<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25, 1995.
REGISTRATION NO. 33-59949-03
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE AMENDMENT NO. 3
ON
FORM S-3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933*
------------------------
GENENTECH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C>
DELAWARE 94-2347624
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
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460 POINT SAN BRUNO BOULEVARD
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(415) 225-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
STEPHEN G. JUELSGAARD
VICE PRESIDENT AND GENERAL COUNSEL
GENENTECH, INC.
460 POINT SAN BRUNO BOULEVARD
SOUTH SAN FRANCISCO, CALIFORNIA 94080
(415) 225-1000
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
* FILED AS A POST-EFFECTIVE AMENDMENT ON FORM S-3 TO SUCH FORM S-4
REGISTRATION STATEMENT PURSUANT TO THE PROCEDURE DESCRIBED HEREIN. SEE
"INTRODUCTORY STATEMENT".
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Post-Effective Amendment is declared effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<S> <C> <C> <C> <C>
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TITLE OF EACH PROPOSED PROPOSED MAXIMUM MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE REGISTRATION FEE
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Callable Putable Common Stock $.02 par
value.................................... 10,086,453 shares N.A.(2) N.A.(2) N.A.(2)
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</TABLE>
(1) This Registration Statement also relates to the 10,086,453 shares of Common
Stock, par value $.02, of the Registrant into which the 10,086,453 shares of
Callable Putable Common Stock offered hereby are subject to conversion in
accordance with the Certificate of Incorporation of the Registrant.
(2) All filing fees payable in connection with registration of these securities
were paid in connection with the filing of (a) the Registrant's Schedule 14A
dated June 2, 1995, (b) the Registrant's Form S-4, No. 33-59949, dated June
5, 1995 (the "Form S-4") and (c) Amendment No. 1 to the Form S-4 dated
September 8, 1995.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
GENENTECH, INC.
------------------------
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-3 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
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<S> <C> <C>
1. Forepart of Registration
Statement and Outside Front Cover
Page of Prospectus.................. Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus........... Additional Information
3. Summary information, Risk Factors and
Ratio of Earnings to Fixed
Charges............................. The Company
4. Use of Proceeds....................... Use of Proceeds
5. Determination of Offering Price....... Not Applicable
6. Dilution.............................. Not Applicable
7. Selling Security Holders.............. Not Applicable
8. Plan of Distribution.................. The 1990 Stock Option/Stock Incentive Plan;
Plan of Distribution
9. Description of Securities to be
Registered.......................... Description of the Special Common Stock
10. Interests of Named Expert and
Counsel............................. Legal Matters
11. Material Changes...................... Material Changes
12. Incorporation of Certain Information
by Reference........................ Incorporation of Certain Documents by Reference
13. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities.......... Disclosure of Commission Position on
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 25, 1995
GENENTECH, INC.
10,086,453 SHARES CALLABLE PUTABLE COMMON STOCK
------------------------
This Prospectus covers 10,086,453 shares of Callable Putable Common Stock,
par value $.02 per share ("Special Common Stock") of Genentech, Inc. (including
any shares of Common Stock of Genentech, Inc. ("Common Stock") issued upon
conversion of such shares) issuable upon exercise of stock options under
Genentech, Inc.'s 1990 Stock Option/Stock Incentive Plan (as amended, the
"Option Plan").
------------------------
The Callable Putable Common Stock is traded on the New York Stock Exchange
(the "NYSE") under the symbol GNE. On October 24, 1995 the closing sales price
for the Common Stock (which was converted into Special Common Stock on October
25, 1995) on the NYSE was $48.875.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS COMPANY
- -------------------------------------------------------------------------------------------------
Per Share...................... $48.875 (2) (3)
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Total.......................... $48.875 (2) (3)
- -------------------------------------------------------------------------------------------------
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</TABLE>
(1) Based upon the closing price of the Common Stock on October 24, 1995. The
actual price to be paid upon exercise of options will be determined on the
date the options are granted.
(2) Sales will be made upon the exercise of options without the use of
underwriters or dealers and no compensation will be paid to any such person
in connection with the sale of shares upon exercise of options. See "Plan of
Distribution".
(3) Before deducting offering expenses estimated at $7,500 payable by the
Company.
------------------------
The date of this Prospectus is , 1995
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTORY STATEMENT................................................................ 1
AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 2
THE COMPANY........................................................................... 2
USE OF PROCEEDS....................................................................... 2
THE 1990 STOCK OPTION/STOCK INCENTIVE PLAN............................................ 3
Information About Genentech......................................................... 4
A. Regular Option Grant Program..................................................... 5
1. Am I eligible for option grants?............................................. 5
2. The Plan previously referred to "Redeemable Common Stock." When will I
actually receive Special Common Stock?....................................... 5
3. Who determines the terms of my option?....................................... 5
4. Do special rules apply to me if I am an officer or director of the
Company?..................................................................... 5
5. What happens to my option or stock issued under the Option Plan in the event
Roche causes redemption of the Special Common Stock?......................... 6
6. How many shares of Special Common Stock will my option cover?................ 6
7. How is the exercise price of an option determined?........................... 6
8. When can I exercise my option?............................................... 7
9. How do I exercise my option?................................................. 7
10. Do I have to pay the exercise price with cash?............................... 7
11. Will I continue to receive options as long as I stay with the Company?....... 7
12. Can the stockholders of the Company change the terms of the Option Plan?..... 7
13. What happens if I leave the Company?......................................... 8
14. What if I leave the Company because of disability?........................... 8
15. What are the rights of my heirs?............................................. 8
16. Can a relative or friend exercise my option?................................. 8
17. Can I transfer my options?................................................... 8
18. Can I sell the stock I receive from exercising my option right away?......... 8
19. How do I sell stock I received under the option? Do I have to pay a
commission when I exercise my option or sell the stock I received under the
option?...................................................................... 9
20. I have heard about cashless exercise programs through brokers, How do these
work?........................................................................ 9
21. How can I make a gift of stock I receive under the Option Plan?.............. 9
22. Does the Company go out on the market to buy the stock which I will receive
on exercise of my option?.................................................... 9
23. Does the Option Plan have any of the same benefits as a qualified retirement
plan (including a 401(k) plan) and will my participation in the Option Plan
affect my participation in the Company's 401(k) plan?........................ 9
24. Do I have to pay tax when I receive a stock option or exercise the stock
option? Will the Company withhold the amount of taxes due?................... 10
25. How much tax do I have to pay when I sell stock received pursuant to the
exercise of a non-statutory stock option?.................................... 10
26. What is the difference between ordinary income and capital gains?............ 10
27. When do I pay tax on stock received pursuant to the exercise of an incentive
stock option?................................................................ 10
28. How is my profit taxed? What if I lose money?................................ 11
29. Is there any withholding on the exercise of my incentive stock option or the
sale of the stock acquired on exercise?...................................... 11
30. Do I have to complete any forms after I sell my stock?....................... 12
31. Are there any special tax rules which apply to me if the Company has the
right to repurchase my stock after I exercise my option?..................... 12
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Non-Qualified Stock Option....................................................... 12
Incentive Stock Option........................................................... 13
32. What are the tax consequences if I use shares I already own to pay the
exercise price of my non-qualified stock option?............................. 14
33. What are the tax consequences if I use shares I already own to pay the
exercise price of incentive stock options?................................... 14
34. What are the tax consequences of my exercise of options if I am subject to
the alternative minimum tax?................................................. 15
35. What happens to my option or stock issued under the Option Plan in the event
Genentech is acquired by a person other than Roche?.......................... 15
36. What happens if the vesting of my options accelerates upon a change of
control?..................................................................... 16
B. Automatic Grant Program.......................................................... 16
37. Are non-employee directors eligible to receive options under the Option
Plan?........................................................................ 16
C. Stock Appreciation Rights and Stock Incentive Program............................ 16
38. What are stock appreciation rights?.......................................... 16
39. What types of stock appreciation rights may be granted under the Option
Plan?........................................................................ 16
40. What are the tax consequences when I am granted a stock appreciation right,
when I receive a payment upon exercise of the right, and when I sell any
stock received upon exercise of the right?................................... 17
41. What is the Stock Incentive Program?......................................... 17
42. What are the tax consequences when I am issued stock under the Stock
Incentive Program and when I later sell such stock?.......................... 17
D. Miscellaneous.................................................................... 18
43. What happened to my options or stock granted before the Merger?.............. 18
44. What are some of the other features of the Option Plan?...................... 18
PLAN OF DISTRIBUTION.................................................................. 20
DESCRIPTION OF THE SPECIAL COMMON STOCK............................................... 20
LEGAL MATTERS......................................................................... 26
EXPERTS............................................................................... 27
MATERIAL CHANGES...................................................................... 27
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES... 27
</TABLE>
ii
<PAGE> 6
INTRODUCTORY STATEMENT
Genentech, Inc. ("Genentech", or the "Company" or the "Registrant") hereby
amends its Registration Statement on Form S-4 (No. 33-59949) (the "Form S-4"),
by filing this Post-Effective Amendment No. 3 on Form S-3 ("Amendment No. 3")
relating to the issuance of options and the subsequent issuance of up to
10,086,453 shares of Callable Putable Common Stock, par value $.02 per share
("Special Common Stock") in connection with the Company's 1990 Stock
Option/Stock Incentive Plan (as amended, the "Option Plan"). This Amendment No.
3 also relates to the sale of a like number of shares of the Company's Common
Stock, par value $.02 per share ("Common Stock"), into which the Special Common
Stock issuable in connection with the Option Plan is subject to conversion in
accordance with the Company's Certificate of Incorporation. All of such shares
were previously registered under the Form S-4.
On October 25, 1995, HLR (U.S.) II, Inc., a Delaware corporation and a
wholly owned subsidiary of Roche Holdings, Inc., a Delaware corporation
("Roche"), was merged into the Company (the "Merger"). As a result of the
Merger, each outstanding share of Common Stock (other than shares held by Roche
and its affiliates) was converted into one share of Special Common Stock. As a
result of the Merger, shares of Common Stock will no longer be issued pursuant
to the Option Plan. Instead, participants in the Plan will receive, in lieu of
each share of Common Stock which would have been acquired under the Plan, one
share of Special Common Stock.
The designation of Amendment No. 3 as Registration No. 33-59949-03 denotes
that Amendment No. 3 relates only to the shares of Special Common Stock (or,
upon conversion thereof, Common Stock) issuable pursuant to the Option Plan and
that this is the third Post-Effective Amendment to the Form S-4 filed with
respect to such shares.
AVAILABLE INFORMATION
Genentech is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should be available for copying and inspection at the Regional Offices of the
Commission at Suite 1400, 500 West Madison Street, Chicago, Illinois 60661 and 7
World Trade Center, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission, at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Company's Special
Common Stock is listed on the New York Stock Exchange and the Pacific Stock
Exchange and such reports, proxy statements and other information concerning
Genentech should be available for inspection and copying at their respective
offices at 20 Broad Street, New York, New York 10005 and 301 Pine Street, San
Francisco, California 94104.
The Company has filed with the Commission a Registration Statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Special Common Stock offered by this Prospectus. This Prospectus does not
contain all the information set forth in the Registration Statement. For further
information with respect to the Company and the securities offered by this
Prospectus, reference is made to the Registration Statement, including the
exhibits filed therewith or incorporated by reference therein.
<PAGE> 7
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission are incorporated herein
by reference:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and Amendment No. 1 thereto filed on September 18, 1995.
(b) All reports filed pursuant to Sections 13(a) or 15(d) of the
Exchange Act since the end of the fiscal year covered by the annual report
referred to in clause (a) above.
(c) The Company's Proxy Statement dated March 17, 1995.
(d) The description of the Special Common Stock filed pursuant to the
Exchange Act and any amendment or report filed to update such description.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the filing of a post-effective amendment which indicates that all
securities offered hereby have been sold or which deregisters all securities
remaining unsold shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date of filing of such documents.
Any statements contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information that has been incorporated by reference in the
Registration Statement filed with the Commission under the Securities Act with
respect to the Special Common Stock offered by this Prospectus, other than
certain exhibits to such documents. Such requests should be directed to the
Corporate Secretary, Genentech, Inc., 460 Point San Bruno Boulevard, South San
Francisco, California 94080, telephone (415) 225-1000.
THE COMPANY
Genentech, Inc. is an international biotechnology Company that discovers,
develops, manufactures and markets human pharmaceuticals for significant medical
needs. Genentech was incorporated in 1976 as a California corporation but
changed its state of incorporation in 1987 to Delaware. Genentech's executive
offices are located at 460 Point San Bruno Boulevard, South San Francisco,
California 94080, telephone (415) 225-1000.
USE OF PROCEEDS
There can be no assurance that any options granted under the Option Plan
will be exercised. However, assuming all options to be granted under the Option
Plan are granted and exercised for cash and that the exercise price of such
options is equal to the closing price of the Company's Common Stock on October
24, 1995, the net proceeds to be received by the Company from the sale of the
Special Common Stock offered hereby are estimated to be $493 million. Such
proceeds will be used for general corporate purposes including additions to
working capital and capital expenditures. A portion of the net proceeds may also
be used for the acquisition of technology or products, although no material
acquisitions are currently being negotiated. Pending such uses, the Company may
invest such proceeds in readily marketable, interest-bearing securities.
2
<PAGE> 8
THE 1990 STOCK OPTION/STOCK INCENTIVE PLAN
To our Employees, Certain Consultants and Non-Employee Directors:
We are pleased with this opportunity to provide you with updated
information regarding our employee stock option plan, the 1990 Stock
Option/Stock Incentive Plan, referred to as the "Option Plan" or the "Plan." We
believe that the Option Plan is an important part of the benefits provided to
our employees and we hope you will take the time to carefully review this
information.
Genentech, Inc. adopted the Option Plan in order to provide a method
whereby the Company may retain the services of persons now employed by or
serving as consultants to it, secure and retain the services of persons capable
of filling such positions and provide incentives for such persons to exert
maximum efforts for the success of the Company or its parent or subsidiary
corporations.
We have divided our discussion of the Option Plan into two sections. The
first section describes the terms of the Regular Option Grant Program under the
Option Plan, which provides for the grant of what are called incentive stock
options (tax advantaged options) and non-statutory stock options (options which
do not have tax advantages but which may cover stock offered at a discounted
price). It also includes a description of provisions of the Option Plan that are
applicable to all rights granted under the Plan. The second section describes
Stock Appreciation Rights and the terms of the Stock Incentive Program under the
Option Plan, which provides for the award of shares of Special Common Stock.
The attached materials may not answer all the questions you have about the
Option Plan and are not intended to go into every detail of the Option Plan,
copies of which are found at the end of this package. Kathy Panko, Manager of
Corporate Records, and Karen Strand, Senior Stock Services Coordinator, located
in the legal department will be happy to answer further questions.
If you are granted a stock option under the Option Plan you will receive an
option grant form describing the terms of your option. If you wish to exercise
an option you will need to complete an option exercise form provided with your
option grant. You may always obtain extra copies of the option exercise form
from Kathy Panko or Karen Strand.
3
<PAGE> 9
INFORMATION ABOUT GENENTECH
An important part of your participation in the Option Plan is understanding
the Company, its products, operations and financial condition. Like any
stockholder of the Company, you can keep yourself informed about the Company by
reviewing reports which the Company prepares for stockholders and the general
public.
If you have not already received a copy of Genentech's most recent annual
report as a current stockholder of the Company, the report should be delivered
to you with these materials. Whether or not you have already received the annual
report, you may always request a copy from the Company.
If you are already a stockholder of the Company or an option holder, you
should receive copies of the Company's proxy statement, reports to stockholders
and other stockholder communications. If you do not receive this information you
should notify Diane Schrick, Investor Relations, Building 5, extension 1599. You
may always request additional copies of this information.
The United States securities laws require the Company to provide
information about its business and financial status in annual reports, commonly
known as "10-K's" and quarterly reports, commonly known as "10-Q's." These
reports are filed with the Securities and Exchange Commission. In addition, if
important corporate events occur during the year, the Company may file reports
commonly known as "8-K's." From time to time the Company may file other
documents with the Securities and Exchange Commission.
All of these reports constitute part of the information required by
securities laws to be provided or made available to you in connection with your
purchase of stock under the Option Plan, that is, these reports are incorporated
by reference into these materials, which constitute the prospectus for the
Option Plan.
For a copy of these reports, which are available without charge and upon
written or oral request, please contact Diane Schrick, Investor Relations,
Building 5, extension 1599, who will be happy to assist you.
4
<PAGE> 10
A. REGULAR OPTION GRANT PROGRAM
1. AM I ELIGIBLE FOR OPTION GRANTS?
To receive an incentive stock option you must be an employee of the
Company, its parent, or any subsidiary (any corporation in which the Company
owns more than 50% of the outstanding voting power). To receive a non-qualified
stock option you must be an employee of, or a consultant to, the Company, its
parent, any subsidiary, or any other business entity in which the Company
directly or indirectly owns more than 50% of the voting power, capital or
profits. The Option Plan originally provided for the grant of options to
directors, employees and consultants covering an aggregate of 10,086,453 shares
of the Company's Redeemable Common Stock par value $.02 per share ("Redeemable
Common Stock"). Of that amount, as of June 30, 1995, options covering 8,111,953
shares had been issued, leaving unissued options covering 1,974,500 shares
remaining under the Plan. As of October 25, 1995, however, holders of all such
options, including both outstanding and unissued options, will, upon exercise
thereof, receive shares of the Company's Special Common Stock. (See Question 2).
2. THE PLAN PREVIOUSLY REFERRED TO "REDEEMABLE COMMON STOCK." WHEN WILL I
ACTUALLY RECEIVE SPECIAL COMMON STOCK?
As noted in Question 1, the Plan originally contemplated the issuance of
Redeemable Common Stock. Two events have occurred since, however. First, on June
30, 1995, the Redeemable Common Stock was converted -- automatically, in
accordance with the terms of the Company's Certificate of Incorporation as then
in effect -- into shares of the Company's Common Stock. On October 25, 1995, the
Company consummated the Merger with a wholly owned subsidiary of Roche, with the
result that all shares of Common Stock (other than shares held by Roche and its
affiliates) were converted into shares of Special Common Stock. Under such
circumstances, the Plan permits the Company to make appropriate adjustments,
and, accordingly, the Company is now issuing shares of Special Common Stock upon
exercise of Plan options, in lieu of shares of Redeemable Common Stock. Under
some circumstances, as set forth in the Company's Certificate of Incorporation,
the Special Common Stock could be converted into Common Stock of the Company.
Were this to happen, appropriate adjustments would be made so that Common Stock,
instead of Special Common Stock, would be issued upon exercise of options. The
Plan has been amended, as of October 25, 1995, to give effect to the foregoing
transactions and to reflect issuance of the Special Common Stock.
3. WHO DETERMINES THE TERMS OF MY OPTION?
The decision to grant an option to any particular individual is made by the
Compensation Committee of the Board of Directors of the Company (the "Board" or
the "Genentech Board"), generally after review of input from management. The
current members of the Compensation Committee of the Board are Franz B. Humer,
Linda Fayne Levinson, J. Richard Munro and Robert A. Swanson and information
about them is provided in the Company's proxy statement for its last annual
meeting or in the proxy statement/prospectus relating to the Merger (the "Merger
Proxy Statement").
Members of the Board are nominated by the Board and elected by the
stockholders of the Company. The members of the Board are divided into three
classes, each class consisting, as nearly as possible, of one-third of the total
number of directors, with each class having a three year term. Each director
holds office until his or her term is complete and until his or her successor is
elected, or until his or her death, resignation or removal. Board members may be
removed from office by appropriate stockholder action. The Compensation
Committee currently consists of four board members appointed by the Board of
Directors as a whole.
4. DO SPECIAL RULES APPLY TO ME IF I AM AN OFFICER OR DIRECTOR OF THE COMPANY?
Yes. If you are an officer or director of the Company you should be aware
of tax and securities laws which apply to your transactions in stock received
upon the exercise of options or if the Company is bought out. In addition, you
must comply with the Company's policy permitting officers and directors to sell
shares
5
<PAGE> 11
only during "window" periods which generally open on the third business day
after a quarter's revenues and earnings have been publicly released and close on
the tenth calendar day of the last month of each quarter. Furthermore, you are
expected to check with Kathy Panko before selling any shares and your sale must
also be made in accordance with Rule 144 under the Securities Act.
One of the laws that will apply to you as an officer or director is Section
16 of the Exchange Act. If you are not familiar with how Section 16 operates,
you should review the Memorandum to Officers and Directors which you should have
received or ask Kathy Panko or Karen Strand for another copy of the Memorandum.
5. WHAT HAPPENS TO MY OPTION OR STOCK ISSUED UNDER THE OPTION PLAN IN THE EVENT
ROCHE CAUSES REDEMPTION OF THE SPECIAL COMMON STOCK?
If Roche causes redemption of the Special Common Stock, all outstanding
options will be cashed out at the excess of the per share redemption price over
the per share option price. Upon such redemption, any of the redemption price
received by a holder of shares issued under the Stock Incentive Program in
respect of unvested shares shall be placed in escrow and released to such holder
in accordance with the vesting schedule that would have applied to such shares
had such redemption not taken place. If the redemption does not occur and the
Special Common Stock converts to Common Stock as provided in Article THIRD of
the Company's Certificate of Incorporation, outstanding options may continue to
vest and become exercisable to purchase shares of Common Stock of the Company
pursuant to the option's original vesting schedule.
The Plan permits the Compensation Committee to accelerate the vesting
schedule of any outstanding option (other than options granted under the
Automatic Grant Program) at any time. Under the Amended and Restated Governance
Agreement entered into by the Company and Roche on October 25, 1995, Roche and
the Company have agreed to make appropriate provisions to assure that any
options outstanding on the date Roche causes redemption of the Special Common
Stock or the final day of the Put Period (as defined below) (whether or not
vested on such date) become exercisable for the same consideration that the
option holder would have received had he or she exercised such options prior to
such dates. The Compensation Committee will either (i) accelerate the vesting
schedule of all options (other than options granted under the Automatic Grant
Program) prior to the earlier of (x) the date Roche causes redemption of the
Special Common Stock or (y) the final day of the Put Period or (ii) take such
other appropriate action as may be necessary to effect the result described in
the preceding sentence.
6. HOW MANY SHARES OF SPECIAL COMMON STOCK WILL MY OPTION COVER?
When the Compensation Committee grants an option, the Compensation
Committee determines the number of shares the option will cover. There generally
is no established maximum or minimum number of shares for which an option can be
granted except for option grants to members of the Board of Directors (see
Question 38).
The tax regulations do restrict the Board's ability to grant incentive
stock options under the following circumstances.
If you are granted an incentive stock option and the aggregate value of
shares (determined at the date of grant of each option) under that option and
all other incentive stock options (granted after 1986) you hold, if any, become
exercisable for the first time during any one calendar year is greater than
$100,000, then that number of those shares with a value over $100,000 will be
treated by the IRS as non-qualified stock options not having the tax advantages
of incentive stock options.
In addition, as is described more fully in the answers below, incentive
options have limitations on their exercise price, terms, transferability, and
duration following termination.
7. HOW IS THE EXERCISE PRICE OF AN OPTION DETERMINED?
IRS regulations require the exercise price of an incentive stock option to
be at least 100% of the fair market value of the Company's Special Common Stock
on the date the option is granted. Because the
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Company's Special Common Stock trades on the NYSE, the fair market value will be
the closing sale price of the Special Common Stock as quoted by NYSE on the
trading day immediately preceding the date of grant. We will refer to this price
as the "market price." Special rules apply to the exercise price of incentive
stock options granted to anyone who owns 10% or more of the voting power of the
Company.
The Option Plan provides that the Board may set the exercise price for a
non-qualified stock option at any price not less than 50% of the market price of
the Company's Special Common Stock on the trading day immediately preceding the
date the option is granted.
8. WHEN CAN I EXERCISE MY OPTION?
When the Compensation Committee grants an option, the Compensation
Committee also determines certain terms of the option, including the date or
dates the option may be exercised. Currently it is the general policy of the
Company to grant options subject to four year vesting. This means that 25% of
your option will vest every year. However, certain special options granted in
February 1990 vest at the rate of 10% the first year, 15% the second year, 30%
the third year and 45% the fourth year. Although you can exercise your option at
any time once a portion of the option has vested, you may only exercise your
option for the number of shares that have actually vested at the time of
exercise. Options granted by the Company under the Option Plan generally have a
term of 20 years (incentive options may not have a term longer than 10 years),
so you must exercise your option before it expires at the end of the 20-year
period. The terms of exercise of options granted by the Company are not required
to be the same for every employee and the terms of the option you receive may
vary from the terms described above. In addition, the Compensation Committee has
the power to accelerate the vesting schedule of any outstanding option (other
than options granted under the Automatic Grant Program), either without
conditions or subject to a right to repurchase "unvested" shares. The granting
of options under the Plan and the issuance of shares thereunder is subject to
the Company's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan.
9. HOW DO I EXERCISE MY OPTION?
You exercise your option by completing an option exercise form and
delivering the form, together with payment of the exercise price (in cash or
stock -- see Question 10 below) to Kathy Panko or Karen Strand. You should
receive a copy of the option exercise form with your option grant. You can
obtain additional copies of the form from Kathy Panko or Karen Strand.
10. DO I HAVE TO PAY THE EXERCISE PRICE WITH CASH?
No. You may also pay the exercise price with Company Special Common Stock
that you have owned for more than six months. Such stock will be valued at its
closing price on the NYSE on the day before you exercise the option. The
Compensation Committee may determine, at the time of exercise of the option,
that the exercise price may be paid in installments (or that the Company will
make a loan or guarantee a third party loan for the exercise price). The
Compensation Committee will determine the terms and conditions of any deferred
payment arrangement.
11. WILL I CONTINUE TO RECEIVE OPTIONS AS LONG AS I STAY WITH THE COMPANY?
Whether or not you receive stock options will depend on many factors such
as your performance, the Company's overall performance, the Compensation
Committee's current policy and the number of shares remaining in the Option
Plan. The Option Plan, and therefore the Compensation Committee's authority to
grant options, terminates on the date determined by the Board of Directors.
However, any such termination of the Option Plan will not affect your rights
under your outstanding options without your consent.
12. CAN THE STOCKHOLDERS OF THE COMPANY CHANGE THE TERMS OF THE OPTION PLAN?
Generally, the Board decides whether to change the terms of the Option
Plan, usually because the number of shares available under the Plan should be
increased or to take into account changes in the tax laws.
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These changes may be presented for approval by the stockholders of the Company
at the Company's annual meeting. Stockholder approval will be obtained if tax,
securities or other laws require approval of the changes.
13. WHAT HAPPENS IF I LEAVE THE COMPANY?
Whether you leave the Company voluntarily or your employment is terminated
by the Company for any reason, your right to exercise any vested portion of your
option generally will terminate three months after your last day with the
Company as determined between you and the Company. However, the terms of your
option may provide that it may be exercised more than three months after
termination of employment and the Compensation Committee may, at the time of
termination, extend vesting for a period of up to three years and exercisability
for a period of up to five years. In the event of your retirement or the
termination of your employment by a "plant closing" or "mass layoff" (as such
terms are defined at 29 U.S.C. Section 2101), the Committee shall have
discretion to provide that the option will continue to vest according to the
vesting schedule that would have applied had your employment continued. However,
if the option is an incentive stock option, then except as explained in Question
14 below, and except for exercises after your death (see Question 15 below), it
must be exercised within three months of the date of termination or else it will
become a non-statutory option.
14. WHAT IF I LEAVE THE COMPANY BECAUSE OF DISABILITY?
If your employment is terminated because of your permanent and total
disability your options may be exercised by you or your spouse at any time prior
to its original termination date; however, if it is an incentive stock option it
must be exercised within twelve (12) months of your date of termination or else
it will become a nonstatutory stock option. In addition, the Compensation
Committee may provide, either at the time your option is granted or when your
employment is terminated due to your disability, that your options will continue
to vest up to the original date of termination of those options on the schedule
that would have applied had your employment not been terminated or it may
provide that your vesting will be accelerated. Because disability, for these
purposes, has a specific meaning found in the Internal Revenue Code, you should
ask Human Resources if you have any questions regarding what constitutes
permanent and total disability.
15. WHAT ARE THE RIGHTS OF MY HEIRS?
Your estate or persons having rights to your option by will or by the laws
of descent have the right to exercise your option at any time prior to its
original termination date. In addition, the Compensation Committee may provide,
either at the time your option is granted or upon your death, that your option
will continue to vest or that vesting will be accelerated.
16. CAN A RELATIVE OR FRIEND EXERCISE MY OPTION?
No, except for options transferred to a trust (see Question 17) or options
exercised after your death or total disability, only you may exercise your
option during your lifetime. You may, however, provide for the transfer of the
option in your will. Under certain circumstances, your spouse may have community
property rights in the option.
17. CAN I TRANSFER MY OPTIONS?
You may not transfer an incentive stock option (except by will or the laws
of descent) nor may you transfer a non-statutory stock option if you are an
officer (or director) subject to Section 16(b) of the Exchange Act. You may
transfer a non-statutory stock option to a trust for your benefit or the benefit
of your immediate family.
18. CAN I SELL THE STOCK I RECEIVE FROM EXERCISING MY OPTION RIGHT AWAY?
Generally, yes. The stock you receive upon exercise of your option is
registered under the securities laws and freely tradeable in most cases. If you
are an officer or director of the Company certain restrictions may apply (see
Question 4). If you exercise an incentive stock option, an immediate sale may
have certain tax
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consequences, (see Question 28). However, if the terms of the option permit you
to exercise your option before it is vested, (see Question 31) you may not sell
shares of stock which the Company still has the right to repurchase if your
employment is terminated for any reason. You should talk to Kathy Panko or Karen
Strand if you think this applies to you and you wish to sell stock.
19. HOW DO I SELL STOCK I RECEIVED UNDER THE OPTION? DO I HAVE TO PAY A
COMMISSION WHEN I EXERCISE MY OPTION OR SELL THE STOCK I RECEIVED UNDER THE
OPTION?
You pay no commission on exercise of options, however, if you decide to
sell the stock received on exercise you can expect to be charged a fee or
commission if you use a stock broker. To sell your stock, you must generally
take the stock certificate to a stock broker who, for a commission, can arrange
for its sale. Officers and directors are subject to special limitations on the
sale of their stock. The Company will not buy or sell, or assist you in selling,
stock which you have purchased under the Option Plan.
20. I HAVE HEARD ABOUT CASHLESS EXERCISE PROGRAMS THROUGH BROKERS. HOW DO THESE
WORK?
Cashless exercise programs involve the delivery to a broker of a copy of
your signed and completed option exercise form and your irrevocable instructions
to the Company to deliver stock to be received upon exercise of the option to
the broker rather than to you. You can obtain an instruction form for your
broker from Kathy Panko or Karen Strand. Under Regulation T the broker can then
characterize the stock as margin stock, and deliver cash to the Company in
payment of the exercise price. The Company delivers the stock certificate to the
broker. After the stock is delivered to the broker the stock can be maintained
as margin stock in an account designated by you or sold pursuant to your
instructions. However, the Company will not participate in any Regulation T
program which would cause stock certificates to be delivered to the broker
before cash for the exercise price has been paid by the broker to the Company.
21. HOW CAN I MAKE A GIFT OF STOCK I RECEIVE UNDER THE OPTION PLAN?
You may make a gift of stock by delivering the stock certificate, with the
transfer block on the back filled in, and signed and with the signature
guaranteed by a bank or stock broker (or else by delivering the stock
certificate together with an "assignment separate from certificate" filled in,
signed and the signature similarly guaranteed) to the recipient of the gift. The
recipient may then send the certificate and associated paperwork to the
Company's transfer agent, Bank of Boston, at P.O. Box 1865, Boston,
Massachusetts 02105-1865, to have the certificate transferred to the recipient's
name. If you have a brokerage account, your broker will generally be willing to
take care of the mechanics of transfer.
22. DOES THE COMPANY GO OUT ON THE MARKET TO BUY THE STOCK WHICH I WILL RECEIVE
ON EXERCISE OF MY OPTION?
The shares you will receive upon exercise of your option may be
newly-issued shares or shares previously reacquired by the Company.
23. DOES THE OPTION PLAN HAVE ANY OF THE SAME BENEFITS AS A QUALIFIED RETIREMENT
PLAN (INCLUDING A 401(K) PLAN) AND WILL MY PARTICIPATION IN THE OPTION PLAN
AFFECT MY PARTICIPATION IN THE COMPANY'S 401(K) PLAN?
The Option Plan is not a qualified retirement plan and therefore does not
have the same tax deferral benefits. Your participation in the Option Plan does
not affect your ability to participate in the Company's 401(k) plan.
The following materials respond to questions you may have about the tax
consequences of participating in the Option Plan. You should understand,
however, that this tax information is not complete, nor does it address state or
local tax laws or the application of laws if you live outside the United States.
Furthermore, because tax laws and regulations are constantly changing, and
interpretations of these laws and regulations by the courts and tax authorities
can change the way the laws and regulations apply to you, the information may
need to be updated after the date of issuance of this prospectus. Therefore, you
should consult with an accountant, lawyer or other person competent to give tax
advice if you have questions relating to the tax consequences of participation
in, and the sale of shares received under the Option Plan.
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24. DO I HAVE TO PAY TAX WHEN I RECEIVE A STOCK OPTION OR EXERCISE THE STOCK
OPTION? WILL THE COMPANY WITHHOLD THE AMOUNT OF TAXES DUE?
Normally, neither you nor the Company have to pay any tax or receive any
deductions when you are granted an option under the Plan. Whether you will have
to pay tax on exercise of an option will depend on whether the option is an
incentive stock option or a non-qualified stock option.
If you exercise a non-qualified stock option when the market price is
higher than the exercise price, you generally are required to pay tax on the
"profit", that is the difference between the exercise price and the market price
of the stock on the date of exercise. Your profit on the exercise will be
characterized as ordinary income.
Generally the Company is required by the IRS to withhold 28% of your profit
from your wages or to otherwise ensure that this amount will be paid to the IRS.
Additional amounts will usually be withheld for state taxes. The Compensation
Committee may provide you with the option of having shares that would otherwise
be delivered to you on exercise of an option withheld or delivering shares you
already hold valued at the withholding amount.
If you exercise an incentive stock option, unless you are subject to the
alternative minimum tax (see Question 34), you do not have to pay any tax at the
time of exercise on the difference between the exercise price and the market
price of the stock on the date of exercise. You may eventually pay tax on this
amount when you sell the stock.
25. HOW MUCH TAX DO I HAVE TO PAY WHEN I SELL STOCK RECEIVED PURSUANT TO THE
EXERCISE OF A NON-STATUTORY STOCK OPTION?
If you exercised your option when the exercise price was lower than the
market price, you generally should have paid tax on the difference between the
two. If you then sell your stock at a price greater than the market price on the
date of exercise, you generally will have to pay tax on the difference between
the selling price and the market price at the time of exercise. Your profit will
be characterized as short or long-term capital gain depending on whether you
held the stock for more than one year from the date the option was exercised.
If you exercised your option when the exercise price was lower than the
market price but you sell the stock at a price lower than the market price at
the time of exercise, you will be entitled to report a capital loss equal to the
difference between the sale price and the market price at the time of exercise.
Your loss will be characterized as a long-term or short-term capital loss
depending on whether you held the stock for more than one year from the date the
option was exercised.
26. WHAT IS THE DIFFERENCE BETWEEN ORDINARY INCOME AND CAPITAL GAINS?
Long-term capital gains of individuals are generally subject to a maximum
marginal federal income tax rate of 28%. This is in contrast to a maximum rate
of 39.6% for ordinary income of some individuals.
Notwithstanding the presence or absence for any individual taxpayer of a
difference between the rate of tax on capital gains and the rate of tax on
ordinary income, there are other differences under the Internal Revenue Code
between capital gains and ordinary income. For example, capital gains and losses
are "netted" against other capital gains and losses and only $3,000 of net
capital losses may be deducted against ordinary income in any year by any
individual taxpayer.
27. WHEN DO I PAY TAX ON STOCK RECEIVED PURSUANT TO THE EXERCISE OF AN INCENTIVE
STOCK OPTION?
Except for the possible application of the alternative minimum tax (see
Question 34), you normally pay no tax on the exercise of an incentive stock
option until you sell or otherwise dispose of the stock.
You should be aware that transfer of legal title to the stock received upon
exercise of an incentive stock option in a transaction that is not a sale may
still be taxable as a disposition of the stock. Generally, such transfers
include gifts, but do not include a transfer into joint ownership with right of
survivorship if you
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remain one of the joint owners, a pledge or a transfer by bequest or
inheritance, exchanges qualifying under certain provisions of the Internal
Revenue Code regarding tax-free exchanges of stock, or certain transfers to a
spouse or former spouse incident to a divorce.
28. HOW IS MY PROFIT TAXED? WHAT IF I LOSE MONEY?
How your profit or loss is characterized will depend on how long you held
the stock from the date the incentive stock option was granted and the date you
exercised the option.
If, before you dispose of the stock, you hold the stock for more than two
years from the date on which the incentive stock option is granted and one year
or more from the date on which you exercised your option, your gain or loss is
characterized as long-term capital gain or loss.
If you dispose of your stock within two years from the date on which the
option was granted or within one year from the date on which you exercised your
option, a portion of your profit will be characterized as ordinary income and
the sale is called a "disqualifying disposition."
The portion of your profit which is characterized as ordinary income is
equal to the lesser of
a. the difference between the market price of the stock on the date you
exercised the option and the exercise price of the option, but in no event less
than zero or
b. the difference between the sale price and the exercise price of the
option, but in no event less than zero.
Any profit you make over the amount characterized as ordinary income is
characterized as capital gain which will be long-term or short-term depending on
whether the stock was held for more than one year from the date of exercise.
For example, assume you were granted an option on January 1, 1995 for 10
shares at an exercise price of $8.00 per share. You exercise the option on
January 1, 1996 when the market price is $10.00 per share and you sell the stock
on July 1, 1996 when the market price is $9.00 per share for a $10.00 aggregate
profit. Because you sold the stock before January 1, 1997, the date which is two
years after the date of grant and one year from the date of exercise, all or a
portion of your profit is ordinary income. The amount of ordinary income is
equal to the lesser of (a) $10.00 (market price on date of exercise) - $8.00
(exercise price) = $2.00 per share or $20.00 for 10 shares or (b) $9.00 (sale
price) - $8.00 (exercise price) = $1.00 per share or $10.00 for 10 shares. All
of your $10.00 profit will be ordinary income. If the market price on the date
of exercise had been $9.00 and the sale price had been $10.00, then of your
$20.00 profit, $10.00 would be characterized as ordinary income and $10.00 would
be characterized as short-term capital gain.
If you lose money on the sale of the stock you will be able to report the
loss as a capital loss which will be long-term or short-term depending on
whether the stock was held for more than one year from the date of exercise.
Different rules will apply if, under the Internal Revenue Code, you are not
entitled to report a loss on the sale of your stock if you were to lose money on
the sale. For example, if you sell your stock to your spouse at a loss, you are
not entitled to report the sale as a loss and any subsequent tax consequences on
the further disposition of the stock are determined under the section of the
Internal Revenue Code which governs such situations. If you sell your stock to
your spouse, whether or not at a loss, you will be taxed on the difference
between the market price of the stock on the date of exercise and the exercise
price. Other dispositions of stock, described in the Internal Revenue Code, may
have similar consequences.
29. IS THERE ANY WITHHOLDING ON THE EXERCISE OF MY INCENTIVE STOCK OPTION OR THE
SALE OF THE STOCK ACQUIRED ON EXERCISE?
There is no withholding required upon the exercise of an incentive stock
option. The Company is required to report to the IRS any ordinary income
recognized by you as a result of a sale which is a disqualifying
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disposition described in Question 28, if such information is available to the
Company. The Company may be required in the future to withhold taxes on such
ordinary income from your salary.
30. DO I HAVE TO COMPLETE ANY FORMS AFTER I SELL MY STOCK?
Yes, if you sell stock received pursuant to an incentive stock option
within two years after the date the option covering the stock was granted to you
or within one year after you exercise your option, you should complete and
deliver to Kathy Panko or Karen Strand the form provided to you or which is
available from them after you exercise your stock.
31. ARE THERE ANY SPECIAL TAX RULES WHICH APPLY TO ME IF THE COMPANY HAS THE
RIGHT TO REPURCHASE MY STOCK AFTER I EXERCISE MY OPTION?
Yes. Generally, if the Company has the right to repurchase your stock after
you exercise your option it is because, under the terms of your option, you were
allowed to exercise all of your option, even the unvested portion. In this
situation the Company may retain a right to repurchase any shares which are
unvested under the option until they vest.
If the Company has the right to repurchase your stock after you exercise
your option, your stock is subject to what is called a "risk of forfeiture." If
there is a risk of forfeiture, the amount of ordinary income you must report and
the time at which you must report your income may be different than described
above.
The special tax rules applicable to Non-Qualified Stock Options and
Incentive Stock Options are as follows:
Non-Qualified Stock Option.
In the case of stock issued pursuant to a non-qualified stock option and
subject to a right of repurchase by the Company, you do not owe tax on the date
of exercise but instead owe tax on the dates(s) the risk of forfeiture with
respect to the shares disappears, i.e., the date the Company no longer has the
right to repurchase the stock.
For example, assume that on April 1, 1994 you are granted an option to
purchase 20 shares of stock for $8.00 per share. The terms of the option
indicated that you vest in 10% of the shares on December 31, 1996, an additional
15% of the shares on December 31, 1997, an additional 25% of the shares on
December 31, 1998, and an additional 50% of the shares on December 31, 1999. You
may exercise the option immediately but the Company has the right to repurchase
all of the stock if you leave the Company before December 31, 1996, 90% of the
stock if you leave the Company before December 31, 1997, and 75% of the stock if
you leave the Company before December 31, 1998 and 50% of the stock if you leave
the Company before December 31, 1999. On February 20, 1995 you exercise your
option with respect to all of the shares when the market price is $10.00.
Normally you would owe tax on $40.00, the difference between the exercise price
and the market price on the date of exercise. However, because all the shares
are subject to a risk of forfeiture you do not calculate the tax on February 20.
Assume that on December 31, 1996 the market price is $11.00 per share. On that
date a risk of forfeiture disappeared with respect to 2 shares. In other words,
the Company no longer had the right to repurchase 2 of your 20 shares.
Accordingly, with respect to those 2 shares you owe tax on the difference
between the exercise price and the market price on December 31, or tax on $6.00.
If the market price of the stock continues to rise after December 31, 1996,
you will end up paying more ordinary income tax as a result of your exercise of
the option than you would have if the stock you received upon exercise had not
been subject to a risk of forfeiture and you owed tax only on the difference
between the exercise price and the market price on the date of exercise.
If you want to avoid this result you can file what is called a Section
83(b) election within 30 days after the exercise of the option and report
ordinary income equal to the difference, if any, between the market price and
the exercise price on the date of exercise. When you later sell your shares, any
additional gain or any loss will be characterized as capital gain or loss, which
will be long-term or short-term depending on whether the shares are held for
more than one year from the date you exercised your option. You should be aware,
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however, that if you file an 83(b) election and you subsequently lose the right
to own the shares because, for example, you leave the Company and the Company
repurchases the shares at cost, you will not be able to report the amount you
paid in taxes as a loss on the stock and will not be able to have the taxes
refunded.
Incentive Stock Option.
If stock you received pursuant to the exercise of an incentive stock option
is subject to a right of repurchase by the Company and you dispose of the stock
after the right of repurchase has disappeared in a disqualifying disposition
(see Question 28) the amount of ordinary income you must report is calculated
differently. In this case, the amount of ordinary income is equal to the lesser
of
a. the difference, if any, between the exercise price and the market price
of the stock on the date or dates the risk of forfeiture disappears but not less
than zero, or
b. the profit, if any, on the sale of the stock but not less than zero.
If your profit is more than the amount that must be reported as ordinary
income, then the remainder of the profit is characterized as capital gain which
will be long-term or short-term depending on whether the stock was held for more
than one year from the date of sale.
For example, assume that on January 1, 1994 you received an incentive stock
option for 20 shares at a price per share of $10.00. The terms of the option
indicated that you vested in only 25% of the shares initially with the remainder
of the shares vesting at a rate of 25% per quarter. On February 1, 1994 you
exercise the option when the stock is worth $10.00 per share. You do not have to
pay any tax at the time of exercise. On April 1, 1994, when the second 25% of
the shares vests, the market price is $11.00 per share and on July 1, 1994, when
the third 25% of the remaining shares vests the market price is $9.00 per share.
On August 1, 1994, you sell the 15 vested shares when the market price is $12.00
per share for a total profit of $30.00 (15 x $2.00). Because you did not hold
the stock for more than one year, the sale is a disqualifying disposition and
you are required to recognize ordinary income.
To calculate the ordinary income, you calculate the difference between the
exercise price of $10.00 and the market price of the stock on the date of
exercise, or, if later, the dates the risk of forfeiture disappeared. On the
date of exercise there was no spread with respect to the first 25% vested
installment. Therefore, you recognize no ordinary income with respect to these 5
shares. On April 1 the market price was $11.00 and the risk of forfeiture
disappeared with respect to 5 shares, so the difference between the exercise
price and the market price was $1.00 per share or an aggregate of $5.00. On July
1, the market price was $9.00 and the risk of forfeiture disappeared with
respect to another 5 shares. Since the market price was less than the exercise
price you do not put the negative difference in the calculation.
The aggregate difference between the exercise price and the market prices
on the dates the risk of forfeiture lapsed is $5.00, which is less than the
$20.00 profit made on the 10 shares with respect to which there was a risk of
forfeiture. Therefore, $5.00 of your $30.00 profit will be treated as ordinary
income and $25.00 will be short-term capital gain.
If you lose money on the sale of your stock, the loss will be a capital
loss and will be long-term or short-term depending on whether the stock was held
for more than one year from the date of exercise, or, if later, the dates the
risk of forfeiture disappeared.
In order to avoid having to calculate the ordinary income in the manner
discussed above you may make the 83(b) election discussed earlier in this
question. Once the election is filed, your ordinary income should be calculated
in the manner described in Question 28.
Please see Kathy Panko or Karen Strand for further information and the form
of election if you think you should be filing an 83(b) election. Remember that
this must be done within 30 days after you exercise your option. Filing an 83(b)
election may also affect your alternative minimum tax liability, if any (see
Question 34).
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32. WHAT ARE THE TAX CONSEQUENCES IF I USE SHARES I ALREADY OWN TO PAY THE
EXERCISE PRICE OF MY NON-QUALIFIED STOCK OPTION?
If you pay the exercise price of your non-qualified stock option with
shares of the Company which you own immediately prior to the exercise, you will
have a tax-free exchange of the previously held shares of stock for an
equivalent number of the shares of stock received under the option. If you
receive additional shares in the exchange, you will pay taxes on ordinary income
equal to the difference between the market value on the date of exercise of such
additional shares and the amount of cash, if any, you paid upon exercise.
The tax basis and capital-gain holding period of the shares received under
the option in the tax-free exchange will be the same as the tax basis and
holding period of the shares used to pay the exercise price. The tax basis of
the additional shares you receive will equal the amount of ordinary income you
had to report and the amount of any cash paid on exercise, and your holding
period for the additional shares will begin on the date of exercise.
For example, assume that on January 1, 1996 you bought 10 shares of stock
on the open market when the market price was $6.00 per share. The price of the
stock goes up and on January 1, 1997, when the market price is $10.00 per share,
you exercise a non-qualified stock option to purchase 20 shares at an exercise
price of $9.00 per share for an aggregate exercise price of $180.00. Using all
of your previously existing shares to pay $100.00 of the exercise price (10 x
$10.00 market price), you pay $80.00 cash for the remainder of the exercise
price. Accordingly, on the date of exercise you are deemed to have a tax-free
exchange of the 10 previously held shares for 10 of the new shares. You will
also recognize ordinary income equal to the market price of the 10 additional
shares you received, $100.00, minus the amount of cash you paid on exercise,
$80.00, or $20.00.
If you sell the 10 shares which you received in the tax-free exchange for
$11.00 per share on March 1, 1997, you will recognize a $5.00 per share profit,
which will be a long-term capital gain because you are allowed to add the period
which you held the original 10 shares to the period you held the new 10 shares.
If on the same day you also sell the 10 additional shares, you will have a
taxable profit equal to $110.00 minus the amount of cash you paid, $80.00, and
the amount of income you recognized, $20.00, or a taxable profit of $10.00. This
profit will be characterized as a short-term capital gain because you held the
stock for only two months.
33. WHAT ARE THE TAX CONSEQUENCES IF I USE SHARES I ALREADY OWN TO PAY THE
EXERCISE PRICE OF INCENTIVE STOCK OPTIONS?
Under proposed regulations, if you pay the exercise price of an incentive
stock option, in whole or in part, with shares you already own immediately prior
to the exercise, you are deemed to have made a tax-free exchange of the
previously-held shares for an equivalent number of shares received under the
option. For example, assume you purchased 10 shares on the open market for $6.00
per share on January 1, 1996. On February 1, 1997 you exercise an incentive
stock option covering 20 shares at $10.00 per share using 10 of your already
owned shares as payment of $100.00 of the purchase price and delivering $100.00
in cash in payment of the exercise price of the additional shares. You are
deemed to have made a tax-free exchange of 10 of your already owned shares for
the 10 new shares received on exercise. You recognize no profit at this point,
even though you have used shares you bought at $6.00 per share to buy the same
number of shares with a value of $10.00 per share.
However, ordinary income could be recognized (see Question 28) if the
already owned shares were acquired upon exercise of an incentive stock option or
under an employee stock purchase plan as defined in Section 423 of the Internal
Revenue Code and the exchange were treated as a disposition. The exchange will
be treated as a disposition if the already owned shares are exchanged within two
years of the grant of option relating to the already owned shares or within one
year after the exercise of such option. The tax basis, holding periods and
consequences of a subsequent disposition of shares received upon exercise will
depend on whether the shares disposed of are equivalent shares or additional
shares received at the time of exercise ("additional shares").
14
<PAGE> 20
For purposes of calculating any capital gain or loss upon a subsequent
taxable disposition, your basis in the equivalent shares will be equal to your
basis in the shares surrendered plus any ordinary income recognized by reason of
the exchange, and the holding period of the surrendered shares will carry over
to the equivalent shares.
If you use only shares you already own to pay the exercise price, your
basis in any additional shares will be zero for purposes of calculating any
capital gain upon a later disposition. For purposes of calculating any ordinary
income upon a disqualifying disposition of the additional shares the amount
treated as having been paid for the additional shares will be zero. To the
extent you use other forms of payment, your basis should be equal to the amount
of the other form of payment, and it will reduce the amount of ordinary income
upon a disqualifying disposition by the same amount. The holding period for the
additional shares will begin on the date of exercise for all purposes. In the
event of a disqualifying disposition of shares acquired upon such an exercise of
an incentive stock option with stock, the shares with the lowest basis (i.e.,
the additional shares and not the equivalent shares) will be treated as having
been disposed of first.
34. WHAT ARE THE TAX CONSEQUENCES OF MY EXERCISE OF OPTIONS IF I AM SUBJECT TO
THE ALTERNATIVE MINIMUM TAX?
The alternative minimum tax is a separately computed tax equal to a
marginal rate of up to 28% of alternative minimum taxable income that is imposed
only if and to the extent you would pay more tax if your taxes are computed
pursuant to the alternative minimum tax rules than the tax you would pay if
computed in the regular manner. The alternative minimum tax takes into account
what are called tax preference items and other adjustments that are not taken
into account when calculating taxes in the regular manner. One of the
adjustments is the inclusion in taxable income of the difference between the
exercise price of an incentive stock option and the market price of the stock
option on the date of exercise, if that amount constitutes a profit. When you
sell the stock, you are allowed, for purposes of calculating your alternative
minimum tax in the year of sale, to decrease the profit by the adjustment amount
previously included in the alternative minimum taxable income.
If you are subject to a risk of forfeiture (see Question 31), the amount of
the adjustment will be calculated using market prices on the dates the
forfeiture lapses rather than the date you exercise the option, and the
adjustment must be made in the year in which the risk of forfeiture disappears.
It may be possible, however, to make a valid election under Section 83(b) within
30 days of the date of exercise to have the market price on the date of exercise
be the price used in the calculation of your alternative minimum tax and to make
the adjustment in the year of exercise. However, if a Section 83(b) election is
made, there may be implications for purposes of calculating ordinary income, if
any, in the event of a disqualifying disposition.
35. WHAT HAPPENS TO MY OPTION OR STOCK ISSUED UNDER THE OPTION PLAN IN THE EVENT
GENENTECH IS ACQUIRED BY A PERSON OTHER THAN ROCHE?
The Option Plan provides that, in the event of a "corporate transaction",
each option outstanding under the Option Plan will be automatically accelerated
so that the option becomes fully exercisable with respect to the total number of
shares subject to such option. However, an option will not be accelerated if, as
part of the corporate transaction, the option is either assumed by the successor
company or replaced with a comparable option or the option is replaced by a
comparable cash incentive program or such acceleration is otherwise limited by
the terms of the option grant. Corporate transactions include a merger or
acquisition in which Genentech does not survive, a sale or other disposition of
all or substantially all of the assets of Genentech or any merger in which
Genentech survives but in which 50% or more of Genentech's outstanding voting
stock held by persons other than Roche or its affiliates is transferred to new
holders.
In addition, the Option Plan sets forth provisions applicable upon a
"change in control". Generally speaking, a change in control is (i) the
acquisition by a person, other than Genentech or a company controlling
Genentech, of securities of Genentech representing 30% or more of the voting
power of Genentech's then outstanding securities pursuant to a transaction not
approved by the Board or (ii) a change in composition of the Board within any 36
month period so that the majority of the Board is not made up of members who
either have been members of the Board since the beginning of the period, or have
been elected
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<PAGE> 21
by at least a majority of the members who were members continuously during the
period. Upon such a change in control, each option will be automatically
accelerated immediately prior to the change in control so that the option will
be exercisable for all or any portion of the shares subject to the option, at
the election of the optionee, unless limitations included in the option at the
time of grant preclude such treatment.
The Option Plan provides that exercise by Roche of its rights to designate
nominees to the Board of Directors will not constitute a change in control. The
Committee has authority under the Plan to impose additional limitations at the
date of grant with respect to the acceleration of options and vesting upon
corporate transactions and changes in control.
36. WHAT HAPPENS IF THE VESTING OF MY OPTIONS ACCELERATES UPON A CHANGE OF
CONTROL?
In the event that there is a change in control of the Company, payments
received by certain optionees that are contingent upon the change in control may
constitute "parachute payments." If, by reason of such change in control, the
exercisability of outstanding options is accelerated, the value of the
acceleration is added to other contingent payments, if any, in determining
whether the optionee has received "excess parachute payments." As used herein,
the terms "parachute payments" and "excess parachute payments" shall have the
meanings given to them in Section 280G of the Internal Revenue Code. In general,
if an optionee receives excess parachute payments, an excise tax equal to 20% of
the amount of such excess parachute payments is imposed on the optionee, and the
Company does not receive a deduction for such amount.
B. AUTOMATIC GRANT PROGRAM
37. ARE NON-EMPLOYEE DIRECTORS ELIGIBLE TO RECEIVE OPTIONS UNDER THE OPTION
PLAN?
No. As of May 1, 1995, non-employee directors are no longer eligible to
receive options under the Option Plan.
In general, in the event of a corporate transaction, each option shall
automatically accelerate and become exercisable for any or all of the shares
subject to the option immediately prior to the specified effective date for such
corporate transaction. Upon the consummation of a corporate transaction, all
options to the extent not exercised will terminate.
In general, in the event of a change in control, all options will
automatically accelerate and become fully exercisable. In addition, each option
that has been outstanding for at least six months may be surrendered after the
change in control for a cash payment from the Company in an amount equal to the
excess of the fair market value of the shares of Special Common Stock subject to
such option over the aggregate option price payable for such shares.
C. STOCK APPRECIATION RIGHTS AND STOCK INCENTIVE PROGRAM
38. WHAT ARE STOCK APPRECIATION RIGHTS?
Stock appreciation rights entitle the holder to a distribution based on the
appreciation in the value per share of a designated amount of Special Common
Stock. Pursuant to the Option Plan, the Compensation Committee, in its sole
discretion may grant stock appreciation rights to employees or consultants
eligible for option grants under the Regular Option Grant Program.
39. WHAT TYPES OF STOCK APPRECIATION RIGHTS MAY BE GRANTED UNDER THE OPTION
PLAN?
There are three types of stock appreciation rights authorized for issuance
under the Option Plan: tandem stock appreciation rights ("Tandem Rights"),
concurrent stock appreciation rights ("Concurrent Rights") and limited stock
appreciation rights ("Limited Rights"). All such rights are tied to an
underlying incentive stock option or non-statutory stock option.
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<PAGE> 22
Tandem Rights require the holder to elect either to exercise the underlying
option or to surrender the option and receive an amount equal to the market
price of the vested shares purchasable under the surrendered option less the
aggregate option price payable for such shares.
Concurrent Rights may apply to all or any portion of the vested shares
subject to the underlying option and are exercised automatically at the time the
option is exercised for those shares. The amount the optionee will receive upon
exercise of a Concurrent Right is an amount equal to the aggregate market price
of the shares purchased with the Concurrent Rights less the option price paid
for those shares.
Each Tandem Right and Concurrent Right is subject to the same terms and
conditions applicable to the particular stock option grant to which it pertains.
Amounts payable upon exercise of Tandem or Concurrent Rights may, at the
Committee's discretion, be made in cash, shares of Special Common Stock or a
combination of the two. To exercise any outstanding Tandem or Concurrent Right,
the holder must provide written notice of exercise to the Company in compliance
with the provisions of the instrument evidencing such right.
Limited Rights are automatically granted to each officer or director so
that, upon the occurrence of certain change in control transactions, each
officer or director may surrender the vested shares subject to any or all of his
or her options held for at least six months and receive an amount equal to the
higher of (i) the market price of the shares on the date of surrender of the
options and (ii) the highest reported price per share paid to effect the
transaction, less, in each case, the aggregate option price payable for the
vested shares. Amounts payable upon exercise of Limited Rights will be in cash.
40. WHAT ARE THE TAX CONSEQUENCES WHEN I AM GRANTED A STOCK APPRECIATION RIGHT,
WHEN I RECEIVE A PAYMENT UPON EXERCISE OF THE RIGHT, AND WHEN I SELL ANY
STOCK RECEIVED UPON EXERCISE OF THE RIGHT?
There are no tax consequences to you or the Company upon the grant of a
stock appreciation right. When the right is exercised and you receive a payment
from the Company, you will recognize ordinary income equal to the amount of cash
and the fair market value of any stock paid to you. If you are an employee of
the Company, the Company will be required to withhold normal employment taxes
from the amount due to you. Upon a subsequent sale of any stock received by you
on exercise of the right, you will recognize a capital gain or loss equal to the
difference between the sale price and the fair market value of the stock when
received. Such capital gain or loss will be long or short term depending on
whether you held the stock for more than one year.
41. WHAT IS THE STOCK INCENTIVE PROGRAM?
The Stock Incentive Program is a program for the issuance of shares for no
consideration or a nominal consideration as a reward for past services rendered
the Company or one or more of its parent or subsidiary corporations or as an
incentive for future service with such entities.
Shares may be issued under the Stock Incentive Program at the discretion of
the Compensation Committee, and may be fully vested or may be subject to a
vesting schedule. The terms of any vesting schedule will be determined by the
Compensation Committee and set forth in the agreement to be executed by the
Company and the recipient of the shares at the time of the incentive grant.
Except as the Compensation Committee may otherwise provide in such an agreement,
the recipient may not transfer unvested shares. The recipient will, however,
have all other rights of a stockholder with respect to unvested shares. If the
recipient ceases to be employed by the Company or a parent or subsidiary
corporation for any reason, all of such recipient's unvested shares will be
immediately canceled, unless the Compensation Committee, in its discretion,
waives such cancellation in whole or in part.
42. WHAT ARE THE TAX CONSEQUENCES WHEN I AM ISSUED STOCK UNDER THE STOCK
INCENTIVE PROGRAM AND WHEN I LATER SELL SUCH STOCK?
Upon receipt of stock under the Stock Incentive Program you generally will
recognize ordinary income equal to the fair market value of such stock. If you
are an employee of the Company, the Company will be
17
<PAGE> 23
required to withhold normal employment taxes based on the amount paid to you.
Upon a subsequent sale of such stock, you will recognize a capital gain or loss
equal to the difference between the sale price and the fair market value of the
stock when received. Such capital gain or loss will be long or short-term
depending on whether you held the stock for more than one year.
An exception to these general rules will apply if your stock is subject to
cancellation or to certain securities law restrictions. In such event, the stock
you receive will be deemed to be subject to a risk of forfeiture. As a result,
unless you make a Section 83(b) election under the Internal Revenue Code,
generally you will not recognize any income with respect to such stock until the
date such risk of forfeiture lapses, and the amount of income you recognize will
be based on the fair market value of the stock on this date. In addition, your
holding period for purposes of determining whether any capital gain or loss
recognized on a subsequent disposition of the stock is long-term or short-term
will begin on the date on which your income is measured. See Questions 30 and 31
for a more detailed description of the consequences of a risk of forfeiture.
D. MISCELLANEOUS
43. WHAT HAPPENED TO MY OPTIONS OR STOCK GRANTED BEFORE THE MERGER?
Upon the consummation of the Merger, certain changes were automatically
made to options granted under the Company's option plans prior to the effective
date of the Merger. None of such options are permitted to be cashed out or
accelerated as a result of the Merger, and such options became exercisable for
shares of Special Common Stock, without adjustment to the exercise price or the
number of shares subject to such options, and will remain subject to the same
terms and conditions originally contained in the option. After the Merger, all
references to shares became references to Special Common Stock. Upon the
conversion of the Special Common Stock into shares of Common Stock, all
references to Special Common Stock in the Option Plan will become references to
shares of Common Stock, and each outstanding option will automatically become
exercisable for shares of Common Stock, without adjustment to the exercise price
or the number of shares subject to such option, and will remain subject to the
same terms and conditions originally contained in such option. If the Special
Common Stock is redeemed, all then outstanding options will become fully vested
and will be cashed out on the redemption date at the excess of the per share
redemption price over the per share option price. Upon such redemption any of
the redemption price paid in respect of unvested shares issued under the Stock
Incentive Program will be placed in escrow and released in accordance with the
vesting schedule that would have applied to such shares had such redemption not
taken place. See "Description of the Special Common Stock".
44. WHAT ARE SOME OF THE OTHER FEATURES OF THE OPTION PLAN?
(i) The number of shares originally subject to the Option Plan was
11,500,000. Shares subject to options granted under the Option Plan which expire
or are canceled or terminated for any reason prior to exercise shall be
available for future option grants under the Option Plan; however, shares
subject to Stock Appreciation Rights and shares repurchased by the Company
pursuant to repurchase rights shall not be available for subsequent issuance;
(ii) The number of shares available for issuance under the Option Plan, the
maximum number of shares that may be issued to employee directors, the number of
shares and the exercise price of each outstanding option and Stock Appreciation
Right under the Option Plan shall all be appropriately adjusted by the
Compensation Committee to reflect any stock dividend, stock split, combination,
exchange or other change in the Company's capital structure, including changes
due to a Corporate Transaction, subject to the terms of the Option Plan
regarding Corporate Transactions (see Question 35);
(iii) The Compensation Committee may, with the consent of option holders,
cancel any or all outstanding options granted under the Option Plan (excepting
Stock Appreciation Rights) and grant in substitution new options under the
Option Plan.
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<PAGE> 24
(iv) The cash proceeds received upon exercise of options granted under the
Option Plan will be used for general corporate purposes;
(v) The implementation of the Option Plan, the granting of any stock option
or stock appreciation right and the issuance of shares under the Plan shall be
subject to the Company's procurement of all approvals and permits required by
applicable regulatory authorities;
(vi) Neither the establishment of the Option Plan, any term thereunder nor
any action by the Compensation Committee shall be construed so as to grant any
individual the right to remain employed by the Company or its parent or
subsidiaries for any period and the Company (and any parent or subsidiaries
employing such person) may terminate any employee at any time and for any
reason, with or without cause; and
(vii) Nothing in the Option Plan shall limit the Company's exercise of all
of its rights and powers, including its right to grant options outside of the
Option Plan.
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<PAGE> 25
PLAN OF DISTRIBUTION
For a discussion of the factors relating to the grant and exercise of stock
options and stock grants under the Option Plan please refer to the information
contained under the heading "The 1990 Stock Option/Stock Incentive Plan" above.
Sales of Special Common Stock under the Option Plan will be made directly by the
Company upon exercise of options granted under the Option Plan or upon grants of
shares under the stock incentive plan without the use of any underwriters or
dealers.
DESCRIPTION OF THE SPECIAL COMMON STOCK
Set forth below is a description of the terms of the Special Common Stock.
Effective upon consummation of the Merger, the Certificate of Incorporation
of Genentech was amended by operation of the Merger to, among other things,
authorize the issuance by Genentech of Special Common Stock.
Under Article Third of the Certificate of Incorporation ("Article Third"),
as amended in connection with the Merger ("Amended Article Third"), the rights,
preferences, privileges and restrictions of the Special Common Stock and the
Common Stock are identical in all respects, except as specifically set forth in
Article Third. Set forth below is a description of the terms of the Special
Common Stock, including (i) the differences between such terms and the terms of
the Common Stock as set forth in Article Third and (ii) the differences between
the Special Common Stock and the Redeemable Common Stock. THE FOLLOWING
DESCRIPTION OF THE TERMS OF THE SPECIAL COMMON STOCK DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE TEXT OF AMENDED
ARTICLE THIRD.
As indicated above, Amended Article Third sets forth the terms of and the
rights and preferences with respect to the Special Common Stock. In addition, as
was the case in Article Third, it provides that Preferred Stock (as hereinafter
defined) may be issued from time to time in one or more series. The Board of
Directors of Genentech (the "Genentech Board") is authorized to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series. Were Roche not
to own its current position in Genentech, the authorized but unissued shares of
Preferred Stock could be used by the Genentech Board to make a change in control
of Genentech more difficult, or to discourage an attempt to acquire control of
Genentech. For example, the Genentech Board could, subject to certain
limitations, authorize and issue a class of Preferred Stock which is entitled to
vote as a class with respect to mergers or other extraordinary transactions. The
Genentech Board has no current intention of using the authorized and unissued
shares of Preferred Stock for any such purposes.
AUTHORIZED SHARES
Article Third authorized the issuance of 100,000,000 shares of preferred
stock ("Preferred Stock"), 100,000,000 shares of Redeemable Common Stock and
200,000,000 shares of Common Stock. Amended Article Third did not change the
number of authorized shares of capital stock of the Company, but replaced the
Redeemable Common Stock with the Special Common Stock and amended the terms
thereof as described below.
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<PAGE> 26
VOTING RIGHTS
As was the case in Article Third, Amended Article Third provides that the
holders of Special Common Stock (or Redeemable Common Stock, in the case of
Article Third) and Common Stock are, on all matters submitted to a vote of the
stockholders, entitled to one vote per share, voting together as a single class
unless otherwise provided for in the Certificate of Incorporation or required by
applicable law.
DIVIDENDS; RECLASSIFICATIONS; MERGERS
Holders of Special Common Stock and Common Stock are entitled to receive
such dividends and other distributions in cash or property as may be declared
thereon by the Genentech Board from time to time out of assets or funds of
Genentech legally available therefor, and shall share equally on a per share
basis in all such dividends and other distributions. In the case of dividends or
other distributions payable in stock of Genentech other than Preferred Stock,
including distributions pursuant to stock splits or divisions of stock of
Genentech other than Preferred Stock, only shares of Common Stock shall be paid
or distributed with respect to shares of Common Stock and only shares of Special
Common Stock in an amount per share equal to the amount per share paid or
distributed with respect to shares of Common Stock shall be paid or distributed
with respect to Special Common Stock. In the case of any combination or
reclassification of the Special Common Stock or the Common Stock, the Special
Common Stock or the Common Stock, as the case may be, shall also be combined or
reclassified so that the number of shares of Common Stock outstanding
immediately following such combination or reclassification shall bear the same
relationship to the number of shares of Common Stock outstanding immediately
prior to such combination or reclassification as the number of shares of Special
Common Stock outstanding immediately following such combination or
reclassification bears to the number of shares of Special Common Stock
outstanding immediately prior to such combination or reclassification. Amended
Article Third did not effect any substantive amendments to this provision.
In the event Genentech enters into any consolidation, merger, combination
or other transaction in which the Common Stock is exchanged for or changed into
other stock or securities, cash and/or any other property, then in any such case
each share of Special Common Stock shall at the same time be similarly exchanged
or changed into an amount per share, equal to the aggregate amount of stock or
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged;
provided that any such stock may be made redeemable on terms no less favorable
to the holder thereof than the terms upon which the Special Common Stock is
redeemable pursuant to the Call Rights; and provided, further, that any such
stock shall be subject to a right on the part of the holder to put such stock on
terms no less favorable to the holder thereof than the terms upon which the
Special Common Stock is required to be redeemed by the Company pursuant to the
provisions of Amended Article Third providing holders of Special Common Stock
the right to require the purchase of all or a portion (at the election of the
holder) of their shares of such stock for 30 business days beginning in July
1999 (unless such right is accelerated following the occurrence of certain
Insolvency Events (as hereinafter defined) at a price of $60 per share (the "Put
Rights"). Except for such requirements with respect to the Put Rights, Amended
Article Third did not effect any substantive amendments to this provision.
LIQUIDATION
As was the case in Article Third, Amended Article Third provides that upon
any liquidation, dissolution or winding up of Genentech, no distribution shall
be made (1) to the holders of shares of Common Stock unless, prior thereto, the
holders of shares of Special Common Stock (Redeemable Common Stock in the case
of Article Third) shall have received $.01 per share, plus an amount equal to
declared and unpaid dividends and distributions thereon to the date of such
payment; provided that the holders of shares of Special Common Stock shall be
entitled to receive an aggregate amount per share equal to the aggregate amount
to be distributed per share to holders of shares of Common Stock, or (2) to the
holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Special Common Stock, except
distributions made ratably on the Special Common Stock and all such other parity
stock in proportion to the total amounts to which the holders of all such shares
are entitled upon such liquidation, dissolution or winding up.
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<PAGE> 27
CALL RIGHTS
Subject to the provisions of the Amended and Restated Governance Agreement
between Genentech and Roche, as such agreement may be amended from time to time
(the "Amended Governance Agreement"), the Special Common Stock may, and where
the Amended Governance Agreement so requires, shall be redeemed, in whole but
not in part, at the option of Genentech, during certain periods, at certain
prices and upon certain terms and conditions (the "Call Rights"). Under the
Amended Governance Agreement, Genentech has agreed that it shall, subject to the
provisions of the Amended Governance Agreement, redeem the Special Common Stock
at the request of Roche and not otherwise. Amended Article Third provides that
the redemption price for any date of redemption (the "Redemption Date") during
the periods set forth below (and prior to final court approval of the proposed
settlement of certain Stockholder Litigation relating to the Merger and related
transactions (the "Stockholder Litigation")) shall be the price per share set
forth opposite such period in the following table, adjusted if necessary as
described below:
<TABLE>
<CAPTION>
PERIOD PRICE
---------------------------------------------------------------------------- ------
<S> <C>
October 1, 1995 to December 31, 1995........................................ $62.50
January 1, 1996 to March 31, 1996........................................... $63.75
April 1, 1996 to June 30, 1996.............................................. $65.00
July 1, 1996 to September 30, 1996.......................................... $66.25
October 1, 1996 to December 31, 1996........................................ $67.50
January 1, 1997 to March 31, 1997........................................... $68.75
April 1, 1997 to June 30, 1997.............................................. $70.00
July 1, 1997 to September 30, 1997.......................................... $71.50
October 1, 1997 to December 31, 1997........................................ $73.00
January 1, 1998 to March 31, 1998........................................... $74.50
April 1, 1998 to June 30, 1998.............................................. $76.00
July 1, 1998 to September 30, 1998.......................................... $77.50
October 1, 1998 to December 31, 1998........................................ $79.00
January 1, 1999 to March 31, 1999........................................... $80.50
April 1, 1999 to June 30, 1999.............................................. $82.00
</TABLE>
Upon final court approval of the settlement of the Stockholder Litigation,
each of the redemption prices applicable pursuant to the Call Rights set forth
above will be increased by $0.50 per share of Special Common Stock, resulting in
a final price of $82.50, as provided by the settlement. If such final court
approval occurs after payment of the applicable redemption price pursuant to the
Call Rights, such $0.50 increase will be promptly thereafter paid by Genentech
to such person to whom payment of the applicable redemption price was previously
made. "Final court approval" of the settlement of the Stockholder Litigation is
defined in the settlement papers to mean that the Delaware Court of Chancery has
entered an order approving the settlement on the terms contemplated by the
parties, and that such order is finally affirmed on appeal or is no longer
subject to appeal. The applicable appeal period under Delaware law is 30 days
from the entry of a final order approving the settlement.
Notice of any proposed redemption of the Special Common Stock will be given
by mailing a copy of such notice (the "Call Notification") to the holders of
record of the shares of Special Common Stock, not more than 30 or less than 10
days prior to the date fixed for redemption.
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<PAGE> 28
The redemption prices for the Redeemable Common Stock from September 1990
through June 30, 1995 were as follows:
<TABLE>
<CAPTION>
PERIOD PRICE
---------------------------------------------------------------------------- ------
<S> <C>
Prior to December 31, 1990.................................................. $38.00
January 1 to March 31, 1991................................................. $39.00
April 1, 1991 to June 30, 1991.............................................. $40.00
July 1, 1991 to September 30, 1991.......................................... $41.25
October 1, 1991 to December 31, 1991........................................ $42.50
January 1, 1992 to March 31, 1992........................................... $43.75
April 1, 1992 to June 30, 1992.............................................. $45.00
July 1, 1992 to September 30, 1992.......................................... $46.25
October 1, 1992 to December 31, 1992........................................ $47.50
January 1, 1993 to March 31, 1993........................................... $48.75
April 1, 1993 to June 30, 1993.............................................. $50.00
July 1, 1993 to September 30, 1993.......................................... $51.25
October 1, 1993 to December 31, 1993........................................ $52.50
January 1, 1994 to March 31, 1994........................................... $53.75
April 1, 1994 to June 30, 1994.............................................. $55.00
July 1, 1994 to September 30, 1994.......................................... $56.25
October 1, 1994 to December 31, 1994........................................ $57.50
January 1, 1995 to March 31, 1995........................................... $58.75
April 1, 1995 to June 30, 1995.............................................. $60.00
</TABLE>
PUT RIGHTS
Amended Article Third provides that, unless the Call Rights have been
previously exercised, during the Put Period (as hereinafter defined), each
holder of the Special Common Stock will have (by delivery of the Put Notice (as
hereinafter defined)) the option pursuant to the Put Rights to require the
purchase of all or part of the Special Common Stock held by such holder at a
price of $60 per share, subject to adjustment (the "Put Price"). Holders of the
Redeemable Common Stock did not (and the holders of Common Stock do not) have
any rights comparable to the Put Rights.
At least 10 and not more than 30 days prior to the beginning of the Put
Period or, in the event of an acceleration of the Put Rights described below, as
soon as practicable following the date of the occurrence of the Insolvency Event
giving rise to such acceleration (but in no event later than the tenth day
following such date), the Company will mail the Put Notification (as hereinafter
defined) to each holder of Special Common Stock. To facilitate the giving of the
Put Notification to the holders of Special Common Stock, the Genentech Board may
fix a record date for determination of holders of Special Common Stock entitled
to be given the Put Notification, which record date may not be more than five
days prior to the date the Put Notification is given pursuant to Amended Article
Third.
ADJUSTMENTS
The redemption prices pursuant to the Call Rights and the Put Rights are
subject to appropriate adjustment in the case of any dividend payable in shares
of Special Common Stock, or any subdivision or combination of the Special Common
Stock and, subject to certain exceptions, in the event of certain other
extraordinary dividends payable in respect of the Special Common Stock.
CONDITION TO THE COMPANY'S OBLIGATIONS
Notwithstanding any other provision of Amended Article Third, the Company's
obligation to pay the Put Price in respect of shares of Special Common Stock
with respect to which Put Rights have been properly exercised (and to deposit
with the Depositary the requisite funds) is conditioned upon Genentech's having
23
<PAGE> 29
received from Roche, or any affiliate of Roche, (i) funds in an amount equal to
the product of the number of shares of Special Common Stock with respect to
which Put Rights have been properly exercised multiplied by the Put Price plus
(ii) such additional funds, if any, sufficient to permit the Company to redeem
the shares of Special Common Stock with respect to which Put Rights have been
properly exercised without violating Section 160 of the General Corporation Law
of the State of Delaware, any bankruptcy or insolvency law or other law or
regulation for the protection of creditors.
ENFORCEMENT OF ROCHE OBLIGATIONS
Amended Article Third provides that Genentech will take (and will have no
corporate power or capacity not to take) such action as may be necessary to
enforce the obligations of Roche and its affiliates to pay the Put Price (and
any other amounts payable pursuant to the provisions of the Amended Governance
Agreement), including, without limitation, all actions required to cause Roche
and its affiliates to perform their respective obligations described under The
Amended Governance Agreement and under the Guaranty of Roche Holding Ltd.
relating to Roche's obligations in connection with the foregoing.
PAYMENT
Call Rights. Under Amended Article Third, on or prior to the date any Call
Notification (as hereinafter defined) is first sent or given, the Company will
deposit the aggregate redemption price (together with accrued and unpaid
dividends to such date) of the shares to be redeemed with the Depositary, in
trust for payment to the holders of the Special Common Stock, and deliver
irrevocable written instructions authorizing the Depositary to apply such
deposit solely to the redemption of the shares to be redeemed. The amount of
funds required to be deposited in connection with the Call Rights pursuant to
the foregoing sentence will be reduced by the aggregate redemption price of any
shares of Special Common Stock deposited by Roche in lieu of such funds. In the
case of the exercise of the Call Rights, each holder of shares of Special Common
Stock will be paid the redemption price for such shares within three business
days following the surrender of the certificate or certificates representing
such shares to a depositary agent (the "Depositary"), together with a properly
executed letter of transmittal covering such shares. The Company's written
instructions to the Depositary may provide that any of such deposit remaining
unclaimed at the expiration of two years after the date fixed for redemption
pursuant to the Call Rights by the holder of any of such shares be returned to
the Company and revert to the general funds of the Company, after which return
such holder will have no claim against the Depositary but will have a claim as
an unsecured creditor against the Company for the redemption price together with
accrued and unpaid dividends to such redemption date, without interest. The Call
Notification having been duly given, or the Depositary having been irrevocably
authorized by the Company to give said notice, and the redemption price
(together with accrued and unpaid dividends to such redemption date) of the
shares to be redeemed having been deposited then all shares of Special Common
Stock with respect to which such deposit will have been made pursuant to
exercise of the Call Rights will forthwith, whether or not the date fixed for
such redemption shall have occurred or the certificates for such shares shall
have been surrendered for cancellation, be deemed no longer to be outstanding
for any purpose, and all rights with respect to such shares will thereupon cease
and terminate, except the right of the holders of such shares to receive, out of
such deposit in trust, on the redemption date the redemption price (together
with accrued and unpaid dividends to such redemption date) to which they are
entitled, without interest.
Put Rights. Under the terms of Amended Article Third, promptly following
the end of the Put Period, the Company (or under certain circumstances, Roche)
will deposit or cause to be deposited with the Depositary funds in an amount
sufficient to pay the Put Price for all shares of Special Common Stock with
respect to which the Put Rights have been properly exercised. Each holder of
shares of Special Common Stock who has properly exercised the Put Rights, and
who has surrendered the shares of Special Common Stock with respect to which the
Put Rights have been exercised, will be paid promptly following the end of the
Put Period. In the event of the exercise of the Put Rights for less than all of
the shares of Special Common Stock represented by a certificate, a new
certificate representing the shares of Common Stock into which the shares of
Special Common Stock not redeemed pursuant to the exercise of the Put Rights
have been converted will be issued to the holder of such shares.
24
<PAGE> 30
DEFAULT AND ACCELERATION OF PUT RIGHTS
Unless the Call Rights have been previously exercised, if, prior to the
last day of the Put Period, (i) the Company files a voluntary petition in
bankruptcy or seeks reorganization in order to effect a plan or other
arrangement with creditors or any other relief under the Bankruptcy Reform Act,
Title 11 of the United States Code, as amended or recodified from time to time
(the "Bankruptcy Code"), or under any state or federal law granting relief to
debtors, or (ii) any involuntary petition or proceeding pursuant to the
Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against the Company and the same is not dismissed within 30 days, or the Company
files an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition, or (iii) the Company is adjudicated a
bankrupt, or an order for relief is entered by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable state or federal
law relating to bankruptcy, reorganization or other relief for debtors, then,
and upon the occurrence of such event (an "Insolvency Event"), without notice of
any kind whatsoever, the right of the holders of the Special Common Stock to
exercise the Put Rights will accelerate, and the Put will be exercisable
immediately upon the occurrence of such event and until the end of the Put
Period.
CONVERSION
Each share of Special Common Stock outstanding following the close of
business on the last day of the Put Period (the "Conversion Date") will, unless
previously called for redemption on or prior to such date, automatically be
converted into one share of Common Stock.
Notice of the Conversion Date will be given by mail to the holders of
record of the shares of Special Common Stock, not more than 30 nor less than 10
days prior to the Conversion Date. Upon request of any holder, Genentech will
issue and deliver to the holder, as promptly as practicable after the Conversion
Date, a replacement certificate for the number of Shares issuable upon
conversion of such Special Common Stock. No shares of Special Common Stock will
be issued after the Conversion Date.
Genentech will provide, free from preemptive rights, out of its authorized
but unissued shares of Common Stock, or out of shares of Common Stock held in
its treasury, sufficient shares of Common Stock to provide for the conversion of
the Special Common Stock outstanding on the Conversion Date. Amended Article
Third will provide that all shares of Common Stock which may be issued upon
conversion of Special Common Stock will upon issue be fully paid and
non-assessable by Genentech and free from all taxes, liens and charges with
respect to the issue thereof. Amended Article Third will further provide that,
if on the Conversion Date the Special Common Stock shall be listed on the NYSE
or on any other national securities exchange or the NASDAQ National Market,
Genentech will, if permitted by the rules thereof, seek to list on each such
exchange or the NASDAQ National Market, as the case may be, all shares of Common
Stock issuable upon conversion of the Special Common Stock.
LEGEND
Each certificate representing shares of Special Common Stock bears the
following legend:
"The shares of Callable Putable Common Stock represented hereby are
subject to (i) redemption at the option of the corporation during the
periods, at the prices and on the terms and conditions specified in the
corporation's certificate of incorporation, (ii) an option on the part of
the holder, under certain circumstances, to require the corporation to
redeem such shares of Callable Putable Common Stock, at the price and on
the terms and conditions specified in the corporation's certificate of
incorporation and (iii) conversion into Common Stock, par value $.02, of
the corporation on the date specified, and upon the terms and conditions
set forth in, such certificate of incorporation. After redemption the
shares represented by this certificate shall cease to be outstanding for
all purposes and the holder hereof shall be entitled to receive only the
redemption price of such shares, without interest. After conversion this
certificate shall represent the shares of Common Stock into which the
shares of Callable Putable Common Stock represented hereby shall have been
converted, and this certificate may be exchanged for a new certificate
representing such shares of Common Stock."
25
<PAGE> 31
CLASS VOTE
In addition to any other affirmative vote required by law or the Genentech
Certificate of Incorporation, any amendment of the provisions of Amended Article
Third requires the affirmative vote of the holders of a majority of the shares
of Common Stock entitled to vote and of the holders of a majority of the shares
of Special Common Stock entitled to vote, each voting separately as a class.
PUT AND CALL NOT BUSINESS COMBINATIONS
Amended Article Third provides that the transactions to be consummated
pursuant to the Call Rights or the Put Rights will not be deemed to be "Business
Combinations" for purposes of Article Eleventh of the Genentech Certificate of
Incorporation.
CERTAIN DEFINITIONS
For purposes of the foregoing discussion of Amended Article Third, the
following terms will have the following meanings:
"Business Day" means any day which is not a Saturday, Sunday or a
federal holiday.
"Depositary" means the bank or trust company in the Borough of
Manhattan, the City and State of New York, having combined capital, surplus
and undivided profits of at least $500 million which is appointed by the
Company to serve as agent for the purpose of receiving certificates
representing shares of the Special Common Stock upon exercise of the Put
Rights or Call Rights, as the case may be, and distributing the Redemption
Price or the Put Price therefor, as the case may be.
"Put Notice" means a written notice electing to have shares of Special
Common Stock redeemed by the Company pursuant to the exercise of the Put
Rights.
"Put Notification" means a written notice from the Company to the
holders of the Special Common Stock and the holders of options to purchase
shares of the Special Common Stock informing each such holder of (A) the
rights of such holder to cause the Company to redeem shares of Special
Common Stock during the Put Period, (B) the date of the commencement and
termination of the Put Period, (C) the Put Price, (D) the identity and
address of the Depositary and (E) instructions as to how to exercise the
Put Rights. The Put Notification will, in all respects, comply with the
requirements of the Exchange Act.
"Put Period" means, subject to acceleration upon the occurrence of
certain Insolvency Events, the period commencing on July 1, 1999 and ending
on the close of business on the thirtieth Business Day thereafter or such
later date as may be required under the Exchange Act; provided that, in the
event of acceleration of the Put Period following the occurrence of an
Insolvency Event, the Put Period will be the period commencing as soon as
practicable following the date of the occurrence of the Insolvency Event
giving rise to such acceleration (but in no event later than ten days
following such date) and ending on the close of business on the 60th
Business Day thereafter or such later date as may be required under the
Exchange Act.
LEGAL MATTERS
The validity of the Special Common Stock offered hereby will be passed upon
by Stephen G. Juelsgaard, Vice President and General Counsel of the Company.
26
<PAGE> 32
EXPERTS
The consolidated financial statements of Genentech, Inc., incorporated by
reference in the Company's Annual Report (Form 10-K) for the year ended December
31, 1994, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are, and audited financial
statements to be included in subsequently filed documents will be, incorporated
herein in reliance upon the reports of Ernst & Young LLP pertaining to such
financial statements (to the extent covered by consents filed with the
Securities and Exchange Commission) given upon the authority of such firm as
experts in accounting and auditing.
MATERIAL CHANGES
As of the date of this Prospectus, and other than the Merger and the
transactions related thereto, no material changes in the Company's affairs,
which have not been described in a report on Form 10-Q, 10-K or 8-K filed under
the Exchange Act, have occurred since the end of the latest fiscal year for
which certified financial statements were included in the latest annual report
to stockholders.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL") provides, in summary, that directors and officers of Delaware
corporations are entitled, under certain circumstances, to be indemnified
against all expenses and liabilities (including attorneys' fees) incurred by
them as a result of suits brought against them in their capacity as a director
or officer, if they acted in good faith and in a manner they reasonably believed
to be in or not opposed to the best interests of the corporation, and with
respect to any criminal action or proceeding, if they had no reasonable cause to
believe their conduct was unlawful; provided, that no indemnification may be
made against expenses in respect of any claim, issue or matter as to which they
shall have been adjudged to be liable to the corporation, unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, they are fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Any such
indemnification may be made by the corporation only as authorized in each
specific case upon a determination by the stockholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct.
Article SEVENTH of Genentech's Certificate of Incorporation ("Article
SEVENTH") provides that a director of Genentech is not personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for paying a dividend or approving a stock repurchase in
violation of Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit.
Article SEVENTH also provides that directors, officers and other
individuals will be indemnified by Genentech to the full extent permitted by law
and shall not be exclusive of any other right which any person may otherwise
have or acquire. It provides that each person who was or is made a party to or
is involved in, any action, suit or proceeding by reason of the fact that he is
or was a director, officer, employee or agent of Genentech (or is or was serving
at the request of Genentech as a director, officer, employee or agent for
another entity) while serving in such capacity shall be indemnified and held
harmless by Genentech, to the full extent authorized by the DGCL, as in effect
(or, to the extent indemnification is broadened, as it may be amended), against
all expense, liability or loss (including attorneys' fees, judgments, fines,
ERISA excise taxes or penalties and amounts to be paid in settlement) reasonably
incurred by such person in connection therewith. It allows such indemnified
persons to bring suit against Genentech to recover unpaid amounts claimed
thereunder, and if such suit is successful, the expense of bringing such suit
shall be reimbursed by Genentech. It further provides that while it is a defense
to such a suit that the person claiming indemnification
27
<PAGE> 33
has not met the applicable standards of conduct making indemnification
permissible under Delaware law, the burden of proving the defense shall be on
Genentech and neither the failure of Genentech Board to have made a
determination that indemnification is proper, nor an actual determination by
Genentech that the claimant has not met the applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Genentech's Certificate of Incorporation and By-laws provide that Genentech
may maintain insurance, at its expense, to protect itself and any of its
officers, employees or agents against any expense, liability or loss, whether or
not Genentech would have the power to indemnify such person against such
expense, liability or loss under Delaware law. Genentech maintains such
insurance for such purposes.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
28
<PAGE> 34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Company in
connection with the issuance and distribution of the Special Common Stock being
registered. All the amounts shown are estimates except for the registration fee.
<TABLE>
<S> <C>
Registration fee............................................................ *
Blue Sky fees and expenses.................................................. $ 500
Stock Exchange Listing Fees................................................. $ *
Legal fees and expenses..................................................... $5,000
Accounting fees and expenses................................................ $1,500
Miscellaneous expenses...................................................... $ 500
------
Total............................................................. $7,500
</TABLE>
- ---------------
* All filing fees payable in connection with registration of these securities
were paid in connection with the filing of (a) the Registrant's Schedule 14A
dated June 2, 1995, (b) the Registrant's Form S-4, No. 33-59949, dated June 5,
1995 (the "Form S-4") and (c) Amendment No. 1 to the Form S-4 dated September
8, 1995, which filings related to the issuance of Special Common Stock
(including shares subject to options) as a result of the Merger.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
See "DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES" contained in the prospectus forming a part of this
Post-Effective Amendment No. 3.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -------------------------------------------------------------------------------
<C> <C> <S>
5-A(3) -- Opinion of counsel as to the legality of the securities being registered.
15-A(3) -- Letter re: unaudited financial information.
23-A(3) -- Consent of Ernst & Young LLP, independent auditors.
23-B(3) -- Consent of Counsel (included in Exhibit 5-A(3)).
24-A(3) -- Powers of Attorney.(1)
99-A(3) -- 1990 Stock Option Plan, as amended and restated as of October 25, 1995.
99-B(3) -- Letter distributed to option holders, relating to effects of the Merger.
</TABLE>
- ---------------
(1) Filed as Exhibit 24.1 to the Registrant's Registration Statement on Form S-4
(No. 33-59949), filed June 5, 1995, and Amendment No. 1 thereto, filed
September 8, 1995.
II-1
<PAGE> 35
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or any
material change to such information in the registration statement;
Provided, however, that paragraphs (1)(a) and (1)(b) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(5) To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial information
required to be presented by Article 3 or Regulation S-X is not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom the
prospectus is sent or given, the latest quarterly report that is specifically
incorporated by reference in the prospectus to provide such interim financial
information.
(6) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing this Post-Effective Amendment No. 3 on Form S-3 to the
Registration Statement on Form S-4 (No. 33-59949) and has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of South San Francisco,
State of California, on the 25th day of October, 1995.
GENENTECH, INC.
By: /s/ LOUIS J. LAVIGNE, JR.
------------------------------------
Louis J. Lavigne, Jr.
Senior Vice President and
Chief Financial Officer
<TABLE>
<S> <C>
Principal Executive Officer:
/s/ ARTHUR D. LEVINSON President and Chief Executive Officer
- -----------------------------------------------
Arthur D. Levinson
Principal Financial Officer:
/s/ LOUIS J. LAVIGNE, JR. Senior Vice President and Chief Financial
- ----------------------------------------------- Officer
Louis J. Lavigne, Jr.
Principal Accounting Officer:
/s/ BRADFORD S. GOODWIN Vice President and Controller
- -----------------------------------------------
Bradford S. Goodwin
Directors:
/s/ ARTHUR D. LEVINSON
- -----------------------------------------------
Arthur D. Levinson
/s/ HERBERT W. BOYER*
- -----------------------------------------------
Herbert W. Boyer
/s/ JURGEN DREWS*
- -----------------------------------------------
Jurgen Drews
/s/ FRANZ B. HUMER*
- -----------------------------------------------
Franz B. Humer
</TABLE>
II-3
<PAGE> 37
/s/ LINDA F. LEVINSON*
- -----------------------------------------------
Linda F. Levinson
/s/ J. RICHARD MUNRO*
- -----------------------------------------------
J. Richard Munro
/s/ DONALD L. MURFIN*
- -----------------------------------------------
Donald L. Murfin
/s/ JOHN T. POTTS, JR.*
- -----------------------------------------------
John T. Potts, Jr.
/s/ C. THOMAS SMITH, JR.*
- -----------------------------------------------
C. Thomas Smith, Jr.
/s/ ROBERT A. SWANSON*
- -----------------------------------------------
Robert A. Swanson
/s/ DAVID S. TAPPAN, JR.*
- -----------------------------------------------
David S. Tappan, Jr.
*By: /s/ JOHN P. MCLAUGHLIN
- -----------------------------------------------
Attorney-in-Fact
October 25, 1995
II-4
<PAGE> 38
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
------- ----
<C> <S> <C>
5-A(3) Opinion of Counsel.........................................................
15-A(3) Letter re: unaudited financial information.................................
23-A(3) Consent of Ernst & Young LLP, independent auditors.........................
23-B(3) Consent of Counsel (included in Exhibit 5-A(3))............................
24-A(3) Power of Attorney(1).......................................................
99-A(3) 1990 Stock Option/Stock Incentive Plan, as amended and restated
as of October 25, 1995.....................................................
99-B(3) Letter distributed to option holders, relating to effects of the Merger....
</TABLE>
- ---------------
(1) Filed as Exhibit 24.1 to the Registrant's Registration Statement on Form S-4
(No. 33-59949), filed June 5, 1995, and Amendment No. 1 thereto, filed
September 8, 1995.
<PAGE> 1
EXHIBIT 5-A(3)
<PAGE> 2
EXHIBIT 5-A(3)
[LETTERHEAD OF GENENTECH, INC.]
October 25, 1995
Genentech, Inc.
460 Point San Bruno Boulevard
South San Francisco, California 94080
Ladies and Gentlemen:
I am General Counsel of Genentech, Inc. (the "Company") and am rendering
this opinion in connection with the filing by the Company of a Post-Effective
Amendment on Form S-3 (the "Amendment") to a Registration Statement on Form S-4
(No. 33-59949) (the "Registration Statement") with the Securities and Exchange
Commission covering the offering of up to 10,086,453 shares of the Company's
Callable Putable Common Stock, $.02 par value ("Special Common Stock"), and the
10,086,453 shares of Common Stock, par value $0.02 per share, into which such
shares of Special Common Stock are subject to conversion in accordance with the
provisions of the Company's Certificate of Incorporation (together with the
shares of Special Common Stock, the "Shares"), pursuant to the Company's 1990
Stock Option/Stock Incentive Plan (the "Plan").
In connection with this opinion, I have examined the Amendment, and related
Prospectuses, the Registration Statement, the Company's Certificate of
Incorporation and By-laws, as amended, and such other documents, records,
certificates, memoranda and other instruments as in my judgment are necessary as
a basis for this opinion.
On the basis of the foregoing, and in reliance thereon, I am of the opinion
that the Shares, when sold and issued in accordance with the Plan, the
Registration Statement and related Prospectus, will be validly issued, fully
paid, and nonassessable.
I consent to the filing of this opinion as an exhibit to the Amendment.
Very truly yours,
By: /s/ STEPHEN G. JUELSGAARD
------------------------------------
Stephen G. Juelsgaard
Vice President and
General Counsel
<PAGE> 1
EXHIBIT 15-A(3)
<PAGE> 2
EXHIBIT 15-A(3)
[LETTERHEAD OF ERNST & YOUNG, LLP]
October 24, 1995
The Board of Directors and Stockholders
Genentech, Inc.
We are aware of the incorporation by reference in the Post-Effective
Amendment No. 3 on Form S-3 to the Registration Statement on Form S-4 (No.
33-59949) of Genentech, Inc. for the registration of up to 10,086,453 shares of
its Callable Putable Common Stock (and the Common Stock into which such Callable
Putable Common Stock may be converted) of our reports dated April 10, 1995 and
July 14, 1995 relating to the unaudited condensed consolidated interim financial
statements of Genentech, Inc. which are included in its Forms 10-Q for the
quarters ended March 31, 1995 and June 30, 1995, respectively.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a
part of the registration statement prepared or certified by accountants within
the meaning of Section 7 or 11 of the Securities Act of 1933.
Very truly yours,
ERNST & YOUNG LLP
<PAGE> 1
EXHIBIT 23-A(3)
<PAGE> 2
EXHIBIT 23-A(3)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Post-Effective Amendment No. 2 on Form S-3 to the Registration Statement on Form
S-4 (No. 33-59949), pertaining to the 1994 Stock Option Plan of Genentech, Inc.
for the registration of up to 10,086,453 shares of Callable Putable Common Stock
(and Common Stock into which Callable Putable Common Stock may be converted) and
to the incorporation by reference therein of our report dated January 17, 1995,
with respect to the consolidated financial statements of Genentech, Inc.
incorporated by reference in its Annual Report (Form 10-K) for the year ended
December 31, 1994, and the related financial statement schedules included
therein, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
San Jose, California
October 25, 1995
<PAGE> 1
EXHIBIT 99-A(3)
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1990 STOCK OPTION/STOCK INCENTIVE PLAN
(as amended effective October 25, 1995)
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSES OF THE PLAN
A. This 1990 Stock Option/Stock Incentive Plan (the "Plan") is intended to
promote the interests of Genentech, Inc., a Delaware corporation (the
"Company"), by providing a method whereby the Company may retain the services of
persons now employed by or serving as consultants to it, secure and retain the
services of persons capable of filling such positions and provide incentives for
such persons to exert maximum efforts for the success of the Company or its
parent or subsidiary corporations.
B. For purposes of the Plan, the following definitions shall be in effect:
CHANGE IN CONTROL: "Change in Control" shall have the meaning set
forth in Article Two, III.C. hereof.
CHANGE IN CONTROL PRICE: "Change in Control Price" shall have the
meaning set forth in Article Two, II.C.4.b. hereof.
CLOSING SELLING PRICE: The Closing Selling Price per share of Common
Stock on any relevant date under the Plan shall be the closing selling
price per share of Common Stock, if such Common Stock is reported on a
national securities exchange or reported on the NASDAQ National Market
System (or any successor system), for the trading day immediately preceding
the date in question, as such price is published in the Wall Street Journal
(or if such publication is not available, a comparable publication selected
by the Committee).
COMMON STOCK: The Common Stock issuable under the Plan shall be shares
of the Company's common stock, par value $0.02 per share. From and after
October 25, 1995, all references to "shares", "stock", or "common stock"
shall be deemed to be references to shares of Callable Putable Common
Stock, par value $0.02 per share (the "Special Common Stock"), of the
Company.
CONSULTANT: An individual shall be considered to be a Consultant for
so long as such individual continues to render personal services to the
Company or one or more of its parent or subsidiary corporations as an
independent contractor.
CORPORATE TRANSACTION: "Corporate Transaction" shall have the meaning
set forth in Article Two, III.A. hereof.
EMPLOYEE: An individual shall be considered to be an Employee for so
long as such individual remains in the employ of the Company or one or more
of its parent or subsidiary corporations.
PARENT: A corporation shall be deemed to be a parent of the Company if
it is a corporation (other than the Company) in an unbroken chain of
corporations ending with the Company, provided each such corporation in the
unbroken chain (other than the Company) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
SECTION 16(b) INSIDER: An individual shall be considered to be a
Section 16(b) Insider on any relevant date under the Plan if such
individual (A) is at the time an officer or director of the Company subject
to the short-swing profit restrictions of the regulations promulgated under
Section 16 of the Securities Exchange Act of 1934, as amended (the "1934
Act") or (B) unless Section 16 or regulations promulgated thereunder, are
amended to provide otherwise, was such an officer or director at any time
during the six month period immediately preceding the date in question and
made any purchase or sale of Common Stock during such six-month period.
<PAGE> 3
SERVICE: An individual shall be deemed to be in the Service of the
Company for so long as such individual (i) renders service on a periodic
basis to the Company or one or more of its parent or subsidiary
corporations as an Employee or Consultant or (ii) is a member of the
Company's Board of Directors (the "Board").
SUBSIDIARY: A corporation shall be deemed to be a subsidiary of the
Company if it is one of the corporations (other than the Company) in an
unbroken chain of corporations beginning with the Company, provided each
such corporation (other than the last corporation in the unbroken chain)
owns, at the time of determination, stock possessing 50 percent or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain. For purposes of nonstatutory option grants
under Article Two and stock incentive grants under Article Three and all
Corporate Transaction provisions of the Plan, the term "subsidiary" shall
also include any partnership, joint venture or other business entity of
which the Company owns, directly or indirectly through another subsidiary
corporation, more than a fifty percent (50%) interest in voting power,
capital or profits.
C. Neither stock option grants nor stock bonus issuances made to any
individual under the Plan shall in any way affect, limit or restrict such
individuals eligibility to participate in any other stock plan or other
compensation or benefit plan, arrangement or practice now or hereafter
maintained by the Company or any parent or subsidiary corporation.
D. Except for the special option grant to be made pursuant to the
provisions of Section VII of Article Two below, and the grant of options to be
made pursuant to the automatic grant program set forth in Article Three below,
non-Employee Board members shall not be eligible to receive any option grants or
stock issuances under this Plan or any other stock plan of the Company or any
parent or subsidiary corporation.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Compensation Committee (the
"Committee"). The Committee shall be comprised of not less than three (3) Board
members, none of whom shall be eligible to participate in this Plan or any other
stock option, stock appreciation, stock bonus or other stock plan of the Company
or its parent or subsidiary corporations, except to the extent such member
becomes entitled to the special option grant to be made pursuant to the
automatic grant provisions of Section VII of Article Two below or to option
grants made pursuant to the automatic grant provisions of Article Three below.
The Board may from time to time appoint members to the Committee in substitution
for (or in addition to) members previously appointed, and the Board shall have
the authority to fill any and all vacancies on the Committee, however caused.
B. Discretionary option grants to Board members who are Employees shall be
either (i) made by the Committee whose membership shall, at the time of any such
grant, be limited to three or more disinterested persons within the meaning of
paragraph (c)(2) of Rule 16b-3 of the Securities and Exchange Commission (or any
successor rule), as such term is interpreted from time to time or (ii) subject
to the following terms and conditions:
(i) The exercise price per share shall not be less than one hundred
percent (100%) of the Closing Selling Price per share of Common Stock on
the date of the option grant.
(ii) The Committee shall have complete discretion in determining the
number of shares of Common Stock for which options may be granted to such
Employee-members of the Board; provided, however, that no such
Employee-member of the Board may acquire more than 200,000 shares of Common
Stock (subject to adjustment under Section V.C of this Article One) in the
aggregate pursuant to stock option grants under Article Two and Common
Stock issuances under Article Four.
(iii) Any stock option granted to such an Employee-member of the Board
shall not become exercisable in whole or in part during the one-year period
following the grant date, except in the event of the optionee's death or
disability or in the event of either a stockholder-approved Corporate
Transaction or a Change in Control (as such terms are defined in Section
III of Article Two). Following the expiration of the applicable waiting
period, the option shall become exercisable at such time or times as the
Committee shall specify in the instrument evidencing the grant.
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(iv) No stock option granted to such an Employee-member of the Board
while the Committee is not comprised of disinterested individuals will
include any tandem, concurrent or limited stock appreciation rights under
Section II of Article Two or any tax withholding rights under Section I of
Article Five, except to the extent one or more of such rights may be added
to such stock option following the date the Committee members first qualify
as disinterested individuals under Rule 16b-3.
(v) Unless the members of the Committee qualify as disinterested
individuals under Rule 16b-3 prior to December 31, 1999, no further stock
option grants shall be made to any Employee member of the Board from and
after such date.
C. The Committee, whether or not comprised of disinterested persons, shall
at all times have the authority to make discretionary option grants under the
Plan to eligible Employees who are not members of the Board.
D. Subject to the express provisions of the Plan, the committee shall have
plenary authority:
(i) to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, and to make all other determinations deemed
necessary or advisable in administering the Plan; and
(ii) to change the terms and conditions of any outstanding
discretionary option grant or unvested stock issuance, provided such action
does not, without the consent of the holder, adversely affect the rights
and obligations such individual may have under the Plan or the outstanding
grant or stock issuance.
E. Determinations of the Committee on all matters relating to the Plan and
any discretionary option grants or stock issuances made hereunder shall be
final, binding and conclusive on all persons having any interest in the Plan or
any options granted or shares issued under the Plan.
III. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate components: the Regular
Option Grant Program specified in Article Two, the Automatic Grant Program
specified in Article Three and the Stock Incentive Program specified in Article
Four. Under the Regular Option Grant Program, eligible Employees and Consultants
may be granted options to purchase shares of Common Stock at an exercise price
equal to not less than 50% of the Closing Selling Price per share on the grant
date, and a special option grant is to be made in accordance with Section VII of
Article Two. Under the Automatic Grant Program, non-Employee Board members shall
automatically be granted options to purchase shares of Common Stock at an
exercise price of 100% of the Closing Selling Price per share of Common Stock on
the date of grant, provided, however, that options granted under the Automatic
Grant Program in 1990 shall have an exercise price per share equal to the
Closing Selling Price on the date thirty (30) days after (i) the effective date
of the Merger (defined in Article Six) or (ii) the termination date of the
Merger Agreement (defined in Article Six), as applicable.
B. Under the Stock Incentive Program, eligible Employees and Consultants
may be awarded shares of Common Stock as a reward for past services or as an
incentive to the performance of future services. Such shares may be issued as
fully-vested shares or as shares vesting over time.
C. The provisions of Articles One, Five and Six of the Plan shall apply to
the Regular Option Grant Program, the Automatic Option Grant Program and the
Stock Incentive Program and shall accordingly govern the interests of all
individuals in the Plan.
IV. ELIGIBILITY FOR OPTION GRANTS AND STOCK ISSUANCES
A. The individuals eligible to receive option grants ("Optionees") and/or
stock incentives ("Recipients") pursuant to the Plan shall be limited to (i)
those Employees and Consultants selected by the Committee and (ii) those
non-Employee Board members who are entitled to option grants pursuant to the
Automatic Option Grant Program of Article Three.
B. Except for the special option grant to be made pursuant to the
provisions of Section VII of Article Two below, and the automatic option grants
to be made pursuant to Article Three below, non-Employee
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Board members shall not be eligible to receive any additional option grants or
stock issuances under this Plan or any other stock plan of the Company or its
parent or subsidiary corporations.
V. STOCK SUBJECT TO THE PLAN
A. The Common Stock issuable under the Plan shall be made available either
from authorized but unissued shares of Common Stock or from shares of Common
Stock reacquired by the Company on the open market. The aggregate number of
shares of Common Stock issuable over the term of this Plan, whether through
exercised options or direct stock issuances shall not exceed 11,500,000 shares
(subject to adjustment from time to time in accordance with paragraphs C. and D.
below).
B. Should an option granted under this Plan expire or terminate for any
reason prior to exercise or surrender in full (including options canceled in
accordance with the cancellation-regrant provisions of the Regular Option Grant
Program), the shares subject to the portion of the option not so exercised or
surrendered shall be available for subsequent option grants under this Plan.
Shares subject to stock appreciation rights exercised in accordance with the
Stock Appreciation Right provisions of Article Two and shares repurchased by the
Company pursuant to its repurchase rights under the Plan shall not be available
for subsequent issuance, whether through option grants, stock appreciation
rights or direct issuances, under this Plan.
C. In the event any change is made to the Common Stock issuable under the
Plan by reason of any stock dividend, stock split, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without receipt of consideration, then appropriate adjustments shall be
made by the Committee to (i) the aggregate number and/or class of shares
issuable under this Plan, the maximum number and/or class of shares purchasable
per Employee-director pursuant to the applicable limitation of Section II.B of
this Article One and the number and/or class of shares for which the special
option grant is to be made pursuant to the automatic grant provisions of Section
VII of Article Two and for which the automatic option grants are to be made
pursuant to the provisions of Article Three, to reflect the effect of such
change upon the Company's capital structure, (ii) the number and/or class of
shares and the exercise price per share of the stock subject to each outstanding
option in order to preclude the dilution or enlargement of benefits thereunder
and (iii) the number and/or class of shares and the exercise price per share in
effect under each outstanding stock appreciation right in order to preclude the
dilution or enlargement of benefits thereunder. All adjustments made by the
Committee pursuant to this paragraph C. shall be final, binding and conclusive.
D. Subject to the special priority provisions of Article Six of the Plan,
in the event that (i) the Company is the surviving entity in any Corporate
Transaction that does not result in the termination of outstanding options
pursuant to the Corporate Transaction provisions of the Plan or (ii) the
outstanding options under the Plan are to be assumed in connection with such
Corporate Transaction, then each such continuing or assumed option shall,
immediately after such Corporate Transaction, be appropriately adjusted to apply
and pertain to the number and class of securities which would be issuable, in
consummation of such Corporate Transaction, to an actual holder of the same
number of shares of Common Stock as are subject to such option immediately prior
to such Corporate Transaction. Appropriate adjustments shall also be made to the
exercise price payable per share subject to each option, provided the aggregate
exercise price of such option shall remain the same. In addition, the aggregate
number and/or class of shares issuable under this Plan shall be appropriately
adjusted to reflect the effect of such Corporate Transaction upon the Company's
capital structure.
ARTICLE TWO
REGULAR OPTION GRANT PROGRAM
I. TERMS AND CONDITIONS OF OPTIONS
A. Except for the special option grant to be made pursuant to Section VII
of this Article Two, the Committee shall have plenary authority (subject to the
express provisions of the Plan) to determine which Employees and Consultants are
to be granted options under this Regular Option Grant Program, the number
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<PAGE> 6
of shares to be covered by each such option, the status of the granted option as
either an incentive stock option ("Incentive Option") which meets the
requirements of Section 422A of the Internal Revenue Code of 1986, as amended
from time to time (the "Code"), or a non-statutory option not intended to meet
such requirements, the time or times at which such option is to become
exercisable, the time or times at which such option (or the Shares subject to
such option) becomes vested (referred to herein as the "vesting schedule") and
the term for which the option is to remain outstanding, up to a maximum term of
twenty (20) years.
B. The granted options shall be evidenced by instruments in such form as
the Committee shall from time to time approve; provided, however, that each such
instrument (other than the instrument evidencing the special grant to be made
under Section VII of this Article Two) shall comply with and incorporate the
terms and conditions specified below, except as such terms and conditions must
be modified for Incentive Options as set forth below in Section IV of this
Article Two.
1. Exercise Price.
a. The exercise price per share shall be fixed by the Committee, but in no
event shall the exercise price per share be less than fifty percent (50%) of the
Closing Selling Price per share of Common Stock on the date of the option grant.
b. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the loan provisions of this Article Two, be payable
in one of the alternative forms specified below:
(A) full payment in cash or check made payable to the Company's order;
or
(B) full payment in shares of Common Stock held by the Optionee for
the requisite period necessary to avoid a charge to the Company's reported
earnings and valued at the Closing Selling Price on the Exercise Date (as
such term is defined below); or
(C) full payment in a combination of shares of Common Stock held by
the Optionee for the requisite period necessary to avoid a charge to the
Company's reported earnings and valued at the Closing Selling Price on the
Exercise Date and cash or check.
c. For purposes of subparagraph b. above, the Exercise Date shall be the
first date on which there is delivered to the Company both (I) written notice of
the exercise of the option and (II) payment of the exercise price for the
purchased shares.
2. Term and Exercise of Options.
a. Each option granted under this Regular Option Grant Program shall be
exercisable in one or more installments over the Optionee's period of Service as
shall be determined by the Committee and set forth in the instrument evidencing
such option; provided, however, that unless no longer required by SEC Rule 16b-3
issued under Section 16(b) of the 1934 Act, no such option granted to a Section
16(b) Insider shall become exercisable in whole or in part within the first six
(6) months after the grant date, except in the event of the Optionee's death or
disability.
b. Except for options granted to Section 16(b) Insiders, an option may be
exercisable by the Optionee or, in the event the Optionee is permanently
disabled (as such term is defined in Section 22(e) of the Code), by his or her
spouse, and such option may be transferred by the Optionee to a trust for such
Optionee's benefit or the benefit of an immediate family member or by will or
the laws of descent or distribution. An option granted to a Section 16(b)
Insider shall, during the lifetime of such Optionee, be exercisable only by that
Optionee and shall not be assignable or transferable by the Optionee otherwise
than by will or by the laws of descent and distribution.
c. The Committee may, at its discretion, accelerate the vesting schedule of
any outstanding option at any time.
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3. Termination of Service.
a. Should an Optionee cease to continue in Service for any reason (other
than termination due to death or permanent disability) while the holder of one
or more outstanding options under this Regular Option Grant Program, then such
options shall not be exercisable at any time after the earlier of (i) the
specified expiration date of the option term or (ii) the expiration of three (3)
months after the Optionee's cessation of Service. Each such option shall, during
the applicable period following cessation of Service, be exercisable only to the
extent of the number of shares (if any) in which the Optionee is vested on the
date of such cessation of Service; provided, however, that the Committee shall
have the discretion to specify, either at the time the option is granted or at
the time that the Optionee ceases Service, that vesting of such option may be
extended for a period not to exceed three (3) years from the date of cessation
of Service and that the applicable period set forth in clause (ii) may be
increased to a period of up to five (5) years.
b. Should an Optionee cease to continue in Service due to death or
permanent disability while the holder of one or more outstanding options under
this Regular Option Grant Program, then such options shall not be exercisable at
any time after the earlier of (i) the specified expiration date of the option
term or (ii) the expiration of three (3) months after the Optionee's cessation
of Service. Each such option shall, during the applicable period following
cessation of Service, be exercisable only to the extent of the number of shares
(if any) in which the Optionee is vested on the date of such cessation of
Service; provided, however, that the Committee shall have the discretion to
specify, either at the time the option is granted or at the time that the
Optionee ceases Service, that the vesting of such option may be accelerated or
extended from the date of cessation of Service and that the period of
exercisability can be increased up to the expiration date of the option term.
c. Any option granted to an Optionee under this Regular Option Grant
Program and outstanding in whole or in part on the date of the Optionee's death
may be subsequently exercised by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and distribution
in the case of the Optionee's death, and any option granted to an Optionee under
this Regular Option Grant Program which is outstanding in whole or in part on
the date of the Optionee's cessation of Service due to permanent disability may
be exercised by the Optionee's spouse or designee. Any such exercise must be in
accordance with subparagraph b.
d. The Committee shall have complete discretion, exercisable either at the
time the option is granted or at the time the Optionee ceases Service, to
establish as a provision applicable to the exercise of one or more options
granted under this Regular Option Grant Program that during the limited period
of exercisability following cessation of Service due to retirement, "plant
closing" or "mass layoff" (as such terms are defined at 29 U.S.C. Section 2101)
that is subject to the notice requirements of 29 U.S.C. Section 2102, the option
will continue to vest according to the vesting schedule that would have applied
had the optionee continued in Service.
4. Repurchase Rights.
a. The shares of Common Stock acquired upon the exercise of one or more
options granted under this Regular Option Grant Program may be subject to
repurchase by the Company, at the exercise price paid per share, upon the
Optionee's cessation of Service prior to vesting in such shares.
b. Any such repurchase right shall be exercisable by the Company upon such
terms and conditions (including the establishment of the appropriate vesting
schedule and other provision for the expiration of such right in one or more
installments over the optionee's period of Service) as the Committee may specify
in the instrument evidencing such right, which instrument shall include
appropriate terms with respect to the legending of stock certificates and the
placing of unvested shares into escrow.
c. All of the Company's outstanding repurchase rights shall automatically
terminate, and all shares purchased under this Regular Option Grant Program
shall immediately vest in full, upon the occurrence of any Corporate Transaction
or Change in Control; provided, however, that no such termination of repurchase
rights or immediate vesting of the purchased shares shall occur if (and to the
extent that): (i) the Company's
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outstanding repurchase rights are to be assigned to the successor corporation
(or parent thereof) in connection with the Corporate Transaction or (ii) such
termination of repurchase rights and acceleration of vesting are precluded by
other limitations imposed by the Committee either at the time the option is
granted or at the time the option shares are purchased.
5. Stockholder Rights.
An option holder shall have none of the rights of a stockholder with
respect to any shares covered by the option until such individual shall have
exercised the option, paid the option price and satisfied all other conditions
precedent to the issuance of certificates for the purchased shares.
II. STOCK APPRECIATION RIGHTS
A. The Committee shall have full power and authority, exercisable in its
sole discretion, to grant stock appreciation rights to one or more Employees or
Consultants eligible for option grants under this Regular Option Grant Program.
Each such right shall entitle the holder to a distribution based on the
appreciation in the value per share of a designated amount of Common Stock.
B. Three types of stock appreciation rights shall be authorized for
issuance under the Plan:
1. Tandem Stock Appreciation Rights. These rights require the holder
to elect between the exercise of the underlying option for shares of Common
Stock and the surrender of such option for an appreciation distribution
equal to the excess of (I) the Closing Selling Price (on the date of option
surrender) of the vested shares of Common Stock purchasable under the
surrendered option over (II) the aggregate option price payable for such
shares.
2. Concurrent Stock Appreciation Rights. Concurrent rights may apply
to all or any portion of the shares of Common Stock subject to the
underlying option and will be exercised automatically at the same time the
option is exercised for those shares. The appreciation distribution to
which the holder of such concurrent right shall be entitled upon exercise
of the underlying option shall be in an amount equal to the excess of (I)
the aggregate Closing Selling Price (at date of exercise) of the vested
shares purchased under the underlying option with such concurrent rights
over (II) the aggregate option price paid for those shares.
3. Limited Stock Appreciation Rights. These rights will entitle the
holder to surrender outstanding options in connection with certain Changes
in Control (as defined below) for an appreciation distribution equal in
amount to the excess of (I) the Change in Control Price (as defined below)
of the number of shares in which the Optionee is at the time vested under
the surrendered option over (II) the aggregate option price payable for
such vested shares.
C. The terms and conditions applicable to each Tandem Stock Appreciation
Right ("Tandem Right"), Concurrent Stock Appreciation Right ("Concurrent Right")
and Limited Stock Appreciation Right ("Limited Right") shall be as follows:
1. Tandem Rights.
a. Tandem Rights may be tied to either Incentive Options or non-statutory
options. Each such right shall, except as specifically set forth below, be
subject to the same terms and conditions applicable to the particular stock
option grant to which it pertains.
b. The Appreciation Distribution payable on the exercised Tandem Right
shall be in an amount equal to the excess of (I) the Closing Selling Price (on
the date of the option surrender) of the number of shares of Common Stock in
which the Optionee is vested under the surrendered option over (II) the
aggregate option price payable for such vested shares.
c. The Appreciation Distribution may, in the Committee's discretion, be
made in cash, in shares of Common Stock or in a combination of cash and Common
Stock. Any shares of Common Stock so distributed
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shall be valued at the Closing Selling Price on the date the option is
surrendered, and the shares of Common Stock subject to the surrendered option
shall not be available for subsequent issuance under this Plan.
2. Concurrent Rights.
a. Concurrent Rights may be tied to any or all of the shares of Common
Stock subject to any Incentive Option or non-statutory option grant made under
this Regular Option Grant Program. The Concurrent Right shall, except as
specifically set forth below, be subject to the same terms and conditions
applicable to the particular stock option grant to which it pertains.
b. The Concurrent Right shall be automatically exercised at the same time
the underlying option is exercised for the particular shares of Common Stock to
which the Concurrent Right pertains.
c. The Appreciation Distribution payable on the exercised Concurrent Right
shall be equal to the excess of (I) the aggregate Closing Selling Price (on the
Exercise Date) of the vested shares of Common Stock purchased under the
underlying option which have Concurrent Rights appurtenant to them over (II) the
aggregate option price paid for such shares.
d. The Appreciation Distribution may, in the Committee's discretion, be
paid in cash, in shares of Common Stock or in a combination of cash and Common
Stock. Any shares of Common Stock so distributed shall be valued at the Closing
Selling Price on the date the Concurrent Right is exercised and shall reduce on
a one-for-one basis the number of shares of Common Stock thereafter issuable
under this Plan.
3. Terms Applicable to Both Tandem Rights and Concurrent Rights.
a. To exercise any outstanding Tandem or Concurrent Right, the holder must
provide written notice of exercise to the Company in compliance with the
provisions of the instrument evidencing such right.
b. If a Tandem or Concurrent Right is granted to an individual who is at
the time a Section 16(b) Insider, then the instrument of grant shall incorporate
all the terms and conditions at the time necessary to assure that the subsequent
exercise of such right shall qualify for the safe-harbor exemption from
short-swing profit liability provided by SEC Rule 16b-3 (or any successor rule
or regulation).
c. No limitation shall exist on the aggregate amount of cash payments the
Company may make under this Article Two Program in connection with the exercise
of Tandem or Concurrent Rights.
4. Limited Rights.
a. Each Section 16(b) Insider shall have the Limited Right, exercisable in
the event there should occur a Change in Control (as such term is defined
below), to surrender any or all of the options (whether incentive stock options
or non-statutory options) held by such individual under this Article Two
Program, to the extent such options (I) have been outstanding for at least six
(6) months and (II) are at the time exercisable for vested shares.
b. In exchange for each option surrendered in accordance with subparagraph
a. above, the Section 16(b) Insider shall receive an Appreciation Distribution
in an amount equal to the excess of (I) the Change in Control Price (determined
as of the date of surrender) of the number of shares in which the Section 16(b)
Insider is at the time vested under the surrendered option over (II) the
aggregate option price payable for such vested shares. For purposes of such
Appreciation Distribution, the Change in Control Price per share of the vested
Common Stock subject to the surrendered option shall be deemed to be equal to
the greater of (a) the Closing Selling Price per share on the date of surrender
or (b) the highest reported price per share paid in effecting the Change in
Control. However, if the option is an Incentive Option, then the Change in
Control Price of the vested shares subject to the surrendered option shall not
exceed the value per share determined under clause (a) above.
c. The Appreciation Distribution shall be made entirely in cash, and the
shares of Common Stock subject to each surrendered option shall not be available
for subsequent issuance under this Plan.
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III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any of the following transactions (a "Corporate
Transaction"):
(i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation,
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company to any entity other than a Subsidiary of
the Company, or
(iii) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding
voting stock held by persons who are not "Subject Persons" as defined in
Article Eleventh of the Company's Certificate of Incorporation (as in
effect on the effective date of the Merger) including persons included in
such definition by subparagraph (b) thereof is transferred to holders
different from those who held the stock immediately prior to such merger,
then the exercisability of each option outstanding under this Regular
Option Grant Program shall be automatically accelerated so that each such
option shall, immediately prior to the specified effective date for the
Corporate Transaction, become fully exercisable with respect to the total
number of shares of Common Stock purchasable under such option and may be
exercised for all or any portion of such shares. However, an outstanding
option under this Regular Option Grant Program shall not be so accelerated
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, either to be assumed by the successor corporation or parent
thereof or be replaced with a comparable option to purchase shares of the
capital stock of the successor corporation or parent thereof, or (ii) such
option is to be replaced by a comparable cash incentive program of the
successor corporation based on the value of the option at the time of the
Corporate Transaction, or (iii) the acceleration of such option is subject
to other applicable limitations imposed by the Committee at the time of
grant. The determination of comparability under clause (i) or (ii) above
shall be made by the Committee, and its determination shall be final,
binding and conclusive.
B. Upon the consummation of the Corporate Transaction, all outstanding
options under this Regular Option Grant Program shall, to the extent not
previously exercised or assumed by the successor corporation or its parent
company, terminate and cease to be outstanding.
C. In the event of any of the following transactions (a "Change in
Control"):
(i) the acquisition by a person or group of related persons, other
than the Company or any person controlling, controlled by or under common
control with the Company, of beneficial ownership (as determined pursuant
to the provisions of Rule 13d-3 under the Securities Exchange Act of 1934,
as amended) of securities of the Company representing thirty percent (30%)
or more of the combined voting power of the Company's then outstanding
securities pursuant to a transaction or series of related transactions
which the Board does not approve; or
(ii) the first date within any period of thirty-six (36) consecutive
months or less on which there is effected any change in the composition of
the Board such that the majority of the Board (determined by rounding up to
the next whole number) ceases to be comprised of individuals who either (I)
have been members of the Board continuously since the beginning of such
period or (II) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members described in
clause (I) who were still in office at the time such election or nomination
was approved by the Board; then the exercisability of each option
outstanding under this Regular Option Grant Program shall be automatically
accelerated so that each such option shall become exercisable, immediately
prior to such Change in Control, for the full number of shares purchasable
under such option and may be exercised for all or any portion of such
shares. However, an outstanding option under this Regular Option Grant
Program shall not be so accelerated if and to the extent one or more
limitations imposed by the Committee at the time of grant preclude such
acceleration upon a Change in Control.
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D. The grant of options under this Regular Option Grant Program shall in no
way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. INCENTIVE OPTIONS
A. The terms and conditions specified below shall be applicable to all
Incentive Options granted under this Regular Option Grant Program. Options which
are specifically designated as "nonstatutory" options when issued under this
Regular Option Grant Program shall not be subject to such terms and conditions.
1. Option Price.
The option price per share of the Common Stock subject to an Incentive
Option shall in no event be less than one hundred percent (100%) of the Closing
Selling Price per share of Common Stock on the grant date.
2. 10% Stockholder.
If any individual to whom an Incentive Option is to be granted pursuant to
the provisions of this Regular Option Grant Program is on the grant date the
owner of stock (as determined under Section 424(d) of the Internal Revenue Code)
possessing 10% or more of the total combined voting power of all classes of
stock of the Company or any one of its parent or subsidiary corporations (such
person to be herein referred to as a 10% Stockholder), then (i) the option price
per share shall not be less than one hundred and ten percent (110%) of the
Closing Selling Price per share of Common Stock on the grant date and (ii) the
maximum term of the option shall not exceed five (5) years from the grant date.
3. Dollar Limitation.
The aggregate fair market value (determined on the basis of the Closing
Selling Price in effect on the respective date or dates of grant) of the Common
Stock for which one or more options granted to any Employee under this Plan (or
any other option plan of the Company or its parent or subsidiary corporations)
may for the first time become exercisable as incentive stock options under the
Federal tax laws during any one calendar year shall not exceed the sum of One
Hundred Thousand Dollars ($100,000). To the extent the Employee holds two or
more such options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability thereof as
incentive stock options under the Federal tax laws shall be applied on the basis
of the order in which such options are granted.
4. Term and Exercise of Options.
a. No Incentive Option shall have a term in excess of ten (10) years from
the grant date.
b. An Incentive Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionee only by the Optionee.
5. Termination of Service.
An Incentive Option must be exercised within the three (3)-month period
commencing with the date of cessation of Employee status for any reason other
than death, except that in the event the Optionee's cessation of Employee status
is due to permanent disability, such period shall be one (1) year from the date
of such cessation of Employee status. Incentive Options not exercised within the
applicable period shall be treated as non-statutory options.
B. Except as modified by the preceding provisions of this Incentive Options
section, all the provisions of this Regular Option Grant Program shall be
applicable to the Incentive Options granted hereunder.
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V. CANCELLATION AND RE-GRANT OF OPTIONS
The Committee shall have the authority to effect, at any time and from time
to time, with the consent of the affected option holders, the cancellation of
any or all outstanding options under this Regular Option Grant Program (other
than the special grant to be made pursuant to Section VII of this Article Two)
and to grant in substitution therefor new options under this Plan covering the
same or different numbers of shares of Common Stock but having an option price
per share not less than fifty percent (50%) of the Closing Selling Price (one
hundred percent (100%) of the Closing Selling Price in the case of an Incentive
Option or, in the case of a 10% Stockholder, not less than one hundred and ten
percent (110%) of the Closing Selling Price) per share of Common Stock on the
new grant date.
VI. LOANS OR GUARANTEE OF LOANS
The Committee may assist any Employee (including any officer or director)
in the exercise of one or more options under this Regular Option Grant Program
(other than the special grant to be made pursuant to Section VII of this Article
Two) by (a) authorizing the extension of a loan to such Employee from the
Company, (b) permitting the Employee to pay the option price for the purchased
Common Stock in installments over a period of years or (c) authorizing a
guarantee by the Company of a third-party loan to the Employee. The terms of any
loan, installment method of payment or guarantee (including the interest rate
and terms of repayment) shall be established by the Committee in its sole
discretion. Loans, installment payments and guarantees may be granted without
security or collateral, but the maximum credit available to the Optionee shall
not exceed the sum of (i) the aggregate exercise price (less the par value) of
the purchased shares plus (ii) any Federal and State income and employment tax
liability incurred by the Employee in connection with the exercise of the
option.
VII. SPECIAL OPTION GRANT
[RESERVED]
ARTICLE THREE
AUTOMATIC GRANT PROGRAM
I. AUTOMATIC GRANTS
On July 18, 1990, each individual who is a non-Employee member of the Board
on such date shall automatically be granted a nonstatutory option under this
Article Three to purchase 15,000 shares of Common Stock. On April 30, 1992, each
individual who is a non-Employee member of the Board on such date shall
automatically be granted a non-statutory option under this Article Three to
purchase 15,000 shares of Common Stock. Each non-Employee who is first elected a
member of the Board after such date shall automatically be granted, on the date
of such individual's election to the Board, a non-statutory option under this
Article Three to purchase 15,000 shares of Common Stock. Each Employee director
who is first elected a member of the Board and who subsequently becomes a
non-Employee director after January 1, 1992 shall automatically be granted, on
the date of such individual's change from Employee to non-Employee, a non-
statutory option under this Article Three to purchase 15,000 shares of Common
Stock.
II. TERMS AND CONDITIONS OF GRANT
Each option granted in accordance with the provisions of this Article Three
shall be evidenced by an instrument in such form as the Committee approves from
time to time for grants made under Article Two; provided, however, that each
such automatic grant shall be subject to the following terms and conditions:
A. Exercise Price.
The exercise price per share shall be one hundred percent (100%) of the
Closing Selling Price per share of Common Stock on the grant date; provided,
however, that options granted under this Article Three in 1990
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shall have an exercise price per share equal to the Closing Selling Price on the
date thirty (30) days after (i) the effective date of the Merger (defined in
Article Six) or (ii) the termination date of the Merger Agreement (defined in
Article Six), as applicable.
B. Term and Vesting of Options.
1. Except as otherwise specified below, each option shall vest in
increments of 5,000 shares on the first, second and third anniversaries of the
grant date and shall thereafter remain exercisable until the expiration or
earlier termination of the option term.
2. Each granted option shall have a term of ten (10) years measured from
the grant date.
C. Exercise of Option.
Upon exercise of the option, the option exercise price for the purchased
shares shall become immediately due and payable in full in one of the
alternative forms specified below:
(i) cash or check payable to the Company's order;
(ii) shares of Common Stock held by the optionee for the requisite
period necessary to avoid a charge to the Company's reported earnings and
valued at the Closing Selling Price on the date of exercise; or
(iii) any combination of the foregoing so long as the total payment
equals the aggregate exercise price for the purchased shares.
D. Non-Transferability.
During the lifetime of the optionee, the option shall be exercisable only
by the optionee and shall not be assignable or transferable by the optionee
otherwise than by will or by the laws of descent and distribution.
E. Effect of Termination of Board Membership.
1. Should an optionee cease to be a member of the Board for any reason
(other than death) prior to the expiration date of one or more automatic grants
held by the optionee under this Article Three, then each such grant shall remain
exercisable, for any shares of Common Stock for which the option is exercisable
at the time of such cessation of Board membership, for a period not to exceed
the earlier of (i) the expiration of the three (3)-month period following the
date of such cessation of Board membership or (ii) the specified expiration date
of the option term.
2. Should the optionee's membership on the Board cease by reason of death,
then each outstanding grant held by the optionee under this Article Three may be
subsequently exercised, for any shares of Common Stock for which the option is
exercisable at the time of the optionee's cessation of Board membership, by the
personal representative of the optionee's estate or by the person or persons to
whom the option is transferred pursuant to the optionee's will or in accordance
with the laws of descent and distribution. Any such exercise must, however,
occur prior to the earlier of (i) the expiration of the twelve (12)-month period
following the date of the optionee's death or (ii) the specified expiration date
of the option term.
F. Stockholder Rights.
An option holder shall have none of the rights of a stockholder with
respect to any shares covered by an option granted under this Article Three
until such individual shall have exercised the option, paid the option exercise
price in full and satisfied all other conditions precedent to the issuance of
certificates for the purchased shares.
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III. CORPORATE TRANSACTION
A. In the event of one or more of the following transactions (a "Corporate
Transaction"):
(i) a merger or acquisition in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to
change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company to any entity other than a Subsidiary of
the Company; or
(iii) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding
voting stock held by persons who are not "Subject Persons" as defined in
Article Eleventh of the Company's Certificate of Incorporation (as in
effect on the effective date of the Merger) including persons included in
such definition by subparagraph (b) thereof is transferred to holders
different from those who held the stock immediately prior to such merger;
then each option grant under this Article Three outstanding at the time and
not otherwise at the time fully exercisable shall automatically accelerate
and become exercisable for any or all of the shares subject to the option
immediately prior to the specified effective date for the Corporate
Transaction. Upon the consummation of such Corporate Transaction, all
outstanding options granted under this Article Three shall, to the extent
not previously exercised by the optionee or assumed by the successor
corporation or its parent company, terminate and cease to be outstanding.
B. The Automatic Grant Program in effect under this Article Three shall in
no way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. CHANGE IN CONTROL
A. In the event of one or more of the following transactions (a "Change in
Control"):
(i) the acquisition by a person or group of related persons, other
than the Company or any person controlling, controlled by or under common
control with the Company, of beneficial ownership (as determined pursuant
to the provisions of Rule 13d-3 under the Securities Exchange Act of 1934,
as amended) of securities of the Company representing thirty percent (30%)
or more of the combined voting power of the Company's then outstanding
securities pursuant to a transaction or series of related transactions
which the Board does not approve; or
(ii) the first date within any period of thirty-six (36) consecutive
months or less on which there is effected any change in the composition of
the Board such that the majority of the Board (determined by rounding up to
the next whole number) ceases to be comprised of individuals who either (I)
have been members of the Board continuously since the beginning of such
period or (II) have been elected or nominated for election as Board members
during such period by at least a majority of the Board members described in
clause (I) who were still in office at the time such election or nomination
was approved by the Board; then all outstanding options granted under this
Article Three and not otherwise at the time fully exercisable shall
automatically accelerate upon the Change in Control and thereby become
exercisable for any or all option shares. In addition, each option grant
under this Article Three which has been outstanding for at least six (6)
months may be surrendered, on the tenth (10th) business day following the
Change in Control, in exchange for a cash payment from the Company in an
amount equal to the excess of (i) the Fair Market Value (on the date of
such surrender) of the shares of Common Stock subject to the surrendered
option over (ii) the aggregate option price payable for such shares.
B. For purposes of subparagraph A above, the Fair Market Value per share of
Common Stock subject to the surrendered option shall be deemed to be equal to
the greater of (a) the Closing Selling Price per share on the date of such
surrender, as determined in accordance with the normal valuation provisions of
the Plan, or if applicable, (b) the highest reported price per share paid in
acquiring ownership of the fifty percent (50%) or greater interest in the
Company's outstanding voting securities.
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ARTICLE FOUR
STOCK INCENTIVE PROGRAM
I. TERMS AND CONDITIONS OF STOCK ISSUANCES
A. Shares may be issued under this Stock Incentive Program as a reward for
past services rendered the Company or one or more of its parent or subsidiary
corporations or as an incentive for future service with such entities. Any
unvested shares so issued shall be evidenced by a Restricted Stock Issuance
Agreement ("Issuance Agreement") which complies with the terms and conditions of
this Stock Incentive Program and shall include appropriate terms with respect to
legending of certificates and escrow of unvested shares.
1. Vesting Schedule.
a. The Recipient's interest in the issued shares of Common Stock may, in
the absolute discretion of the Committee, be fully and immediately vested upon
issuance or may vest in one or more installments.
b. The elements of the vesting schedule applicable to any unvested shares
issued under this Stock Incentive Program, namely the number of installments in
which the shares are to vest, the interval or intervals (if any) which are to
lapse between installments and the effect which death, disability or other event
designated by the Committee is to have upon the vesting schedule, shall be
determined by the Committee and set forth in the Issuance Agreement executed by
the Company and the Recipient at the time of the incentive grant.
c. Except as may otherwise be provided in the Issuance Agreement, the
Recipient may not transfer unvested shares of Common Stock. The Recipient,
however, shall have all the rights of a stockholder with respect to such
unvested shares, including without limitation the right to vote such shares and
to receive all dividends paid on such shares.
2. Cancellation of Shares.
a. In the event the Recipient should, while his/her interest in the issued
Common Stock remains unvested, cease to continue in Service for any reason
whatsoever, then the Company shall have the right to cancel all such unvested
shares, and the Recipient shall thereafter have no further stockholder rights
with respect to such shares.
b. The Committee may in its discretion waive such cancellation of unvested
shares in whole or in part and thereby effect the immediate vesting of the
Recipient's interest in the shares of Common Stock (or other assets) as to which
the waiver applies.
3. Corporate Transaction/Change in Control.
All unvested shares under the Stock Incentive Program shall immediately
vest in full immediately prior to the occurrence of any Corporate Transaction or
Change in Control, except to the extent:
(i) the Company's outstanding cancellation rights are to be assigned
to the successor corporation (or parent thereof) in connection with the
Corporate Transaction, or
(ii) one or more limitations imposed by the Committee at the time of
stock issuance preclude such accelerated vesting.
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ARTICLE FIVE
MISCELLANEOUS
I. TAX WITHHOLDING
A. The Company's obligation to deliver shares upon the exercise or
surrender of stock options or stock appreciation rights granted under Article
Two or Article Three or upon the issuance or vesting of shares under Article
Four shall be subject to the satisfaction of all applicable Federal, State and
local income and employment tax withholding requirements.
B. The Committee may, in its discretion and upon such terms and conditions
as it may deem appropriate (including the applicable safe-harbor provisions of
SEC Rule 16b-3 or any successor rule or regulation) provide any or all Optionees
or Recipients with the election to have the Company withhold, from the shares of
Common Stock purchased or issued under the Plan, one or more of such shares with
an aggregate Closing Selling Price equal to the designated percentage (up to
100% specified by the Optionee or Recipient) of the Federal and State income
taxes ("Taxes") incurred in connection with the acquisition of such shares. In
lieu of such direct withholding, one or more Optionees or Recipients may also be
granted the right to deliver shares of Common Stock to the Company in
satisfaction of such Taxes. The withheld or delivered shares shall be valued at
the Closing Selling Price on the applicable determination date for such Taxes.
II. AMENDMENT OF THE PLAN
A. The Board shall have the complete and exclusive authority to amend or
modify the Plan in any or all respects whatsoever; provided, however, that no
such amendment or modification shall, without the consent of the holders,
adversely affect rights and obligations with respect to any stock options, stock
appreciation rights or unvested Common Stock at the time outstanding under the
Plan. In addition, with a view to making available the benefits provided by
Section 422A of the Code and/or SEC Rule 16b-3 as in effect from time to time
under the 1934 Act, the Board shall, at the time of each such amendment,
determine whether or not to submit such amendment of the Plan to the Company's
stockholders for approval.
B. No material amendments shall be made to the provisions of the Article
Three Program without the approval of the Company's stockholders.
C. The provisions of the Article Three Program shall not be amended more
than once every six months, as required by SEC Rule 16b-3.
III. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board, but no stock
option or stock appreciation right granted under the Plan shall become
exercisable, and no shares shall be issued, unless and until the Plan shall have
been approved by the Company's stockholders. If such stockholder approval is not
obtained within twelve (12) months after the date of the Board's adoption of the
Plan, then all stock options and stock appreciation rights previously granted
under the Plan shall terminate and no further stock options or stock
appreciation rights shall be granted. Subject to such limitation, the Committee
may grant stock options and stock appreciation rights under the Plan at any time
after the effective date and before the date fixed herein for termination of the
Plan.
B. The Plan shall in all events terminate on the date determined by the
Board. Upon such termination, any stock options, stock appreciation rights and
unvested shares at the time outstanding under the Plan shall continue to have
force and effect in accordance with the provisions of the instruments evidencing
such grants or issuances.
C. Options may be granted under this Plan to purchase shares of Common
Stock in excess of the number of shares then available for issuance under the
Plan, provided (i) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such option and within one year thereafter such amendment is approved by the
Company's stockholders, if such
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<PAGE> 17
stockholder approval is deemed necessary by the Board, and (ii) each option
granted is not to become exercisable, in whole or in part, at any time prior to
the obtaining of such stockholder approval, and provided further that at any
time that the Amended and Restated Governance Agreement dated as of October 25,
1995 between the Company and Roche Holdings, Inc. (the "Amended Governance
Agreement") remains in effect, any action by the Board pursuant to the foregoing
shall require the approval of a majority of the Independent Directors (as such
term is defined in Article Eleventh of the Certificate of Incorporation of the
Company).
IV. MISCELLANEOUS PROVISIONS
A. Any cash proceeds received by the Company from the issuance of shares
hereunder shall be used for general corporate purposes.
B. The implementation of the Plan, the granting of any stock option or
stock appreciation right hereunder, and the issuance of Common Stock under the
Regular Option Grant, the Automatic Option Grant or Stock Incentive Programs
shall be subject to the Company's procurement of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the stock
options and stock appreciation rights granted under it and the Common Stock
issued pursuant to it.
C. Neither the action of the Company in establishing the Plan, nor any
action taken by the Board or the Committee hereunder, nor any provision of the
Plan itself shall be construed so as to grant any individual the right to remain
in the employ or service of the Company or any of its parent or subsidiary
corporations for any period of specific duration, and the Company (or any parent
or subsidiary retaining the services of such individual) may terminate such
individual's employment or service at any time and for any reason, with or
without cause.
D. Nothing contained in the Plan shall be construed to limit the authority
of the Company to exercise its corporate rights and powers, including (without
limitation) the right of the Company (a) to grant options for proper corporate
purposes otherwise than under this Plan to any Employee or other person, firm or
company or association or (b) to grant options to, or assume the option of, any
person in connection with the acquisition (by purchase, lease, merger,
consolidation or otherwise) of the business and assets (in whole or in part) of
any person, firm, company or association.
ARTICLE SIX
SPECIAL MERGER PROVISIONS
I. PRIORITY
The provisions of this Article Six shall govern any and all options under
this Plan which have been granted prior to, or are granted following, the
effective date of the merger of the Company with and into HLR (U.S.) II, Inc.
(the "Merger") pursuant to that certain Agreement and Plan of Merger ("Merger
Agreement") dated May 23, 1995 among the Company, Roche Holdings, Inc., and HLR
(U.S.) II, Inc. To the extent there is a conflict between any of the provisions
of this Article Six and any other provision of the Plan, the specific provisions
of this Article Six shall be controlling and shall govern the disposition of all
such options outstanding at the time of the Merger.
II. OPTION ADJUSTMENTS
A. None of the options granted under this Plan prior to the effective date
of the Merger shall be accelerated in whole or in part in connection with the
Merger.
B. None of the options granted under this Plan prior to the effective date
of the Merger shall be cashed out, or otherwise entitle the option holders to
any cash payments, in connection with the consummation of the Merger.
C. Each option granted under this Plan prior to the effective date of the
Merger shall remain in effect after the Merger upon the same terms and
conditions (including, without limitation, the exercise price per
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<PAGE> 18
share and the number of shares) in effect for such option immediately prior to
the Merger, except that the shares purchasable under each such continuing option
shall be shares of Special Common Stock. Each such continuing option will become
exercisable, and the shares purchasable thereunder shall vest, in accordance
with the same installment dates such option would have become exercisable, and
such shares would have vested, under the vesting schedule specified for that
option at the time of grant.
III. PLAN ADJUSTMENTS
A. After the effective date of the Merger, all references in the Plan to
Common Stock shall automatically become references to Special Common Stock.
B. If the Special Common Stock shall be redeemed at any time as provided in
Section (c)(ii) of Article Third of the Certificate of Incorporation of the
Company, then all outstanding options and stock appreciation rights granted
hereunder shall automatically accelerate and become fully exercisable and vested
immediately prior to the date fixed for redemption, and upon such redemption the
holder of such option or stock appreciation right shall promptly be paid for
each such option or right an amount equal to the product of (i) the excess of
the redemption price per share fixed in Section (c)(ii) of Article Third
(without reduction for the payment of any cash dividends as provided in the
fourth sentence of Section (c)(ii)(C) of Article Third) over the exercise price
per share, times (ii) the number of shares covered by such option or right. Upon
such redemption, any of the redemption price to be paid pursuant to Section
(c)(ii) of Article Third of the Certificate of Incorporation of the Company
received by a holder of shares issued under the Stock Incentive Program in
respect of unvested shares shall be placed in escrow and released to such holder
in accordance with the vesting schedule that would have applied to such shares
had such redemption not taken place.
C. Neither the consummation of the Merger nor the exercise by Roche
Holdings, Inc. or its affiliates of its right to designate nominees to the Board
of Directors pursuant to Sections 3.01 and 3.02 of the Amended Governance
Agreement, nor any change in the composition of the Board of Directors resulting
therefrom, shall constitute a Change in Control.
D. Upon the conversion of the Special Common Stock into Common Stock, all
references in the Plan to Special Common Stock (as provided in Article Five,
III. A.) shall automatically become references to Common Stock. Each option
granted under this Plan prior to such conversion shall remain in effect after
such conversion upon the same terms and conditions (including, without
limitation, the exercise price per share and the number of shares) in effect for
such option immediately prior to such conversion, except that the shares
purchasable under each such continuing option shall be shares of Common Stock.
Each such continuing option will become exercisable, and the shares purchasable
thereunder shall vest, in accordance with the same installment dates such option
would have become exercisable, and such shares would have vested, under the
vesting schedule specified for that option at the time of grant.
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EXHIBIT 99-B(3)
<PAGE> 2
EXHIBIT 99-B(3)
[Letterhead of Genentech, Inc.]
Dear Genentech Option Holder:
As you may know, Genentech, Inc., (the "Company") recently merged (the
"Merger") with a wholly owned subsidiary of Roche Holdings, Inc. ("Roche"). As a
result of the Merger, each outstanding share of the Company's Common Stock, par
value $.02 per share ("Common Stock") (other than shares held by Roche and its
affiliates), was converted into one share of Callable Putable Common Stock, par
value $.02 per share, of the Company ("Special Common Stock"). In connection
with the Merger, the Company's Board of Directors (the "Board") adjusted the
plans pursuant to which your options were granted in order to provide that, upon
exercise of such options, option holders would receive shares of Special Common
Stock in lieu of Common Stock. The differences between the shares of Special
Common Stock and the Common Stock, as well as the details of the Merger itself,
are described more fully in the Proxy Statement/Prospectus, which was
distributed to the Company's stockholders and all employees of the Company prior
to voting on the Merger. If you would like an additional copy of the Proxy
Statement/Prospectus, please call Ms. Karen Strand in the legal department.
Again, the effect of this change on your options is that each option to
acquire shares of Common Stock (which, prior to July 1, 1995 constituted
Redeemable Common Stock) now represents an option to acquire a like number of
shares of Special Common Stock. The Board has determined, pursuant to the
provisions of such plans, that this change, and the transactions with Roche,
will have no other effect on your options.
As a result, the appropriate references to "Redeemable Common Stock" or
"Common Stock" in your plan documents are now deemed to refer, as appropriate,
to Special Common Stock. The number of shares which may be acquired by
exercising your options and the price at which such shares may be purchased
remain unaffected.
You should attach a copy of this letter to any options or option agreements
in your possession.
GENENTECH, INC.
2
