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
Filed by the registrant /x/
Filed by a party other than the registrant / /
Check the appropriate box:
/x/ 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
Somatix Therapy Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rule 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 transactions 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
SOMATIX THERAPY CORPORATION
850 Marina Village Parkway
Alameda, California 94501
November 18, 1996
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
("Annual Meeting") of Somatix Therapy Corporation (the "Company") which will be
held at 10:00 A.M. on December 18, 1996, at the principal executive offices of
the Company at 850 Marina Village Parkway, Alameda, California 94501.
At the Annual Meeting, you will be asked to consider and vote upon the
following proposals: (i) to elect a Board of Directors of nine directors to
serve for the ensuing year or until their successors are elected and (ii) to
ratify the appointment of Ernst & Young LLP as independent accountants of the
Company for the fiscal year ending June 30, 1997.
The enclosed Proxy Statement more fully describes the details of the
business to be conducted at the Annual Meeting.
After careful consideration, the Company's Board of Directors has
unanimously approved the proposals and recommends that you vote IN FAVOR OF each
such proposal.
After reading the Proxy Statement, please mark, date, sign and return,
by no later than December 11, 1996, the enclosed proxy card in the accompanying
reply envelope. If you decide to attend the Annual Meeting, please notify the
Secretary of the Company that you wish to vote in person and your proxy will not
be voted. YOUR SHARES CANNOT BE VOTED UNLESS YOU MARK, DATE, SIGN AND RETURN THE
ENCLOSED PROXY, OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Somatix Therapy Corporation 1996 Annual Report is also
enclosed.
We look forward to seeing you at the Annual Meeting.
Sincerely,
David W. Carter,
Chairman of the Board, President and Chief Executive Officer
================================================================================
IMPORTANT
Please mark, date, sign and return the enclosed proxy promptly in the
accompanying postage-paid return envelope so that if you are unable to attend
the Annual Meeting your shares may be voted.
================================================================================
<PAGE>
SOMATIX THERAPY CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held December 18, 1996
TO THE STOCKHOLDERS OF SOMATIX THERAPY CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders ("Annual
Meeting") of Somatix Therapy Corporation, a Delaware corporation (the
"Company"), will be held at 10:00 A.M. local time on Wednesday, December 18,
1996, at the Company's offices, 850 Marina Village Parkway, Alameda, California
94501, for the following purposes:
1. To elect a Board of Directors of nine directors to serve for the
ensuing year or until their respective successors are elected and
qualified.
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent accountants for the fiscal year ending June 30, 1997.
3. To transact such other business as may properly come before the
Annual Meeting and any adjournment or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Stockholders of record at the close of business on October 21, 1996 are
entitled to receive notice of and to vote at the Annual Meeting and any
adjournment thereof. A list of the stockholders entitled to vote at the Annual
Meeting will be available for inspection at the Company's offices for a period
of ten days immediately prior to the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting.
However, to assure your representation at the meeting, please carefully read the
accompanying Proxy Statement, which describes the matters to be voted upon at
the Annual Meeting, and mark, date, sign and return the enclosed proxy card in
the reply envelope provided. Should you receive more than one proxy because your
shares are registered in different names and addresses, each proxy should be
returned to ensure that all your shares will be voted. If you decide to attend
the Annual Meeting, please notify the Secretary of the Company that you wish to
vote in person and your proxy will not be voted and only your vote at the Annual
Meeting will be counted. The prompt return of your proxy card will assist us in
preparing for the Annual Meeting.
YOUR VOTE IS VERY IMPORTANT. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ACCOMPANYING
ENVELOPE AS PROMPTLY AS POSSIBLE. THE PROXY IS REVOCABLE AND WILL NOT AFFECT
YOUR RIGHT TO VOTE IN PERSON IN THE EVENT YOU ATTEND THE MEETING.
Sincerely,
David W. Carter,
Chairman of the Board of Directors, President and Chief
Executive Officer
Alameda, California
November 18, 1996
<PAGE>
SOMATIX THERAPY CORPORATION
850 Marina Village Parkway
Alameda, California 94501
-------------------------------
PROXY STATEMENT
-------------------------------
For the Annual Meeting of Stockholders
To Be Held on December 18, 1996
GENERAL INFORMATION FOR STOCKHOLDERS
The enclosed proxy ("Proxy") is solicited on behalf of the Board of
Directors (the "Board") of Somatix Therapy Corporation, a Delaware corporation
(the "Company" or "Somatix"), for use at the 1996 Annual Meeting of Stockholders
(the "Annual Meeting") to be held at 10:00 A.M. on December 18, 1996, at the
Company's principal executive offices, 850 Marina Village Parkway, Alameda,
California 94501 and at any adjournment thereof.
This Proxy Statement and the accompanying form of Proxy was first
mailed to the stockholders entitled to vote at the Annual Meeting on or about
November 18, 1996.
Record Date And Voting
Stockholders of record at the close of business on October 21, 1996 are
entitled to notice of and to vote at the Annual Meeting. As of the close of
business on such date, there were 24,389,730 shares of the Company's common
stock (the "Common Stock") outstanding and entitled to vote, held by 962
stockholders of record. Each stockholder is entitled to one vote for each share
of Common Stock held by such stockholder as of the record date. Also, 243,731*
shares of the Company's Series A Preferred Stock were outstanding and entitled
to vote, held by nine stockholders of record. Each stockholder holding Series A
Preferred Stock as of the record date is also entitled to one vote for each
share of Common Stock into which such Series A Preferred Stock is convertible as
of the record date. As of the record date, each share of Series A Preferred
Stock was convertible into 6.25 shares of Common Stock. Furthermore, 33,333**
shares of the Company's Series B-1 Preferred Stock were outstanding and entitled
to vote, held by one stockholder of record. Such stockholder holding Series B-1
Preferred Stock as of the record date is also entitled to one vote for each
share of Common Stock into which such Preferred Stock is convertible as of the
record date. The shares of Series B-1 Preferred Stock are convertible into
Common Stock on the basis of 101% of the weighted average trading price of the
Common Stock for the forty (40) trading day period prior to the date of
conversion. As of the record date, one share of Series B-1 Preferred Stock was
convertible into approximately 35 shares of Common Stock.
- --------
* Currently convertible into 1,523,319 shares of the Company's Common Stock.
** Currently convertible into 1,160,429 shares of the Company's Common Stock.
<PAGE>
If a choice as to the matters coming before the Annual Meeting has been
specified by a stockholder on the Proxy, the shares will be voted accordingly.
If no choice is specified, the shares will be voted IN FAVOR OF the approval of
the proposals described in the Notice of Annual Meeting of Stockholders and in
this Proxy Statement. Abstentions and broker non-votes (i.e., where a broker or
nominee submits a Proxy specifically indicating the lack of discretionary
authority to vote on the matter) are counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Abstentions
will be counted towards the tabulation of votes cast on proposals presented to
the stockholders and will have the same effect as negative votes, whereas broker
non-votes will not be counted for purposes of determining whether a proposal has
been approved or not.
Any stockholder or stockholder's representative who, because of a
disability, may need special assistance or accommodation to allow him or her to
participate in the Annual Meeting may request reasonable assistance or
accommodation from the Company by contacting Loreen Thomas in writing at 850
Marina Village Parkway, Alameda, California 94501 or by telephone at (510)
748-3000. To provide the Company sufficient time to arrange for reasonable
assistance, please submit such requests by December 11, 1996.
Revocability of Proxies
Any stockholder giving a Proxy pursuant to this solicitation may revoke
such Proxy at any time prior to the meeting by filing with the Secretary of the
Company at its principal executive offices at 850 Marina Village Parkway,
Alameda, California 94501, a written notice of such revocation or a duly
executed Proxy bearing a later date, or by attending the Annual Meeting and
voting in person.
Solicitation
The Company will bear the entire cost of solicitation, including the
preparation, assembly, printing and mailing of the Notice of Annual Meeting,
this Proxy Statement, the Proxy and any additional soliciting materials
furnished to stockholders. Copies of solicitation materials will be furnished to
brokerage houses, fiduciaries and custodians holding shares in their names that
are beneficially owned by others so that they may forward this solicitation
material to such beneficial owners. To assure that a quorum will be present in
person or by proxy at the Annual Meeting, it may be necessary for certain
officers, directors, employees or other agents of the Company to solicit proxies
by telephone, facsimile or other means or in person. The Company will not
compensate such individuals for any such services. The Company does not
presently intend to solicit proxies other than by mail.
IMPORTANT
Please mark, date, sign and return the enclosed Proxy in the
accompanying postage-prepaid, return envelope provided by no later than December
11, 1996, so that if you are unable to attend the Annual Meeting, your shares
may be voted.
The Annual Report of the Company for the fiscal year ended June 30,
1996 has been mailed to all stockholders entitled to notice of and to vote at
the Annual Meeting concurrently with the mailing of the Notice of Annual Meeting
and Proxy Statement. The Annual Report is not incorporated into this Proxy
Statement and is not considered proxy soliciting material.
2.
<PAGE>
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL ONE - ELECTION OF DIRECTORS
At the Annual Meeting, a Board of nine directors will be elected, to
serve until the Company's next Annual Meeting and until their successors shall
have been duly elected and qualified or until their earlier death, resignation
or removal. The Board has selected nine nominees, all of whom are current
directors of the Company. Each person nominated for election has agreed to serve
if elected, and management has no reason to believe that any nominee will be
unavailable to serve. Unless otherwise instructed, the Proxy holders will vote
the Proxies received by them IN FAVOR OF the nominees named below. The nine
candidates receiving the highest number of affirmative votes of the shares
entitled to vote at the Annual Meeting will be elected. If any nominee is unable
to or declines to serve as a director, the Proxies may be voted for a substitute
nominee designated by the current Board. As of the date of this Proxy Statement,
the Board is not aware of any nominee who is unable or will decline to serve as
a director.
The Board recommends that stockholders vote IN FAVOR OF the election of
each of the following nominees to serve as directors of the Company until the
next Annual Meeting and until their successors have been duly elected and
qualified or until their earlier death, resignation or removal.
Information with Respect to Director Nominees
<TABLE>
Set forth below is information regarding the nominees, including
information furnished by them as to principal occupations, certain other
directorships held by them, any arrangements pursuant to which they were
selected as directors or nominees and their ages as of June 30, 1996.
<CAPTION>
Name Position(s) with the Company Age Director Since
---- ---------------------------- --- --------------
Continuing Directors for Reelection
<S> <C> <C> <C>
David W. Carter.................. Chairman of the Board of Directors, 57 1988
President and Chief Executive Officer
Karen Davis, Ph.D................ Director 53 1992
Michael R. Eisenson.............. Director 40 1988
Fred H. Gage, Ph.D............... Director 45 1993
John T. Potts, Jr., M.D. ........ Director 64 1995
Leon E. Rosenberg, M.D........... Director 63 1995
Thomas E. Shenk, Ph.D............ Director 49 1995
Inder M. Verma, Ph.D............. Director 48 1996
Samuel D. Waksal, Ph.D........... Director 49 1995
</TABLE>
3.
<PAGE>
Business Experience of Director Nominees
Mr. Carter has served as President and Chief Executive Officer of the
Company since September 1991 and as a director of the Company since 1988. In
September 1994, Mr. Carter was appointed Chairman of the Board of Directors of
the Company. Prior to joining the Company, he was President and Chief Operating
Officer of Northfield Laboratories.
Dr. Davis has served as a director of the Company since 1992. She is
President of The Commonwealth Fund, a philanthropic foundation in the health
care field, which she joined in July 1992 as Executive Vice President. Dr. Davis
is also an Adjunct Professor of Health Policy and Management at The Johns
Hopkins University School of Hygiene and Public Health. From 1982 until 1992,
Dr. Davis was Chairman of the Department of Health Policy and Management in The
Johns Hopkins University School of Hygiene and Public Health. Dr. Davis sits on
several boards and committees concerned with health policy issues and is the
author of numerous books and articles on health economics and policy analysis.
Dr. Davis currently serves as a director of the Mount Sinai Medical Center.
Mr. Eisenson has served as a director of the Company since 1988. He is
the President and Chief Executive Officer of Harvard Private Capital Group, Inc.
("HPC"), which he joined in 1986. HPC manages the private equity and real estate
portfolios of the Harvard University endowment fund. Mr. Eisenson was a
principal with the Boston Consulting Group from 1981 to 1985. He serves on the
Board of Directors of Harken Energy Corporation, ImmunoGen, Inc., NHP
Incorporated, United Auto Group, Inc., and several private companies.
Dr. Gage was appointed a director of the Company in September 1993. Dr.
Gage has been Professor of Neuroscience at The Salk Institute since 1995. Prior
to that, he was a member of the faculty at the University of California, San
Diego, from 1985 to 1995. Dr. Gage was a founder of GeneSys Therapeutics
Corporation ("GeneSys") and has served as a consultant to the Company since the
acquisition of GeneSys in January 1992.
Dr. Potts was appointed to the Board of Directors in March 1995. His
career spans 40 years of distinguished service in science and medicine. He
earned his M.D. in 1957 from University of Pennsylvania, then trained at
Massachusetts General Hospital and National Heart Institute. At National
Institutes of Health, he became head of the Section on Polypeptide Hormones
prior to becoming Chief of Endocrinology at Massachusetts General Hospital in
1968. Dr. Potts served as Physician-in-Chief at Massachusetts General Hospital
and Jackson Distinguished Professor of Clinical Medicine at Harvard Medical
School from 1981 to 1996. In September 1996 Dr. Potts moved from the post of
Physician-in-Chief to Director of Research at Massachusetts General Hospital and
Jackson Distinguished Professor of Medicine. He is also a member of the board of
directors of Genentech, Inc.
Dr. Rosenberg was nominated to the Board of Directors on August 15,
1995. Dr. Rosenberg is the President of Bristol-Myers Squibb Pharmaceutical
Research Institute, a post he has held since September 1991. Prior to joining
Bristol-Myers Squibb, Dr. Rosenberg was the dean of the Yale University School
of Medicine from 1984 to 1991. During his 26 year affiliation with Yale, he
worked as a research geneticist, teacher, and clinician. Dr. Rosenberg is a
member of the board of directors of EntreMed Incorporated, Research America and
The Whitehead Institute for Biomedical Research.
Dr. Shenk joined the Board of Directors in conjunction with Somatix's
acquisition of Merlin Pharmaceutical Corporation ("Merlin") in February 1995.
Dr. Shenk, a Merlin founder, is Howard Hughes Professor of Molecular Biology at
Princeton University, where he has been since 1984. He has done extensive work
with adenovirus, and is the author of numerous articles on the subject. He also
serves as a member of the board of directors of Cadus Pharmaceutical
Corporation.
4.
<PAGE>
Dr. Verma joined Somatix's Board of Directors in June 1996. Dr. Verma
is Chairman of the Faculty and Academic Council of The Salk Institute, and
Co-Director of the Laboratory of Genetics, Salk Institute. He joined The Salk
Institute in April, 1974. In 1995, the National Institutes of Health (NIH)
selected Dr. Verma to chair a committee reviewing the scope and advancement of
gene therapy. Currently, Dr. Verma is Adjunct Professor, Department of Biology,
at the University of California, San Diego and has been a member of the faculty
since 1979.
Dr. Waksal also joined Somatix's Board of Directors concurrent with the
Merlin acquisition in February 1995. He has been president and chief executive
officer of Imclone Systems, Incorporated, a New York-based biotechnology
company, since 1987. He has taught at Mount Sinai School of Medicine and
conducted research at the National Cancer Institute, Stanford University Medical
School and Tufts University School of Medicine. He is author of numerous
articles, and also serves as chairman of the board of Cadus Pharmaceutical
Corporation.
Number of Directors; Relationships
The Company's Bylaws authorize the Board to fix the number of directors
serving on the Board, provided that such number shall not be less than six nor
more than eleven. Since September 14, 1995, the number of directors has been
fixed at ten. Immediately prior to the Annual Meeting, the number of directors
will be reduced to nine. All directors hold office until the next Annual Meeting
and until their successors have been duly elected and qualified or until their
earlier death, resignation or removal. Officers are appointed to serve at the
discretion of the Board.
There are no family relationships among executive officers or directors
of the Company.
Board Meetings and Committees
The Board held four meetings during the fiscal year ended June 30, 1996
and took action by unanimous written consent on one occasion. As of June 30,
1996, the Board has two standing committees: an Audit Committee and a
Compensation Committee. The Board does not have a standing Nominating Committee.
The Audit Committee is primarily responsible for approving the services
performed by the Company's independent accountants and reviewing reports of the
Company's external auditors regarding the Company's accounting practices and
systems of internal accounting controls. During the fiscal year ended June 30,
1996, the Audit Committee consisted of three directors, Dr. Hixson, Dr. Davis
and Mr. Eisenson. Dr. Hixson will not stand for re-election to the Company's
Board. The vacancy left on this committee by Dr. Hixson's resignation will be
filled promptly after the Annual Meeting. The Audit Committee held one
telephonic meeting during the fiscal year ended June 30, 1996, at which each
member was in attendance.
The Compensation Committee reviews and approves the Company's general
compensation policies, sets compensation levels for the Company's executive
officers and administers the Company's 1992 Stock Option Plan and other employee
benefit programs. During the fiscal year ended June 30, 1996, the Compensation
Committee consisted of three directors, Dr. Hixson, Mr. Eisenson and Dr. Waksal.
Dr. Hixson will not stand for re-election to the Company's Board. The vacancy
left on this committee by Dr. Hixson's resignation will be filled promptly after
the Annual Meeting. The Compensation Committee met three times during the fiscal
year ended June 30, 1996, one of which was a telephonic meeting, and each member
was in attendance at all meetings, except for Mr. Eisenson, who missed one
meeting. On two occasions, the Compensation Committee took action by unanimous
written consent.
5.
<PAGE>
During the last fiscal year, except as described below, no director
attended fewer than 75% of the aggregate number of meetings of the Board and
meetings of Committees of the Board on which such director serves, which were
held during the period that such individual was a member of the Board. Mr.
Eisenson and Dr. Potts each attended two of the four meetings of the Board and
Dr. Davis attended three of the four meetings of the Board. Mr. Eisenson
attended two of the three meetings of the Compensation Committee.
Director Compensation
Drs. Davis, Hixson, Potts, Shenk and Waksal each received $2,000 for
each Board meeting attended during the 1996 fiscal year and were also reimbursed
for associated travel expenses. Mr. Eisenson's compensation was paid to Harvard
Management Company in accordance with the policy of his employer.
Dr. Waksal earned $24,000 and Dr. Shenk earned $46,500 for consulting
services rendered to the Company pursuant to consulting agreements entered into
in connection with the Merlin acquisition. The fees earned by Dr. Waksal were
applied to the repayment of a loan in the principal amount of $225,592 granted
to Dr. Waksal in connection with the Merlin Acquisition. Repayment of such loan
was extended in 1996 until February 14, 1998.
In November 1991, in connection with the Company's acquisition of
GeneSys, the Company entered into a consulting agreement with Dr. Fred Gage, a
founder and consultant of GeneSys and a current member of the Company's Board.
The terms of the agreement require the Company to pay Dr. Gage $100,000 per year
for his consulting services, provided he renders at least four working days of
such service per month, and to reimburse him for reasonable expenses directly
incurred in connection with such services. The agreement provides that Dr.
Gage's consulting services in the field of gene therapy be rendered exclusively
for the Company. For the 1996 fiscal year, Dr. Gage received $100,000 for
services rendered pursuant to this consulting agreement.
In June 1996, Dr. Inder Verma was elected to the Company's Board. In
November 1991, in connection with the Company's acquisition of GeneSys, the
Company entered into a consulting agreement with Dr. Verma, a founder and
consultant of GeneSys. The terms of the agreement require the Company to pay Dr.
Verma $100,000 per year for his consulting services, and to reimburse him for
reasonable expenses directly incurred in connection with such services. The
agreement provides that Dr. Verma's consulting services in the field of gene
therapy be rendered exclusively for the Company. For the 1996 fiscal year,
Dr.Verma received $62,500 for services rendered pursuant to this consulting
agreement. In September 1996, Dr. Verma received a $400,000 loan from the
Company, secured by shares of the Company's Common Stock. Such loan bears
interest at 8.5% per annum and is due and payable in full on September 1, 2001.
Dr. Verma was also granted, in June 1996, under the Discretionary
Option Grant Program in effect under the Company's 1992 Stock Option Plan, an
option in June 1996 to purchase 50,000 shares of Common Stock at an exercise
price of $6.9375 per share, the fair market value per share on that date. The
option is immediately exercisable for all the option shares and has a maximum
term of ten years, subject to earlier termination following Dr. Verma's
cessation of service with the Company. The shares purchasable under the option
will vest in a series of 16 successive equal quarterly installments upon Dr.
Verma's completion of each full calendar quarter of service with the Company,
either as a consultant or non-employee member of the Board, measured from the
first day of the quarter following the grant date. However, full and immediate
vesting of the option shares will occur in the event the Company should be
acquired by merger or asset sale.
6.
<PAGE>
During the 1996 fiscal year, Dr. Rosenberg received an option grant to
purchase 25,000 shares of Common Stock pursuant to the automatic option grant
program in effect under the Company's 1992 Stock Option Plan. The grant was made
at the time he first joined the Board as a non-employee director, and the
exercise price per share in effect under the option is $4.00, equal to the fair
market value of the Common Stock on the grant date. The option is immediately
exercisable for all the option shares. However, any shares purchased under the
option will be subject to repurchase by the Company, at the option exercise
price paid per share, upon the optionee's cessation of Board service prior to
vesting in those shares. The repurchase right will lapse, and the optionee shall
acquire a vested interest in the option shares, in a series of 16 successive
equal quarterly installments over the optionee's period of Board service.
No other compensation was paid to directors of the Company in respect
of their services as directors or consultants.
7.
<PAGE>
PROPOSAL TWO - RATIFICATION OF SELECTION
OF INDEPENDENT ACCOUNTANTS
The Board has appointed the firm of Ernst & Young LLP, independent
accountants, to audit the financial statements of the Company for the fiscal
year ending June 30, 1997, and is asking the stockholders to ratify this
appointment.
Ernst & Young LLP has audited the Company's financial statements
annually since 1981. A representative of Ernst & Young LLP is expected to be
present at the Annual Meeting to respond to appropriate questions, and will be
given the opportunity to make a statement if he so desires.
In the event the stockholders fail to ratify the appointment, the Board
will reconsider its selection. Even if the selection is ratified, the Board in
its discretion may direct the appointment of a different independent accounting
firm at any time during the year if the Board feels that such a change would be
in the best interests of the Company and its stockholders. The affirmative vote
of the holders of a majority of the Company's Common Stock present or
represented by Proxy and entitled to vote is required to ratify the selection of
Ernst & Young LLP at the Annual Meeting.
The Board recommends that the stockholders vote IN FAVOR OF the
ratification of the selection of Ernst & Young LLP to serve as the Company's
independent accountants for the fiscal year ending June 30, 1997.
8.
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary of Cash and Certain Other Compensation
The following table sets forth the compensation earned, for services
rendered in all capacities to the Company and its subsidiaries, for each of the
last three fiscal years by the Company's Chief Executive Officer and the four
other highest paid executive officers whose compensation for fiscal 1996 was in
excess of $100,000. No executive officer who would have otherwise been included
in such table on the basis of salary and bonus earned for fiscal 1996 resigned
or terminated employment during that fiscal year. The individuals named in the
table will be hereinafter referred to as the "Named Officers."
<TABLE>
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
Long-Term
Compen-
Annual Compensation sation
--------------------------------------------------
Awards
-----------
Other
Annual Securities All Other
Compen- Underlying Compen-
Name and Principal Position Year Salary ($) Bonus ($)(1) sation($) Options (#) sation($)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David W. Carter 1996 245,000 39,200 8,142(2) 15,000 75,000(3)
Chairman of the Board of 1995 245,000 133,800 6,470 270,000(4) 75,000
Directors, President and 1994 245,000 108,200 -- -- 75,000
Chief Executive Officer
Mark N.K. Bagnall 1996 140,558 77,733(5) -- 5,000 --
Vice President, Chief 1995 120,000 31,600 -- 120,000(4) --
Financial Officer and 1994 110,500 39,835 -- -- --
Corporate Secretary
Jan I. Drayer, M.D., Ph.D. 1996 230,000 27,600 -- -- 155,020(6)
Executive Vice President, 1995 64,461 45,350 -- 150,000(4) 69,065
Gene Therapy Development 1994 -- -- -- -- --
Edward O. Lanphier II 1996 181,549 123,995(5) 9,722(7) 10,000 15,000(8)
Executive Vice President, 1995 173,741(9) 51,560 23,694 175,000(4) 11,500
Commercial Development 1994 160,500 58,335 17,711 25,000 12,000
Lawrence K. Cohen, Ph.D.(10) 1996 162,556 19,809 -- 37,000 --
Vice President Research 1995 154,583 -- -- 88,000 --
1994 141,667 47,815 -- 13,000 --
===========================================================================================================
<FN>
(1) The amounts shown in the Bonus column include cash bonuses earned for
fiscal 1996 and paid in July 1996.
(2) Represents Mr. Carter's car allowance.
(3) Represents the premium paid by the Company on the split-dollar life
insurance policy maintained for Mr. Carter. The Company is entitled to
a portion of the cash surrender value of the policy upon his
termination of employment.
9.
<PAGE>
(4) A portion of each grant is comprised of a new option with an exercise
price per share equal to the fair market value of the option shares on
the grant date which was issued in cancellation of options for the same
number of shares held by the Named Officer but with a higher exercise
price per share. The number of option shares subject to such option
cancellation/regrant program is as follows for the Named Officers: Mr.
Carter, 120,000 shares; Mr. Bagnall, 100,000 shares and Mr. Lanphier,
175,000 shares.
(5) Included in this amount is the special bonus paid to the Named Officer
in connection with the fully-vested stock option granted to such
individual on September 25, 1995. The special bonus was in amount equal
to the option price ($5.6875 per share) paid for the shares acquired by
the Named Officer upon the exercise of that option, together with a
full federal and state tax gross-up on the entire bonus, and was
payable only if the Named Officer completed at least 30 days of
employment following the exercise date. Accordingly, the special
bonuses paid in fiscal 1996 were as follows: Mr. Bagnall, $62,613, and
Mr. Lanphier, $101,945.
(6) Represents relocation for Dr. Drayer ($135,020) and the premium paid by
the Company on his split-dollar life insurance policy ($20,000). The
Company is entitled to a portion of the cash surrender value of the
policy upon his termination of employment.
(7) Represents the forgiveness of an outstanding indebtedness owned by Mr.
Lanphier to the Company.
(8) Represents the premium paid by the Company on the split-dollar life
insurance policy maintained for Mr. Lanphier. The Company is entitled
to a portion of the cash surrender value of the policy upon his
termination of employment.
(9) Mr. Lanphier's base salary for fiscal 1995 was incorrectly reported as
$187,616 in last year's Proxy Statement as a result of a mathematical
error. The actual salary paid to him for fiscal 1995 is the dollar
amount reported in the table above.
(10) Dr. Cohen became an officer of the company in December 1993 and was
made Vice President, Research, in March 1996.
</FN>
</TABLE>
Stock Options
The following table provides information with respect to the stock
option grants made during fiscal 1996 under the Option Plan to the Named
Officers. Except for the limited stock appreciation rights described in footnote
(1) below, no stock appreciation rights were granted during such fiscal year to
the Named Officers.
10.
<PAGE>
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Potential Realizable Value
at Assumed
Annual Rates of Stock
Price
Appreciation for Option
Individual Grants Term(5)
- -------------------------------------------------------------------------------------------------------------------
Percent of Total
Number of Options
Securities Granted to
Underlying Employees in Exercise
Options Fiscal Price(3) Expiration
Name Granted (#)(1) Year ($/Share) Date 5 % ($) 10 % ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David W. Carter 15,000(2) 8.0 $5.6875(4) 9/24/05 $53,653 $135,966
Edward O. Lanphier II 10,000(2) 5.4 $5.6875(4) 9/24/05 $35,768 $90,644
Mark N.K. Bagnall 5,000(2) 2.6 $5.6875(4) 9/24/05 $17,884 $45,322
Lawrence K. Cohen, Ph.D. 37,000(2) 19.8 $6.625 3/13/06 $154,158 $390,666
Jan I. Drayer, M.D., Ph.D. -- -- -- -- -- --
===================================================================================================================
<FN>
(1) Each option includes a limited stock appreciation right that will
result in the automatic cancellation of that option, to the extent
exercisable for vested shares of Common Stock, upon the successful
completion of a hostile tender offer for more than 50% of the Company's
outstanding securities. The optionee will be entitled to a cash
distribution from the Company in an amount per canceled option share
equal to the highest price per share of Common Stock paid in the tender
offer less the exercise price payable per share. In addition, each
optionee has the right, subject to the approval of the Compensation
Committee, to have a portion of the shares purchased under the option
applied to the payment of the withholding taxes incurred in connection
with the exercise of that option.
(2) The dates on which the fiscal 1996 options were granted are as follows:
Name Grant Date
---- ----------
David W. Carter September 25, 1995
Edward O. Lanphier II September 25, 1995
Mark N.K. Bagnall September 25, 1995
Lawrence K. Cohen, Ph.D. March 14, 1996
The options granted to Mr. Carter, Mr. Lanphier and Mr. Bagnall are
fully vested and immediately exercisable. The option granted to Dr.
Cohen will become exercisable in a series of 16 successive equal
quarterly installments upon his completion of each calendar quarter of
service with the Company measured from April 1, 1996. However, Dr.
Cohen's option will automatically become exercisable for all of the
option shares in the event the Company is acquired by a merger or asset
sale, unless the option is assumed by the acquiring entity. Each option
has a maximum term of ten years, subject to earlier termination in the
event of the optionee's cessation of service with the Company.
11.
<PAGE>
(3) The exercise price may be paid in cash, in shares of the Company's
Common Stock valued at fair market value on the exercise date or
through a cashless exercise procedure involving a same-day sale of the
purchased shares. The Company may also finance the option exercise by
loaning the optionee sufficient funds to pay the exercise price for the
purchased shares and the Federal and state income tax liability
incurred by the optionee in connection with such exercise.
(4) Messrs. Carter, Bagnall and Lanphier are participants in a special
bonus program implemented by the Compensation Committee in conjunction
with the fully-vested option grants made to them on September 25, 1996.
Under that bonus program, each of these individuals will be entitled to
a cash bonus from the Company in an amount equal to the option exercise
price paid for the shares purchased under the option plus a full
federal and state tax gross-up on the entire bonus, but payable only if
the officer continues in the Company's employ for an additional period
of at least thirty (30) days following the option exercise. As of the
close of the 1996 fiscal year, the following bonuses had been paid
under the program: Mr. Bagnall, $62,613 and Mr. Lanphier, $101,945.
(5) There is no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price
appreciation over the ten year option term will be at the assumed five
percent and ten percent levels or at any other defined level. Unless
the market price of the Common Stock appreciates over the option term,
no value will be realized from the option grants made to the executive
officers.
</FN>
</TABLE>
Option Exercises and Holdings
The table below sets forth information concerning the exercise of
options during the fiscal year ended June 30, 1996 by the Named Officers and
unexercised options held as of the end of such year by such individuals. No
stock appreciation rights were exercised during such fiscal year, and except for
the limited stock appreciation rights described in footnote (1) to the Option
Grant table above, no stock appreciation rights were outstanding at the end of
such fiscal year.
12.
<PAGE>
<TABLE>
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND 1996 FISCAL YEAR-END OPTION VALUES
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In-
Options at June 30, the-Money Options at
1996(#) June 30, 1996(2)
------------------------------------------------------
Number
of Shares
Acquired On Value Exercis- Unexercis- Exercis- Unexercis-
Name Exercise Realized able able able able
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David W. Carter N/A N/A 427,031 107,969 $1,870,630 $445,372
Edward O. Lanphier II 15,000(1) $36,875 156,980 13,020 $647,543 $53,708
Mark N.K. Bagnall 5,000(1) $14,062 74,362 25,638 $306,743 $105,757
Lawrence K. Cohen, Ph.D. N/A N/A 70,797 54,203 $283,657 $97,843
Jan I. Drayer, M.D., Ph.D. N/A N/A 46,875 103,125 $164,063 $360,938
============================================================================================================
<FN>
(1) Calculated as the excess of the fair market value of the acquired
shares on the exercise date less the option price paid for those
shares. Messrs. Bagnall and Lanphier exercised those options through a
same-day sale program, pursuant to which the acquired shares were sold
immediately upon exercise and a portion of the sale proceeds was
delivered to the Company in payment of the option price.
(2) Determined by subtracting the exercise price from the market price of
the Common Stock on June 28, 1996 ($7.125 per share).
</FN>
</TABLE>
Employment Contracts and Termination of Employment Arrangements
Except as set forth below, the Company presently has no employment
contracts in effect for executive officers, and no severance arrangements in
connection with their resignation or termination or following a change in
control or ownership of the Company. However, the Compensation Committee has the
authority as administrator of the Option Plan to provide for the accelerated
vesting of the shares of Common Stock subject to outstanding options held by the
Chief Executive Officer and the Company's other executive officers or any
unvested shares actually held by those individuals under the Option Plan or the
predecessor 1983 Stock Option Plan, in the event their employment were to be
terminated (whether involuntarily or through a forced resignation) following a
hostile take-over of the Company effected through a successful tender offer for
more than 50% of the Company's outstanding voting securities or through a change
in the majority of the Board as a result of one or more contested elections for
Board membership.
On July 1, 1993, the Company entered into an employment agreement with
David W. Carter pursuant to which Mr. Carter receives an annual base salary of
$245,000 with periodic adjustments. Mr. Carter is also entitled to a
performance-based bonus not to exceed 40% of his base salary based upon the
Company's achievement of targets established by the Compensation Committee, and
a one-time bonus equal to $50,000 plus a one-time bonus of 12,500 shares of
Common Stock if the Company completes an equity financing of at least $10
million at a price equal to or exceeding $18.00 per share or such other price as
may be agreed to by the Board of Directors. In addition, Mr. Carter is entitled
to certain benefits, including the benefits of a split-dollar life insurance
arrangement,
13.
<PAGE>
pursuant to which the Company will advance the annual premiums and Mr. Carter is
required to repay the premiums out of its policy proceeds or the cash surrender
value of the policy following his termination of employment. In the event Mr.
Carter's employment is terminated without cause or the Company undergoes a
change in control, Mr. Carter will be entitled to 18 months severance pay.
On June 24, 1992, the Company entered into an employment agreement with
Edward O. Lanphier II, when he joined the Company as Executive Vice President,
Commercial Development. The employment agreement provided for an annual base
salary of $150,000, plus an annual bonus not to exceed 30% of his base salary
and an option to purchase 150,000 shares of Common Stock at a price of $6.75 per
share, the fair market value on the grant date. In addition, the Company agreed
to loan Mr. Lanphier $51,000, which was to be forgiven over a three-year period,
provided he continued in the Company's employ. In addition, upon the termination
of his employment by the Company, any unpaid balance of the loan made on his
behalf to Celtrix Corporation as part of his original employment agreement with
Somatix was to be forgiven. This loan was forgiven in its entirety on July 13,
1995. The employment agreement also provided for a severance payment to Mr.
Lanphier equal to six months base salary if his employment were terminated
without cause or if his employment were to terminate in connection with Mr.
Carter's cessation of service as the Chief Executive Officer. In addition, Mr.
Lanphier was to vest in 50% of the shares subject to his option should he resign
after 24 months of service. On November 9, 1993, Mr. Lanphier entered into a new
employment agreement with the Company. That new agreement provides for an annual
base salary of $160,500, subject to review and adjustment annually by the
Compensation Committee, plus annual bonuses not to exceed 30% of his base
salary. In addition, the agreement provides for a severance payment to Mr.
Lanphier equal to 12 months base salary if his employment is terminated without
cause and six months base salary should he resign. Mr. Lanphier's unvested stock
options will also accelerate by eight additional quarters should he be
terminated without cause and by two additional quarters should he resign. The
employment agreement also provides for a split-dollar life insurance arrangement
and a disability insurance policy for Mr. Lanphier.
On August 1, 1993, the Company entered into an employment agreement
with Lawrence C. Cohen, Ph.D., Vice President, Research. The employment
agreement provides for an annual base salary of $135,500, subject to review and
adjustment annually by the Compensation Committee, plus annual bonuses not to
exceed 30% of his base salary. In addition, the employment agreement also
provides for a severance payment to Dr. Cohen equal to 12 months base salary if
his employment is terminated without cause. Dr. Cohen's unvested stock options
will also accelerate by eight additional quarters should his employment be
terminated without cause.
On December 30, 1993, the Company entered into an employment agreement
with Mark N.K. Bagnall, Vice President, Chief Financial Officer and Corporate
Secretary. The employment agreement provides for an annual base salary of
$110,500, subject to review and adjustment annually by the Compensation
Committee, plus annual bonuses not to exceed 30% of his base salary. In
addition, the employment agreement also provides for a severance payment to Mr.
Bagnall equal to 12 months base salary if his employment is terminated without
cause. Mr. Bagnall's unvested stock options will also accelerate by eight
additional quarters should his employment be terminated without cause.
In March, 1995, the Company entered into an employment agreement with
Jan I. Drayer, M.D., when he joined the Company as Executive Vice President,
Gene Therapy Development. The employment agreement provides for an annual base
salary of $230,000, plus bonuses of up to 30% of his annual salary and an option
to purchase 150,000 shares of the Company's Common Stock at a price of $3.625
per share, the fair market value on the date Dr. Drayer's employment began.
14.
<PAGE>
Compensation Committee Report
Executive Compensation
Decisions on compensation matters relating to the Company's Chief
Executive Officer, David W. Carter, and the Company's other executive officers
are generally made by the Compensation Committee, which currently consists of
Mr. Eisenson, Dr. Waksal and Dr. Hixson, three of the Company's non-employee
directors. The Compensation Committee sets the base salary of the Company's
executive officers, approves individual bonus programs for executive officers
and administers the Company's 1992 Stock Option Plan (the "Option Plan") under
which grants may be made to executive officers and other employees. The
Compensation Committee has furnished the following report on the compensation
established for Mr. Carter and the Company's other executive officers for the
fiscal year ended June 30, 1996.
The Compensation Committee set the compensation payable to Mr. Carter
for fiscal 1996. Mr. Carter in turn established, subject to the Compensation
Committee's review and approval, the compensation payable for such fiscal year
to the Company's other executive officers. For these executive officers, the
Compensation Committee had established performance factors to be considered by
Mr. Carter in setting their individual compensation. Mr. Carter reported to the
Compensation Committee his view of the performance of each officer with respect
to such factors and his recommendation as to such individual's compensation
based thereon. The Compensation Committee discussed, and with some modifications
approved, the recommendations of Mr. Carter.
General Compensation Policy. The Compensation Committee's overall
policy is to offer the Company's executive officers competitive compensation
opportunities based upon personal performance, the performance of the Company
and the individual's contribution to that performance, all with a view to
attracting and retaining qualified key executive officers for the Company. One
of the Compensation Committee's primary objectives is to have a substantial
portion of each officer's compensation contingent upon the Company's performance
as well as upon his or her own level of performance. Accordingly, each executive
officer's compensation package is generally comprised of three elements: (i)
base salary that reflects individual performance and is designed primarily to be
competitive with salary levels in the industry; (ii) annual variable performance
awards payable in cash and tied to the achievement of annual strategic
performance goals established by the Compensation Committee; and (iii) stock-
based incentive awards designed to strengthen the mutuality of interests between
the executive officers and the Company's stockholders. Generally, as an
officer's level of responsibility increases, a greater portion of his or her
total compensation will be dependent upon Company performance and stock price
appreciation rather than base salary.
Factors. Because the Company is in the development phase, the use of
certain traditional performance standards (such as profit levels and return on
equity) are not appropriate in evaluating the performance of the Company's
executive officers. The principal factors considered in establishing the
components of each executive officer's compensation package for fiscal 1996 are
summarized below. The Compensation Committee may in its discretion apply
entirely different factors, such as different measures of strategic performance,
for future fiscal years.
o Base Salary. The base salary for each officer is set on the basis of
personal performance, the salary levels in effect for comparable positions with
the Company's principal competitors, and internal comparability considerations.
In addition, the Company reviews salary surveys for officers of companies in
comparable industries and geographic locations as the Company. The level of base
salary set for the Company's executive officers for fiscal 1996 was within 20%
of the average surveyed salary for comparable companies.
For purposes of the stock price performance graph which appears later
in this Proxy Statement, the Company has selected the Nasdaq Pharmaceutical
Index as the peer group index. Fifteen of the companies included in that peer
group index were also among the companies that the Compensation Committee
surveyed for
15.
<PAGE>
compensation data. However, in selecting companies to survey for compensation
data, the Compensation Committee focused primarily on whether those companies
were actually competitive with the Company in seeking executive talent and
whether those companies had a management style and corporate culture similar to
the Company's. For this reason, the number of companies surveyed for
compensation data was substantially less than the number of companies included
in the Nasdaq Pharmaceutical Index.
o Annual Incentive Compensation. An annual bonus, set as a targeted
percentage of salary based on position, may be earned by each executive officer
on the basis of the Company's achievement of corporate performance targets
established by the Compensation Committee at the start of the fiscal year. For
fiscal 1996, these performance targets reflected a combination of factors,
including the achievement of the Company's annual strategic objectives plus key
functional performance objectives related to pre-clinical and clinical trials,
strategic alliances and financing activities. For the Chairman of the Board of
Directors, President and Chief Executive Officer, Mr. Carter, a bonus equal to
16% of his base salary was earned as a result of the Company's achievement of
the established targets. This bonus level is the result of structuring Mr.
Carter's compensation package to include a substantial component based upon
incentive performance rather than base salary. For the other executive officers
who were eligible to participate, the bonus was equal to 12.02% of their base
salary.
o Stock-Based Incentive Compensation. The Compensation Committee
approves periodic grants of stock options to each of the Company's executive
officers under the Option Plan. Generally, the size of each grant is set at a
level that the Compensation Committee deems appropriate to create a meaningful
opportunity for stock ownership based upon the individual's current position
with the Company, but there is also taken into account comparable awards made to
individuals in similar positions in the industry as reflected in external
surveys, the individual's potential for future responsibility and promotion, the
individual's performance in the recent period and the number of unvested options
held by the individual at the time of the new grant. The relative weight given
to each of these factors varies from individual to individual in the
Compensation Committee's discretion.
The grants are designed to align the interests of the executive officer
with those of the stockholders and provide each individual with a significant
incentive to manage the Company from the perspective of an owner with an equity
stake in the business. Each grant allows the officer to acquire shares of Common
Stock at a fixed price per share (the market price on the grant date) over a
specified period of time (up to ten years). The option vests in periodic
installments over a four-year period, contingent upon the executive officer's
continued employment with the Company. Accordingly, the option will provide a
return to the executive officer only if he or she remains in the Company's
employ, and then only if the market price of the Common Stock appreciates over
the option term.
The Compensation Committee granted Messrs. Carter, Lanphier and Bagnall
a fully vested option for 15,000 shares, 10,000 shares and 5,000 shares of
Common Stock, respectively, with an option exercise price of $5.6875 per share.
The option grants were made in recognition of the services these three executive
officers performed in connection with corporate partnering and financing
activities. In conjunction with such grants, the Compensation Committee also
approved a special cash bonus program, pursuant to which each officer would be
entitled to a bonus from the Company in an amount equal to the option exercise
price paid for the shares purchased under those grants plus a full federal and
state tax gross-up on the entire bonus, but payable only if the officer
continues in the Company's employ for an additional period of at least thirty
days following the option exercise. The Compensation Committee also granted Dr.
Cohen an option to purchase 37,000 shares in order to maintain his stock option
position at a level comparable to similarly-situated officers at other companies
in the industry. Dr. Cohen's option will become exercisable in a series of
sixteen (16) successive equal quarterly installments over his period of
employment with the Company.
16.
<PAGE>
CEO Compensation. In setting the compensation payable to the Company's
Chairman of the Board of Directors, President and Chief Executive Officer, Mr.
Carter, the Compensation Committee sought to be competitive with other companies
in the industry, while at the same time tying a significant percentage of such
compensation to Company performance and stock price appreciation. There was no
increase in Mr. Carter's base salary for fiscal 1996.
The Compensation Committee also established a maximum bonus target for
Mr. Carter for fiscal 1996 equal to 40% of his base salary, payable upon the
Company's achieving fiscal 1996 plan and commercialization milestones. In fiscal
1996, the Compensation Committee awarded Mr. Carter a Management Incentive Bonus
of $39,200 which was paid in July 1996.
Compliance with Internal Revenue Code Section 162(m). As a result of
Section 162(m) of the Internal Revenue Code, which was enacted into law in 1993,
the Company may not take a federal income tax deduction for compensation paid to
certain executive officers, to the extent that compensation exceeds $1 million
per officer in any one year. This limitation became effective for each fiscal
year of the Company beginning after December 31, 1993 and applies to all
compensation paid to the covered executive officers which is not considered to
be performance-based. Compensation which does qualify as performance-based
compensation will not have to be taken into account for purposes of this
limitation. At the 1994 Annual Meeting of Stockholders, the Company obtained
stockholder approval for certain amendments to the Option Plan which were
intended to assure that any compensation deemed paid in connection with the
exercise of stock options granted under that plan with an exercise price equal
to the fair market value of the option shares on the grant date will qualify as
performance-based compensation.
The cash compensation paid to the Company's executive officers during
fiscal 1996 did not exceed the $1 million limit per officer, nor is the cash
compensation to be paid to the Company's executive officers for the 1997 fiscal
year expected to reach that level. Because it is very unlikely that the cash
compensation payable to any of the Company's executive officers in the
foreseeable future will approach the $1 million limitation, the Committee has
decided not to take any action at this time to limit or restructure the elements
of cash compensation payable to the Company's executive officers. The Committee
will reconsider this decision should the individual compensation of any
executive officer ever approach the $1 million level.
The foregoing report has been submitted by the undersigned in our
capacity as members of the Compensation Committee of the Company's Board of
Directors.
Michael R. Eisenson, Chairperson
Harry F. Hixson, Jr., Ph.D., Member
Samuel D. Waksal, Ph.D., Member
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board is comprised of Mr. Eisenson,
Dr. Waksal and Dr. Hixson. None of these individuals is a former or current
officer or employee of the Company or any of its subsidiaries. However, as a
condition to the acquisition of GeneSys on November 13, 1991, the Company
entered into a two-year consulting agreement with Dr. Hixson, pursuant to which
the Company agreed to use its best efforts to have Dr. Hixson re-elected to the
Board during the four-year period following such acquisition and to have him
elected as Chairman of the Board during the first two years of that period. Dr.
Hixson has received a consulting fee of $100,000 per year pursuant to his
consulting agreement, although this fee was reduced to $25,000 per year after
November 1993. During fiscal year 1996, Dr. Hixson did not receive any
consulting fees. As a condition to the Merlin acquisition the Company entered
into a three-year consulting agreement with Dr. Waksal. Pursuant to the
agreement, Dr. Waksal receives a consulting fee of $24,000 per year. In
addition, the Company granted
17.
<PAGE>
Dr. Waksal a loan in the amount of $226,000, with an annual interest rate of
8.5%. The remaining balance of Dr. Waksal's loan at June 30, 1996 was $208,000.
On September 26, 1996, the Board approved an extension until February 14, 1998,
of the Company's loan to Dr. Waksal.
No executive officer of the Company served on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of the Company's Board or Compensation Committee.
18.
<PAGE>
Performance Graph
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG SOMATIX THERAPY CORPORATION, THE NASDAQ STOCK
MARKET-US INDEX AND THE NASDAQ PHARMACEUTICAL INDEX
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
SOMA
Cumulative Total Return
---------------------------------------
6/91 6/92 6/93 6/94 6/95 6/96
SOMATIX THERAPY CORP SOMA 100 325 285 195 170 285
NASDAQ STOCK MARKET--US INAS 100 120 151 153 204 261
NASDAQ PHARMACEUTICAL INAP 100 125 108 91 120 177
* $100 INVESTED ON 06/30/91 IN STOCK OR INDEX - INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING JUNE 30.
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, as amended, which might incorporate future
filings made by the Company under those statutes, the preceding Compensation
Committee Report on Executive Compensation and the Company Stock Performance
Graph will not be incorporated by reference into any of those prior filings, nor
will such report or graph be incorporated by reference into any future filings
made by the Company under those statutes.
19.
<PAGE>
Certain Relationships and Related Transactions
The Company's Restated Certificate of Incorporation and Bylaws provide
for indemnification of directors, officers and other agents of the Company. Each
of the current directors, and certain officers and agents of the Company have
entered into separate indemnification agreements with the Company.
As a condition to the acquisition of Merlin Pharmaceutical Corporation,
in February 1995, (the "Merlin Acquisition") the Company entered into a
three-year consulting agreement with Dr. Shenk. The agreement provides for
compensation in the amount of $3,000 per day for consulting services. Pursuant
to the terms of the agreement, the Company may require Dr. Shenk to provide up
to ten working days of service per year. In addition, the Company granted a
short-term loan in the amount of $39,447.10 to Dr. Shenk in conjunction with the
Merlin Acquisition. Dr. Shenk's loan was paid in full in June, 1995.
In November 1991, in connection with the Company's acquisition of
GeneSys, the Company entered into a consulting agreement with Dr. Gage, a
founder and consultant of GeneSys and a current member of the Company's Board.
The terms of the agreement require the Company to pay Dr. Gage $100,000 per year
for his consulting services, provided he renders at least four working days of
such service per month, and to reimburse him for reasonable expenses directly
incurred in connection with such services. The agreement provides that Dr.
Gage's consulting services in the field of gene therapy be rendered exclusively
for the Company. For the 1996 fiscal year, Dr. Gage received $100,000 for
services rendered pursuant to this consulting agreement.
In November 1991, in connection with the Company's acquisition of
GeneSys, the Company entered into a consulting agreement with Dr. Verma, a
founder and consultant of GeneSys. The terms of the agreement require the
Company to pay Dr. Verma $100,000 per year for his consulting services, and to
reimburse him for reasonable expenses directly incurred in connection with such
services. The agreement provides that Dr. Verma's consulting services in the
field of gene therapy be rendered exclusively for the Company. For the 1996
fiscal year, Dr. Verma received $62,500 for services rendered pursuant to this
consulting agreement. In September 1996, Dr. Verma received a $400,000 loan from
the Company, secured by shares of the Company's Common Stock. Such loan bears
interest at 8.5% per annum and is due and payable in full on September 1, 2001.
COMPLIANCE WITH SECTION 16(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of the Common Stock, to file initial reports of ownership and reports of
changes in ownership of the Common Stock with the United States Securities and
Exchange Commission ("SEC"). Officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms furnished to the
Company, and written representations that no other reports were required, the
Company believes that during the period from July 1, 1995 to June 30, 1996, all
officers, directors and holders of more than ten percent of the Common Stock
complied with all Section 16(a) requirements, except that Dr. Verma, a director,
did not timely file a Form 3 report indicating he had become a member of the
Company's Board, and Dr. Gage filed an amended Form 4 one day late.
20.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Common Stock as of October 21,
1996 by (i) all persons who are beneficial owners of five percent or more of the
Common Stock, (ii) each director and nominee, (iii) the Named Officers in the
Summary Compensation Table above and (iv) all current directors and executive
officers as a group. The number of shares beneficially owned by each director or
executive officer is determined under rules of the SEC and the information is
not necessarily indicative of beneficial ownership for any other purpose. Shares
of Common Stock subject to options or warrants currently exercisable or
exercisable within 60 days are deemed to be beneficially owned by the person
holding such option or warrant for computing the percentage ownership of such
person, but are not treated as outstanding for computing the percentage of any
other person. Except as otherwise indicated, the Company believes that the
beneficial owners of the Common Stock listed below, based upon such information
furnished by such owners, have sole investment power with respect to such
shares, subject to community property laws where applicable.
Percent of
Number Total Shares
Name and Address of Shares Outstanding(1)(2)
---------------- --------- -----------------
Bristol-Myers Squibb(3)........................... 2,303,221 9.44%
Route 206 and Province Line Road
Princeton, NJ 08543-4000
Aeneas Venture Corporation(4)..................... 2,236,757 9.17%
600 Atlantic Avenue
Boston, MA 02210
Legg Mason, Inc.(5) .............................. 2,132,174 8.74%
111 South Calvert Street
Baltimore, MD 21202
Fletcher International Limited.................... 1,160,429 4.76%
David W. Carter(6)................................ 500,025 2.05%
Thomas E. Shenk, Ph.D.(7)......................... 430,716 1.77%
Samuel D. Waksal, Ph.D.(8)........................ 235,699 *
Fred H. Gage, Ph.D.(9)............................ 229,926 *
Edward O. Lanphier II(10)......................... 165,312 *
Inder Verma, Ph.D(11)............................. 161,631 *
Lawrence K. Cohen, Ph.D.(12)...................... 108,911 *
Mark N.K. Bagnall(13)............................. 74,762 *
21.
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Jan I. Drayer, M.D., Ph.D.(14).................... 56,250 *
Karen Davis, Ph.D.(15)............................ 25,500 *
John T. Potts, Jr., M.D.(16)...................... 25,000 *
Leon E. Rosenberg, M.D.(17)....................... 25,000 *
All directors and executive
officers as a group (13 persons)(18).............. 6,578,710 26.97%
- -----------------------------
* Less than 1.0%
(1) Percentage of beneficial ownership is calculated assuming 24,389,730
shares of Common Stock were outstanding as of October 21, 1996.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable or convertible, or
exercisable or convertible within 60 days of October 21, 1996, are
deemed outstanding for computing the percentage of the person holding
such option or warrant but are not deemed outstanding for computing the
percentage of any other person. Except as indicated in the footnotes to
this table and pursuant to applicable community property laws, the
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned.
(2) This table is based upon information supplied to the Company by
executive officers, directors and principal stockholders. The address
of each officer and director identified in this table is that of the
Company's executive offices, 850 Marina Village Parkway, Alameda, CA
94501. Unless otherwise indicated in the footnotes to this table and
subject to applicable community property laws, each of the stockholders
named in this table has sole voting and investment power with respect
to the shares shown as beneficially owned by it or him.
(3) Dr. Rosenberg, a director of the Company, is the president of
Bristol-Myers Pharmaceutical Research Institute. He may be deemed the
beneficial owner of 2,303,221 shares of Common Stock. Dr. Rosenberg
disclaims beneficial ownership of such shares.
(4) Mr. Eisenson, a director of the Company, is a Vice President and member
of the investment committee of Aeneas Venture Corporation. He may be
deemed the beneficial owner of 1,593,726 shares of Common Stock, 65,285
shares of preferred stock which is convertible into 408,031 shares of
Common Stock, warrants to purchase 210,000 shares of Common Stock; and
options to purchase 25,000 shares of Common Stock which are immediately
exercisable, of which a portion is subject to repurchase rights, held
by Aeneas Venture Corporation, with shared voting and investment power
with respect thereto. Mr. Eisenson disclaims beneficial ownership of
such shares.
(5) Includes warrants to purchase 152,174 shares of Common Stock.
(6) Includes options to purchase 459,125 shares of Common which are or will
be vested and purchasable within 60 days.
(7) Includes options to purchase 25,000 shares of Common Stock which are
immediately exercisable, of which a portion is subject to repurchase
rights. Also includes 42,986 shares held by Dr. Shenk's children for
which Dr. Shenk disclaims beneficial ownership and 42,988 warrants to
purchase shares of Common Stock held by his wife for which Dr. Shenk
disclaims beneficial ownership.
(8) Includes options to purchase 25,000 shares of Common Stock which are
immediately exercisable, of which a portion is subject to repurchase
rights. Also includes 18,000 shares held by Dr. Waksal's children for
which Dr. Waksal disclaims beneficial ownership and 128,964 shares of
Common Stock held by Sudbury Partners I. Dr. Waksal disclaims
beneficial ownership of the shares held by Sudbury, except to the
extent of his pecuniary interest arising from his partnership
interests.
22.
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(9) Includes options to purchase 115,705 shares of Common Stock which are
immediately exercisable, of which a portion is subject to repurchase
rights. Also includes 104,846 shares of Common Stock owned by the Gage
Trust. He also holds options to purchase 9,375 shares which are or will
be vested and purchasable within 60 days. Dr. Gage, a director of the
Company, is the trustee of such trust and may be deemed the beneficial
owner of these shares with shared voting and investment power with
respect thereto.
(10) Includes options to purchase 165,312 shares which are or will be vested
and purchasable within 60 days.
(11) Includes options to purchase 31,251 shares which are or will be vested
and purchasable within 60 days.
(12) Includes options to purchase 82,250 shares which are or will be vested
and purchasable within 60 days.
(13) Includes options to purchase 74,362 shares which are or will be vested
and purchasable within 60 days.
(14) Includes options to purchase 56,250 shares which are or will be vested
and purchasable within 60 days.
(15) Includes options to purchase 25,000 shares of Common Stock which are
immediately exercisable, of which a portion is subject to repurchase
rights.
(16) Includes options to purchase 25,000 shares of Common Stock which are
immediately exercisable, of which a portion is subject to repurchase
rights.
(17) Includes options to purchase 25,000 shares of Common Stock which are
immediately exercisable, of which a portion is subject to repurchase
rights.
(18) This number includes options to purchase 265,705 shares of Common Stock
held by officers and directors of the Company some of which are
immediately exercisable, of which a portion is subject to repurchase
rights, and options and warrants to purchase 1,117,775 shares which are
or will be vested and purchasable within 60 days.
To the Company's knowledge, each beneficial owner of more than ten
percent capital stock filed all reports and reported all transactions on a
timely basis with the SEC, National Association of Securities Dealers, Inc. and
the Company.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be
presented by such stockholders at the Company's 1997 Annual Meeting must be
received by the Company no later than July 22, 1997 in order that they may be
included in the proxy statement and form of proxy relating to that meeting.
ANNUAL REPORT
A copy of the Annual Report of the Company for the fiscal year ended
June 30, 1996 has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual Meeting. The Annual
Report is not incorporated into this Proxy Statement and is not considered proxy
soliciting material.
23.
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FORM 10-K
THE COMPANY FILED AN ANNUAL REPORT ON FORM 10-K WITH THE SECURITIES AND
EXCHANGE COMMISSION. STOCKHOLDERS MAY OBTAIN A COPY OF THIS REPORT, INCLUDING
FINANCIAL STATEMENTS, SCHEDULES AND A LIST OF EXHIBITS, WITHOUT CHARGE, BY
WRITING TO INVESTOR RELATIONS, SOMATIX THERAPY CORPORATION, 850 MARINA VILLAGE
PARKWAY, ALAMEDA, CALIFORNIA 94501.
OTHER MATTERS
The Company knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
form of Proxy to vote the shares they represent as the Board may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed Proxy.
THE BOARD OF DIRECTORS
Dated: November 18, 1996
24.
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APPENDIX A
SOMATIX THERAPY CORPORATION
PROXY
Annual Meeting of Stockholders, December 18, 1996
This Proxy is Solicited on Behalf of the Board of Directors of
Somatix Therapy Corporation
The undersigned revokes all previous proxies, acknowledges receipt of
the Notice of the Annual Meeting of Stockholders to be held December 18, 1996
and the Proxy Statement and appoints David W. Carter and Edward O. Lanphier II,
and each of them, the Proxy of the undersigned, with full power of substitution,
to vote all shares of Common Stock of Somatix Therapy Corporation (the
"Company") which the undersigned is entitled to vote, either on his or her own
behalf or on behalf of any entity or entities, at the Annual Meeting of
Stockholders of the Company to be held at the Company's offices at 850 Marina
Village Parkway, Alameda, CA 94501 on Wednesday, December 18, 1996 at 10:00 A.M.
(the "Annual Meeting"), and at any adjournment or postponement thereof, with the
same force and effect as the undersigned might or could do if personally present
thereat. The shares represented by this Proxy shall be voted in the manner set
forth on the reverse side.
1. To elect the following directors to serve until the next annual
meeting of stockholders and until their successors are elected and qualified:
WITHHOLD
AUTHORITY
FOR TO VOTE
David W. Carter _____ _____
Karen Davis, Ph.D. _____ _____
Michael R. Eisenson _____ _____
Fred H. Gage, Ph.D. _____ _____
John T. Potts, Jr., M.D. _____ _____
Leon E. Rosenberg, M.D, _____ _____
Thomas E. Shenk, Ph.D. _____ _____
Inder M. Verma _____ _____
Samuel D. Waksal, Ph.D. _____ _____
2. FOR AGAINST ABSTAIN To ratify the Board of Director's
selection of Ernst & Young LLP to serve as the Company's independent accountants
for the fiscal year ending June 30, 1997.
The Board of Directors recommends a vote FOR each of the directors
listed above and a vote FOR the other proposals. This Proxy, when properly
executed, will be voted as specified above. If no specification is made, this
Proxy will be voted IN FAVOR OF the election of the directors listed above and
IN FAVOR OF the other proposals.
Please print the name(s) appearing on each share certificate(s) over
which you have voting authority:
---------------------------------------
(Print name(s) on certificate)
Please sign your name: Date:
---------------------------------- ---------
(Authorized Signature(s))
