<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
LOGO
GERON CORPORATION
230 CONSTITUTION DRIVE
MENLO PARK, CA 94025
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 29, 1998
TO THE STOCKHOLDERS OF GERON CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of GERON
CORPORATION, a Delaware corporation (the "Company"), will be held on Friday, May
29, 1998, at 9:00 a.m. local time at the company headquarters, 230 Constitution
Drive, Menlo Park, California 94025 for the following purposes:
1. To elect two Class II Directors to serve for a term of three years, or
until their successors are elected.
2. To approve an amendment to the Company's 1992 Stock Option Plan to
increase the aggregate number of shares of Common Stock authorized for
issuance under such Plan by 500,000 shares.
3. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for the fiscal year ending December 31, 1998.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business, including the nominees for Class II
Directors, are more fully described in the Proxy Statement accompanying this
Notice.
The Board of Directors has fixed the close of business on Wednesday, April
1, 1998, as the record date for the determination of stockholders entitled to
notice of and to vote at this Annual Meeting and at any adjournment or
postponement thereof.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please complete, date, sign and
return the enclosed proxy as promptly as possible in order to ensure your
representation at the meeting. A return envelope (which is postage prepaid if
mailed in the United States) is enclosed for that purpose. Even if you have
given your proxy, you may still vote in person if you attend the meeting. Please
note, however, that if your shares are held of record by a broker, bank or other
nominee and you wish to vote at the meeting, you must obtain from the record
holder a proxy issued in your name.
By Order of the Board of Directors
LOGO
DAVID L. GREENWOOD
Secretary
Menlo Park, California
April 2, 1998
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
<PAGE> 3
GERON CORPORATION
230 CONSTITUTION DRIVE
MENLO PARK, CA 94025
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Geron Corporation, a Delaware corporation (the "Company") for use at the Annual
Meeting of Stockholders to be held on May 29, 1998, at 9:00 a.m. local time (the
"Annual Meeting"), or at any adjournment or postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting. The
Annual Meeting will be held at the company headquarters, 230 Constitution Drive,
Menlo Park, California 94025. The Company intends to mail this proxy statement
and accompanying proxy card on or about April 10, 1998 to all stockholders
entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. In addition, the Company may
reimburse persons representing beneficial owners of Common Stock for their costs
of forwarding solicitation materials to such beneficial owners. The original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers, or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
Wednesday, April 1, 1998, (the "Record Date") will be entitled to notice of and
to vote at the Annual Meeting. At the close of business on the Record Date, the
Company had outstanding and entitled to vote 11,144,086 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one vote
for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a particular
matter has been approved.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's offices, 230 Constitution Drive, Menlo
Park, California 94025, a written notice of revocation or a duly executed proxy
bearing a later date, or it may be revoked by attending the meeting and voting
in person. Attendance at the meeting will not, by itself, revoke a proxy.
<PAGE> 4
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1999 Annual Meeting of Stockholders must be received by the Company
not later than January 22, 1999 in order to be included in the proxy statement
and proxy relating to that Annual Meeting.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL I
ELECTION OF DIRECTORS
Geron has three classes of directors; serving staggered three-year terms.
Class II consists of three directors, two of whom will be elected at this Annual
Meeting. There is currently one vacancy for a Class II director. Class III
consists of two directors who will be elected at the 1999 Annual Meeting; and
Class I consists of three directors who will be elected at the 2000 Annual
Meeting. There is currently one vacancy for a Class I director. At this Annual
Meeting, the Class II Directors are to be elected for three-year terms expiring
on the date of the Annual Meeting in 2001 or until their successors are elected
and qualified. The Board of Directors has selected two nominees for Class II
Directors, both of whom are currently directors of the Company. The two
candidates receiving the highest number of affirmative votes of the shares
represented and entitled to vote at the Annual Meeting will be elected as Class
II Directors of the Company.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the two nominees named below. In the event
that any nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as management may propose. Each person nominated for election has agreed
to serve if elected, and management has no reason to believe that any nominee
will be unable to serve.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE
Set forth below is information regarding the nominees for Class II
Director, the periods during which they have served as directors, and
information furnished by them as to principal occupations and directorships held
by them in corporations whose shares are publicly registered. There is currently
one vacancy for Class II director.
NOMINEES FOR CLASS II DIRECTOR (TERM ENDING IN 2001)
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION/POSITION WITH THE COMPANY
---- --- ----------------------------------------------
<S> <C> <C>
Ronald W. Eastman 46 President and Chief Executive Officer
Thomas D. Kiley, Esq 55 Attorney-at-law
</TABLE>
RONALD W. EASTMAN has served as President, Chief Executive Officer and
Director of the Company since May 1993. From 1978 until joining the Company, Mr.
Eastman was employed with American Cyanamid Co., most recently as a Vice
President and General Manager of Lederle Laboratories, American Cyanamid's
pharmaceutical business. Mr. Eastman holds a B.A. from Williams College and an
M.B.A. from Columbia University.
THOMAS D. KILEY, ESQ., has served as a Director of the Company since
September 1992. He has been self-employed since 1988 as an attorney, consultant,
and investor. From 1980 to 1988, he was an officer of Genentech, Inc., a
biotechnology company, serving variously as Vice President and General Counsel,
Vice President for Legal Affairs and Vice President for Corporate Development.
From 1969 to 1980, he was with the Los Angeles law firm of Lyon & Lyon and was a
partner in such firm from 1975 to 1980. Mr. Kiley is also a director
Pharmacyclics, Inc., Connectics Corp., Cardiogenesis Corporation and certain
privately held biotechnology and other companies. Mr. Kiley holds a B.S. in
Chemical Engineering from Pennsylvania State University and a J.D. from George
Washington University.
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CONTINUING DIRECTORS
Set forth below is information regarding the continuing Class III and Class
I Directors of the Company, including their ages, the periods during which they
have served as directors, and information furnished by them as to principal
occupations and directorships held by them in corporations whose shares are
publicly registered. There is currently one vacancy for Class I director.
CLASS III DIRECTORS (TERM ENDING IN 1999)
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION/POSITION WITH THE COMPANY
---- --- ----------------------------------------------
<S> <C> <C>
Alexander E. Barkas, Ph.D 50 General Partner, Prospect Venture Partners
Robert B. Stein, M.D., Ph.D 47 Executive Vice President, Research &
Preclinical Development, The DuPont Merck
Research Labs
</TABLE>
ALEXANDER E. BARKAS, PH.D., has served as Chairman of the Board since July
1993 and as a Director of the Company since March 1992. From March 1992 until
May 1993, he served as President and Chief Executive Officer of the Company. He
is a founding partner of Prospect Venture Partners, a venture capital investment
firm formed in 1997. Dr. Barkas was a partner with Kleiner Perkins Caufield &
Byers, a venture capital investment firm, from 1991 to 1997. Dr. Barkas is also
a director of Connetics Corp. and several privately held medical technology
companies. He holds a B.A. from Brandeis University and Ph.D. from New York
University.
ROBERT B. STEIN, M.D., PH.D., has served as a Director of the Company since
April 1996. Since September 1996 Dr. Stein has been Executive Vice President of
Research & Preclinical Development at The DuPont Merck Research Labs. From
August 1993 to September 1996, Dr. Stein was Senior Vice President and Chief
Scientific Officer of Ligand Pharmaceuticals, Inc., a pharmaceutical company,
and from May 1990 to August 1993, he was Vice President of Research at Ligand.
From 1982 to 1990, Dr. Stein held various positions with Merck, Sharp, and Dohme
Research Laboratories, a pharmaceutical company, including Senior Director and
Head of the Department of Pharmacology from 1989 to 1990. Dr. Stein holds a B.S.
in Biology and Chemistry from Indiana University and an M.D. and a Ph.D. in
Physiology and Pharmacology from Duke University.
CLASS I DIRECTORS (TERM ENDING IN 2000)
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION/POSITION WITH THE COMPANY
---- --- ----------------------------------------------
<S> <C> <C>
Charles M. Hartman 56 General Partner, CW Group
John P. Walker 49 Chairman and Chief Executive Officer, AxyS
Pharmaceuticals, Inc.
</TABLE>
CHARLES M. HARTMAN has served as a Director of the Company since August
1992. He has been a general partner of CW Group, a venture capital partnership,
since 1983. From 1965 to 1983, Mr. Hartman held a number of positions with
Johnson & Johnson. He is also a director of SUGEN, Inc., Ribozyme
Pharmaceuticals, Inc. and several privately held life sciences companies. He is
also a director of the Hastings Center, a nonprofit organization dedicated to
the study of ethics in medicine and the life sciences. Mr. Hartman holds a B.S.
in Chemistry from Notre Dame University and an M.B.A. from the University of
Chicago.
JOHN P. WALKER has served as a Director of the Company since April 1997. He
is currently Chairman and Chief Executive Officer and a Director of AxyS
Pharmaceuticals, Inc., which is the corporation that resulted from the merger of
Arris Pharmaceutical Corporation and Sequana Therapeutics, Inc. From 1993 to
1997, he was President, Chief Executive Officer and a director of Arris
Pharmaceutical Corporation. From 1991 to 1993, he was Chairman, President and
Chief Executive Officer of Vitaphore Corporation, a company which was acquired
in April 1990 by Union Carbide Chemicals and Plastics Company Inc. Following
that acquisition, Mr. Walker served as the latter company's Vice President,
Biomaterials Systems. From 1971 to 1985, Mr. Walker was employed by American
Hospital Supply Corporation in a variety of general management, sales and
marketing positions, most recently serving as President of the American Hospital
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Company. He received his B.A. degree from the State University of New York at
Buffalo and conducted graduate business studies at Northwestern University
Institute for Management. Mr. Walker serves as a director of Microcide
Pharmaceuticals, Signal Pharmaceuticals, and the Northern California Chapter of
the Multiple Sclerosis Society.
There are no family relationships among executive officers or directors of
the Company.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1997, the Board of Directors held
five meetings. The Board has an Audit Committee, a Compensation Committee and a
Stock Option Committee. During the fiscal year ended December 31, 1997, all
directors attended at least 75% of the meetings of the Board and the committees
on which he served, held during the period for which he was a director or
committee member, respectively.
The Audit Committee meets with the Company's independent auditors at least
annually to review the results of the annual audit and discuss the financial
statements; recommends to the Board the independent auditors to be retained; and
receives and considers the auditors' comments as to financial controls, adequacy
of staff, as well as management performance and procedures in connection with
the annual audit and financial controls. The Audit Committee, which is composed
of Dr. Barkas and Mr. Kiley met in March 1997 in connection with the audit of
the 1996 financial statements.
The Compensation Committee makes recommendations concerning salaries and
incentive compensation, administers the incentive compensation and benefit plans
of the Company, and performs such other functions regarding compensation as the
Board may delegate. In addition, the Compensation Committee has exclusive
authority to administer the 1992 Stock Option Plan with respect to executive
officers and directors. The Compensation Committee, which is comprised of Dr.
Barkas and Mr. Dovey, held numerous informal conversations and acted by written
consent on eight occasions during fiscal 1997. Mr. Dovey resigned from the Board
of Directors in March 1998, and as a result, there is currently a vacancy on the
Compensation Committee.
The Stock Option Committee was formed in December 1996 in order to provide
timely option grants to new employees and consultants (other than executive
officers and directors of the Company) and currently consists of one member, Mr.
Eastman. The Stock Option Committee has limited authority to administer the
Company's 1992 Stock Option Plan concurrently with the Compensation Committee.
The Stock Option Committee has the authority to grant options for up to 20,000
shares of Common Stock to new employees and consultants in accordance with
procedures approved by the Board of Directors. The Stock Option Committee acted
by written consent on twenty-one occasions during fiscal 1997.
COMPENSATION OF DIRECTORS
Directors currently receive no cash fees for services provided in that
capacity but are reimbursed for out-of-pocket expenses incurred in connection
with attendance at meetings of the Board of Directors.
Each nonemployee director receives periodic option grants for shares of
Common Stock pursuant to the Company's 1996 Directors' Stock Option Plan (the
"Directors' Plan"). The Directors' Plan provides that a nonemployee director of
the Company will be granted a nonstatutory stock option to purchase 25,000
shares of Common Stock (the "First Option") on the date on which the optionee
first becomes a nonemployee director of the Company. Thereafter, on the date of
each annual meeting of the Company's stockholders, each nonemployee director
will be granted an option to purchase 5,000 shares of Common Stock (a
"Subsequent Option") if, on such date, he or she continues to serve on the Board
of Directors and has served on the Board of Directors for at least six months.
The First Options become exercisable in installments equal to 33 1/3% of the
total number of shares subject to the First Option on each of the first, second
and third anniversaries of the date of grant of the First Option; the Subsequent
Options become exercisable in whole on the first anniversary of the date of
grant. The exercise price of all stock options granted under the Directors' Plan
will be equal to the fair market value of a share of the Company's Common Stock
on the date of grant of the option. Options granted under the Directors' Plan
have a term of ten years. During 1997, options to purchase 5,000 shares were
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<PAGE> 7
granted to Dr. Barkas, Mr. Dovey, Mr. Kiley, Mr. Hartman, and Dr. Stein in
connection with the 1997 Annual Meeting under the Directors' Plan. In addition,
options to purchase 25,000 shares of Common Stock were granted to Mr. Walker in
connection with his appointment to the Board of Directors.
In April 1996, the Company entered into a Consulting Agreement with Thomas
D. Kiley, a Director of the Company, pursuant to which Mr. Kiley agreed to
provide such advice and consultation as reasonably requested by the Company to
its officers and scientists on the direction, implementation and operations of
its scientific programs, business plans and management of intellectual property.
As compensation for his services under this agreement, Mr. Kiley received an
option to purchase 7,352 shares of Common Stock at an exercise price of $2.04
per share, with monthly vesting over a five year period. Unless otherwise
terminated by either the Company or Mr. Kiley, this agreement will expire on
April 10, 2001.
In April 1997, the Company entered into a Consulting Agreement with John P.
Walker, a Director of the Company, pursuant to which Mr. Walker agreed to
provide such advice and consultation as reasonably requested by the Company to
its officers and scientists on the direction, implementation and operations of
its scientific programs and business plans. As compensation for his services
under this agreement, Mr. Walker received an option to purchase 10,000 shares of
Common Stock at an exercise price of $9.25 per share, with annual vesting over a
three year period. In addition, Mr. Walker will receive cash compensation in the
amount of $10,000 per year, payable quarterly. Unless otherwise terminated by
either the Company or Mr. Walker, this agreement will expire on April 3, 2000.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE 1992 STOCK OPTION PLAN
The Company's stockholders are being asked to approve an amendment to the
Company's 1992 Stock Option Plan, as amended (the "Stock Option Plan") to
increase the number of shares issuable thereunder by 500,000 shares. In March
1998, the Board amended the Stock Option Plan, subject to stockholder approval,
to increase the aggregate number of shares authorized for issuance under the
Stock Option Plan from 3,771,137 to 4,271,137. The Board adopted the amendment
to ensure that the Company can continue to grant stock options, at levels
determined appropriate by the Board, to attract and retain qualified employees
and consultants.
The Stock Option Plan was initially adopted by the Board of Directors in
May 1992 and approved by the stockholders in July 1992 and has been amended
several times since then. As of December 31, 1997, a total of 3,555,219 shares
of Common Stock had been authorized for issuance under the Stock Option Plan
with an automatic increase on the first trading day of the 1998, 1999, 2000 and
2001 calendar years of an additional number of shares equal to 2% of the number
of shares of Common Stock outstanding on December 31 of the immediately
preceding calendar year, with no such annual increase to exceed 300,000 shares.
Taking into account the annual increase for 1998, a total of 3,771,137 shares of
Common Stock have been authorized for issuance under the Stock Option Plan, as
of the date of this Proxy Statement.
As of April 1, 1998, options to purchase a total of 2,196,762 shares were
outstanding under the Stock Option Plan (net of canceled or expired options),
and 573,918 shares remained available for future grants under the Stock Option
Plan. As of April 1, 1998, the aggregate fair market value of shares subject to
outstanding options under the Stock Option Plan was $26,635,739, based upon the
closing price of the Common Stock on the Nasdaq National Market.
SUMMARY OF 1992 STOCK OPTION PLAN
The following is a summary of the principal features of the Stock Option
Plan, together with the applicable tax implications, which will be in effect if
the proposed amendment to the Stock Option Plan is approved. The summary,
however, does not purport to be a complete description of all the provisions of
the Stock Option Plan. Any stockholder of the Company who wishes to obtain a
copy of the actual plan document may do so upon written request to the Secretary
to the Company at the Company's principal executive offices in Menlo Park,
California.
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GENERAL
The Stock Option Plan provides for grants to employees of the Company and
any subsidiary of the Company (including officers and employee directors) of
"incentive stock options" ("ISO's") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and for grants of
nonstatutory stock options ("NSO's") to employees (including officers and
employee directors) and consultants (including non-employee directors) of the
Company or any affiliate of the Company. As of April 1, 1998, five executive
officers and approximately 120 other employees and consultants (including non-
employee directors) were eligible to participate in the Stock Option Plan. See
"Federal Income Tax Aspects" below for information concerning the tax treatment
of incentive stock options and nonstatutory stock options.
The Stock Option Plan is not a qualified deferred compensation plan under
Section 401(a) of the Code, and is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
PURPOSE
The purposes of the Stock Option Plan are to attract and retain the best
available personnel for positions of substantial responsibility, to give
employees and consultants of the Company a greater personal stake in the success
of the Company's business, to provide additional incentive to the employees and
consultants of the Company to continue and advance in their employment and
service to the Company and to promote the success of the Company's business.
ADMINISTRATION
The Stock Option Plan is administered by the Company's Board of Directors
or a committee of the Board (the "Administrator"). The Stock Option Plan is
currently being administered by the Compensation Committee and the Stock Option
Committee of the Board of Directors with review by the entire Board of
Directors. With respect to executive officers and directors of the Company
(including executive officers who are also directors), the Stock Option Plan
will be administered exclusively by the Compensation Committee of the Board of
Directors. The Administrator may determine the terms of the options granted,
including the exercise price, the number of shares subject to each option and
the exercisability of the option. The Administrator also has the authority to
select the individuals to whom options will be granted and to make any
combination of grants to individuals. The Administrator's interpretation and
construction of any provision of the Stock Option Plan are final and binding
upon all participants. Members of the Board receive no additional compensation
for their services in connection with the administration of the Stock Option
Plan.
ELIGIBILITY
The Stock Option Plan provides that incentive stock options may be granted
only to employees (including officers and employee directors) of the Company or
any affiliate of the Company, while nonstatutory stock options may be granted
not only to employees (including officers and employee directors), but also
consultants (including non-employee directors) of the Company or any affiliate
of the Company. The Administrator shall have full authority to determine which
eligible individuals are to receive option grants under the Plan, the number of
shares to be covered by each such grant, whether the granted option is to be an
incentive stock option which satisfies the requirements of Section 422 of the
Code or a nonstatutory stock option not intended to meet such requirements, the
time or times at which each such option is to become exercisable, and the
maximum term for which the option is to remain outstanding.
The Stock Option Plan provides that the maximum number of shares of Common
Stock which may be granted under options to any one employee during any fiscal
year shall be 500,000 subject to adjustment as provided in the Stock Option
Plan. There is also a limit on the aggregate market value of shares subject to
all incentive stock options that may be granted to an optionee during any
calendar year.
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STOCK SUBJECT TO THE STOCK OPTION PLAN
An aggregate of 3,771,137 shares (4,271,137 shares assuming the proposed
amendment is approved) of Common Stock has been authorized for issuance under
the Stock Option Plan, as amended, including the automatic annual increase for
1998. If stock option awards granted under the Stock Option Plan expire or
otherwise terminate without being exercised, the shares of Common Stock not
purchased pursuant to such award again become available for issuance under the
Stock Option Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options under
the Stock Option Plan. Individual option grants may be more restrictive as to
any or all of the permissible terms described below.
Exercise Price; Payment. The exercise price under the Stock Option Plan is
determined by the Administrator and in the case of all incentive stock options
granted under the Stock Option Plan the exercise price must be at least equal to
the fair market value of the Common Stock of the Company on the date of grant.
The exercise price of all nonstatutory stock options must equal at least 85% of
the fair market value of the Common Stock on the date of grant. The exercise
price of any incentive stock option granted to an optionee who owns stock
representing more than 10% of the total combined voting power of all classes of
stock of the Company or any of its subsidiaries (a "10% Stockholder") must equal
at least 110% of the fair market value of the Common Stock on the date of grant.
At April 1, 1998, the closing sales price of a share of the Company's Common
Stock as reported on the Nasdaq National Market was $12.13 per share.
The consideration to be paid for shares issued on exercise of options
granted under the Stock Option Plan, including the method of payment, is
determined by the Administrator and may consist entirely of cash, check,
promissory note, shares of the Company's Common Stock which have been
beneficially owned by the optionee for at least six months or which were not
acquired directly or indirectly from the Company, with a fair market value on
the exercise date equal to the aggregate exercise price of the shares purchased,
authorization from the Company to retain from the total number of shares as to
which the option is exercised a number of shares having a fair market value on
the exercise date equal to the aggregate exercise price of the shares issued, or
delivery of a properly executed notice and irrevocable instructions to a broker
to deliver promptly to the Company the amount of sale or loan proceeds required
to pay the exercise price. The Administrator may also authorize payments by any
combination of the above methods or any other consideration and method of
payment permitted by law.
Option Exercise. Each option may be exercised during the lifetime of the
optionee only by such optionee or in the case of a nonstatutory stock option by
a transferee under a qualified domestic relations order. Options granted under
the Stock Option Plan generally vest in a series of installments over a 4 or 5
year period, with a portion vesting after the six month period from the date of
grant and the balance vesting over the remaining term. Under certain
circumstances, options may be exercised prior to vesting, subject to the
Company's right to repurchase shares subject to such option at the exercise
price paid per share. The Company's repurchase rights would terminate on a
vesting schedule identical to the vesting schedule of the exercised option. In
addition, the Stock Option Plan provides that the Administrator, in its sole
discretion, may assist any optionee in the exercise of an option by authorizing
the extension of a loan from the Corporation to such optionee or by permitting
such optionee to pay the exercise price in installments over a period of years.
Term. The Administrator determines the term of options. The term of a stock
option granted under the Stock Option Plan may not exceed ten years; provided,
however, that the term of an incentive stock option may not exceed five years
for 10% Stockholders.
In the event an optionee ceases to be employed or retained by the Company
for any reason other than death or disability, each outstanding option held by
such optionee will remain exercisable for the three-month period following the
date of such cessation of employment or service. Should the optionee's
employment or service terminate by reason of disability, each outstanding option
will remain exercisable for the six month period following the date of such
cessation of employment. Should the disability be deemed a permanent disability
or should the optionee's employment terminate by reason of death, options held
by such optionee
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will remain exercisable for 12 months following such cessation of employment or
service. The Board will have full power and authority to extend the period of
time for which the option is to remain exercisable following the optionee's
termination of service.
ADJUSTMENT PROVISIONS
In the event any change is made to the Common Stock issuable under the
Stock Option Plan by reason of any stock split, stock dividend, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, appropriate adjustments shall
be made to (i) the aggregate number and/or class of shares issuable under the
Plan, (ii) the maximum number of shares for which any one person may be granted
options per calendar year and (iii) the aggregate number and/or class of shares
and the option price per share in effect under each outstanding option in order
to prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Administrator shall be final, binding and conclusive.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of a transaction involving a change in control of the Company,
the Stock Option Plan provides that each outstanding option will accelerate so
that each option will be fully exercisable for all of the shares subject to such
option immediately prior to the effective date of the transaction. In addition,
upon the occurrence of such a transaction, the Stock Option Plan provides that
all of the outstanding repurchase rights of the Company with respect to shares
of Common Stock acquired upon exercise of options granted under the Stock Option
Plan will terminate.
DURATION AND AMENDMENT
Unless terminated sooner through action by the Board of Directors, the
Stock Option Plan shall terminate in 2002. The Board shall have complete and
exclusive power and authority to amend or modify the Stock Option Plan in any or
all respects whatsoever; provided, however, that no amendment or modification
shall, without the consent of the holders, adversely affect the rights and
obligations with respect to options outstanding under the Stock Option Plan; and
provided, further that the Board shall not, without the approval of the
Company's stockholders, (i) increase the maximum number of shares issuable under
the Stock Option Plan or the maximum number of shares for which any person may
be granted options per calendar year, (ii) materially modify the eligibility
requirements for the grant of options under the Stock Option Plan, (iii)
materially increase the benefits accruing to Stock Option Plan participants or
(iv) increase the annual limitation on grants to participants under the Stock
Option Plan.
RESTRICTIONS ON TRANSFER
An option is nontransferable by the optionee other than by will or the laws
of descent and distribution provided, however, that certain nonstatutory stock
options may be transferable. An option is exercisable during the optionee's
lifetime only by the optionee or permitted transferee and in the event of the
optionee's death, by a person who acquires the right to exercise the option by
bequest or inheritance or by reason of death of the optionee or permitted
transferee.
FEDERAL INCOME TAX ASPECTS
The following is a brief summary of the U.S. federal income tax
consequences of transactions under the Stock Option Plan based on federal income
tax laws in effect as of the date of this Proxy Statement. This summary is not
intended to be exhaustive and does not address all matters which may be relevant
to a particular optionee based on his or her specific circumstances. The summary
addresses only current U.S. federal income tax law and expressly does not
discuss the income tax law of any state, municipality or non-U.S. taxing
jurisdiction or gift, estate or other tax laws other than federal income tax
law. The Company advises all participants under the Stock Option Plan to consult
their own tax advisors concerning tax
8
<PAGE> 11
implications of options grants and exercises and the disposition of stock
acquired upon such exercises under the Stock Option Plan.
Options granted under the Stock Option Plan may be either "incentive stock
options," which are intended to qualify for the special tax treatment provided
by Section 422 of the Code, or nonstatutory stock options, which will not so
qualify.
If an option granted under the Stock Option Plan is an incentive stock
option, the optionee will recognize no income upon grant of the incentive stock
option and incur no tax liability due to the exercise, except to the extent that
such exercise causes the optionee to incur alternative minimum tax (see
discussion below). The Company will not be allowed a deduction for federal
income tax purposes as a result of the exercise of an incentive stock option
regardless of the applicability of the alternative minimum tax. Upon the sale or
exchange of the shares acquired upon exercise more than two years after grant of
the option and one year after such exercise, any gain will be treated as
long-term capital gain. If both of these holding periods are not satisfied, the
optionee will recognize ordinary income equal to the difference between the
exercise price and the lower of the fair market value of the stock at the date
of the option exercise or the sale price of the stock. The Company will be
entitled to a deduction in the same amount as the ordinary income recognized by
the optionee. Any gain recognized on a disposition of the shares prior to
completion of both of the above holding periods in excess of the amount treated
as ordinary income will be characterized as long-term capital gain if the sale
occurs more than one year after exercise of the option or as short-term capital
gain if the sale is made earlier. For individual taxpayers, the current U.S.
federal income tax on long-term capital gains is alternatively 28% (in the case
of shares held more than one year but less than 18 months after exercise) and
20% (in the case of shares held more than 18 months after exercise), whereas the
maximum rate on other income is 39.6%. Capital losses are allowed under U.S. tax
laws in full against capital gains plus $3,000 of other income.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income under U.S. tax laws at the time he or she is granted a
nonstatutory stock option. However, upon its exercise, under U.S. tax laws the
optionee will recognize ordinary income for tax purposes measured by the excess
of the then fair market value of the shares over the exercise price. In certain
circumstances, where the shares are subject to a substantial risk of forfeiture
when acquired, the date of taxation under U.S. tax laws may be deferred unless
the optionee files an election with the Internal Revenue Service under Section
83(b) of the Code. The income recognized by an optionee who is also an employee
of the Company will be subject to income and employment tax withholding by the
Company by payment in cash by the optionee or out of the optionee's current
earnings. Upon resale of such shares by the optionee, any difference between the
sales price and the fair market value of the shares as of the date of exercise
of the option will be treated under U.S. tax laws as capital gain or loss, and
will qualify for long-term capital gain or loss treatment if the shares have
been held for more than one year from the date of exercise.
The exercise of an incentive stock option may subject the optionee to the
alternative minimum tax under Section 55 of the Code. The alternative minimum
tax is calculated by applying a tax rate of 26% to alternative minimum taxable
income of joint filers up to $175,000 ($87,500 for married taxpayers filing
separately) and 28% to alternative minimum taxable income above that amount.
Alternative minimum taxable income is equal to (i) taxable income adjusted for
certain items, plus (ii) items of tax preference less (iii) an exclusion of
$45,000 for joint returns, $33,750 for unmarried individual returns and $22,500
in the case of married taxpayers filing separately (which exemption amounts are
phased out for upper income taxpayers). Alternative minimum tax will be due if
the tax determined under the foregoing formula exceeds the regular tax of the
taxpayer for the year.
In computing alternative minimum taxable income, shares purchased upon
exercise of an incentive stock option are treated as if they had been acquired
by the optionee pursuant to exercise of a nonstatutory stock option. As a
result, the optionee recognizes alternative minimum taxable income equal to the
excess of the fair market value of the shares on the date of exercise over the
option's exercise price. Because the alternative minimum tax calculation may be
complex, any optionee who upon exercising an incentive stock option would
recognize (together with other alternative minimum taxable income preference and
adjustment items for the
9
<PAGE> 12
year) alternative minimum taxable income in excess of the exclusion amount noted
above should consult his or her own tax advisor prior to exercising the
incentive stock option.
If an optionee pays alternative minimum tax, the amount of such tax may be
carried forward as a credit against any subsequent year's regular tax in excess
of the alternative minimum tax for such year.
SECTION 162(M) OF THE INTERNAL REVENUE CODE
Section 162(m) of the Internal Revenue Code of 1986, as amended, enacted as
part of the Omnibus Budget Reconciliation Act of 1993, provides that a publicly
held corporation cannot deduct compensation of a covered employee (the CEO and
the four other most highly compensated employees for the taxable year whose
compensation is required to be reported to stockholders under the Securities
Exchange Act of 1934, as amended) to the extent the compensation exceeds $1
million per tax year. There is a statutory exception to this limitation for
compensation based on the attainment of performance goals. Income derived from
stock options will qualify for this exception and thus be treated as
performance-based compensation if granted in accordance with the requirements
set forth in Section 162(m). The 1992 Stock Option Plan complies with those
requirements. However, because the 1992 Stock Option Plan is being amended to
increase the number of shares of Common Stock reserved for issuance under the
1992 Stock Option Plan, the Company is again required to obtain stockholder
approval for the amended plan in order for the options to continue to qualify as
performance-based compensation under Section 162(m).
PLAN BENEFITS
The Company cannot currently determine the number of shares subject to
options that may be granted in the future to executive officers and employees
under the Stock Option Plan. The actual benefits, if any, to the holders of
stock options issued under the Stock Option Plan are not determinable prior to
exercise as the value, if any, of such stock options to their holders is
represented by the difference between the market price of a share of the
Company's Common Stock on the date of exercise and the exercise price of a
holder's stock option. The following table presents certain information with
respect to stock awards granted under the 1992 Stock Option Plan for the fiscal
year ended December 31, 1997 to (i) each of the executive officers named in the
Summary Compensation Table, (ii) all executive officers as a group, (iii) all
non-executive officer directors as a group and (iv) all non-executive officer
employees as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES
WEIGHTED AVERAGE SUBJECT TO STOCK AWARDS
NAME AND POSITION EXERCISE PRICE GRANTED IN FISCAL 1997
----------------- ---------------- -----------------------
<S> <C> <C>
Ronald W. Eastman................................. $11.49 230,000
President and Chief Executive Officer
David L. Greenwood................................ $11.57 165,000
Chief Financial Officer, Vice President of
Corporate Development, Treasurer, and
Secretary
Calvin B. Harley, Ph.D............................ $11.00 125,000
Chief Scientific Officer
Kevin R. Kaster................................... $11.58 135,000
Vice President of Intellectual Properties and
Chief Patent Counsel
Michael D. West, Ph.D(1).......................... $12.26 80,000
Vice President of New Technologies
All Executive Officers as a group(6 persons)...... $11.03 885,000
All Non-Executive Officer Directors as a Group(6
persons)(2)..................................... $ 9.15 60,000
All Non-Executive Officer Employees as a Group(88
persons)........................................ $10.51 328,042
</TABLE>
- ---------------
(1) Dr. West resigned from the Company in February 1998.
(2) Mr. Dovey resigned from the Board of Directors in March 1998.
10
<PAGE> 13
REQUIRED VOTE
Stockholders are requested in this Proposal 2 to approve the amendment to
the Stock Option Plan to increase the number of shares reserved for issuance
thereunder by 500,000 shares. The affirmative vote of the holders of a majority
of the shares present in person or represented by proxy and entitled to vote on
the proposal at the meeting will be required to approve the proposal.
Abstentions will be counted toward the tabulation of votes cast on the proposal
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1998 and has
further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. Ernst & Young LLP
has served as the Company's independent auditors since 1992. Representatives of
Ernst & Young LLP are expected to be present at the Annual Meeting, will have an
opportunity to make a statement if they so desire and will be available to
respond to appropriate questions.
Stockholder ratification of the selection of Ernst & Young LLP as the
Company's independent auditors is not required by the Company's By-laws or
otherwise. However, the Board is submitting the selection of Ernst & Young LLP
to the stockholders for ratification as a matter of good corporate practice. If
the stockholders fail to ratify the selection, the Audit Committee and the Board
will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee and the Board in their discretion may direct the
appointment of different independent auditors at any time during the year if
they determine that such a change would be in the best interests of the Company
and its stockholders.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote on the proposal at the
meeting will be required to ratify the selection of Ernst & Young LLP.
Abstentions will be counted toward the tabulation of votes cast on the proposal
and will have the same effect as negative votes. Broker non-votes are counted
towards a quorum, but are not counted for any purpose in determining whether
this matter has been approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
11
<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of February 27, 1998 by: (i) each
nominee for director, (ii) each current director, (iii) each of the executive
officers named in the Summary Compensation Table; (iv) all executive officers
and directors of the Company as a group; and (v) all those known by the Company
to be beneficial owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
---------------- --------- ----------
<S> <C> <C>
Alexander E. Barkas, Ph.D.(2).......................... 61,828 *
Charles M. Hartman(3).................................. 76,592 *
Thomas D. Kiley, Esq.(4)............................... 74,300 *
Robert B. Stein, M.D., Ph.D.(5)........................ 25,000 *
John P. Walker(6)...................................... 11,550 *
Ronald W. Eastman(7)................................... 450,121 4.02%
David L. Greenwood(8).................................. 154,227 1.40%
Calvin B. Harley, Ph.D.(9)............................. 159,322 1.45%
Kevin R. Kaster(10).................................... 124,827 1.14%
Thomas B. Okarma(11)................................... -- *
Michael D. West, Ph.D.(12)............................. 29,943 *
All directors and executive officers as a group (11
persons)............................................. 1,167,710 9.94%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1% of the Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that
person, shares of Common Stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of February 27,
1998 are deemed outstanding. Such shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of each
other person. The persons named in this table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and except as indicated in the other footnotes to this table.
(2) Includes 28,593 shares held directly by Alexander E. Barkas, 882 shares
held by Lynda Wijcik, the spouse of Dr. Barkas, and 32,353 shares issuable
upon the exercise of outstanding options held by Dr. Barkas exercisable
within 60 days of February 27, 1998, at which date 26,837 shares were
vested.
(3) Includes 22,967 shares held directly by Charles M. Hartman and 24,999
shares issuable upon the exercise of outstanding options held by Mr.
Hartman exercisable within 60 days of February 27, 1998, at which date
17,033 shares were fully vested.
(4) Includes 7,352 shares held directly by Thomas D. Kiley, 14,705 shares held
by the Kiley Family Partnership and 24,302 shares held by the Thomas D.
Kiley and Nancy L.M. Kiley Revocable Trust under Agreement dated August 7,
1981. Also includes 27,941 shares issuable upon the exercise of outstanding
options held by Mr. Kiley exercisable within 60 days of February 27, 1998,
at which date 16,667 shares were fully vested.
(5) Represents 25,000 shares issuable upon the exercise of outstanding options
held by Robert B. Stein exercisable within 60 days of February 27, 1998, at
which date 16,666 shares were vested.
(6) Represents 11,550 shares issuable upon the exercise of outstanding options
held by John P. Walker exercisable within 60 days of February 27, 1998.
(7) Includes an aggregate of 26,000 shares held by Patricia Eastman, the spouse
of Ronald W. Eastman, as custodian for Mr. Eastman's three minor children.
Also includes 118,941 shares held directly by Mr. Eastman and 331,180
shares issuable upon the exercise of outstanding options held by Mr.
Eastman exercisable within 60 days of February 27, 1998, at which date
221,236 shares were fully vested.
12
<PAGE> 15
(8) Includes 154,227 shares issuable upon exercise of outstanding options held
by David L. Greenwood exercisable within 60 days of February 27, 1998, at
which date 88,786 shares were fully vested.
(9) Includes 36,617 shares held by the Harley Family Trust and 122,705 shares
issuable upon the exercise of outstanding options held by Calvin B. Harley
exercisable within 60 days of February 27, 1998, at which date 87,291
shares were fully vested.
(10) Includes 11,329 shares held directly by Kevin R. Kaster. Also includes
113,498 shares issuable upon the exercise of outstanding options held by
Mr. Kaster exercisable within 60 days of February 27, 1998, at which date
70,295 shares were fully vested.
(11) Thomas B. Okarma joined the Company in December 1997, as Vice President,
Cell Therapies. At that time, Dr. Okarma was granted an option to purchase
150,000 shares of Common Stock under the 1992 Stock Option Plan.
(12) Includes 29,943 shares issuable upon the exercise of outstanding options
held by Michael D. West exercisable within 60 days of February 28, 1998, at
which date 29,943 shares were fully vested. Dr. West resigned from the
Company in February 1998.
13
<PAGE> 16
EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table provides certain information summarizing compensation
awarded or paid to, or earned by the Company's Chief Executive Officer and its
four other most highly compensated executive officers whose compensation was in
excess of $100,000 (the "Named Executive Officers") for services rendered in all
capacities to the Company for each of the last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(1)($) OPTIONS(#)
--------------------------- ---- --------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Ronald W. Eastman...................... 1997 $257,300 $46,300 $30,000 230,000
President and Chief Executive Officer 1996 245,000 36,750 30,000 127,058
1995 214,750 38,660 30,000 68,235
David L. Greenwood(2).................. 1997 198,800 38,800 64,370 165,000
Chief Financial Officer, Vice
President 1996 184,100 86,820 30,000 58,823
of Corporate Development, Treasurer,
and 1995 78,750 41,200 13,750 73,529
Secretary
Calvin B. Harley, Ph.D................. 1997 180,600 41,500 18,000 125,000
Chief Scientific Officer 1996 172,000 25,800 18,000 35,294
1995 154,897 27,890 18,000 28,928
Kevin R. Kaster, Esq................... 1997 183,500 33,000 36,131 135,000
Vice President of Intellectual 1996 158,166 27,650 -- 44,117
Properties and Chief Patent Counsel 1995 131,038 23,590 -- 18,064
Michael D. West, Ph.D.(3).............. 1997 161,700 16,200 12,000 80,000
Vice President of New Technologies 1996 154,000 23,100 12,000 44,117
1995 130,920 23,980 9,000 20,446
</TABLE>
- ---------------
(1) Other annual compensation consists of monthly housing allowances and
relocation allowances.
(2) Mr. Greenwood joined the Company in July 1995.
(3) Dr. West resigned from the Company in February 1998.
14
<PAGE> 17
STOCK OPTION GRANTS IN FISCAL YEAR 1997
The following table provides certain information regarding options granted
to the Chief Executive Officer and the Named Executive Officers during the year
ended December 31, 1997. No stock appreciation rights were granted during the
year:
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------ ANNUAL RATES OF
PERCENT OF STOCK
NUMBER OF SHARES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
---- ---------------- -------------- ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald W. Eastman............... 150,000 12.4% $12.75 5/23/07 $286,508 $1,589,052
80,000 6.6 9.13 12/1/07 459,093 1,163,432
David L. Greenwood.............. 110,000 9.1 12.75 5/23/07 210,106 1,165,305
5,000 0.4 10.13 10/3/07 31,838 80,683
50,000 4.1 9.13 12/1/07 459,093 1,163,432
Calvin B. Harley, Ph.D.......... 65,000 5.4 12.75 5/23/07 124,153 688,589
10,000 0.8 9.00 5/23/07 56,601 143,437
50,000 4.1 9.13 12/1/07 286,933 727,145
Kevin R. Kaster, Esq............ 90,000 7.4 12.75 5/23/07 171,905 953,431
5,000 0.4 10.13 10/3/07 31,838 80,683
40,000 3.3 9.13 12/1/07 229,547 581,716
Michael D. West, Ph.D. (5)...... 65,000 5.4 12.75 5/23/07 124,153 688,589
15,000 1.2 10.13 10/3/07 95,513 242,050
</TABLE>
- ---------------
(1) Each of these stock options, which were granted under the 1992 Stock Option
Plan, are exercisable in a series of installments measured from the vesting
commencement date generally over 60 months, provided that each Named
Executive Officer continues to provide services to the Company. In the event
of certain transactions involving changes in control of the Company, the
options will vest in full. The maximum term of each option grant is ten
years from the date of grant.
(2) Based on an aggregate of 1,213,042 options granted by the Company in the
year ended December 31, 1997 to all employees of the Company, including the
Named Executive Officers.
(3) Exercise price is the average fair market value of the Common Stock
underlying the stock option on the grant date.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the Securities and Exchange Commission. There is no
assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the ten
year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the executive officers.
(5) Dr. West resigned from the Company in February 1998.
15
<PAGE> 18
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1997 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to options
exercised during the year ended December 31, 1997 by the Chief Executive Officer
and Named Executive Officers and unexercised options held as of the end of such
fiscal year by such persons:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(2)
ACQUIRED ON VALUE --------------------------------- ---------------------------------
NAME EXERCISE(#) REALIZED(1)($) EXERCISABLE(2) UNEXERCISABLE(2) EXERCISABLE(3) UNEXERCISABLE(3)
---- ----------- -------------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Ronald W. Eastman.......... 3,000 $ 26,529 179,099 339,581 $987,446 $793,449
David L. Greenwood......... 10,000 152,490 68,672 218,680 292,553 447,620
Calvin B. Harley, Ph.D..... 9,306 86,946 69,381 157,115 381,054 273,364
Kevin R. Kaster, Esq....... 0 0 53,724 168,524 226,873 296,633
Michael D. West,
Ph.D.(4)................. 0 0 59,309 109,591 294,320 239,517
</TABLE>
- ---------------
(1) Fair market value of the Company's Common Stock on the date of exercise
(based on the closing sales price reported on the Nasdaq National Market or
the actual sales price if the shares were sold by the optionee on the same
date) less the exercise price.
(2) These stock options, which were granted under the 1992 Stock Option Plan,
are exercisable in a series of installments measured from the vesting
commencement date generally over 60 months, provided that each Named
Executive Officer continues to provide services to the Company. In the event
of certain transactions involving changes in control of the Company, the
options will vest in full. The maximum term of each option grant is ten
years from the date of grant.
(3) Based on the fair market value of the Common Stock as of December 31, 1997,
quoted on the Nasdaq National Market ($8.25 per share), minus the per share
exercise price, multiplied by the number of shares underlying the option.
(4) Dr. West resigned from the Company in February 1998.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND CHANGE OF
CONTROL AGREEMENTS
The Company does not have any employment agreements with any of the Named
Executive Officers.
In the event of a change in control of the Company, the 1992 Stock Option
Plan provides that each outstanding option will accelerate so that each option
will be fully exercisable for all of the shares subject to such option
immediately prior to the effective date of the transaction. In addition, upon
the occurrence of such transaction, the Stock Option Plan provides that all of
the outstanding repurchase rights of the Company with respect to shares of
Common Stock acquired upon exercise of options granted under the Plan will
terminate.
COMPENSATION COMMITTEE REPORT(1)
In 1997, the Compensation Committee of the Board of Directors (the
"Committee") consisted of Dr. Barkas and Mr. Dovey, neither of whom is an
officer or an employee of the Company. Mr. Dovey resigned from the Board of
directors in March 1998, as a result, there is a vacancy on the Compensation
Committee. The Committee is responsible for making recommendations and taking
actions concerning salaries and incentive compensation of officers and employees
of the Company, including the award of stock options under the Company's stock
option plan. In particular, the Committee evaluates the performance of
management and determines the compensation of the Chief Executive Officer and
other executive officers on an annual basis. Executive Officers who are also
directors are not present during the discussion of their compensation.
- ---------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, whether made before or after the date hereof and irrespective
of any general incorporation language in any such filing.
16
<PAGE> 19
PHILOSOPHY
The Company's executive compensation philosophy is to attract and retain
executive officers capable of leading the Company to fulfillment of its business
objectives by offering competitive compensation opportunities that reward
individual contributions as well as corporate performance. Accordingly, the
Company's executive compensation policies include:
- competitive pay practices, taking into account the pay practices of life
science and pharmaceutical companies with which the Company competes for
talented executives;
- annual incentive programs which are designed to encourage executives to
focus on the achievement of specific short-term corporate goals as well
as longer-term strategic objectives;
- equity-based incentives designed to motivate executives over the long
term, to align the interests of management and stockholders and to ensure
that management is appropriately rewarded for achievements which benefit
the Company's stockholders.
In the biopharmaceutical industry, many traditional measures of corporate
performance, such as earnings per share or sales growth, may not readily apply
in reviewing performance of executives. Because of the Company's current stage
of development, the Committee evaluates other indications of performance, such
as progress of the Company's research and development programs and corporate
development activities, as well as the Company's success in securing capital
sufficient to enable the Company to continue research and development
activities. These qualitative factors necessarily involve a subjective
assessment by the Committee of individual and corporate performance. In
addition, total compensation paid by the Company to its executive officers is
designed to be comparable to compensation packages paid to the management of
other companies of comparable size in the biopharmaceutical industry. Toward
that end, the Committee may review both independent survey data as well as data
gathered internally.
EXECUTIVE OFFICER COMPENSATION
Compensation for each of the Company's executive officers, including the
Chief Executive Officer, generally consists of three elements: a cash salary, a
cash incentive bonus and stock option grants with exercise prices generally set
at fair market value at the time of the grant. Base salaries are determined at
the beginning of the fiscal year, whereas cash bonuses are awarded on a
discretionary basis, usually following the Company's fiscal year-end, and are
based on the achievement of corporate and individual goals set by the Board and
the Company's CEO at the beginning of the year, as well as the financial
condition and prospects for the Company.
The Company has used the grant of options under its 1992 Stock Option Plan
to underscore the common interests of stockholders and management. Options
granted to executive officers are intended to provide a continuing financial
incentive to maximize long-term value to stockholders and to make each
executive's total compensation opportunity competitive. In addition, because
stock options generally become exercisable over a period of several years,
options encourage executives to remain in the long-term employ of the Company.
In determining the size of an option to be granted to an executive officer, the
Committee takes into account an officer's position and level of responsibility
within the Company, the officer's existing stock and option holdings, and the
potential reward to the officer if the stock price appreciates in the public
market.
In January 1997, the Committee met to evaluate the Company and individual
performance against the goals for 1996 and to determine the compensation of the
Company's executive officers for fiscal 1997. The Committee determined that the
Company successfully achieved many of its objectives. As a result, based on
corporate performance, the Committee recommended that individual executive
officers receive cash bonuses, depending on the Committee's assessment of
individual performance, of up to 20% of such officer's eligible 1996
compensation and options to purchase Common Stock at levels ranging from 30,000
to 150,000 shares, vesting over 5 years. In determining compensation for fiscal
1997, the Committee reviewed the results of independent surveys that provided
information regarding management compensation for approximately 100 companies in
the biopharmaceutical industry, categorized by geographic area and management
position.
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<PAGE> 20
In December 1997, the Committee met to evaluate the Company and individual
performance against the goals for 1997 and to determine the compensation of the
Company's executive officers for fiscal 1998. The Committee considered a variety
of factors, both individual and corporate, in evaluating the performance of the
Company's executive officers. As a result, based on corporate performance, the
Committee recommended that individual executive officers receive cash bonuses,
depending on the Committee's assessment of individual performance, of up to 25%
of such officer's eligible 1997 compensation and options to purchase Common
Stock at levels ranging from 40,000 to 80,000 shares, vesting over 4 years. In
addition, the Committee reviewed the results of independent surveys that
provided information regarding management compensation for approximately 100
companies in the biopharmaceutical industry, categorized by geographic area and
management position.
CEO COMPENSATION
For 1997, the Committee increased the salary of Mr. Eastman by
approximately 15% in base salary. Mr. Eastman's contributions to the performance
of the Company included strategy and structure of the Company's research
programs, as well as Mr. Eastman's achievements in recruiting individuals to
serve in key positions at the Company. Mr. Eastman's salary was also reviewed in
comparison to compensation paid to chief executive officers of other companies
in the biopharmaceutical industry. In making its determination with respect to
the bonus to be awarded to Mr. Eastman for 1997, the Committee's assessment was
that Mr. Eastman had significant impact in achieving company performance
objectives for 1997, in particular, cloning the catalytic protein component of
human telomerase and the signing of a partnership agreements with Pharmacia &
Upjohn S.p.A. and Boehringer Mannheim GmbH.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the U.S. Internal Revenue Code limits the tax
deductibility by a corporation of compensation in excess of $1 million paid to
any of its five most highly compensated executive officers. However,
compensation which qualifies as "performance-based" is excluded from the $1
million limit if, among other requirements, the compensation is payable only
upon attainment of pre-established, objective performance goals under a plan
approved by stockholders.
The Compensation Committee does not presently expect total cash
compensation payable for salaries to exceed the $1 million limit for any
individual executive. Having considered the requirements of Section 162(m), the
Compensation Committee believes that stock option grants to date meet the
requirement that such grants be "performance based" and are, therefore, exempt
from the limitations on deductibility. The Compensation Committee will continue
to monitor the compensation levels potentially payable under the Company's cash
compensation programs, but intends to retain the flexibility necessary to
provide total cash compensation in line with competitive practice, the Company's
compensation philosophy, and the Company's best interests.
Alexander E. Barkas, Ph.D. Brian H. Dovey
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is a former or current officer or
employee of the Company or any of its subsidiaries, except that Dr. Barkas
served as acting President and Chief Executive Officer of the Company from March
1992 until May 1993. No executive officer of the Company serves as a member of
the board of directors or compensation committee of any entity which has one or
more executive officers serving as a member of the Company's Board of Directors
or Compensation Committee.
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<PAGE> 21
PERFORMANCE GRAPH(1)
The following graph compares total stockholder returns of the Company since
its initial public offering of Common Stock on July 30, 1996 to two indices: the
Nasdaq CRSP Total Return Index for the Nasdaq Stock Market-U.S. Companies (the
"Nasdaq-US") and the Nasdaq Pharmaceutical Index (the "Nasdaq-Pharmaceutical").
The total return for the Company's stock and for each index assumes the
reinvestment of dividends, although dividends have never been declared on the
Company's stock, and is based on the returns of the component companies weighted
according to their capitalizations as of the end of each monthly period. The
Nasdaq-US tracks the aggregate price performance of equity securities of U.S.
companies traded on the Nasdaq National Market (the "NNM"). The
Nasdaq-Pharmaceutical tracks the aggregate price performance of equity
securities of pharmaceutical companies traded on the NNM. The Company's Common
Stock is traded on the NNM and is a component of both the Nasdaq-US and the
Nasdaq-Pharmaceutical.
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT SINCE
THE COMPANY'S INITIAL PUBLIC OFFERING ON JULY 30, 1996(2)
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ
(FISCAL YEAR COVERED) GERON NASDAQ US PHARMACEUTICAL
<S> <C> <C> <C>
7/31/96 100 100 100
8/30/96 89 106 107
9/30/96 90 114 115
10/31/96 98 112 110
11/29/96 102 91 108
12/31/96 171 119 111
1/31/97 168 128 121
2/28/97 139 121 121
3/31/97 126 113 106
4/30/97 127 116 99
5/31/97 115 130 114
6/30/97 97 134 114
7/31/97 87 148 117
8/31/97 124 147 116
9/30/97 140 156 128
10/31/97 135 148 121
11/30/97 110 149 118
12/31/97 106 146 115
</TABLE>
- ---------------
(1) This Section is not "soliciting material," is not deemed "filed" with the
SEC and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended (the "Securities Act"), or the
Exchange Act, whether made before or after the date hereof and irrespective
of any general incorporation language in any such filing.
(2) Shows the cumulative total return on investment assuming an investment of
$100 in each of the Company, the Nasdaq-US and the Nasdaq-Pharmaceutical on
July 30, 1996. The cumulative total return on the Company's stock has been
computed based on an initial price of $8.00 per share, the price at which
the Company's shares were sold in its initial public offering on July 30,
1996.
CERTAIN TRANSACTIONS
In May 1993, the Company provided an interest-free loan to Jeryl L.
Hilleman, Vice President of Operations, in the principal amount of $50,000, due
May 20, 1996, pursuant to a note secured by a second deed of trust to Ms.
Hilleman's residence in Palo Alto, California. On May 20, 1996, the Company
agreed to extend the due date of this note to the earlier of May 22, 1997 or
nine months following the closing of an initial
19
<PAGE> 22
public offering of the Common Stock, with an interest rate of 6% per annum,
beginning as of May 21, 1996. On January 28, 1997, the Company agreed to extend
the due date of this note to December 31, 1998 on an interest-free basis with
all unpaid principal and interest due at such time. In May 1997, Ms. Hilleman
resigned from the Company and repaid the entire outstanding balance of the note.
In July 1993, the Company provided a loan to Michael D. West, Vice
President of New Technologies and a Director of the Company, in the principal
amount of $55,000, with an interest rate of 3.95%, due July 7, 1996, pursuant to
a note secured by stock pledge agreement. On May 20, 1996, the Company agreed to
extend the due date of this note to the earlier of July 7, 1997 or nine months
following the closing of an initial public offering of the Company's Common
Stock, with an interest rate of 6.0% per annum, beginning as of July 8, 1996. On
January 28, 1997, the Company agreed to extend the due date of this note to
December 31, 1998 at an interest rate of 6.0% with all unpaid principal and
interest due at such time. As of December 31, 1997, $61,324 was outstanding
under the note. In February 1998, Dr. West resigned from the Company and repaid
the entire outstanding balance of the note.
In December 1993, the Company provided an interest-free loan to Calvin B.
Harley, Chief Scientific Officer, in the principal amount of $150,000, due
December 1, 1996, pursuant to a note secured by a second deed of trust to Dr.
Harley's residence in Palo Alto, California. On December 1, 1996, the Company
agreed to extend the due date of the interest-free loan to December 31, 1998. As
of December 31, 1997, $150,000 was outstanding under the note. In addition, in
connection with the exercise of an option to purchase Common Stock granted
pursuant to the Stock Option Plan, in October 1994, the Company provided a loan
to Dr. Harley, pursuant to a note secured by a stock pledge agreement, in the
principal amount of $14,850, with an interest rate of 5.91%, due upon the
earlier of October 20, 1997 or 30 days following any sale of the shares of
Common Stock purchased with the loan by Dr. Harley. In August 1997, Dr. Harley
repaid the entire outstanding balance of the note.
In March 1995, in connection with the exercise of an option to purchase
Common Stock granted pursuant to the Stock Option Plan, the Company provided a
loan to Ronald W. Eastman, pursuant to a note secured by a stock pledge
agreement, in the principal amount of $44,550, with an interest rate of 7.07%,
due upon the earlier of March 6, 1998 or 30 days following any sale of the
shares of Common Stock purchased with the loan by Mr. Eastman. In August 1997,
Mr. Eastman repaid the entire outstanding balance of the note.
In September 1995, the Company provided two loans to David L. Greenwood,
Chief Financial Officer, Vice President of Corporate Development, Treasurer and
Secretary, one in the principal amount of $200,000, with an interest rate of
6.00%, due September 30, 1996, and the other in the principal amount of
$120,000, interest-free, due on the earlier of September 30, 1998 or nine months
following the closing of an initial public offering of the Common Stock. Both
loans were made pursuant to notes secured by a second deed of trust to Mr.
Greenwood's residence in Monte Sereno, California. On September 30, 1996, an
aggregate of $200,000 in principal amount under such notes remained outstanding
and the Company combined the two notes and extended the due date to December 31,
1998 on an interest-free basis. In September 1997, Mr. Greenwood repaid the
entire outstanding balance of the note.
In addition, the Company has entered into consulting arrangements with
Messrs. Kiley and Walker. See "Compensation of Directors."
The Company has entered into indemnity agreements with all of its officers
and directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines, settlements he or she may be
required to pay in actions or proceedings which he or she is or may be made a
party by reason for his position as a director, officer or other agent of the
Company, and otherwise to the full extent permitted under Delaware law and the
Company's By-laws.
20
<PAGE> 23
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities (collectively "Reporting Persons"), to file with
the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Reporting persons are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that during fiscal year ended
December 31, 1997, all Reporting Persons complied with the applicable filing
requirement, with the following exceptions: (a) a Form 3 was filed late in
connection with the appointment of John P. Walker as a director of the Company
in March 1997 and (b) a Form 3 was filed late in connection with the appointment
of Thomas B. Okarma as Vice President of Cell Therapies in December 1997.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
LOGO
David L. Greenwood
Secretary
April 2, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT TO STOCKHOLDERS FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1997 WILL BE DISTRIBUTED TO ALL STOCKHOLDERS AT A LATER DATE
AND IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO GERON CORPORATION, 230
CONSTITUTION DRIVE, MENLO PARK, CALIFORNIA, 94025.
21
<PAGE> 24
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
GERON CORPORATION
1998 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Geron Corporation, a Delaware corporation,
(the "Company") hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 2, 1998, and hereby appoints
Ronald W. Eastman and David L. Greenwood, or either of them, as proxies and
attorneys-in-fact with full power to each of substitution, on behalf and in the
name of the undersigned to represent the undersigned at the 1998 Annual Meeting
of Stockholders of Geron Corporation to be held on May 29, 1998, at 9:00 a.m.,
at the headquarters of the Company at 230 Constitution Drive, Menlo Park,
California 94025, and at any adjournment(s) or postponement(s) thereof, and to
vote all shares of Common Stock that the undersigned would be entitled to vote
if then and there personally present, on the matters set forth on the reverse
side, and in their discretion, upon such other matter or matters that may
properly come before the meeting and any adjournment(s) thereof.
This proxy will be voted as directed or, if no contrary direction is
indicated, will be voted as follows: (1) for the election of two Class II
Directors to serve for a term of three years; (2) for the approval and
ratification of an amendment to the Company's 1992 Stock Option Plan to increase
the number of shares of Common Stock reserved for issuance thereunder by 500,000
shares; (3) for ratification of the selection of Ernst & Young LLP as
independent auditors and as said proxies deem advisable on such other matters as
may come before the meeting.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
<PAGE> 25
[X] Please mark your votes as in this example.
1. Election of Class II Directors
[ ] FOR all nominees (except as indicated) [ ] WITHHOLD authority to vote
for all nominees
Nominees: Ronald W. Eastman and Thomas D. Kiley, Esq.
If you wish to withhold authority to vote for any individual nominee, strike
a line through that individual's name.
2. To approve and ratify an amendment to the Company's 1992 Stock Option Plan to
increase the number of shares of Common Stock reserved for issuance
thereunder by 500,000 shares. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the selection of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Note: This Proxy should
be marked, dated, signed
by the stockholder(s)
exactly as his or her
name appears hereon, and
returned in the enclosed
envelope.
SIGNATURE(S)
----------------------------------------------------------------------------
DATE
------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE.
Please sign exactly as name(s) appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
