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:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
[X] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Cell Genesys, Inc.
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(Name of Registrant as Specified in Its Charter)
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(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)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transactions 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:
[Cell Genesys, Inc. Logo]
CELL GENESYS
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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TO BE HELD ON
June 8, 2000
TO THE STOCKHOLDERS:
Notice is hereby given that the Annual Meeting of Stockholders of Cell
Genesys, Inc., a Delaware corporation (the "Company"), will be held on Thursday,
June 8, 2000 at 10:00 a.m., local time, at the Company's offices at 342 Lakeside
Drive, Foster City, California, for the following purposes:
1. To elect directors to serve until the next annual meeting of
stockholders or until their successors are elected.
2. To approve an amendment to the Company's 1998 Incentive Stock
Plan to increase the number of shares of common stock reserved
for future issuance by 1,500,000 shares.
3. To approve an amendment to the Company's Employee Stock
Purchase Plan to increase the number of shares of common stock
reserved for future issuance by 150,000 shares.
4. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December
31, 2000.
5. To transact such other business as may properly come before
the meeting or any adjournment thereof.
These items of business are more fully described in the Proxy Statement
accompanying this notice.
Only stockholders of record at the close of business on April 12, 2000
are entitled to notice of and to vote at the meeting and any adjournment
thereof.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, please mark, sign, date
and return the enclosed proxy card as soon as possible in the postage-prepaid
envelope enclosed for that purpose. Any stockholder attending the meeting may
vote in person even if the stockholder has returned a proxy.
Sincerely,
Matthew J. Pfeffer
Assistant Secretary
Foster City, California
April 28, 2000
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IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
- --------------------------------------------------------------------------------
CELL GENESYS, INC.
342 Lakeside Drive
Foster City, CA 94404
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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
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INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed proxy is solicited on behalf of the board of directors of
Cell Genesys, Inc., a Delaware Corporation, ("Cell Genesys" or the "Company")
for use at the Annual Meeting of Stockholders to be held on Thursday, June 8,
2000 at 10:00 a.m., local time, or at any adjournment of the meeting, for the
purposes set forth in this Proxy Statement and in the accompanying Notice of
Annual Meeting of Stockholders. The annual meeting will be held at the Company's
offices at 342 Lakeside Drive, Foster City, California 94404. The Company's
telephone number is (650) 425-4400.
These proxy solicitation materials were mailed on or about April 28,
2000, together with the Company's 1999 Annual Report to Stockholders, to all
stockholders entitled to vote at the meeting.
Record Date
Stockholders of record at the close of business on April 12, 2000 (the
"Record Date") are entitled to notice of and to vote at the meeting. At the
Record Date, 33,668,366 shares of the Company's common stock were issued and
outstanding.
Revocability of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Company a
written notice of revocation or a duly executed proxy bearing a later date or
time or by attending the meeting and voting in person.
Voting and Solicitation
Every stockholder voting in the election of directors may cumulate such
stockholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of shares held by such
stockholder, or distribute the stockholder's votes on the same principle among
as many candidates as the stockholder may select, provided that votes cannot be
cast for more candidates than the number of directors to be elected. However, no
stockholder shall be entitled to cumulate votes unless the candidate's name has
been placed in nomination prior to the voting and the stockholder, or any other
stockholder, has given notice at the meeting prior to the voting of the
intention to cumulate the stockholder's votes. On all other matters, each share
has one vote.
The cost of soliciting proxies will be borne by the Company. Proxies
may also be solicited by certain of the Company's directors, officers and
employees, without additional compensation, personally or by telephone,
facsimile or letter.
Quorum; Abstentions; Broker Non-Votes
A quorum is required for the transaction of business during the annual
meeting. A quorum is present when a majority of shareholder votes are present in
person or by proxy. Shares that are voted "FOR", "AGAINST" or "WITHHELD" on a
matter are treated as being present at the meeting for purposes of establishing
a quorum and are also treated as shares cast by the common stock present in
person or represented by proxy at the annual meeting and entitled to vote on the
subject matter (the "Votes Cast").
The Company will count abstentions for purposes of determining both (i)
the presence or absence of a quorum for the transaction of business and (ii) the
total number of Votes Cast with respect to a proposal (other than the election
of directors). Abstentions will have the same effect as a vote against the
proposal.
1
Broker non-votes will be counted for purposes of determining the
presence or absence of a quorum for the transaction of business. Broker
non-votes will not be counted for purposes of determining the number of Votes
Cast with respect to the particular proposal. Thus, a broker non-vote will not
have any effect on the outcome of the voting on a proposal.
Deadline for Receipt of Stockholder Proposals
The attached proxy card grants the proxy holders discretionary
authority to vote on any matter raised at the 2000 annual meeting. Proposals for
the Company's 2001 Annual Meeting of Stockholders must be received by the
Company no later than December 30, 2000 in order to be considered for inclusion
in the proxy statement and form of proxy relating to the Company's 2001 meeting.
If a shareholder intends to submit a proposal at the 2001 annual
meeting that is not eligible for inclusion in the proxy statement and proxy, the
stockholder must do so no later than March 14, 2001. If such a shareholder fails
to comply with the foregoing notice provision, the proxy holders will be allowed
to use their discretionary authority when the proposal is raised at the 2001
annual meeting.
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
Six directors are to be elected at the annual meeting. Unless otherwise
instructed, the proxy holders will vote the proxies received by them for the
Company's six nominees named below, all of whom are presently directors of the
Company. If any nominee of the Company is unable or declines to serve as a
director at the time of the annual meeting, the proxies will be voted for any
nominee designated by the present board of directors to fill the vacancy. If
additional persons are nominated for election as directors, the proxy holders
intend to vote all proxies received by them in such a manner in accordance with
cumulative voting (if applicable) as will assure the election of as many of the
nominees listed below as possible, and, in such event, the specific nominees to
be voted for will be determined by the proxy holders. Joseph E. Maroun will not
seek election for the upcoming term of office. Mr. Maroun has been a director of
Cell Genesys since 1995 and we thank him for his service during the past five
years.
The Company is not presently aware of any nominee who will be unable or
will decline to serve as a director. The term of office of each person elected
as a director will continue until the next annual meeting of stockholders or
until a successor has been elected and qualified.
The names of the nominees and certain information about them as of the
Record Date are listed below.
Director
Names of Nominees Age Principal Occupation Since
- ----------------- --- -------------------- -----
Stephen A. Sherwin, M.D. . 51 Chairman of the Board, President 1990
and Chief Executive Officer of
the Company
David W. Carter .......... 61 Chairman of the Board of Xenogen 1997
Corporation
James M. Gower ........... 52 Chairman of the Board and Chief 1996
Executive Officer of Rigel, Inc.
John T. Potts, Jr., M.D. . 68 Director of Research, 1997
Massachusetts General Hospital
Eugene L. Step ........... 71 Retired Executive Vice President, 1993
President -- Pharmaceutical
Division, Eli Lilly & Co.
Inder M. Verma, Ph.D. .... 52 Professor of Molecular Biology 1997
and Virology, The Salk Institute
2
Dr. Sherwin has served as president, chief executive officer and a
director of the Company since March 1990. In March 1994, Dr. Sherwin was elected
to the additional position of chairman of the Company's board of directors. From
1983 to 1990, Dr. Sherwin held various positions at Genentech, Inc., a
biotechnology company, most recently as vice president of clinical research.
Prior to 1983, Dr. Sherwin held various positions on the staff of the National
Cancer Institute. Dr. Sherwin is a director of Abgenix, Inc., Neurocrine
Biosciences, Inc., Rigel, Inc. and Calyx Therapeutics, Inc. Dr. Sherwin holds a
B.A. from Yale University in biology and an M.D. from Harvard Medical School.
Mr. Carter has served as a director of Cell Genesys since May 1997. Mr.
Carter has served as chairman of the board of directors of Xenogen Corporation
since November 1997. Previously, Mr. Carter served as president, chief executive
officer and chairman of the board of directors of Somatix Therapy Corporation.
Prior to 1991, he was president and chief operating officer of Northfield
Laboratories. Mr. Carter also serves as a director of Immunogen, Inc. Mr. Carter
received a B.A. and an M.B.A. from Indiana University.
Mr. Gower has served as a director of Cell Genesys since July 1996. In
1996, Mr. Gower became chairman and chief executive officer of Rigel, Inc. From
1992 to 1996, Mr. Gower served as president and chief executive officer of
Tularik, Inc. From 1981 to 1990, he was with Genentech, Inc., most recently as
senior vice president responsible for sales, marketing, business development and
product planning. From 1972 to 1981, Mr. Gower served in a variety of positions
in sales and marketing at American Hospital Supply Corporation, most recently as
vice president of marketing. Mr. Gower received a B.S. degree in operations
research and an M.B.A. from the University of Tennessee.
Dr. Potts has served as a director of Cell Genesys since May 1997.
Previously, Dr. Potts had served as a director of Somatix Therapy Corporation
since March 1995. His career spans 40 years of distinguished service in science
and medicine. He earned his M.D. in 1957 from the University of Pennsylvania,
then trained at Massachusetts General Hospital and National Heart Institute. At
the National Institutes of Health, he became head of the section on polypeptide
hormones prior to becoming chief of endocrinology at Massachusetts General
Hospital in 1968. Dr. Potts served as physician-in-chief at Massachusetts
General Hospital and Jackson Professor of Clinical Medicine at Harvard Medical
School from 1981 to 1996. In September 1996, Dr. Potts moved from the post of
physician-in-chief to director of research at Massachusetts General Hospital and
Jackson Distinguished Professor of Clinical Medicine at Harvard Medical School.
Mr. Step was appointed a director of Cell Genesys in March 1993. From
1973 to 1992, Mr. Step served in various positions in senior management of Eli
Lilly and Company, most recently as executive vice president, president of the
pharmaceutical division and a member of the board of directors and its executive
committee. Mr. Step is a past chairman of the board of the Pharmaceutical
Manufacturers Association and a past president of the International Federation
of Pharmaceutical Manufacturers Association. Mr. Step is also a director of
Scios, Inc., Medco, Inc., Guidant Corporation, Pathogenesis Corporation and DBT
Online Inc. Mr. Step holds a B.A. degree in economics from the University of
Nebraska and an M.S. in finance and accounting from the University of Illinois.
Dr. Verma has served as a director of Cell Genesys since May 1997.
Previously, Dr. Verma had served as a director of Somatix Therapy Corporation
since June 1996. Dr. Verma is co-director of the laboratory of genetics, The
Salk Institute. He joined The Salk Institute in 1974. In 1995, the National
Institutes of Health selected Dr. Verma to chair a committee reviewing the scope
and advancement of gene therapy. Currently, Dr. Verma is also an adjunct
professor, department of biology, at the University of California, San Diego and
has been a member of the faculty since 1979. Dr. Verma is also a member of the
National Academy of Sciences and the Institute of Medicine.
There are no family relationships between directors or executive
officers of the Company.
Required Vote
The six nominees receiving the highest number of affirmative votes of
the shares present or represented and entitled to be voted for them will be
elected as directors.
3
Board Meetings and Committees
The board of directors of the Company held a total of fifteen meetings
during the fiscal year ended December 31, 1999. Each director attended at least
seventy-five percent of the meetings of the board of directors and each
committee on which he served during 1999.
The board of directors has an audit committee and a compensation
committee. It does not have a nominating committee or a committee performing the
functions of a nominating committee.
The audit committee of the board of directors met three times during
fiscal year 1999 and consisted of Dr. Potts and Mr. Step. During 2000, Messrs.
Carter and Gower joined the audit committee while Dr. Potts left the audit
committee to join the compensation committee. The audit committee recommends
engagement of the Company's independent auditors and is primarily responsible
for reviewing and approving the scope of the audit and other services performed
by the Company's independent auditors. The audit committee is also responsible
for the Company's financial reporting, accounting principles and its systems of
internal accounting controls.
The compensation committee of the board of directors, which consisted
of directors Gower and Step, met five times during fiscal year 1999. During
2000, Dr. Potts joined the compensation committee, while Mr. Gower left the
compensation committee to join the audit committee. The compensation committee
reviews and approves the Company's compensation policies as well as the
compensation of, and grant of stock options to, the executive officers.
Compensation Committee Interlocks and Insider Participation
The Company's compensation committee was composed of directors Gower
and Step during 1999 and will be composed of directors Potts and Step during
2000, none of whom is or has been an officer or employee of the Company. The
compensation committee makes recommendations to the board of directors
concerning salaries and incentive compensation for officers of the Company. Dr.
Sherwin, chairman of the board and chief executive officer of the Company, is
not a member of the compensation committee and cannot vote on matters decided by
the Committee. He participates in compensation committee discussions regarding
salaries and incentive compensation for all employees of and consultants to the
Company, except that Dr. Sherwin is excluded from discussions regarding his own
salary and incentive compensation. No interlocking relationship exists between
the Company's board of directors or compensation committee and the board of
directors or compensation committee of any other party, nor has such
relationship existed in the past.
PROPOSAL TWO
APPROVAL OF AN AMENDMENT TO 1998 INCENTIVE STOCK PLAN
General
The 1998 Incentive Stock Plan (the "Incentive Plan") was adopted by the
board of directors and initially approved by the stockholders in June, 1998. The
Incentive Plan will terminate by its own terms in 2008.
Options granted under the Incentive Plan may be either incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or nonstatutory options. In addition, the Incentive
Plan provides for the grant of stock purchase rights. All such options and
purchase rights are collectively referred to below as "Rights". The Incentive
Plan is not a qualified deferred compensation plan under Code Section 401(a) and
is not subject to the provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA").
Proposal
In April, 2000, the board of directors approved an amendment to the
Incentive Plan to increase the number of shares reserved for future issuance by
1,500,000 shares. The stockholders are being requested to approve this amendment
to the Incentive Plan.
4
As of March 31, 2000, options to purchase 71,188 shares had been
exercised, options to purchase 1,443,107 shares were outstanding with a weighted
average exercise price of $7.085, and options to purchase 245,705 shares
remained available for future grant under the Incentive Plan. The closing market
price of the Company's common stock on March 31, 2000 was $21.313.
SUMMARY OF THE INCENTIVE PLAN
Purposes of the Plan
The purposes of the Incentive Plan are to attract and retain the best
available personnel, to provide additional long-term incentives to employees and
directors of the Company and to promote the success of the Company's business.
Administration; Limits on Grants
The Incentive Plan is administered by the board of directors or by a
compensation committee appointed by the board of directors and consisting of at
least two members of the board (in either case, the "Administrator"). The
compensation committee approves the grant of stock options to the Company's
executive officers. The board has sole discretion to interpret any provision of
the Incentive Plan.
The federal tax code places limits on the deductibility, for federal
income tax purposes, of compensation paid to certain executive officers of the
Company. In order to preserve the Company's ability to deduct the compensation
income associated with options and stock purchase rights granted to such
persons, the Plan provides that no employee, director or consultant may be
granted, in any fiscal year of the Company, options and stock purchase rights to
purchase more than 250,000 shares of common stock. Notwithstanding this limit,
however, in connection with such individual's initial employment with the
Company, he or she may be granted options or stock purchase rights to purchase
up to an additional 250,000 shares of common stock.
In addition to the foregoing limitation on discretion for certain
Rights, there is a limit on the aggregate market value of shares subject to all
incentive stock options held by an optionee which may vest during any calendar
year. See "Tax Information -- Incentive Stock Options" below.
Eligibility
The Incentive Plan provides that Rights may be granted to the Company's
employees, directors, and consultants, and to employees of and consultants to
the Company's majority-owned subsidiaries. Only employees may be granted
"incentive stock options" as defined in Section 422 of the Code. The
Administrator selects the optionees and determines the number of shares to be
subject to each option.
Terms of Options
Each option granted under the Incentive Plan is evidenced by a written
stock option agreement between the Company and the optionee and is subject to
the following additional terms and conditions:
(a) Duration and Termination of Options. Options granted under
the Incentive Plan have a maximum term of ten years from the date of
grant. An option granted to a person who, immediately before the grant
of such option, owns more than ten percent of the voting power or value
of all classes of stock of the Company may not have a term of more than
five years. No option may be exercised after the expiration of its
term.
(b) Exercise of the Option. The Administrator determines on
the date of grant of each option when the option will be exercisable.
Options granted to employees and directors generally become exercisable
("vest") over four years.
An option granted under the Incentive Plan is
exercised by giving written notice of exercise to the Company,
specifying the number of shares of common stock to be
purchased and tendering payment of the purchase price to the
Company. Payment for shares issued upon exercise of an option
may, depending on the terms of the option agreement, consist
of cash, check, promissory notes, surrender of shares of
common stock owned by the optionee or such other consideration
as determined by the Administrator.
5
(c) Exercise Price. The exercise price of options granted
under the Incentive Plan is determined by the board of directors. The
exercise price of incentive stock options may not be less than 100
percent of the fair market value of the common stock on the date of
grant. However, the exercise price of incentive stock options granted
to a person who owns more then ten percent of the voting power or value
of all classes of stock of the Company must not be less than 110
percent of the fair market value on the date of grant. The common stock
is currently traded on the Nasdaq National Market. While the Company's
stock is traded on the Nasdaq National Market, the fair market value is
the reported closing price.
(d) Termination of Service. Except as described below, if an
optionee's employment by or services to the Company terminate for any
reason, the option is exercisable within a period of time determined by
the board of directors or its compensation committee to the extent
vested on the date of termination. For terminations other than as a
result of disability, the time period is generally 3 months. However,
the time period cannot extend beyond the expiration date of the option.
(e) Nontransferability of Options. An option is generally not
transferable by the optionee, other than by will or the laws of descent
and distribution. During the optionee's lifetime, only the optionee may
exercise the option.
Stock Purchase Rights
In the case of stock purchase rights, unless the Administrator
determines otherwise, the restricted stock purchase agreement shall grant the
Company a repurchase option exercisable upon the voluntary or involuntary
termination of the purchaser's employment with the Company for any reason
(including death or disability). The purchase price for shares repurchased
pursuant to the restricted stock purchase agreement shall be the original price
paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at a rate determined
by the Administrator.
Changes in Capitalization
In the event of changes in the common stock by reason of stock
dividends, split-ups or combinations of shares, reclassifications,
recapitalizations, mergers, consolidations, reorganizations, or liquidations,
the board or its compensation committee will adjust the exercise price and the
number and class of shares subject to each option or stock purchase right as the
board or its compensation committee deems appropriate. Such adjustment is final
and conclusive.
In the event of a liquidation or dissolution, any unexercised options
or stock purchase rights will terminate. The Administrator may, in its
discretion, provide that each optionee shall have the right to exercise all of
the optionee's options and stock purchase rights, including those not otherwise
exercisable, until the date ten (10) days prior to the consummation of the
liquidation or dissolution.
In connection with any merger or sale of assets of the Company, each
outstanding option or stock purchase right shall be assumed or an equivalent
option or right substituted by the successor corporation. If the successor
corporation refuses to assume the options and stock purchase rights or to
substitute substantially equivalent options and stock purchase rights, the
optionee shall have the right to exercise the option or stock purchase right to
all the optioned stock, including shares not otherwise exercisable. In such
event, the Administrator shall notify the optionee that the option or stock
purchase right is fully exercisable for fifteen (15) days from the date of such
notice and that the option or stock purchase right terminates upon expiration of
such period.
Amendment and Termination
The board may at any time amend or terminate the Incentive Plan without
approval of the stockholders. The Company currently intends to obtain
stockholder approval of any amendment to the Incentive Plan to the extent
necessary to comply with Rule 16b-3 under the Securities Exchange Act of 1934
(the "Exchange Act"), with Section 422 of the Code, or with any other applicable
law or regulation, including requirements of the Nasdaq Stock Market. Any
amendment or termination of the Incentive Plan is subject to the rights of
optionees under agreements entered into prior to such amendment or termination.
6
Tax Information
The following is a brief summary of the federal income tax consequences
of transactions under the Incentive Plan based on federal securities and income
tax laws in effect March 1, 2000. This summary is not intended to be exhaustive
and does not discuss the tax consequences of a participant's death or provisions
of the income tax laws of any municipality, state or foreign country in which an
optionee may reside.
Options granted under the Incentive Plan may be either incentive stock
options, as defined in Section 422 of the Code, or nonstatutory options.
Incentive Stock Options. No taxable income is recognized by the
optionee upon grant or exercise of an incentive stock option (unless the
alternative minimum tax rules apply). If common stock is issued to an optionee
pursuant to the exercise of an incentive stock option, and if no disqualifying
disposition of such shares is made by such optionee within two years after the
date of grant and within one year after the date of exercise by the optionee,
then (i) upon the resale of such shares, any amount realized in excess of the
option exercise price will be treated as long-term capital gain and any loss
sustained will be long-term capital loss, and (ii) no deduction will be allowed
to the Company for federal income tax purposes. The exercise of an incentive
stock option may result in alternative minimum tax liability to the optionee.
If common stock acquired upon the exercise of an incentive stock option
is disposed of before the expiration of either holding period described above,
generally (i) the optionee will recognize income in the year of disposition in
an amount equal to the excess (if any) of the fair market value of the shares at
exercise (or, if less, the amount realized on the disposition of the shares)
over the option exercise price paid for such shares, and (ii) the Company is
entitled to a tax deduction in the same amount. Any further gain or loss
realized by the participant will be taxed as short-term or long-term capital
gain or loss, as the case may be, and will not result in any deduction by the
Company.
Nonstatutory Stock Options. Generally, with respect to nonstatutory
stock options, (i) no income is recognized by the optionee at the time the
option is granted; (ii) generally, at exercise, ordinary income is recognized by
the optionee in an amount equal to the difference between the option exercise
price and the fair market value of the shares on the date of exercise, and the
Company is entitled to a tax deduction in the same amount; and (iii) at
disposition, any gain or loss is treated as a capital gain or loss. In the case
of an optionee who is also an employee, any income recognized upon exercise of a
nonstatutory stock option will constitute wages for which withholding will be
required.
Stock Purchase Rights
Stock purchase rights will generally be taxed in the same manner as
nonstatutory stock options. However, restricted stock is generally purchased
upon the exercise of a stock purchase right. At the time of purchase, restricted
stock is subject to a "substantial risk of forfeiture" within the meaning of
Section 83 of the Code, because the Company may repurchase the stock when the
purchaser ceases to provide services to the Company. As a result of this
substantial risk of forfeiture, the purchaser will not recognize ordinary income
at the time of purchase. Instead, the purchaser will recognize ordinary income
on the dates when the stock is no longer subject to a substantial risk of
forfeiture (i.e., when the Company's right of repurchase lapses). The
purchaser's ordinary income is measured as the difference between the purchase
price and the fair market value of the stock on the date the stock is no longer
subject to right of repurchase.
The purchaser may accelerate to the date of purchase his or her
recognition of ordinary income, if any, and begin his or her capital gains
holding period by timely filing, (i.e, within thirty days of the purchase), an
election pursuant to Section 83(b) of the Code. In such event, the ordinary
income recognized, if any, is measured as the difference between the purchase
price and the fair market value of the stock on the date of purchase, and the
capital gain holding period commences on such date. The ordinary income
recognized by a purchaser who is an employee will be subject to tax withholding
by the Company.
7
Participation in the Incentive Plan
The following table shows the number of options granted to the named
groups under the Incentive Plan during the year ended December 31, 1999.
PLAN BENEFITS
1998 Incentive Stock Plan
Number of
Name and Position (1) Options (2)
- --------------------- -----------
Executive Officers as a Group ................................ 639,000
Non-Executive Director Group ................................. --
Non-Executive Officer Employee Group ......................... 641,250
- ------------
(1) The table of option grants under Executive Compensation -- Option Grants in
Last Fiscal Year appearing later in this proxy statement provides
information with respect to the grant of options to the Company's Chief
Executive Officer and the other Named Officers during the last fiscal year.
(2) All options are granted at no less than fair market value on the date of
grant.
Required Vote
The affirmative vote of the holders of a majority of the shares of the
Company's common stock voting in person or by proxy on this proposal at the
annual meeting is required to approve the amendment to the 1998 Incentive Stock
Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE AMENDMENT TO THE 1998 INCENTIVE STOCK PLAN.
PROPOSAL THREE
APPROVAL OF AN AMENDMENT TO EMPLOYEE STOCK PURCHASE PLAN
General
The 1992 Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan") was adopted by the board of directors and initially approved by the
stockholders in March 1992. The Employee Stock Purchase Plan permits employees
to purchase the Company's common stock at a discounted price through accumulated
payroll deductions.
Proposal
In April 2000, the board of directors approved an amendment to the
Employee Stock Purchase Plan to increase the number of shares reserved for
future issuance by 150,000 shares. The stockholders are being requested to
approve this amendment to the Employee Stock Purchase Plan.
As of March 31, 2000, 432,813 shares had been purchased under the
Employee Stock Purchase Plan, and 67,187 shares remain available for future
purchase.
SUMMARY OF EMPLOYEE STOCK PURCHASE PLAN
Purpose of the Plan
The Employee Stock Purchase Plan is designed to encourage and assist
all employees of the Company to acquire an equity interest in the Company
through the purchase of common stock. It is also intended to provide to United
States employees participating in the plan the tax benefits available under
Section 421 of the Code.
8
Administration
The Purchase Plan may be administered by the board or a committee
appointed by the board. All questions of interpretation or application of the
Purchase Plan are determined by the board or its appointed committee, and its
decisions are final, conclusive and binding upon all participants.
Eligibility
Each employee of the Company (including officers) who regularly works
at least 20 hours per week and more than five (5) months in any calendar year
and has been continuously employed for at least three (3) consecutive months
prior to an Offering Period, is eligible to participate in the Purchase Plan if
so employed on the first day of an Offering Period; provided, however, that
certain limitations imposed by Section 423(b) of the Code and limitations on
stock ownership as set forth in the Purchase Plan may apply. Eligible employees
become participants in the Purchase Plan by filing with the Company a
subscription agreement authorizing payroll deductions prior to the first day of
each Offering Period unless a different time for filing the subscription
agreement has been set by the board.
Participation in an Offering
The Purchase Plan has consecutive and overlapping twenty four-month
offering periods that begin every six months (the "Offering Periods") on
February 1 and August 1 of each year. Each twenty four-month Offering Period
includes four six-month purchase periods (each a "Purchase Period"), during
which payroll deductions are accumulated and, at the end of which, shares of
common stock are purchased with a participant's accumulated payroll deductions.
The board has the power to change the duration of future Offering Periods. To
participate in the Purchase Plan, an eligible employee must authorize payroll
deductions pursuant to the Purchase Plan. Such payroll deductions may not exceed
ten percent of a participant's compensation during the Offering Period. Once an
employee becomes a participant in the Purchase Plan, the employee will
automatically participate in each successive Offering Period until such time as
the employee withdraws from the Purchase Plan or the employee's employment with
the Company terminates. At the beginning of each Offering Period, each
participant is automatically granted an option to purchase shares of the
Company's common stock. The option expires at the end of the Offering Period or
upon termination of employment, whichever is earlier, but is exercised at the
end of each Purchase Period to the extent of the payroll deductions accumulated
during such Purchase Period.
Purchase Price, Shares Purchased
Shares of common stock may be purchased under the Purchase Plan at a
Purchase Price not less than 85 percent of the lesser of the fair market value
of the common stock on (i) the first day of the Offering Period or (ii) the last
day of the Purchase Period. The Fair Market Value of the common stock on any
relevant date will be the closing price per share as reported on the Nasdaq
National Market (or the mean of the closing bid and asked prices, if no sales
were reported) as quoted on such exchange or reported in The Wall Street
Journal. The number of shares of common stock a participant purchases in each
Offering Period is determined by dividing the total amount of payroll deductions
withheld from the participant's compensation prior to the last day of the
Purchase Period by the Purchase Price.
Termination of Employment
Termination of a participant's employment for any reason, including
disability or death, or the failure of the participant to remain in the
continuous scheduled employ of the Company for at least 20 hours per week,
cancels his or her option and participation in the Purchase Plan immediately. In
such event, the payroll deductions credited to the participant's account will be
returned to him or her or, in the case of death, to the person or persons
entitled thereto as provided in the Purchase Plan.
Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
Merger or Asset Sale
Changes in Capitalization
Subject to any required action by the stockholders of the Company, the
number of shares reserved under the Purchase Plan as well as the price per share
of common stock covered by each option under the Purchase Plan which has not yet
been exercised 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,
9
stock dividend, combination or reclassification of the common stock, or any
other increase or decrease in the number of 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 adjustment by reason thereof shall be made
with respect to, the number or price of shares of common stock subject to an
option.
Dissolution or Liquidation
In the event of the proposed dissolution or liquidation of the Company,
any Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the board.
Merger or Asset Sale
In the event of any merger or sale of assets of the Company, each
option under the Purchase Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. In the event the successor corporation refuses to assume
or substitute for the options, the board shall shorten any Purchase Periods and
Offering Periods then in progress by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods shall end on the New Exercise Date. The
New Exercise Date shall be prior to the merger, consolidation or asset sale. If
the board shortens any Purchase Periods and Offering Periods then in progress,
the board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date has been changed to
the New Exercise Date and that the option will be exercised automatically on the
New Exercise Date, unless the participant has already withdrawn from the
Offering Period.
Amendment and Termination of the Plan
The board of directors may at any time terminate or amend the Purchase
Plan. An Offering Period may be terminated by the board of directors at the end
of any Purchase Period if the board determines that termination of the Purchase
Plan is in the best interests of the Company and its stockholders. Generally, no
such termination can affect options previously granted. No amendment shall be
effective unless it is approved by the holders of a majority of the votes cast
at a duly held meeting of stockholders, if such amendment would require
stockholder approval in order to comply with Section 423 of the Code. The
Purchase Plan will terminate in 2002.
Withdrawal
Generally, a participant may withdraw from an Offering Period at any
time by written notice without affecting his or her eligibility to participate
in future Offering Periods. However, once a participant withdraws from a
particular Offering Period, that participant may not participate again in the
same Offering Period. To participate in a subsequent Offering Period, the
participant must deliver to the Company a new subscription agreement.
Federal Tax Information for Purchase Plan
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Sections 421 and 423
of the Code. Under these provisions, no income will be taxable to a participant
until the shares purchased under the Purchase Plan are sold or otherwise
disposed of. Upon sale or other disposition of the shares, the participant will
generally be subject to tax and the amount of the tax will depend upon the
holding period. If the shares are sold or otherwise disposed of more than two
(2) years from the first day of the Offering Period and one (1) year from the
date of purchase, the participant will recognize ordinary income measured as the
lesser of (i) the excess of the fair market value of the shares at the time of
such sale or disposition over the purchase price, or (ii) an amount equal to 15
percent of the fair market value of the shares as of the first day of the
Offering Period. Any additional gain will be treated as long-term capital gain.
If the shares are sold or otherwise disposed of before the expiration of this
holding period, the participant will recognize ordinary income generally
10
measured as the excess of the fair market value of the shares on the date the
shares are purchased over the purchase price. Any additional gain or loss on
such sale or disposition will be a long-term or short-term capital gain or loss,
depending on the holding period. The Company is not entitled to a deduction for
amounts taxed as ordinary income or capital gain to a participant except to the
extent of ordinary income recognized by participants upon a sale or disposition
of shares prior to the expiration of the holding period(s) described above.
The foregoing is only a summary of the effect of federal income
taxation upon the participant and the Company with respect to the shares
purchased under the Purchase Plan. Reference should be made to the applicable
provisions of the Code. In addition, the summary does not discuss the tax
consequences of a participant's death or the income tax laws of any state or
foreign country in which the participant may reside.
Participation in the Employee Stock Purchase Plan
The following table shows the "Dollar Value" and number of shares
applicable to the named individuals and groups under the 1992 Employee Stock
Purchase Plan during the year ended December 31, 1999 and the purchase period
ending January 31, 2000. The "Dollar Value" is the difference between the fair
market value of the common stock on the dates of purchase and the participant's
purchase price.
PLAN BENEFIT
1992 Employee Stock Purchase Plan
Dollar Number
Name and Position Value ($) of Shares (#)
- ----------------- --------- -------------
Stephen A. Sherwin, M.D .............................................................................. 821 812
Chairman, President and Chief Executive Officer
Dale G. Ando, M.D .................................................................................... 1,720 1,984
Vice President, Clinical Research & Regulatory Affairs
David F. Broad, Ph.D ................................................................................. 977 1,126
Vice President, Development & Manufacturing
Bruce A. Hironaka .................................................................................... 4,111 4,074
Vice President, Corporate Development
Christine McKinley ................................................................................... -- --
Vice President, Human Resources
Executive Officers as a Group ........................................................................ 10,359 10,729
Non-Executive Director Group (1) ..................................................................... -- --
Non-Executive Officer Employee Group ................................................................. 65,752 67,505
<FN>
- ------------
(1) Members of the board of directors are ineligible to participate in this
Plan, unless they are also employees of the Company.
</FN>
Required Vote
The affirmative vote of a majority of the shares of the Company's
common stock voting in person or by proxy on this proposal at the annual meeting
is required to approve the amendment to the 1992 Employee Stock Purchase Plan.
THEBOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN.
11
PROPOSAL FOUR
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The board of directors has selected Ernst & Young LLP, independent
auditors, to audit the financial statements of the Company for the fiscal year
ending December 31, 2000. Ernst & Young LLP has audited the Company's financial
statements since the year ended December 31, 1989. Representatives of Ernst &
Young LLP are expected to be present at the meeting with the opportunity to make
a statement if they desire to do so, and are expected to be available to respond
to appropriate questions.
Required Vote
The affirmative vote of the holders of a majority of the shares of the
Company's common stock voting in person or by proxy on this proposal at the
annual meeting is required to approve the appointment of the independent
auditors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
OTHER INFORMATION
Stock Ownership of Principal Stockholders and Management
The following table sets forth the beneficial ownership of common stock
of the Company as of March 31, 2000 by: (a) each person known to the Company who
beneficially owns five percent or more of the outstanding shares of its common
stock; (b) each director; (c) each of the executive officers named in the
Summary Compensation Table below; and (d) all directors and executive officers
as a group:
Shares Percentage(%)
Name and Address of Beneficial Owner Beneficially Owned (1) Beneficially Owned (2)
- ----------------------------------------------- ------------------------ ------------------------
Aventis Pharmaceuticals Inc. (3) ...................... 1,900,000 5.53
9300 Ward Parkway
Kansas City, MO 64114
David W. Carter (4) ................................... 22,500 *
James M. Gower (5) .................................... 51,250 *
Joseph E. Maroun (6) .................................. 64,700 *
John T. Potts, Jr., M.D. (7) .......................... 30,000 *
Stephen A. Sherwin, M.D. (8) .......................... 930,658 2.72
Eugene L. Step (9) .................................... 83,500 *
Inder M. Verma, Ph.D. (10) ............................ 68,500 *
Dale G. Ando, M.D. (11) ............................... 94,738
David F. Broad, Ph.D. (12) ............................ 7,031 *
Bruce A. Hironaka (13) ................................ 36,608 *
Christine McKinley (14) ............................... 92,898 *
All executive officers and directors as a group
(13 persons) (15) ................................ 1,443,883 4.13
<FN>
- ------------
* Less than 1 percent
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table, to the Company's knowledge, have sole voting
and investment power with respect to all shares of common stock shown as
beneficially owned by them.
12
(2) Percentage of beneficial ownership is based on 33,586,229 shares of common
stock outstanding as of March 31, 2000. Shares of common stock subject to
options or warrants currently exercisable, or exercisable within 60 days,
are deemed outstanding for computing the percentage of the person holding
such options but are not deemed outstanding for computing the percentage of
any other person.
(3) Includes 750,000 shares subject to a warrant that is exercisable at $13 per
share.
(4) Consists of 22,500 shares subject to options that are exercisable within 60
days after March 31, 2000.
(5) Consists of 51,250 shares subject to options that are exercisable within 60
days after March 31, 2000.
(6) Includes 52,500 shares subject to options that are exercisable within 60
days after March 31, 2000.
(7) Consists of 30,000 shares subject to options that are exercisable within 60
days after March 31, 2000.
(8) Includes 625,250 shares subject to options that are exercisable within 60
days after March 31, 2000. Additionally, includes 30,000 shares held in
irrevocable trust for Dr. Sherwin's child for which he disclaims beneficial
ownership.
(9) Consists of 83,500 shares subject to options that are exercisable within 60
days after March 31, 2000.
(10) Consists of 30,000 shares subject to options that are exercisable within 60
days after March 31, 2000.
(11) Includes 94,738 shares subject to options that are exercisable within 60
days after March 31, 2000.
(12) Includes 7,031 shares subject to options that are exercisable within 60
days after March 31, 2000.
(13) Consists of 36,608 shares subject to options that are exercisable within 60
days after March 31, 2000.
(14) Consists of 92,898 shares subject to options that are exercisable within 60
days after March 31, 2000.
(15) Includes 1,410,211 shares subject to options that are exercisable within 60
days after March 31, 2000.
</FN>
13
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation of the Company's chief executive officer ("CEO") and each of the
four other most highly compensated executive officers (collectively, the "Named
Officers") for services in all capacities as officers to the Company during
fiscal years 1997, 1998 and 1999.
Summary Compensation Table
Long-Term
Compensation
----------------------------
Annual Compensation Securities
------------------------------------ Underlying
Name and Principal Position Year Salary($) Bonus($)(1) Options(3)(2)
- --------------------------------------- ------ ----------- ------------- ----------------------------
Stephen A. Sherwin, M.D. .............. 1999 395,000 170,000 100,000(3)
Chairman, President and 70,000(4)
Chief Executive Officer 1998 378,525 100,000 250,000(5)
250,000(6)
1997 360,500 60,000
160,000(6)
Dale G. Ando, M.D. .................... 1999 205,000 49,500 22,500(3)
Vice President, 22,500(4)
Clinical Research & Regulatory Affairs 1998 181,000 29,000 22,500
122,500(6)
1997 80,881 100,000(7)
David F. Broad, Ph.D. ................. 1999 188,000 45,000 22,500(3)
Vice President, 22,500(4)
Development & Manufacturing 1998 180,000 29,000 45,000
117,000(6)
1997 168,500 45,000
57,000(6)
Bruce A. Hironaka ..................... 1999 200,000 56,000 30,000(3)
Vice President, 25,000(4)
Corporate Development 1998 187,500 47,000 45,000
136,575(6)
1997 172,375 45,000
61,575(6)
Christine McKinley .................... 1999 164,000 46,000 22,500(3)
Vice President, 25,000(4)
Human Resources 1998 157,000 29,000 45,000
142,700(6)
1997 150,800 45,000
57,700(6)
<FN>
- ------------
(1) These bonuses, which were awarded for and accrued in the year noted, were
paid in the subsequent year.
(2) Cell Genesys has no restricted stock awards, stock appreciation rights or
long-term incentive plan payouts.
(3) Consists of options granted 2/2/1999, related to performance during 1998.
(4) Consists of options granted 12/9/1999, related to performance during 1999.
(5) Of the options held by Dr. Sherwin, 250,000 were excluded from repricing and
were retained at their original option price which is higher than the
repriced options discussed in note (6) below.
14
(6) During 1997 and 1998, a majority of employees, including officers,
surrendered and cancelled certain previously granted options in exchange for
new options at a revised price. See also "Compensation Committee Report on
Executive Compensation".
(7) Dr. Ando joined the company as Vice President, Clinical Research on July
15, 1997.
Option Grants in Last Fiscal Year
The following table sets forth each grant of stock options to the Named
Officers in fiscal year 1999:
</FN>
Value at Assumed Potential Realizable
Individual Grants Annual Rates of
-------------------------------- Stock Price
Percent of Total Appreciation
Number of Options for Option Term
Securities Granted to Exercise ($)(3)
Underlying Employees Price $ Expiration ---------------------
Name Options Granted(1) in 1999 (%)(2) (per share) Date 5% 10%
- --------------------------------- -------------------- ------------------ ------------- ------------ --------- -----------
Stephen A. Sherwin, M.D. ........ 100,000(4) 7.8 5.875 02/02/09 369,476 936,324
70,000(5) 5.4 9.500 12/09/09 418,215 1,059,839
Dale G. Ando, M.D. .............. 22,500(4) 1.7 5.875 02/02/09 83,132 210,673
22,500(5) 1.7 9.500 12/09/09 134,426 340,662
David F. Broad, Ph.D. ........... 22,500(4) 1.7 5.875 02/02/09 83,132 210,673
22,500(5) 1.7 9.500 12/09/09 134,426 340,662
Bruce A. Hironka ................ 30,000(4) 2.3 5.875 02/02/09 110,843 280,897
25,000(5) 1.9 9.500 12/09/09 149,362 378,514
Christine McKinley .............. 22,500(4) 1.7 5.875 02/02/09 83,132 210,673
25,000(5) 1.9 9.500 12/09/09 149,362 378,514
<FN>
- ------------
(1) Options granted under the Incentive Plan have a maximum term of ten years
but may be terminated earlier upon termination of employment. Shares vest
over a four-year period at the rate of 1/48th per month.
(2) Based on an aggregate of 1,286,250 options granted to employees in 1999.
(3) The potential realizable value is calculated based on the ten-year term of
the option and the fair market value of the common stock at the time the
option was granted, compounded annually. The five percent and ten percent
assumed annualized rates of compound stock price appreciation are provided
in compliance with the rules of the SEC and are not meant to represent the
Company's estimate or a projection by the Company of future common stock
prices.
(4) Consists of options granted 2/2/1999, related to performance during 1998.
(5) Consists of options granted 12/9/1999, related to performance during 1999.
</FN>
15
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth certain information concerning option
exercises in 1999 and unexercised options held as of December 31, 1999 by the
Named Officers.
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-money
Acquired Options at Dec. 31, 1999 Options at Dec. 31, 1999
on Value Exercisable/ Exercisable/
Name Exercise Realized ($)(1) Unexercisable Unexercisable ($)(2)
- --------------------------------- ---------- ----------------- -------------------------- --------------------------
Stephen A. Sherwin, M.D. ........ -- -- 575,250 / 285,000 4,833,366 / 1,539,518
Dale G. Ando, M.D. .............. -- -- 77,290 / 90,210 661,652 / 633,276
David F. Broad, Ph.D. ........... -- -- 88,876 / 73,124 762,311 / 484,833
Bruce A. Hironaka ............... 5,000 46,563 105,324 / 81,251 901,930 / 532,159
Christine McKinley .............. -- -- 114,576 / 75,624 985,593 / 493,115
<FN>
- ------------
(1) Fair market of the underlying securities minus the aggregate exercise price
of the option.
(2) Fair market value of the underlying securities at December 31, 1999 less the
exercise price, based on a closing stock price of $12.813.
</FN>
Compensation of Directors
Beginning July 1, 1995, non-employee directors became eligible to receive
for their services as directors of the Company a $15,000 annual retainer and
$1,000 fee for each board meeting attended as well as reimbursement of expenses
incurred in attending board meetings. In addition, the Company has traditionally
granted 30,000 shares of common stock, vesting ratably over 48 months, to each
non-employee director (currently six persons) every four years on the day
following the annual meeting of stockholders beginning with the 1995 annual
meeting. The exercise price of all options granted is the fair market value at
the time of grant. In addition, Dr. Potts and Dr. Verma also serve on the
Company's Scientific Advisory Board. The Company provides a stock option grant
of 10,000 shares, vesting ratably over 48 months, to each non-employee member of
the Scientific Advisory Board.
Employment Contracts and Change of Control Agreements
Since the time of his initial employment in March 1990, the Company has
agreed to maintain Dr. Sherwin's salary for twelve months after termination of
his employment with the Company, unless the Company terminates Dr. Sherwin for
cause or he terminates his employment voluntarily.
The Company has implemented change in control agreements for certain
executive officers. Under these agreements, the Company has agreed to provide:
Dale G. Ando, M.D., David F. Broad, Ph.D., Bruce A. Hironaka, Christine
McKinley, Matthew J. Pfeffer and Joseph J. Vallner, Ph.D. with severance
payments in an aggregate amount equal to twelve months salary plus bonus and
certain employee benefits, following a change in control of the Company and
termination without cause by the company or upon constructive termination. Also
under a similar change of control agreement, the Company has agreed to provide
Dr. Sherwin with severance payments in an aggregate amount equal to two years
salary plus bonus and certain employee benefits. Included in Dr. Sherwin's
change in control agreement is a provision for payments by the Company of
certain taxes that may be incurred as a consequence of the agreement. Dr.
Sherwin's change of control agreement, when applicable, will supersede his
employment contract.
16
CERTAIN TRANSACTIONS
In September 1996, while a director of Somatix Therapy Corporation, Dr.
Verma received a $400,000 loan from Somatix, secured by his shares of Somatix
common stock. Cell Genesys assumed Dr. Verma's loan following its acquisition of
Somatix. Dr. Verma's shares of common stock in Cell Genesys now secure the loan.
The loan bears interest at 8.5 percent per annum and is due and payable in full
on September 1, 2001. As of December 31, 1999, the outstanding balance of the
loan was $300,000.
The Company retains certain directors under scientific consulting
agreements. During 1999, Dr. Verma earned $100,000 of which $25,500 was applied
to the payment of interest on his loan from the Company, described above.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions regarding compensation of the Company's executive officers are
made by the Cell Genesys compensation committee of the board of directors.
During 1999, the compensation committee was comprised of two non-employee
directors, Messrs. Gower and Step. The compensation committee is responsible for
setting compensation policy and determining the annual compensation of the
executive officers of Cell Genesys, including base salaries, bonuses, if any,
and stock options. Cell Genesys' executive pay programs are designed to attract
and retain executives who will contribute to Cell Genesys' long-term success, to
reward executives for achieving both short- and long-term goals of Cell Genesys,
to link executive and stockholder interests through equity-based compensation
plans, and to provide a compensation package that recognizes both individual
contributions and company performance. A substantial portion of each executive's
total compensation is intended to be variable and to relate to, and be
contingent upon, performance. The compensation committee evaluates the
performance and determines the compensation of the chief executive officer and
other executive officers of Cell Genesys annually, based upon individual
performance and the achievement of corporate goals.
General Compensation Policy
Cell Genesys' executive compensation programs seek to accomplish several
major goals:
* To recruit and retain highly qualified executive officers by offering
overall compensation that is competitive with that offered for comparable
positions in companies in the biotechnology industry of comparable size and
at a comparable stage of development.
* To motivate executives to achieve important business and performance
objectives and to reward them when such objectives are met; and
* To align the interests of executive officers with the long-term interests
of stockholders through participation in the Company's stock option plan.
The achievement of these goals is based on a mix of compensation elements,
as described below:
Base Salary
Base salaries for all employees, including executive officers, are
determined based on an established job grade and salary matrix that is designed
to provide a base salary that is competitive with comparable companies. In
monitoring the job grade and salary matrix, the compensation committee compares
compensation information derived from surveys including compensation levels for
companies of similar size and stage of development. Included in the survey are
some of the companies included in the Nasdaq Pharmaceutical Index, with the
primary focus on biotechnology companies at a similar stage in the San Francisco
Bay Area which may compete for the same pool of employees. The assessment
confirmed that Cell Genesys' base compensation was comparable to the industry
averages.
Adjustments to each individual's base salary, including executive officers,
are made in connection with annual performance reviews. The amounts of such
increases are calculated using merit increase guidelines based on the employee's
position within the relevant compensation range and the results of
17
their performance review. The recommended percentage increases are adjusted
annually to reflect the compensation committee's assessment of appropriate
salary adjustments given the results of competitive surveys and general economic
conditions.
Performance Based Incentive Plan
Officers and certain other employees may earn an annual bonus, set as a
percentage of base salary, based on the achievement of individual objectives and
corporate goals. Corporate goals are established at the start of each year in
conjunction with the compensation committee and the full board of directors.
Awards made to executive officers are based upon the achievement of corporate
goals as well as the department goals of the individual officers. These goals
may include progress made in preclinical programs and clinical trials, strategic
alliances, financing activities and the financial results of Cell Genesys. Cell
Genesys' compensation policy with respect to annual bonus was also compared to
relevant market data and found to be comparable to industry averages. From time
to time the compensation committee may elect to defer an annual cash bonus and
employ increased stock based compensation in order to conserve the Company's
financial resources and retain key employees and align the interests of the
employees with those of the stockholders.
Stock-Based Incentive Compensation
Stock options enable Cell Genesys to provide long-term incentives to its
employees, which align the interests of all employees, including the executive
officers, with those of the stockholders. Options are exercisable in the future
at the fair market value at the time of grant, so that an option holder is
rewarded only by the appreciation in price of the Cell Genesys common stock.
Stock options are granted upon commencement of employment and generally have a
four-year vesting period and expire ten years after the date of grant. Periodic
grants of stock options are generally made annually to all eligible employees
based on performance, with additional grants made to certain employees following
a significant change in job responsibility, scope or title. Guidelines for the
number of options granted to each eligible employee are determined by the
compensation committee based on several factors, including a valuation analysis
reflecting market-based compensation, salary grade and the performance of each
participant. The size of the resulting grants developed under this procedure are
targeted to be at or above competitive levels as a reflection of both providing
an incentive for favorable performance of Cell Genesys, as well as the risk
attached to the future growth of the biotechnology industry.
CEO Compensation
Dr. Sherwin's compensation for fiscal 1999 is consistent with the
compensation policy of Cell Genesys described above and the compensation
committee's evaluation of his overall leadership and management of the company
for the year. During 1999, Cell Genesys made significant progress in both
product development and business activities. Under Dr. Sherwin's leadership, the
Company completed initial studies of its lead programs, GVAX(R) cancer vaccine
for prostate cancer and lung cancer and reported positive results for
preclinical studies of gene therapies for hemophilia and other indications. The
completion of the GVAX(R) clinical trials with encouraging results led to the
initiation of new multicenter trials in both indications and also triggered the
payment of significant financial milestones under our worldwide collaboration
with the pharmaceutical division of Japan Tobacco. As a result of these and
other financial payments, Cell Genesys recorded its fourth consecutive year of
revenue growth in 1999, and ended the year with over $50 million in cash and
short term investments. Additionally, in early 2000 through participation in a
secondary stock offering of its former subsidiary, Abgenix, Cell Genesys was
able to raise an additional $194 million in net cash with no dilution to
existing shareholders. These substantial financial resources position Cell
Genesys to execute on its existing programs and take advantage of other
opportunities which may arise, including the potential acquisition of new
products and technologies.
Cell Genesys ended 1999 financially strong and well positioned in its
field. Throughout the past year, Dr. Sherwin has continued to ensure that Cell
Genesys' assets are utilized effectively and to their best advantage while
continuing to optimally manage Cell Genesys' financial resources. Dr. Sherwin's
compensation during 1999 reflects his leadership and management and the
achievements of Cell Genesys during the past year.
18
Compliance with Internal Revenue Code Section 162(m)
As a result of Section 162(m) of the Internal Revenue Code, which was
enacted into law in 1993, the Company may not take a federal income tax
deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any one year. This
limitation became effective for each year beginning after December 31, 1993 and
applies to all compensation paid to the covered executive officers which is not
considered to be performance-based. Compensation that does qualify as
performance-based compensation will not have to be taken into account for
purposes of this limitation.
The cash compensation paid to the Company's executive officers during 1999
did not exceed the $1 million limit per officer, nor is the cash compensation to
be paid to the Company's executive officers for 2000 expected to reach that
level. Because it is unlikely that the cash compensation payable to any of the
Company's executive officers in the foreseeable future will approach the $1
million limitation, the compensation committee has decided not to take any
action at this time to limit or restructure the elements of cash compensation
payable to the Company's executive officers. The Committee will reconsider this
decision should the individual compensation of any executive officer ever
approach the $1 million level.
The foregoing report has been submitted by the undersigned in our capacity
as members of the compensation committee of the Company's board of directors.
Members of the Compensation Committee
James M. Gower
Eugene L. Step
19
STOCK PERFORMANCE GRAPH
Stockholder Return Comparison
The graph below compares the cumulative total return on the Company's
common stock for fiscal years 1995 to 1999 compared to the CRSP Total Return
Index for the Nasdaq National Market (U.S. companies) and the CRSP Total Return
Index for the Nasdaq Pharmaceutical Stocks (SIC 283). The stock price
performance shown on the graph below is not necessarily indicative of future
price performance.
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
Comparison of Cumulative Stockholder Return*
[GRAPHIC OMITTED]
* Assumes $100 invested on December 31, 1994 in the Company's common stock and
in each index listed above. The total return for the Company's common stock
and the indices used assumes the reinvestment of dividends, even though
dividends have never been declared on the Company's common stock.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company's executive officers
and directors and persons who own more than ten percent of a registered class of
the Company's equity securities, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the Company. Executive
officers, directors and ten percent stockholders are required by SEC regulation
to furnish the Company with copies of all Section 16(a) forms they file.
20
OTHER MATTERS
The Company knows of no other matters to be submitted at the annual
meeting. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy to vote the shares they
represent as the board of directors may recommend.
It is important that your shares be represented at the meeting, regardless
of the number of shares, which you hold. Please complete, date, execute and
return, at your earliest convenience, the accompanying proxy card in the
envelope, which has been enclosed.
THE BOARD OF DIRECTORS
Dated: April 28, 2000
21
APPENDIX A
DETACH HERE
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
CELL GENESYS, INC.
2000 ANNUAL MEETING OF STOCKHOLDERS
JUNE 8, 2000
The undersigned stockholders of Cell Genesys, Inc., a Delaware
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 28, 2000, and hereby appoints
Stephen A. Sherwin, M.D. and Matthew J. Pfeffer, and each of them, 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 2000 Annual Meeting
of Stockholders of Cell Genesys, Inc. to be held on June 8, 2000 at 10:00 a.m.,
local time, at 342 Lakeside Drive, Foster City, CA 94404, and at any
adjournments thereof, and to vote all shares of Common Stock which the
undersigned is entitled to vote on the matters set forth on the reverse side.
- ----------- -----------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- ----------- -----------
[X] Please mark
votes as in
this example.
1. ELECTION OF DIRECTORS:
Nominees: (01) David W. Carter; (02) James M. Gower; (03) John T.
Potts, Jr., M.D.; (04) Stephen A. Sherwin, M.D.; (05) Eugene L. Step;
(06) Inder M. Verma, Ph.D.
FOR WITHHELD
[ ] [ ]
[ ] _______________________________________
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. Approve an increase in the number of shares
reserved for issuance in the Company [ ] [ ] [ ]
Incentive Stock Plan.
3. Approve an increase in the number of shares
reserved for issuance in the Company Employee [ ] [ ] [ ]
Stock Purchase Plan.
4. Proposal to ratify the appointment of Ernst
& Young LLP as independent auditors for the [ ] [ ] [ ]
2000 fiscal year.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign the proxy exactly as your name(s) appear(s) hereon. Joint owners
should sign personally. An attorney, administrator, trustee, executor, guardian
or other person signing in a representative capacity should indicate the name of
the corporation and such officer's capacity.
Signature: __________________________________________ Date: ____________________
Signature: __________________________________________ Date: ____________________