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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
GENEMEDICINE, INC.
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(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):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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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Notes:
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GENEMEDICINE, INC.
8301 New Trails Drive
The Woodlands, TX 77381-4248
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 13, 1997
TO THE STOCKHOLDERS OF GeneMedicine, inc. :
Notice Is Hereby Given that the Annual Meeting of Stockholders of
GeneMedicine, inc., a Delaware corporation (the "Company"), will be held on
Tuesday, May 13, 1997 at 3:00 p.m. local time, at the Company's offices at 8301
New Trails Drive, The Woodlands, Texas, for the following purposes:
1. To elect two directors to serve until the 2000 Annual Meeting of
Stockholders and until their successors are elected.
2. To approve the Company's 1993 Stock Option Plan, as amended, to increase
the aggregate number of shares of Common Stock authorized for issuance under
such plan by 1,400,000 shares.
3. To approve the Company's 1994 Non-Employee Directors' Stock Option Plan,
as amended, to increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 140,000 shares.
4. To ratify the selection of Arthur Andersen LLP as independent auditors of
the Company for its fiscal year ending December 31, 1997.
5. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on March 24, 1997 as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
/s/ Richard A. Waldron
Richard A. Waldron
Vice President, Chief Financial Officer and
Secretary
The Woodlands, Texas
April 9, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK
OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE
RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
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GeneMedicine, inc.
8301 New Trails Drive
The Woodlands, Texas 77381-4248
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
GeneMedicine, inc., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on May 13, 1997, at 3:00 p.m. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at the offices of the Company, 8301 New Trails
Drive, The Woodlands, Texas. The Company intends to mail this proxy statement
and accompanying proxy card on or about April 9, 1997 to all stockholders
entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their names shares of Common Stock beneficially owned
by others to forward to such beneficial owners. The Company may reimburse
persons representing beneficial owners of Common Stock for their costs of
forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or
other regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock and Series B Preferred Stock at the
close of business on March 24, 1997 will be entitled to notice of and to vote at
the Annual Meeting. At the close of business on March 24, 1997, the Company had
outstanding and entitled to vote 13,664,252 shares of Common Stock and 3,750,000
shares of Series B Preferred Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
Each Holder of record of Series B Preferred Stock will be entitled to one vote
for each three and one-half shares held on all matters to be voted upon at the
Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 8301 New
Trails Drive, The Woodlands, TX 77381-4248, a written notice of revocation or a
duly executed proxy bearing a later date, or it may be revoked by attending the
meeting and voting in person. Attendance at the meeting will not, by itself,
revoke a proxy.
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STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company not later
than December 10, 1997 in order to be included in the proxy statement and proxy
relating to that Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Amended and Restated Certificate of Incorporation and By-laws
provide that the Board of Directors shall be divided into three classes,
designated as Class I, Class II and Class III, respectively, each class
consisting, as nearly as possible, of one third of the total number of
directors, with each class having a three-year term. Vacancies on the Board,
including those created by an increase in the number of authorized directors,
may be filled only by persons elected by a majority of the remaining directors.
A director elected by the Board to fill a vacancy (including a vacancy created
by an increase in the number of authorized directors) shall serve for the
remainder of the full term of the class of directors in which the vacancy
occurred and until such director's successor is elected and qualified.
The Board of Directors is presently composed of six members. In March 1996,
Paul E. Freiman resigned from the Board Of Directors, at which time the number
of authorized directors was reduced from seven to six. There are two directors
in the class whose term of office expires in 1997. Each of the nominees for
election to this class is currently a director of the Company who was previously
elected by the stockholders. If elected at the Annual Meeting, each of the
nominees would serve until the 2000 annual meeting and until his successor is
elected and has qualified, or until such director's earlier death, resignation
or removal.
Directors are elected by a plurality of votes present in person or represented
by proxy and entitled to vote at the meeting. Shares represented by executed
proxies will be voted, if authority to do so is not withheld, for the election
of the two nominees named below. In the event that any nominee should be
unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. Each person nominated for election has agreed to serve if elected, and
management has no reason to believe that any nominee will be unable to serve.
Set forth below is biographical information for each person nominated and each
person whose term of office as a director will continue after the Annual
Meeting.
NOMINEES FOR ELECTION FOR A THREE-YEAR TERM EXPIRING AT THE 2000 ANNUAL MEETING
MR. DAVID F.J. LEATHERS, age 54, has been a director of the Company since May
1993. Mr. Leathers has been a director of Abingworth Management Limited, a
venture capital firm based in London, since 1987. Prior to 1987, Mr. Leathers
was an Investment Director at N.M. Rothschild & Sons Limited, a London-based
merchant bank. Mr. Leathers is also a director of several private companies.
Mr. Leathers is a Chartered Accountant in the United Kingdom.
ERIC TOMLINSON, D.SC., PH.D., age 49, one of the Company's founders, has been
President, Chief Executive Officer and a director of the Company since July
1992. Dr. Tomlinson was President and Chief Executive Officer of Somatix
Corporation from February 1990 until 1991, and served as a consultant there from
April 1991 until March 1992. From 1984 to 1990, he was worldwide Head of
Advanced Drug Delivery Research for Ciba-Geigy Pharmaceuticals, where he led its
multidisciplinary program in site-specific drug delivery. From 1979 to 1984,
Dr. Tomlinson was Professor of Pharmaceutical Chemistry at Amsterdam University.
Dr. Tomlinson received a Ph.D.
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and a D.Sc. degree from London University and an honorary D.Sc. degree magna cum
laude from the United Kingdom Council for National Academic Awards. He was a
Fulbright-Hays Scholar and has authored or co-authored more than 210 scientific
publications. Dr. Tomlinson was the 1995 Sidney Riegelman Lecturer at the
University of California, San Francisco.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1998 ANNUAL MEETING
MR. EDWARD L. CAHILL, age 44, has been a director of the Company since
November 1995. Mr. Cahill is a partner of Cahill, Warnock & Company, an asset
management and venture capital firm. He was previously a managing director at
Alex. Brown & Sons Incorporated, where he led the firm's health care investment
banking group. He also is a director of Automated Healthcare, Inc. and the
Maryland Bioprocessing Center. Mr. Cahill earned an A.B. degree from Williams
College and a master's degree in management from Yale University.
MR. ARTHUR M. PAPPAS, age 49, has been a director of the Company since January
1995. Mr. Pappas is Chairman and Chief Executive Officer of A.M. Pappas &
Associates, LLC., an international management and consulting services company
and investor in the high technology life science industries. From 1989 until
1994, Mr. Pappas held executive and board positions with Glaxo Holdings plc, a
pharmaceutical company, where his most recent position was as a member of the
main Board of Directors with responsibilities for operations in Asia Pacific,
Latin America and Canada. Mr. Pappas' 26 years of experience in the health care
industry also includes positions with the pharmaceutical companies of Merrell
Dow Pharmaceuticals and Abbott Laboratories International, Inc. Mr. Pappas is a
member of the Board of Directors of Quintiles Transnational Corp., KeraVision,
Inc., Embrex, Inc., and one private company. Mr. Pappas received a B.S. degree
in Biology from the Ohio State University and a M.B.A. degree in Finance from
Xavier University.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 1999 ANNUAL MEETING
STANLEY T. CROOKE, M.D., PH.D., age 51, has been a director of the Company
since March 1992 and its Chairman of the Board since March 1996. Dr. Crooke has
been Chief Executive Officer and a director of Isis Pharmaceuticals, Inc.
("Isis"), a biotechnology company, since he co-founded Isis in January 1989, and
he has served as Chairman of the Board of Isis since February 1991. From 1980
until January 1989, Dr. Crooke was employed by SmithKline Beckman Corporation
("SmithKline"), a pharmaceutical company, most recently as President of Research
and Development of SmithKline & French Laboratories. Prior to joining
SmithKline, he served as Vice President and Associate Research Director of
Bristol Laboratories, a subsidiary of Bristol-Myers Squibb Company, a
pharmaceutical company. Dr. Crooke is a member of the Board of Directors of
SIBIA Neurosciences, Inc., EPIX Medical Inc., and Biotechnology Industry
Organization. Dr. Crooke received a Ph.D. degree in Pharmacology and an M.D.
degree from Baylor College of Medicine, where he currently serves as Adjunct
Professor of Pharmacology. He is also Adjunct Professor of Pharmacology at the
University of California, San Diego.
W. LEIGH THOMPSON, M.D., PH.D., age 58, has been a director of the Company
since April 1995. Dr. Thompson has been President and Chief Executive Officer
of Profound Quality Resources, Ltd., a consulting firm for health care
companies, since January 1995. From April 1982 through December 1994, Dr.
Thompson was a member of senior management of Lilly Research Laboratories and
Eli Lilly and Company, where his most recent position was as Chief Scientific
Officer. Dr. Thompson is a member of the Board of Directors of Bioanalytical
Systems, Inc., Corvas International, Inc., Chrysalis International Corp., Ergo
Sciences Corp., Guilford Pharmaceuticals Inc., La Jolla Pharmaceutical Co.,
Medarex Inc., and several private companies and institutions. Dr. Thompson was
a Professor of Medicine at Case Western Reserve University from 1974 to 1982 and
is an honorary life member and past president of
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the Society of Critical Care Medicine. Dr. Thompson received his Ph.D. degree
in Pharmacology from the Medical University of South Carolina and his M.D.
degree from The Johns Hopkins University.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1996, the Board of Directors held
six meetings. The Board has an Audit Committee, a Compensation Committee and a
Nominating Committee.
The Audit Committee meets with the Company's independent auditors at least
annually to: review the results of the annual audit and discuss the financial
statements; recommend to the Board the independent auditors to be retained; and
receive and consider the accountants' comments as to controls, adequacy of staff
and management performance and procedures in connection with audit and financial
controls. The Audit Committee is composed of three non-employee directors: Mr.
Leathers, Mr. Pappas and Mr. Cahill. Mr. Cahill was elected to the Audit
Committee in March 1996. Paul E. Freiman served on the Audit Committee until
March 1996. The Audit Committee met one time during the fiscal year ended
December 31, 1996.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The Compensation Committee is composed of three non-employee
directors: Dr. Crooke, Mr. Leathers and Mr. Pappas. The Compensation Committee
met nine times during the fiscal year ended December 31, 1996.
The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Company's Board of Directors and committees
thereof and nominates specific individuals to be elected as officers of the
Company by the Board of Directors. The Nominating Committee is composed of two
members: Dr. Crooke and Dr. Thompson. Dr. Thompson was elected to the
Nominating Committee in March 1996. Mr. Freiman served on the Nominating
Committee until March 1996. During the fiscal year ended December 31, 1996 this
Committee did not meet.
During the fiscal year ended December 31, 1996, all directors attended at
least 75% of the aggregate of the meetings of the Board, and of the committees
on which they served, held during the period for which they were a director or
committee member, respectively.
PROPOSAL 2
APPROVAL OF THE 1993 STOCK OPTION PLAN, AS AMENDED
In April 1993, the Board of Directors adopted, and the stockholders
subsequently approved, the Company's 1993 Stock Option Plan (the "Option Plan").
As a result of one amendment, at December 31, 1996 there were 2,545,714 shares
of the Company's Common Stock authorized for issuance under the Option Plan.
At December 31, 1996, options (net of canceled or expired options) covering an
aggregate of 2,218,171 shares of the Company's Common Stock had been granted
under the Option Plan, and only 327,543 shares (plus any shares that might in
the future be returned to the plan as a result of cancellations or expiration of
options) remained available for future grant under the Option Plan. During the
last fiscal year, under the Option Plan, the Company has granted: to all current
executive officers as a group options to purchase 175,333 shares at exercise
prices of $3.50 to $5.63 per share; to all employees (excluding executive
officers) as a group options to purchase 569,016 shares at exercise prices of
$3.38 to $8.75 per share; and to all current directors who are not officers as a
group options to purchase 40,000 shares at exercise prices of $4.63 to $6.75 per
share. The table under Stock Option Grants and Exercises presents certain
information regarding options granted under the Option Plan to Named Executive
Officers (as defined below) for the year ended December 31, 1996.
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In January 1997, the Board approved an amendment to the Option Plan, subject
to stockholder approval, to enhance the flexibility of the Board and the
Compensation Committee in granting stock options to the Company's employees.
The amendment increases the number of shares authorized for issuance under the
Option Plan from a total of 2,545,714 shares to 3,945,714 shares. The Board
adopted this amendment to ensure that the Company can continue to grant stock
options to employees at levels determined appropriate by the Board and the
Compensation Committee.
In September 1996, the Compensation Committee approved the participation of
one executive officer and one other employee of the Company in an option
exchange program approved by the Board. Under the program, outstanding options
held by these employees having an exercise price of $9.75 were eligible to be
exchanged for new options to purchase an equal number of shares at an exercise
price of $4.625, the fair market value the Company's Common Stock on the
exchange date. In light of the decline in the Company's Common Stock price
since such individuals' options were initially granted, and because the Board
considers options to be a key component of the Company's long-term incentive
program, the Committee determined that such individuals' participation in the
repricing program was necessary in order to retain such individuals.
Stockholders are requested in this Proposal 2 to approve the Option Plan, as
amended. The affirmative vote of the holders of a majority of the shares
present in person or represented by proxy and entitled to vote at the meeting
will be required to approve the Option Plan, as amended.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Option Plan are outlined below:
GENERAL
The Option Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the Option Plan are
intended to qualify as "incentive stock options" within the meaning of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the Option Plan are intended to not qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of incentive and nonstatutory stock options.
PURPOSE
The Option Plan was adopted to provide a means by which selected officers
and employees of and consultants to the Company and its affiliates could be
given an opportunity to purchase stock in the Company, to assist in retaining
the services of employees holding key positions, to secure and retain the
services of persons capable of filling such positions and to provide incentives
for such persons to exert maximum efforts for the success of the Company.
ADMINISTRATION
The Option Plan is administered by the Board of Directors of the Company.
The Board has the power to construe and interpret the Option Plan and, subject
to the provisions of the Option Plan, to determine the persons to whom and the
dates on which options will be granted, the number of shares to be subject to
each option, the time or times during the term of each option within which all
or a portion of such option may be exercised, the exercise price, the type of
consideration and other terms of the option. The Board of Directors is
authorized to delegate administration of the Option Plan to a committee composed
of not fewer than two members of the Board, both of whom shall be non-employee
directors and may, in the discretion of the Board, be "outside directors." See
"Federal Income Tax Information - Potential Limitation on Company Deductions."
The Board has delegated administration of the Option Plan to the Compensation
Committee of the Board. As used herein with respect to the Option Plan, the
"Board" refers to the Compensation Committee as well as to the Board of
Directors itself.
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ELIGIBILITY
Incentive stock options may be granted under the Option Plan only to
employees (including officers) of the Company and its affiliates. Employees
(including officers), directors and consultants are eligible to receive
nonstatutory stock options under the Option Plan.
No option may be granted under the Option Plan to any person who, at the
time of the grant, owns (or is deemed to own) stock possessing more than 10% of
the total combined voting power of the Company or any affiliate of the Company,
unless the option exercise price is at least 110% of the fair market value of
the stock subject to the option on the date of grant, and the term of the option
does not exceed five years from the date of grant. For incentive stock options
granted under the Option Plan, the aggregate fair market value, determined at
the time of grant, of the shares of Common Stock with respect to which such
options are exercisable for the first time by an optionee during any calendar
year (under all such plans of the Company and its affiliates) may not exceed
$100,000. No employee may be granted options under the Option Plan during a
calendar year to purchase in excess of 250,000 shares of Common Stock.
STOCK SUBJECT TO THE OPTION PLAN
If options granted under the Option Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such options
again becomes available for issuance under the Option Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Option Plan. Individual option grants may be more restrictive as to any or
all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the Option Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of nonstatutory options under the Option Plan may not be less
than 85% of the fair market value of the Common Stock subject to the option on
the date of the option grant. At March 31, 1997, the closing price of the
Company's Common Stock as reported on the Nasdaq National Market was $6.25 per
share.
The exercise price of options granted under the Option Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the Option Plan may become
exercisable in cumulative increments ("vest") as determined by the Board.
Shares covered by currently outstanding options under the Option Plan typically
vest in 48 monthly installments starting on the date of grant. Options granted
to new employees are usually exercisable with respect to 20% of the shares
subject to the option on the date of grant, with the remainder of the shares
subject to the option vesting monthly over 48 months. Shares covered by options
granted in the future under the Option Plan may be subject to different vesting
terms. The Board has the power to accelerate the time during which an option
may be exercised. In addition, nonstatutory options granted under the Option
Plan may permit exercise prior to vesting, but in such event the optionee may be
required to enter into an early exercise stock purchase agreement that allows
the Company to repurchase shares not yet vested at their exercise price should
the optionee leave the employ of the Company before vesting. To the extent
provided by the terms of an option, an optionee may satisfy any federal, state
or local tax withholding obligation relating to the exercise of such option by a
cash payment upon exercise, by authorizing the Company to withhold a portion of
the stock otherwise issuable to the optionee, by delivering already-owned stock
of the Company or by a combination of these means.
Term. The maximum term of options under the Option Plan is 10 years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Options under the Option Plan terminate three months after the
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termination of the optionee's employment or relationship as a director or
consultant with the Company or any affiliate of the Company unless (a) the
termination of employment is due to such person's permanent and total disability
(as defined in the Code), in which case the option may, but need not, provide
that it may be exercised at any time within one year of such termination; (b)
the optionee dies while employed by the Company or any affiliate of the Company,
or within 30 days after termination of such employment, in which case the option
may, but need not, provide that it may be exercised (to the extent the option
was exercisable at the time of the optionee's death) within 18 months of the
optionee's death by the person or persons to whom the rights to such option pass
by will or by the laws of descent and distribution; or (c) the option by its
terms specifically provides otherwise. Individual options by their terms may
provide for exercise within a longer period of time following termination of
employment or the consulting relationship. The option term may also be extended
in the event that exercise of the option within these periods is prohibited for
specified reasons.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Option Plan or subject
to any option granted under the Option Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Option Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan and the class, number of shares
and price per share of stock subject to such outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The Option Plan provides that, in the event of a dissolution or liquidation
of the Company, specified type of merger or other corporate reorganization, to
the extent permitted by law, any surviving corporation will be required to
either assume options outstanding under the Option Plan or substitute similar
options for those outstanding under such plan, or such outstanding options will
continue in full force and effect. In the event that any surviving corporation
declines to assume or continue options outstanding under the Option Plan, or to
substitute similar options, then the time during which such options may be
exercised will be accelerated and the options terminated if not exercised during
such time. The acceleration of an option in the event of an acquisition or
similar corporate event may be viewed as an anti-takeover provision, which may
have the effect of discouraging a proposal to acquire or otherwise obtain
control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Option Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the Option Plan will terminate on April 8, 2003.
The Board may also amend the Option Plan at any time or from time to time.
However, no amendment will be effective unless approved by the stockholders of
the Company within 12 months before or after its adoption by the Board if the
amendment would: (a) modify the requirements as to eligibility for participation
(to the extent such modification requires stockholder approval in order for the
Option Plan to satisfy Section 422 of the Code; (b) increase the number of
shares reserved for issuance upon exercise of options; or (c) change any other
provision of the Option Plan in any other way if such modification requires
stockholder approval in order to satisfy the requirements of Section 422 of the
Code.
RESTRICTIONS ON TRANSFER
Under the Option Plan, an option may not be transferred by the optionee
other than by will or by the laws of descent and distribution. During the
lifetime of an optionee, an option may be exercised only by the optionee. In
addition, shares subject to repurchase by the Company under an early exercise
stock purchase agreement may be subject to restrictions on transfer which the
Board deems appropriate.
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FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the Option Plan are
intended to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive stock
option for more than two years from the date on which the option is granted and
more than one year from the date on which the shares are transferred to the
optionee upon exercise of the option, any gain or loss on a disposition of such
stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The
optionee's additional gain, or any loss, upon the disqualifying disposition will
be a capital gain or loss which will be long-term or short-term depending on
whether the stock was held for more than one year. Long-term capital gains
currently are generally subject to lower tax rates than ordinary income. The
maximum long-term capital gains rate for federal income tax purposes is
currently 28%, while the maximum ordinary income rate is effectively 39.6% at
the present time. Slightly different rules may apply to optionees who are
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under the
Option Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be long
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
Potential Limitation on Company Deductions. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m), which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1,000,000 for a covered employee. It is possible that
compensation attributable to stock options, when combined with all other types
of compensation received by a covered employee from the Company, may cause this
limitation to be exceeded in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option
8
<PAGE>
is granted by a compensation committee comprised solely of "outside directors"
and either: (i) the option plan contains a per-employee limitation on the number
of shares for which options may be granted during a specified period, the per-
employee limitation is approved by the stockholders, and the exercise price of
the option is no less than the fair market value of the stock on the date of
grant; or (ii) the option is granted (or exercisable) only upon the achievement
(as certified by the compensation committee) of an objective performance goal
established in writing by the Compensation Committee while the outcome is
substantially uncertain, and the option is approved by the stockholders.
The Option Plan includes the per-employee limitation described above so
that the Company may generally continue to deduct as a business expense (subject
to the requirements of reasonableness) compensation attributable to the exercise
of stock options under the Option Plan.
PROPOSAL 3
APPROVAL OF THE 1994 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN, AS AMENDED
In March 1994, the Board of Directors adopted, and the stockholders
subsequently approved, the 1994 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") to provide for the automatic grant of options to purchase
shares of Common Stock to non-employee directors of the Company. At December
31, 1996, there were 250,000 shares of the Company's Common Stock authorized for
issuance under the Directors' Plan.
At December 31, 1996, options (net of canceled or expired options) covering
an aggregate of 142,500 shares of the Company's Common Stock had been granted
under the Directors' Plan, and only 107,500 shares (plus any shares that might
in the future be returned to the plans as a result of cancellations or
expiration of options) remained available for future grant under the Directors'
Plan. During the last fiscal year, under the Directors' Plan, the Company has
granted to all non-employee directors as a group options to purchase 20,000
shares at an exercise price of $6.25 per share.
In January 1997, the Board approved an amendment to the Directors' Plan,
subject to stockholder approval, to increases the number of shares authorized
for issuance under the Directors' Plan from a total of 250,000 shares to 390,000
shares. The Board adopted this amendment to ensure that the Company would be
able to continue attract, retain and motivate non-employee directors of the
caliber required for the continued success of the Company.
Stockholders are requested in this Proposal 3 to approve the Directors'
Plan, as amended. The affirmative vote of the holders of a majority of the
shares present in person or represented by proxy and entitled to vote at the
meeting will be required to approve the Directors' Plan, as amended.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the Directors' Plan, as amended, are outlined
below:
GENERAL
Options granted under the Directors' Plan are not intended to qualify as
incentive stock options, as defined under Section 422 of the Code. See "Federal
Income Tax Information" below for a discussion of the tax treatment of such
options.
PURPOSE
The purpose of the Directors' Plan is to assist the Company in the
recruitment, retention and motivation of non-employee directors. The Directors'
Plan offers a significant incentive to non-employee directors of the Company
9
<PAGE>
by enabling them to acquire the Company's Common Stock, thereby increasing their
proprietary interest in the growth and success of the Company.
ADMINISTRATION
The Directors' Plan is administered by the Board of Directors. The Board
of Directors has the final power to construe and interpret the Directors' Plan
and options granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board of Directors is authorized to
delegate administration of the Directors' Plan to a committee of one or more
members of the Board. The Board of Directors does not presently contemplate
delegating administration of the Directors' Plan to any committee of the Board.
ELIGIBILITY
The Directors' Plan provides that options may be granted only to non-
employee directors of the Company. A "non-employee director" is defined in the
Directors' Plan as a director of the Company and its affiliates who is not
otherwise an employee of the Company or any affiliate. Five of the Company's
six current directors (all except Dr. Tomlinson) are eligible to participate in
the Directors' Plan.
Option grants under the Directors' Plan are non-discretionary. Each person
who becomes a non-employee director of the Company shall, upon the date of
initial election as a non-employee director, be granted an option to purchase
30,000 shares of Common Stock of the Company. In addition, annually on April
26th, each non-employee director who has been a non-employee director for at
least six months shall be granted an option to purchase 5,000 shares of Common
Stock of the Company.
TERMS OF OPTIONS
Each option under the Directors' Plan is subject to the following terms and
conditions:
Option Exercise. Each option granted under the Directors' Plan vests in
four equal annual installments, with the first installment vesting on the first
anniversary of the date of grant. Such vesting is conditioned upon continued
service as a director, employee or consultant. An option granted under the
Directors' Plan may be exercised by giving written notice of exercise to the
Company, specifying the number of full shares of Common Stock to be purchased
and tendering payment of the purchase price to the Company.
Exercise Price; Payment. The exercise price of options granted under the
Directors' Plan shall be equal to 100% of the fair market value of the Common
Stock subject to such options on the date such option is granted. The exercise
price of options granted under the Directors' Plan may be paid in cash or by
delivery of shares of Common Stock of the Company that have been held for the
period required to avoid a charge to the earnings of the Company. Any shares so
surrendered shall be valued at their fair market value on the date of exercise.
Transferability; Term. Under the Directors' Plan, an option may not be
transferred by the optionee, except by will or the laws of descent and
distribution. During the lifetime of an optionee, an option may be exercised
only by the optionee. No option granted under the Directors' Plan is
exercisable by any person after the expiration of 10 years from the date the
option is granted.
Other Provisions. The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Directors' Plan as may be
determined by the Board of Directors.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the Directors' Plan or
subject to any option granted under the Directors' Plan (through merger,
consolidation, reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend, combination of
shares, exchange of shares, change in corporate structure or otherwise), the
Directors' Plan and options outstanding thereunder will be appropriately
adjusted as to
10
<PAGE>
the class and the maximum number of shares subject to such plan and the class,
number of shares and price per share of stock subject to such outstanding
options.
In the event of a dissolution or liquidation of the Company, a merger or
consolidation in which the Company is not the surviving corporation, a reverse
merger in which the Company is the surviving corporation by the shares of the
Company's Common Stock outstanding immediately preceding the merger were
converted by virtue of the merger into other property, or any capital
reorganization in which more than 50% of the shares of the Company entitled to
vote are exchanged, the vesting of any outstanding options under the Directors'
Plan shall accelerate and such options shall terminate if unexercised prior to
the occurrence of the event. The acceleration of an option in the event of an
acquisition or similar corporate event may be viewed as an anti-takeover
provision, which may have the effect of discouraging a proposal to acquire or
otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may amend, suspend or terminate the Directors' Plan at any time
or from time to time; provided, however, that the Board may not amend the
Directors' Plan with respect to the amount, price or timing of grants more often
than once every six months. No amendment will be effective unless approved by
the stockholders of the Company within 12 months before or after its adoption by
the Board if the amendment would increase the number of shares reserved for
options under the Directors' Plan. Unless sooner terminated, the Directors'
Plan will terminate in March 2004.
FEDERAL INCOME TAX INFORMATION
Options granted under the Directors' Plan generally have the following
federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of an option under the Directors' Plan. Upon exercise of such option,
the optionee normally will recognize taxable ordinary income equal to the excess
of the stock's fair market value on the date of exercise over the option
exercise price. Upon disposition of the stock, the optionee will recognize a
capital gain or loss equal to the difference between the selling price and the
sum of the amount paid for such stock plus any amount recognized as ordinary
income upon exercise of the option. Such gain or loss will be long or short-term
depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who are subject to Section
16(b) of the Exchange Act. Shares acquired upon the exercise of a nonstatutory
stock option by an optionee subject to Section 16(b) of the Exchange Act will be
deemed to be subject to a risk of forfeiture only if the option is exercised
within six months of the date of grant of the option. Generally, if shares are
subject to a substantial risk of forfeiture, the date on which the ordinary
income is measured and recognized is delayed until the risk of forfeiture
lapses, unless, within 30 days of exercise, the optionee elects otherwise.
Because options granted under the Directors' Plan generally cannot be exercised
earlier than one year after the date of grant, it is unlikely that shares
acquired under the Directors' Plan will be treated as subject to a risk of
forfeiture. In addition, it appears that the Internal Revenue Service takes the
position that shares acquired more than six months after the option is granted
are not treated as subject to a risk of forfeiture even if the shares cannot be
sold immediately, due to a prior "purchase" under Section 16(b) of the Exchange
Act.
PROPOSAL 4
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Arthur Andersen LLP as the Company's
independent auditors for the fiscal year ending December 31, 1997 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Arthur Andersen LLP
has audited the Company's financial statements since its inception in 1992.
Representatives of Arthur Andersen LLP are expected to be present
11
<PAGE>
at the Annual Meeting, will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Arthur Andersen LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Arthur Andersen
LLP to the stockholders for ratification as a matter of good corporate practice.
If the stockholders fail to ratify the selection, the Audit Committee and the
Board will reconsider whether or not to retain that firm. Even if the selection
is ratified, the Audit Committee and the Board in their discretion may direct
the appointment of different independent auditors at any time during the year if
they determine 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 shares present in
person or represented by proxy and entitled to vote at the Annual Meeting will
be required to ratify the selection of Arthur Andersen LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
12
<PAGE>
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of February 4, 1997 by: (i) each
director and nominee for director; (ii) each of the "Named Executive
Officers"(as defined below); (iii) all executive officers and directors of the
Company as a group; and (iv) all those known by the Company to be beneficial
owners of more than five percent of its Common Stock.
BENEFICIAL OWNERSHIP (1)
------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- ---------------- ---------- ----------
Syntex Corporation
Calle 50, 9th floor
Panama, Republic of Panama (2) 2,142,856 13.6%
Corange International Limited
22 Church Street
Hamilton, Bermuda (3) 1,396,406 9.5%
Abingworth Bioventures
c/o Sanne & Cie
Boite Postale 566
L-2015 Luxembourg (4) 1,192,144 8.1%
David Blech
225 Lafayette Street
New York, NY 10012 (5) 1,040,333 7.0%
Biotechnology Investment Group, L.L.C.
1055 Washington Blvd
Stamford, CT 06901 (6) 1,039,776 7.1%
Edward L. Cahill 7,500 *
Stanley T. Crooke (7) 31,696 *
David F.J. Leathers (4)(7) 1,199,866 8.2%
Arthur M. Pappas (7) 17,000 *
Thomas H. Rossing (7) 33,360 *
Kathryn N. Stankis (7) 44,925 *
W. Leigh Thompson (7) 7,500 *
Eric Tomlinson (7) 343,426 2.3%
Richard A. Waldron (7) 33,754 *
All executive officers and directors
as a group (10 persons) (8) 1,768,808 11.8%
- --------------------
* Less than 1 percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G filed with the Securities
and Exchange Commission (the "SEC"). Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, the Company believes that each of the stockholders named in
this table has sole voting and investment power with respect to the shares
indicated as beneficially owned. Applicable percentages are based on
14,699,082 shares outstanding on February 4, 1997, (assuming conversion of
the outstanding shares of the Company's Series B Preferred Stock) adjusted
as required by rules promulgated by the SEC.
(2) Includes (i) 3,750,000 shares of Series B Preferred Stock reflected on an
as converted basis, at a conversion rate of one (1) share of Common Stock
for each three and one-half (3.5) shares of Series B Preferred Stock (for
an aggregate of 1,071,428 shares of Common Stock) and (ii) 1,071,428 shares
of Common Stock issuable upon exercise of a warrant that expires in April
1999. Syntex Corporation is a wholly owned subsidiary of Roche Capital
Corporation, a Panamanian corporation, which in turn is a wholly owned
subsidiary of Sapac Corporation Limited ("Sapac"). Sapac is incorporated
as a non-resident corporation
13
<PAGE>
under the laws of the Province of New Brunswick, Canada with its principal
executive offices in Uruguay. Sapac is, in turn, a wholly owned subsidiary
of Roche Holding Ltd, a Swiss corporation ("Holding"). Dr. Paul Sacher, an
individual and citizen of Switzerland has, pursuant to an agreement, the
power to vote a majority of the voting securities of Holding. The business
address of Dr. Sacher is Haus auf Burg, Muensterplatz 4, Basel 4051,
Switzerland.
(3) Corange has agreed to invest $20 million in the common equity of the
Company at $4 million per year. The first three $4 million equity
investments were made in July 1995, February 1996 and February 1997 in
which 444,444, 418,629 and 533,333 shares of Common Stock were issued at
$9.00, $9.56 and $7.50 per share, respectively. All future equity payments
to the Company are subject to the achievement of certain milestones.
(4) David F.J. Leathers, a director of the Company, is a Director of Abingworth
Management Limited, the investment advisor to Abingworth Bioventures. Mr.
Leathers is a shareholder of Abingworth Bioventures, but not an officer or
director thereof. Mr. Leathers disclaims beneficial ownership of all such
shares except to the extent of his shareholder interest therein.
(5) Includes 133,333 shares issuable upon exercise of warrant.
(6) Includes (i) 974,771 shares in which investment and voting authority is
shared with The Edward Blech Trust and The Wilmington Trust as voting
trustee, (ii) 40,714 shares held by Schroders Incorporated ("Schroders"),
and (iii) 24,291 shares issuable upon exercise of warrants. Collinson Howe
Venture Partners, Inc. ("CHVP") is the Managing Member of Biotechnology
Investment Group, L.L.C. CHVP also advises Schroders under advisory
agreements and shares investment and voting power over the shares held by
Schroders.
(7) Includes shares which certain executive officers and directors of the
Company have the right to acquire within 60 days after the date of this
table pursuant to outstanding options as follows: Edward L. Cahill, 7,500
shares; Stanley T. Crooke, 13,125 shares; David F.J. Leathers, 7,722
shares; Arthur M. Pappas, 15,000 shares; Thomas H. Rossing, 23,360; Kathryn
N. Stankis, 37,237 shares; W. Leigh Thompson, 7,500 shares; Eric Tomlinson,
171,569 shares; Richard A. Waldron, 30,056 shares; and all executive
officers and directors as a group, 321,827 shares.
(8) Includes shares described in notes (4), and (7) above.
COMPLIANCE WITH THE REPORTING REQUIREMENTS OF SECTION 16(A)
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
14
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
During 1996, each non-employee director of the Company received a per
meeting fee of $2,000 (plus $500 for each committee meeting attended by
committee members). In the fiscal year ended December 31, 1996, non-employee
directors as a group received $78,000 in cash compensation for service on the
Board of Directors and committees thereof. The members of the Board of
Directors are also eligible for reimbursement for their expenses incurred in
connection with attendance at Board meetings in accordance with Company policy.
In August 1995, the Company entered into a consulting agreement with
A.M. Pappas & Associates, Inc. ("AMP&A"). Mr. Pappas, a director of the
Company, is Chairman and Chief Executive Officer of AMP&A. The consulting
agreement requires the Company to pay AMP&A at defined rates for each day of
consulting work in the United States and in international markets. In addition,
the Company shall pay AMP&A fees for successfully arranging transactions between
the Company and third parties. During 1996, the Company paid $20,300 under this
agreement.
Non-employee directors of the Company are eligible to receive stock
option grants under the Directors' Plan. Only non-employee directors of the
Company or an affiliate (as defined in the Code) of the Company are eligible to
receive options under the Directors' Plan. The principal terms of the Directors'
Plan are described in Proposal 3.
COMPENSATION OF EXECUTIVE OFFICERS
The following table provides certain summary information concerning
compensation paid to, or earned by, during the last three years to the Company's
Chief Executive Officer and to each of the other executive officers of the
Company, determined as of the end of the last fiscal year whose annual
compensation exceeded $100,000 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
-------------- -------------
Securities
Name and Principal Salary Bonus Underlying All Other
Position Year ($) ($) Options(#)(!) Compensation(2)
- ------------------ ---- ------- ------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Dr. Eric Tomlinson 1996 282,850 - 40,000 -
President and Chief 1995 258,750 - 20,000 7,835
Executive Officer 1994 215,000 45,000 50,000 -
Dr. Thomas H. Rossing 1996 112,931 50,000 100,000 62,097
Vice President, Clinical
Development & Regulatory
Affairs(3)
Mr. Richard A. Waldron 1996 167,842 - 88,333(5) 20,890
Vice President and Chief 1995 71,634 15,000 - 38,549
Financial Officer(4)
Ms. Kathryn N. Stankis 1996 126,998 - 10,000 -
Vice President, Human 1995 122,253 - 5,500 3,424
Resources 1994 105,724 10,000 21,428 -
</TABLE>
15
<PAGE>
1. The principal terms of the Option Plan are set forth in Proposal 2.
2. During 1995, Dr. Tomlinson, Mr. Waldron and Ms. Stankis received relocation
assistance allowance of $7,835, $38,549 and $3,424, respectively, in connection
with moves to The Woodlands. During 1996, Dr. Rossing and Mr. Waldron received
relocation assistance of $62,097 and $38,549, respectively.
3. Dr. Rossing joined the Company as Vice President, Clinical Development &
Regulatory Affairs in July 1996 at an annual salary of $235,000.
4. Mr. Waldron joined the Company as Vice President and Chief Financial Officer
in July 1995 at an annual salary of $150,000.
5. Includes options repriced in 1996 of 80,000 shares.
STOCK OPTION GRANTS AND EXERCISES
The Company grants options to its executive officers under its Option
Plan. As of December 31, 1996, options to purchase a total of 1,733,265 shares
were outstanding under the Plan and options to purchase 327,543 shares remained
available for grant thereunder.
The following tables show for the fiscal year ended December 31, 1996,
certain information regarding options granted to, exercised by and held at year
end by the Named Executive Officers:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION> Potential
Realizable Value at
% of Assumed Annual
Total Options Appreciation
Granted to Rates of Stock Price
Number of Employees Exercise for Option Term (2)(3)
Options in Fiscal Price Expiration ------------------------
Name Granted(#) Year (1) ($/Sh) Date 5% ($) 10% ($)
---- --------- --------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Dr. Tomlinson 40,000 5.1% 3.813 07/01/06 95,919 243,078
Dr. Rossing 100,000 12.7% 4.00 07/16/06 251,558 637,497
Mr. Waldron 80,000(4) 10.2% 4.625 07/10/05 203,991 502,441
8,333 1.1% 4.00 07/10/06 20,962 53,123
Ms. Stankis 5,000 0.6% 5.625 07/01/06 17,688 44,824
5,000 0.6% 4.625 07/12/06 14,543 36,855
</TABLE>
- --------------------
(1) Based on 784,349 options granted in 1996, including grants to executive
officers.
(2) The potential realizable value is calculated based on the terms of the
option at its time of grant (10 years in the case of all options except for the
80,000 option grant to Mr. Waldron which is based on nine years ). It is
calculated by assuming that the stock price on the date of grant appreciates at
the indicated annual rate, compounded annually for the entire term of the option
and that the option is exercised and sold on the last day of its term for the
appreciated stock price.
(3) Appreciation of options repriced in 1996 is calculated from the date of
exchange to the date of expiration.
(4) Represents options repriced in 1996.
16
<PAGE>
AGGREGATED OPTION EXERCISES IN 1996 AND 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)(1)
-------------- ---------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($)(1) Unexercisable Unexercisable
- ---- --------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Dr. Tomlinson 9,000 49,613 155,771/88,086 632,402/180,485
Dr. Rossing -- -- 28,362/71,638 47,861/120,889
Mr. Waldron -- -- 25,824/62,509 28,105/70,957
Ms. Stankis 3,200 17,640 33,649/22,935 128,761/40,215
</TABLE>
- -----------------
(1) Fair market value of the Company's Common Stock at December 31, 1996
($5.6875 per share) minus the exercise price of the options.
EMPLOYMENT AGREEMENTS AND CHANGE-IN CONTROL ARRANGEMENTS
In July 1992, the Company and Dr. Tomlinson entered into an employment
agreement providing for an annual base salary of $165,000, subject to annual
review by the Board of Directors. The agreement has an initial term of four
years and renews automatically each year thereafter. If Dr. Tomlinson's
employment is terminated without cause prior to the expiration of the agreement,
the Company will be obligated to pay him one-half of his then current salary on
the date of such termination.
In June 1995, the Company entered into an employment agreement with Richard
A. Waldron providing for an annual base salary of $150,000, subject to annual
review. Upon signing of the agreement, the Company paid Mr. Waldron the sum of
$10,000. To offset dual mortgages, the Company also paid Mr. Waldron $2,500 per
month, for six months in 1995. The agreement has an initial term of four years
and will renew automatically each year thereafter. If the Company terminates Mr.
Waldron's agreement prior to the expiration of the agreement, the Company will
be obligated to pay Mr. Waldron's salary and benefits for a period of three
months following the date of termination in consideration of his covenant not to
compete with the Company for six months from the date of termination.
In June 1996, the Company entered into an employment agreement with Dr.
Thomas H. Rossing providing for an annual base salary of $235,000, subject to
annual review. Upon signing of the agreement, the Company paid Dr. Rossing the
sum of $50,000. In addition, the Company will be obligated to pay Dr. Rossing
$25,000 after one year of employment and $25,000 after the second year of
employment. If the Company terminates Dr. Rossing's employment without cause
(as defined in the agreement) within two years of the effective date of his
employment, the Company will be obligated to pay Dr. Rossing $200,000. In
addition to the foregoing, Dr. Rossing is eligible to receive the benefits
stated in the Company's Change-of-Control Severance Plan.
In May 1996, The Board adopted the Company's Change-of-Control Severance
Plan for its employees, including executive officers (the "Severance Plan"). An
Eligible Employee is eligible for benefits under the Severance Plan if, within
12 months of a Change of Control, such Eligible Employee's employment with the
Company is (i) voluntarily terminated for Good Reason or (ii) involuntarily
terminated for a reason other than Cause.
17
<PAGE>
Benefits payable under the Severance Plan generally include: (i) a cash
payment equal to up to 12 months of an Eligible Employee's base pay in effect
prior to termination, such payment based upon (A) the length of time such
employee was employed by the Company, (B) the position held at termination and
(C) whether such employee has been designated a "Key Employee;" (ii)
acceleration of vesting of a portion of the options held by an Eligible
Employee, depending upon the length of time such employee was employed by the
Company; and (iii) continuation of certain health, vision and dental benefits.
An "Eligible Employee" is defined in the Severance Plan to include all
full-time regular employees of the Company who are not otherwise excluded from
participating in the Severance Plan.
A "Change of Control" is defined in the Severance Plan to include: (i) a
dissolution or liquidation of the Company; (ii) a merger or consolidation in
which the Company is not the surviving corporation in which the Company's
stockholders immediately prior to the transaction do not hold beneficial
ownership of at least 50% of the outstanding voting shares of the new or
continuing corporation, (iii) a reverse merger in which the Company is the
surviving corporation but the shares of the Company's Common Stock outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise; (iv) at
least a majority of the outstanding corporate shares of the Company are sold,
exchanged or otherwise disposed of, in one transaction or a series of related
transactions and the Company's stockholders immediately prior to such
transaction or transactions do not hold beneficial ownership of at least 50% of
the outstanding voting shares of the Company or of the ownership interests of
the entity for which such shares of the Company were exchanged (taking into
account only such shareholders' ownership of the Company prior to the time such
transaction or transactions commenced); or (v) the Company sells all or
substantially all of its assets to a single purchaser or to a group of
associated purchasers.
"Good Reason" is defined in the Severance Plan to include: (i) a reduction
of the Eligible Employee's rate of compensation (base salary and bonus) as in
effect immediately prior to the effective date of a Change of Control; (ii)
except as permitted under any employment contract with the Eligible Employee, a
change in the Eligible Employee's responsibilities, authority, titles or offices
resulting in diminution of position, with certain exceptions; (iii) a request
that the Eligible Employee relocate to a worksite that is more than twenty-five
(25) miles from his or her prior worksite, unless the employee accepts such
relocation opportunity, or to be absent from such regular place of employment on
travel status or otherwise to a greater degree than was customary during the six
(6) month period immediately preceding the effective date of a Change of
Control; (iv) except as permitted under any employment contract with the
Eligible Employee, a material reduction in duties; (v) a failure or refusal of
the successor company to assume the Company's obligations under the Severance
Plan; or (vi) material breach by the Company or any successor to the Company of
any of the material provisions of the Severance Plan.
"Cause" is defined in the Severance Plan to mean: (i) conviction of, a
guilty plea with respect to, or a plea of nolo contendere to a charge that the
Eligible Employee has committed a felony under the laws of the United States or
of any state, or a crime involving moral turpitude, including, but not limited
to, fraud, theft, embezzlement or any crime that results in or is intended to
result in personal enrichment at the expense of the Company; (ii) material
breach of any agreement entered into between the Eligible Employee and the
Company that impairs the Company's interest therein; (iii) willful misconduct or
gross neglect by the Eligible Employee of the Eligible Employee's duties; or
(iv) engagement in any activity that constitutes a material conflict of interest
with the Company.
The Severance Plan terminates on May 17, 2000. The Board may extend the
term of the Severance Plan or amend or discontinue the Severance Plan at any
time, provided that, for the 12 month period following a Change of Control, the
Severance Plan may not be amended and no Eligible Employee may be reclassified
in any manner that would adversely affect the interests of the Eligible
Employees, except with the written consent of the Eligible Employee or Eligible
Employees so affected. No amendment or termination of the Severance Plan shall
affect the right to any unpaid benefit of any Eligible Employee whose
termination date has occurred prior to amendment or termination of the Severance
Plan.
18
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION (1)
During 1996, the Compensation Committee of the Board of Directors was
composed of Stanley T. Crooke, M.D., Ph.D., David F.J. Leathers and Arthur M.
Pappas. The Committee is responsible for establishing and maintaining the
Company's policies governing employee compensation and administrating the
Company's employee benefit plans, including the Company's 401-K Plan, the Option
Plan and the Employee Stock Purchase Plan.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, awards stock options to employees and consultants under
the Company's stock option plans and otherwise determines compensation levels
and performs such other functions regarding compensation as the Board may
delegate. The goal of the Compensation Committee is to align compensation with
the Company's business objectives and performance in order to enable the Company
to attract, retain and reward executive officers and other key employees who
contribute to the long-term success of the Company and to motivate them to
enhance long-term stockholder value. Key elements of this philosophy are:
. The Committee endeavors to establish compensation that is competitive with
leading biotechnology companies with which the Company competes for talent.
To ensure that pay is competitive, the Committee regularly compares its pay
practices with these companies and sets its pay parameters based on this
review.
. The Company maintains annual incentive payment opportunities sufficient to
provide motivation to achieve specific operating goals and to generate
rewards that bring total compensation to competitive levels.
. The Company provides significant equity-based incentives for executives and
other key employees to ensure that they are motivated over the long term to
respond to the Company's business challenges and opportunities.
The Committee annually reviews each executive officer's compensation.
When reviewing compensation, the Committee considers individual and corporate
performance against specified Company objectives and the Committee's subjective
evaluation of their performance, levels of responsibility, prior experience,
breadth of knowledge and competitive pay practices.
During 1996, the Committee retained Radford Associates/Alexander &
Alexander Consulting Group to conduct a comprehensive review of base salaries
and incentive compensation of all employees, including executive officers, as
compared to biotechnology companies of similar size and status, both nationally
and regionally. The group of similar companies is not necessarily the same as
the companies included in the market indices included in the performance graph
in this proxy statement. The Company has implemented broad banding of
salaries/positions. Broad banding clusters jobs or tiers of positions within
broad salary bands. The Company believes that broad banding will give it the
both the flexibility to recruit scientists from diverse disciplines and the
ability to move high-performers along their bands at appropriate rates.
At the start of each year, the Committee meets to review and approve the
annual performance objectives for the Company and individual officers. The
Company objectives consist of operating, strategic and financial goals that are
considered to be critical to the Company's fundamental long-term goal: building
stockholder value. The Committee evaluates each officer's contribution to
achievement of Company objectives as well as individual performance and
determines salary and bonus levels, within the applicable band, on the basis of
such evaluation.
The Option Plan and the Employee Stock Purchase Plan enable the Company to
provide employees with equity incentives that further align the interests of
stockholders and management by encouraging employees to participate in
the building of long-term value in the Company. New options are granted to
employees on an annual basis and include
- -----------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933 or the Securities Exchange Act of 1934 whether
made before or after the date hereof and irrespective of any general
incorporation language in any such filing.
19
<PAGE>
vesting periods (generally over four years) to provide continuing financial
incentives. Options are generally granted with exercise prices equal to the
fair market value on grant date. The size of option grants to an individual is
based on the individual's position within the Company and performance in the
past year.
Section 162(m) of the Code limits the Company to a deduction for federal
income tax purposes of no more than $1 million of compensation paid to certain
Named Executive Officers in a taxable year. Compensation above $1 million may
be deducted if it is "performance-based compensation" within the meaning of the
Code. The statute containing this law and the applicable Treasury regulations
offer a number of transitional exceptions to this deduction limit for pre-
existing compensation plans, arrangements and binding contracts. As a result,
the Compensation Committee believes that at the present time it is quite
unlikely that the compensation paid to any Named Executive Officer in a taxable
year which is subject to the deduction limit will exceed $1 million. Therefore,
the Compensation Committee has not yet established a policy for determining
which forms of incentive compensation awarded to its Named Executive Officers
shall be designed to qualify as "performance-based compensation." The
Compensation Committee intends to continue to evaluate the effects of the
statute and the Treasury regulations and to comply with Code Section 162(m) in
the future to the extent consistent with the best interests of the Company.
The Committee bases the compensation of the Chief Executive Officer, Dr.
Tomlinson, in large part upon the Company's performance, while taking into
account the compensation practices of competitive companies of comparable size
in the biotechnology industry. The Company made significant progress during
1996 including: (i) the filing of the Company's first two corporate
Investigational New Drug Applications with the U.S. Food and Drug
Administration, (ii) the awarding of five Small Business Innovation Research
Grants from the National Institutes of Health, (iii) significant additions to
strengthen the Company's management team, and (iv) continued progress in the
development of the Company's non-viral gene therapy technologies and the
expansion of product opportunities. In light of the achievement of Company
objectives, salaries paid and stock options granted to persons in similar
positions at similarly situated companies, and Dr. Tomlinson's contributions
during his annual review period ended July 1, 1996, the Committee authorized a
base salary of $298,200, which included a 4% merit increase and a $20,000 salary
adjustment over the prior year. The Committee also unanimously approved a total
option grant of 40,000 shares, that included a performance option grant of
20,000 shares and an adjustment option grant of 20,000 shares for Dr. Tomlinson.
In September 1996, the Compensation Committee approved the participation of
one executive officer and one other employee of the Company in an option
exchange program approved by the Board. Under the program, outstanding options
held by these employees having an exercise price of $9.75 were eligible to be
exchanged for new options to purchase an equal number of shares at an exercise
price of $4.625, the fair market value of the Company's Common Stock on the
exchange date. In light of the decline in the Company's Common Stock price
since such individuals' options were initially granted, and because the Board
considers options to be a key component of the Company's long-term incentive
program, the Committee determined that such individuals' participation in the
repricing program was necessary in order to retain such individuals.
The following table shows certain information concerning the repricing of
options received by the Named Executive Officers during the last ten years:
<TABLE>
<CAPTION>
Market Price Exercise Length of Original
Number of of Stock at Price at New Option Term
Options Time of Time of Exercise Remaining at
Name Date Repriced Repricing($) Repricing($) Price ($) Date of Repricing
- ---- -------- ------------ ----------- -------------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Waldron 9/4/96 80,000 $4.625 $9.75 $4.625 9 years
Vice President and
Chief Financial Officer
Stanley T. Crooke, M.D., Ph.D.
David F.J. Leathers
Arthur M. Pappas
</TABLE>
20
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, the Company's Compensation Committee consists of Dr.
Crooke, Mr. Leathers and Mr. Pappas. No executive officer of the Company is a
member of the Compensation Committee. There are no interlocks between the
members of the Compensation Committee and the executive officers of the Company.
PERFORMANCE MEASUREMENT COMPARISON
The following graph shows the cumulative total stockholder return of an
investment of $100 in cash for the period from July 13, 1994 (the effective date
of the Company's Initial Public Offering) to December 31, 1996 for (i) the
Company's Common Stock, (ii) the Nasdaq Stock Market Index (U.S.) and (iii) the
Nasdaq Pharmaceutical Stock Index. All values assume reinvestment of the full
amount of all dividends:
COMPARISON OF TOTAL CUMULATIVE RETURN ON INVESTMENT
[Graph appears here]
<TABLE>
<CAPTION>
7/12/1994 9/30/94 12/31/94 3/31/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96 9/30/96 12/31/96
--------- ------- -------- ------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GMED............ 100 55 42 72 112 127 102 80 75 55 76
NASDAQ US....... 100 108 107 117 133 150 151 158 171 177 186
NASDAQ PHARMA... 100 113 106 114 133 166 193 201 196 200 194
</TABLE>
This report is not "soliciting material," is not deemed "filed" with the SEC and
is not to be incorporated by reference into any filing of the Company under the
Securities Act of 1933 or the Exchange Act whether made before or after the date
hereof and irrespective of any general incorporation language in any such
filing.
21
<PAGE>
CERTAIN TRANSACTIONS
In August 1995, the Company entered into a consulting agreement with A.M.
Pappas & Associates, Inc. ("AMP&A"). Mr. Pappas, a director of the Company, is
Chairman and Chief Executive Officer of AMP&A. The consulting agreement
requires the Company to pay AMP&A at defined rates for each day of consulting
work in the United States and in international markets. In addition, the
Company shall pay AMP&A fees for successfully arranging transactions between the
Company and third parties. During 1996, the Company paid $20,300 under this
agreement.
The Company's By-laws provide that the Company will indemnify its directors
and executive officers and may indemnify its other officers, employees and
agents to the fullest extent permitted by Delaware law. The Company is also
empowered under its By-laws to enter into indemnification contracts with its
directors and officers and to purchase insurance on behalf of any person it is
required or permitted to indemnify. Pursuant to this provision, the Company has
entered into indemnity agreements with each of its directors and officers.
Effective February 1995, the Company and Corange International Ltd., the
parent company of the Boehringer Mannheim Group ("Boehringer Mannheim") entered
into a multi-year alliance agreement to develop gene therapy products to treat
selected cancer indications. Under the terms of the agreement, Boehringer
Mannheim has agreed to fund $25 million for research and development at the
Company, with payments to the Company of $5 million per year for five years.
Research and development funding of $4.6 and $5 million were received in 1995
and 1996, respectively. Because the Company may be obligated, upon certain
circumstances, to conduct research and development in an amount not to exceed $5
million at the end of the five-year agreement, the Company has recognized
contract revenue at 80 percent of research funding. In addition, Boehringer
Mannheim has agreed to invest $20 million in the common equity of the Company at
$4 million per year. The first three $4 million equity investments were made in
July 1995, February 1996, and February 1997 in which 444,444, 418,629 and
533,333 common shares were issued at $9.00, $9.56 and $7.50 per share,
respectively. The price per share for common equity investments by Boehringer
Mannheim for the years 1996 through 1999 is based upon the 15 consecutive
trading days immediately preceding February 1 for each year, with the purchase
in 1996 at a 20 percent premium. In no case shall the purchase price be less
than $7.50 per share. All payments to the Company beginning in 1997 are subject
to the achievement of certain milestones. The Company also granted Boehringer
Mannheim a three-year option to expand the collaboration to include additional
cancer indications.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ Richard A. Waldron
Richard A. Waldron
Vice President, Chief Financial Officer and Secretary
April 9, 1997
22
<PAGE>
GENEMEDICINE, INC.
8301 NEW TRAILS DRIVE
THE WOODLANDS, TX 77381-4248
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 13, 1997
- --------------------------------------------------------------------------------
The undersigned hereby appoints Eric Tomlinson, D.Sc., Ph.D. and Richard A.
Waldron and each of them with full power of substitution, as attorneys and
proxies to represent the undersigned at the Annual Meeting of Stockholders of
GENEMEDICINE, INC., a Delaware corporation (the "Company"), to be held at 3:00
p.m. local time on Tuesday, May 13, 1997 at GENEMEDICINE, INC., 8301 New Trails
Drive, The Woodlands, Texas and at any continuations or adjournments thereof, to
vote the shares of stock of the Company which the undersigned may be entitled to
vote at such meeting in the name of and place of the undersigned with all the
power which the undersigned would possess if personally present, as set forth
below and in their discretion upon such other business as may properly come
before the meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. ANY PROXY
HERETOFORE GIVEN BY THE UNDERSIGNED WITH RESPECT TO SUCH STOCK IS HEREBY
REVOKED. THIS PROXY WILL BE VOTED AS SPECIFIED OR, IF NO CONTRARY DIRECTION IS
MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS AS SET FORTH IN THE
PROXY STATEMENT AND FOR PROPOSALS 2, 3 AND 4 AND AS SAID PROXIES DEEM ADVISABLE
ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE AND IS TO BE SIGNED.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
[ X ] Please mark your
votes as in this
example.
WITHHOLD
FOR both nominees authority THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES FOR
listed at right (except to vote for both DIRECTOR LISTED BELOW AND FOR PROPOSALS 2, 3, AND 4.
as marked to the nominees listed
contrary below) at right Nominees:
1. To elect two [ ] [ ] David F.J. Leathers
directors to Eric Tomlinson, D.Sc., Ph.D.
serve until
the 2000 Annual Meeting of Stockholders and
until their successors are elected.
To withhold authority to vote for a nominee, with such
nominee's name below.
______________________________________________________
FOR AGAINST ABSTAIN
2. To approve the Company's 1993 Stock Option Plan, as [ ] [ ] [ ]
amended, to increase the aggregate number of shares
of Common Stock authorized for issuance under such
plan by 1,400,000 shares.
3. To approve the Company's 1994 Non-Employees [ ] [ ] [ ]
Directors' Stock Option Plan, as amended, to
increase the aggregate number of shares of
Common Stock authorized for issuance under such
plan by 140,000 shares.
4. To ratify the selection of Arthur Andersen LLP as [ ] [ ] [ ]
independent auditors of the Company for the fiscal year
ending December 31, 1997.
IMPORTANT
It is important that your shares be represented at the meeting. Accordingly, whether or not you expect to attend the meeting,
please sign, date and promptly return this proxy in the enclosed envelope.
Signature__________________________________ Date____________ Signature___________________________________ Date___________
IF HELD JOINTLY
Please sign exactly as your name appears hereon. When shares are held by joint tenants both should sign. When signing as
attorney-in-fact, executor, administrator, trustee or guardian, please sign as such and include such title. If a corporation,
please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by
authorized person.
</TABLE>
