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:
[ ] 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
DYNAGEN, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] $ 125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $ 500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
not applicable
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(2) Aggregate number of securities to which transactions applies:
not applicable
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(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):
not applicable
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(4) Proposed maximum aggregate value of transaction:
not applicable
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(5) Total fee paid:
not applicable
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[X] Fee paid previously with preliminary materials.
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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:
not applicable
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(2) Form, Schedule or Registration Statement No.:
not applicable
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(3) Filing Party:
not applicable
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(4) Date Filed:
not applicable
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DYNAGEN, INC.
99 ERIE STREET
CAMBRIDGE, MA 02139
(617) 491-2527
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
----------
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders of DynaGen, Inc., a Delaware corporation
(the "Corporation"), will be held on Thursday, January 30, 1997, at 3:00 p.m.,
at the offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 20th
Floor, 125 High Street, Boston, Massachusetts
02110, for the following purposes:
1. To elect a Board of Directors for the ensuing year.
The nominees the Board proposes to present for election are: Dr. Ian R.
Ferrier, Steven Georgiev, Dr. Indu A. Muni, Dr. F. Howard Schneider, Dr.
Michael Sorell and Dhananjay G. Wadekar.
2. To consider and act upon a proposal to approve an amendment to the
Corporation's Certificate of Incorporation to increase the number of
authorized shares of Common Stock, $.01 par value per share ("Common
Stock"), from 40,000,000 to 75,000,000 shares.
3. To consider and act upon a proposal to approve an amendment to the
Corporation's 1991 Stock Plan to increase the number of shares of Common
Stock of the Corporation authorized to be issued thereunder from
1,200,000 to 2,600,000 shares and to permit grants thereunder to comply
with Section 162(m) of the Internal Revenue Code.
4. To transact such other business as may properly come before the
meeting and any adjournments thereof.
Stockholders entitled to notice of and to vote at the meeting shall be
determined as of December 24, 1996, the record date fixed by the Board of
Directors for such purpose.
All stockholders are cordially invited to attend the annual meeting. To
ensure your representation at the meeting, however, you are urged to sign and
return the enclosed proxy card as promptly as possible in the enclosed
postage-prepaid envelope. You may revoke your proxy in the manner described in
the accompanying Proxy Statement at any time before it has been voted at the
annual meeting. Any stockholder attending the annual meeting may vote in person
even if he or she has returned a proxy.
By Order of the Board of
Directors,
DHANANJAY G. WADEKAR
Chairman
December 27, 1996
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED STAMPED ENVELOPE BY RETURN MAIL.
DYNAGEN, INC.
99 ERIE STREET
CAMBRIDGE, MA 02139
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PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
----------
DECEMBER 27, 1996
Proxies in the form enclosed with this Proxy Statement are solicited by the
Board of Directors of DynaGen, Inc., a Delaware corporation (the "Corporation"),
for use at the Annual Meeting of Stockholders to be held on Thursday, January
30, 1997, at 3:00 p.m. (the "Meeting"), at the offices of Testa, Hurwitz &
Thibeault, LLP, High Street Tower, 20th Floor, 125 High Street, Boston,
Massachusetts 02110.
Only stockholders of record as of December 24, 1996 will be entitled to
notice of and to vote at the Meeting and any adjournments thereof. As of
December 13, 1996, 29,106,231 shares of the Corporation's Common Stock, $.01 par
value per share (the "Common Stock"), were issued and outstanding. The holders
of Common Stock are entitled to one vote per share on any proposal presented at
the Meeting. Stockholders may vote in person or by proxy. Execution of a proxy
will not in any way affect a stockholder's right to attend the Meeting and vote
in person. Any stockholder giving a proxy has the right to revoke it at any time
before it is exercised. Proxies may be revoked by (1) filing with the Secretary
of the Corporation, before the taking of the vote at the Meeting, a written
notice of revocation bearing a later date than the proxy, (2) duly executing a
later dated proxy relating to the same shares and delivering it to the Secretary
of the Corporation before the taking of the vote at the Meeting or (3) attending
the Meeting and voting in person (although attendance at the Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice of
revocation or subsequent proxy should be sent so as to be delivered to DynaGen,
Inc., 99 Erie Street, Cambridge, MA 02139, Attention: Secretary, at or before
the taking of the vote at the Meeting.
The persons named as attorneys in the proxy are directors and officers of
the Corporation. All properly executed proxies returned in time to be counted at
the Meeting will be voted and, with respect to the election of the Board of
Directors, will be voted as stated below under "Election of Directors." Any
stockholder submitting a proxy has the right to withhold authority to vote for
any individual nominee to the Board of Directors by writing that nominee's name
on the space provided on the proxy.
In addition to the election of directors, the stockholders will consider and
vote upon proposals (i) to amend the Corporation's Certificate of Incorporation
to increase the number of authorized shares of Common Stock from 40,000,000 to
75,000,000 shares and (ii) to approve an amendment to the Corporation's 1991
Stock Plan to increase the number of shares of Common Stock of the Corporation
authorized to be issued thereunder from 1,200,000 to 2,600,000 shares and to
permit grants thereunder to comply with Section 162(m) of the Internal Revenue
Code of 1986, as amended, all as further described in this Proxy Statement.
The representation in person or by proxy of at least a majority of the
outstanding shares of Common Stock entitled to vote at the Meeting is necessary
to establish a quorum for the transaction of business. Votes withheld from any
nominee, abstentions and broker non-votes are counted as present or represented
for purposes of determining the presence or absence of a quorum. A "non-vote"
occurs when a broker holding shares for a beneficial owner votes on one
proposal, but does not vote on another proposal because the broker does not have
discretionary voting power and has not received instructions from the beneficial
owner. Directors are elected by a plurality of the votes cast by stockholders
entitled to vote at the Meeting. All other matters being submitted to
stockholders require the affirmative vote of the majority of shares present in
person or represented by proxy at the Meeting, except that the
proposal to amend the Corporation's Certificate of Incorporation requires the
affirmative vote of a majority of the outstanding shares of Common Stock
entitled to vote at the Meeting. An automated system administered by the
Company's transfer agent tabulates the votes. The vote on each matter submitted
to stockholders is tabulated separately. Abstentions are included in the number
of shares present or represented and voting on each matter and, therefore, with
respect to votes on specific proposals, will have the effect of negative votes.
Broker "non-votes" are not so included but have the effect of a vote "against"
the proposal to amend the Certificate of Incorporation.
Where a choice has been specified on the proxy with respect to the foregoing
matters, the shares represented by the proxy will be voted in accordance with
the specification. The shares will be voted FOR the matter in question if no
specification is made.
The Board of Directors knows of no other matter to be presented at the
Meeting. If any other matter should be presented at the Meeting upon which a
vote properly may be taken, shares represented by all proxies received by the
Corporation will be voted with respect thereto in accordance with the best
judgment of the persons named as attorneys in the proxies.
The Corporation's Annual Report, containing financial statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the fiscal year ended June 30, 1996, is being mailed
contemporaneously with this Proxy Statement to all stockholders entitled to
vote. This Proxy Statement and the form of proxy were first mailed to
stockholders on or about December 27, 1996.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 13, 1996, certain information
concerning the ownership of the Corporation's Common Stock by: (i) each person
who is known by the Corporation to own beneficially five percent or more of the
outstanding shares of the Corporation's Common Stock; (ii) each of the
Corporation's directors; (iii) the chief executive officer and each other
executive officer of the Corporation whose annual compensation exceeded
$100,000; and (iv) all directors and executive officers as a group. Except as
otherwise indicated, to the knowledge of the Corporation, the persons listed in
the table have sole voting and investment powers with respect to the shares
indicated.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME OF BENEFICIAL OWNER OWNED COMMON STOCK(1)
------------------------ ----- ----------------
<S> <C> <C>
Dhananjay G. Wadekar ................................................. 1,351,250 4.6%
99 Erie Street
Cambridge, Massachusetts 02139
Dr. Indu A. Muni ..................................................... 1,137,250 3.9%
99 Erie Street
Cambridge, Massachusetts 02139
Dr. F. Howard Schneider(2) .......................................... 270,000 *
99 Erie Street
Cambridge, Massachusetts 02139
Dr. Ian R. Ferrier ................................................... 0 0%
c/o Bogart Delafield Ferrier, Inc.
North Tower, 5th Floor
49 Headquarters Plaza
Morristown, New Jersey 07960
Steven Georgiev ...................................................... 0 0%
c/o Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
Dr. Michael Sorell .................................................... 0 0%
115 East 92nd Street
New York, NY 10128
All Directors and Executive Officers as a group (8 persons)(3) 2,864,500 9.7%
</TABLE>
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* Indicates less than 1%.
2
(1) As of December 13, 1996, there were 29,106,231 shares of the Corporation's
Common Stock outstanding. Pursuant to the rules of the Securities and
Exchange Commission (the "Commission"), shares of Common Stock that an
individual or group has a right to acquire on or before February 11, 1997
(i.e., within 60 days of December 13, 1996) pursuant to the exercise of
presently exercisable or outstanding options, warrants or conversion
privileges are deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person shown in the table. Information with respect to beneficial
ownership is based upon information furnished by such stockholder.
(2) Includes 200,000 shares issuable to Dr. Schneider pursuant to immediately
exercisable stock options. Does not include 100 shares owned by Dr.
Schneider's wife, of which he disclaims any beneficial interest or control.
(3) Includes 283,000 shares issuable pursuant to immediately exercisable stock
options. Does not include 100 shares owned by Dr. Schneider's wife of which
he disclaims any beneficial interest or control.
ELECTION OF DIRECTORS
Each director of the Corporation is elected to hold office until the next
annual meeting of stockholders, and until his successor is elected and
qualified. Shares represented by all proxies received by the Corporation and not
so marked as to withhold authority to vote for any individual nominee for
director or for all nominees will be voted (unless one or more nominees are
unable or unwilling to serve) for the election of the six nominees named below.
The Board of Directors knows of no reason why any such nominee should be unable
or unwilling to serve, but if such should be the case, proxies will be voted for
the election of another person or for fixing the number of directors at a lesser
number. All of the nominees are currently directors of the Corporation. Proxies
cannot be voted for more than six nominees.
NOMINEES FOR DIRECTOR
The nominees for directors of the Corporation are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dr. Ian R. Ferrier(2)(3)......... 53 Director
Steven Georgiev(2)(3)............ 62 Director
Dr. Indu A. Muni(1).............. 54 President, Chief Executive Officer, Treasurer
and Director
Dr. F. Howard Schneider.......... 58 Senior Vice President -- Technology and
Director
Dr. Michael Sorell............... 49 Director
Dhananjay G. Wadekar(1).......... 43 Chairman of the Board, Executive Vice
President and Director
</TABLE>
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(1) Member of the Stock Option Committee, which was disbanded on October 28,
1996.
(2) Member of the Audit Committee.
(3) Member of the Executive Compensation Committee, which was established on
July 24, 1996.
The By-laws of the Corporation provide for the annual election of the Board
of Directors. All Directors of the Corporation are elected to hold office until
the next annual meeting of Stockholders, and until their successors have been
duly elected and qualified.
DR. IAN R. FERRIER. Dr. Ferrier has served as a director of the Corporation
since July 1996. In 1982, he founded Bogart Delafield Ferrier, Inc. ("Bogart
Delafield Ferrier"), a healthcare consulting firm that provides strategic
consulting services to pharmaceutical and biotechnology companies. Dr. Ferrier
has served as Chief Executive Officer of Bogart Delafield Ferrier since 1982 and
as Chairman since 1989. He earned a medical degree from Edinburgh University and
specialized in clinical pharmacology during postgraduate training. Prior to
founding Bogart Delafield Ferrier, he held various clinical research and
management positions with ICI Pharmaceuticals, Kalipharma Inc., and the Tech
America Group. He serves as a director on the board of NASTECH Pharmaceuticals
Co., Inc., a publicly traded company, and on the boards of several privately
held biotechnology and pharmaceutical companies.
3
STEVEN GEORGIEV. Mr. Georgiev has served as a director of the Corporation
since July 1996. Since November 1993, he has been Chief Executive Officer of
Palomar Medical Technologies, Inc. ("Palomar"), a publicly traded Massachusetts
firm specializing in medical applications of lasers, and from November 1993
until August 1994 he was also President of Palomar. Mr. Georgiev was a
consultant to Palomar's predecessor, Dymed Corporation, from June 1991 until
Palomar's September 1991 merger with Dymed Corporation, at which time he became
Palomar's Chairman of the Board of Directors. Since November 1995, Mr. Georgiev
has been Chairman of the Board of Directors of American Materials &
Technologies, Inc., a publicly traded company. Mr. Georgiev has been a director
of Excel Technology, Inc., a publicly traded laser system and electro-optical
component company, since October 1992 and was also a director of Cybernetics
Products, Inc., a publicly traded company, from August 1988 until January 1992.
Mr. Georgiev earned a B.S. degree in Engineering Physics from Cornell University
and a M.S. in Management from the Massachusetts Institute of Technology.
DR. INDU A. MUNI. Dr. Muni is a co-founder of the Corporation and has served
as President and a director of the Corporation since inception and as Chief
Executive Officer and Treasurer since July 1990. From May 1988 to November 1988,
Dr. Muni served as Vice President of Biomaterial and Environmental Science and
Engineering for Holometrix, Inc., a publicly traded thermal instrumentation
company. Between July 1987 and May 1988, Dr. Muni provided biological consulting
services to pharmaceutical and biotechnology companies as an independent
consultant. From February 1981 to July 1987, Dr. Muni served as Executive Vice
President of Bioassay Systems Corporation, a publicly traded provider of
contract research and development services in the areas of pharmaceutical and
diagnostic systems.
DR. F. HOWARD SCHNEIDER. Dr. Schneider has served as a director of the
Corporation since September 1989, was Chairman of the Board of the Corporation
from July 1990 until February 1991 and became Senior Vice President --
Technology effective June 1991. Dr. Schneider was previously a partner and
Senior Vice President of Bogart Delafield Ferrier. Dr. Schneider participated in
the management buyout of Bogart Delafield Ferrier from its parent corporation,
McCann Healthcare Group, a subsidiary of Inter Public Group.
DR. MICHAEL SORELL. Dr. Sorell has served as a director of the Corporation
since October 1996. Since February 1996, he has served as the Principal of MS
Capital, LLC, which provides strategic consulting in the areas of medical
technology and financial management to emerging biotech and healthcare
companies. From August 1994 to February 1996, Dr. Sorell was an emerging growth
strategist for Morgan Stanley & Co. Incorporated ("Morgan Stanley") and from
February 1992 to August 1994 was a Principal of MSX Life Sciences Fund, a joint
venture with Essex Investment Management of Boston, MA. Dr. Sorell originally
joined Morgan Stanley in July 1986 as a Research Analyst covering pharmaceutical
and biotechnology companies, was promoted to Vice President in January 1990 and
became a Principal in January 1992. Prior to Morgan Stanley, Dr. Sorell was on
the attending staff of Memorial Sloan-Kettering Cancer Center as a pediatric
oncologist and later joined Schering-Plough Corporation in clinical research.
Dr. Sorell earned an M.D. degree from the Albert Einstein College of Medicine in
1972.
DHANANJAY G. WADEKAR. Mr. Wadekar is a co-founder of the Corporation and has
served as a director of the Corporation since inception and as Chairman of the
Board and Executive Vice President of the Corporation since November 1991. In
addition, he served as the Chairman, Chief Executive Officer and Treasurer of
the Corporation from its inception until July 1990 and as a consultant to the
Corporation during the period July 1990 to October 1991. Since April 1996, Mr.
Wadekar has served as a director of CSL Lighting Manufacturing, Inc., a publicly
traded manufacturer of high-end lighting fixtures. Mr. Wadekar was a director of
Holometrix, Inc., a publicly traded thermal instrumentation company which he
founded, from 1985 until November 1994.
BOARD MEETINGS AND COMMITTEES
The Board of Directors met six times during the fiscal year ended June 30,
1996. Each incumbent director who served during the fiscal year ended June 30,
1996 attended at least 75% of the meetings of the Board held during the period
in which he served. During the fiscal year ended June 30, 1996, the Board of
Directors had a Stock Option Committee, of which Dr. Muni and Mr. Wadekar were
members until the committee was disbanded on October 28, 1996. The Stock Option
Committee administered the Corporation's 1989 Stock Option Plan and 1991 Stock
Plan and did not meet during the fiscal year ended June 30, 1996. The Board of
4
Directors has an Audit Committee, of which Dr. Ferrier and Mr. Georgiev are
currently members, which oversees all financial functions of the Corporation,
including matters relating to the appointment and activities of the
Corporation's auditors, audit plans and procedures, various accounting and
financial reporting issues and changes in accounting policies. The Audit
Committee met two times during the fiscal year ended June 30, 1996. Henry E.
Blair and Mark Skaletsky, who served as directors of the Corporation and the
sole members of the Audit Committee until July 1996 and June 1996, respectively,
both attended all meetings of the Audit Committee. The Board of Directors does
not currently have a standing nominating committee or committee performing
similar functions.
Although the Board of Directors did not have a compensation committee during
the fiscal year ended June 30, 1996, on July 24, 1996, the Board established an
Executive Compensation Committee, of which Dr. Ferrier and Mr. Georgiev are the
members. The Executive Compensation Committee will review and set cash and
non-cash compensation for Dr. Muni and Mr. Wadekar and will provide guidance to
the Board of Directors on the cash and non-cash compensation payable to other
officers and employees of the Corporation.
COMPENSATION OF DIRECTORS
Directors were not compensated during the fiscal year ended June 30, 1996
for attending meetings of the Board of Directors. The Corporation has since
instituted a policy of paying directors who are not employees of the Corporation
a participation fee of $1,000 for each meeting of the Board of Directors
attended and for each committee meeting attended, up to a maximum of $1,000 per
calendar day, regardless of how may meetings occur on one day. All directors are
also reimbursed for out-of-pocket expenses incurred in connection with
attendance at meetings and other services as directors. Directors are entitled
to receive stock options under the 1991 Stock Plan and the 1989 Stock Option
Plan. To date, Mr. Wadekar and Dr. Muni have received no options, and Dr.
Schneider has received options to purchase a total of 310,000 shares of the
Corporation's Common Stock under the 1991 Stock Plan and 1989 Stock Option Plan.
In addition, the Board of Directors granted to Dr. Ferrier, Mr. Georgiev and Dr.
Sorell options to purchase 330,000 shares each, which options were granted
outside of the 1991 Stock Plan and 1989 Stock Option Plan. The Corporation's
Stock Option Committee, which administered the Corporation's 1989 Stock Option
Plan and 1991 Stock Plan until October 28, 1996, had a general policy of
awarding stock options at not less than fair market value at the date of grant,
and options generally vest over 2, 3 or 4 years. During the fiscal year ended
June 30, 1996, however, the Stock Option Committee awarded stock options to Dr.
Schneider and certain other officers of the Corporation at an exercise price of
$.01, which options were fully vested on the date of grant.
EXECUTIVE OFFICERS
The executive officers of the Corporation who are not also directors of the
Corporation, their ages and their positions held in the Corporation are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Peter J. Mione 49 Vice President -- Clinical and Regulatory Affairs
Theodore A. Olsson 42 Vice President -- Corporate Development
</TABLE>
PETER J. MIONE. Mr. Mione has served the Corporation as Vice President --
Clinical and Regulatory Affairs since November 1991 and initially as Manager of
Regulatory Affairs from May 1989 to October 1991. Mr. Mione is responsible for
monitoring clinical studies, preparation of protocols, and submission of data on
the Corporation's proposed products to the FDA for approval. Prior to joining
the Corporation, Mr. Mione was an independent consultant from October 1988 to
April 1989 and served as Administrative Coordinator at Toxikon Corp. (from 1987
to 1988), a company providing toxicology study services. Prior thereto, Mr.
Mione was Director of Regulatory Compliance at Genus Diagnostics, a manufacturer
of diagnostic kits.
THEODORE A. OLSSON. Mr. Olsson has served as Vice President -- Corporate
Development since August 1996, and initially served as Director, Polymer
Products from November 1993 to August 1996. Mr. Olsson is currently responsible
for evaluating potential strategies and business opportunities for the
Corporation. Prior to joining the Corporation, Mr. Olsson served as Senior
Consultant and Unit Manager for Arthur D. Little, Inc. from July 1990 to
November 1993. Mr. Olsson has a Bachelor of Science degree in Biochemistry from
the University of Massachusetts, Amherst.
5
EXECUTIVE COMPENSATION AND OTHER INFORMATION
CONCERNING OFFICERS AND DIRECTORS
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Corporation for the
fiscal years ended June 30, 1996, 1995 and 1994, of those persons who were at
June 30, 1996 (i) the chief executive officer and (ii) each other executive
officer of the Corporation whose annual compensation exceeded $100,000 (the
"Named Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION(2)
---------------
ANNUAL COMPENSATION(1) AWARDS
---------------------- ------
NUMBER OF
FISCAL SALARY BONUS OTHER ANNUAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) COMPENSATION ($) SARS (#) COMPENSATION ($)
--------------------------- ---- --- --- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
DR. INDU A. MUNI ............... 1996 115,500 -- -- -- 304(3)
President, Chief Executive 1995 115,500 -- -- -- 304(3)
Officer and Treasurer 1994 112,875 -- -- -- 304(3)
DHANANJAY G. WADEKAR ........... 1996 115,500 -- -- -- 304(3)
Chairman of the Board and 1995 115,500 -- -- -- 304(3)
Executive Vice President 1994 112,875 -- -- -- 304(3)
DR. F. HOWARD SCHNEIDER ......... 1996 115,500 -- -- 10,000 304(3)
Senior Vice President -- 1995 115,500 -- -- -- 304(3)
Technology 1994 112,875 -- -- 150,000(4) 15,476(5)
</TABLE>
- --------------
(1) Excludes perquisites and other personal benefits, the aggregate annual
amount of which for each officer was less than the lesser of $50,000 or 10%
of the total salary and bonus reported.
(2) The Corporation did not grant any restricted stock awards or stock
appreciation rights ("SARs") or make any long-term incentive plan payouts
during the fiscal years ended June 30, 1996, 1995 and 1994.
(3) Amount represents the dollar value of group-term life insurance premiums
paid by the Corporation for the benefit of the Named Officer.
(4) The Corporation repriced certain of Dr. Schneider's outstanding options in
Fiscal 1994 as follows: Options to purchase 150,000 shares granted in July
1992 at an exercise price of $5.25 were canceled in exchange for options to
purchase 150,000 shares at an exercise price of $.75 per share, the fair
market value of the Corporation's Common Stock on the date of exchange,
April 27, 1994.
(5) Amount is comprised of: (i) $15,172 representing forgiveness from repayment
of a loan owed to the Corporation by Dr. Schneider and (ii) $304
representing the dollar value of group-term life insurance premiums paid by
the Corporation for the benefit of Dr. Schneider.
OPTIONS/SAR GRANTS TABLE
The following table sets forth each grant of stock options made during the
year ended June 30, 1996 to each of the Named Officers:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------
FOR OPTION TERM(2)
------------------
% OF TOTAL
NUMBER OF OPTIONS MARKET
SECURITIES GRANTED TO PRICE ON
UNDERLYING EMPLOYEES EXERCISE DATE OF
OPTIONS IN FISCAL PRICE GRANT EXPIRATION
NAME GRANTED(1) YEAR ($/SHARE) ($/SHARE) DATE 0% ($) 5% ($) 10% ($)
---- ---------- ---- --------- --------- ---- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dr. Indu A. Muni -- -- -- -- -- -- -- --
Dhananjay G. Wadekar -- -- -- -- -- -- -- --
Dr. F. Howard Schneider 10,000 18.2% 0.01 3.19 2/02/03 31,800 44,787 62,064
</TABLE>
- ----------
(1) All options granted are reflected in the Summary Compensation Table, were
granted on February 2, 1996 and were fully exercisable immediately upon
grant.
6
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (0%, 5% and
10%) on the market value of the Corporation's Common Stock over the term of
the options. These numbers are calculated based on rules promulgated by the
Commission and do not reflect the Corporation's estimate of future stock
price growth. Actual gains, if any, on stock option exercises and Common
Stock holdings are dependent on the timing of such exercises and the future
performance of the Corporation's Common Stock. There can be no assurance
that the rates of appreciation assumed in this table can be achieved or
that the amounts reflected will be received by the individuals.
OPTION EXERCISES AND FISCAL YEAR END VALUES
Presented below is further information with respect to unexercised stock
options to purchase the Corporation's Common Stock held by each Named Officer as
of June 30, 1996. None of the Named Officers exercised any stock options during
fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
JUNE 30, 1996 (#) JUNE 30, 1996 ($)
----------------- -----------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Dr. Indu A. Muni 0 0 -- --
Dhananjay G. Wadekar 0 0 -- --
Dr. F. Howard Schneider 200,000 60,000 332,400 101,250
</TABLE>
Stock Plans. The Corporation currently maintains two employee stock plans:
the 1989 Stock Option Plan and the 1991 Stock Plan. During fiscal 1996, each
plan was administered by the Stock Option Committee of the Board of Directors.
The 1991 Stock Plan currently provides for the grant of incentive stock options,
non-qualified options, awards and authorizations to purchase up to 1,200,000
shares of Common Stock. At the Meeting, the stockholders will consider and vote
upon a proposal to approve an amendment to the 1991 Stock Plan to increase the
number of shares of Common Stock authorized to be issued thereunder from
1,200,000 to 2,600,000 shares and to permit grants thereunder to comply with
Section 162(m) of the Internal Revenue Code (see "Proposal to Amend the 1991
Stock Plan" below). The terms of options issued under the 1991 Stock Plan,
including number of shares, exercise price, duration and vesting, were generally
determined by the Stock Option Committee before the committee was disbanded on
October 28, 1996 and are now determined by the full Board of Directors. As of
June 30, 1996, options to purchase a total of 640,900 shares of Common Stock
were outstanding under the 1991 Stock Plan, of which options for 418,300 shares
were then exercisable, and 506,900 shares of Common Stock were reserved for
future option grants.
The 1989 Stock Option Plan provides for the grant of incentive stock options
and non-qualified options to purchase up to an aggregate of 600,000 shares of
Common Stock to the Corporation's employees, officers, directors and
consultants. The terms of such options, including number of shares, exercise
price, duration and vesting, were generally determined by the Stock Option
Committee before the committee was disbanded on October 28, 1996 and are now
determined by the full Board of Directors. As of June 30, 1996, options to
purchase a total of 220,000 shares of Common Stock were outstanding under the
1989 Stock Option Plan, of which options for 197,500 shares were then
exercisable, and no shares of Common Stock were reserved for future option
grants.
BOARD OF DIRECTORS AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Corporation's executive compensation program was administered by the
Board of Directors during fiscal 1996. The Board of Directors' informal
executive compensation philosophy (which applies generally to all of the
Corporation's management) considers a number of factors, which may include
providing levels of compensation competitive with companies at a comparable
stage of development and in the Corporation's geographic area, recognizing the
overall cost of living in the Corporation's geographical region, integrating
management's pay with the achievement of performance goals, rewarding above
average
7
corporate performance, recognizing and providing incentive for individual
initiative and achievement, and promoting a cooperative spirit among the
executive officers of the Corporation. Senior management's compensation is
weighted more heavily toward compensation contingent upon the Corporation's
achieving certain business objectives. The Board of Directors also endorses the
position that equity ownership by management is beneficial in aligning
management's and stockholders' interest with the enhancement of stockholder
value by providing management with longer-term incentives. Accordingly,
compensation structures for management generally include a combination of salary
and stock options.
In setting cash compensation for Dr. Muni and Mr. Wadekar and reviewing and
approving the cash compensation for all other executive officers, the Board of
Directors reviews salaries for all executive officers annually. The Board of
Directors' policy is to fix base salaries at levels comparable to the amounts
paid to senior executives with comparable qualifications, experience and
responsibilities at other companies of similar size and engaged in a similar
business to that of the Corporation in the metropolitan Boston area (which
together comprise a subset of the Corporation's Peer Group Index referred to in
the Performance Graph below). In addition, the base salaries take into account
the Corporation's relative performance as compared to these companies and the
attainment of certain planned objectives. The Corporation believes the present
compensation for its executive officers is comparable to these similarly
situated companies.
The cash compensation program for Dr. Muni and Mr. Wadekar is designed to
reward performance that enhances stockholder value. The cash compensation
package is comprised only of base pay as a function of the several factors
mentioned above. Dr. Muni and Mr. Wadekar have not been issued any stock
options. As co-founders of the Corporation, Dr. Muni and Mr. Wadekar each have
an appreciable share of the Corporation's outstanding Common Stock. As a result,
the Board of Directors currently believes that in the near term, Dr. Muni's and
Mr. Wadekar's equity interests are sufficiently aligned with the Corporation's
stockholders with respect to the goal of enhancing stockholder value.
Incentive-based compensation is an integral part of the overall compensation
package of the remaining members of the executive group. Incentive compensation
in the form of stock options is designed to provide long-term incentives to
executive officers and other employees, to encourage the executive officers and
other employees to remain with the Corporation and to enable them to develop and
maintain a stock ownership position in the Corporation's Common Stock. The
Corporation's 1989 Stock Option Plan and 1991 Stock Plan, which were
administered by the Stock Option Committee (of which Dr. Muni and Mr. Wadekar
were the only members) during fiscal 1996, have been used for the granting of
stock options to eligible employees, including executive officers. Because some
of the Corporation's products are still in a developmental stage and the
Corporation is only beginning to sell certain of its products, the Stock Option
Committee has granted stock options to all employees, officers and directors of
the Corporation in order to foster a spirit of cooperation and common purpose in
making the Corporation a successful enterprise.
During fiscal 1996, the Stock Option Committee granted options to purchase
55,000 shares of Common Stock to the directors, officers and employees of the
Corporation. Options generally become exercisable based upon a vesting schedule
tied to years of future service to the Corporation. The value realizable from
exercisable options is dependent upon the extent to which the Corporation's
performance is reflected in the market price of the Corporation's Common Stock
at any particular point in time. Equity compensation in the form of stock
options is designed to provide long-term incentives to executive officers and
other employees. The Stock Option Committee has granted options in order to
motivate these employees to maximize stockholder value. Generally, options
granted to officers and employees vest over 2, 3 or 4 years and expire after a 7
or 10-year period. In addition, the Stock Option Committee had a general policy
of awarding stock options at not less than the fair market value at the date of
grant in order to reward executives and other employees only to the extent that
the stockholders also benefit through appreciation in the value of the
Corporation. On February 2, 1996, however, the Stock Option Committee granted
immediately exercisable options to purchase 55,000 shares of Common Stock to
certain officers of the Corporation at an exercise price of $0.01 per share. In
addition, the Board of Directors awarded 117,250 shares of Common Stock, outside
of the 1991 Stock Plan and the 1989 Stock Option Plan, as a bonus to a number of
employees of the Corporation. The Common
8
Stock and stock option awards were made to recognize the past performance of all
employees and to provide an incentive to all employees to remain with the
Corporation. The Board of Directors believes that these awards foster a spirit
of common purpose towards making the corporation a successful enterprise.
Options granted to employees are based on such factors as individual
initiative, achievement and performance. In making specific grants to
executives, the Stock Option Committee evaluated each officer's total equity
compensation package. The Stock Option Committee generally reviewed the option
holdings of each of the executive officers including vesting and exercise price
and the then current value of such unvested options. The Stock Option Committee
considered equity compensation to be an integral part of a competitive executive
compensation package and an important mechanism to align the interests of
management with those of the Corporation's stockholders.
The Board of Directors is satisfied that the executive officers of the
Corporation are dedicated to achieving significant improvements in the long-term
financial performance of the Corporation and that the compensation policies and
programs implemented and administered have contributed and will continue to
contribute towards achieving this goal.
This report has been submitted by the members of the Board of Directors and
the Stock Option Committee:
DR. INDU A. MUNI
DR. F. HOWARD SCHNEIDER
DHANANJAY G. WADEKAR
9
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return
(assuming reinvestment of dividends, if any) from investing $100 on June 30,
1991 in each of (i) the Corporation's Common Stock, (ii) The Nasdaq Stock Market
Index of U.S. Companies ("Nasdaq Index"), and (iii) the Nasdaq Pharmaceutical
Stock Index ("Peer Group Index"). The Peer Group Index reflects the performance
of all corporations that are members of the pharmaceutical industry with 2830 as
their Primary Standard Industrial Classification Code Number. The values of all
three indexes are set at $100 as of June 30, 1991 and are plotted as of the end
of each fiscal quarter through the most recent fiscal year end.
Comparison of Cumulative Return among DynaGen, Inc., Nasdaq Index and Peer Group
[In this area appears a line graph comparing the Company's
Cumulative Return with that of the Nasdaq Index and the Peer Group.
The plot points for the graph are as follows.]
NASDAQ PEER GROUP DYNAGEN
------ ---------- -------
06/30/91 100 100 100
09/30/91 112 138 93
12/31/91 125 387 82
03/31/92 129 148 106
06/30/92 120 125 82
09/30/92 125 117 74
12/31/92 146 143 64
03/31/93 148 103 75
06/30/93 151 108 67
09/30/93 164 117 52
12/31/93 168 127 41
03/31/94 160 104 12
06/30/94 153 91 9
09/30/94 165 102 19
12/30/94 163 96 26
03/31/95 178 103 36
06/30/95 204 120 59
09/30/95 228 150 51
12/31/95 231 175 29
03/31/96 242 182 36
06/30/96 261 177 32
<TABLE>
<CAPTION>
JUNE 30, 1991 JUNE 30, 1992 JUNE 30, 1993 JUNE 30, 1994 JUNE 30, 1995 JUNE 30, 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
DYNAGEN, INC. $100 $ 82 $ 67 $ 9 $ 59 $ 32
NASDAQ INDEX 100 120 151 153 204 261
PEER GROUP 100 125 108 91 120 177
</TABLE>
EMPLOYMENT AND CONSULTING AGREEMENTS
The Corporation has entered into employment agreements with Dr. Muni, the
Corporation's President, Chief Executive Officer and Treasurer, Mr. Wadekar, the
Corporation's Chairman of the Board and Executive Vice President, and Dr.
Schneider, the Corporation's Senior Vice President -- Technology. Dr. Muni's
agreement expires in August 1997, and Mr. Wadekar's and Dr. Schneider's
agreements expire in October 1997. Under the agreements, Dr. Muni, Mr. Wadekar
and Dr. Schneider were paid annual base salaries of $115,500, effective October
1, 1993.
Effective July 1, 1996, the Executive Compensation Committee increased Dr.
Muni and Mr. Wadekar's annual base salaries to $145,000 and approved an
arrangement whereby Dr. Schneider is paid an annual base salary of $116,000 for
a four-day work week.
In addition, Dr. Muni, Mr. Wadekar and Dr. Schneider have each agreed that
(i) during his respective period of employment with the Corporation and for a
period of one year thereafter, he will not engage in any business activity
engaged in or under development by the Corporation and (ii) for a
10
period of three years following his respective period of employment, he will not
engage in any activities for any direct competitor similar or related to those
activities engaged in during the preceding two years of employment with the
Corporation. In the event the Corporation terminates Dr. Muni's, Mr. Wadekar's
or Dr. Schneider's employment without cause, the Corporation is obligated to pay
to him an amount equal to three months base salary.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Corporation did not have a Compensation Committee during fiscal 1996.
The Board of Directors and the Stock Option Committee were responsible for
determining compensation of executive officers of the Corporation. During fiscal
1996, Drs. Muni and Schneider and Mr. Wadekar served on the Board of Directors.
None of these three officers was present during discussion of and abstained from
voting with respect to his own compensation as an executive officer of the
Corporation. The Stock Option Committee, of which Dr. Muni and Mr. Wadekar were
members, did not grant any options to Dr. Muni or Mr. Wadekar during fiscal
1996.
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION
By a Board of Directors resolution dated December 9, 1996, the Board of
Directors recommended to the stockholders that the Corporation amend the
Corporation's Certificate of Incorporation (the "Charter") to increase the
number of authorized shares of Common Stock from 40,000,000 to 75,000,000
shares. Shares of the Corporation's Common Stock, including the additional
shares proposed for authorization, do not have preemptive or similar rights.
As of December 13, 1996, there were 29,106,231 shares issued and outstanding
and approximately 6,393,000 shares reserved for future issuance pursuant to
outstanding warrants, convertible debt and options. If the amendment to the
Charter is approved, the Board of Directors will have the authority to issue
45,893,769 additional shares of Common Stock without further stockholder
approval. The Board of Directors believes that the authorized number of shares
of Common Stock should be increased to provide sufficient shares for such
corporate purposes as the Board of Directors may determine to be necessary or
desirable. These purposes may include, without limitation, acquiring other
businesses in exchange for shares of Common Stock, entering into collaborative
research arrangements with other companies, or acquiring complementary
technologies, products or businesses from third parties in exchange for Common
Stock. In addition, other corporate purposes may include issuing shares of
Common Stock in connection with research and development relationships,
strategic alliances or other corporate partnering programs and issuing shares of
Common Stock to raise additional working capital for ongoing operations or
planned research projects, and the financing of the Corporation's recent
acquisition of a generic drug manufacturer. The Corporation may also issue
additional shares of Common Stock to attract and retain valuable employees by
the issuance of additional stock options, including additional shares reserved
for future option grants under the Corporation's existing stock plans.
From time to time the Corporation is engaged in discussions with a number of
potential candidates for acquisitions of complementary technologies, product
lines or businesses. The Corporation does not have any current commitments or
agreements relating to any acquisitions. Any acquisition may necessarily involve
the issuance of shares of Common Stock, and, depending on the size of the
acquisition, the need for additional working capital. Additional working capital
will necessarily require the issuance of additional shares of capital stock. The
Board of Directors believes that the authorization of additional shares of
capital stock is necessary to support the future needs of the Corporation's
growth, whether through acquisitions or additional rounds of financing.
Under the Delaware General Corporation Law, the Board of Directors generally
may issue authorized but unissued shares of Common Stock without further
stockholder approval. The Board of Directors does not currently intend to seek
stockholder approval prior to any future issuance of additional shares of Common
Stock, unless stockholder action is required in a specific case by applicable
law, the rules of any exchange or market on which the Corporation's securities
may then be
11
listed, or the Charter or By-Laws of the Corporation then in effect. Frequently,
opportunities arise that require prompt action, and the Corporation believes
that the delay necessitated for stockholder approval of a specific issuance
could be to the detriment of the Corporation and its stockholders.
The additional shares of Common Stock authorized for issuance pursuant to
this proposal will have all of the rights and privileges which the presently
outstanding shares of Common Stock possess under the Corporation's Charter. The
increase in authorized shares would not affect the terms or rights of holders of
existing shares of Common Stock. All outstanding shares of Common Stock would
continue to have one vote per share on all matters to be voted on by the
stockholders, including the election of directors.
The issuance of any additional shares of Common Stock by the Corporation
may, depending on the circumstances under which those shares are issued, reduce
stockholders' equity per share and may reduce the percentage ownership of Common
Stock of existing stockholders. The Corporation, however, will receive
consideration for any additional shares of Common Stock issued, thereby reducing
or eliminating the economic effect to each stockholder of such dilution.
The authorized but unissued shares of Common Stock could be used to make
more difficult a change in control of the Corporation. For example, such shares
could be sold to purchasers who might side with the Board of Directors in
opposing a takeover bid that the Board determines not to be in the best
interests of the Corporation and its stockholders. Such a sale could have the
effect of discouraging an attempt by another person or entity, through the
acquisition of a substantial number of shares of the Corporation's Common Stock,
to acquire control of the Corporation, since the issuance of new shares could be
used to dilute the stock ownership of the acquirer. Neither the Charter nor
By-Laws of the Corporation now contain any provisions that are generally
considered to have an anti-takeover effect, and the Board of Directors does not
now plan to propose any anti-takeover measures in future proxy solicitations.
The Corporation is not aware of any pending or threatened efforts to obtain
control of the Corporation, and the Board of Directors has no current intention
to use the additional shares of Common Stock to impede a takeover attempt.
The proposal to amend the Charter requires the affirmative vote of a
majority of the outstanding shares of Common Stock entitled to vote at the
Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE
AMENDMENT TO THE CORPORATION'S CERTIFICATE OF INCORPORATION.
PROPOSAL TO AMEND THE 1991 STOCK PLAN
AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES UNDER THE 1991 STOCK PLAN
The Corporation's 1991 Stock Plan (the "1991 Plan") was adopted by the Board
of Directors on October 14, 1991 and approved by the stockholders of the
Corporation on June 30, 1992. Originally, 1,200,000 shares of Common Stock were
reserved for issuance thereunder. On December 9, 1996, the Board of Directors
approved an amendment (the "Amendment") to the 1991 Plan increasing the number
of shares reserved for issuance thereunder from 1,200,000 to 2,600,000 shares,
subject to stockholder approval of the Amendment. At the Meeting, the
stockholders are being requested to consider and approve the Amendment.
The Board of Directors believes that the Corporation's ability to continue
to attract and retain qualified employment candidates is in large part dependent
upon the Corporation's ability to provide such employment candidates long-term,
equity-based incentives in the form of stock options as part of their
compensation. As of December 13, 1996, 236,900 shares remained available for
future option grants under the 1991 Plan. The Board of Directors believes that
the shares remaining available for future option grants under the 1991 Plan are
insufficient for such purposes.
AMENDMENT TO COMPLY WITH INTERNAL REVENUE CODE SECTION 162(M)
Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), tax deductions attributable to compensation in excess of $1
million paid by the Corporation to certain of its key executives may be
disallowed. Compensation for this purpose does not include "performance-
12
based" compensation, however, and options issued pursuant to stock option plans
may qualify as performance-based compensation. For such options to qualify as
performance-based compensation numerous requirements must be satisfied,
including the attainment of one or more preestablished, objective performance
goals. An option having a per share exercise price equal to or greater than the
fair market value of a share of stock underlying such option on the date of
grant will be deemed to satisfy this performance goal requirement if, among
other things, the plan pursuant to which such option is granted states the
maximum number of shares with respect to which options may be granted during a
specified period to any employee. If such a maximum is established, a
stockholder should be able to calculate the maximum amount of compensation that
a participant could receive in any taxable year pursuant to the grant of such an
option by multiplying the maximum number of shares that could be received by any
participant under such plan by the excess of the fair market value of the shares
at some time in the future over the exercise price.
The 1991 Plan, as described below, currently has no restrictions as to the
maximum number of shares of Common Stock that a participant may acquire
thereunder. The Board of Directors believes that it is appropriate to limit the
number of shares that any one participant can receive under the 1991 Plan.
Consequently, the Board of Directors has approved, and recommends that the
stockholders approve, an amendment to the 1991 Plan limiting to 750,000 the
number of shares of Common Stock with respect to which options may be granted
under the 1991 Plan to any one participant during any taxable year of the
Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
AMENDMENT OF THE 1991 PLAN.
The essential features of the 1991 Plan are outlined below:
The 1991 Plan currently provides for the issuance of a maximum of 1,200,000
shares of Common Stock pursuant to the grant to employees of incentive stock
options ("ISOs") within the meaning of Section 422 of the Code and the grant of
non-qualified stock options ("NQSOs"), stock awards ("Awards") or opportunities
to make direct purchases of stock in the Corporation ("Purchases") to employees,
consultants, directors and officers of the Corporation. Currently, 72 employees
(including directors who are also employees of the Corporation, officers of the
Corporation and employees of Able Laboratories, Inc. the Corporation's
subsidiary), 3 non-employee directors and approximately 14 consultants are
eligible to participate in the 1991 Plan.
The 1991 Plan is currently administered by the Board of Directors. Subject
to the provisions of the 1991 Plan, the Board of Directors has the authority to
(i) determine to whom options, Awards and authorizations to make Purchases may
be granted; (ii) determine the time or times at which options or Awards may be
granted or Purchases made; (iii) determine whether each option granted shall be
an ISO or an NQSO; (iv) determine the time or times when each option shall
become exercisable and the duration of the exercise period; (v) determine
whether restrictions such as repurchase options are to be imposed on shares
subject to options, Awards and Purchases and the nature of such restrictions, if
any; and (vi) interpret the 1991 Plan and prescribe and rescind rules and
regulations relating to it. The Board of Directors determines the exercise price
per share for NQSOs, Awards and Purchases under the 1991 Plan, so long as such
exercise price is no less than the minimum legal consideration required therefor
under the laws of any jurisdiction in which the Corporation may be organized.
The exercise price per share for each ISO granted under the 1991 Plan may not be
less than the fair market value per share of Common Stock on the date of such
grant. In the case of an ISO to be granted to an employee owning stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation, the price per share for such ISO may not be
less than one hundred ten percent (110%) of the fair market value per share of
Common Stock on the date of grant.
An option is not transferable by the optionholder except by will or by the
laws of descent and distribution or, with respect to NQSOs, pursuant to a
qualified domestic relations order. Each option expires on the date specified by
the Board of Directors, but not more than (i) ten years and one day from the
date of grant in the case of NQSOs, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock
13
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation. Generally, no ISO may be exercised more
than 90 days following termination of employment. However, in the event that
termination is due to death or disability, the ISO is exercisable for a maximum
of 180 days after such termination. Options, Awards and opportunities to make
Purchases may be granted under the 1991 Plan at any time prior to October 14,
2001.
As of December 13, 1996, options to purchase 797,900 shares of Common Stock
at a weighted average exercise price of $1.02 per share were outstanding under
the 1991 Plan. On December 13, 1996, the market price, as reported by the Nasdaq
SmallCap Market, of the Common Stock, the class of stock underlying all options,
Awards and Purchases under the 1991 Plan, was $1.47 per share.
The following table sets forth as of December 13, 1996 options granted since
inception under the 1991 Plan to (i) the individuals named in the Summary
Compensation Table, (ii) each nominee for election as a director, (iii) all
current executive officers as a group, (iv) all current directors who are not
executive officers as a group, and (v) all employees, excluding executive
officers, as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION UNDERLYING OPTIONS GRANTED
----------------- --------------------------
<S> <C>
Dr. Ian R. Ferrier, Director ....................................................... 0
Steven Georgiev, Director .......................................................... 0
Dr. Indu A. Muni, President, Chief Executive Officer, Treasurer and Director ....... 0
Dr. F. Howard Schneider, Senior Vice President -- Technology and Director .......... 160,000
Dr. Michael Sorell ................................................................. 0
Dhananjay G. Wadekar, Chairman of the Board, Executive Vice President and Director . 0
All executive officers as a group (5 persons) ...................................... 240,000
All current directors who are not executive officers as a group (3 persons) ........ 0
All employees, excluding executive officers, as a group ............................ 402,500
</TABLE>
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion of United States federal income tax consequences of
the issuance and exercise of options and certain other rights granted under the
1991 Plan is based upon the provisions of the code as in effect on the date of
this proxy statement, current regulations, and existing administrative rulings
of the Internal Revenue Service. It is not intended to be a complete discussion
of all of the United States federal income tax consequences of the 1991 Plan or
of the requirements that must be met in order to qualify for the described tax
treatment. In addition there may be foreign, state and local tax consequences
that are not discussed herein.
The following general rules are applicable under current United States
federal income tax law to ISOs granted under the 1991 Plan:
1. In general, no taxable income results to the optionee upon the grant
of an ISO or upon the issuance of shares to him or her upon the exercise of
the ISO, and no federal income tax deduction is allowed to the Corporation
upon either the grant or exercise of an ISO.
2. If shares acquired upon exercise of an ISO are not disposed of within
(i) two years following the date the ISO was granted or (ii) one year
following the date the shares are issued to the optionee pursuant to the ISO
exercise (the "Holding Periods"), the difference between the amount realized
on any subsequent disposition of the shares and the exercise price will
generally be treated as capital gain or loss to the optionee.
3. If shares acquired upon exercise of an ISO are disposed of on or
before the expiration of one or both of the requisite Holding Periods (a
"Disqualifying Disposition"), then in most cases the lesser of (i) any
excess of the fair market value of the shares at the time of exercise of the
ISO over the exercise price or (ii) the actual gain on disposition, will be
treated as compensation to the optionee and will be taxed as ordinary income
in the year of such disposition.
14
4. In any year that an optionee recognizes compensation income on a
Disqualifying Disposition of stock acquired by exercising an ISO, the
Corporation generally should be entitled to a corresponding deduction for
federal income tax purposes.
5. Any excess of the amount realized by the optionee as the result of a
Disqualifying Disposition over the sum of (i) the exercise price and (ii)
the amount of ordinary income recognized under the above rules will be
treated as capital gain.
6. Capital gain or loss recognized on a disposition of shares will be
long-term capital gain or loss if the optionee's holding period for the
shares exceeds one year.
7. An optionee may be entitled to exercise an ISO by delivering shares of
the Corporation's Common Stock to the Corporation in payment of the exercise
price, if the optionee's ISO agreement so provides. If an optionee exercises
an ISO in such fashion, special rules will apply.
8. In addition to the tax consequences described above, the exercise of
ISOs may result in a further "minimum tax" under the Code. The Code provides
that an "alternative minimum tax" (at a maximum rate of 28%) will be applied
against a taxable base which is equal to "alternative minimum taxable
income," reduced by a statutory exemption. In general, the amount by which
the value of the Common Stock received upon exercise of the ISO exceeds the
exercise price is included in the optionee's alternative minimum taxable
income. A taxpayer is required to pay the higher of his regular tax
liability or the alternative minimum tax. A taxpayer who pays alternative
minimum tax attributable to the exercise of an ISO may be entitled to a tax
credit against his or her regular tax liability in later years.
9. Special rules apply if the Common Stock acquired through the exercise
of an ISO is subject to vesting, or is subject to certain restrictions on
resale under federal securities laws applicable to directors, officers or
10% stockholders.
The following general rules are applicable under current federal income tax
law to options granted under the 1991 Plan that do not qualify as ISOs
(collectively, "NQSOs"):
1. The optionee generally does not recognize any taxable income upon the
grant of a NQSO, and the Corporation is not allowed a federal income tax
deduction by reason of such grant.
2. The optionee generally will recognize ordinary compensation income at
the time of exercise of the NQSO in an amount equal to the excess, if any,
of the fair market value of the shares on the date of exercise over the
exercise price. The Corporation may be required to withhold income tax on
this amount.
3. When the optionee sells the shares acquired through the exercise of a
NQSO, he or she generally will recognize a capital gain or loss in an amount
equal to the difference between the amount realized upon the sale of the
shares and his or her basis in the stock (generally, the exercise price plus
the amount taxed to the optionee as compensation income). If the optionee's
holding period for the shares exceeds one year, such gain or loss will be a
long-term capital gain or loss.
4. The Corporation generally should be entitled to a federal income tax
deduction when compensation income is recognized by the optionee.
5. An optionee may be entitled to exercise a NQSO by delivering shares of
the Corporation's Common Stock to the Corporation in payment of the exercise
price. If an optionee exercises a NQSO in such fashion, special rules will
apply.
6. Special rules apply if the Common Stock acquired through the exercise
of a NQSO is subject to vesting, or is subject to certain restrictions on
resale under federal securities laws applicable to directors, officers or
10% stockholders.
The following general rules are applicable under current federal income tax
law to the grant of Awards and Purchases under the 1991 Plan:
Under current federal income tax law, persons receiving Common Stock
pursuant to an Award or a grant of an opportunity to make a Purchase generally
recognize ordinary compensation income equal to the fair market value of the
shares received, reduced by any purchase price paid. The Corporation
15
generally should be entitled to a corresponding federal income tax deduction.
When such stock is sold, the seller generally will recognize capital gain or
loss. Special rules apply if the stock acquired is subject to vesting, or is
subject to certain restrictions on resale under federal securities laws
applicable to directors, officers or 10% stockholders.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In fiscal 1996, the Corporation entered into a strategic marketing and
business development relationship for certain of the Corporation's technologies
with Bogart Delafield Ferrier. To date, the Corporation has paid to Bogart
Delafield Ferrier in connection with this relationship $70,000 in fees plus
$9,570 for expenses. Bogart Delafield Ferrier is also entitled to royalties of 1
1/2% of the dollar value of any transaction with respect to certain of the
Corporation's technologies initiated with a pharmaceutical or managed care
company after March 12, 1996. No such transaction has been initiated to date.
Dr. Ferrier, a director of the Corporation, is Chief Executive Officer and
Chairman of Bogart Delafield Ferrier.
In August 1996, the Executive Compensation Committee approved a line of
credit in the amount of $250,000 for each of Mr. Wadekar and Dr. Muni, both of
whom are officers and directors of the Corporation. The interest rate on any
loans made by the Corporation to Mr. Wadekar or Dr. Muni under the line of
credit is 6.07% per annum, and such loans are secured by shares of the
Corporation's Common Stock held by the borrower at the time of the loan. To
date, Mr. Wadekar and Dr. Muni have each borrowed $55,000 under the line of
credit.
In October 1996, the Corporation entered into a consulting agreement for the
marketing and business development of certain of its technologies with MS
Capital, LLC. Pursuant to the consulting agreement, the Corporation will pay MS
Capital, LLC a rate of $4,167 per month during the period of October 3, 1996
through September 30, 1997. Dr. Michael Sorell, a director of the Corporation,
is the principal of MS Capital, LLC.
OTHER BUSINESS
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than that stated above. If any other business
should come before the Meeting, votes may be cast pursuant to proxies in respect
to any such business in the best judgment of the person or persons acting under
the proxies.
STOCKHOLDER PROPOSALS
It is contemplated that the next annual meeting of stockholders will be held
on or about January 30, 1998. Proposals of stockholders intended for inclusion
in the proxy statement to be mailed to all stockholders entitled to vote at the
next annual meeting of stockholders of the Corporation must be received at the
Corporation's principal executive offices not later than August 29, 1997. In
order to curtail controversy as to the date on which a proposal was received by
the Corporation, it is suggested that proponents submit their proposals by
Certified Mail, Return Receipt Requested.
AUDITORS FOR FISCAL 1997
The Board of Directors has selected the firm of Wolf & Company, P.C.,
independent certified public accountants, to serve as independent auditors for
the fiscal year ending June 30, 1997. Wolf & Company, P.C. has acted as the
Corporation's auditors commencing with the period ending June 30, 1989. It is
expected that a member of Wolf & Company, P.C. will be present at the Meeting
with the opportunity to make a statement if so desired and will be available to
respond to appropriate questions.
16
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's officers and directors, and persons who own more than ten
percent of a registered class of the Corporation's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and The Nasdaq Stock Market. Officers, directors and greater-
than-ten percent stockholders are required by Securities and Exchange Commission
regulations to furnish the Corporation with all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Corporation believes that during fiscal 1996 all of its officers, directors and
greater-than-ten percent stockholders complied with all Section 16(a) filing
requirements.
EXPENSES AND SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation, and in
addition to soliciting stockholders by mail through its regular employees, the
Corporation may request banks and brokers to solicit their customers who have
stock of the Corporation registered in the name of a nominee and, if so, will
reimburse such banks and brokers for their reasonable out-of-pocket costs. Also,
the Corporation may retain a professional proxy solicitation firm to assist in
the proxy solicitation and, if so, will pay such proxy solicitation firm
customary fees plus expenses. Solicitation by officers and employees of the
Corporation may also be made of some stockholders in person or by mail,
telephone or telegraph, following the original solicitation.
17
SIDE A
DYNAGEN, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
JANUARY 30, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF DYNAGEN, INC.
The undersigned hereby appoints Dhananjay G. Wadekar and Dr. Indu A.
Muni, and each of them alone, proxies, with full power of substitution, to vote
all shares of Common Stock of DynaGen, Inc. (the "Corporation") that the
undersigned is entitled to vote at the Annual Meeting of Stockholders of the
Corporation, to be held on Thursday, January 30, 1997, at 3:00 p.m. at the
offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 20th Floor, 125
High Street, Boston, Massachusetts 02110, and at any adjournments thereof, upon
the matters set forth in the Notice of Annual Meeting of Stockholders and
related Proxy Statement dated December 27, 1996 a copy of which has been
received by the undersigned.
1. To elect a Board of Directors for the ensuing year.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
(except as marked to the nominees listed below:
contrary below):
Dr. Ian R. Ferrier
Steven Georgiev
Dr. Indu A. Muni
Dr. F. Howard Schneider
Dr. Michael Sorell
Dhananjay G. Wadekar
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below:
.
-------------------------------------------------------
2. To consider and act upon a proposal to approve an amendment to
the Corporation's Certificate of Incorporation to increase the
number of authorized shares of Common Stock, $.01 par value
per share ("Common Stock"), from 40,000,000 to 75,000,000
shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To consider and act upon a proposal to approve an amendment to
the Corporation's 1991 Stock Plan to increase the number of
shares of Common Stock of the Corporation authorized to be
issued thereunder from 1,200,000 to 2,600,000 shares and to
permit grants thereunder to comply with Section 162(m) of the
Internal Revenue Code.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To transact such other business as may properly come before
the meeting.
-2-
SIDE B
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF
NO DIRECTION IS GIVEN, WILL BE VOTED FOR THE ELECTION OF DIRECTORS AND FOR THE
PROPOSALS IN ITEMS 2 AND 3, AND AUTHORITY WILL BE DEEMED GRANTED UNDER ITEM 4.
Dated:____________________, 199__
---------------------------------
Signature(s) of Stockholder(s)
---------------------------------
Please Print Name:
(If signing as attorney,
executor, trustee or
guardian, please give your
full title as such. If
stock is held jointly, each
owner should sign.)
