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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Genentech, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
not applicable
- --------------------------------------------------------------------------------
(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)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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[GENENTEC LOGO] NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
MAY 10, 2001
To the Stockholders of Genentech, Inc.:
Notice is hereby given that the 2001 Annual Meeting (the "Annual Meeting")
of the stockholders of Genentech, Inc. (the "Company") will be held at the
Westin Hotel, 1 Old Bayshore Highway, Millbrae, California, on Thursday, May 10,
2001, at 10:00 a.m., local time, for the following purposes:
1. To elect all of the members of the Company's Board of Directors to
serve until the Company's next annual meeting and until such directors'
successors are elected and qualified.
2. To consider and vote upon an amendment to the Company's Amended and
Restated Certificate of Incorporation to increase the authorized shares of
common stock from 600,000,000 to 1,200,000,000.
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 2001.
4. To transact such other business as may properly come before the
Annual Meeting or at any adjournments thereof.
A proxy statement describing the matters to be considered at the Annual
Meeting is attached to this notice. Only holders of common stock of record at
the close of business on March 13, 2001 are entitled to notice of, and to vote
at, the Annual Meeting and at any adjournments thereof.
By Order of the Board of Directors
STEPHEN G. JUELSGAARD,
Secretary
South San Francisco, California
March 27, 2001
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. THIS WILL INSURE THAT YOUR SHARES ARE VOTED
IN ACCORDANCE WITH YOUR WISHES.
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GENENTECH, INC.
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 10, 2001
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The Board of Directors of Genentech, Inc. ("Genentech," "we," "us" or the
"Company") hereby solicits your proxy for use at the Annual Meeting of
Stockholders to be held on Thursday, May 10, 2001 (the "Annual Meeting"), or at
any adjournment or postponement of the Annual Meeting, for the purposes set
forth in the foregoing Notice of Annual Meeting of Stockholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries and
custodians to forward to beneficial owners of common stock of Genentech, par
value $0.02 per share, held in their names. The cost of solicitation of proxies,
including expenses in connection with preparing and mailing this Proxy
Statement, will be borne by Genentech. In addition, we will reimburse brokerage
firms and other persons representing beneficial owners of common stock for their
expenses in forwarding solicitation material to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram,
internet and personal solicitation by directors, officers or other regular
employees of Genentech. No additional compensation will be paid to directors,
officers or other regular employees for such services. This Proxy Statement and
accompanying Proxy Card will be mailed on or about March 27, 2001 to all
stockholders entitled to vote at the Annual Meeting. In this Proxy Statement,
"common stock" refers to Genentech's common stock, par value $.02 per share, and
"special common stock" refers to Genentech's callable putable common stock, par
value $.02 per share. In addition, all share and per share data and other
information in this prospectus relating to our common stock and our special
common stock gives effect to our two-for-one split of our common stock on
October 24, 2000.
VOTING RIGHTS AND OUTSTANDING SHARES
Stockholders of record at the close of business on March 13, 2001 (the
"Record Date") will be entitled to notice of and to vote at the Annual Meeting.
On the Record Date, Genentech had outstanding shares of common stock,
par value $0.02 per share. A quorum for the Annual Meeting consists of a
majority of the total number of shares of common stock outstanding on the Record
Date. Each holder of record of shares of common stock on the Record Date is
entitled to one vote per share on each matter to be considered at the Annual
Meeting. The directors are elected by a plurality of the votes of common stock
present in person or by proxy and entitled to vote at the Annual Meeting. The
affirmative vote of a majority of the shares of common stock issued and
outstanding is required for approval of the amendment of the Company's Amended
and Restated Certificate of Incorporation. An affirmative vote of a majority of
the shares present in person or represented by proxy and entitled to vote is
required for approval of all other matters being submitted to the stockholders
for their consideration. All votes will be tabulated by the inspector of
elections appointed for the Annual Meeting, who will separately tabulate
affirmative and negative votes, abstentions and broker nonvotes. Abstentions and
broker nonvotes are each included in the number of shares present for purposes
of determining the presence of a quorum. However, abstentions will be counted
toward the tabulations of votes cast on proposals presented to the stockholders
and will have the same effect as negative votes. For the amendment of the
Company's Amended and Restated Certificate of Incorporation, a broker nonvote
will have the same effect as a negative vote but on all other matters broker
nonvotes will not be counted for purposes of determining whether a proposal has
been approved or not.
Any stockholder giving a proxy has the power to revoke it any time before
it is exercised, whether the proxy was given by telephone, via the internet or
by returning the Proxy Card. The proxy may be revoked by filing with the
Secretary of Genentech, at the principal executive office of Genentech, 1 DNA
Way, South San Francisco, California 94080, a notice of revocation or a duly
executed Proxy Card bearing a later date, or by making an authorized internet or
telephone communication on a later date in accordance with the instructions on
the enclosed Proxy Card. It may also be revoked by attendance at the Annual
Meeting and voting in person.
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RELATIONSHIP WITH ROCHE
HISTORY OF OWNERSHIP
On September 7, 1990, a wholly owned subsidiary of Roche Holdings, Inc.
("Roche") was merged with and into Genentech. Pursuant to the 1990 merger
agreement, Genentech and Roche entered into a governance agreement that
contained terms relating to our corporate governance after the 1990 merger.
Pursuant to the 1990 governance agreement, our board of directors elected two
nominees of Roche to serve on the Genentech board. On October 25, 1995, a second
wholly owned subsidiary of Roche was merged with and into Genentech, and
Genentech and Roche amended the 1990 governance agreement. In the 1995 merger,
for our stockholders other than Roche, each share of common stock was converted
into one share of our special common stock. Roche maintained the same percentage
ownership of our equity as prior to the 1995 merger and continued to have the
right to nominate only two directors to our board of directors under the amended
governance agreement. The purpose of the conversion of the common stock into
special common stock was (i) to establish a four-year period during which our
publicly traded stock could be redeemed by us at Roche's option at specified
prices per share ranging from $15.63 during the quarter ending December 31, 1995
to $20.63 during the quarter ending June 30, 1999 and (ii) to afford the holders
of special common stock the right to require the purchase of all or a portion at
the option of the holder of their shares of such stock at a price of $15.00 per
share exercisable during the 30-business day period following June 30, 1999.
REDEMPTION OF THE SPECIAL COMMON STOCK
On June 30, 1999, we redeemed all of our special common stock held by
stockholders other than Roche at $20.63 per share in cash and retired all of the
shares of special common stock including those held by Roche. As a result,
Roche's percentage ownership of our outstanding equity increased from
approximately 65% to 100% and our then existing governance agreement terminated,
except for provisions relating to indemnification and stock options, warrants
and convertible securities.
OFFERINGS OF, AND NOTES EXCHANGEABLE FOR, OUR COMMON STOCK
On July 23, 1999, Roche completed a public offering of 88 million shares of
our common stock. In connection with that offering, we amended our Certificate
of Incorporation and bylaws and entered into an affiliation agreement with
Roche, described below. On October 26, 1999, Roche completed a public offering
of 80 million shares of our common stock. Upon completion of that offering,
Roche's percentage ownership of our outstanding common stock was reduced to
66.4%. On January 19, 2000, Roche completed an offering of zero-coupon notes
which are exchangeable for an aggregate of 13,034,618 shares of our common stock
held by Roche. On March 29, 2000, Roche completed a public offering of 34.6
million shares of our common stock, reducing its ownership to 58.9% of our
outstanding common stock.
ARRANGEMENTS BETWEEN GENENTECH AND ROCHE
As a result of the redemption of the special common stock, the then
existing governance agreement between Genentech and Roche terminated, except for
provisions relating to indemnification and stock options, warrants and
convertible securities. Subsequently, we entered into an affiliation agreement
with Roche that enabled our current management to conduct our business and
operations as we had done in the past while at the same time reflecting Roche's
ownership in us. The affiliation agreement is for the exclusive benefit of Roche
and can be amended at any time by Roche and us. We have amended our bylaws in
order to maintain certain proportional representation rights of Roche under the
bylaws with respect to membership on our board of directors and board committees
to the extent that we do not make repurchases of our common stock as required by
the affiliation agreement. We expect that we and Roche will make similar
amendments to the affiliation agreement and licensing agreement.
Our Amended and Restated Certificate of Incorporation provides that the
provisions in our bylaws described below under "-- Composition of Board of
Directors," "-- Roche's Right to Proportional Representation," "-- Membership of
Committees" and "-- Nomination of Directors" may be repealed or amended
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only by a 60% vote of our stockholders, except for Roche's right to nominate a
number of directors proportional to Roche's ownership interest rounded down to
the next whole number until Roche's ownership interest is less than 5%, which
may be repealed or amended only by a 90% vote of our stockholders. The
provisions of the affiliation agreement described below under "-- Roche Approval
Required for Certain Actions" and "-- Licensing and Marketing Arrangements"
terminate upon Roche owning less than 40% of our stock.
For purposes of the following provisions, an independent director is a
director who is not:
- one of our officers; or
- an employee, director, principal stockholder or partner of Roche or any
affiliate of Roche or an entity that was dependent upon Roche for more
than 10% of its revenues or earnings in its most recent fiscal year.
Composition of Board of Directors
Our board consists of six members all of whom are nominated by the
Nominations Committee of the board: two nominees of Roche, one executive officer
of Genentech and up to three independent directors. Directors are elected to
serve one year terms or until their successors are elected and qualified. At all
times our board will include at least two independent directors and one
executive officer of Genentech.
Roche's Right to Proportional Representation
We have agreed that upon Roche's request Roche will be entitled to
representation on our board proportional to its ownership interest in our common
stock. Roche will be entitled to have the number of Roche designated directors
equal to the percentage of our common stock owned by Roche times the total
number of directors, rounded up to the next whole number if Roche's ownership
interest is greater than 50% and rounded down if Roche's ownership percentage is
less than or equal to 50%. Upon Roche's request, we will immediately take action
to cause the size of our board to be increased and to cause our board to fill
the vacancies by electing Roche nominees in order to achieve Roche's
proportional representation. If Roche's ownership interest of common stock drops
below 40%, Roche will cause its directors to resign to the extent its
representation is in excess of its proportional ownership interest. The number
of directors who are required to resign upon such event shall be rounded up to
the next whole number. Roche shall thereafter be entitled to nominate a number
of directors which is proportional to Roche's ownership interest rounded down to
the next whole number, until Roche's ownership interest is less than 5%.
Membership of Committees
We have five standing committees of the board: an Audit Committee, a
Compensation Committee, a Corporate Governance Committee, an Executive Committee
and a Nominations Committee and Roche is entitled upon request to its
proportional representation on each committee. Roche's committee members may
designate another Roche director to serve as their alternates on any committee.
The Nominations Committee shall at all times have three members. At anytime
that Roche owns 80% or more of the total voting power of our stock, the
nominations committee shall include two nominees of Roche and one of the
independent directors. At any time that Roche owns less than 80% of the total
voting power of our stock, the nominations committee shall include a number of
nominees of Roche that is equal to the percentage owned by Roche of the total
voting power of our common stock times three, rounded up to the next whole
number if Roche's total voting power is greater than 50% and rounded down to the
next whole number if Roche's total voting power is less than or equal to 50%,
provided that Roche shall at no time have more than two nominees and, provided
further that if the reason for Roche owning less than 80% of the total voting
power is as a result of a breach of our obligations relating to tax matters
below, the Nominations Committee shall include two nominees of Roche as
determined above.
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Nomination of Directors
The nomination of any person for director requires the approval of a
majority of the members of the Nominations Committee.
Roche Approval Required for Certain Actions
Without the prior approval of the directors designated by Roche, we have
agreed not to approve:
- any acquisition that would constitute a substantial portion of our
business or assets;
- any sale, lease, license, transfer or other disposal of all or a
substantial portion of our business or assets other than in the ordinary
course of our business;
- any issuance of capital stock except (1) issuances of capital stock
pursuant to employee incentive plans not exceeding 5% of our voting
stock, (2) issuances of capital stock upon the exercise, conversion or
exchange of any of our outstanding capital stock, and (3) other issuances
of capital stock not exceeding 5% of our voting stock in any 24 month
period; and
- any repurchase or redemption of our capital stock other than redemption
required by the terms of any security and purchases made at fair market
value in connection with any of our deferred compensation plans.
For purposes of the first and second bullet points in this paragraph,
unless a majority of the board of directors have made a contrary determination
in good faith, a "substantial portion of our business or assets" shall mean a
portion of our business or assets accounting for 10% or more of our and our
consolidated subsidiaries' consolidated total assets, contribution to net income
or revenues.
Following a request by Roche for proportional representation on the board,
until the Roche designees take office as directors we may not take any action
other than in the ordinary course of business without the consent of Roche.
Licensing and Marketing Arrangements
In 1995, we entered into a licensing and marketing agreement with F.
Hoffmann-La Roche Ltd ("Hoffmann-La Roche") and its affiliates granting it a
ten-year option to license to use and sell products in non-U.S. markets. In July
1999, we amended that agreement, the major provisions of which include:
- extending Hoffmann-La Roche's option until at least 2015;
- Hoffmann-La Roche may exercise its option to license our products upon
the occurrence of any of the following: (1) our decision to file an
Investigational New Drug exemption application, or IND, for a product,
(2) completion of a Phase II trial for a product or (3) if Hoffmann-La
Roche previously paid us a fee of $10 million to extend its option on a
product, completion of a Phase III trial for that product;
- we agreed, in general, to manufacture for and supply to Hoffmann-La Roche
its clinical requirements of our products at cost, and its commercial
requirements at cost plus a margin of 20%; however, Hoffmann-La Roche
will have the right to manufacture our products under certain
circumstances;
- Hoffmann-La Roche has agreed to pay, for each product for which
Hoffmann-La Roche exercises its option upon either a decision to file an
IND with the FDA or completion of the Phase II trials, a royalty of 12.5%
on the first $100 million on its aggregate sales of that product and
thereafter a royalty of 15% on its aggregate sales of that product in
excess of $100 million until the later in each country of the expiration
of our last relevant patent or 25 years from the first commercial
introduction of that product; and
- Hoffmann-La Roche will pay, for each product for which Hoffmann-La Roche
exercises its option after completion of the Phase III trials, a royalty
of 15% on its sales of that product until the later in each country of
the expiration of our relevant patent or 25 years from the first
commercial introduction
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of that product; however, $5 million of any option extension fee paid by
Hoffmann-La Roche will be credited against royalties payable to us in the
first calendar year of sales by Hoffmann-La Roche in which aggregate
sales of the product exceed $100 million.
Registration Rights
We have agreed that, upon Roche's request, we will file one or more
registration statements under the Securities Act of 1933 in order to permit
Roche to offer and sell shares of our common stock. We have agreed to use our
best efforts to facilitate the registration and offering of those shares
designated for sale by Roche.
We have the right to postpone the filing or effectiveness of a registration
statement for a period of up to 60 days in any 12-month period if:
- in the reasonable good faith judgment of our board, fulfillment of our
obligations would require us to make disclosures that would be
detrimental to Genentech and premature; or
- we have filed a registration statement with respect to securities to be
distributed in an underwritten public offering and we have been advised
by the lead or managing underwriter that an offering by Roche would
materially and adversely affect the distribution of our securities.
Generally, all expenses incident to the performance by us of our
obligations with respect to the registration of Roche's shares of our common
stock will be paid by us except that Roche has agreed to pay certain expenses to
be directly incurred by Roche, including underwriting fees, discounts and
commissions and counsel fees. In addition, we are only required to pay for two
registrations within a 12-month period. We and Roche each have agreed to
customary indemnification and contribution provisions with respect to liability
incurred in connection with these registrations.
Dispositions by Roche
If Roche and its affiliates sell their majority ownership of shares of our
common stock to a successor, Roche has agreed that it will cause the successor
to purchase all shares of our common stock not held by Roche:
- if the consideration is composed entirely of either cash or equity traded
on a U.S. national securities exchange, with consideration in the same
form and amounts per share as received by Roche and its affiliates; and
- in any other case, with consideration either in the same form and amounts
per share as received by Roche and its affiliates or with consideration
that has a value per share not less than the weighted average value per
share received by Roche and its affiliates as determined by an investment
bank of nationally recognized standing appointed by a committee of
independent directors.
Roche has agreed to cause the buyer to agree to be bound by the obligations
described in the preceding paragraph as well as the obligations described under
"-- Business Combinations with Roche" and "-- Compulsory Acquisitions" below. We
have agreed that the buyer shall be entitled to succeed to Roche's rights
described under "-- Roche's Right to Proportional Representation."
Business Combinations with Roche
Roche has agreed that as a condition to any merger of Genentech with Roche
or its affiliates or the sale of substantially all of our assets to Roche or its
affiliates, that either:
- the merger or sale must be authorized by the favorable vote at any
meeting of a majority of the shares of common stock not owned by Roche,
provided that no person or group shall be entitled to cast more than 5%
of the votes cast at the meeting; or
- in the event such a favorable vote is not obtained, the value of the
consideration to be received by the holders of our common stock, other
than Roche, shall be equal to or greater than the average of the
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means of the ranges of fair values for the common stock as determined by
two investment banks of nationally recognized standing appointed by a
committee of independent directors.
Roche has agreed that it will not sell any shares of our common stock in
the 90 days immediately preceding any proposal by Roche for a merger with us.
Roche also agreed that in the event of any merger of Genentech with Roche
or its affiliates or sale of substantially all of our assets to Roche or its
affiliates, each unvested option then outstanding under our stock option plan
will:
- be accelerated so that each option shall become exercisable immediately
prior to the consummation of the transaction for the full number of
shares of common stock covered by the option;
- become exchangeable upon the consummation of the transaction for deferred
cash compensation, which vests on the same schedule as the shares of the
common stock covered by the option, having a value equal to the product
of (A) the number of shares covered by the option and (B) the amount
which Roche, in its reasonable judgment, considers to be equivalent in
value to the consideration per share received by holders of shares of
common stock other than Roche in the transaction, minus the exercise
price per share under the option; or
- be canceled in exchange for a replacement option to purchase stock of the
surviving corporation in the transaction with the terms of the option to
provide value equivalent, as determined by Roche in its reasonable
discretion, to that of the canceled option.
Compulsory Acquisitions
If Roche owns more than 90% of our common stock for more than two months,
Roche has agreed to, as soon as reasonably practicable, effect a merger of
Genentech with Roche or an affiliate of Roche.
The merger shall be conditioned on the vote or the valuation described
under the first two bullets of "-- Business Combinations with Roche" above.
ROCHE'S RIGHT TO MAINTAIN ITS PERCENTAGE OWNERSHIP INTEREST IN OUR STOCK
The affiliation agreement requires us to, among other things, establish a
stock repurchase program designed to maintain Roche's percentage ownership
interest in our common stock. We are required to repurchase a sufficient number
of shares pursuant to this program to ensure that, with respect to any issuance
of common stock by us in the future, the percentage of our common stock owned by
Roche immediately after such issuance will be no lower than Roche's lowest
percentage ownership of our common stock at any time after the offering of
common stock occurring in July 1999 but prior to the time of such issuance,
except that we may issue shares up to an amount that would cause Roche's lowest
percentage ownership to be no more than 2% below the "Minimum Percentage." The
Minimum Percentage equals a fraction (expressed as a percentage) where the
numerator is the lowest number of shares of our common stock owned by Roche
since the July 1999 offering (to be adjusted in the future for dispositions of
shares of our common stock by Roche), and the denominator is 509,194,352 which
is the number of shares of our common stock outstanding at the time of the July
1999 offering adjusted for the two-for-one splits of our common stock in
November 1999 and October 2000. Each of the numerator and denominator are to be
adjusted in the future for stock splits or stock combinations. As long as
Roche's percentage ownership is greater than 50%, prior to issuing any shares,
we must repurchase a sufficient number of shares of our common stock to ensure
that, immediately after its issuance of shares, Roche's percentage ownership
will be greater than 50%. We have also agreed, upon Roche's request, to
repurchase shares of our common stock to increase Roche's ownership to the
Minimum Percentage. Roche currently owns approximately 58.4% of our common
stock. In addition, we are required to provide information to Roche each month,
or more frequently if requested, regarding the status of the repurchase program
and previous and expected future issuances of common stock by us, and we also
will be obligated to notify Roche the day after the number of shares of common
stock issued in a month equals or exceeds 500,000. Our obligations with respect
to this stock repurchase program will terminate upon Roche owning less than 40%
of our stock.
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Furthermore, Roche has (i) a continuing option (which is assignable by
Roche to any of its affiliates) to buy from us, prior to the occurrence of any
event that could result in a decrease in the percentage of common stock owned by
Roche and its affiliates, a sufficient amount of common stock to ensure that
Roche and its affiliates maintain the percentage ownership of our common stock
owned by them, and (ii) a continuing option (which is assignable by Roche to any
of its affiliates) to buy from us 80% of any class of stock issued by us other
than common stock, in each case with a price per share equal to either the
average of the last sale price on each of the five immediately preceding trading
days on a U.S. national securities exchange on which the shares are traded or,
if the sale prices are unavailable, the value of the shares determined in
accordance with procedures reasonably satisfactory to Roche and us.
These provisions of the affiliation agreement may have the effect of
limiting our ability to use our capital stock as consideration for acquisitions.
TAX SHARING AGREEMENT
From the redemption of our special common stock in June 1999 until Roche
completed its public offering of our common stock in October 1999, we were
included in Roche's U.S. consolidated federal income tax group and included with
Roche and/or one or more Roche subsidiaries in consolidated or combined income
tax groups for certain state and local tax jurisdictions. Accordingly, we
entered into a tax sharing agreement with Roche. Pursuant to the tax sharing
agreement, we and Roche are to make payments such that the net amount paid by us
on account of consolidated or combined income taxes is determined as if we had
filed separate, stand-alone federal, state and local income tax returns as the
common parent of an affiliated group of corporations filing consolidated or
combined federal, state and local returns.
Effective upon the consummation of the public offering in October 1999, we
ceased to be a member of the consolidated federal income tax group (and certain
consolidated or combined state or local income tax groups) of which Roche is the
common parent. Accordingly, our tax sharing agreement with Roche now pertains
only to the state and local tax returns in which we will be consolidated or
combined with Roche. We will continue to calculate our tax liability or refund
with Roche for these state and local jurisdictions as if we were a stand-alone
entity.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth as of December 31, 2000, certain information
regarding all stockholders known by Genentech to be the beneficial owners of
more than five percent of any class of Genentech's voting securities, according
to Securities and Exchange Commission filings pursuant to Section 13(d) and
Section 13(g) of the Securities Exchange Act of 1934, as amended:
NUMBER OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES CLASS PERCENT OF CLASS
------------------------------------ ----------- ------------ ----------------
Roche Holdings, Inc. .......................... 306,594,352 Common Stock 58.4%
One Commerce Center, Suite 1050
Wilmington, DE 19801
PROPOSAL 1 -- ELECTION OF DIRECTORS
NOMINEES
The Company's board consists of two Roche directors, Franz B. Humer and
Jonathan K.C. Knowles, three independent directors, Herbert W. Boyer, Charles A.
Sanders and Sir Mark Richmond, and one Genentech employee, Arthur D. Levinson,
who is also the chairman of the board. Each of these individuals is being
nominated for election at the Annual Meeting for a one year term expiring on the
date of the Annual Meeting in 2002 or until each such director's successor shall
have been duly elected or appointed. It is intended that the shares represented
by proxies will be voted for the election of all the nominees, unless the proxy
withholds authority to vote for any of them.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE
In the event any of such nominees becomes unable or unwilling to serve, the
shares represented by the proxies will be voted for the election of the balance
of those named and such other person as the Board of Directors may select. The
Board of Directors has no reason to believe that any such nominee will be unable
to serve.
The following table sets forth the name and age (as of the date of the
Annual Meeting) of each of the directors, their principal occupations at
present, the positions and offices held by each with Genentech in addition to
the position as a director, and the period during which each has served as a
director of Genentech.
SERVED AS
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION/POSITION HELD SINCE
---- --- ---------------------------------- ---------
Herbert W. Boyer, Ph.D. ............. 64 Director of Genentech 1976
Franz B. Humer....................... 54 Chief Executive Officer, The Roche Group 1995
Jonathan K.C. Knowles, Ph.D. ........ 53 Head of Global Pharmaceutical Research, The
Roche Group 1998
Arthur D. Levinson, Ph.D. ........... 51 Chairman, President and Chief Executive
Officer of Genentech 1995
Sir Mark Richmond, Ph.D. ............ 70 Sr. Research Fellow, School of Public Policy
at University College, London 1999
Charles A. Sanders, M.D. ............ 69 Director of Genentech 1999
Dr. Boyer, a founder of Genentech, had been a director of Genentech since
1976 when he resigned from the Board in June 1999 in connection with the
redemption of our callable putable common stock. He was reelected to the Board
in September 1999. Dr. Boyer is a consultant to Genentech. He served as a Vice
President of Genentech from 1976 to 1991. Dr. Boyer, a Professor of Biochemistry
at the University of California at San Francisco from 1976 to 1991, demonstrated
the usefulness of recombinant DNA technology to produce medicines economically,
which laid the groundwork for Genentech's development. In 1993, Dr. Boyer
received the 1993 Helmut Horten Research Award. He also received the National
Medal of Science from President Bush in 1990, the National Medal of Technology
in 1989 and the Albert Lasker Basic Medical Research Award in 1980. He is an
elected member of the National Academy of Sciences and a Fellow in the American
Academy of Arts and Sciences. In addition, Dr. Boyer serves as Chairman of the
Board of Directors of Allergan, Inc.
Dr. Humer was elected a director of Genentech in the spring of 1995. He
joined The Roche Group in 1995 as the Head of its Pharmaceuticals Division, and
became Chief Executive Officer of The Roche Group in 1998. He will become
Chairman of the Board of Directors of The Roche Group in April 2001. Prior to
joining The Roche Group, Dr. Humer was an Executive Director and Chief Operating
Officer of Glaxo Holdings, a United Kingdom public limited company. Dr. Humer
also serves as a director of Cadbury Schweppes p.l.c. Pursuant to the
affiliation agreement, Dr. Humer is a designee of Roche.
Dr. Knowles was elected a director of Genentech in February 1998. He joined
The Roche Group as Head of Global Pharmaceutical Research in September 1997. In
January 1998, he became a member of the Executive Committee of The Roche Group.
Prior to joining The Roche Group, Dr. Knowles served as the Director of Research
for Europe of Glaxo from 1995 and served as the Director of the Geneva Institute
of Glaxo from 1989 to 1995. Pursuant to the affiliation agreement, Dr. Knowles
is a designee of Roche.
Dr. Levinson was appointed Chairman of the Board of Directors on September
1999 and was elected President and Chief Executive Officer and a director of the
Company in July 1995. Since joining the Company in 1980, Dr. Levinson has been a
Senior Scientist, Staff Scientist and the Director of the Company's Cell
Genetics Department. Dr. Levinson was appointed Vice President of Research
Technology in April 1989, Vice President of Research in May 1990 and Senior Vice
President in January 1993. Dr. Levinson was formerly on the editorial boards of
"Molecular Biology and Medicine" and "Molecular and Cellular Biology," and is
active in the American Society of Microbiology, the New York Academy of
Sciences, the American Association for the Advancement of Science, and the
American Society for Biochemistry and Molecular Biology. From 1977
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to 1980, Dr. Levinson was a Postdoctoral Fellow in the Department of
Microbiology at the University of California, San Francisco. In 1977, Dr.
Levinson received his Ph.D. in Biochemistry from Princeton University. Dr.
Levinson also serves as a member of the Board of Directors of Apple Computer,
Inc.
Dr. Richmond was elected a director of Genentech in August 1999. He has
been a senior research fellow at the School of Public Policy, University College
London since February 1996. Previously, he held positions as science advisor at
Glaxo Wellcome plc from 1995 to February 1996, as Group Head of Research at
Glaxo plc from 1993 to 1995, as chairman of the Science and Engineering Council,
London, from 1990 to 1993, as vice chancellor at the University of Manchester
from 1981 to 1990, and professor and head of the Department at Bacteriology at
the University of Bristol from 1968 to 1981. Dr. Richmond is currently a member
of the Scientific Advisory Committee of the Institute for Biotechnology, ETH,
Zurich, a member of the Scientific Advisory Board of the SPP-Biotechnology,
Swiss National Foundation and a member of the Boards of Directors of Targeted
Genetics Corporation and OSI Pharmaceuticals, Inc.
Dr. Sanders was elected a director of Genentech in August 1999. He served
as Chief Executive Officer of Glaxo Inc. from 1989 to 1994, and was the Chairman
of the Board of Glaxo Inc. from 1992 to 1995. He also has served on the Board of
Directors of Glaxo plc. Previously, he held a number of positions at Squibb
Corporation, a multinational pharmaceutical corporation, including Vice
Chairman, Chief Executive Officer of the Science and Technology Group and
Chairman of the Science and Technology Committee on the Board. Dr. Sanders is a
member of the Boards of Directors of Scios Inc., Magainin Pharmaceuticals,
Vertex Pharmaceuticals, Edgewater, Inc., Kendle International Inc., Trimeris,
Inc., Biopure Corporation and Pharmacopeia, Inc.
COMMITTEES AND MEETINGS
During 2000, the Board of Directors held five meetings, the Audit Committee
held eight meetings, the Compensation Committee held four meetings, the
Corporate Governance Committee held three meetings, the Executive Committee did
not meet and the Nominations Committee held one meeting. All of the directors
attended at least 75% of the aggregate meetings of the Board and the committees
of which he is a member.
The Audit Committee currently consists of Drs. Boyer, Richmond and Sanders,
none of whom is an employee of Genentech. The Audit Committee recommends the
independent auditors to the Board and provides a direct line of communication
between the auditors and the Board. The Audit Committee, with and without
Company management present, meets with the Company's independent auditors to
review and discuss various matters, including Genentech's financial statements,
the quarterly reporting process and management's control thereof, the inventory
and receivable reserve policies, the tax compliance program and strategy, the
scope of external and general audit activities, the independent auditor's fees
and performance, the Company's investment policy and risk management programs,
the report of the independent auditors and accompanying management letter on the
scope and results of their work and their recommendations concerning Genentech's
financial practices and procedures.
The Compensation Committee currently consists of Drs. Boyer, Humer,
Knowles, Richmond and Sanders, none of whom is an employee of Genentech. The
Compensation Committee administers Genentech's stock option plans, the stock
purchase plan and other corporate benefits programs. The Compensation Committee
also reviews and approves the annual bonus plan, bonus plan payouts, annual
stock option grants, the corporate benefits strategy, incentive plan status,
compensation philosophy and current competitive status, and executive officer
compensation. In addition, the Compensation Committee recommends executive
officers of the Company for election as executive officers by the Board of
Directors.
The Corporate Governance Committee currently consists of Drs. Knowles and
Richmond. The Corporate Governance Committee reviews the Company's sales and
marketing policies and compliance, investor relations, corporate communications,
government relations, human resources, legal and regulatory affairs, compliance
with laws and regulations, and Board of Directors and Board committee
effectiveness.
The Executive Committee currently consists of Drs. Levinson, Humer and
Boyer. The Executive Committee was established to act when the full Board of
Directors is unavailable. It has all the authority of
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the Board in the management of the business and affairs of Genentech, except
those powers that by law cannot be delegated by the Board of Directors.
The Nominations Committee currently consists of Drs. Knowles, Humer and
Boyer. The purpose of the Nominations Committee is to identify, review and
recommend potential nominees to the Board of Directors of Genentech, and to
recommend executive officers of the Company for election as executive officers
by the Board of Directors. The Nominations Committee will consider nominees to
the Board of Directors recommended by Genentech stockholders. To be considered,
stockholders wishing to nominate a person to the Board of Directors should send
a letter to the Secretary of Genentech. Any stockholder's notice regarding
director nominations must set forth: (a) the name and address of the stockholder
who intends to make the nomination and of the person or persons to be nominated,
(b) a representation that the stockholder is a holder of record of stock of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to nominate the person or persons specified in the notice,
(c) a description of all arrangements or understandings between the stockholder
and each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder, (d) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had the
nominee been nominated, or intended to be nominated, by the Board of Directors,
and (e) the consent of each nominee to serve as a director of the corporation if
so elected.
PROPOSAL 2 -- AMENDMENT OF COMPANY'S AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION
On February 6, 2001, the Board of Directors unanimously adopted a
resolution approving an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the number of authorized shares of
common stock from 600,000,000 to 1,200,000,000. Each additional share of common
stock will have the same rights and privileges as each share of currently
authorized common stock. This amendment requires the approval of the Company's
stockholders. As amended, the relevant Section of Article 4 of the Company's
Amended and Restated Certificate of Incorporation will read as follows:
Section 4.01. Capital Stock. (a) The Corporation is authorized to
issue two classes of stock to be designated, respectively, preferred stock
and common stock. The total number of shares which the Corporation is
authorized to issue is one billion three hundred million (1,300,000,000)
shares. One hundred million (100,000,000) shares shall be designated
preferred stock, par value $0.02 per share ("Preferred Stock"). One billion
two hundred million (1,200,000,000) shares shall be designated common
stock, par value $0.02 per share ("Common Stock"). The common stock of the
Corporation shall be all of one class.
(b) The number of authorized shares of any class or classes of stock
may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of a majority in voting power of
the outstanding stock of the Corporation entitled to vote thereon
irrespective of the provisions of Section 242(b)(2) of Delaware Law.
In October 2000, a two-for-one stock split was effected by the issuance of
additional shares of common stock as a stock dividend to stockholders. This
action was taken to facilitate ownership of common stock and to bring the market
price of the common stock within a trading range more attractive to independent
investors. The Board of Directors believes it is in the best interests of the
Company to increase the number of authorized shares in order to give the Company
greater flexibility in considering and planning for future business needs. The
shares will be available for issuance by the Board of Directors for proper
corporate purposes, including but not limited to, stock dividends, stock splits,
acquisitions, financings and compensation plans.
The issuance of additional shares of common stock, other than in connection
with stock splits and stock dividends, could have the effect of diluting
earnings per share, voting power and shareholdings of stockholders. It could
also have the effect of making it more difficult for a third party to acquire
control of the Company. Other than in connection with the Company's existing
employee stock option and stock purchase plans, the
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Company has no present intent to issue any shares of common stock. Current
stockholders do not have preemptive rights to subscribe for, purchase or reserve
any shares of the authorized capital stock of the Company.
If the amendment is approved, the amendment to the Amended and Restated
Certificate of Incorporation will be filed with the Secretary of State of
Delaware as soon as practicable after the meeting.
The affirmative vote of the holders of a majority of the number of shares
of common stock outstanding is required for approval of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR APPROVAL OF THE AMENDMENT TO THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of shares of common
stock and of the equity securities of Roche Holding Ltd as of December 31, 2000,
unless otherwise noted, of (i) each director of Genentech, (ii) Genentech's
Chief Executive Officer, (iii) each of Genentech's four other most highly
compensated executive officers (together with Genentech's Chief Executive
Officer, the "Named Executive Officers"), and (iv) all directors and executive
officers of Genentech as a group. All Genentech stock numbers reflect the
two-for-one stock split that was effective October 24, 2000. Unless otherwise
indicated, each person has sole voting and investment power, subject to the
powers that may be shared with the person's spouse under applicable law.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
EQUITY SECURITIES OF
GENENTECH COMMON STOCK ROCHE HOLDING LTD
----------------------------- --------------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT OF CLASS SHARES PERCENT OF CLASS
------------------------ --------- ---------------- ------ ----------------
Herbert W. Boyer.......................... 7,050(1) * 0 0
Susan D. Desmond-Hellmann................. 383,257(2) * 0 0
Franz B. Humer(3)......................... 0 * 50 **
Stephen G. Juelsgaard..................... 275,452(4) * 0 0
Jonathan K. C. Knowles(3)................. 0 * 0 0
Louis J. Lavigne, Jr. .................... 354,295(5) * 0 0
Arthur D. Levinson........................ 1,031,839(6) * 0 0
Myrtle S. Potter.......................... 382 * 0 0
Sir Mark Richmond......................... 6,250(7) * 0 0
Charles A. Sanders........................ 7,250(8) * 0 0
All Directors and Executive Officers as a
Group
(29 persons)............................ 3,143,921(9) * 50 **
Asterisk (*) indicates that the amount beneficially owned is less than one
percent (1%) of the outstanding shares of common stock.
A double asterisk (**) indicates that the amount beneficially owned is less
than one percent (1%) of the outstanding equity securities of Roche Holding Ltd.
- ---------------
(1) Includes stock options exercisable on December 31, 2000 or exercisable by
March 1, 2001 to purchase 6,250 shares of common stock.
(2) Includes stock options exercisable on December 31, 2000 or exercisable by
March 1, 2001 to purchase 382,473 shares of common stock.
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(3) As of December 31, 2000, Roche owned 306,594,352 shares of common stock,
representing 58.4% of the class. Pursuant to the Affiliation Agreement,
Roche has appointed Drs. Humer and Knowles as its representatives on
Genentech's Board of Directors.
(4) Includes stock options exercisable on December 31, 2000 exercisable or
exercisable by March 1, 2001 to purchase 274,378 shares of common stock.
(5) Includes stock options exercisable on December 31, 2000 exercisable or
exercisable by March 1, 2001 to purchase 353,221 shares of common stock.
(6) Includes stock options exercisable on December 31, 2000 exercisable or
exercisable by March 1, 2001 to purchase 1,030,113 shares of common stock.
(7) Includes stock options exercisable on December 31, 2000 exercisable or
exercisable by March 1, 2001 to purchase 6,250 shares of common stock.
(8) Includes stock options exercisable on December 31, 2000 exercisable or
exercisable by March 1, 2001 to purchase 6,250 shares of common stock.
(9) Includes stock options held by 19 other executive officers exercisable on
December 31, 2000 or exercisable by March 1, 2001 to purchase 1,055,352
shares of common stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
officers and persons who own more than 10% of any class of the Company's equity
securities (collectively, "Reporting Persons") to file reports of ownership and
changes in ownership of such securities. Reporting Persons are required by
Securities and Exchange Commission regulations to furnish the Company with
copies of all Section 16(a) reports they file. The Company believes that all
Forms 3, 4 and 5 required to be filed by its directors, officers and greater
than 10% shareholders were filed on time during 2000, except David Nagler, Vice
President, Human Resources, inadvertently failed to timely file a Form 3.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each of the directors of Genentech, except Dr. Levinson, are paid an annual
retainer of $30,000. Dr. Levinson is not paid for his services as a director. In
addition, the directors, with the exception of Dr. Levinson, receive a total of
$1,500 for each Board and committee meeting at which the director was present in
person and a total of $500 for each Board and committee meeting at which the
director was present by telephone. All directors are reimbursed for expenses
incurred in connection with their service on the Board. Dr. Boyer also serves as
a consultant to Genentech and received compensation in the amount of $38,000 for
his services as a consultant in 2000. Drs. Boyer, Richmond and Sanders each
received an option to purchase 4,000 shares of common stock as additional
compensation.
Under the 1999 Stock Plan, each non-Roche and non-Genentech Board member
(an "Independent Director") will be granted a stock option to purchase 20,000
shares of common stock upon election to the Board. In addition, each Independent
Director will be granted a stock option to purchase 4,000 shares of common stock
upon reelection to the Board. Each option will vest over four years, with the
first 25% vesting one year from the grant date, and the remainder vesting
monthly during the 36-month period following the initial vesting date. The
exercise price will be equal to the closing price of the common stock as
reported in the Wall Street Journal on the day of the election or reelection, as
applicable.
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COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows for the fiscal years ended December 31, 2000,
1999 and 1998, certain compensation paid by Genentech to the Named Executive
Officers, including salary, bonuses, stock options and certain other
compensation:
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ AWARDS/
OTHER ANNUAL SECURITIES ALL OTHER
COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS (3) OPTIONS(4)(#) (5)
--------------------------- ---- --------- -------- ------------ ----------------------- ------------
Arthur D. Levinson, Ph.D. .......... 2000 $750,000 $985,000 -- 360,000 $69,400
Chairman, President and Chief 1999 $750,000 $985,000 -- 1,932,852 (1,450,000)(7) $68,000
Executive Officer 1998 $650,000 $950,000 -- 350,000(8) $41,600
Susan D. Desmond-Hellmann, M.D.,
M.P.H. ........................... 2000 $451,319 $425,000 -- 250,000 $34,000
Executive Vice President, 1999 $375,208 $400,000 -- 933,104 (700,000)(7) $27,400
Development and Product 1998 $310,000 $310,000 -- 150,000(8) $18,400
Operations and Chief Medical
Officer
Louis J. Lavigne, Jr. .............. 2000 $367,771 $310,000 -- 160,000 $27,100
Executive Vice President and 1999 $367,500 $310,000 -- 839,792 (630,000)(7) $27,100
Chief Financial Officer 1998 $350,000 $310,000 -- 150,000(8) $21,400
Myrtle S. Potter(6)................. 2000 $314,912 $500,000(2) $684,666 300,000 $10,000
Executive Vice President, 1999 -- -- -- -- --
Commercial Operations and 1998 -- -- -- -- --
Chief Operating Officer
Stephen G. Juelsgaard............... 2000 $310,000 $225,000 -- 160,000 $21,400
Senior Vice President, General 1999 $295,000 $239,939 -- 519,872 (390,000)(7) $20,000
Counsel and Secretary 1998 $263,542 $205,000 -- 80,000(8) $15,542
- ---------------
(1)Includes amounts earned but deferred at the election of the executive, such
as salary deferrals under Genentech's Tax Reduction Investment Plan (the
"401(k) Plan") established under Section 401(k) of the Internal Revenue Code
of 1986, as amended (the "Code").
(2)The amount disclosed in this column for Ms. Potter includes payment by
Genentech of a sign-on bonus of $250,000.
(3)As permitted by rules promulgated by the Securities and Exchange Commission
("SEC"), no amounts are shown for any Named Executive Officer, other than Ms.
Potter, with respect to certain "perquisites" (such as imputed interest on
loans at below market value rates), where such amounts do not exceed the
lesser of (i) 10% of the sum of the amounts of Salary and Bonus for the Named
Executive Officer, or (ii) $50,000. The amount disclosed in this column for
Ms. Potter includes payment by Genentech of a relocation benefit valued at
$424,553 (including a gross-up payment of $147,885 included therein to
reimburse Ms. Potter for the estimated income taxes attributable to the
relocation benefit) and a gross-up payment of $260,113 to reimburse Ms.
Potter for the estimated income taxes attributable to the sign-on bonus
disclosed in footnote (2) above.
(4)Genentech has awarded no stock appreciation rights ("SARs").
(5)Consists of Genentech's matching payments under its 401(k) Plan and
Supplemental Plan for 2000, 1999 and 1998. Each of the Named Executive
Officers other than Ms. Potter received $6,800 in matching payments under the
401(k) Plan for 2000 and $6,400 in matching payments under the 401(k) Plan
for 1999 and 1998, and under the Supplemental Plan, Dr. Levinson, Dr.
Desmond-Hellmann, Mr. Lavigne, Ms. Potter and Mr. Juelsgaard received
matching payments of $62,600, $27,200, $20,300, $10,000 and $14,600,
respectively, for 2000 and Dr. Levinson, Dr. Desmond-Hellmann, Messrs.
Lavigne and Juelsgaard received matching payments of $61,600, $21,000,
$20,700 and $13,600, respectively, for 1999 and of $35,200, $12,000, $15,000
and $9,142, respectively, for 1998.
(6)Ms. Potter began her employment with Genentech effective May 15, 2000.
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(7)The options granted in 1999 were replacements for the unvested portion of
options granted in prior years that were canceled in connection with
Genentech's redemption of its special common stock in June of 1999. In
replacement of these canceled unvested options, Genentech issued replacement
options in connection with its initial public offering in July of 1999. These
replacement options were issued at a higher exercise price and for a longer
vesting period than the canceled unvested options they replaced. The number
of replacement options granted equaled the number of canceled options
multiplied by 1.333. No new options other than these replacement options were
granted to the Named Executive Officers in 1999. For each Named Executive
Officer, the first number shown is the number of replacement options granted
in 1999 and the second number shown in parenthesis is the portion of unvested
options granted in prior years that were canceled prior to the time of the
replacement grant.
(8) In connection with Genentech's redemption of its special common stock in
1999, the unvested portion of the options granted in 1998 was canceled and
replacement options, in the amount of 1.333 times the number of options
canceled, were granted in 1999. The option grant numbers for 1998 reflect
the vested options remaining after cancellation of the unvested options. For
each Named Executive Officer, the following numbers of unvested options were
canceled in 1999: Dr. Levinson -- 1,050,000; Dr. Desmond-Heller -- 450,000;
Mr. Lavigne -- 450,000; and Mr. Juelsgaard -- 240,000. The stock options
received in replacement of the canceled, unvested options are included in
the option grants for 1999.
STOCK OPTION GRANTS AND EXERCISES
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
---------------------------------------------------------------------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS GRANT DATE
SECURITIES UNDERLYING GRANTED TO EXERCISE OR PRESENT
OPTIONS GRANTED EMPLOYEES IN BASE PRICE EXPIRATION VALUE(5)
NAME (#)(1) FISCAL YEAR(2) ($/SH)(3) DATE(4) (IN MILLIONS)
---- --------------------- -------------- ----------- ---------- -------------
Arthur D. Levinson.............. 360,000 3.6% $81.97 09/20/10 $15.7
Susan D. Desmond-Hellmann....... 250,000 2.5% $81.97 09/20/10 $10.9
Louis J. Lavigne, Jr. .......... 160,000 1.6% $81.97 09/20/10 $ 7.0
Myrtle S. Potter................ 200,000 2.0% $65.69 05/15/10 $ 7.0
Myrtle S. Potter................ 100,000(6) 1.0% $65.69 05/15/10 $ 3.9
Stephen G. Juelsgaard........... 160,000 1.6% $81.97 09/20/10 $ 7.0
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(1) The options were granted pursuant to the 1999 Stock Plan and vest over four
years, with the first 25% vesting one year from the grant date, and the
remainder vesting monthly during the 36-month period following the initial
vesting date.
(2) Based on a total of approximately 10 million options granted in 2000 under
our 1999 Stock Plan to employees, including the Named Executive Officers.
Approximately 87% of these options were granted to more than 4,000
employees, other than the Named Executive Officers, representing more than
95% of the eligible employee population.
(3) The exercise price per share of options granted represented the fair market
value of the underlying shares of common stock as based on the closing
selling price per share of the Company's common stock on the date of grant.
As of the Record Date, the exercise prices of the options are greater than
the closing price of Genentech's common stock.
(4) These options have a term of ten years subject to earlier termination upon
the occurrence of certain events related to termination of employment.
(5) Option value was determined using the Black-Scholes option pricing model
based on the following assumptions: expected volatility of 75% based on
historical volatility for the year and implied volatility from traded
options and a risk free rate of 5.3% for the vesting term of the option.
Each option is valued at its exercise price, which is assumed to be
equivalent to the market price at the date of grant. This
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valuation model was not adjusted for the vesting restrictions or the risk of
forfeiture of the options. Under SFAS 123, forfeitures may be estimated or
assumed to be zero; in this model, the forfeiture rate was assumed to be
zero. Our use of this model in accordance with rules adopted by the
Securities and Exchange Commission does not constitute an endorsement of the
model nor an acknowledgment that such model can accurately determine the
value of options. The valuation calculations do not necessarily represent
the fair market value of individual options, and are not intended to
forecast possible future appreciation, if any, of the price of our common
stock on the date of exercise as compared to the exercise price of the
option.
(6) The options were granted pursuant to the 1999 Stock Plan and vest over five
years, with the first 25% vesting two years from the grant date, and the
remainder vesting monthly during the 36-month period following the initial
vesting date.
The following table shows for the fiscal year ended December 31, 2000,
certain information regarding options exercised by, and held at year end by, the
Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES(1)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END(#) AT FY-END(3)(4)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED(2) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Arthur D. Levinson,
Ph.D. ................... 890,000 $57,320,860 922,732 1,020,120 $52,897,983 $58,401,857
Susan D. Desmond-Hellmann,
M.D., M.P.H. ............ 260,000 $15,203,225 330,634 492,470 $18,928,845 $28,193,859
Louis J. Lavigne, Jr. ..... 360,000 $23,970,926 306,566 443,226 $17,550,933 $25,374,659
Myrtle S. Potter........... 0 0 0 300,000 $ 0 $ 4,743,750
Stephen G. Juelsgaard...... 298,000 $20,579,294 245,496 274,376 $14,054,691 $15,707,981
- ---------------
(1) Genentech has awarded no SARs.
(2) Sale price of Genentech's common stock on the date of exercise minus the
exercise price.
(3) The value of the unexercised in-the-money options is based on the fair
market value of Genentech's common stock, $81.50, at the close of business
on December 29, 2000, the last business day of 2000, minus the exercise
price of the options.
(4) Shown below is a calculation of the value of the unexercised in-the-money
options as of a more recent date, March 12, 2001. The calculation is based
on the fair market value of Genentech's common stock, $44.20, at the close
of business on March 12, 2001 minus the exercise price of the options.
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT MARCH 12, 2001(4)
----------------------------
NAME EXERCISABLE UNEXERCISABLE
---- ----------- -------------
Arthur D. Levinson, Ph.D. ........................ $20,662,322 $18,209,138
Susan D. Desmond-Hellmann, M.D., M.P.H. .......... $ 7,630,350 $ 8,790,575
Louis J. Lavigne, Jr. ............................ $ 7,046,775 $ 7,911,576
Myrtle S. Potter.................................. $ 0 $ 0
Stephen G. Juelsgaard............................. $ 5,473,849 $ 4,897,598
CHANGE IN CONTROL AGREEMENTS
Genentech and Ms. Potter, Executive Vice President, Commercial Operations
and Chief Operating Officer, entered into a Change of Control Agreement on
January 20, 2001 (the "Agreement"). The Agreement is effective through the
earlier of May 15, 2005 or 24 months following a Change of Control (as that term
is defined in the Agreement). The Agreement generally provides that, in the
event Ms. Potter's
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employment with Genentech is terminated (i) by Genentech, except for Cause or
(ii) by Ms. Potter with Good Reason (as these terms are defined in the
Agreement) following a Change of Control, Genentech will pay Ms. Potter a lump
sum severance payment equal to two times the sum of (i) Ms. Potter's annual base
salary and (ii) Ms. Potter's average annual bonus and provide 24 months of
health care and other insurance coverage. If the foregoing severance payments
are subject to excise tax, then Genentech will pay Ms. Potter an additional
amount to cover such tax.
LOANS AND OTHER COMPENSATION
In 1994, Genentech lent $250,000 to Ms. Kimberly Popovits, Senior Vice
President, Sales and Marketing, for the purchase of a home in connection with
her relocation to the San Francisco Bay Area. The loan is imputed to bear
interest at the rate of 8.20%. $100,000 of the loan was forgiven in five equal
amounts on the anniversary dates of the loan. The remaining $150,000 was repaid
in 2000. The largest amount outstanding under the loan during 2000 was $150,000.
As of the date of this Proxy Statement no amount of the loan remains
outstanding. The imputed interest on the loan is compensatory to Ms. Popovits
and amounted to $1,067 in 2000.
In 1999, Genentech lent $250,000 to Dr. Stephen Dilly, Vice President,
Medical Affairs, for the purchase of a home in connection with his relocation to
the San Francisco Bay Area. The loan is imputed to bear interest at the rate of
5.21%. $175,000 of this loan is due and payable in equal installments of $58,333
each on the fifth, sixth and seventh anniversary of the date of the loan or, if
earlier, the remaining balance is due on the date of termination of Dr. Dilly's
employment with Genentech. The remaining $75,000 will be forgiven on April 12,
2004, if Dr. Dilly remains employed by Genentech. The largest amount outstanding
under this loan during 2000 was $250,000. The amount of this loan outstanding as
of the date of this Proxy Statement is $250,000. The imputed interest on this
loan is compensatory to Dr. Dilly and amounted to $9,904 in 2000.
In 1999, Genentech made interest free loans for a total of $450,000 to Ms.
Diane Parks, Vice President, Managed Healthcare and Commercial Support, for the
purchase of a home in connection with her relocation to the San Francisco Bay
Area. In July 1999, Genentech lent Ms. Parks $250,000. $150,000 of this loan is
due and payable on the earlier of the fifth anniversary of the date of the loan
or the date of termination of Ms. Parks' employment with Genentech. The
remaining $100,000 will be forgiven in five equal installments of $20,000 on the
anniversary date of the loan, provided that, Ms. Parks is employed by Genentech
on the forgiveness date. In November 1999, Genentech lent Ms. Parks $200,000, of
which $175,000 was repaid in November 1999. The remaining $25,000 is due and
payable on the earlier of the fifth anniversary of the date of the loan or the
date of termination of Ms. Parks' employment with Genentech or sale of her
current residence. The largest amount outstanding under all loans during 2000
was $275,000. The amount of the loans outstanding as of the date of this Proxy
Statement is $255,000.
In 2000, Genentech made an interest free loan of $2,200,000 to Ms. Myrtle
Potter, Executive Vice President, Commercial Operations and Chief Operating
Officer, for the purchase of a home in connection with her relocation to the San
Francisco Bay Area. $1,000,000 of the loan is due and payable on the earlier of
May 15, 2005 or within 30 days from the date of termination of Ms. Potter's
employment with Genentech. $1,000,000 of the loan will be forgiven in equal
installments of $200,000 each on May 15, 2001 through 2005, provided that, Ms.
Potter is employed by Genentech on these dates. Genentech has agreed to pay to
Ms. Potter the amount equal to the grossed-up federal and state income taxes
payable in connection with the forgiveness of the repayment of each installment.
The remaining $200,000 of the loan shall be due and payable in four equal
installments of $50,000 each on the dates Ms. Potter receives her annual
performance bonus from Genentech. The largest amount outstanding under this loan
during 2000 was $2,200,000. The amount of this loan outstanding as of the date
of this Proxy Statement is $2,150,000.
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COMPENSATION COMMITTEE REPORT(1)
The Compensation Committee of the Board of Directors (the "Committee") is
currently composed of all the directors, except Dr. Levinson. The Committee is
responsible for setting and administering the policies that govern annual
executive salaries, bonuses (if any) and stock ownership programs. The Committee
annually evaluates the performance, and determines the compensation, of the
Chief Executive Officer ("CEO") and the other executive officers of Genentech
based upon a mix of the achievement of the corporate goals, individual
performance and comparisons with other pharmaceutical and biotechnology
companies. The CEO is not present during the discussion of his compensation.
The policies of the Committee with respect to executive officers, including
the CEO, are to provide compensation sufficient to attract, motivate and retain
executives of outstanding ability and potential and to establish an appropriate
relationship between executive compensation and the creation of shareholder
value. To meet these goals, the Committee has adopted a mix among the
compensation elements of salary, bonus and stock options, with some bias toward
stock options, to emphasize the link between executive incentives and the
creation of shareholder value as measured by the equity markets. In general, the
salaries and stock option awards of executive officers are not determined by the
Company's achievement of specific corporate performance criteria. Instead, the
Committee determines the salaries for executive officers based upon a review of
salary surveys of other pharmaceutical, biotechnology and San Francisco Bay Area
high technology companies performed for the Committee. To provide the Committee
with more information for making salary and bonus compensation comparisons,
Genentech surveys a broader group of pharmaceutical and biotechnology companies
than those companies included in the Standard & Poors Healthcare (Drug) Index
shown on Genentech's Performance Graph. Based upon such surveys, the executive
officers' salaries are targeted at the fiftieth (50th) percentile, and officers'
salaries and bonuses, together with all other benefits, are targeted at the
seventy-fifth (75th) percentile, as compared to other biotechnology companies,
while stock options are set in the mid range compared to a comparable group,
based on market capitalization, of biotechnology and pharmaceutical companies.
In awarding stock options, the Committee considers individual performance,
overall contribution to Genentech, officer retention, the total number of stock
options to be awarded and an analysis of stock option awards granted by a
comparable group, based on market capitalization, of biotechnology and
pharmaceutical companies and by a comparable growth, in terms of market
capitalization of high technology companies in the San Francisco Bay Area. In
determining where a given officer's total compensation, including the CEO's, is
set within the ranges and in light of the considerations described above, the
Committee subjectively evaluates such factors as the individual's performance
and the success of Genentech as measured by earnings per share, product sales
revenues, product development progress, research prospects, and other critical
success factors.
Bonuses are provided to executive officers in connection with Genentech's
company-wide bonus plan. Payment of bonuses is expressly linked to the
attainment of specified corporate goals that the Committee sets at each year's
December meeting for the next year. Among other things, these goals determine
whether a bonus will be paid to all eligible employees and the amount of funding
available for the bonus pool. For the bonus for services rendered in 2000, the
corporate performance goals, in order of importance, related to: (i)
accelerating and expanding product development by filing Investigational New
Drug Applications, initiating or completing specified clinical trials
investigating the use of new products, selecting new products for development
and filing New Drug Applications or Product License Applications for new
indications of marketed products; (ii) business and financial performance,
including but not limited to increasing earnings per share, revenues and net
income percentage; (iii) commercial performance, including increasing US product
sales revenues, increasing efficiency in the cost of producing Genentech's
products and forming strategic alliances by in-licensing products and
establishing relationships with other companies; and
- ---------------
(1) The material in this report and under the caption "Performance Graph" are
not "soliciting material," are not deemed filed with the SEC and are not to be
incorporated by reference in any filing of the Company under the Securities Act
of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether
made before or after the date of this Proxy Statement and irrespective of any
general incorporation language therein.
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(iv) enhancing employee development. In setting these goals, the Committee is
cognizant of the long development cycle for human pharmaceuticals. The corporate
performance goals for bonuses selected by the Committee seek to balance the
desire for immediate earnings and the longer term goal of enhancing shareholder
value by bringing to market many of the potential therapies in Genentech's
research and development pipeline. In February 2001, the Committee reviewed the
corporate performance goals for bonuses and determined that approximately $23.3
million of the total potential goal values of $28.4 million under the 2000 Bonus
Plan were achieved. The Committee allocated a bonus to the current CEO based on
the achievement of the requisite corporate goals, as discussed above, and based
on the Committee's view that the CEO's performance in achieving those goals had
been excellent. In determining the 2000 bonuses, the Company's Executive
Committee requested that Executive Committee officer bonuses, including the
CEO's bonus, should not exceed in any significant manner their 1999 bonuses
(paid in 2000) and that the standard incorporation of the 75th percentile
comparison (which would have resulted in increased bonuses beyond what the
general population received) not be considered as a determining factor. The
Committee set a range of 50% to 100% of salary for bonuses for members of the
Company's Executive Committee other than the CEO (Dr. Desmond-Hellmann, Ms.
Potter and Messrs. Juelsgaard and Lavigne.) Within the applicable range, the
Committee set the bonus for each Executive Committee member based on the
Committee's subjective evaluation of the individual's performance and the
recommendation of the CEO.
The Committee uses the same procedures described above for the other
executive officers in setting the annual salary, bonus and stock option awards
for the CEO. The CEO's salary is determined based on comparisons with
pharmaceutical and biotechnology companies as described above. In awarding stock
options, the Committee considers the CEO's performance, overall contribution to
Genentech, retention, the total number of options to be awarded and a review of
stock options awarded to CEO's by a comparable group, in terms of market
capitalization of biotechnology and pharmaceutical companies and by a comparable
group, in terms of market capitalization, of high technology companies in the
San Francisco Bay Area. The CEO's bonus is dependent on Genentech achieving the
performance goals outlined above and the Committee's subjective evaluation of
the CEO's performance. As described above, in determining where the CEO's total
compensation is set within the ranges and in light of the considerations
described above, the Committee subjectively evaluates such factors as the
individual's performance and the success of Genentech as measured by the factors
outlined above. Compared to other companies surveyed by Genentech, the current
CEO's salary, bonus and stock options are competitive.
Section 162(m) of the Code limits the federal income tax deductibility of
compensation paid to Genentech's CEO and to each of the Named Executive
Officers. Under Section 162(m), Genentech generally may deduct compensation paid
to such an officer only to the extent that it does not exceed $1 million during
any calendar year or is "performance-based" as defined in Section 162(m).
Genentech expects that the deductibility limit of Section 162(m) currently will
have an insignificant effect on Genentech. Current cash compensation paid to
each of Genentech's executives, with one exception, is less than $1 million per
year and is thus generally fully deductible to the Company. In addition,
Genentech expects to receive a federal income tax deduction in connection with
the exercise of stock options granted to the Named Executive Officers.
From the members of the Compensation Committee of Genentech:
Herbert W. Boyer
Franz B. Humer
Jonathan K.C. Knowles
Sir Mark Richmond
Charles A. Sanders
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AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors currently consists of Drs.
Boyer, Richmond and Sanders, and operates under a formal written charter which
is attached as Appendix A. The Audit Committee recommends the independent
auditors to the Board, and reviews the Company's financial reporting process on
behalf of the Board. The Audit Committee has prepared the following report on
its activities with respect to the Company's audited financial statements for
the year ended December 31, 2000.
Genentech's management is responsible for the preparation, presentation and
integrity of the Company's financial statements. Management is also responsible
for maintaining appropriate accounting and financial reporting practices and
policies as well as internal controls and procedures designed to provide
reasonable assurance that Genentech is in compliance with accounting standards
and applicable laws and regulations. The independent auditors are responsible
for planning and performing an independent audit of the Company's financial
statements in accordance with generally accepted accounting principles. The
independent auditors are responsible for expressing an opinion on the conformity
of those audited financial statements with accounting principles generally
accepted in the United States.
In this context, the Audit Committee has reviewed and discussed the audited
financial statements for the year ending December 31, 2000 with management and
the independent auditors, Ernst & Young LLP. The Audit Committee has also
discussed with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communications with Audit Committees),
as amended by Statement on Auditing Standards No. 90 (Audit Committee
Communications).
Ernst & Young LLP has provided the Audit Committee with the written
disclosures and letter required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit Committee
discussed with the independent auditors that firm's independence.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the board of directors that the audited financial statements
referred to above be included in Genentech's Annual Report on Form 10-K for the
year ended December 31, 2000.
Each of the members of the Audit Committee is independent as defined under
the listing standards of the New York Stock Exchange.
From the members of the Audit Committee of Genentech:
Herbert W. Boyer
Sir Mark Richmond
Charles A. Sanders
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2000, Genentech's Compensation Committee consisted of Drs. Boyer,
Humer, Knowles, Richmond and Sanders. Dr. Boyer, a founder of the Company, was a
vice president of Genentech from 1976 to 1991 and is currently a consultant to
the Company. Dr. Humer joined The Roche Group in 1995 as the Head of its
Pharmaceuticals Division and is currently Chairman and Chief Executive Officer
of The Roche Group. He is also Chairman of the Executive Committee of The Roche
Group. Dr. Knowles joined The Roche Group in 1997 as Head of Global
Pharmaceutical Research. He is a member of the Executive Committee of The Roche
Group. Pursuant to the terms of the affiliation agreement, Drs. Humer and
Knowles are serving on Genentech's Compensation Committee as designees of Roche.
See "Relationship with Roche" above and "Certain Relationships and Related
Transactions" below for a description of Genentech's relationship with Roche.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1980, Genentech and Hoffmann-La Roche entered into an agreement
regarding the development and commercialization of human leukocyte ("alpha") and
fibroblast ("beta") interferons (the "Interferon License Agreement"). Pursuant
to this agreement, as amended from time to time, Genentech granted Hoffmann-La
Roche a sole and exclusive, worldwide license to use and sell (and, under
certain circumstances, manufacture) alpha and beta interferons using organisms
and knowhow developed by Genentech and under patent rights belonging to
Genentech, for a period of 20 years. Pursuant to this agreement, Genentech is
entitled to royalties on sales of interferons by Hoffmann-La Roche for 10 years
after commercial introduction, unless the period of exclusivity is extended for
an additional 5-year, royalty-bearing period. These royalties totaled $700,000
in 2000.
Herceptin Licensing Agreement
On July 6, 1998, we entered into an agreement with Hoffmann-La Roche to
provide Hoffmann-La Roche exclusive marketing rights outside of the United
States for Herceptin. Under the agreement, Hoffmann-La Roche paid $40 million to
us and has agreed to pay cash milestones tied to future product development
activities, to contribute equally with us up to a maximum of $40 million on
global development costs and to make royalty payments of 20% on aggregate net
product sales outside the United States up to $500 million in each calendar year
and 22.5% on such sales in excess of $500 million in each calendar year.
Amended and Restated Licensing Agreement
Summary of Key Changes: Under an agreement dated October 25, 1995, we
granted to Hoffmann-La Roche an option for ten years for licenses to use and
sell some of our products in non-U.S. markets. In July 1999, we amended this
licensing agreement with Hoffmann-La Roche by extending until at least 2015
Hoffmann-La Roche's option to license to use and sell products in non-U.S.
markets. Other key changes to the license agreement are summarized as follows:
- Hoffmann-La Roche may choose to exercise its option at the end of a Phase
III trial, if it pays a $10 million fee to us to extend its option on the
product;
- if Hoffmann-La Roche exercises its option after the completion of a Phase
III trial, Hoffmann-La Roche will reimburse us for 75% of our development
costs incurred after the completion of the Phase II trial through the
completion of the Phase III trial, and 50% of our development costs
incurred before completion of the Phase II trial. Subsequent development
costs for other indications will be shared 75%/25% by Hoffmann-La Roche
and Genentech;
- on each Genentech product for which Hoffmann-La Roche exercises its
option after completion of the Phase III trials, we will receive a
royalty of 15% on all sales until the later in each country of the
expiration of our relevant patent or 25 years from the first commercial
introduction; however, $5 million of any option extension fee paid by
Hoffmann-La Roche shall be credited against royalties payable to us in
the first calendar year of sales by Hoffmann-La Roche in which aggregate
sales of the product exceeds $100 million;
- Hoffmann-La Roche will have the right to manufacture our products itself
if it can demonstrate that it is able to manufacture products at a lower
price than our supply price, if we are not able to supply Hoffmann-La
Roche's commercial requirements or if we intend to have a third party
manufacture the product;
- Hoffmann-La Roche will have the right to terminate a license for a
product upon 30 days notice;
- if Hoffmann-La Roche terminates its license based on a good faith
determination, after consultation with appropriate regulatory authorities
in the relevant country, that the product cannot be approved for sale in
one or more major European countries because of safety issues,
Hoffmann-La Roche will be liable for all obligations incurred primarily
to support registration outside the United States of that product for up
to six months after the termination is given; and
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- if Hoffmann-La Roche terminates its license for other than safety
reasons, Hoffmann-La Roche shall be liable for all of its obligations
regarding the product for up to twelve months after the notice of
termination.
Genentech and Roche have also entered into a Small Molecule Screening
Agreement for the screening of Roche's chemical library using certain mutually
agreed Genentech assays to find lead molecules for development into small
molecule therapeutics. Roche has the responsibility for supplying the chemical
library to be screened. Genentech has the responsibility for supplying the
assays and for undertaking the initial screening. If the screening results in
the identification of a molecule of interest to one of the parties, that party
shall advise the other party of its interest. The second party can then elect to
proceed with the interested party and jointly develop the molecule or it can
choose to let the interested party develop the molecule on its own. If a
molecule is jointly developed, the parties are to share equally the cost of
joint development and to agree to a plan proportioning research and development
responsibilities between them based on their capability. If a product is jointly
developed, both Genentech and Roche have the right to make, use and sell that
product and will negotiate an allocation of the major marketing territories
between them as well as appropriate royalties payable by each to the other for
sales of that product in that party's marketing territory. As a general
principle, the markets for each product are to be allocated on an equal basis,
but Genentech is to have at least 50% of the marketing rights in North America
and Roche is to have at least 50% of the marketing rights in Europe, subject to
certain exceptions. After allocation of marketing rights, each party is to pay
the other a royalty on sales in that party's marketing territory with the
royalty to be determined by negotiation. As a general principle, the percentage
royalty payable on sales by either party to the other should have equivalent
royalty rates. If a product is unilaterally developed, the party unilaterally
developing that product has the sole right to make, use and sell that product
throughout the world and will pay the other party a royalty of 5% of sales.
See also "Relationship with Roche" starting on page 2.
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PERFORMANCE GRAPH
The following chart shows a comparison of five-year cumulative total
stockholder return as of December 31 among Genentech, the Standard & Poors
Healthcare (Drug) 500 Index, and the Standard & Poors 500 Index:(1)
TOTAL STOCKHOLDER RETURNS
[PERFORMANCE GRAPH]
- ----------------------------------------------------------------------------------------------------------------
December 95 December 96 December 97 December 98 December 99 December 00
- ----------------------------------------------------------------------------------------------------------------
Genentech, Inc. 100.00 101.18 114.38 150.35 509.09 616.96
S&P 500 Index 100.00 122.96 163.98 210.85 255.21 231.98
Healthcare (Drugs -- Major
Pharmaceuticals) -- 500 100.00 124.71 198.63 301.34 247.83 341.63
- ----------------------------------------------------------------------------------------------------------------
- ---------------
(1) The total return on investment (change in year end stock price plus
reinvested dividends) assumes $100 invested on December 31, 1995, in
Genentech, the Standard & Poors 500 Index, and the Standard & Poors
Healthcare (Drug) 500 Index (comprised at December 31, 2000 of Allergan,
Inc., Forest Laboratories, Inc., Eli Lilly and Company, Merck & Co., Inc.,
Pfizer Inc., Pharmacia Corporation and Schering-Plough Corporation).
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PROPOSAL 3 -- RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as Genentech's
independent auditors for the year ending December 31, 2001, and has further
directed that management submit the selection of independent auditors for
ratification by the stockholders at the Annual Meeting. Ernst & Young LLP has
audited Genentech's financial statements since its inception in 1976.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting, will have an opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as
Genentech's independent auditors is not required by the bylaws or otherwise. The
Board of Directors has elected to seek such ratification as a matter of good
corporate practice. Should the stockholders fail to ratify the selection of
Ernst & Young LLP as independent auditors, the Board of Directors will consider
whether to retain that firm for the year ending December 31, 2001.
The following table sets forth the aggregate fees billed by Ernst & Young
LLP to Genentech for:
(i) Audit Fees in connection with the audit of Genentech's 2000 annual
financial statements and the review of financial statements in Genentech's
quarterly reports on Form 10-Q filed in 2000;
(ii) Financial Information Systems Design and Implementation Fees for the
year 2000; and
(iii) All Other Fees for the year 2000 other than for services covered in
(i) or (ii).
Audit Fees............................................... $ 565,000
Financial Information Systems
Design and Implementation Fees......................... $1,813,000
All Other Fees........................................... $ 595,000
The affirmative vote of the holders of a majority of the common stock
represented at the Annual Meeting is required for approval of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE FOR SUCH RATIFICATION.
OTHER MATTERS
The Board of Directors knows of no other business to be presented at the
Annual Meeting, but if other matters do properly come before the Annual Meeting,
it is intended that the persons named on the Proxy Card will vote on such
matters in accordance with their best judgment.
Stockholder Proposal for 2002 Annual Meeting. Notice of any stockholder
proposal that is intended to be presented by such stockholder at Genentech's
2002 Annual Meeting and included in the Proxy Statement relating to that meeting
must be received by the Secretary of the Company no later than November 27, 2001
in order that it may be considered for possible inclusion in the Proxy Statement
and the form of Proxy Card relating to that meeting.
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APPENDIX A
GENENTECH, INC.
AUDIT COMMITTEE CHARTER AND ANNUAL AGENDA
PURPOSE OF COMMITTEE
Genentech's financial reporting is the responsibility of senior management,
but is overseen by the Board of Directors. It is the charter of the Genentech
Audit Committee to assist the Board as follows:
- Carry out the oversight responsibility for monitoring the integrity of
Genentech's financial reporting process.
- Review management's programs to:
1. Maintain adequate systems of internal controls regarding finance and
accounting and related legal compliance matters,
2. Safeguard Company assets,
3. Provide appropriate reserves for any legal or regulatory issues, and
4. Assess and manage risk.
- Monitor the independence and performance of Genentech's independent
auditors, including annual financial audit, quarterly reviews, general
audit and non-audit services. The independent auditor is ultimately
accountable to the Board of Directors and the Audit Committee, and the
Audit Committee is responsible for recommending to the Board of Directors
the selection, evaluation and replacement, where appropriate, of the
auditors.
- Provide an avenue of communication among the independent auditors,
management and the Board of Directors.
- Assure that the Company has provided the NYSE with annual written
reaffirmation that the Board of Directors has reviewed, on an annual
basis, this charter for adequacy.
- Assure that the Company has disclosed this charter in an appendix to
Genentech's proxy statement at least once every three years.
- Discuss, with the independent auditors, the matters required to be
discussed by Statement on Auditing Standards No. 61(1), and as amended by
Statement on Auditing Standards No. 90(2).
- Review the report of the Audit Committee as required by the rules of the
Securities and Exchange Commission to be included in the Company's annual
proxy statement, in accordance with the required frequency.
- ---------------
(1) SAS No. 61 requires an independent auditor to communicate to the Audit
Committee matters related to the conduct of the audit such as the selection of
and changes in significant accounting policies, the methods used to account for
significant unusual transactions, the effect of significant accounting policies
in controversial or emerging areas, the process used by management in
formulating particularly sensitive estimates and the basis for the auditor's
conclusions regarding the reasonableness of those estimates, significant
adjustments arising from the audit, and disagreements with management over the
application of accounting principles, the basis for management's accounting
estimates and the disclosures in the financial statements.
(2) SAS No. 90 states that discussions on the quality of an entity's
accounting principles should include such matters as consistency of accounting
policies and their application, and the clarity and completeness of financial
statements, which include related disclosures.
A-1
27
- Request the review of significant changes or new events in the Company or
significant developments in accounting rules which have significant
financial implications or risks or will likely require additional
reporting or changes in accounting or operating practices.
To carry out these responsibilities, the Audit Committee shall meet
regularly and report its activities to the full Board after such meetings.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to determine that the Company's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
This is the responsibility of management and the independent auditor. Nor is it
the duty of the Audit Committee to conduct investigations, to resolve
disagreements, if any, between management and the independent auditor or to
assure compliance with laws and regulations and the Company's Good Operating
Practices.
TERM AND MEMBERSHIP
The Audit Committee shall be appointed by the Board of Directors and shall
consist of three independent directors. Audit Committee membership will conform
to the following independence limitations:
- An employee of the company or its affiliates may not serve on the Audit
Committee until three years following termination of such employment,
subject to the Board's override
- A director who (1) is a partner, controlling shareholder or executive
officer of an organization that has a business relationship with the
Company or (2) has a direct business relationship with the Company (e.g.,
a consultant), cannot serve on the Audit Committee until three years
after the termination of such relationship, unless the Company's Board
determines in its business judgement that the relationship does not
interfere with the director's exercise of independent judgement, taking
into account among other things, the materiality of the relationship to
the Company, the director or such organization
- A director who is employed as an executive of another company where any
of the Company's executives serves on that company's Compensation
Committee may not serve on the Audit Committee
- A director who is an immediate family member of an individual who is an
executive officer of the Company or any of its affiliates cannot serve on
the Audit Committee until three years following the termination of such
employment relationship, subject to the Board's override
Each Audit Committee member shall serve until resignation from the
Committee or replacement by the Board. Each Audit Committee member shall be
"financially literate," as defined by the Board, or attain such status within a
reasonable period after appointment. At least one member shall have "accounting
or related financial expertise" as defined by the Board.
RESPONSIBILITIES -- MEETING FREQUENCY
In general, it is expected that the Audit Committee be vigilant and
effective overseers of the financial reporting process and the Company's
internal financial controls. In so doing, it is intended that the following
standing annual agenda of the Committee represents the Board's expectations of
the Committee's activities. Four meetings and four teleconferences of the
Committee have been established to provide sufficient time for discussion of the
agenda topics.
In addition, any other business which either the Audit Committee, the
independent auditors, or management feels is appropriate will be added to the
agenda along with review of any significant financing transactions. Also, the
Audit Committee shall have the authority to retain special legal, accounting or
other consultants to advise the Committee. The Audit Committee may request any
officer or employee of the
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Company or the Company's outside counsel or independent auditor to attend a
meeting of the Committee or to meet with any members of, or consultants to, the
Committee.
DATE AGENDA
---- ------
Each Meeting - Provide time for the Committee to meet with management as well as separately with the
independent auditors (representing financial audit and general audit) and for the review of
significant general audit reports. Review and approve the Minutes of the prior meeting.
Quarterly - Conduct a quarterly teleconference to review with management, and the independent auditors,
the company's quarterly (or annual) financial results prior to the release of quarterly (or
annual) results.
February - Review and discuss audited financial statements with management and discuss audit and other
matters as required by SAS No. 61, and as amended by SAS No. 90, with independent auditors.
- Review independent auditor's management letter and management's responses.
- Review the report of the Audit Committee as required by the rules of the Securities and
Exchange Commission to be included in the Company's annual proxy statement, in accordance
with the required frequency.
- Review and reassess the adequacy of this Charter and recommend any proposed changes to the
Board for approval.
- Review the statement of affirmation for the NYSE related to the adequacy of the charter.
May - Review quarterly reporting process and managements' control thereof.
- Review tax compliance program and plan.
September - Review scope of annual financial audit, quarterly review and general audit activities for
coming year.
- Review independence of independent auditors and their staffing, fees and nature of annual
financial audit, quarterly reviews, and general audit and non-audit services.
- Review Company's investment policy, interest rate management program and foreign exchange
hedging program.
December - Review Company's insurance coverage and other risk management programs.
- Review with management, including General Counsel or his/her designee, any legal matters that
could have a significant impact on the Company's financial statements. Discuss the relevant
reserves with management.
- Review performance of independent auditors, for their annual financial audit, quarterly
reviews, general audit and non-audit services, with management and recommend independent
auditors for upcoming year for Board of Director approval.
A-3