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As filed with the Securities and Exchange Commission on July 12, 1996.
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
GENENTECH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 94-2347624
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
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, GENERAL COUNSEL AND ASSISTANT SECRETARY
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)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS POSSIBLE AFTER THIS REGISTRATION STATEMENT BECOMES 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].
-----------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Callable Putable Common Stock,
$.02 par value 9,000,000 shares $52.375 $471,375,000 $162,545
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(1) Based upon the average of the high and low prices of the Registrant's
Callable Putable Common Stock, as reported on the New York Stock Exchange on
July 5, 1996, in accordance with Rule 457.
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 THAT 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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GENENTECH, INC.
-----------------------------------
Cross-Reference Sheet
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Form S-3 Item Number and Heading Location in Prospectus
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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 PLAN OF DISTRIBUTION
9. Description of Securities to be Registered DESCRIPTION OF THE CALLABLE
PUTABLE COMMON STOCK
10. Interests of Named Experts and Counsel LEGAL MATTERS
11. Material Changes MATERIAL CHANGES
12. Incorporation of Certain Information INCORPORATION OF CERTAIN
by Reference DOCUMENTS BY REFERENCE
13. Disclosure of Commission DISCLOSURE OF COMMISSION
Position on Indemnification POSITION ON INDEMNIFICATION
for Securities Act Liabilities FOR SECURITIES ACT LIABILITIES
</TABLE>
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GENENTECH, INC.
9,000,000 SHARES CALLABLE PUTABLE COMMON STOCK
---------------
This Prospectus covers 9,000,000 shares of Callable Putable Common Stock,
par value $.02 per share ("Special Common Stock"), of Genentech, Inc.
("Genentech" or the "Company") issuable upon exercise of stock options or
directly issuable as stock awards under Genentech, Inc.'s 1996 Stock
Option/Stock Incentive Plan (the "Plan").
---------------
The Callable Putable Common Stock is traded on the New York Stock Exchange
("NYSE") under the symbol GNE. On July 5, 1996 the closing sales price for the
Special Common Stock on the NYSE was $52.375.
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.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $52.375 $ 0 $52.375
- --------------------------------------------------------------------------------
Total $471,375,000 $ 0 $471,375,000
================================================================================
</TABLE>
(1) Based upon the closing price of the Special Common Stock on July 5, 1996.
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 or upon awards of shares
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 $174,045 payable by the
Company.
---------------
The date of this Prospectus is July 12, 1996
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TABLE OF CONTENTS
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INTRODUCTORY STATEMENT .................................................................................. 1
AVAILABLE INFORMATION ................................................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ......................................................... 1
THE COMPANY ............................................................................................. 2
USE OF PROCEEDS ......................................................................................... 2
THE 1996 STOCK OPTION/STOCK INCENTIVE PLAN .............................................................. 2
Information About Genentech ............................................................................. 3
A. Regular Option Grant Program ........................................................................ 3
1. Am I eligible for option grants? ............................................................... 3
2. Who determines the terms of my option? ......................................................... 4
3. Do special rules apply to me if I am an officer or director of the Company? .................... 4
4. What happens to my option or stock issued under the Plan in the event Roche causes
redemption of the Special Common Stock? ........................................................ 4
5. How many shares of Special Common Stock will my option cover? .................................. 5
6. How is the exercise price of an option determined? ............................................. 5
7. When can I exercise my option? ................................................................. 5
8. How do I exercise my option? ................................................................... 6
9. Do I have to pay the exercise price with cash? ................................................. 6
10. Will I continue to receive options as long as I stay with the Company? ......................... 6
11. Can the stockholders of the Company change the terms of the Plan? .............................. 6
12. What happens if I leave the Company? ........................................................... 6
13. What if I leave the Company because of disability? ............................................. 7
14. What if I retire from the Company? ............................................................. 7
15. What if I die? ................................................................................. 7
16. What are the rights of my heirs? ............................................................... 7
17. Can a relative or friend exercise my option? ................................................... 7
18. Can I transfer my options? ..................................................................... 7
19. Can I sell the stock I receive from exercising my option right away? ........................... 8
20. 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? ............................ 8
21. I have heard about cashless exercise programs through brokers. How do these work? ............. 8
22. How can I make a gift of stock I receive under the Plan? ....................................... 8
23. Does the Company go out on the market to buy the stock which I will receive on exercise
of my option? .................................................................................. 8
24. Does the Plan have any of the same benefits as a qualified retirement plan (including a
401(k) plan) and will my participation in the Plan affect my participation in the
Company's 401(k) plan? ......................................................................... 9
25. 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? ............................................. 9
26. How much tax do I have to pay when I sell stock received pursuant to the exercise of a
non-statutory stock option? .................................................................... 9
27. What is the difference between ordinary income and capital gains? .............................. 10
28. When do I pay tax on stock received pursuant to the exercise of an incentive stock option? ..... 10
29. How is my profit on the sale of my incentive stock taxed? What if I lose money? ............... 10
30. Is there any withholding on the exercise of my incentive stock option or the sale of the
stock acquired on exercise? .................................................................... 11
31. Do I have to complete any forms after I sell or transfer my stock? ............................. 11
32. 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? ................................................ 11
NON-QUALIFIED STOCK OPTION ..................................................................... 12
INCENTIVE STOCK OPTION ......................................................................... 12
33. What are the tax consequences if I use shares I already own to pay the exercise price
of my non-qualified stock option? .............................................................. 13
34. What are the tax consequences if I use shares I already own to pay the exercise price
of incentive stock options? .................................................................... 14
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35. What are the tax consequences of my exercise of options if I am subject to the alternative
minimum tax? ................................................................................. 15
36. What happens to my option or stock issued under the Plan in the event Genentech is
acquired by an entity other than Roche? ...................................................... 15
37. What happens if the vesting of my options accelerates upon a change of control? .............. 16
B. Automatic Grant Program ............................................................................ 16
38. Are non-employee directors eligible to receive options under the Plan? ....................... 16
C. Stock Appreciation Rights and Stock Incentive Program .............................................. 17
39. What are stock appreciation rights? .......................................................... 17
40. What types of stock appreciation rights may be granted under the Plan? ....................... 17
41. 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
42. What is the Stock Incentive Program? ......................................................... 18
43. What are the tax consequences when I am issued stock under the Stock Incentive
Program and when I later sell such stock? .................................................... 18
D. Miscellaneous ...................................................................................... 18
44. What are some of the other features of the Plan? ............................................. 18
PLAN OF DISTRIBUTION ................................................................................... 19
DESCRIPTION OF THE SPECIAL COMMON STOCK ................................................................ 19
LEGAL MATTERS .......................................................................................... 26
EXPERTS ................................................................................................ 26
MATERIAL CHANGES ....................................................................................... 26
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES ........................................................................................ 26
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INTRODUCTORY STATEMENT
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 Genentech (the "Merger"). As a result of the
Merger, each outstanding share of the Company's 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, only shares of Special Common Stock will be
issued pursuant to the Plan.
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.
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,
1995.
(b) The Company's Quarterly Report on Form 10-Q for the period ended March
31, 1996.
(c) The Company's Proxy Statement dated March 23, 1996.
(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.
<PAGE> 7
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 unmet
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, (415) 225-1000.
USE OF PROCEEDS
There can be no assurance that any options granted under the Plan will be
exercised. However, assuming all options to be granted under the 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 Special Common Stock on July 5,
1996, the net proceeds to be received by the Company from the sale of the
Special Common Stock offered hereby are estimated to be $471,375,000. 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.
THE 1996 STOCK OPTION/STOCK INCENTIVE PLAN
To our Employees, Certain Consultants and Non-Employee Directors:
We are pleased with this opportunity to provide you with information
regarding our 1996 Stock Option/Stock Incentive Plan, referred to as the "Plan".
We believe that the Plan is an important part of the benefits provided to our
employees, certain consultants and non-employee directors and we hope you will
take the time to carefully review this information.
Genentech, Inc. adopted the Plan in order to provide a method whereby the
Company may retain the services of persons now employed by or serving as
consultants or directors 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.
The discussion of the Plan describes: (i) the terms of the Regular Option
Grant Program under the 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); (ii) the terms of the Automatic Grant Program under the Plan,
which provides for the automatic grant of non-statutory stock options to
non-employee members of the Board of Directors; (iii) the terms of stock
appreciation rights; and (iv) the terms of the Stock Incentive Program, which
provides for the issuance of shares of Special Common Stock. It also includes a
description of provisions of the Plan that are applicable to all rights granted
under the Plan.
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<PAGE> 8
The attached materials may not answer all of the questions you have about
the Plan and are not intended to go into every detail of the Plan, copies of
which are found at the end of this Prospectus. 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 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. If you are issued shares of Special Common
Stock under the Stock Incentive Program of the Plan, you will receive a
restricted stock issuance agreement describing the terms of your stock award.
INFORMATION ABOUT GENENTECH
An important part of your participation in the 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 Plan, that is, these
reports are incorporated by reference into these materials, which constitute the
Prospectus for the 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.
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.
Non-employee directors will only receive non-qualified stock options pursuant to
the terms of the Automatic Grant Program described below in Question 38. The
Plan originally provided for the grant of options to directors, employees and
consultants covering an aggregate of 9,000,000 shares of the Company's Special
Common Stock. Of that amount, as of April 30,
3
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1996, options covering 5,495,000 shares have been granted and are outstanding,
leaving ungranted options covering 3,505,000 shares remaining under the Plan.
2. 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.
3. 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 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 promulgated 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.
4. WHAT HAPPENS TO MY OPTION OR STOCK ISSUED UNDER THE PLAN IN THE EVENT ROCHE
CAUSES REDEMPTION OF THE SPECIAL COMMON STOCK OR THE COMPANY'S STOCKHOLDERS
PROPERLY EXERCISE THEIR PUT RIGHTS?
If Roche causes redemption of the Special Common Stock or the Company's
stockholders properly exercise their put rights, all outstanding options and
stock appreciation rights which are vested immediately prior to the date of the
redemption or to which the put rights were properly exercised will be cashed out
at the excess of the per share redemption price or put price over the per share
option price and all outstanding shares issued under the Stock Incentive Program
which are vested immediately prior to the date of the redemption or to which the
put rights were properly exercised will be cashed out at the redemption price.
Following the redemption, outstanding options, stock appreciation rights and
shares issued under the Stock Incentive Program which are not vested immediately
prior to the date of the redemption shall be cancelled. If the redemption does
not occur, each option and stock appreciation right granted and each share
awarded under the Stock Incentive Program which is unvested on July 1, 1999
remains outstanding on the same terms and conditions, including the original
vesting schedule. However, if the put rights are properly exercised by the
Company's stockholders and shares of the Company's capital stock are no longer
trading on the New York Stock Exchange, the Nasdaq National Market or any other
national exchange, any
4
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unvested options, stock appreciation rights and shares issued under the Stock
Incentive Program shall be automatically cancelled.
It is important to note that any rights you may have under Section 1.04 of
the Amended and Restated Governance Agreement dated October 25, 1995 between the
Company and Roche as a holder of an option, stock appreciation right or stock
issued under the Stock Incentive Program (including any rights with respect to
accelerated vesting) are superseded by terms of the Plan described in the
foregoing paragraph.
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.
5. 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 is no minimum
number of shares for which an option may be granted; however, the aggregate
number of shares of stock that may be subject to options and stock appreciation
rights granted to any employee in a calendar year may not exceed two hundred
fifty thousand (250,000) shares of the Company's Special Common Stock. Other
limitations apply for option grants to non-employee members of the Board (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.
6. 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 Company's Special Common Stock
trades on the NYSE, the fair market value will be the closing sale price of the
Company's 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 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.
7. 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. You may exercise your option at any time for the number
of shares that have actually vested at the time of exercise. Options granted by
the Company under the Plan have a term of 10 years, so you must exercise your
option before it expires at the end of the 10-year period. The terms of exercise
of options granted by the Company are not
5
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required to be the same for every employee. 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. You
may also exercise your option prior to full vesting, subject to restrictions
described in the Plan, including without limitation, restrictions on your
ability to sell unvested shares and the Company's ability to repurchase unvested
shares at your option's original exercise price upon termination of your
employment. 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.
8. 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 9 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.
9. 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 trading 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.
10. 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 Plan. The
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 Plan will not affect your rights under your outstanding
options without your consent.
11. CAN THE STOCKHOLDERS OF THE COMPANY CHANGE THE TERMS OF THE PLAN?
Generally, the Board decides whether to change the terms of the Plan,
usually because the number of shares available under the Plan should be
increased or to take into account changes in the tax laws. 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.
12. WHAT HAPPENS IF I LEAVE THE COMPANY?
Whether you leave the Company voluntarily or your employment is terminated
by the Company for any reason (other than death, permanent disability or
retirement after reaching the age of 65), 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 extend
exercisability for a period of up to five years. In the event of your retirement
before reaching the age of 65 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
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vest during a limited period of exercisability 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 13 below, and
except for exercises after your death (see Questions 15 and 16 below), it must
be exercised within three months of the date of termination or else it will
become a non-statutory option.
13. WHAT IF I LEAVE THE COMPANY BECAUSE OF DISABILITY?
If your employment is terminated because of your permanent and total
disability, your right to exercise any vested portion of your option generally
will terminate upon the earlier of: (i) the expiration date of the option term,
or (ii) three months after you cease rendering service to the Company; 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 non-statutory stock
option. Your option may be exercised by you or your spouse. 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 expiration of those options on
the vesting 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.
14. WHAT IF I RETIRE FROM THE COMPANY?
If you retire from the Company after reaching the age of 65, your option
vesting accelerates and all unvested options automatically become vested. In
addition, the exercisability of the option is automatically extended to the
expiration date of the option term.
15. WHAT IF I DIE?
Upon your death, your option vesting accelerates and all unvested options
automatically become vested. In addition, the exercisability of the option is
automatically extended to the expiration date of the option term.
16. 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 the
expiration date of the option term.
17. CAN A RELATIVE OR FRIEND EXERCISE MY OPTION?
No, except for options transferred to a trust (see Question 18) 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.
18. 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.
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19. 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 3). If you exercise an incentive stock option, an immediate sale may
have certain tax consequences (see Question 28). However, if the terms of the
option permit you to exercise your option before it is vested (see Question 32),
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.
20. 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 Plan.
21. 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.
22. HOW CAN I MAKE A GIFT OF STOCK I RECEIVE UNDER THE 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 via U.S. mail
to the Company's transfer agent, Boston EquiServe, L.P., at P.O. Box 644, Mail
Stop 45-01-23, Boston, Massachusetts 02102-0644, to have the certificate
transferred to the recipient's name. If the certificate is sent via courier, it
should be sent to Boston EquiServe at 150 Royall Street, Mail Stop 45-01-23,
Canton, Massachusetts 02021. If you have a brokerage account, your broker will
generally be willing to take care of the mechanics of transfer.
23. 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.
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24. DOES THE PLAN HAVE ANY OF THE SAME BENEFITS AS A QUALIFIED RETIREMENT PLAN
(INCLUDING A 401(K) PLAN) AND WILL MY PARTICIPATION IN THE PLAN AFFECT MY
PARTICIPATION IN THE COMPANY'S 401(K) PLAN?
The Plan is not a qualified retirement plan and therefore does not have the
same tax deferral benefits. Your participation in the 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 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 Plan.
25. 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, FICA and
disability. 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.
If you exercise an incentive stock option, unless you are subject to the
alternative minimum tax (see Question 35), 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.
26. 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
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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.
27. WHAT IS THE DIFFERENCE BETWEEN ORDINARY INCOME AND CAPITAL GAINS?
Long-term capital gains of individuals are 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.
28. 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 35), 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 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.
29. HOW IS MY PROFIT ON THE SALE OF MY INCENTIVE STOCK OPTION 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 two years or
more 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.
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For example, assume you were granted an option on January 1, 1996 for 10
shares at an exercise price of $8.00 per share. You exercise the option on
January 1, 1997 when the market price is $10.00 per share and you sell the stock
on July 1, 1997 when the market price is $9.00 per share for a $10.00 aggregate
profit. Because you sold the stock before January 1, 1998, 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. Other dispositions of
stock, described in the Internal Revenue Code, may have similar consequences.
30. 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 disposition
described in Question 29, 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.
31. DO I HAVE TO COMPLETE ANY FORMS AFTER I SELL OR TRANSFER MY STOCK?
Yes, if you sell or transfer 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 disqualifying disposition survey
provided to you.
32. 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:
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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, 1996 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, 1998, an additional
15% of the shares on December 31, 1999, an additional 25% of the shares on
December 31, 2000, and an additional 50% of the shares on December 31, 2001. 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, 1998, 90% of the
stock if you leave the Company before December 31, 1999, and 75% of the stock if
you leave the Company before December 31, 2000 and 50% of the stock if you leave
the Company before December 31, 2001. On February 20, 1997 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, 1998 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, 1998,
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,
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 29) 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.
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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, 1996 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, 1996 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, 1996, when the second 25% of
the shares vests, the market price is $11.00 per share and on July 1, 1996, when
the third 25% of the remaining shares vests the market price is $9.00 per share.
On August 1, 1996, 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 29.
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 35).
33. 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.
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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.
34. 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 29) 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").
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.
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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.
35. 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 32), 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.
36. WHAT HAPPENS TO MY OPTION OR STOCK ISSUED UNDER THE PLAN IN THE EVENT
GENENTECH IS ACQUIRED BY A PERSON OTHER THAN ROCHE?
The Plan provides that, in the event of a "corporate transaction", each
option outstanding under the 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 reverse 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 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 by at least a
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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 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.
37. 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
38. ARE NON-EMPLOYEE DIRECTORS ELIGIBLE TO RECEIVE OPTIONS UNDER THE PLAN?
Yes. Under the Automatic Grant Program portion of the Plan, on April 30,
1996, each individual who is a non-employee member of the Board was
automatically granted a non-statutory option to purchase 20,000 shares of
Special Common Stock. Each non-employee member of the Board who is first elected
to the position after April 30, 1996 was automatically granted a non-statutory
option for the same number of shares. All options granted under the Automatic
Grant Program have an exercise price equal to 100% of the closing selling price
on the trading day prior to the grant date. Each option granted under the
Automatic Grant Program will vest in increments of 5,000 shares on each of the
first, second, third and fourth anniversaries of the grant date and be
exercisable until the expiration or earlier termination of the option term. Such
options will have a term of ten years, and will not be assignable or
transferable otherwise than by will or by the laws of descent and distribution.
Each employee member of the Board who becomes a non-employee member of the Board
following April 30, 1996 will be automatically granted such an option
immediately upon the date of his or her change of status.
If a holder of an option issued under the Automatic Grant Program ceases to
be a member of the Board for a reason other than the holder's death, the option
will remain exercisable for a period ending on the earlier of (i) the expiration
of the three month period following the cessation of membership on the Board or
(ii) the expiration of the option. If a holder of an option issued under the
Automatic Grant Program ceases to be a member of the Board due to the holder's
death, the option may be exercised by the holder's estate or transferee pursuant
to a will or applicable law for a period ending on the earlier of (i) the
expiration of the 12-month period following the date of the optionee's death or
(ii) the expiration of the option.
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.
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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
39. 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 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.
40. WHAT TYPES OF STOCK APPRECIATION RIGHTS MAY BE GRANTED UNDER THE PLAN?
There are three types of stock appreciation rights authorized for issuance
under the 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.
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.
41. 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
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<PAGE> 23
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.
42. 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
to 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 stock
award. 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.
43. 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 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 Question 32 for a
more detailed description of the consequences of a risk of forfeiture.
D. MISCELLANEOUS
44. WHAT ARE SOME OF THE OTHER FEATURES OF THE PLAN?
(i) The number of shares subject to the Plan is 9,000,000. As of April 30,
1996, options covering 3,505,000 shares remained to be granted under the Plan.
Shares subject to options granted under the Plan which expire or are canceled or
terminated for any reason prior to exercise shall be available for future option
grants under the 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 Plan, the maximum
number of shares that may be issued to an employee, the number of shares that
may be issued to non-employee directors, the
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number of shares and the exercise price of each outstanding option and stock
appreciation right under the 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 Plan regarding
Corporate Transactions (see Question 36);
(iii) The Compensation Committee may, with the consent of option holders,
cancel any or all outstanding options granted under the Plan (excepting stock
appreciation rights) and grant in substitution new options under the Plan;
(iv) The cash proceeds received upon exercise of options granted under the
Plan will be used for general corporate purposes;
(v) The implementation of the 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 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 Plan shall limit the Company's exercise of all of its
rights and powers, including its right to grant options outside of the Plan.
PLAN OF DISTRIBUTION
For a discussion of the factors relating to the grant and exercise of stock
options and stock awards under the Plan please refer to the information
contained under the heading "The 1996 Stock Option/Stock Incentive Plan" above.
Sales of Special Common Stock under the Plan will be made directly by the
Company upon exercise of options granted under the Plan or upon awards of shares
under the Stock Incentive Program 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, as amended in
connection with the Merger ("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 the differences between such terms and the terms of the Common Stock
as set forth in Article Third. 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 ARTICLE THIRD.
As indicated above, Article Third sets forth the terms of and the rights and
preferences with respect to the Special Common Stock. In addition, it provides
that Preferred Stock (as hereinafter defined) may be issued from time to time in
one or more series. The Genentech Board is authorized to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including
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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. If Roche did not 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 authorizes the issuance of 100,000,000 shares of preferred
stock ("Preferred Stock"), 100,000,000 shares of Special Common Stock and
200,000,000 shares of Common Stock.
VOTING RIGHTS
Article Third provides that the holders of Special Common Stock 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.
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 (as hereinafter defined); and provided,
further, that any such stock shall be
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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
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").
LIQUIDATION
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 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.
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. 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
</TABLE>
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<TABLE>
<S> <C>
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.
PUT RIGHTS
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").
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 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 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 (as hereinafter defined) the requisite funds) is conditioned
upon Genentech's having 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
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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
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 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 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 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.
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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. Article Third
provides 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. Article Third further provides that, if on the Conversion Date the
Special Common Stock shall be listed on the New York Stock Exchange 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
24
<PAGE> 30
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."
CLASS VOTE
In addition to any other affirmative vote required by law or the Genentech
Certificate of Incorporation, any amendment of the provisions of 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
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 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.
25
<PAGE> 31
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.
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, 1995, 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, 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 stockholders 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 stockholders, (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
26
<PAGE> 32
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 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 the 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
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 Securities Act and is therefore
unenforceable.
27
<PAGE> 33
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 Callable Putable Common
Stock being registered. All the amounts shown are estimates except for the
registration fee.
<TABLE>
<S> <C>
Registration Fee ........................................... $162,545.00
Blue Sky Fees and Expenses ................................. 0.00
Stock Exchange Listing Fees ................................ 9,000.00
-----------
Legal Fees and Expenses .................................... 0.00
Accounting Fees and Expenses ............................... 2,500.00
-----------
Total .................................................. $174,045.00
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
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 stockholders 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 stockholders, (ii) for acts of
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
II-1
<PAGE> 34
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 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's Board of Directors 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.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
4 .1 Certificate of Incorporation of the Company. (1)
4 .2 By-laws of the Company. (2)
4 .3 Amended Certificate of Incorporation of the Company. (3)
4 .4 Restated By-laws of the Company. (4)
5 .1 Opinion of counsel as to the legality of the securities being registered. (See page II-7)
15.1 Letter From Ernst & Young LLP Regarding Unaudited Interim Financial Information.
23.1 Consent of Ernst & Young LLP, independent auditors. (See page II-8)
23.2 Consent of Counsel. (Included in Exhibit 5.1)
24.1 Power of Attorney. (See page II-4)
99.1 1996 Stock Option/Stock Incentive Plan. (5)
</TABLE>
(1) Filed as Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1986 (Commission file no. 2-68864), and incorporated
herein by reference.
(2) Filed as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1986 (Commission file no. 2-68864), and
incorporated herein by reference.
(3) Filed as Exhibit 4.1 to Registrant's Registration Statement on Form S-4
dated October 25, 1995 (Registration Statement no. 33-59949), and
incorporated herein by reference.
(4) Filed as Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990 (Commission file no. 1-9813) , and
incorporated herein by reference.
(5) Filed as Exhibit 99.9 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995(Commission file no. 1-9813), and
incorporated herein by reference.
ITEM 17. UNDERTAKINGS
A. Rule 415 Offering
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:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
II-2
<PAGE> 35
(ii) 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;
(iii) 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 A(1)(i) and A(1)(ii) 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 Exchange Act that are incorporated by
reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
B. Filings Incorporating Subsequent Exchange Act Documents by Reference
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act 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.
C. Incorporated Annual and Quarterly Reports
The undersigned registrant hereby undertakes 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 Exchange Act; 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.
D. Acceleration of Effectiveness
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to director, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company 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 Company 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 Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this 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 21st of June, 1996.
GENENTECH, INC.
By: /s/ John P. McLaughlin
----------------------------
John P. McLaughlin
Executive Vice President and
Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John P. McLaughlin and Louis J. Lavigne, Jr., and
each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
indicated, as of June 21, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Arthur D. Levinson President, Chief Executive Officer and
- -------------------------------------- Director
Arthur D. Levinson (Principal Executive Officer)
/s/ Louis J. Lavigne, Jr. Senior Vice President and
- -------------------------------------- Chief Financial Officer
Louis J. Lavigne, Jr. (Principal Financial Officer)
/s/ Bradford S. Goodwin Vice President and Controller
- -------------------------------------- (Principal Accounting Officer)
Bradford S. Goodwin
</TABLE>
II-4
<PAGE> 37
/s/ Herbert W. Boyer
- -------------------------------------- Director
Herbert W. Boyer
/s/ Jurgen Drews
- -------------------------------------- Director
Jurgen Drews
/s/ Franz B. Humer
- -------------------------------------- Director
Franz B. Humer
/s/ Linda Fayne Levinson
- -------------------------------------- Director
Linda Fayne Levinson
/s/ Donald L. Murfin
- -------------------------------------- Director
Donald L. Murfin
/s/ J. Richard Munro
- -------------------------------------- Director
J. Richard Munro
/s/ Donald L. Murfin
- -------------------------------------- Director
Donald L. Murfin
/s/ John T. Potts, Jr.
- -------------------------------------- Director
John T. Potts, Jr.
/s/ C. Thomas Smith, Jr.
- -------------------------------------- Director
C. Thomas Smith, Jr.
/s/ Robert A. Swanson
- -------------------------------------- Director
Robert A. Swanson
/s/ David S. Tappan, Jr.
- -------------------------------------- Director
David S. Tappan, Jr.
II-5
<PAGE> 38
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-3 REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
GENENTECH, INC.
----------------------
INDEX TO EXHIBITS
----------------------
Number Description
------ -----------
4.1 Certificate of Incorporation of the Company. (1)
4.2 By-laws of the Company. (2)
4.3 Amended Certificate of Incorporation of the Company. (3)
4.4 Restated By-laws of the Company. (4)
5.1 Opinion of counsel as to the legality of the securities being
registered. (See page II-7)
15.1 Letter From Ernst & Young LLP Regarding Unaudited Interim
Financial Information.
23.1 Consent of Ernst & Young LLP, independent auditors. (See page
II-8)
23.2 Consent of Counsel. (Included in Exhibit 5.1)
24.1 Power of Attorney. (See page II-4)
99.1 1996 Stock Option/Stock Incentive Plan. (5)
(1) Filed as Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1986 (Commission file no. 2-68864), and incorporated
herein by reference.
(2) Filed as Exhibit 3.2 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1986 (Commission file no. 2-68864), and
incorporated herein by reference.
(3) Filed as Exhibit 4.1 to Registrant's Registration Statement on Form S-4
dated October 25, 1995 (Registration Statement no. 33-59949), and
incorporated herein by reference.
(4) Filed as Exhibit 3.4 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990 (Commission file no.1-9813), and
incorporated herein by reference.
(5) Filed as Exhibit 99.1 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995 (Commission file no. 1-9813), and
incorporated herein by reference.
II-6
<PAGE> 1
Exhibit 5.1
[GENETECH, INC. LETTERHEAD]
July 12, 1996
Genentech, Inc.
460 Point San Bruno Boulevard
South San Francisco, CA 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 Registration
Statement on Form S-3 (the "Registration Statement") with the Securities and
Exchange Commission with respect to the offering and sale of up to 9,000,000
shares of the Company's Callable Putable Common Stock (the "Special Common
Stock") pursuant to the Company's 1996 Stock Option/Stock Incentive Plan (the
"Plan").
In connection with rendering this opinion, I have examined and relied upon
the Registration Statement and related Prospectus, the Plan described in the
Registration Statement and the documents to be executed pursuant thereto, the
Company's Certificate of Incorporation and Bylaws, as amended, and such records,
documents, certificates, memoranda, and other instruments as in my judgment are
necessary or appropriate to enable me to render the opinion expressed below.
On the basis of the foregoing, and in reliance thereon, I am of the opinion
that the Special Common Stock when sold and issued in accordance with the Plan
and the documents to be executed pursuant thereto, the Registration Statement
and the related Prospectus, will be validly issued, fully paid and
nonassessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Stephen G. Juelsgaard
------------------------------------
Stephen G. Juelsgaard
Vice President and General Counsel
II-7
<PAGE> 1
Exhibit 15.1
July 11, 1996
The Board of Directors and Stockholders
Genentech, Inc.
We are aware of the incorporation by reference in the Registration Statement
(Form S-3) of Genentech, Inc. for the registration of 9,000,000 shares of its
callable putable common stock of our report dated April 9, 1996 relating to the
unaudited condensed consolidated interim financial statements of Genentech, Inc.
which are included in its Form 10-Q for the quarter ended March 31, 1996.
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,
/s/ ERNST & YOUNG LLP
II-8
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related prospectus, pertaining to the 1996
Stock Option/Stock Incentive Plan of Genentech, Inc. for the registration of
9,000,000 shares of its callable putable common stock and to the incorporation
by reference therein of our report dated January 17, 1996, 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, 1995 and the
related financial statement schedule included therein, filed with the Securities
and Exchange Commission.
/s/ ERNST & YOUNG LLP
San Jose, California
July 11, 1996
II-9
