<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
GENETICS INSTITUTE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] 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
GENETICS INSTITUTE, INC.
87 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
(617) 876-1170
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 14, 1996
The Annual Meeting of Stockholders of Genetics Institute, Inc. (the
"Company") will be held at The Charles Hotel, One Bennett Street, Cambridge,
Massachusetts on Tuesday, May 14, 1996 at 9:00 a.m., local time, to consider and
act upon the following matters:
1. To elect three Class III directors to serve for the ensuing three
years.
2. To ratify the selection by the Board of Directors of Arthur
Andersen LLP as the Company's independent public accountants for the
current fiscal year.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Stockholders of record at the close of business on March 22, 1996 will be
entitled to vote at the meeting or any adjournment thereof.
By Order of the Board of Directors,
LAWRENCE V. STEIN, Secretary
Cambridge, Massachusetts
April 3, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED VOTING INSTRUCTION CARD AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE
AFFIXED IF THE VOTING INSTRUCTION CARD IS MAILED IN THE UNITED STATES.
<PAGE> 3
GENETICS INSTITUTE, INC.
87 CAMBRIDGEPARK DRIVE
CAMBRIDGE, MASSACHUSETTS 02140
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 14, 1996
This Proxy Statement is furnished in connection with the solicitation of
proxies and voting instructions by the Board of Directors of Genetics Institute,
Inc. (the "Company") for use at the Annual Meeting of Stockholders to be held on
May 14, 1996 and at any adjournment of that meeting. All shares of Common Stock
will be voted in accordance with the stockholders' instructions. Any proxy or
voting instructions may be revoked by a stockholder at any time before its
exercise by delivery of written revocation to The First National Bank of Boston,
c/o Boston EQUISERV, Shareholder Services Division, P.O. Box 664, Boston,
Massachusetts 02102-0664.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1995 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
EXCEPT FOR EXHIBITS, IS BEING MAILED TO STOCKHOLDERS WITH THE MAILING OF THIS
NOTICE AND PROXY STATEMENT ON OR ABOUT APRIL 3, 1996. EXHIBITS WILL BE PROVIDED
UPON WRITTEN REQUEST TO THE DIRECTOR OF CORPORATE COMMUNICATIONS, GENETICS
INSTITUTE, INC., 87 CAMBRIDGEPARK DRIVE, CAMBRIDGE, MASSACHUSETTS 02140 AND
PAYMENT OF AN APPROPRIATE PROCESSING FEE.
TRANSACTION WITH AMERICAN HOME PRODUCTS CORPORATION
On January 16, 1992, the Company's Common Stock stockholders approved the
Agreement and Plan of Merger, dated as of September 19, 1991 and amended as of
December 9, 1991 (the "Merger Agreement"), among the Company, American Home
Products Corporation ("AHP"), and an AHP affiliate, AHP Biotech Holdings, Inc.
("Holdings"), pursuant to which, among other things, (i) each share of Common
Stock then outstanding was converted into the right to receive $20.00 in cash
and six-tenths of a depositary share (a "Depositary Share"), each Depositary
Share representing one share of Common Stock subject to an AHP call option (the
"Call Option") and evidenced by a depositary receipt (a "Depositary Receipt"),
(ii) AHP acquired 40% of the Company's then outstanding Common Stock and (iii)
AHP purchased 9,466,709 shares of newly issued Common Stock (the "Additional
Shares") from the Company for $300 million in cash. As a result of the foregoing
transactions, subsequent open market purchases by AHP, and conversion of the
Company's Convertible Exchangeable Preferred Stock, AHP owned beneficially, at
January 31, 1996, approximately 63.0% of the outstanding shares of Common Stock.
In addition, in connection with the merger, the Company, AHP and Holdings
entered into a Governance Agreement (the "Governance Agreement") summarized
under "Election of Directors -- Certain Transactions." The merger, the sale of
Additional Shares and all related actions between the Company and AHP
contemplated by the Merger Agreement are collectively referred to herein as the
"AHP Transaction."
Independent of its right to call the Depository Shares, AHP may acquire
additional shares of Genetics Institute stock, provided that, during the term of
the Call Option, its aggregate holdings do not exceed 75% of the Company's stock
outstanding, subject to certain exceptions. Under the terms of the Call Option,
AHP has the right, but not the obligation, to purchase the shares of Common
Stock represented by the Depositary Shares and held by The First National Bank
of Boston, as depositary (the "Depositary"), in whole but not in part at any
time on or prior to December 31, 1996, at per share call prices increasing by
approximately $1.84 per share per quarter from $81.32 per share for the period
from April 1, 1996 through June 30, 1996 to $85.00
<PAGE> 4
per share for the period from October 1, 1996 through December 31, 1996. In the
event that AHP elects to call any Depositary Shares, AHP must purchase all of
the shares that it does not already own. Accordingly, if the Call Option is
exercised, AHP will own 100% of the outstanding shares of Common Stock of the
Company, and all other stockholders of the Company will cease to have any equity
interest in the Company.
VOTING SECURITIES AND VOTES REQUIRED
The Board of Directors has fixed March 22, 1996 as the record date (the
"Record Date") for determining stockholders who are entitled to vote at the
meeting. At the close of business on March 22, 1996, there were outstanding and
entitled to vote 27,361,056 shares of Common Stock, of which 11,350,995 are
represented by Depositary Shares outstanding on the Record Date. Each share of
Common Stock is entitled to one vote.
The holders of Depositary Shares are entitled to one vote per Depositary
Share on all matters to be voted on by stockholders of the Company, in the same
manner and subject to the same limitations as any holder of shares of Common
Stock. The record holders of Depositary Shares on the Record Date will be
entitled to instruct the Depositary as to the exercise of the voting rights
pertaining to the number of shares of Common Stock represented by their
respective Depositary Shares by completing, dating and signing the enclosed
Voting Instruction Card. The Depositary will endeavor, insofar as practicable,
to vote the number of shares of Common Stock represented by such Depositary
Shares in accordance with such instructions, and the Company has agreed to take
all action that may be deemed necessary by the Depositary in order to enable the
Depositary to do so. The Depositary will abstain from voting shares of Common
Stock to the extent it does not receive specific instructions from the owners of
Depositary Shares.
Pursuant to the Governance Agreement, AHP and Holdings have agreed to vote
their shares of Common Stock and Depositary Shares in any election of directors
for all nominees in proportion to the votes cast by the other holders of
Depositary Shares; provided that they may cast all of their votes (i) in favor
of any nominee designated by Holdings pursuant to the provisions of the
Governance Agreement and (ii) in their sole discretion in connection with any
election contest to which Rule 14a-11 under the Securities Exchange Act of 1934,
as amended, applies. Pursuant to the Governance Agreement, AHP and Holdings have
agreed to vote their Depositary Shares in proportion to the votes cast by other
holders of Depositary Shares in any vote to amend the terms of the Depositary
Shares.
The affirmative vote of the holders of a plurality of the shares of Common
Stock present or represented at the meeting is required for the election of
Class III directors. The affirmative vote of the holders of a majority of the
shares of Common Stock present or represented at the meeting is required for the
ratification of the selection of Arthur Andersen LLP as the Company's
independent public accountants for the current fiscal year. Shares of Common
Stock represented by executed Voting Instruction Cards and proxies will be
counted for purposes of establishing a quorum at the Annual Meeting, regardless
of how or whether such shares are voted on any specific proposal. With respect
to the required vote on any particular matter, abstentions will be treated as
votes cast or shares present and represented, while votes withheld by nominee
recordholders who did not receive specific instructions from the beneficial
owners of such shares will not be treated as votes cast or as shares present or
represented.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of January 31, 1996,
regarding the ownership of the Company's equity securities by (i) the only
persons known by the Company to own more than five percent of the outstanding
shares, (ii) all directors and nominees, (iii) each of the executive officers
named in the Summary Compensation Table (the "Named Executive Officers") and
(iv) all directors and executive officers as a group. The number of shares
beneficially owned by each director or executive officer is determined
2
<PAGE> 5
under rules of the Securities and Exchange Commission, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which the individual
has the sole or shared voting power or investment power and also any shares
which the individual has the right to acquire within 60 days of January 31, 1996
through the exercise of any stock option or other right. Unless otherwise
indicated, each person has sole investment and voting power (or shares such
power with his or her spouse) with respect to the shares set forth in the
following table. The inclusion herein of any Depositary Shares deemed
beneficially owned does not constitute an admission of beneficial ownership of
those Depositary Shares.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF SHARES PERCENTAGE OF COMMON
NAME AND ADDRESSES BENEFICIALLY OWNED CLASS(1) OF CLASS STOCK(2)
- ---------------------------------- ------------------ ----------------- ---------- ---------
<S> <C> <C> <C> <C>
5% Stockholders
AHP Biotech Holdings, Inc......... 16,000,741(3) Common Stock 59.1% 59.1%
Five Giralda Farms 947,000 Depositary Shares 8.5% 3.5%
Madison, NJ 07940
Spears, Benzak, Salomon & Farrell,
Inc............................. 1,686,311(4) Depositary Shares 15.2% 6.2%
45 Rockefeller Plaza
33rd Floor
New York, NY 10111
Wellington Management Company..... 1,491,532(5) Depositary Shares 13.5% 5.5%
75 State Street
Boston, MA 02109
Directors and Executive Officers
James G. Andress.................. 8,000(6) Depositary Shares * *
J. Richard Crout, M.D............. 8,885(7) Depositary Shares * *
Anthony B. Evnin.................. 75,221(8) Depositary Shares * *
Fred Hassan....................... 0(9) -- --
Robert I. Levy, M.D............... 0(10) -- --
Thomas P. Maniatis, Ph.D.......... 237,705(11) Depositary Shares 2.1% *
Gabriel Schmergel................. 266,246(12) Depositary Shares 2.4% 1.0%
Benno C. Schmidt.................. 68,638(13) Depositary Shares * *
Patrick Gage, Ph.D................ 104,457(14) Depositary Shares * *
Tuan Ha-Ngoc...................... 141,442(15) Depositary Shares 1.3% *
Garen G. Bohlin................... 130,317(16) Depositary Shares 1.2% *
Lawrence V. Stein................. 30,078(17) Depositary Shares * *
All directors and executive
officers as a group (16
persons)(18).................... 1,245,870 Depositary Shares 10.5% 4.5%
<FN>
- ---------------
* Represents holding of less than one percent.
(1) While the Depositary Shares are a separate class of securities, they
represent shares of Common Stock held by the Depositary and are therefore a
subset of the total outstanding shares of Common Stock.
(2) The percentages set forth in this column are based on the total outstanding
shares of Common Stock as of January 31, 1996, including shares of Common
Stock subject to the Call Option held by the Depositary, but excluding
shares of Common Stock represented by Depositary Shares issuable upon
exercise of options or warrants not exercisable within 60 days of January
31, 1996.
</TABLE>
3
<PAGE> 6
(3) Does not include the outstanding shares of Common Stock subject to the
Call Option represented by Depositary Shares which Holdings may be deemed
to beneficially own as a result of its ability to exercise the Call Option
at any time.
(4) Spears, Benzak, Salomon & Farrell, Inc. filed a Schedule 13G pursuant to
Section 13 of the Securities Exchange Act of 1934, as amended, and the
rules promulgated thereunder reporting its beneficial ownership of
Depositary Shares of the Company as of December 31, 1995. Spears, Benzak,
Salomon & Farrell, Inc. has no voting power and has shared dispositive
power with respect to all Depositary Shares of the Company reported
therein.
(5) Wellington Management Company filed a Schedule 13G pursuant to Section 13
of the Securities Exchange Act of 1934, as amended, and the rules
promulgated thereunder reporting its beneficial ownership of Depositary
Shares of the Company as of December 31, 1995. Wellington Management
Company has shared voting power with respect to 763,500 of such Depositary
Shares, and shared dispositive power with respect to all Depositary Shares
of the Company reported therein.
(6) Includes 8,000 Depositary Shares which Mr. Andress has the right to
acquire under outstanding stock options exercisable within 60 days after
January 31, 1996.
(7) Includes 2,000 Depositary Shares which Dr. Crout has the right to acquire
under outstanding stock options exercisable within 60 days after January
31, 1996. Also includes 2,785 Depositary Shares held in trust for the
benefit of Dr. Crout's son, as to which Dr. Crout disclaims beneficial
ownership.
(8) Includes 400 Depositary Shares held by Mr. Evnin's wife, as to which Mr.
Evnin disclaims beneficial ownership. Also includes 31,571 Depositary
Shares held by Venrock Associates and 14,158 Depositary Shares held by
Venrock Associates II, L.P., of which Mr. Evnin is a General Partner. Mr.
Evnin shares voting and investment power with respect to the Depositary
Shares held by Venrock Associates and Venrock Associates II, L.P. and
disclaims beneficial ownership thereof, except to the extent of his pro-
rata interest. Also includes 16,000 Depositary Shares which Mr. Evnin has
the right to acquire under outstanding stock options exercisable within 60
days after January 31, 1996.
(9) Mr. Hassan has been designated as Holdings' nominee pursuant to the
provisions of the Governance Agreement. Does not include shares of Common
Stock and Depositary Shares held by Holdings. Also does not include the
outstanding shares of Common Stock subject to the Call Option represented
by Depositary Shares which Holdings may be deemed to beneficially own as a
result of its ability to exercise the Call Option at any time. Mr. Hassan
is a director and an officer of AHP and disclaims beneficial ownership of
any such shares.
(10) Dr. Levy has been designated as Holdings' nominee pursuant to the
provisions of the Governance Agreement.
(11) Includes 36,000 Depositary Shares which Dr. Maniatis has the right to
acquire under outstanding stock options exercisable within 60 days after
January 31, 1996.
(12) Includes 203,600 Depositary Shares which Mr. Schmergel has the right to
acquire under outstanding stock options exercisable within 60 days after
January 31, 1996.
(13) Includes 10,000 Depositary Shares which Mr. Schmidt has the right to
acquire under outstanding stock options exercisable within 60 days after
January 31, 1996. Also includes 15,900 Depositary Shares owned by Mr.
Schmidt's spouse, as to which Mr. Schmidt disclaims beneficial ownership.
(14) Includes 96,040 Depositary Shares which Dr. Gage has the right to acquire
under outstanding stock options exercisable within 60 days after January
31, 1996. Also includes 350 Depositary Shares held in trust for the
benefit of Dr. Gage's children, as to which Dr. Gage disclaims beneficial
ownership.
4
<PAGE> 7
(15) Includes 125,500 Depositary Shares which Mr. Ha-Ngoc has the right to
acquire under outstanding stock options exercisable within 60 days after
January 31, 1996. Also includes 6,694 Depositary Shares owned by Mr.
Ha-Ngoc's spouse and minor children, as to which Mr. Ha-Ngoc disclaims
beneficial ownership.
(16) Includes 114,000 Depositary Shares which Mr. Bohlin has the right to
acquire under outstanding stock options exercisable within 60 days after
January 31, 1996. Also includes 1,539 Depositary Shares held in trust for
the benefit of Mr. Bohlin's minor child, as to which Mr. Bohlin disclaims
beneficial ownership.
(17) Includes 27,500 Depositary Shares which Mr. Stein has the right to acquire
under outstanding stock options exercisable within 60 days after January
31, 1996.
(18) Includes a total of 757,840 Depositary Shares which directors and
executive officers have the right to acquire under outstanding stock
options exercisable within 60 days after January 31, 1996. Also includes
Depositary Shares held by Venrock Associates.
ELECTION OF DIRECTORS
The Company has a classified Board of Directors consisting of two Class I
directors, three Class II directors and three Class III directors. Subject to
the terms of the Governance Agreement, the Class I, Class II and Class III
directors will serve until the annual meetings of stockholders to be held in
1997, 1998 and 1999, respectively, and until their respective successors are
duly elected and qualified. At each annual meeting of stockholders, directors
are elected for a full term of three years to succeed those whose terms are
expiring.
If a stockholder returns a proxy or Voting Instruction Card without
contrary instructions, the persons named as proxies or the Depositary, as the
case may be, will vote to elect as directors the three Class III director
nominees named below, each of whom is currently a member of the Board of
Directors of the Company.
Each Class III director will be elected to hold office until the 1999
Annual Meeting of Stockholders and until his successor is duly elected and
qualified. All nominees have indicated their willingness to serve, if elected;
however, if any nominee should be unable to serve, the shares of Common Stock
represented by proxies or Voting Instruction Cards may be voted for a substitute
nominee designated by the Board of Directors, subject to the terms of the
Governance Agreement.
The following table sets forth the name, age and length of service as a
director for each member of the Board of Directors, including the nominees for
election as Class III directors. It also includes information given by each
concerning all positions he holds with the Company, his principal occupation and
business experience for the past five years, the names of other publicly held
companies of which he serves as a director and the year of the commencement of
his term as a director of the Company. Information with respect to the number of
shares of Common Stock beneficially owned by each director, directly or
indirectly, as of January 31, 1996, appears under "Stock Ownership of Certain
Beneficial Owners and Management."
NOMINEES FOR TERMS EXPIRING IN 1999 (CLASS III DIRECTORS)
J. RICHARD CROUT, M.D., age 66, became a director in 1994.
Dr. Crout is President of a private consulting firm in Bethesda, Maryland.
Previously, he served as Vice President, Medical and Scientific Affairs at
Boehringer Mannheim Pharmaceuticals Corporation from
5
<PAGE> 8
1984 through 1993 and as a Scholar-in-Residence at the Institute of
Medicine/National Academy of Sciences in Washington, D.C. during 1994. Dr.
Crout also served as the Director and a Deputy Director of the Bureau of
Drugs in the Food and Drug Administration, Department of Health and Human
Services, from 1971 to 1982.
FRED HASSAN, age 50, became a director in 1992.
Mr. Hassan has been an Executive Vice President of AHP since October 1995,
after serving as a Senior Vice President of AHP since May 1993 and a Group
Vice President of AHP since March 1993. He served as the President of the
Wyeth-Ayerst Laboratories Division ("Wyeth-Ayerst") of AHP from 1989 to
1993. Mr. Hassan previously served as Corporate Vice President, Chief
Operating Officer and, subsequently, Chief Executive Officer, of Sandoz
Pharmaceuticals Corporation from 1986 to 1989. Mr. Hassan became a director
of AHP effective February 1, 1995.
GABRIEL SCHMERGEL, age 55, became a director in 1981.
Mr. Schmergel has served as the President and Chief Executive Officer of
the Company since 1981.
DIRECTORS WHOSE TERMS EXPIRE IN 1998 (CLASS I DIRECTORS)
ANTHONY B. EVNIN, age 55, became a director in 1980.
Mr. Evnin has served as a General Partner of Venrock Associates, a venture
capital partnership, since 1975. He is also a Director of AgriDyne
Technologies Inc., Arris Pharmaceutical Corporation, Athena Neurosciences,
Inc., Centocor, Inc., IDEXX Laboratories, Inc., Escalon Medical Corp.,
Kopin Corporation, Opta Food Ingredients, Inc. and SUGEN, Inc.
ROBERT I. LEVY, M.D., age 58, became a director in 1994.
Dr. Levy has served since March 1992 as the President of Wyeth-Ayerst
Research where he directs research and development for Wyeth-Ayerst.
Previously, Dr. Levy served as the President of the Sandoz Research
Institute from 1988 to 1992.
THOMAS P. MANIATIS, PH.D., age 52, became a director in 1980.
Dr. Maniatis has served as Professor of Biochemistry and Molecular Biology
at Harvard University since 1981. Dr. Maniatis is a founder of the Company.
DIRECTORS WHOSE TERMS EXPIRE IN 1997 (CLASS I DIRECTORS)
JAMES G. ANDRESS, age 57, became a director in 1991.
Mr. Andress served as Chief Executive Officer and President of Information
Resources Inc. from 1989 to September 1995; Chairman Healthcare Products
and Services for SmithKline Beecham PLC and Chairman Beecham
Pharmaceuticals from 1988 to 1989; and President and Chief Operating
Officer, and before such positions Vice President International, of
Sterling Drug Company from 1984 to 1988. He also serves as a Director of
Allstate Corporation, Genelabs, Inc., Information Resources Inc., The
Liposome Company, Inc., NeoRx Corporation, OptionCare, Inc., Sepracor,
Inc., Walsh International, Inc. and Xoma Corp.
6
<PAGE> 9
BENNO C. SCHMIDT, age 83, became a director in 1980.
Mr. Schmidt became the Company's first Chairman of the Board of Directors
in 1988. Mr. Schmidt, Managing Partner of J.H. Whitney & Co., a New York
private venture capital firm, from 1946 to 1992, is currently its Senior
Partner. He also serves as a Director of Gilead Sciences, Inc., Vertex
Pharmaceuticals Incorporated, and other private companies. Mr. Schmidt was
a director and officer of Vitarine Pharmaceuticals, Inc. which filed a
voluntary petition under Chapter 11 of the Bankruptcy Code on May 24, 1991.
<TABLE>
The following table sets forth certain information as of January 31, 1996
regarding the beneficial ownership of the equity securities of AHP by each
director of the Company and by all officers and directors of the Company as a
group:
<CAPTION>
NUMBER OF SHARES PERCENTAGE
NAME BENEFICIALLY OWNED CLASS OF CLASS
- ------------------------------------------------ ------------------ ------------- ----------
<S> <C> <C> <C>
Mr. Andress..................................... -- -- --
Mr. Evnin....................................... -- -- --
Mr. Hassan...................................... 164,505(1) Common Stock *
Dr. Levy........................................ 49,201(2) Common Stock *
Dr. Maniatis.................................... -- -- --
Mr. Schmergel................................... -- -- --
Mr. Schmidt..................................... -- -- --
All directors and executive officers as a group
(16 persons).................................. 213,706(3) Common Stock *
<FN>
- ---------------
* Represents holding of less than one percent.
(1) Includes 154,100 shares of Common Stock of AHP which Mr. Hassan has the
right to acquire under outstanding stock options exercisable within 60 days
after January 31, 1996. Also includes 6,157 shares of Common Stock of AHP
owned jointly by Mr. Hassan and his spouse.
(2) Includes 46,100 shares of Common Stock of AHP which Dr. Levy has the right
to acquire under outstanding stock options exercisable within 60 days after
January 31, 1996.
(3) Includes 200,200 shares of Common Stock of AHP which directors and executive
officers have the right to acquire under outstanding stock options
exercisable within 60 days after January 31, 1996.
</TABLE>
BOARD AND COMMITTEE MEETINGS
The Company has a standing Audit Committee of the Board of Directors, which
provides the opportunity for direct contact between the Company's independent
public accountants and the Board. The Audit Committee met once during fiscal
1995 to review the effectiveness of the auditors during the fiscal 1994 audit,
to review the adequacy of the fiscal 1994 financial statement disclosures, to
discuss the Company's internal control policies and procedures and to consider
and recommend the selection of the Company's independent public accountants. The
members of the Audit Committee are Messrs. Evnin and Hassan. Pursuant to the
provisions of the Governance Agreement, the Audit Committee must include at
least one director designated by Holdings.
The Company also has a standing Compensation Committee of the Board of
Directors, which provides recommendations to the Board regarding compensation
programs of the Company and administers the Company's 1991 Stock Option Plan,
1991 Employee Stock Purchase Plan and 1991 Restricted Stock Plan, including the
grant of stock options and the issuance of restricted shares to employees. The
Compensation
7
<PAGE> 10
Committee is also responsible for establishing and modifying the compensation of
all corporate officers of the Company (including compensation pursuant to stock
options and other employee benefit plans and arrangements), adoption and
amendment of all stock option and other employee benefit plans and arrangements
and the engagement of, terms of any employment agreements and arrangements with,
and termination of, all corporate officers of the Company. The Compensation
Committee met three times during fiscal 1995. The members of the Compensation
Committee are Messrs. Andress, Evnin and Hassan. See "Report of the Compensation
Committee." Pursuant to the provisions of the Governance Agreement, the
Compensation Committee must consist of one director designated by Holdings and
two other non-Holdings directors who are not officers of the Company. In
addition, the Compensation Committee may act only upon the unanimous vote of all
of its members.
Pursuant to the Governance Agreement, the Company has also created an
Intellectual Property Committee and a Scientific Affairs Committee of the Board
of Directors, each of which must consist of two directors designated by Holdings
and two other non-Holdings directors. The members of the Intellectual Property
Committee are Messrs. Andress and Hassan and Drs. Maniatis and Levy. The
Intellectual Property Committee is responsible for the general review of the
Company's patent application strategy and for the approval of material decisions
regarding the Company's patent litigation strategy, including litigation
commencement, defense, prosecution and settlement. The Intellectual Property
Committee met twice during fiscal 1995.
The members of the Scientific Affairs Committee are Messrs. Evnin and
Hassan and Drs. Maniatis and Levy. The Scientific Affairs Committee is
responsible for the general review of the Company's research programs and for
the approval of the Company's research budget. The Scientific Affairs Committee
met three times during fiscal 1995.
Pursuant to the Governance Agreement, the Company also created a Nominating
Committee of the Board of Directors, which held no meetings during fiscal 1995.
The members of the Nominating Committee are Messrs. Schmergel and Schmidt and
Dr. Levy. The Nominating Committee has the exclusive authority to nominate
individuals to fill all Board positions except for the directors designated by
Holdings pursuant to the provisions of the Governance Agreement. The Nominating
Committee will consider nominees recommended by the Company's stockholders.
Stockholders wishing to nominate a person for election to the Board of Directors
should send a letter to the Secretary of the Company stating the name and
qualifications of the proposed nominee. The letter must be received 30 days
prior to the one-year anniversary of the date of the notice for the previous
year's Annual Meeting of Stockholders. Pursuant to the provisions of the
Governance Agreement, the Nominating Committee must consist of one director
designated by Holdings and two other non-Holdings directors. With respect to any
election of directors occurring prior to January 1, 1997, the Governance
Agreement provides that any nomination of a person not then serving as a
director or nominated or designated by Holdings shall require the unanimous
approval of the Nominating Committee.
The Governance Agreement provides that each committee of the Board of
Directors (other than any special committee or committee of independent
directors or directors not designated by Holdings constituted for the purpose of
making any determination that is to be made by such a committee under the terms
of the Governance Agreement or otherwise) shall at all times include at least
one director designated by Holdings. The director designated by Holdings to
serve on any committee may designate as his alternate another director
designated by Holdings.
The Board of Directors held eight meetings during fiscal 1995. Each
director attended at least 75% of the total number of meetings of the Board of
Directors and the committees of the Board on which he served.
8
<PAGE> 11
COMPENSATION FOR DIRECTORS -- STANDARD ARRANGEMENTS
For their services to the Company, non-employee directors of the Company
receive cash payments in the amount of $2,000 for personally attending each
Board meeting, $500 for participating in each telephonic Board meeting, $1,000
for personally attending each committee meeting and $250 for participating in
each telephonic committee meeting. Directors who are employed by the Company do
not receive compensation for attendance at Board or committee meetings.
Directors are reimbursed for any expenses attendant to Board membership. For
services rendered during the fiscal year ended December 31, 1995, Mr. Andress
earned $14,500, Dr. Crout earned $14,000, Mr. Evnin earned $17,250, Mr. Hassan
earned $18,000, Dr. Maniatis earned $12,000 and Dr. Levy earned $14,750 in
director's fees.
COMPENSATION FOR DIRECTORS -- OTHER ARRANGEMENTS
Mr. Schmidt, the Chairman of the Board, received in the year ended December
31, 1995, in lieu of the payments described in the preceding paragraph, an
annual retainer of $100,000 and is entitled to continue to receive such a
retainer so long as he is performing services on behalf of the Company. Dr.
Maniatis received annual consulting fees of $72,083 in connection with his
services to the Company as a consultant and as a member of the Company's
Scientific Advisory Board.
Pursuant to the Company's 1990 Director Stock Option Plan (the "1990
Plan"), each non-employee director serving at that time was granted an option
for the purchase of 10,000 shares, exercisable over the five years following the
date of grant. Except for the option granted to Mr. Andress on October 22, 1991,
all options granted under the 1990 Plan were accelerated and became fully
exercisable on January 16, 1992, the date on which the AHP Transaction was
consummated.
Directors of the Company who (a) are not employees of the Company or AHP or
any subsidiary of the Company or AHP and (b) have not, since October 1, 1991,
received any stock option grant from the Company solely in their capacity as
directors are eligible to participate in the 1993 Director Option Plan (the
"1993 Plan"). Under the 1993 Plan, eligible directors of the Company
automatically received non-statutory options to purchase 10,000 Depositary
Shares of the Company at an exercise price equal to the fair market value of
such shares on the date of grant. The 1993 Plan also provides that options to
purchase 10,000 Depositary Shares shall be granted automatically to each newly
elected director on the date of his or her initial election or appointment to
the Board of Directors. The term of the Director Plan is five years.
In 1994, Dr. Crout was granted an option to purchase 10,000 Depositary
Shares pursuant to the 1993 Plan at an exercise price of $41.75 per share. In
1993, pursuant to the 1993 Plan, each of Dr. Maniatis and Mr. Evnin was granted
options to purchase 10,000 Depositary Shares at an exercise price of $27.75 per
Depositary Share. Each such option is exercisable on a cumulative basis in
annual installments of 20% each on the succeeding five anniversaries of the date
of grant. Service as a director must be continuous for such vesting to occur. If
AHP exercises the Call Option prior to its expiration date, each outstanding
option shall automatically accelerate in part and become exercisable as to that
number of additional shares that would otherwise vest and be purchasable on the
next succeeding anniversary of the option grant date.
9
<PAGE> 12
COMPENSATION OF EXECUTIVE OFFICERS
<TABLE>
Summary Compensation Table. The following table sets forth certain
information concerning the compensation for each of the last three fiscal years
of the Company's Chief Executive Officer and the Company's four other most
highly compensated executive officers who were serving as executive officers on
December 31, 1995 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<CAPTION>
LONG-TERM
COMPENSATION
-----------------------
AWARDS
-----------------------
ANNUAL COMPENSATION RESTRICTED
---------------------------- STOCK OPTIONS/ ALL OTHER
NAME AND SALARY BONUS AWARDS SARS COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($)(1) ($)(2) (#) ($)(3)
- ------------------------------------- ----- ------- ------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gabriel Schmergel.................... 1995 410,000 145,000 0 50,000 10,294(4)
Chief Executive Officer 1994 410,000 105,000 0 50,000 10,026(4)
1993 380,000 80,000 0 30,000 12,139(4)
Patrick Gage, Ph.D................... 1995 316,000 120,000 0 40,000 6,750
Chief Operating Officer 1994 316,000 90,000 0 0 6,750
1993 278,417 60,000 0 60,000 8,932
Tuan Ha-Ngoc......................... 1995 245,000 90,000 0 27,500 6,750
Executive Vice President 1994 245,000 62,000 0 30,000 6,750
1993 225,000 75,000 0 15,000 8,198
Garen G. Bohlin...................... 1995 242,000 90,000 0 30,000 6,750
Executive Vice President; 1994 242,000 62,000 0 30,000 6,750
Chief Financial Officer 1993 225,000 50,000 0 15,000 7,587
Lawrence V. Stein.................... 1995 225,000 85,000 0 27,500 6,750
Senior Vice President, 1994 215,000 62,000 0 5,000 6,750
General Counsel and Secretary 1993 190,000 20,000 0 0 188,098(5)
<FN>
- ---------------
(1) Amounts shown represent cash compensation earned by the Named Executive
Officers for the fiscal years presented.
(2) As of December 31, 1995, the number and value of aggregate unvested
restricted stock holdings awarded in 1992 were as follows: 10,000 shares
($534,900) by Mr. Schmergel; 7,500 shares ($401,175) by Dr. Gage; 5,000
shares ($267,450) by Mr. Ha-Ngoc; 5,000 shares ($267,450) by Mr. Bohlin and
2,500 shares ($133,725) by Mr. Stein. The value of unvested restricted stock
holdings on December 31, 1995 was determined by multiplying the closing
price of the Depositary Shares on that date ($53.50) by the number of shares
held and subtracting the aggregate purchase price ($.01 per share) paid by
each Named Executive Officer for such shares. No dividends were paid in 1995
on the restricted stock.
(3) Amounts shown as "All Other Compensation" are amounts contributed or accrued
by the Company for each fiscal year for the Named Executive Officers under
the Company's 401(k) Plan, except as set forth in notes (4) and (5) below.
(4) Includes term life insurance premiums paid by the Company for the Named
Executive Officer's benefit in the amounts of $3,544 for 1995, $3,276 for
1994 and $3,056 for 1993. Also includes amounts contributed or accrued by
the Company under the Company's 401(k) Plan of $6,750 in each of 1995 and
1994, and $9,083 in 1993.
(5) Includes $181,348 in relocation related compensation and $6,750 contributed
or accrued by the Company under the Company's 401(k) plan.
</TABLE>
10
<PAGE> 13
<TABLE>
Option Grant Table. The following table sets forth certain information
regarding options granted during the fiscal year ended December 31, 1995 by the
Company to the Named Executive Officers:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS/
UNDERLYING SARS GRANTED EXERCISE OR GRANT DATE
OPTIONS/SARS TO EMPLOYEES BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#)(1) IN FISCAL YEAR ($/SH)(2) DATE ($)(3)
- -------------------------- ------------- -------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Gabriel Schmergel......... 50,000 5.3% 33.625 02/07/05 830,000
Patrick Gage, Ph.D........ 40,000 4.3% 33.625 02/07/05 664,000
Tuan Ha-Ngoc.............. 27,500 2.9% 33.625 02/07/05 456,500
Garen G. Bohlin........... 30,000 3.2% 33.625 02/07/05 498,000
Lawrence V. Stein......... 27,500 2.9% 33.625 02/07/05 456,500
<FN>
- ---------------
(1) Options become exercisable generally in five equal annual installments
commencing on the first anniversary of the date of grant. In the event that
AHP exercises the Call Option on the Depositary Shares, the options fully
vest.
(2) The exercise price is equal to the fair market value of the Company's
Common Stock (currently represented by Depositary Shares) on the date of
grant.
(3) The Black-Scholes valuation model assumes: (a) an expected option term of
10 years; (b) an interest rate that represents the interest rate on the
10-year U.S. Treasury Bond at the time of grant (5.669% for options granted
on February 7, 1995); (c) volatility calculated using weekly stock prices
since the AHP Transaction (22.7% for options granted on February 7, 1995);
(d) no dividends will be paid; and (e) no adjustments for forfeitures or
nontransferability.
</TABLE>
<TABLE>
Option Exercises and Year-End Values. The following table sets forth
certain information concerning each exercise of stock options during the fiscal
year ended December 31, 1995 by each of the Named Executive Officers and the
number and value of unexercised options held by each of the Named Executive
Officers on December 31, 1995:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS AT FISCAL OPTIONS/SARS AT
ON VALUE YEAR-END (#) FISCAL YEAR-END ($)(1)
EXERCISE REALIZED -------------------------- ---------------------------
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------- -------- -------- -------------------------- ---------------------------
<S> <C> <C> <C> <C>
Gabriel Schmergel.......... 0 0 164,600/130,000 3,561,850/2,025,250
Patrick Gage, Ph.D......... 0 0 117,000/ 90,000 2,290,325/1,573,000
Tuan Ha-Ngoc............... 0 0 105,500/ 69,000 2,411,000/1,021,313
Garen G. Bohlin............ 0 0 101,100/ 71,500 2,332,100/1,071,000
Lawrence V. Stein.......... 0 0 31,000/ 51,500 724,750/1,045,563
<FN>
- ---------------
(1) Based on the fair market value of the Depositary Shares on December 31,
1995 ($53.50) less the option exercise price.
</TABLE>
11
<PAGE> 14
COMPENSATION ARRANGEMENTS AND EMPLOYMENT AGREEMENTS
Under the terms of its employment arrangements with certain key employees,
the Company loaned varying amounts of money to such employees in order to assist
them in establishing residences in Massachusetts. Generally, such loans are
subject to repayment at the earlier of sale of the residence or within 180 days
following termination of employment with the Company and are secured by a
mortgage on the residence. Upon repayment, the Company is entitled to receive
the entire outstanding principal balance plus the lesser of interest accrued on
the loan at a rate equal to 3% per annum or 20% of the net appreciation in the
value of the residence. During the Company's fiscal year 1995, and as of
December 31, 1995, Dr. Patrick Gage, Mr. Lawrence V. Stein, Dr. John Ryan and
Mr. Jack Morgan were indebted to the Company under the terms of such loan
agreements in the principal amounts outstanding of $300,000, $200,000, $220,000
and $110,000, respectively.
All executive officers and employees of the Company are required to enter
into an invention and non-disclosure agreement, which includes certain
non-competition restrictions.
In connection with, and as a condition to, the AHP Transaction, the Company
entered into employment agreements with certain of its executive officers and
employees, including Messrs. Schmergel, Bohlin and Ha-Ngoc and Dr. Gage. While
these employment agreements have expired, under the terms of his employment
agreement with the Company, Dr. Gage continues to be entitled to receive
severance payments for a period of twelve months following termination of
employment in certain circumstances at his then-existing annual base salary
rate. As of December 31, 1995, Dr. Gage's annual base salary was $316,000. The
employment agreement does not impose a duty on Dr. Gage to mitigate or offset
other income. Dr. Gage is, however, bound by certain non-compete obligations
during such twelve-month period.
In November 1992, the Company entered into an employment agreement with Mr.
Stein. The employment agreement expired in 1995. However, Mr. Stein remains
entitled to receive severance payments for a period of twelve months following
termination of employment in certain circumstances at his then-existing annual
base salary rate. As of December 31, 1995, Mr. Stein's annual base salary was
$225,000. The employment agreement does not impose a duty on Mr. Stein to
mitigate or offset other income. Mr. Stein is, however, bound by certain
non-compete obligations during such twelve-month period.
REPORT OF THE COMPENSATION COMMITTEE
The Company's executive compensation program is administered by the
Compensation Committee. Pursuant to the Governance Agreement between the Company
and AHP, membership of the Compensation Committee consists of three directors
who are not employees, one of whom is designated by Holdings. The Committee may
act only upon the unanimous vote of all members of the Committee.
The Company's executive compensation program is designed to retain and
reward executives who are capable of leading the Company in achieving its
business objectives in the competitive and rapidly changing biotechnology
industry. All decisions by the Compensation Committee relating to the
compensation of the Company's executive officers are reviewed by the full Board,
except for decisions about awards under certain of the Company's stock-based
compensation plans, which must be made solely by the Committee in order for the
grants or awards under such plans to satisfy Securities Exchange Act Rule 16b-3.
This report is submitted by the Compensation Committee and addresses the
Company's compensation policies for 1995 as they affected Gabriel Schmergel, the
President and Chief Executive Officer of the Company, and the four executive
officers other than Mr. Schmergel who, for 1995, were the Company's most highly
paid executives (collectively with Mr. Schmergel, the "Named Executives").
12
<PAGE> 15
COMPENSATION PHILOSOPHY
The objectives of the executive compensation program are to align
compensation with business objectives and individual performance, to enable the
Company to attract, retain and reward executive officers who contribute to the
long-term success of the Company, and to enhance stockholder value. The
Company's executive compensation philosophy is based on the following
principles:
- COMPETITIVE AND FAIR COMPENSATION
The Company is committed to providing an executive compensation program
that helps attract and retain highly qualified executives. To ensure that
compensation is competitive, the Company regularly compares its
compensation practices with those of other companies in the industry and
sets its compensation guidelines based on this review. The Company also
seeks to achieve a balance of the compensation paid to a particular
individual and the compensation paid to other executives both inside the
Company and at comparable companies.
- SUSTAINED PERFORMANCE
Executive officers are rewarded based upon corporate performance,
business group performance and individual performance. Corporate
performance and business group performance are evaluated by reviewing the
extent to which strategic and business plan goals are met, including such
factors as achievement of operating budgets, timely development and
introduction of new products and performance relative to competitors.
Individual performance is evaluated by reviewing attainment of specified
individual objectives and the degree to which teamwork and Company values
are fostered.
In evaluating each Named Executive's performance, the Company generally
conforms to the following process:
- Company and individual goals and objectives are set at the beginning of
each annual performance cycle.
- At the end of each annual performance cycle, the executive's manager or,
in the case of the Chief Executive Officer, the Compensation Committee,
evaluates accomplishment of the executive's goals and objectives and his
contributions to the Company.
- The executive's performance is then compared with peers within the
Company and the results are communicated to the executive.
- The comparative results, combined with comparative compensation practices
of other leading companies in the industry, are then used to determine
salary, bonus and stock compensation levels.
Annual compensation for the Company's executives consists of salary, cash
bonus, stock options and/or restricted stock. The Compensation Committee sets
the base salary for executives by reviewing compensation for competitive
positions in the market and the historical compensation levels of the
executives. Increases in annual salaries are based on merit ratings measured by
actual individual performance against targeted performance and various
subjective performance criteria.
The Company's bonus pool for executives other than Mr. Schmergel is
established at the beginning of each performance cycle. For fiscal 1995, the
potential bonus pool for all executives excluding Mr. Schmergel was fixed at
$900,000 (approximately 24% of the aggregate officer base salary payroll), of
which $600,000 was tied specifically to product development achievements,
$125,000 was to be available based on other accomplishments in the Company, and
the remaining $175,000 was to be available only if the Company met its budgeted
financial target, and was subject to increase by the Compensation Committee in
the event that the Company significantly outperformed its 1995 budget. Target
product development goals and target annual
13
<PAGE> 16
operating budgets used for purposes of evaluating annual bonuses are based on
business plans developed by management, including Mr. Schmergel. Because the
Company significantly outperformed its budget in 1995, $1,030,000 in bonuses
were awarded to executives excluding Mr. Schmergel. Total bonuses, including
that of Mr. Schmergel, of $1,175,000 were awarded by the Compensation Committee
for 1995 performance, of which Mr. Schmergel received $145,000 and the other
four Named Executives received $385,000.
Total compensation at the senior executive level also includes the
long-term incentives afforded by stock options and restricted stock awards. The
stock incentive programs are designed to promote the identity of long-term
interests between the Company's employees and its stockholders and assist in the
retention of key executives. In the case of stock options, the size of option
grants is generally intended by the Compensation Committee to reflect the
executive's position with the Company and his contributions to the Company.
Three of the five Named Executives of the Company have received a stock option
grant in each of the last three fiscal years (1993, 1994 and 1995). The option
program also uses a five-year vesting period to encourage key employees to
continue in the employ of the Company. In the event that Holdings exercises the
Call Option on the Depositary Shares, the stock options fully vest.
The Compensation Committee surveyed employee stock option programs of
companies with similar capitalizations to the Company prior to determining
whether and to what extent it should grant options to the Named Executives for
fiscal 1995. While the value realizable from exercisable options is dependent
upon the extent to which the Company's performance is reflected in the market
price of the Company's common stock at any particular point in time, the
decision as to whether such value will be realized through the exercise of an
option in any particular year is primarily determined by each individual
executive and not by the Compensation Committee.
The 1991 Restricted Stock Plan ("Plan") was designed to retain key
employees in the employ of the Company by providing the opportunity for
supplementary compensation based on continued employment and attainment of
certain performance goals. Of the 300,000 restricted shares reserved for
issuance under the Plan, 298,000 shares have been awarded, including 90,000
shares to the Named Executives. An aggregate of 75,000 shares have vested and
the remaining shares vest 10 years after award, subject however to acceleration
of vesting if the Company achieves certain financial and product development
targets determined by the Compensation Committee. Since restricted shares are
issued at nominal consideration ($.01 per share), the entire value of the shares
will constitute additional compensation at the time of vesting. Generally,
unvested shares shall be returned to the Company if the recipient leaves the
employment of the Company before vesting takes place.
The Employee Stock Purchase Plan is available to all employees of the
Company, and generally permits employees to purchase shares at a discount of
approximately 15% from the fair market value at the beginning or end of the
applicable purchase period.
MR. SCHMERGEL'S 1995 COMPENSATION
Mr. Schmergel is eligible to participate in the same executive compensation
plans available to the other Named Executives. The Compensation Committee has
set Mr. Schmergel's annual compensation at a level it believes is competitive
with other companies in the industry, including a significant portion of his
compensation based upon the Company's stock-based program.
In 1995, the Compensation Committee accepted the recommendations of Mr.
Schmergel and the four Named Executives to freeze their base salaries at the
fiscal 1994 level for fiscal 1995. Mr. Schmergel's salary for fiscal 1995 thus
remained at the 1994 level of $410,000. Mr. Schmergel's bonus award of $145,000
for fiscal 1995 performance reflected attainment of his principal individual
1995 performance goals established by the Compensation Committee and was the
highest annual bonus paid to any Named Executive. In 1995, the
14
<PAGE> 17
Compensation Committee also granted Mr. Schmergel an option for the purchase of
50,000 shares at an exercise price equal to the fair market value per share at
the date of grant. In determining the number of shares covered by the option
granted to Mr. Schmergel, the Compensation Committee evaluated Mr. Schmergel's
cash compensation relative to that of other chief executives in the Company's
industry, past option grants and the number of restricted shares awarded to Mr.
Schmergel under the 1991 Restricted Stock Plan. The options are exercisable
ratably over the five years following the date of grant subject to Mr.
Schmergel's employment with the Company and such options vest fully in the event
that Holdings exercises the Call Option on the Depositary Shares. This option
grant, together with prior option grants and restricted stock, reflect the
Compensation Committee's policy of encouraging long-term performance and
promoting retention while further aligning stockholders' and management's
interests in the performance of the Company's common stock.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Code, enacted in 1993, generally disallows a tax
deduction to public companies for compensation over $1 million paid to its chief
executive officer and its four other most highly compensated executive officers.
However, qualifying performance-based compensation will not be subject to the
deduction limit if certain requirements are met. The Company currently intends
to structure its stock options granted to executive officers in a manner that
complies with these performance-based requirements.
Compensation Committee
ANTHONY B. EVNIN, Chairman
JAMES ANDRESS
FRED HASSAN
COMPENSATION COMMITTEE AND INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Andress, Evnin and
Hassan. No executive officer of the Company is a member of the Compensation
Committee. Messrs. Andress and Evnin have each been granted options to purchase
Depositary Shares under the Company's 1990 Outside Director Stock Option Plan
and Mr. Evnin has been granted an option to purchase 10,000 Depositary Shares
under the 1993 Plan. Pursuant to the Call Option, Holdings has the right, but
not the obligation, to purchase all of the outstanding Common Stock of the
Company. In addition, the Company has entered into certain collaboration
agreements with AHP. See "Transaction with American Home Products Corporation"
and "Certain Transactions."
15
<PAGE> 18
STOCK PERFORMANCE GRAPH
[STOCK PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Nov-90 Nov-91 Nov-92 Nov-93 Dec-93 Dec-94 Dec-95
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Company 100 95 94 142 150 112 166
S&P 500 Index 100 119 136 146 147 145 195
DJ Medical & Biotechnology Index 100 200 219 176 186 211 360
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
In January 1992, the Company consummated the AHP Transaction. As a result,
each shareholder of the Company received $20 in cash and 0.6 Depositary Shares
for each share of Common Stock previously held. The above table and chart assume
the shareholder reinvested such $20 in additional Depositary Shares.
Effective January 1, 1994, the Company changed its fiscal year end from
November 30 to December 31. The above table and chart assume $100 invested on
November 30, 1990 in the Company's Common Stock, S&P 500 Index and Dow Jones
Medical and Biotechnology Index. Total Return assumes reinvestment of dividends.
Years refers to the Company's prior fiscal year ends.
CERTAIN TRANSACTIONS
In July 1994, the Company and Wyeth-Ayerst Laboratories, a pharmaceutical
division of AHP ("Wyeth-Ayerst"), agreed to form a 50/50 joint venture ("IL-12
Partners") to develop and commercialize recombinant interleukin-12 ("rhIL-12")
on a worldwide basis, except for Japan. Mr. Hassan, a director of the Company,
is a director and an Executive Vice President of AHP. Dr. Levy, also a director
of the Company, is
16
<PAGE> 19
the President of Wyeth-Ayerst Research where he directs the research and
development for Wyeth-Ayerst. IL-12 Partners has a joint project team and
steering committee to oversee current and future clinical trials and other
development activities. These activities will be funded equally by the partners.
The arrangement also provides for certain payments to the Company. Milestone
payments from AHP will become due upon achievement of certain clinical outcomes
and submission or approval of specific regulatory filings -- the exact value of
such payments is contingent upon rhIL-12's success in various therapeutic areas.
In 1995, $10.6 million of reimbursable research and development expenses were
incurred by the Company and billed to IL-12 Partners, fifty percent of which is
funded by Wyeth-Ayerst. In addition, in 1995, $2.8 million of reimbursable
research and development expenses were incurred by Wyeth-Ayerst, fifty percent
of which is funded by the Company. The Company has the right to supply rhIL-12
to the joint venture and will also receive royalties based on the joint
venture's sales of rhIL-12. The Company will have marketing rights in North
America; WyethAyerst International will have marketing rights outside North
America and Japan.
The Company has entered into various agreements with Wyeth-Ayerst related
to the commencement of a research and development collaboration in the area of
cellular adhesion proteins. Pursuant to these agreements, the Company recorded
revenues of $2.2 million during fiscal 1995. Collaborative funding under these
agreements ended as scheduled in mid-1995. Wyeth-Ayerst retains codevelopment
rights for lead compounds discovered during this collaboration.
During fiscal 1993, the Company entered into a license agreement with AHP
pursuant to which it licensed to AHP certain rights to develop, use and market
the Company's recombinant human interleukin-11 product in the Pacific Basin
(excluding Japan), Australia and New Zealand. The Company received $2.0 million
in milestone payments under this License Agreement during fiscal 1995.
The Company's affiliate, the GI-Yamanouchi European Partnership (the
"GYEP") entered into a Sales and Distribution Agreement with Wyeth-Ayerst
International Inc. ("WAI"), an affiliate of AHP, under which WAI obtained
certain rights to distribute future products of the GYEP in Europe in the field
of localized bone repair. The Company holds the rights to supply the GYEP with
bulk protein for such products. In fiscal 1995, the GYEP received no revenue
under this agreement.
The Company has several agreements with Wyeth-Ayerst and WAI under which
Wyeth-Ayerst and WAI have agreed to assist the Company in conducting clinical
trials of certain of the Company's products in Europe and the United States and
to perform fill and finish activities. During fiscal 1995, the Company made
payments of $0.5 million to either Wyeth-Ayerst or WAI pursuant to these
agreements.
Under the terms of the Call Option granted pursuant to the AHP Transaction,
Holdings has the right, but not the obligation, to purchase the shares of Common
Stock represented by the Depositary Shares and held by the Depositary, at any
time on or prior to December 31, 1996, at per share call prices increasing by
approximately $1.84 per share per quarter from $81.32 per share for the period
from April 1, 1996 through June 30, 1996 to $85.00 per share for the period from
October 1, 1996 through December 31, 1996. In the event that Holdings elects to
call any shares of Common Stock, Holdings must purchase all of the shares of
Common Stock not owned by AHP or Holdings. Accordingly, if the Call Option is
exercised, Holdings will own 100% of the outstanding shares of Common Stock of
the Company, and stockholders of the Company will cease to have any equity
interest in the Company.
The Governance Agreement provides, among other things, for (i) the
inclusion of nominees designated by Holdings on, and the change in composition
on January 1, 1997 of, an expanded Board of Directors of the Company, (ii) the
establishment of committees of the Board of Directors addressing compensation,
scientific affairs and intellectual property rights and the membership of the
directors designated by Holdings thereon, (iii) approval rights on the part of
the directors designated by Holdings with respect to material acquisitions by
the Company, dispositions of all or any substantial portion of its business or
assets, issuances and
17
<PAGE> 20
repurchases of equity securities, amendments to the Certificate of Incorporation
or By-laws of the Company and any action otherwise within the purview of the
intellectual property, scientific affairs or compensation committees of the
Board of Directors established pursuant to the Governance Agreement which is
presented to the full Board for action, (iv) certain rights of first refusal
granted to AHP with respect to material licensing and marketing arrangements
with third parties, (v) certain restrictions on acquisitions and dispositions of
shares of Common Stock by AHP and its affiliates and (vi) certain agreements as
to Holdings' voting of its shares of Common Stock with respect to elections of
directors and amendments to the terms of the Depositary Shares. Independent of
its right to call the Depositary Shares, AHP is permitted by the terms of the
Governance Agreement to acquire additional shares of the Company's stock through
open market purchases or privately negotiated purchases, provided that, during
the term of the Call Option, its aggregate holdings do not exceed 75% of the
Company's stock outstanding subject to certain exceptions.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, on the recommendation of its Audit Committee, has
selected the firm of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending December 31, 1996. Although stockholder
approval of the Board of Directors' selection of Arthur Andersen LLP is not
required by law, the Board of Directors believes that it is advisable to give
stockholders an opportunity to ratify this selection. If this proposal is not
approved at the Annual Meeting, the Board of Directors will reconsider its
selection of Arthur Andersen LLP.
Representatives of Arthur Andersen LLP are expected to be present at the
Annual Meeting. They will have the opportunity to make a statement if they
desire to do so and will also be available to respond to appropriate questions
from stockholders.
18
<PAGE> 21
OTHER MATTERS
Management does not know of any other matters which may come before the
meeting. However, if any other matters are properly presented to the meeting, it
is the intention of persons named in the accompanying proxy to vote, or
otherwise act, in accordance with their judgment on such matters.
All costs of solicitations of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers and regular
employees, without additional remuneration, may solicit proxies by telephone,
telegraph and personal interviews. The Company reserves the right to retain the
services of outside agencies to assist in the solicitation of proxies at a fee
not anticipated to exceed $5,000.00. Brokers, custodians and fiduciaries will be
requested to forward proxy soliciting material to the owners of stock held in
their names, and the Company will reimburse them for their out-of-pocket
expenses in this connection.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1997 Annual
Meeting of Stockholders must be received by the Company at its principal office
in Cambridge, Massachusetts not later than December 4, 1996 for inclusion in the
proxy statement for that meeting.
By Order of the Board of Directors,
LAWRENCE V. STEIN, Secretary
April 3, 1996
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN AND RETURN THE
ENCLOSED PROXY OR VOTING INSTRUCTION CARD IN THE ACCOMPANYING ENVELOPE. PROMPT
RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR
COOPERATION WILL BE APPRECIATED.
19
<PAGE> 22
VOTING INSTRUCTION CARD
GENETICS INSTITUTE, INC.
ANNUAL MEETING OF STOCKHOLDERS - May 14, 1996
THESE VOTING INSTRUCTIONS ARE SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE COMPANY
The undersigned, having received notice of the meeting and the proxy
statement therefor, and revoking all prior proxies, hereby directs The First
National Bank of Boston, as Depositary (the "Depositary"), to vote and act upon
the following matters in accordance with the instructions indicated on the
reverse side in respect of all shares of Common Stock of Genetics Institute,
Inc. (the "Company") represented by Depositary Shares held by the undersigned.
In addition, the undersigned authorize(s) the Depositary to appoint Gabriel
Schmergel, Patrick Gage, Garen G. Bohlin and Tuan Ha-Ngoc and each of them,
attorneys or attorney of the Depositary (with full power of substitution in them
and each of them) for and in the name of the Depositary to attend the Annual
Meeting of Stockholders of the Company to be held at The Charles Hotel, One
Bennett Street, Cambridge, Massachusetts at 9:00 a.m. (local time), on Tuesday,
May 14, 1996 and any adjourned sessions thereof, and there to vote and act upon
the following matters in respect of shares of Common Stock of the Company which
the Depositary will be entitled to vote or act upon, with all powers the
Depositary would possess if personally present, including the power to vote upon
such other matters as may properly come before the meeting, or any adjournment
thereof.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
-----------
SEE REVERSE
SIDE
-----------
<PAGE> 23
Please mark
/X/ votes as in
this example
THE SHARES REPRESENTED BY THIS VOTING INSTRUCTION CARD WILL BE VOTED BY THE
DEPOSITARY AS DIRECTED BY THE UNDERSIGNED. IF NO DIRECTION IS GIVEN WITH RESPECT
TO ANY ELECTION TO OFFICE OR PROPOSAL SPECIFIED BELOW, THE UNDERSIGNED
SPECIFICALLY INSTRUCTS THE DEPOSITARY TO VOTE IN FAVOR OF SUCH ELECTION TO
OFFICE OR PROPOSAL.
1. Election of Class III directors.
Nominees: J. Richard Crout, M.D., Fred Hassan
and Gabriel Schmergel.
/ / FOR / / WITHHELD
------------------------------------------
For all nominees except as noted above
2. Ratification of the selection of Arthur Andersen LLP.
/ / FOR / / AGAINST / / ABSTAIN
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
/ / FOR / / AGAINST / / ABSTAIN
Attendance of the undersigned at the meeting or at any adjourned session
thereof will not be deemed to revoke these voting instructions. The voting
instructions may only be revoked by delivery of written revocation to the
Depositary prior to the Depositary's exercise of these voting instructions. If
the undersigned hold(s) any of the Depositary Shares of the Company in a
fiduciary, custodial or joint capacity or capacities, this voting instruction
card is signed by the undersigned in every such capacity as well as
individually.
Signature: Date
------------------------------- --------------------------------
Signature: Date
------------------------------- --------------------------------
-2-
<PAGE> 24
Please sign name(s) exactly as appearing hereon. When signing as attorney,
executor, administrator or other fiduciary, please give your full title as such.
Joint owners should each sign personally.
-3-
<PAGE> 25
PROXY GENETICS INSTITUTE, INC. PROXY
ANNUAL MEETING OF STOCKHOLDERS - May 14, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF THE COMPANY
The undersigned, having received notice of the meeting and the proxy
statement therefor, and revoking all prior proxies, hereby appoint(s) Gabriel
Schmergel, Patrick Gage, Garen G. Bohlin and Tuan Ha-Ngoc and each of them,
attorneys or attorney of the undersigned (with full power of substitution in
them and each of them) for and in the name(s) of the undersigned to attend the
Annual Meeting of Stockholders of Genetics Institute, Inc. (the "Company") to be
held at The Charles Hotel, One Bennett Street, Cambridge, Massachusetts at 9:00
a.m. (local time), on Tuesday, May 14, 1996 and any adjourned sessions thereof,
and there to vote and act upon the following matters in respect of shares of
Common Stock of the Company which the undersigned will be entitled to vote or
act upon, with all powers the undersigned would possess if personally present.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENT THEREOF.
1. Election of Class III directors.
Nominees: J. Richard Crout, M.D., Fred Hassan
and Gabriel Schmergel.
Pursuant to Section 3.06 of the Governance Agreement among the
Company, American Home Products Corporation and AHP Biotech Holdings, Inc.,
dated as of January 16, 1992, the undersigned hereby directs the proxies to
vote its shares of Common Stock for J. Richard Crout, M.D., Fred Hassan and
Gabriel Schmergel in proportion to the votes cast by the holders of the
Company's Depositary Shares (other than the undersigned and its
affiliates).
2. Ratification of the selection of Arthur Andersen LLP.
/ / FOR / / AGAINST / / ABSTAIN
<PAGE> 26
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
/ / FOR / / AGAINST / / ABSTAIN
The shares represented by this proxy will be voted as directed by the
undersigned. If no direction is given with respect to any election to office or
proposal specified above, this proxy will be voted for such election to office
or proposal.
Attendance of the undersigned at the meeting or at any adjourned session
thereof will not be deemed to revoke this proxy unless the undersigned shall
affirmatively indicate thereat the intention of the undersigned to vote said
shares in person. If the undersigned hold(s) any of the shares of the Company in
a fiduciary, custodial or joint capacity or capacities, this proxy is signed by
the undersigned in every such capacity as well as individually.
Number of Shares Represented AHP BIOTECH HOLDINGS, INC.
by this Proxy
- -------------------------------
Dated: , 1996 By:
---------------- -----------------------------------------
--------------------------------------------
Signature(s)
Please sign name(s) exactly as appearing
hereon. When signing as attorney, executor,
administrator or other fiduciary, please give
your full title as such. Joint owners should
each sign personally.
-2-
