such proposals.
The costs of any such additional solicitation and of any adjourned session will
be borne by the Company.
The Board of Directors encourages you to have your shares voted by signing
and returning the enclosed form of proxy. The fact that you will have returned
your proxy in advance will in no way affect your right to vote in person should
you find it possible to attend. However, by signing and returning the proxy you
have assured your representation at the meeting. Thank you for your cooperation.
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EXHIBIT A
GENOME THERAPEUTICS CORP.
1995 STOCK OPTION PLAN
1. PURPOSE
The purpose of the 1995 Stock Option Plan (the "Plan") is to advance the
interests of Genome Therapeutics Corp. (the "Company") by enhancing the ability
of the Company and its subsidiaries to attract and retain employees, consultants
or advisers who are in a position to make significant contributions to the
success of the Company; to reward such individuals for their contributions; and
to encourage such individuals to take into account the long-term interests on
the Company through interests in shares of the Company's common stock ("Stock").
Any employee, consultant or adviser designated to participate in the Plan is
referred to as a "participant." The proceeds received from the sale of stock
pursuant to the Plan shall be used for general corporate purposes.
Options granted pursuant to the Plan may be incentive stock options as
defined in Section 422 of the Code (any option that is intended so to qualify as
an incentive stock option being referred to herein as an "incentive option"), or
options that are not incentive options, or both. Except as otherwise expressly
provided with respect to an option grant, no option granted pursuant to the Plan
shall be an incentive option.
2. ADMINISTRATION
The Plan shall be administered by a Stock Option Committee appointed by, or
in a manner authorized by, the Board of Directors (the "Board") of the Company
or such other committee of the Board as the Board shall from time to time
appoint or authorize to administer the Plan (the Stock Option Committee or such
other committee being hereinafter referred to as the "Committee"). The Committee
shall have authority, not inconsistent with the express provisions for the Plan,
(a) to grant awards consisting of options or stock appreciation rights ("SARs"),
or both, to such participants as the Committee may select; (b) to determine the
time or times when awards shall be granted and the number of shares of Stock
subject to each award; (c) to determine which options are, and which options are
not, incentive options; (d) to determine the terms and conditions of each award;
(e) to prescribe the form or forms of any instruments evidencing awards and any
other instruments required under the Plan and to change such forms from time to
time; (f) to adopt, amend and rescind rules and regulations for the
administration of the Plan; and (g) to interpret the Plan and to decide any
questions and settle all controversies and disputes that may arise in connection
with the Plan. Such determinations of the Committee shall be conclusive and
shall bind all parties. Subject to Section 8, the Committee shall also have the
authority, both generally and in particular instances, to waive compliance by a
participant with any obligation to be performed by him under an award, to waive
any condition or provision of an award, and to amend or cancel any award (and if
an award is canceled, to grant a new award on such terms as the Committee shall
specify), except that the Committee may not take any action with respect to an
outstanding award that would adversely affect the rights of the participant
under such award without such participant's consent. Nothing in the preceding
sentence shall be construed as limiting the power of the Board to make
adjustments required by Section 4(c) and Section 6(j).
The Committee shall consist of two or more members of the Board who are, at
the time of their appointment and any time they exercise discretion in
administering the Plan, "disinterested persons" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, and "outside directors" within the
meaning of sec.162(m) of the Code. A majority of the members of the Committee
shall constitute a quorum, and all determinations of the Committee shall be made
by a majority of its members. Any determination of the Committee under the Plan
may be made without notice or meeting of the Committee by a writing signed by a
majority of the Committee members.
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3. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall become effective on the date on which it is approved by the
shareholders of the Company. Grants of awards under the Plan may be made prior
to that date (but after Board adoption of the Plan), subject to approval of the
Plan by such shareholders.
No awards shall be granted under the Plan after the completion of ten years
from the date on which the Plan was adopted by the Board, but awards previously
granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
a. Number of Shares. Subject to adjustment as provided in Section 4(c),
the aggregate number of shares of Stock that may be delivered upon the exercise
of awards granted under the Plan shall be 750,000. If any award granted under
the Plan terminates without having been exercised in full, or upon exercise is
satisfied other than by delivery of Stock, the number of shares of Stock as to
which such award was not exercised shall be available for future grants within
the limits set forth in this Section 4(a).
b. Maximum Shares. Subject to Section 4(d), the maximum number of shares
of Stock with respect to which an award may be granted to any participant during
any single fiscal year is 500,000. For purposes of this paragraph, except as
otherwise provided in regulations or other guidance issued under Section 162(m)
of the Code, any repricing of an option or Stock Appreciation Right shall be
treated as an additional grant.
c. Shares to be Delivered. Shares delivered under the Plan will be common
stock of the Company and shall be authorized but unissued Stock, or, if the
Board so decides in its sole discretion, previously issued Stock acquired by the
Company and held in its treasury. No fractional shares of Stock will be
delivered under the Plan.
d. Changes in Stock. In the event of a stock dividend or other
distribution to common stock holders other than a normal cash dividend, stock
split or combination of shares, recapitalization or other change in the
Company's capital stock, the number and kind of shares of stock or securities of
the Company subject to awards then outstanding or subsequently granted under the
Plan, the exercise price of such awards, the maximum number of shares or
securities that may be delivered under the Plan, and other relevant provisions
shall be appropriately adjusted by the Board, whose determination shall be
binding on all persons.
The Board or Committee may also adjust the number of shares subject to
outstanding awards, the exercise price of outstanding awards and the terms of
outstanding awards, to take into consideration material changes in accounting
practices or principles, extraordinary dividends, consolidations or mergers
(except those described in Section 6(j)), acquisitions or dispositions of stock
or property or any other event if it is determined by the Board or Committee in
its sole discretion that such adjustment is appropriate to avoid distortion in
the operation of the Plan, provided that no such adjustment shall be made in the
case of an incentive option, without the consent of the participant, if it would
constitute a modification, extension or renewal of the option within the meaning
of section 424(h) of the Code.
5. ELIGIBILITY FOR AWARDS
Those eligible to receive awards under the Plan ("Participants") will be
employees of the Company or any of its subsidiaries ("Employees") and other
persons or entities (including without limitation non-Employee directors of the
Company or a subsidiary of the Company) who, in the opinion of the Committee,
are in a position to make a significant contribution to the success of the
Company and its subsidiaries. Incentive options shall be granted only to
"employees" as defined in the provisions of the Code or regulations thereunder
applicable to incentive stock options.
A subsidiary for purposes of the Plan shall be a corporation (i) in which
the Company owns, directly or indirectly, stock possessing 50% or more of the
total combined voting power of all classes of stock or (ii) over which the
Company has effective operating control; provided, however, that no corporation
shall be deemed a subsidiary for the purpose of any provisions applicable to
incentive options, and no incentive options shall be granted to employees of
such corporation, unless in each case such corporation shall constitute a
subsidiary as defined in clause (i) above.
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<PAGE> 21
6. TERMS AND CONDITIONS OF OPTIONS AND SARs
a. Exercise Price of Options. The exercise price of each option shall be
determined by the Committee but in the case of an incentive option shall not be
less than 100% (110%, in the case of an incentive option granted to a
ten-percent shareholder) of the fair market value of the Stock at the time the
option is granted; nor shall the exercise price be less, in the case of an
original issue of authorized stock, than par value. For this purpose, "fair
market value" in the case of incentive options shall have the same meaning as it
does in the provisions of the Code and the regulations thereunder applicable to
incentive options; and "ten-percent shareholder" shall mean any participant who
at the time of grant owns directly, or by reason of the attribution rules set
forth in section 424(d) of the Code is deemed to own, stock possessing more than
10% of the total combined voting power of all classes of stock of the Company or
of any of its parent or subsidiary corporations.
b. Duration of Options. An option shall be exercisable during such period
or periods as the Committee may specify. The latest date on which an option may
be exercised (the "Final Exercise Date") shall be the date which is ten years
(five years, in the case of an incentive option granted to a "ten-percent
shareholder" as defined in (a) above) from the date the option was granted or
such earlier date as may be specified by the Committee at the time the option is
granted.
c. Exercise of Options.
i. An option shall become exercisable at such time or times and upon
such conditions as the Committee shall specify. In the case of an option
not immediately exercisable in full, the Committee may at any time
accelerate the time at which all or any part of the option may be
exercised.
ii. Any exercise of an option shall be in writing, signed by the
proper person and delivered or mailed to the Company, accompanied by (A)
such documents as may be required by the Committee and (B) payment in full
as specified below in Section 6(d) for the number of shares for which the
option is exercised.
iii. In the case of an option that is not an incentive option, the
Committee shall have the right to require that the participant exercising
the option remit to the Company an amount sufficient to satisfy any
federal, state, or local withholding tax requirements (or make any other
arrangements satisfactory to the Company with regard to such taxes) prior
to the delivery of any Stock pursuant to the exercise of the option. If
permitted by the Committee, either at the time of the grant of the option
or the time of exercise, the participant may elect, at such time and in
such manner as the Committee may prescribe, to satisfy such withholding
obligation by (A) delivering to the Company Stock owned by such individual
having a fair market value equal to such withholding obligation, or (B)
requesting that the Company withhold from the shares of Stock to be
delivered upon the exercise a number of shares of Stock having a fair
market value equal to such withholding obligation.
In the case of an incentive option, if at the time the option is
exercised the Committee determines that under applicable law and
regulations the Company could be liable for the withholding of any federal
or state tax with respect to a disposition of the Stock received upon
exercise, the Committee may require as a condition of exercise that the
participant exercising the option agree (A) to inform the Company promptly
of any disposition (within the meaning of section 424(c) of the Code and
the regulations thereunder) of Stock received upon exercise, and (B) to
give such security as the Committee deems adequate to meet the potential
liability of the Company for the withholding of tax, and to augment such
security from time to time in any amount reasonably deemed necessary by the
Committee to preserve the adequacy of such security.
iv. If an option is exercised by the executor or administrator of a
deceased participant, or by the person or persons to whom the option has
been transferred by the participant's will or the applicable laws of
descent and distribution, the Company shall be under no obligation to
deliver Stock pursuant to such exercise until the Company is satisfied as
to the authority of the person or persons exercising the option.
d. Payment for and Delivery of Stock. Stock purchased upon exercise of an
option under the Plan shall be paid for as follows: (i) in cash or by certified
check or cashier's check, bank draft or money order payable to
19
<PAGE> 22
the order of the Company or (ii) if so permitted by the Committee (which, in the
case of an incentive option, shall specify such method of payment at the time of
grant), (A) through the delivery of shares of Stock (duly owned by the
participant and for which the participant has good title, free and clear of any
liens and encumbrances) having a fair market value on the last business day
preceding the date of exercise equal to the purchase price or (B) by delivery of
an unconditional and irrevocable undertaking by a broker to deliver promptly to
the Company sufficient funds to pay the exercise price or (C) by any combination
of the permissible forms of payment.
e. Stock Appreciation Rights. The Committee in its discretion may grant
SARs either in tandem with or independent of options awarded under the Plan.
Except as hereinafter provided, each SAR will entitle the participant to receive
upon exercise, with respect to each share of Stock to which the SAR relates, the
excess of (i) the share's value on the date of exercise, over (ii) the share's
fair market value on the date it was granted. For purposes of clause (i),
"value" shall mean fair market value; provided, that the Committee may adjust
such value to take into account dividends on the Stock and may also grant SARs
that provide, in such limited circumstances following a change in control of the
Company (as determined by the Committee) as the Committee may specify, that
"value" for purposes of clause (i) is to be determined by reference to an
average value for the Stock during a period immediately preceding the change in
control, all as determined by the Committee. The amount payable to a participant
upon exercise of an SAR shall be paid either in cash or in shares of Stock, as
the Committee determines. Each SAR shall be exercisable during such period or
periods and on such terms as the Committee may specify. No SAR shall be
exercisable after the date which is ten years from the date of grant.
f. Delivery of Stock. A participant shall not have the rights of a
shareholder with regard to awards under the Plan except as to Stock actually
received by him under the Plan.
The Company shall not be obligated to deliver any shares of Stock (i)
until, in the opinion of the Company's counsel, all applicable federal and state
laws and regulations have been complied with, (ii) if the outstanding Stock is
at the time listed on any stock exchange, until the shares to be delivered have
been listed or authorized to be listed on such exchange upon official notice of
issuance, and (iii) until all other legal matters in connection with the
issuance and delivery of such shares have been approved by the Company's
counsel. If the sale of Stock has not been registered under the Securities Act
of 1933, as amended, the Company may require, as a condition to exercise of the
award, such representation or agreements as counsel of the Company may consider
appropriate to avoid violation of such Act and may require that the certificates
evidencing such Stock bear an appropriate legend restricting transfer.
g. Nontransferability of Awards. Except as the Board may otherwise
determine in connection with the gifts, no award may be transferred other than
by will or by the laws of descent and distribution, and during a participant's
lifetime, an award may be exercised only by him (or in the event of the
participant's incapacity, the person or persons legally appointed to act on the
participant's behalf).
h. Death. If a participant dies, each award held by the participant
immediately prior to death may be exercised, to the extent it was exercisable
immediately prior to death, by his executor or administrator, or by the person
or persons to whom the award is transferred by will or the applicable laws of
descent and distribution, at any time within the three-year period ending with
the third anniversary of the participant's death (or such shorter or longer
period as the Board or Committee may determine) but in no event beyond the Final
Exercise Date. All awards held by a participant immediately prior to death that
are not then exercisable shall terminate on the date of death.
i. Other Termination of Service. If an employee's employment with the
Company and its subsidiaries terminates for any reason other than death, all
awards held by the employee that are not then exercisable on the date employment
terminates shall continue to be exercisable for a period of three months (or
such longer period as the Committee may determine, but in no event beyond the
Final Exercise Date) unless the employee was discharged for cause which in the
opinion of the Committee casts such discredit on him as to justify termination
of his awards. After completion of that three-month period (or such shorter or
longer period as the Board or Committee may determine) such awards shall
terminate to the extent not previously exercised, expired or terminated. For
purposes of this Section 6(i), employment shall not be considered
20
<PAGE> 23
terminated (i) in the case of sick leave or other bona fide leave of absence
approved for purposes of the Plan by the Committee, so long as the employee's
right to reemployment is guaranteed either by statute or by contract, or (ii) in
the case of a transfer of employment between the Company and a subsidiary or
between subsidiaries, or to the employment of a corporation (or a parent or
subsidiary corporation of such corporation) issuing or assuming an award in a
transaction to which section 424(a) of the Code applies.
In the case of a participant who is not an employee, provisions relating to
the exercisability of awards following termination of service shall be specified
in the award. If not so specified, all awards held by such participant that are
not then exercisable shall terminate upon termination of service.
j. Mergers, etc. In the event of a consolidation or merger in which the
Company is not the surviving corporation or which results in the acquisition of
substantially all the Company's outstanding Stock by a single person or entity
or by a group of persons and/or entities acting in concert, or in the event of
the sale or transfer of substantially all the Company's assets, all outstanding
awards shall thereupon terminate, provided that at least 20 days prior to the
effective date of any such merger, consolidation or sale of assets, the Board or
Committee shall either (i) make all outstanding awards exercisable immediately
prior to consummation of such merger, consolidation or sale of assets or (ii) if
there is a surviving or acquiring corporation, arrange, subject to consummation
of the merger, consolidation or sale of assets, to have that corporation or an
affiliate of that corporation grant to participants replacement awards which in
the case of incentive awards satisfy, in the determination of the Board or
Committee, the requirement of section 424(a) of the Code.
The Board or Committee may grant awards under the Plan in substitution for
awards held by employees, consultants or advisers of another corporation who
concurrently becomes employees, consultants or advisers of the Company or a
subsidiary of the Company as a result of a merger or consolidation of that
corporation with the Company or a subsidiary of the Company, or as the result of
the acquisition by the Company or a subsidiary of the Company of property or
stock of that corporation. The Company may direct that substitute awards be
granted on such terms and conditions as the Board or Committee considers
appropriate in the circumstances.
7. EMPLOYMENT RIGHTS
Neither the adoption of the Plan nor the grant of awards shall confer upon
any participant any right to continue as an employee of, or consultant or
adviser to, the Company or any parent or subsidiary or affect in any way the
right of the Company or parent or subsidiary to terminate such participant at
any time. Except as specifically provided by the Committee in any particular
case, the loss of existing or potential profit in awards granted under this Plan
shall not constitute an element of damages in the event of termination of the
relationship of a participant even if the termination is in violation of an
obligation of the Company to the participant by contract or otherwise.
8. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of awards to a participant shall
affect the Company's right to make awards to such participant that are not
subject to the Plan, to issue to such participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock may be issued.
The Committee may at any time discontinue granting awards under the Plan.
With the consent of the participant, the Committee may at any time cancel an
existing award in whole or in part and grant another award for such number of
shares as the Committee specified. The Board may at any time or times amend the
Plan or any outstanding award for the purpose of satisfying the requirements of
section 422 of the Code or of any changes in applicable laws or regulations or
for any other purpose that may at the time be permitted by law, or may at any
time terminate the Plan as to any further grants of awards, provided that
(except to the extent expressly required or permitted by the Plan) no such
amendment shall, without the approval of the stockholders of the Company
effectuate a change for which stockholder approval is required in order for the
Plan to continue to qualify under Rule 16b-3 under the Securities Exchange Act
of 1934 or Section 422 of the Code, and no such amendment shall adversely affect
the rights of any participant (without his consent) under any award previously
granted.
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<PAGE> 24
GENOME THERAPEUTICS CORP.
SPECIAL MEETING IN LIEU OF ANNUAL MEETING OF STOCKHOLDERS,
P FEBRUARY 16, 1996
R
O
X The undersigned hereby appoints Robert J. Hennessey and Fenel Eloi or
Y either of them, proxies with power of substitution to each, to vote at the
Special Meeting in Lieu of an Annual Meeting of Stockholders of Genome
Therapeutics Corp., to be held on February 16, 1996, at the Bank of Boston,
100 Federal Street, 35th Floor, Boston, Massachusetts at 1:00 p.m., local
time, or at any adjournments thereof, all of the shares of Common Stock,
par value $.10 per share, of Genome Therapeutics Corp. that the undersigned
would be entitled to vote if personally present. The undersigned instructs
such proxies or their substitutes to act on the following matters as
specified by the undersigned, and to vote in such manner as they may
determine on any other matters that may properly come before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
-----------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-----------
<PAGE> 25
PLEASE MARK
/X/ VOTES AS IN Genome
THIS EXAMPLE.
This proxy when properly executed will be voted in the manner directed by the
undersigned stockholder(s). If no contrary direction is made, this proxy will
be voted for Proposal 1 (election of directors), Proposal 2 (approval of the
1995 Stock Option Plan), Proposal 3 (approval of grant of stock option to
Robert J. Hennessey), Proposal 4 (approval of grant of stock option to Dr.
Philip Leder), Proposal 5 (approval of grant of stock option to Lawrence Levy),
Proposal 6 (approval of grant of stock option to Donald J. McCarren), Proposal
7 (approval of grant of stock option to Steven M. Rauscher) and Proposal 8
(ratification of selection of auditors).
1. To elect six directors.
NOMINEES: Philip Leder, Robert J. Hennessey, Orrie M. Friedman, Lawrence Levy,
Donald J. McCarren, Steven M. Rauscher
FOR WITHHELD
ALL / / FROM ALL / /
NOMINEES NOMINEES
/ /
-----------------------------------
For all nominees except as noted above
2. To approve the Company's 1995 Stock Option FOR AGAINST ABSTAIN
Plan. / / / / / /
3. To approve the grant of a stock option to FOR AGAINST ABSTAIN
Robert J. Hennessey. / / / / / /
4. To approve the grant of a stock option to FOR AGAINST ABSTAIN
Dr. Philip Leder. / / / / / /
5. To approve the grant of a stock option to FOR AGAINST ABSTAIN
Lawrence Levy. / / / / / /
6. To approve the grant of a stock option to FOR AGAINST ABSTAIN
Donald J. McCarren. / / / / / /
7. To approve the grant of a stock option to FOR AGAINST ABSTAIN
Steven M. Rauscher. / / / / / /
8. To ratify the selection of Arthur Anderson FOR AGAINST ABSTAIN
LLP as the Company's auditors for the / / / / / /
fiscal year ending August 31, 1996.
9. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments of the
meeting.
MARK HERE
PLEASE SIGN AND DATE FOR ADDRESS / /
CHANGE AND
NOTE AT LEFT
NOTE: Please sign exactly as name appears on this card. All joint owners should
sign. When signing as executor, administrator, attorney or guardian or as
custodian for a minor, please give full title as such. If a corporation,
please sign in full corporate name and indicate the signer's office. If a
partner, sign in the partnership name.
Signature: Date
------------------------------ ----------------------
Signature: Date
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