<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 [X]
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))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
GERON CORPORATION
- --------------------------------------------------------------------------------
(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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
LOGO
GERON CORPORATION
230 CONSTITUTION DRIVE
MENLO PARK, CA 94025
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 1999
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
28, 1999, 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 the two Class III Directors to serve for a term of three years,
or until their successors are elected.
2. To approve amendments to the Company's 1996 Directors' Option Plan to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 250,000 shares and to revise certain terms
with respect to stock options granted under such plan as set forth in
the Proxy Statement.
3. 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 600,000 shares.
4. To ratify the selection of Ernst & Young LLP as independent auditors of
the Company for the fiscal year ending December 31, 1999.
5. 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 III
Directors, are more fully described in the Proxy Statement accompanying this
Notice.
The Board of Directors has fixed the close of business on Thursday, April
1, 1999, 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. Your
proxy is revocable in accordance with the procedures set forth in the Proxy
Statement. 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
/s/ DAVID L. GREENWOOD
----------------------------------
DAVID L. GREENWOOD
Secretary
Menlo Park, California
April 8, 1999
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 28, 1999, 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 8, 1999 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
Thursday, April 1, 1999, (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 13,668,116 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. The Inspector will also determine whether a
quorum is present. 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. The Company believes that the tabulation procedures to be followed by
the Inspector are consistent with the general requirements of Delaware law
concerning voting of shares and determination of a quorum.
The nominees for election as directors at the Annual Meeting will be
elected by a plurality of the votes of the shares of Common Stock present in
person or represented by proxy at the meeting. All other matters submitted to
the stockholders will require the affirmative vote of a majority of shares
present in person or represented by proxy at a duly held meeting at which a
quorum is present.
Any proxy which is returned using the form of proxy enclosed and which is
not marked as to a particular item will be voted FOR the election of directors,
FOR the amendments to the Company's 1996 Directors' Option Plan, FOR the
amendment to the Company's 1992 Stock Option Plan to increase the shares
authorized for issuance under the plan, FOR ratification of the appointment of
the designated independent
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auditors, and as the proxy holders deem advisable on other matters that may come
before the meeting, as the case may be with respect to the item not marked.
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.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 2000 Annual Meeting of Stockholders must be received by the Company
not later than December 9, 1999 in order to be included in the proxy statement
and proxy relating to that Annual Meeting. If the Company is not notified of a
stockholder proposal prior to the notification deadline set forth in the
Company's Bylaws, then the proxies held by management of the Company provide
discretionary authority to vote against such stockholder proposal even though
such proposal is not discussed in the Proxy Statement.
MATTERS TO BE CONSIDERED AT THE 1999 ANNUAL MEETING
PROPOSAL I
ELECTION OF DIRECTORS
Geron has three classes of directors; serving staggered three-year terms.
Class III consists of two directors who will be elected at this Annual Meeting.
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. Class II
consists of three directors who will be elected at the 2001 Annual Meeting. At
this Annual Meeting, the Class III Directors are to be elected for three-year
terms expiring on the date of the Annual Meeting in 2002 or until their
successors are elected and qualified. The Board of Directors has selected two
nominees for Class III Directors, each of whom is currently a director of the
Company. Assuming a quorum is present, 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 III 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 III
Director as of February 26, 1999, 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.
NOMINEES FOR CLASS III DIRECTOR (TERM ENDING IN 2002)
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION/POSITION WITH THE COMPANY
---- --- ----------------------------------------------
<S> <C> <C>
Alexander E. Barkas, Ph.D. 51 General Partner, Prospect Venture Partners
Robert B. Stein, M.D., Ph.D. 48 Executive Vice President, Research & Preclinical
Development DuPont Pharmaceuticals
</TABLE>
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<PAGE> 5
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 October 1997. Dr. Barkas was a partner with Kleiner Perkins
Caufield & Byers, a venture capital investment firm, from 1991 to October 1997.
Dr. Barkas is also a director of Connectics Corp. and several privately held
medical technology companies. He holds a B.A. from Brandeis University and a
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 DuPont Pharmaceuticals. From August 1993
to September 1996, Dr. Stein was Senior Vice President and Chief Scientific
Officer of Ligand Pharmaceuticals, Inc., 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 a M.D. and a Ph.D. in Physiology and Pharmacology
from Duke University.
CONTINUING DIRECTORS
Set forth below is information regarding the continuing Class I and Class
II Directors of the Company as of February 26, 1999, 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 a Class
I director.
CLASS I DIRECTORS (TERM ENDING IN 2000)
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION/POSITION WITH THE COMPANY
---- --- ----------------------------------------------
<S> <C> <C>
Gary L. Neil 58 President and Chief Executive Officer, Crescendo
Pharmaceuticals Corporation
John P. Walker 50 President and Chief Executive Officer, AXYS
Pharmaceuticals, Inc.
</TABLE>
GARY L. NEIL, PH.D., has served as a Director of the Company since
September 1998. He has been the President, Chief Executive Officer and a
director of Crescendo Pharmaceuticals Corporation since its inception in
September 1997. From 1993 to 1997, he was the President, Chief Executive Officer
and a Director of Therapeutic Discovery Corporation which was formed by ALZA
Corporation and purchased by them in 1997. From 1989 to 1993, Dr. Neil served as
Executive Vice President of American Home Products' subsidiary Wyeth-Ayerst
Research where he led Wyeth-Ayerst's worldwide pharmaceutical research and
development organization. Prior to joining American Home Products, Dr. Neil
served 23 years at The Upjohn Company in a number of scientific and management
positions. Dr. Neil is also a director of Allergan Specialty Therapeutics Inc.
and certain privately held biotechnology and other companies. Dr. Neil holds a
B.Sc. in Chemistry from Queen's University, Canada and a Ph.D. in Organic
Chemistry from California Institute of Technology.
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
Company. Mr. Walker serves as a director of Microcide Pharmaceuticals, Signal
Pharmaceuticals, and the Northern California Chapter of the Multiple Sclerosis
Society. He holds a B.A. from the State University of
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<PAGE> 6
New York at Buffalo and conducted graduate business studies at Northwestern
University Institute for Management.
CLASS II DIRECTORS (TERM ENDING IN 2001)
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION/POSITION WITH THE COMPANY
---- --- ----------------------------------------------
<S> <C> <C>
Ronald W. Eastman 47 President and Chief Executive Officer
Thomas D. Kiley, Esq 56 Attorney-at-law
Edward V. Fritzky 48 Chief Executive Officer and Chairman, Immunex
Corporation
</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 of
Connectics Corp. 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.
EDWARD V. FRITZKY, has served as a Director of the Company since July 1998.
He was elected Chief Executive Officer and Chairman of Immunex Corporation
effective January 1994. Mr. Fritzky served as President of Lederle Laboratories,
a division of American Cyanamid, from 1992 to 1994, and as Vice President of
Lederle Laboratories from 1989 to 1992. Prior to joining Lederle Laboratories,
Mr. Fritzky was an executive of Searle Pharmaceuticals, Inc., a subsidiary of
the Monsanto Company. During his tenure at Searle, Mr. Fritzky was Vice
President of Marketing in the United States, and later President and General
Manager of Searle Canada, Inc. and Lorex Pharmaceuticals, a joint venture
company. Mr. Fritzky serves on the Board of the Sono Site Corporation. Mr.
Fritzky holds a B.A. from Duquesne University and is a graduate of the Advanced
Executive Program, J.L. Kellogg Graduate School of Management at Northwestern
University. In June 1998, Mr. Fritzky was named a Distinguished Alumnus of
Duquesne University.
There are no family relationships among executive officers or directors of
the Company.
Brian H. Dovey, formerly a Class II Director, resigned from the Board of
Directors in March 1998. Charles M. Hartman, formerly a Class I Director,
resigned from the Board of Directors in September 1998.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended December 31, 1998, the Board of Directors held
six meetings and took action by written consent on one occasion. The Board has
an Audit Committee, a Compensation Committee and a Stock Option Committee.
During the fiscal year ended December 31, 1998, each director 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 1998 in connection with the audit of
the 1997 financial statements.
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<PAGE> 7
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. Walker, met twice during fiscal 1998 and acted by written consent
on five occasions during fiscal 1998.
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 1998.
COMPENSATION OF DIRECTORS
Directors currently receive $1,000 for each board meeting attended and are
reimbursed for out-of-pocket expenses incurred in connection with attendance at
meetings of the Board of Directors.
Each non-employee 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 non-employee 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 non-employee director of the Company. Thereafter, on the date of
each annual meeting of the Company's stockholders, each non-employee 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 one-third 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 closing sales price of a share of the Company's Common
Stock on the date of grant of the option, as reported on the Nasdaq Stock
Market. Options granted under the Directors Plan have a term of ten years.
During 1998, options to purchase 5,000 shares each were issued to Dr. Barkas,
Mr. Hartman, Mr. Kiley, Mr. Stein, and Mr. Walker in connection with the 1998
Annual Meeting under the Directors Plan. Also during 1998, options to purchase
25,000 shares each were issued to Mr. Fritzky and Mr. Neil in connection with
their appointment under the Directors Plan. Under the amended Directors Plan, to
be approved at this Annual Meeting, each of the non-employee directors (other
than the Chairman) will receive options to purchase 5,000 shares of Common Stock
on the anniversary date of the election or appointment to the Board of
Directors; the Chairman will receive an option to purchase 10,000 shares of
Common Stock on the anniversary date of his election or appointment; and upon
re-election, the Class III directors will each receive options to purchase
15,000 shares of Common Stock.
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
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<PAGE> 8
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 AMENDMENTS TO THE 1996 DIRECTORS' STOCK OPTION PLAN
At the Annual Meeting, the Company's stockholders are being asked to
approve certain amendments to the Directors Plan. The proposed amendments are
described below.
PROPOSED AMENDMENTS
The Company is requesting approval of the following amendments to the
Directors Plan:
(a) The number of shares of the Company's Common Stock to be automatically
granted to an individual on the date such person first becomes a
non-employee director, whether through election by the stockholders of
the Company or appointment by the Board of Directors to fill a vacancy
(the "First Option") is increased from 25,000 shares to 35,000 shares.
(b) The stock option for 5,000 shares that is granted on an annual basis to
non-employee directors (the "Subsequent Option") will be granted on the
anniversary date of the election or appointment of the director to the
Board of Directors, rather than on the date of the annual stockholders
meeting. In the event that a director terminates his or her service to
the Board of Directors prior to the next anniversary date of his or her
election or appointment, he or she will be granted a prorated
Subsequent Option reflecting the period of service since the last
anniversary date.
(c) The number of shares granted as a Subsequent Option to the Chairman of
the Board of Directors is increased from 5,000 shares to 10,000 shares.
(d) Each Subsequent Option granted after stockholder approval of these
amendments will be immediately exercisable on the date of grant of the
Subsequent Option.
(e) Upon re-election of a director for a subsequent three-year term as a
director, the director will be granted an option to purchase 15,000
shares, exercisable in installments cumulatively as one-third of the
shares on each of the first, second and third anniversaries of the date
of grant of such option (the "Re-election Option") in addition to the
Subsequent Option.
(f) The number of shares issuable under the Directors Plan is increased
from 250,000 to 500,000. In March 1999, the Board amended the Directors
Plan, subject to stockholder approval, to increase the aggregate number
of shares authorized for issuance under the Directors Plan. 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 members of the Board of Directors.
SUMMARY OF THE 1996 DIRECTORS' STOCK OPTION PLAN
The following is a summary of principal features of the Directors Plan,
together with the applicable tax implications, which will be in effect if the
proposed amendments to the Directors Plan are approved. The summary, however,
does not purport to be a complete description of all the provisions of the
Directors 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 at the
Company's principal offices at 230 Constitution Drive, Menlo Park, California
94025.
GENERAL AND PURPOSE
The Directors Plan was adopted by the Board of Directors in June 1996 and
approved by the stockholders in July 1996. As of December 31, 1998, a total of
250,000 shares of Common Stock have been reserved for
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<PAGE> 9
issuance thereunder. The Company's stockholders are being asked to approve an
amendment to the Directors Plan to increase the aggregate number of shares
authorized for issuance under the Directors Plan from 250,000 to 500,000.
The Directors Plan provides for the grant of nonstatutory stock options to
non-employee directors of the Company. It is designed to work automatically and
not to require administration; however, to the extent administration is
necessary, it will be provided by the Board of Directors.
The purpose of the Directors Plan is to provide an incentive for directors
to continue to serve the Company as directors and to assist the Company in
recruiting highly qualified individuals when vacancies occur on the Board of
Directors.
TERMS OF OPTIONS
The following is a description of the principal terms of options granted
under the Directors Plan.
Option Grants. As amended, the Directors Plan provides that each person who
becomes a non-employee director after the effective date of the Directors Plan
shall be automatically granted a First Option to purchase 35,000 shares of
Common Stock on the date on which such person first becomes a non-employee
director, whether through election by the stockholders of the Company or
appointment by the Board of Directors to fill a vacancy. A Subsequent Option
granted to non-employee directors, other than the Chairman of the Board of
Directors, to purchase 5,000 shares is automatically granted under the Directors
Plan, to each non-employee director on the anniversary date of the election of
the non-employee director to the Board. The Subsequent Option granted to the
Chairman of the Board of Directors is for 10,000 shares under the Directors
Plan, as amended. In the event that a director terminates his or her service to
the Board of Directors prior to the next anniversary date of his or her election
or appointment, he or she will be granted a prorated Subsequent Option
reflecting the period of service since the last anniversary date. A Re-election
Option to purchase 15,000 shares is granted to each non-employee director upon
such director's re-election to a subsequent three-year term on the Board of
Directors.
The Directors Plan provides for neither a maximum nor a minimum number of
shares subject to options that may be granted to any one non-employee director,
but does provide for the number of shares that may be included in any grant and
the method of making a grant. No option granted under the Directors Plan is
transferable by the optionee other than by will or the laws of descent or
distribution or pursuant to the terms of a qualified domestic relations order
(as defined by the Internal Revenue Code of 1986, as amended (the "Code")), and
each option is exercisable, during the lifetime of the optionee, only by such
optionee.
As amended, the Directors Plan provides that each First Option granted
thereunder becomes exercisable in installments cumulatively as to one-third of
the shares subject to the First Option on each of the first, second and third
anniversaries of the date of grant of the First Option, as to 100% of the shares
subject to each Subsequent Option on the date of grant of each Subsequent Option
and in installments cumulatively as to one-third of shares subject to each
Re-election Option on each of the first, second and third anniversaries of the
date of grant of such Re-election Option. The options remain exercisable for up
to 90 days following the optionee's termination of service as a director of the
Company, unless such termination is a result of death or disability, in which
case the options remain exercisable for up to a six-month period.
Exercise Price and Term of Options. The exercise price of all stock options
granted under the Directors Plan shall be equal to the fair market value of a
share of the Company's Common Stock on the date of grant of the option, which is
defined to be the closing sales price of the Company's Common Stock on an
exchange or the Nasdaq Stock Market on the date of grant. Options granted under
the Directors Plan have a term of ten years.
EFFECT OF CERTAIN CORPORATE EVENTS
In the event of the dissolution or liquidation of the Company, a sale of
all or substantially all of the assets of the Company, or the merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving corporation or any other capital reorganization in
which more than 50% of the shares of the Company entitled to vote are exchanged
(a "change of control"), each non-employee director
7
<PAGE> 10
shall have a reasonable time within which to exercise the option, including any
part of the option that would not otherwise be exercisable, prior to the
effectiveness of such dissolution, liquidation, sale, merger or reorganization,
at the end of which time the option shall terminate, or shall receive a
substitute option with comparable terms, as to an equivalent number of shares of
stock of the corporation succeeding the Company or acquiring its business by
reason of such dissolution, liquidation, sale, merger, consolidation or
reorganization.
DURATION AND TERMINATION
The Board of Directors may at any time amend or terminate the Directors
Plan, except that such termination cannot affect options previously granted
without the agreement of any optionee so affected and provided that stockholder
approval must be obtained to the extent required by applicable law.
Notwithstanding the foregoing, the provisions regarding the grant of options
under the Directors Plan may be amended only once in any six-month period, other
than to conform with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the rules thereunder.
If not terminated earlier, the Directors Plan will expire in 2006.
FEDERAL INCOME TAX ASPECTS
The following is a brief summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Directors Plan, does not purport to be complete, and does not
discuss the income tax laws of any municipality, state or foreign country in
which an optionee may reside. The Company advises all eligible directors to
consult their own tax advisors concerning tax implications of option grants and
exercises and the disposition of stock acquired upon such exercises under the
Directors Plan.
Options granted under the Directors Plan are nonstatutory stock options. An
optionee will not recognize any taxable income at the time he or she is granted
a nonstatutory stock option. However upon its exercise, the optionee will
recognize ordinary income for tax purposes measured by the excess of the then
fair market value of the shares over the option 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. Upon resale of such shares by the optionee, any difference between the
sale price and the exercise price, to the extent not recognized as ordinary
income as provided above, will be treated as capital gain (or loss), and will be
long-term capital gain if the optionee has held the shares more than one year.
For individual taxpayers, the maximum U.S. federal income tax rate on long-term
capital gains under current tax law is 20%, whereas the maximum rate on other
income is 39.6%. Capital losses for individual taxpayers can be offset under
U.S. tax laws in full against capital gains plus up to $3,000 of other income.
The Company will be entitled to a tax deduction in the amount and at the time
that the optionee recognizes ordinary income with respect to shares acquired
upon exercise of a nonstatutory stock option.
8
<PAGE> 11
PLAN BENEFITS
The following table sets forth information with respect to the cumulative
stock options granted under the 1996 Directors' Option Plan to the non-employee
directors of the Company (8 persons) as of April 1, 1999. As discussed above,
the executive officers of the Company and the employees of the Company are not
eligible for grants under the Directors Plan.
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT TO WEIGHTED AVERAGE
OPTIONS GRANTED UNDER EXERCISE PRICE
DIRECTOR THE DIRECTORS PLAN PER SHARE
-------- --------------------------- ----------------
<S> <C> <C>
Barkas, Alexander...................... 10,000 $10.06
Dovey, Brian(1)........................ 5,000 9.00
Fritzky, Edward........................ 25,000 9.38
Hartman, Charles(2).................... 10,000 10.06
Kiley, Thomas.......................... 10,000 10.06
Neil, Gary............................. 25,000 4.81
Stein, Robert.......................... 10,000 10.06
Walker, John........................... 30,000 9.56
</TABLE>
- ---------------
(1) Mr. Dovey resigned from the Board in April 1998.
(2) Mr. Hartman resigned from the Board in September 1998.
As of April 1, 1999, options to purchase a total of 125,000 shares were
outstanding under the Directors Plan (net of canceled or expired options), and
125,000 shares remained available for future grants under the Directors Plan
(375,000 shares assuming the proposed amendment is approved). As of April 1,
1999, the aggregate fair market value of shares subject to outstanding options
under the Directors' Plan was $1,257,813, based upon the closing price of the
Common Stock on the Nasdaq Stock Market.
REQUIRED VOTE
Stockholders are requested in this Proposal 2 to approve the amendments to
the Directors Plan to increase the number of shares reserved for issuance
thereunder by 250,000 shares and to revise certain terms with respect to the
stock options granted under the Directors Plan as set forth above. 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
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 600,000 shares. In March
1999, 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 4,544,362 to 5,144,362 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, 1998, a total of
9
<PAGE> 12
4,271,137 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 1999, a total of
4,544,362 shares of Common Stock have been authorized for issuance under the
Stock Option Plan, as of the date of this Proxy Statement. The feature of the
Stock Option Plan that provides for automatic 2% annual increase in the Shares
available for issuance shall continue in effect notwithstanding the approval of
the 600,000 share increase.
As of April 1, 1999, options to purchase a total of 2,494,278 shares were
outstanding under the Stock Option Plan (net of canceled or expired options),
and 720,750 shares remained available for future grants under the Stock Option
Plan. As of April 1, 1999, the aggregate fair market value of shares subject to
outstanding options under the Stock Option Plan was $25,098,672, based upon the
closing price of the Common Stock on the Nasdaq Stock 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. This 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 at 230 Constitution
Drive, Menlo Park, California 94025.
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
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, 1999, six 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 ISOs and NSOs.
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 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
10
<PAGE> 13
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 ISOs may be granted only to employees
(including officers and employee directors) of the Company or any affiliate of
the Company, while NSOs 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 Stock Option Plan, the number of shares to be covered by each
such grant, whether the granted option is to be an ISO which satisfies the
requirements of Section 422 of the Code or a NSO 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 ISOs that may be granted to an optionee during any calendar year.
STOCK SUBJECT TO THE STOCK OPTION PLAN
An aggregate of 4,544,362 shares (5,144,362 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
1999. 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 principal terms of options granted
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 ISOs 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 NSOs must equal at least 85% of the fair market value of the Common
Stock on the date of grant. The exercise price of any ISO 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, 1999, the closing sales price of a share
of the Company's Common Stock as reported on the Nasdaq Stock Market was $10.06
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.
11
<PAGE> 14
Option Exercise. Each option may be exercised during the lifetime of the
optionee only by such optionee or in the case of an NSO by a transferee under a
qualified domestic relations order. Options granted under the Stock Option Plan
generally vest in a series of installments at the rate of 12.5% of the total
number of shares after the six month period from the date of grant, and
approximately 2.08% each month thereafter. 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
Company 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 ISO 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 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
Stock Option 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,
12
<PAGE> 15
(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 NSOs 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 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 ISOs, which are
intended to qualify for the special tax treatment provided by Section 422 of the
Code, or NSOs, which will not so qualify.
If an option granted under the Stock Option Plan is an ISO, the optionee
will recognize no income upon grant of the ISO 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 ISO 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 capped at 20%, whereas the
maximum rate on other income is 39.6%. Capital losses can be offset under U.S.
tax laws in full against capital gains plus up to $3,000 of other income.
All other options which do not qualify as ISOs are referred to as NSOs. An
optionee will not recognize any taxable income under U.S. tax laws at the time
he or she is granted an NSO. 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.
13
<PAGE> 16
The exercise of an ISO may subject the optionee to 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 ISO are treated as if they had been acquired by the optionee
pursuant to exercise of an NSO. 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 ISO would recognize (together with other alternative minimum
taxable income preference and adjustment items for the 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 ISO.
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 Code, 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
Stock Option Plan complies with those requirements. However, because the Stock
Option Plan is being amended to increase the number of shares of Common Stock
reserved for issuance thereunder, 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 Stock Option Plan for the fiscal year
ended December 31, 1998 to (i) each of the executive officers named in the
14
<PAGE> 17
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 1998(2)
----------------- ---------------- -------------------------
<S> <C> <C>
Ronald W. Eastman........................ $4.72 325,297
President and Chief Executive Officer
David L. Greenwood....................... $4.70 241,341
Chief Financial Officer, Vice President
of Corporate Development, Treasurer,
and Secretary
Elaine R. Hamilton....................... $6.46 90,000
Vice President of Human Resources
Calvin B. Harley, Ph.D................... $4.69 194,805
Chief Scientific Officer
Kevin R. Kaster(1)....................... $0.00 0
Vice President of Intellectual
Properties and Chief Patent Counsel
Thomas B. Okarma......................... $6.38 370,000
Vice President of Research and
Development
All Executive Officers as a group (6
persons)............................... $5.34 1,221,443
All Non-Executive Officer Directors as a
Group (6 persons)...................... $4.75 60,000
All Non-Executive Officer Employees as a
Group (92 persons)..................... $6.18 620,829
</TABLE>
- ---------------
(1) Mr. Kaster resigned from the Company in July 1998.
(2) Several grants were made in 1998 that related to the cancellation and
regrant of old options at a new price.
REQUIRED VOTE
Stockholders are requested in this Proposal 3 to approve the amendment to
the Stock Option Plan to increase the number of shares reserved for issuance
thereunder by 600,000 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 3
15
<PAGE> 18
PROPOSAL 4
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, 1999, 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.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 4.
16
<PAGE> 19
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 26, 1999 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).......................... 66,828 *
Edward V. Fritzky(3)................................... -- *
Thomas D. Kiley, Esq.(4)............................... 64,300 *
Gary L. Neil(5)........................................ -- *
Robert B. Stein, M.D., Ph.D.(6)........................ 30,000 *
John P. Walker(7)...................................... 23,100 *
Ronald W. Eastman(8)................................... 330,305 2.37%
David L. Greenwood(9).................................. 74,743 *
Elaine R. Hamilton(10)................................. 3,782 *
Calvin B. Harley, Ph.D.(11)............................ 121,870 *
Kevin R. Kaster(12).................................... 22,718 *
Thomas B. Okarma(13)................................... 4,981 *
Pharmacia & Upjohn..................................... 696,787 5.10%
All directors and executive officers as a group (12
persons)............................................. 742,627 5.23%
</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 26,
1999 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 37,353 shares issuable
upon the exercise of outstanding options held by Dr. Barkas exercisable
within 60 days of February 26, 1999, at which date 37,353 shares were fully
vested. The address of Dr. Barkas is c/o Prospect Venture Partners, 435
Tasso Street, Palo Alto, California 94301.
(3) Edward V. Fritzky joined the Board of Directors in July 1998. No shares
were issuable upon exercise of outstanding options exercisable within 60
days of February 26, 1999. The address of Mr. Fritzky is c/o Immunex
Corporation, 51 University Street, Seattle, Washington 98101.
(4) Includes 7,352 shares held directly by Thomas D. Kiley, 9,705 shares held
by the Kiley Family Partnership and 14,302 shares held by the Thomas D.
Kiley and Nancy L.M. Kiley Revocable Trust under Agreement dated August 7,
1981. Also includes 32,941 shares issuable upon the exercise of outstanding
options held by Mr. Kiley exercisable within 60 days of February 26, 1999,
at which date 30,000 shares were fully vested. The address of Mr. Kiley is
c/o Geron Corporation, 230 Constitution Drive, Menlo Park, California
94025.
(5) Gary L. Neil joined the Board of Directors in September 1998. No shares
were issuable upon exercise of outstanding options exercisable within 60
days of February 26, 1999. The address of Mr. Neil is c/o Crescendo
Pharmaceuticals Corporation, 1454 Page Mill Road #220, Palo Alto,
California 94304.
17
<PAGE> 20
(6) Represents 30,000 shares issuable upon the exercise of outstanding options
held by Robert B. Stein exercisable within 60 days of February 26, 1999, at
which date 30,000 shares were fully vested. The address of Dr. Stein is c/o
DuPont Pharmaceuticals, Experimental Station, Rt. 141 & Henry Clay Road,
Wilmington, Delaware 19880.
(7) Represents 23,100 shares issuable upon the exercise of outstanding options
held by John P. Walker exercisable within 60 days of February 26, 1999, at
which date 23,100 shares were fully vested. The address of Mr. Walker is
c/o AXYS Pharmaceuticals, Inc., 180 Kimball Way, South San Francisco,
California 94080.
(8) Includes an aggregate of 19,000 shares held by Patricia Eastman, the spouse
of Ronald W. Eastman, as custodian for Mr. Eastman's three minor children.
Also includes 52,941 shares held directly by Mr. Eastman and 258,384 shares
issuable upon the exercise of outstanding options held by Mr. Eastman
exercisable within 60 days of February 26, 1999, at which date 305,678
shares were fully vested. The address of Mr. Eastman is c/o Geron
Corporation, 230 Constitution Drive, Menlo Park, California 94025.
(9) Includes 74,743 shares issuable upon exercise of outstanding options held
by Mr. Greenwood exercisable within 60 days of February 26, 1999, at which
date 106,594 shares were fully vested. The address of Mr. Greenwood is c/o
Geron Corporation, 230 Constitution Drive, Menlo Park, California 94025.
(10) Includes 871 shares held directly by Elaine R. Hamilton and 2,911 shares
issuable upon the exercise of outstanding options held by Ms. Hamilton
exercisable within 60 days of February 26, 1999, at which date 8,744 were
fully vested. The address of Ms. Hamilton is c/o Geron Corporation, 230
Constitution Drive, Menlo Park, California 94025.
(11) Includes 63,038 shares held directly by Calvin B. Harley, 13,617 shares
held by the Harley Family Trust and 45,215 shares issuable upon the
exercise of outstanding options held by Dr. Harley exercisable within 60
days of February 26, 1999, at which date 74,978 shares were fully vested.
The address of Dr. Harley is c/o Geron Corporation, 230 Constitution Drive,
Menlo Park, California 94025.
(12) Includes 22,718 shares issuable upon exercise of outstanding options held
by Mr. Kaster exercisable within 60 days of February 26, 1999, at which
date 22,718 shares were fully vested. Mr. Kaster resigned from the Company
in July 1998. The address of Mr. Kaster is c/o Geron Corporation, 230
Constitution Drive, Menlo Park, California 94025.
(13) Includes 4,981 shares issuable upon the exercise of outstanding options
held by Thomas B. Okarma exercisable within 60 days of February 26, 1999,
at which date 62,169 shares were fully vested. The address of Dr. Okarma is
c/o Geron Corporation, 230 Constitution Drive, Menlo Park, California
94025.
18
<PAGE> 21
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($) COMPENSATION(1)($) OPTION(#)
--------------------------- ---- --------- -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Ronald W. Eastman 1998 $295,000 $78,180 $ -- 325,297
President and Chief Executive Officer 1997 257,300 46,300 30,000 230,000
1996 245,000 36,750 30,000 127,058
David L. Greenwood 1998 205,000 62,280 30,000 241,341
Chief Financial Officer, Vice
President 1997 198,800 38,800 64,370 165,000
of Corporate Development, Treasurer, 1996 184,100 86,820 30,000 58,823
and Secretary
Elaine R. Hamilton(2) 1998 87,500 19,250 -- 90,000
Vice President of Human Resources
Calvin B. Harley, Ph.D 1998 223,750 58,190 -- 194,805
Chief Scientific Officer 1997 180,600 41,500 18,000 125,000
1996 172,000 25,800 18,000 35,294
Kevin R. Kaster, Esq.(3) 1998 110,833 -- -- --
Vice President of Intellectual 1997 183,500 33,000 36,131 135,000
Properties and Chief Patent Counsel 1996 158,166 27,650 -- 44,117
Thomas B. Okarma, M.D., Ph.D.(4) 1998 231,615 60,180 -- 370,000
Vice President of Research and 1997 16,250 -- -- 150,000
Development
</TABLE>
- ---------------
(1) Other annual compensation consists of monthly housing allowances and
relocation allowances.
(2) Ms. Hamilton joined the Company in June 1998. Her annual salary is $150,000.
(3) Mr. Kaster resigned from the Company in July 1998.
(4) Dr. Okarma joined the Company in December 1997.
19
<PAGE> 22
STOCK OPTION GRANTS IN FISCAL YEAR 1998
The following table provides certain information regarding options granted
to the Chief Executive Officer and the Named Executive Officers during the year
ended December 31, 1998. No stock appreciation rights were granted during the
year.
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
------------------------------------------------------------ VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF SHARES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
---- ---------------- -------------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ronald W. Eastman........ 60,000 3.3% $4.56 9/3/08 $172,179 $ 436,335
265,297 14.4 4.75 9/17/08 792,509 2,008,371
David L. Greenwood....... 60,000 3.3 4.56 9/3/08 172,179 436,335
181,341 9.8 4.75 9/17/08 541,710 1,372,801
Elaine R. Hamilton....... 35,000 1.9 9.25 6/17/08 203,605 515,974
20,000 1.1 4.56 9/3/08 57,393 145,444
35,000 1.9 4.75 9/17/08 101,280 254,834
Calvin B. Harley,
Ph.D................... 60,000 3.3 4.56 9/3/08 172,179 436,335
134,805 7.3 4.75 9/17/08 402,696 1,020,511
Kevin R. Kaster,
Esq.(5)................ -- -- -- -- -- --
Thomas B. Okarma......... 75,000 4.1 11.75 5/4/08 554,213 1,404,486
10,000 0.5 13.75 11/9/08 86,473 219,140
60,000 3.3 4.56 9/3/08 172,179 436,335
225,000 12.2 4.75 9/17/08 643,297 1,615,159
</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 48 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 1,842,272 options granted (587,673 options granted,
net of cancellations) by the Company in the year ended December 31, 1998 to
all employees of the Company, including the Named Executive Officers.
(3) Exercise price is the closing sales price of the Common Stock underlying the
stock option on the grant date as reported on the Nasdaq Stock Market.
(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) Mr. Kaster resigned from the Company in July 1998.
20
<PAGE> 23
AGGREGATE OPTION EXERCISES IN FISCAL YEAR 1998 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to options
exercised during the year ended December 31, 1998 by the Chief Executive Officer
and Named Executive Officers and unexercised options held as of the end of such
fiscal year by such persons. No stock appreciation rights were outstanding
during fiscal 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(2)
ACQUIRED ON VALUE ----------------------- ------------------------
NAME EXERCISE(#) REALIZED(1)($) VESTED(2) UNVESTED(2) VESTED(3) UNVESTED(3)
---- ----------- -------------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ronald W. Eastman.......... 0 $ 0 271,831 306,849 $2,355,864 $2,085,002
David L. Greenwood......... 40,000 562,060 79,220 228,132 556,043 1,548,098
Elaine R. Hamilton(4)...... 0 0 3,500 51,500 21,438 319,178
Calvin B. Harley, Ph.D. ... 55,208 572,565 53,441 177,847 372,484 1,167,701
Kevin R. Kaster, Esq.(5)... 99,792 586,909 3,813 61,643 27,364 291,548
Thomas B. Okarma........... 10,000 138,750 40,938 244,062 250,745 1,506,100
</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 Stock 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 48 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 closing sales price of the Common Stock as of December 31,
1998, quoted on the Nasdaq Stock Market ($10.88 per share), minus the per
share exercise price, multiplied by the number of shares underlying the
option.
(4) Ms. Hamilton joined the Company in June 1998.
(5) Mr. Kaster resigned from the Company in July 1998. In conjunction with his
departure, the Company agreed to continue the vesting schedule of his
options for a period of nine months in exchange for consulting services
performed during that period. The consulting contract will terminate on
April 30, 1999 upon which all remaining unvested options will be cancelled.
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.
21
<PAGE> 24
Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933 or the Securities Exchange Act of 1934
that might incorporate future fillings, including this Proxy Statement, in whole
or in part, the following Repricing Table, Compensation Committee Report and
Stock Performance Graph shall not be deemed to be incorporated by reference into
any such filings.
TEN-YEAR OPTION/SAR REPRICINGS
The following table sets forth information as of December 31, 1998 with
respect to the cancellation and reissuance of certain stock options held by the
Company's executive officers.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET LENGTH OF
UNDERLYING PRICE OF EXERCISE ORIGINAL
OPTIONS/ STOCK AT PRICE AT OPTION TERM
SARS TIME OF TIME OF NEW REMAINING AT
REPRICED OR REPRICING OR REPRICING OR EXERCISE DATE OF
AMENDED AMENDMENT AMENDMENT PRICE REPRICING OR
NAME DATE (#) ($) ($) ($) AMENDMENT
---- ------- ------------ ------------ ------------ -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ronald Eastman........... 9/18/98 1,667 $4.75 $ 9.125 $4.75 9 yrs. and 3 mos.
9/18/98 78,333 4.75 9.125 4.75 9 yrs. and 3 mos.
9/18/98 12,080 4.75 12.750 4.75 8 yrs. and 3 mos.
9/18/98 137,920 4.75 12.750 4.75 8 yrs. and 3 mos.
9/18/98 4,500 4.75 8.000 4.75 7 yrs. and 11 mos.
9/18/98 10,122 4.75 8.000 4.75 7 yrs. and 11 mos.
9/18/98 20,675 4.75 8.000 4.75 7 yrs. and 11 mos.
David Greenwood.......... 9/18/98 1,042 $4.75 $ 9.125 $4.75 9 yrs. and 3 mos.
9/18/98 48,958 4.75 9.125 4.75 9 yrs. and 3 mos.
9/18/98 5,000 4.75 10.125 4.75 9 yrs. and 1 mo.
9/18/98 17,879 4.75 12.750 4.75 8 yrs. and 3 mos.
9/18/98 92,121 4.75 12.750 4.75 8 yrs. and 3 mos.
9/18/98 9,804 4.75 8.000 4.75 7 yrs. and 11 mos.
9/18/98 6,537 4.75 8.000 4.75 7 yrs. and 11 mos.
Thomas Okarma............ 9/18/98 75,000 $4.75 $11.750 $4.75 9 yrs. and 8 mos.
9/18/98 46,376 4.75 8.625 4.75 9 yrs. and 3 mos.
9/18/98 103,624 4.75 8.625 4.75 9 yrs. and 3 mos.
Elaine Hamilton.......... 9/18/98 35,000 $4.75 $ 9.250 $4.75 9 yrs. and 9 mos.
Calvin B. Harley......... 9/18/98 1,042 $4.75 $ 9.125 $4.75 9 yrs. and 3 mos.
9/18/98 48,958 4.75 9.125 4.75 9 yrs. and 3 mos.
9/18/98 7,026 4.75 12.750 4.75 8 yrs. and 3 mos.
9/18/98 33,304 4.75 12.750 4.75 8 yrs. and 3 mos.
9/18/98 1,068 4.75 9.000 4.75 8 yrs. and 3 mos.
9/18/98 8,932 4.75 9.000 4.75 8 yrs. and 3 mos.
9/18/98 24,670 4.75 12.750 4.75 8 yrs. and 3 mos.
9/18/98 5,883 4.75 8.000 4.75 7 yrs. and 11 mos.
9/18/98 3,922 4.75 8.000 4.75 7 yrs. and 11 mos.
</TABLE>
COMPENSATION COMMITTEE REPORT(1)
In 1998, the Compensation Committee of the Board of Directors (the
"Committee") consisted of Dr. Barkas and Mr. Walker, neither of whom is an
officer or an employee of the Company. 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.
22
<PAGE> 25
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; and
- 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 considerations necessarily involve an 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 the 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 Chief Executive Officer 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 March 1999, the Committee met to evaluate the Company and individual
performance against the goals for 1998. 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 30% of such officer's eligible 1998
compensation. The Committee decided to defer the grant of new stock options in
light of the recent repricing of stock options in September 1998.
23
<PAGE> 26
REPORT ON REPRICED STOCK OPTIONS
In September 1998, the Board of Directors' Compensation Committee
determined that it was in the best interest of the Company to offer to reprice
those then-existing stock options of the Company granted under the Stock Option
Plan with exercise prices in excess of the then-current fair market value of the
Company's Common Stock. Included in the repricing actions were options held by
the Company's executive officers.
The objectives of the Stock Option Plan are to promote the interests of the
Company by providing employees, including executive officers, an incentive to
acquire a proprietary interest in the Company and to continue to render services
to the Company. It was the view of the Committee that stock options with
exercise prices substantially above the current market price of the Company's
Common Stock were viewed negatively by most optionees of the Company, and
provided little, if any, equity incentive to the optionees. The Committee thus
concluded that such option grants seriously undermined the specific objectives
of the Stock Option Plan and should properly be repriced. In making this
decision, the Committee also considered the fairness of such a determination in
relation to other stockholders. In the opinion of the Committee, the
stockholders' long-term best interests were clearly served by the retention and
motivation of employees.
In this context, the Committee decided that effective September 18, 1998
(the "Grant Date") all employees, including executive officers, holding stock
options granted under the Stock Option Plan with exercise prices in excess of
the fair market value of the Company's Common Stock should receive a one-for-
one repricing of their then-existing unexercised stock options with a new
exercise price set at $4.75 per share, the closing sales price of the Company's
Common Stock on the Grant Date as reported on the Nasdaq Stock Market. The
Company completed this repricing through a one-for-one stock option exchange of
"underwater" stock options for all eligible optionees. The vesting schedule of
the new option was extended by one year. The vesting commencement date of the
new option was the same as the old option. In addition, the new option will not
be exercisable during the one year period commencing on September 18, 1998 and
ending on September 18, 1999, unless an optionee's employment is involuntarily
terminated by the Company other than for cause, or as a result of death or
disability, in which case the repriced options become exercisable on the
optionee's termination date. The exchange was completed in September 1998.
It is the opinion of the Board of Directors that this program helped build
employee morale and provided new incentives for the Company's employees and
management.
CEO COMPENSATION
For 1998, the Committee increased the salary of Mr. Eastman by
approximately 4% in base salary. Mr. Eastman's contributions to the performance
of the Company included strategy and structure of the Company's research and
development 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 1998, the Committee's
assessment was that Mr. Eastman had a significant impact in achieving the
Company's performance objectives for 1998.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Code limits the tax deductibility by a corporation of
compensation in excess of $1 million paid to any of its CEO and its four other
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
24
<PAGE> 27
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. John P. Walker
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.
Dr. Barkas is the managing partner of Prospect Management Co., LLC and a
general partner of Prospect Venture Partners. Mr. Walker is currently Chairman,
Chief Executive Officer and a Director of AXYS Pharmaceuticals, Inc. See
"Security Ownership of Certain Beneficial Owners and Management."
25
<PAGE> 28
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 Stock Market (the "NSM"). The
Nasdaq-Pharmaceutical tracks the aggregate price performance of equity
securities of pharmaceutical companies traded on the NSM. The Company's Common
Stock is traded on the NSM 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>
US PHARMACEUTICAL GERON
-- -------------- -----
<S> <C> <C> <C>
'7/31/96' 100.0000 100.0000 100.0000
105.6030 107.2470 88.7097
'9/30/96' 113.6800 114.7360 90.3226
112.4240 109.5580 98.3871
'11/29/96' 119.3740 107.9950 101.6130
119.2660 111.3120 170.9680
'1/31/97' 127.7430 120.6720 168.1420
120.6770 121.4520 138.7100
'3/31/97' 112.7970 105.7150 125.8070
116.3230 99.4481 127.4190
'5/31/97' 129.5060 114.4350 114.5160
133.4730 114.1260 96.7742
'7/31/97' 147.5600 117.3750 87.0968
147.3350 115.9800 124.1940
'9/30/97' 156.0420 128.0190 140.3230
147.9640 121.5030 135.4840
'11/30/97' 148.7040 117.7230 109.6770
146.3190 114.9340 106.4520
'1/31/98' 150.9350 113.8370 165.3290
165.1060 117.5650 142.3360
'3/31/98' 171.2040 126.3420 159.6770
174.1110 123.2260 141.1360
'5/31/98' 164.5540 118.9860 143.5480
176.1610 117.0980 120.9680
'7/31/98' 174.3010 118.1090 98.3871
140.1270 90.4710 54.4387
'9/30/98' 159.4810 110.8090 79.0323
165.9980 118.1070 79.8452
'11/30/98' 182.3510 123.8470 145.1610
205.6870 147.1240 140.3230
</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.
26
<PAGE> 29
CERTAIN TRANSACTIONS
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 a 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. In February 1998, Dr. West resigned from the
Company and repaid the entire outstanding balance of the note and accrued
interest.
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. In
February 1999, the Company agreed to restructure the loan and extend the due
date to December 31, 2002. The loan will be paid through annual installments of
$37,500.
In July 1998, Kevin R. Kaster resigned from the Company as its Vice
President of Intellectual Properties and Chief Patent Counsel. In conjunction
with his resignation, the Company agreed to extend the vesting schedule of his
existing options in exchange for consulting services for nine months. The
agreement will terminate on April 30, 1999.
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 Bylaws.
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, 1998, all Reporting Persons complied with the applicable filing
requirement, with the following exception: a Form 3 was filed late in connection
with the appointment of Gary L. Neil as a director of the Company in September
1998.
27
<PAGE> 30
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
/s/ DAVID L. GREENWOOD
----------------------------------
DAVID L. GREENWOOD
Secretary
April 8, 1999
28
<PAGE> 31
LOGO
<PAGE> 32
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
GERON CORPORATION
1999 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 8, 1999, 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 1999 Annual Meeting
of Stockholders of Geron Corporation to be held on May 28, 1999, 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 III
Directors to serve for a term of three years; (2) for the approval and
ratification of amendments to the Company's 1996 Directors' Option Plan to
increase the aggregate number of shares of Common Stock authorized for issuance
under such Plan by 250,000 shares and to revise certain terms with respect to
stock options granted under such Plan; (3) 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 600,000 shares; (4)
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> 33
[X] Please mark your votes as in this example.
1. Election of Class III Directors [ ] FOR all nominees (except as
indicated) [ ] WITHHOLD authority to vote for all nominees
Nominees: Alexander E. Barkas and Robert B. Stein
If you wish to withhold authority to vote for any individual nominee, strike
a line through that individual's name.
2. To approve amendments to the Company's 1996 Directors' Option Plan to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 250,000 shares and to revise certain terms with
respect to stock options granted under such plan. [ ] FOR [ ] AGAINST [
] ABSTAIN
3. 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 600,000 SHARES. [ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the selection of Ernst & Young LLP as the Company's independent
auditors for the fiscal year ending December 31, 1999.
[ ] 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 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.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE.
<PAGE> 34
GERON CORPORATION
1996 DIRECTORS' STOCK OPTION PLAN
(AS AMENDED MAY 1999)
1. Purposes of the Plan. The purposes of this Directors' Stock Option Plan
are to attract and retain the best available personnel for service as Directors
of the Company, to provide additional incentive to the Outside Directors of the
Company to serve as Directors, and to encourage their continued service on the
Board.
All options granted hereunder shall be "nonstatutory stock options".
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Geron Corporation, a Delaware corporation.
(e) "Continuous Status as a Director" shall mean the absence of any
interruption or termination of service as a Director.
(f) "Director" shall mean a member of the Board.
(g) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(h) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(i) "Option" shall mean a stock option granted pursuant to the Plan.
All options shall be nonstatutory stock options (i.e., options that are not
intended to qualify as incentive stock options under Section 422 of the Code).
(j) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(k) "Optionee" shall mean an Outside Director who receives an
Option.
(l) "Outside Director" shall mean a Director who is not an Employee.
1
<PAGE> 35
(m) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this 1996 Directors' Stock Option Plan.
(o) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(p) "Subsidiary" shall mean a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 500,000 Shares (the "Pool") of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. If Shares which were acquired upon exercise of an
Option are subsequently repurchased by the Company, such Shares shall not in any
event be returned to the Plan and shall not become available for future grant
under the Plan.
4. Administration of and Grants of Options under the Plan.
(a) Administrator. Except as otherwise required herein, the Plan
shall be administered by the Board.
(b) Procedure for Grants. All grants of Options hereunder shall be
automatic and non discretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 35,000 Shares (the "First Option") on the date on which such
person first becomes an Outside Director, whether through election by the
shareholders of the Company or appointment by the Board of Directors to fill a
vacancy.
(iii) Each Outside Director, other than the Chairman of the Board
of Directors, shall be automatically granted an Option to purchase 5,000 Shares
(a "Subsequent Option") on each anniversary date of the election or appointment
of such Outside Director to the Board. In the event that an Outside Director
terminates his or her service to the Board prior to the next anniversary date of
his or her election or appointment, he or she will be granted a prorated
Subsequent Option on his or her last day of service on the Board reflecting the
period of service
2
<PAGE> 36
since the last anniversary date. The Subsequent Option granted to the Chairman
of the Board of Directors under this Section 4(b)(iii) shall be an Option to
purchase 10,000 Shares.
(iv) Each Outside Director shall each be automatically granted an
Option to purchase 15,000 Shares (a "Re-election Option") on each date on which
such person is re-elected for a subsequent three-year term as an Outside
Director.
(v) Notwithstanding the provisions of subsections (ii), (iii) and
(iv) hereof, in the event that a grant would cause the number of Shares subject
to outstanding Options plus the number of Shares previously purchased upon
exercise of Options to exceed the Pool, then each such automatic grant shall be
for that number of Shares determined by dividing the total number of Shares
remaining available for grant by the number of Outside Directors receiving an
Option on such date on the automatic grant date. Any further grants shall then
be deferred until such time, if any, as additional Shares become available for
grant under the Plan through action of the shareholders to increase the number
of Shares which may be issued under the Plan or through cancellation or
expiration of Options previously granted hereunder.
(vi) Notwithstanding the provisions of subsections (ii), (iii)
and (iv) hereof, any grant of an Option made before the Company has obtained
shareholder approval of the Plan in accordance with Section 17 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 17 hereof.
(vii) The terms of each First Option granted hereunder shall be
as follows:
(1) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Section 9 hereof.
(2) the exercise price per Share shall be 100% of the
fair market value per Share on the date of grant of the First Option, determined
in accordance with Section 8 hereof.
(3) the First Option shall become exercisable in
installments cumulatively as to 33 1/3% of the Shares subject to the First
Option on each of the first, second and third anniversaries of the date of grant
of the First Option.
(viii) The terms of each Subsequent Option granted hereunder
shall be as follows:
(1) the Subsequent Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Section 9 hereof.
(2) the exercise price per Share shall be 100% of the
fair market value per Share on the date of grant of the Subsequent Option,
determined in accordance with Section 8 hereof.
3
<PAGE> 37
(3) the Subsequent Option shall become exercisable as to
one hundred percent (100%) of the Shares subject to the Subsequent Option on the
date of grant of the Subsequent Option; provided, however, that any Subsequent
Option granted prior to May 28, 1999, shall become exercisable as to one hundred
percent (100%) of the Shares subject to the Subsequent Option on the first
anniversary of the date of grant of the Subsequent Option.
(ix) The terms of each Re-election Option granted hereunder shall
be as follows:
(1) the Re-election Option shall be exercisable only
while the Outside Director remains a Director of the Company, except as set
forth in Section 9 hereof.
(2) the exercise price per Share shall be 100% of the
fair market value per Share on the date of grant of the Re-election Option,
determined in accordance with Section 8 hereof.
(3) the Re-election Option shall become exercisable in
installments cumulatively as to 33 1/3% of the Shares subject to the Re-election
Option on each of the first, second and third anniversaries of the date of grant
of the Re-election Option.
(c) Powers of the Board. Subject to the provisions and restrictions
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per share of Options to be granted, which exercise price
shall be determined in accordance with Section 8(a) of the Plan; (iii) to
interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations
relating to the Plan; (v) to authorize any person to execute on behalf of the
Company any instrument required to effectuate the grant of an Option previously
granted hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(e) Suspension or Termination of Option. If the President or his or
her designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct). If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation
owed to the Company, breach of fiduciary duty or deliberate disregard of the
Company rules resulting in loss, damage or injury to the Company, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any option whatsoever. In making
4
<PAGE> 38
such determination, the Board of Directors (excluding the Outside Director
accused of such misconduct) shall act fairly and shall give the Optionee an
opportunity to appear and present evidence on Optionee's behalf at a hearing
before the Board or a committee of the Board.
5. Eligibility. Options may be granted only to Outside Directors. All
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect
to continuation of service as a Director or nomination to serve as a Director,
nor shall it interfere in any way with any rights which the Director or the
Company may have to terminate his or her directorship at any time.
6. Term of Plan; Effective Date. The Plan shall become effective on the
effectiveness of the registration statement under the Securities Act of 1933
relating to the Company's initial public offering of securities. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. Term of Options. The term of each Option shall be ten (10) years from
the date of grant thereof.
8. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be 100% of the fair market
value per Share on the date of grant of the Option.
(b) Fair Market Value. The fair market value shall be determined by
the Board; provided, however, that where there is a public market for the Common
Stock, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System) or, in the event the Common Stock is traded on the Nasdaq
Stock Market or listed on a stock exchange, the fair market value per Share
shall be the closing price on such system or exchange on the date of grant of
the Option, as reported in The Wall Street Journal. With respect to any Options
granted hereunder concurrently with the initial effectiveness of the Plan, the
fair market value shall be the Price to Public as set forth in the final
prospectus relating to such initial public offering.
(c) Form of Consideration. The consideration to be paid for the
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or
5
<PAGE> 39
any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable prior to
shareholder approval of the Plan in accordance with Section 17 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice
of such exercise has been given to the Company in accordance with the terms of
the Option by the person entitled to exercise the Option and full payment for
the Shares with respect to which the Option is exercised has been received by
the Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by
the appropriate entry on the books of the Company or of a duly authorized
transfer agent of the Company) of the stock certificate evidencing such Shares,
no right to vote or receive dividends or any other rights as a shareholder shall
exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued
to the Optionee as soon as practicable after exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease
in the number of Shares which thereafter may be available, both for purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as a Director. If an Outside Director
ceases to serve as a Director, he or she may, but only within ninety (90) days
after the date he or she ceases to be a Director of the Company, exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. Notwithstanding the foregoing, in no event may the Option
be exercised after its term set forth in Section 7 has expired. To the extent
that such Outside Director was not entitled to exercise an Option at the date of
such termination, or does not exercise such Option (which he or she was entitled
to exercise) within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding Section 9(b) above, in
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Internal Revenue Code), he or she may, but only
within six (6) months (or such other period of time not exceeding twelve (12)
months as is determined by the Board) from the date of such termination,
exercise his or her Option to the extent he or she was entitled to exercise it
at the date of such termination. Notwithstanding the foregoing, in no event may
the Option be exercised after its term set forth in Section 7 has expired. To
the extent that he or she was not entitled to exercise the Option at the
6
<PAGE> 40
date of termination, or if he or she does not exercise such Option (which he or
she was entitled to exercise) within the time specified herein, the Option shall
terminate.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) During the term of the Option who is, at the time of his or
her death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within six (6) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in Continuous
Status as Director for twelve (12) months (or such lesser period of time as is
determined by the Board) after the date of death. Notwithstanding the foregoing,
in no event may the Option be exercised after its term set forth in Section 7
has expired.
(ii) Within three (3) months after the termination of Continuous
Status as a Director, the Option may be exercised, at any time within six (6)
months following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
Notwithstanding the foregoing, in no event may the option be exercised after its
term set forth in Section 7 has expired.
10. Nontransferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
11. Adjustments Upon Changes in Capitalization; Corporate Transactions.
(a) Adjustment. Subject to any required action by the shareholders
of the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of shares of Common Stock which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an
Option, and the number of shares of Common Stock to be granted under the
provisions set forth in Section 4 of the Plan, as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no
7
<PAGE> 41
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an Option.
(b) Corporate Transactions. In the event of (i) a dissolution or
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation in which the Company is not
the surviving corporation, or (iv) any other capital reorganization in which
more than fifty percent (50%) of the shares of the Company entitled to vote are
exchanged, the Company shall give to the Eligible Director, at the time of
adoption of the plan for liquidation, dissolution, sale, merger, consolidation
or reorganization, either a reasonable time thereafter within which to exercise
the Option, including Shares as to which the Option would not be otherwise
exercisable, prior to the effectiveness of such liquidation, dissolution, sale,
merger, consolidation or reorganization, at the end of which time the Option
shall terminate, or the right to exercise the Option, including Shares as to
which the Option would not be otherwise exercisable (or receive a substitute
option with comparable terms), as to an equivalent number of shares of stock of
the corporation succeeding the Company or acquiring its business by reason of
such liquidation, dissolution, sale, merger, consolidation or reorganization.
12. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the shareholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation. Notwithstanding
the foregoing, the provisions set forth in Section 4 of this Plan (and any other
Sections of this Plan that affect the formula award terms required to be
specified in this Plan by Rule 16b-3) shall not be amended more than once every
six months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder.
(b) Effect of Amendment or Termination. Any such amendment or
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon
8
<PAGE> 42
which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance. As a
condition to the exercise of an Option, the Company may require the person
exercising such Option to represent and warrant at the time of any such exercise
that the Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares, if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
16. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
If such shareholder approval is obtained at a duly held shareholders' meeting,
it may be obtained by the affirmative vote of the holders of a majority of the
outstanding shares of the Company present or represented and entitled to vote
thereon. If such shareholder approval is obtained by written consent, it may be
obtained by the written consent of the holders of a majority of the outstanding
shares of the Company. Options may be granted, but not exercised, before such
shareholder approval.
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GERON CORPORATION
1992 STOCK OPTION PLAN
(AS AMENDED THROUGH MAY 1999)
I. PURPOSES OF THE PLAN
This 1992 Stock Option Plan (the "Plan") is intended to promote the
interests of Geron Corporation, a Delaware corporation (the "Corporation"), by
providing a method whereby eligible individuals who provide valuable services to
the Corporation (or its parent or subsidiary corporations) may be offered
incentives and rewards which will encourage them to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
and continue to render services to the Corporation (or its parent or subsidiary
corporations).
For purposes of the Plan, the following provisions shall be applicable in
determining the parent and subsidiary corporations of the Corporation:
(i) Any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation shall be considered to be a
parent corporation of the Corporation, provided each such corporation in the
unbroken chain (other than the Corporation) owns, at the time of the
determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
(ii) Each corporation (other than the Corporation) in an unbroken
chain of corporations beginning with the Corporation shall be considered to be a
subsidiary of the Corporation, provided each such corporation (other than the
last corporation) in the unbroken chain owns, at the time of the determination,
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
II. ADMINISTRATION OF THE PLAN
A. A Committee comprised of non-employee members of the Board who satisfy
the requirements of Rule 16b-3 of the Securities Exchange Act of 1934 (the "1934
Act") as it is then in effect to exempt stock awards made hereunder from the
short-swing profit recovery rules of Section 16(b) of the 1934 Act (the "Primary
Committee") shall have sole and exclusive authority to administer the Plan with
respect to Section 16 Insiders.
B. Administration of the Plan with respect to all other persons eligible
to participate in the Plan may, at the Board's discretion, be vested in the
Primary Committee or a second committee comprised of one or more Board members
(the "Secondary Committee"), or the Board may retain the power to administer the
Plan with respect to all
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such persons. The members of the Secondary Committee may be individuals who are
Employees eligible to receive option grants under the Plan or any stock option,
stock appreciation, stock bonus or other stock plan of the Corporation (or any
Parent or Subsidiary) or who have any other business relationship with the
Company outside their roles as members of the Board.
C. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of any
Secondary Committee and reassume all powers and authority previously delegated
to such committee.
D. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Plan and to make such
determinations under, and issue such interpretations of, the provisions of the
Plan and any outstanding options thereunder as it may deem necessary or
advisable. Decisions of the Plan Administrator within the scope of its
administrative functions under the Plan shall be final and binding on all
parties who have an interest in the Plan under its jurisdiction or any option
thereunder.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any grants under the Plan.
III. ELIGIBILITY FOR OPTION GRANTS
A. The persons eligible to receive option grants under the Plan are as
follows:
(i) key employees (including officers and directors) of the
Corporation (or its parent or subsidiary corporations);
(ii) the non-employee members of the Board or the non-employee
members of the board of directors of any parent or subsidiary corporation; and
(iii) those Consultants who provide valuable services to the
Corporation (or its parent or subsidiary corporations).
B. Each Plan 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 ("Incentive Option") which satisfies the requirements of
Section 422 of the Internal Revenue Code or a non-statutory option not intended
to meet such requirements, the time
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or times at which each such option is to become exercisable, and the maximum
term for which the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of the Corporation's
authorized but unissued or reacquired Common Stock. The aggregate number of
shares which may be issued over the term of the Plan shall not exceed 5,144,362
shares. The total number of shares issuable under the Plan shall be subject to
adjustment from time to time in accordance with the provisions of this Section
IV.
B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of the 1997, 1998,
1999, 2000 and 2001 calendar years by an amount equal to two percent (2%) of the
shares of Common Stock outstanding on December 31 of the immediately preceding
calendar year; but in no event shall any such annual increase exceed 300,000
shares.
C. No one person participating in the Plan may receive options for more
than 500,000 shares of Common Stock per calendar year, beginning with the 1996
calendar year.
D. Shares subject to outstanding options shall be available for subsequent
option grants under the Plan to the extent (i) options expire or terminate for
any reason prior to exercise in full and (ii) options are cancelled in
accordance with the cancellation-regrant provisions of Section VIII of the Plan.
Shares subject to outstanding options shall not be available for subsequent
option grants under the Plan to the extent options are surrendered in accordance
with the limited cash-out rights provisions of Section IX of the Plan. Shares
repurchased by the Corporation pursuant to its repurchase rights under the Plan
shall not be available for subsequent option grants.
E. In the event any change is made to the Common Stock issuable under the
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 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 Plan Administrator shall be final, binding and conclusive.
V. TERMS AND CONDITIONS OF OPTIONS
A. Options granted pursuant to the Plan shall be authorized by action of
the Plan Administrator and may, at the Plan Administrator's discretion, be
either Incentive Options or non-statutory options. Individuals who are not
Employees (as defined in subsection D.3 below) may only be granted non-statutory
options. Each granted option
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shall be evidenced by one or more instruments in the form approved by the Plan
Administrator; provided, however, that each such instrument shall comply with
and incorporate the terms and conditions specified below. Each instrument
evidencing an Incentive Option shall, in addition, be subject to the applicable
provisions of Section VI.
B. Option Price.
1. The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than eighty-five percent (85%) of the Fair Market Value (as defined below) of a
share of Common Stock on the date of the option grant.
2. The option price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section X and the instrument
evidencing the grant, be payable in one or more of the forms specified below:
(i) cash or check drawn to the Corporation's order;
(ii) in shares of Common Stock held by the optionee for the
requisite period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the Exercise
Date; or
(iii) to the extent the option in exercised for vested shares,
through a special sale and remittance procedure pursuant to which the optionee
is to provide irrevocable written instructions (I) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the settlement date, an
amount sufficient to cover the aggregate option price payable for the purchased
shares plus all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such purchase and (II)
concurrently to the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to effect the sale transaction.
For purposes of this subparagraph 2, the Exercise Date shall
be the first date on which there shall have been delivered to the Corporation
both written notice of the exercise of the option and, except to the extent such
sale and remittance procedure is utilized, payment of the option price for the
purchased shares.
3. The Fair Market Value of a share of Common Stock on any relevant
date under subparagraphs 1 or 2 above (and for all other valuation purposes
under the Plan) shall be determined in accordance with the following provisions:
(i) If the Common Stock is not at the time listed or admitted
to trading on any stock exchange but is traded on the Nasdaq National Market,
the Fair Market Value shall be the closing selling price of one share of Common
Stock on the date in question, as such price is reported by the National
Association of Securities Dealers through its Nasdaq system or any successor
system. If there is no closing selling price for
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<PAGE> 47
the Common Stock on the date in question, then the closing selling price on the
last preceding date for which such quotation exists shall be determinative of
Fair Market Value.
(ii) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the stock
exchange determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock on
such exchange on the date in question, then the Fair Market Value shall be the
closing selling price on the exchange on the last preceding date for which such
quotation exists.
(iii) If the Common Stock at the time is neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, or if the Plan Administrator determines that the value determined
pursuant to subparagraphs (i) and (ii) above does not accurately reflect the
Fair Market Value of the Common Stock, then such Fair Market Value shall be
determined by the Plan Administrator after taking into account such factors as
the Plan Administrator shall deem appropriate, including one or more independent
professional appraisals.
C. Term and Exercise of Options.
Each option granted under the Plan shall be exercisable at such time
or times, during such period, and for such number of shares as shall be
determined by the Plan Administrator and set forth in the instrument evidencing
such option. No such option, however, shall have a maximum term in excess of ten
(10) years from the grant date and no Incentive Option granted to a 10%
Stockholder shall have a maximum term in excess of five (5) years from the grant
date. During the lifetime of the optionee, the option shall be exercisable only
by the optionee and shall not be assignable or transferable by the optionee
otherwise than by will or by the laws of descent and distribution.
D. Effect of Termination of Employment.
1. Except to the extent otherwise provided pursuant to subparagraph
4 below, the following provisions shall govern the exercise period applicable to
any options held by the optionee at the time of cessation of Service or death.
- Should the optionee cease to remain in Service for any
reason other than death or Disability, then the period during which each
outstanding option held by such optionee is to remain exercisable shall be
limited to the three (3)-month period following the date of such cessation of
Service.
- Should the optionee's Service terminate by reason of
Disability, then the period during which each outstanding option held by the
optionee is
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<PAGE> 48
to remain exercisable shall be limited to the six (6)-month period following the
date of such cessation of Service. However, should such Disability be deemed to
constitute Permanent Disability, then the period during which each outstanding
option held by the optionee is to remain exercisable shall be extended by an
additional six (6) months so that the exercise period shall be limited to the
twelve (12)-month period following the date of the optionee's cessation of
Service by reason of such Permanent Disability. For the purposes of the Plan,
Disability shall mean the inability of an individual to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute Permanent Disability in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of not less than twelve (12)
months.
- Should the optionee die while holding one or more
outstanding options, then the period during which each such option is to remain
exercisable shall be limited to the twelve (12)-month period following the date
of the optionee's death. During such limited period, the option may be exercised
by the personal representative of the optionee's estate or by the person or
persons to whom the option is transferred pursuant to the optionee's will or in
accordance with the laws of descent and distribution.
- During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of vested
shares for which the option is exercisable on the date of the optionee's
cessation of Service. Upon the expiration of the applicable exercise period or
(if earlier) upon the expiration of the option term, the option shall terminate
and cease to be exercisable for any vested shares for which the option has not
been exercised. However, the option shall, immediately upon the optionee's
cessation of Service, terminate and cease to be outstanding with respect to any
option shares for which the option is not at that time exercisable or in which
the optionee is not otherwise at that time vested.
2. Under no circumstances shall any option be exercisable after the
specified expiration date of the option term.
3. For all purposes under the Plan, unless specifically provided
otherwise in the option agreement evidencing the option grant and/or the
purchase agreement evidencing the purchased shares, the optionee shall be deemed
to remain in Service for so long as such individual renders services on a
periodic basis to the Corporation or any parent or subsidiary corporation in the
capacity of an Employee, a non-employee member of the Board of Directors or a
consultant. The optionee shall be considered to be an Employee for so long as
such individual remains in the employ of the Corporation or one or more of its
parent or subsidiary corporations, subject to the control and direction of the
employer entity as to both the work to be performed and the manner and method of
performance.
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4. The Board shall 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 from the three (3)-month (six (6) months in
the case of Disability or twelve (12) months in the case of death or Permanent
Disability) or shorter period set forth in the option agreement to such greater
period of time as the Board shall deem appropriate; provided, that in no event
shall such option be exercisable after the specified expiration date of the
option term.
E. Stockholder Rights. An optionee shall have none of the rights of a
stockholder with respect to the shares subject to the option until such
individual shall have exercised the option and paid the option price.
F. Repurchase Rights. The shares of Common Stock acquired upon the
exercise of options granted under the Plan may be subject to one or more
repurchase rights of the Corporation in accordance with the following
provisions:
1. The Plan Administrator may in its discretion determine that it
shall be a term and condition of one or more options exercised under the Plan
that the Corporation (or its assignees) shall have the right, exercisable upon
the optionee's cessation of Service, to repurchase at the option price all or
(at the discretion of the Corporation and with the consent of the optionee) part
of the unvested shares of Common Stock at the time held by the optionee. Any
such repurchase right shall be exercisable by the Corporation (or its assignees)
upon such terms and conditions (including the establishment of the appropriate
vesting schedule and other provision for the expiration of such right in one or
more installments over the optionee's period of Service) as the Plan
Administrator may specify in the instrument evidencing such right.
2. All of the Corporation's outstanding repurchase rights shall
automatically terminate upon the occurrence of any Corporate Transaction under
Section VII.
G. Limited Transferability of Options. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of descent and
distribution following the Optionee's death. However, a Non-Statutory Option may
be assigned in accordance with the terms of a Qualified Domestic Relations
Order. The assigned option may only be exercised by the person or persons who
acquire a proprietary interest in the option pursuant to such Qualified Domestic
Relations Order. The terms applicable to the assigned option (or portion
thereof) shall be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate
VI. INCENTIVE OPTIONS
The terms and conditions specified below shall be applicable to all
Incentive Options granted under the Plan. Incentive Options may only be granted
to individuals
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<PAGE> 50
who are Employees of the Corporation. Options which are specifically designated
as "non-statutory" options when issued under the Plan shall not be subject to
such terms and conditions.
A. Option Price. The option price per Share of the Common Stock subject to
an Incentive Option shall in no event be less than one hundred percent (100%) of
the Fair Market Value of a share of Common Stock on the date of grant. If the
individual to whom the option is granted is the owner of stock (as determined
under Section 424(d) of the Internal Revenue Code) possessing ten percent (10%)
or more of the total combined voting power of all classes of stock of the
Corporation or any one of its parent or subsidiary corporations (such person to
be herein referred to as a 10% Stockholder), then the option price per share
shall not be less than one hundred and ten percent (110%) of the Fair Market
Value of one share of Common Stock on the grant date.
B. Dollar Limitation. The aggregate Fair Market Value (determined as of
the respective date or dates of grant) of the Common Stock for which one or more
options granted to any Employee under this Plan (or any other option plan of the
Corporation or its parent or subsidiary corporations) may for the first time
become exercisable as incentive stock options under the Federal tax laws during
any one calendar year shall not exceed the sum of One Hundred Thousand Dollars
($100,000). To the extent the Employee holds two or more such options which
become exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability thereof as incentive stock options under the
Federal tax laws shall be applied on the basis of the order in which such
options are granted.
Except as modified by the preceding provisions of this Section VI,
all the provisions of the Plan shall be applicable to the Incentive Options
granted hereunder.
VII. CORPORATE TRANSACTIONS
A. In the event of one or more of the following transactions (a "Corporate
Transaction"):
(i) a merger or consolidation in which the Corporation is not the
surviving entity, except for a transaction the principal purpose of which is to
change the State of the Corporation's incorporation,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete liquidation or
dissolution of the Corporation, or
(iii) any reverse merger in which the Corporation is the
surviving entity but in which all of the Corporation's outstanding voting stock
is transferred to the acquiring entity or its wholly-owned subsidiary,
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<PAGE> 51
then each option outstanding under the Plan shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable for all of the shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock.
B. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor Corporation (or parent thereof).
C. Each outstanding option which is assumed in connection with the
Corporate Transaction or is otherwise to continue in effect shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
and pertain to the number and class of securities which would be issuable, in
consummation of such Corporate Transaction, to an actual holder of the same
number of shares of Common Stock as are subject to such option immediately prior
to such Corporate Transaction, and appropriate adjustments shall also be made to
the option price payable per share, provided the aggregate option price payable
for such securities shall remain the same. Appropriate adjustments shall also be
made to the class and number of securities available for issuance under the Plan
following the consummation of such Corporate Transaction.
D. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
E. The grant of options under this Plan shall in no way affect the right
of the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
VIII. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, the cancellation
of any or all outstanding options under the Plan and to grant in substitution
therefor new options under the Plan covering the same or different numbers of
shares of Common Stock but having an option price per share not less than
eighty-five percent (85%) of Fair Market Value of the Common Stock on the new
grant date (or one hundred percent (100%) of such Fair Market Value in the case
of an Incentive Option or, in the case of an Incentive Option granted to a 10%
Stockholder, not less than one hundred and ten percent (110%) of such Fair
Market Value).
IX. CASH-OUT OF OPTIONS
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A. Once the Corporation's outstanding Common Stock is registered under
Section 12(g) of the 1934 Act, one or more optionees subject to the short-swing
profit restrictions of the Federal securities laws may, in the Plan
Administrator's sole discretion, be granted limited cash-out rights to operate
in tandem with their outstanding options under the Plan. Any option with such a
limited right in effect for at least six (6) months shall automatically be
cancelled upon the acquisition of fifty percent (50%) or more of the
Corporation's outstanding Common Stock (excluding the Common Stock holdings of
officers and directors of the Corporation who participate in this Plan) pursuant
to a tender or exchange offer made by a person or group of related persons
(other than the Corporation or a person that directly or indirectly controls, is
controlled by or is under common control with the Corporation) which the Board
does not recommend the Corporation's stockholders to accept. In return for the
cancelled option, the optionee shall be entitled to a cash distribution from the
Corporation in an amount equal to the excess of (i) the Cash-Out Price of the
shares of Common Stock in which the optionee is vested under the cancelled
option over (ii) the aggregate option price payable for such vested shares. The
cash distribution payable upon such cancellation shall be made within five (5)
days following the completion of such tender or exchange offer, and neither the
approval of the Plan Administrator nor the consent of the Board shall be
required in connection with such cancellation and distribution.
B. For purposes of calculating the cash distribution, the Cash-Out Price
per share of the vested Common Stock subject to the cancelled option shall be
deemed to be equal to the greater of (i) the Fair Market Value per share on the
date of surrender, as determined in accordance with the valuation provisions of
subsection V.B.3, or (ii) the highest reported price per share paid in effecting
the tender or exchange offer. However, if the cancelled option is an Incentive
Option, then the Cash-Out Price shall not exceed the value per share determined
under clause (i) above.
C. The shares of Common Stock subject to any option cancelled for an
appreciation distribution in accordance with this Section IX shall not be
available for subsequent option grants under the Plan.
X. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or upon the vesting of such shares under the Plan shall be
subject to the satisfaction of all applicable Federal, state and local income
and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan with the right to use shares of Common Stock in satisfaction of all or part
of the Taxes incurred by such holders in connection with the exercise of their
options.
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Such right may be provided to any such holder in either or both of the following
formats:
(i) Stock Withholding. The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
(ii) Stock Delivery. The election to deliver to the Corporation,
at the time the Non-Statutory Option is exercised or the shares vest, one or
more shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
XI. LOANS
A. The Plan Administrator may assist any optionee (including an optionee
who is an officer or director of the Corporation) in the exercise of one or more
options granted to such optionee, including the satisfaction of any Federal,
state and local income and employment tax obligations arising therefrom, by
(i) authorizing the extension of a loan from the Corporation to
such optionee, or
(ii) permitting the optionee to pay the option price for the
purchased Common Stock in installments over a period of years.
B. The terms of any loan or installment method of payment (including the
interest rate and terms of repayment) shall be established by the Plan
Administrator in its sole discretion. Loans or installment payments may be
granted with or without security or collateral. However, any loan made to a
consultant or other non-employee advisor must be secured by property other than
the purchased shares of Common Stock. In all events, the maximum credit
available to each optionee may not exceed the sum of (i) the aggregate option
price payable for the purchased shares plus (ii) any Federal, state and local
income and employment tax liability incurred by the optionee in connection with
such exercise.
C. The Plan Administrator may, in its absolute discretion, determine that
one or more loans extended under the financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Board in its discretion deems appropriate.
XII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the optionee any right to continue
in the service or employ of the Corporation (or any parent or subsidiary
corporation of the Corporation employing or retaining such optionee) for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any parent or subsidiary corporation of the
Corporation employing or retaining such optionee) or of the optionee, which
rights are hereby expressly reserved by each, to terminate the Service of the
optionee at any time for any reason, with or without cause.
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XIII. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects whatsoever; provided, however,
that no such amendment or modification shall, without the consent of the
holders, adversely affect the rights and obligations with respect to options at
the time outstanding under the Plan; and provided, further that the Board shall
not, without the approval of the Corporation's stockholders, (i) increase the
maximum number of shares issuable under the Plan or the maximum number of shares
for which any person may be granted options per calendar year, except for
permissible adjustments under Section IV, (ii) materially modify the eligibility
requirements for the grant of options under the Plan or (iii) materially
increase the benefits accruing to Plan participants.
B. Options may be granted under this Plan to purchase shares of Common
Stock in excess of the number of shares then available for issuance under the
Plan, provided (i) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such option and within one (1) year thereafter such amendment is approved by
the Corporation's stockholders and (ii) each option granted is not to become
exercisable, in whole or in part, at any time prior to the obtaining of such
stockholder approval.
XIV. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan became effective when adopted by the Board on May 21, 1992 and
was approved by the Corporation's stockholders on July 8, 1992. On November 13,
1992 the Board adopted an increase in the maximum aggregate number of shares
issuable over the term of the Plan from 650,000 to 1,650,000 shares. The
increase was approved by the Corporation's stockholders on December 8, 1992. On
August 11, 1993 the Board adopted a further increase in the maximum aggregate
number of shares issuable over the term of the Plan from 1,650,000 to 2,150,000
shares. The increase was approved by the Corporation's stockholders on October
8, 1993. On January 13, 1994, the Board approved a further increase in the
aggregate number of shares issuable over the term of the Plan from 2,150,000 to
2,500,000 shares. The increase was approved by the Corporation's stockholders on
June 28, 1994. On September 14, 1994, the Board approved a further increase of
3,385,000 shares in the aggregate number of shares issuable over the term of the
Plan bringing the new aggregate to 5,885,000 shares. The increase was approved
by the Corporation's stockholders on October 5, 1994. On April 25, 1996, the
Board approved a further increase of 2,800,000 shares in the aggregate number of
shares issuable over the term of the Plan bringing the new aggregate to
8,685,000 shares, subject to stockholder approval of the 2,800,000-share
increase within twelve (12) months of the date of approval by the Board. On May
22, 1996, the Board approved certain amendments to the Plan in connection with
the filing of a Registration Statement for the initial public offering of the
Company's Common Stock, subject to shareholder approval of such changes within
twelve (12) months of the date of approval by the Board. Options may be granted
in reliance on the 2,800,000 share increase prior to
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approval of such increase by the Corporation's stockholders but no option
granted in reliance on such increase shall become exercisable, in whole or in
part, unless and until the increase shall have been approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the date of the Board's adoption of the increase, then
all options previously granted in reliance on such increase shall terminate and
no further options shall be granted. Subject to such limitation, the Plan
Administrator may grant options under the Plan at any time after the effective
date and before the date fixed herein for termination of the Plan.
B. Unless sooner terminated in accordance with Section VII, the Plan shall
terminate upon the earlier of (i) the expiration of the ten (10) year period
measured from the date of the Board's adoption of the Plan, (ii) the date on
which all shares available for issuance under the Plan shall have been issued
pursuant to the exercise or surrender of options granted hereunder or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. If the date of termination is determined under clause (i) or (iii)
above, then options outstanding on such date shall thereafter continue to have
force and effect in accordance with the provisions of the instruments evidencing
such options.
XV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.
XVI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option hereunder, and
the issuance of stock upon the exercise or surrender of any such option shall be
subject to the procurement by the Corporation of all approvals and permits
required by regulatory authorities having jurisdiction over the Plan, the
options granted under it and the stock issued pursuant to it, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
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