-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MAYvw7x1S3Hs1jQcEHncbGEY0hzGT0U7gtWbP8rDE19Rm8Xry6F5XEMFjexrD27n KVHPbc0yMv0P2Yhx4RipnA== 0000891618-99-003199.txt : 19990720 0000891618-99-003199.hdr.sgml : 19990720 ACCESSION NUMBER: 0000891618-99-003199 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19990719 EFFECTIVENESS DATE: 19990719 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENENTECH INC CENTRAL INDEX KEY: 0000318771 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 942347624 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-8 SEC ACT: SEC FILE NUMBER: 333-83157 FILM NUMBER: 99666489 BUSINESS ADDRESS: STREET 1: 460 POINT SAN BRUNO BLVD CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 BUSINESS PHONE: 4152251000 MAIL ADDRESS: STREET 1: 460 POINT SAN BRUNO BLVD STREET 2: . CITY: SOUTH SAN FRANCISCO STATE: CA ZIP: 94080 S-8 1 FORM S-8 1 As filed with the Securities and Exchange Commission on July 19, 1999 Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM S-8 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- GENENTECH, INC. (Exact name of registrant as specified in its charter) Delaware 94-2345624 (State of Incorporation) (I.R.S. Employer Identification No. 1 DNA Way South San Francisco, 94080-4990 California (Zip Code) (Address of principal executive offices) ---------- 1990 Stock Option/Stock Incentive Plan 1994 Stock Option Plan 1996 Stock Option/Stock Incentive Plan (Full title of the plans) Stephen G. Juelsgaard, Esq. Senior Vice President, General Counsel and Secretary Genentech, Inc. 1 DNA Way South San Francisco, California 94080-4990 (Name and address of agent for service) (650) 225-1000 (Telephone number, including area code, of agent for service) CALCULATION OF REGISTRATION FEE
============================================================================================================= Proposed Maximum Proposed Maximum Title of Securities Amount to be Offering Aggregate Amount of to be Registered Registered Price per Share (1) Offering Price (1) Registration Fee - ------------------------------------------------------------------------------------------------------------- Common stock, par value 3,991,263 shares $57.38 $229,018,671 $63,667.19 $.02 per share =============================================================================================================
(1) The Proposed Maximum Offering Price Per Share was estimated pursuant to Rule 457(h) promulgated under the Securities Act of 1933, as amended. Pursuant to Rule 457(h), the per share price of options to purchase stock under an employee stock option plan may be estimated by reference to the price to be paid upon exercise of such options. All options covering the 3,991,263 shares of Genentech, Inc.'s common stock to be registered hereunder are outstanding, and the weighted average exercise price of such options is $57.38. The actual exercise price of each option was determined with reference to the grant date of that option. 2 PART II: INFORMATION REQUIRED IN THE REGISTRATION STATEMENT ITEM 3: INCORPORATION OF DOCUMENTS BY REFERENCE In this Registration Statement, "Genentech," "we," "us" and "our" refer to Genentech, Inc. The Securities and Exchange Commission, or SEC, allows us to "incorporate by reference" the information we file with it, which means we can disclose important information by referring to those documents. The information included in the following documents is incorporated by reference and is considered to be a part of this Registration Statement. The most recent information that we file with the SEC automatically updates and supersedes more dated information. We have previously filed the following documents with the SEC and incorporate them by reference into this Registration Statement: (a) Our annual report on Form 10-K for the year ended December 31, 1998; (b) Our quarterly report on Form 10-Q for the quarter ended March 31, 1999; (c) Our current report on Form 8-K dated June 28, 1999; and (d) The description under the heading "Description of Capital Stock" relating to our common stock in the prospectus included in our Amendment No. 3 to the Registration Statement on Form S-3 (Registration No. 333-80601) filed with the SEC on July 16, 1999, and the description under the heading "Description of Capital Stock" relating to the common stock in the our final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, which is commonly known as the Securities Act, including any amendment or report filed for the purpose of updating that description. We also incorporate by reference all documents subsequently filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, which is commonly known as the Exchange Act, until all of the shares registered under this Registration Statement are sold. We will provide without charge to each person to whom a prospectus is delivered, including any beneficial owner, a copy of any or all of the information that has been incorporated by reference in this Registration Statement. If you would like to obtain this information from us, please direct your request to the Investor Relations Department, either in writing or by telephone, to Genentech, Inc., 1 DNA Way, South San Francisco, California 94080, Attention Investor Relations (650) 225-1260. ITEM 4: DESCRIPTION OF SECURITIES We have incorporated by reference the description under the heading "Description of Capital Stock" relating to our common stock in the prospectus included in our Amendment No. 3 to the Registration Statement on Form S-3 (Registration No. 333-80601) filed with the SEC on July 16, 1999, and the description under the heading "Description of Capital Stock" relating to the common stock in the our final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act, including any amendment or report filed for the purpose of updating that description. ITEM 5: INTERESTS OF NAMED EXPERTS AND COUNSEL Stephen G. Juelsgaard, Senior Vice President, General Counsel and Secretary of Genentech, is an officer of Genentech and has received options under our 1994 Stock Option Plan and our 1996 Stock Option/Stock Incentive Plan. ITEM 6: INDEMNIFICATION OF DIRECTORS AND OFFICERS Our certificate of incorporation limits, to the fullest extent permitted by Delaware corporate law, the personal liability of directors for monetary damages for breach of their fiduciary duties. 3 Section 145 of the General Corporation Law of the State of Delaware (the "DGCL") provides, in summary, that directors and officers of Delaware corporations are entitled, under certain circumstances, to be indemnified against all expenses and liabilities (including attorneys' fees) incurred by them as a result of suits brought against them in their capacity as a director or officer, if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, if they had no reasonable cause to believe their conduct was unlawful; provided, that no indemnification may be made against expenses in respect of any claim, issue or matter as to which they shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, they are fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Any such indemnification may be made by the corporation only as authorized in each specific case upon a determination by the stockholders or disinterested directors that indemnification is proper because the indemnitee has met the applicable standard of conduct. Our board of directors may provide similar indemnification to our officers, employees and agents as it deems appropriate and as authorized by Delaware law. We may purchase insurance on behalf of any director, officer, employee or agent against any expense incurred by such person in his or her capacity. Our certificate of incorporation also provides that Roche Holdings, Inc., or Roche, which is our majority stockholder, and the officers or directors of Roche will not be presumed liable to us or our stockholders for breach of any fiduciary duty or duty of loyalty, failure to act in the best interests of Genentech, or receipt of any improper personal benefit, simply because Roche or any director or officer of Roche, in good faith, takes any action, exercises any right or gives or withholds any consent with respect to any agreement or contract between Roche and Genentech. In addition, Roche will not be liable to us or our stockholders for breach of any fiduciary duty if Roche pursues or acquires a potential corporate opportunity of ours or does not inform us of a potential corporate opportunity. If a director, officer or employee of Genentech who is also a director, officer or employee of Roche knows of a potential transaction or matter that may be a corporate opportunity both for Genentech and Roche, the director, officer or employee is entitled to offer the corporate opportunity to us or Roche as the director, officer or employee deems appropriate under the circumstances in his or her sole discretion, and no such director, officer or employee will be liable to us or our stockholders for breach of any fiduciary duty or duty of loyalty or failure to act in our best interests or the derivation of any improper personal benefit by reason of the fact that such director, officer or employee offered such corporate opportunity to Roche (rather than to us) or did not communicate information regarding such corporate opportunity to us, or Roche pursues or acquires such corporate opportunity for itself or directs such corporate opportunity to another person or does not communicate the corporate opportunity to us. Neither Roche nor any officer or director thereof shall be liable to us or our stockholders for breach of any fiduciary duty or duty of loyalty or failure to act in (or not opposed to) our best interests or the derivation of any improper personal benefit by reason of the fact that Roche or an officer of director thereof in good faith takes any action or exercises any rights or gives or withholds any consent in connection with any agreement or contract between Roche and Genentech. No vote cast or other action taken by any person who is an officer, director or other representative of Roche, which vote is cast or action is taken by such person in his capacity as a director of Genentech, shall constitute an action of or the exercise of a right by or a consent of Roche for the purpose of any such agreement or contract. ITEM 7: EXEMPTION FROM REGISTRATION CLAIMED Not applicable. 4 ITEM 8: EXHIBITS
EXHIBIT NUMBER 5 Opinion of Stephen G. Juelsgaard, Esq. 15.1 Letter re: Unaudited Interim Financial Information. 23.1 Consent of Ernst & Young LLP, independent auditors. 23.2 Consent of Stephen G. Juelsgaard, Esq. is contained in Exhibit 5 to this Registration Statement. 24 Power of Attorney is contained on the signature pages. 99.1 1990 Stock Option/Stock Incentive Plan. 99.2 1994 Stock Option Plan. 99.3 1996 Stock Option/Stock Incentive Plan. 99.4 Resolutions of the Executive Committee of the Board of Directors of Genentech, Inc. Relating to Employee Compensation, pursuant to an Action by Unanimous Written Consent of the Executive Committee of the Board of Directors of Genentech, Inc., to which such Resolutions are attached as "Exhibit B."
ITEM 9: UNDERTAKINGS 1. The undersigned registrant hereby undertakes: (a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended, which is commonly known as the Securities Act; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; Provided, however, that paragraphs (a)(i) and (a)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed 5 by the issuer pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference herein. (b) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 2. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 3. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the undersigned registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of South San Francisco, State of California, on July 19, 1999. GENENTECH, INC. By: /s/ Stephen G. Juelsgaard --------------------------------- Name: Stephen G. Juelsgaard Title: Senior Vice President, General Counsel and Secretary 7 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Arthur D. Levinson and Stephen G. Juelsgaard, and each or any one of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ ARTHUR D. LEVINSON Principal Executive Officer and July 19, 1999 - ------------------------------------ Director Arthur D. Levinson /s/ LOUIS J. LAVIGNE, JR. Principal Financial Officer July 19, 1999 - ------------------------------------ Louis J. Lavigne, Jr. /s/ JOHN M. WHITING Principal Accounting Officer July 19, 1999 - ------------------------------------ John M. Whiting /s/ FRANZ B. HUMER Director July 19, 1999 - ------------------------------------ Franz B. Humer /s/ JONATHAN K.C. KNOWLES Director July 19, 1999 - ------------------------------------ Jonathan K.C. Knowles
8 EXHIBIT INDEX
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NUMBERS 5 Opinion of Stephen G. Juelsgaard, Esq. 15.1 Letter re: Unaudited Interim Financial Information. 23.1 Consent of Ernst & Young LLP, independent auditors. 23.2 Consent of Stephen G. Juelsgaard, Esq. is contained in Exhibit 5 to this Registration Statement. 24 Power of Attorney is contained on the signature pages. 99.1 1990 Stock Option/Stock Incentive Plan. 99.2 1994 Stock Option Plan. 99.3 1996 Stock Option/Stock Incentive Plan. 99.4 Resolutions of the Executive Committee of the Board of Directors of Genentech, Inc. Relating to Employee Compensation, pursuant to an Action by Unanimous Written Consent of the Executive Committee of the Board of Directors of Genentech, Inc., to which such Resolutions are attached as "Exhibit B."
EX-5 2 OPINION OF STEPHEN G. JUELSGAARD, ESQ. 1 EXHIBIT 5 Genentech, Inc. 1 DNA Way South San Francisco, California 94080 July 19, 1999 Ladies and Gentlemen: I am Senior Vice President, General Counsel and Secretary of Genentech, Inc. (the "Company"). In connection with this opinion, I have examined the following documents: - the Company's Registration Statement on Form S-8 (the "Registration Statement") to be filed with the Securities and Exchange Commission covering the offering of 3,991,263 shares of the Company's Common Stock, par value $.02 per share (the "Shares"), pursuant to the Company's 1990 Stock Option/Stock Incentive Plan, 1994 Stock Option Plan and 1996 Stock Option/Stock Incentive Plan (collectively, the "Plans") and the related Prospectuses; - the Company's Certificate of Incorporation and Bylaws; and - such other documents, records, certificates, memoranda and other instruments as I deem necessary as a basis for this opinion. I have assumed the genuineness and authenticity of all documents submitted to me as originals, the conformity to originals of all documents submitted to me as copies thereof, and the due execution and delivery of all documents where due execution and delivery are a prerequisite to the effectiveness thereof. On the basis of the foregoing, and in reliance thereon, I am of the opinion that the Shares, when sold and issued in accordance with the Plans, the Registration Statement and the related Prospectuses, will be validly issued, fully paid, and nonassessable (except as to shares issued pursuant to certain deferred payment arrangements, which will be fully paid and nonassessable when such deferred payments are made in full). I am admitted to practice only in the State of California. The opinions set forth herein are limited to matters of the General Corporation Law of the state of Delaware and the federal securities laws of the United States. I consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ STEPHEN G. JUELSGAARD Stephen G. Juelsgaard Senior Vice President, General Counsel and Secretary EX-15.1 3 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION 1 EXHIBIT 15.1 July 15, 1999 The Board of Directors and Stockholder Genentech, Inc. We are aware of the incorporation by reference in the Registration Statement (Form S-8) of Genentech, Inc. pertaining to the 1990 Stock Option/Stock Incentive Plan, the 1994 Stock Option Plan and the 1996 Stock Option/Stock Incentive Plan of Genentech, Inc. of our report dated April 9, 1999 relating to the unaudited condensed consolidated interim financial statements of Genentech, Inc. that are included in its Form 10-Q for the quarter ended March 31, 1999. Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. Very truly yours, /s/ ERNST & YOUNG LLP EX-23.1 4 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8) pertaining to the 1990 Stock Option/Stock Incentive Plan, the 1994 Stock Option Plan and the 1996 Stock Option/Stock Incentive Plan of Genentech, Inc. of our reports dated January 20, 1999, with respect to the consolidated financial statements and schedule of Genentech, Inc. included and incorporated by reference in its Annual Report on Form 10-K for the year ended December 31, 1998, filed with the Securities and Exchange Commission. San Jose, California July 15, 1999 /s/ ERNST & YOUNG LLP EX-99.1 5 1990 STOCK OPTION/STOCK INCENTIVE PLAN 1 EXHIBIT 99.1 1990 STOCK OPTION/STOCK INCENTIVE PLAN (as amended effective October 16, 1996) ARTICLE ONE GENERAL PROVISIONS I. PURPOSES OF THE PLAN A. This 1990 Stock Option/Stock Incentive Plan (the "Plan") is intended to promote the interests of Genentech, Inc., a Delaware corporation (the "Company"), by providing a method whereby the Company may retain the services of persons now employed by or serving as consultants to it, secure and retain the services of persons capable of filling such positions and provide incentives for such persons to exert maximum efforts for the success of the Company or its parent or subsidiary corporations. B. For purposes of the Plan, the following definitions shall be in effect: CHANGE IN CONTROL: "Change in Control" shall have the meaning set forth in Article Two, III.C. hereof. CHANGE IN CONTROL PRICE: "Change in Control Price" shall have the meaning set forth in Article Two, II.C.4.b. hereof. CLOSING SELLING PRICE: The Closing Selling Price per share of Common Stock on any relevant date under the Plan shall be the closing selling price per share of Common Stock, if such Common Stock is reported on a national securities exchange or reported on the NASDAQ National Market System (or any successor system), for the trading day immediately preceding the date in question, as such price is published in the Wall Street Journal (or if such publication is not available, a comparable publication selected by the Committee). COMMON STOCK: The Common Stock issuable under the Plan shall be shares of the Company's common stock, par value $0.02 per share. From and after October 25, 1995, all references to "shares", "stock", or "common stock" shall be deemed to be references to shares of Callable Putable Common Stock, par value $0.02 per share (the "Special Common Stock"), of the Company. CONSULTANT: An individual shall be considered to be a Consultant for so long as such individual continues to render personal services to the Company or one or more of its parent or subsidiary corporations as an independent contractor. CORPORATE TRANSACTION: "Corporate Transaction" shall have the meaning set forth in Article Two, III.A. hereof. 2 EMPLOYEE: An individual shall be considered to be an Employee for so long as such individual remains in the employ of the Company or one or more of its parent or subsidiary corporations. PARENT: A corporation shall be deemed to be a parent of the Company if it is a corporation (other than the Company) in an unbroken chain of corporations ending with the Company, provided each such corporation in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. SECTION 16(b) INSIDER: An individual shall be considered to be a Section 16(b) Insider on any relevant date under the Plan if such individual (A) is at the time an officer or director of the Company subject to the short-swing profit restrictions of the regulations promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act") or (B) unless Section 16 or regulations promulgated thereunder, are amended to provide otherwise, was such an officer or director at any time during the six month period immediately preceding the date in question and made any purchase or sale of Common Stock during such six-month period. SERVICE: An individual shall be deemed to be in the Service of the Company for so long as such individual (i) renders service on a periodic basis to the Company or one or more of its parent or subsidiary corporations as an Employee or Consultant or (ii) is a member of the Company's Board of Directors (the "Board"). SUBSIDIARY: A corporation shall be deemed to be a subsidiary of the Company if it is one of the corporations (other than the Company) in an unbroken chain of corporations beginning with the Company, provided each such corporation (other than the last corporation in the unbroken chain) owns, at the time of determination, stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. For purposes of nonstatutory option grants under Article Two and stock incentive grants under Article Three and all Corporate Transaction provisions of the Plan, the term "subsidiary" shall also include any partnership, joint venture or other business entity of which the Company owns, directly or indirectly through another subsidiary corporation, more than a fifty percent (50%) interest in voting power, capital or profits. C. Neither stock option grants nor stock bonus issuances made to any individual under the Plan shall in any way affect, limit or restrict such individuals eligibility to participate in any other stock plan or other compensation or benefit plan, arrangement or practice now or hereafter maintained by the Company or any parent or subsidiary corporation. II. ADMINISTRATION OF THE PLAN A. The Plan shall be administered by the Compensation Committee (the "Committee"). The Committee shall be comprised of not less than three (3) Board members. The Board may from time to time appoint members to the Committee in substitution for (or in addition to) members 3 previously appointed, and the Board shall have the authority to fill any and all vacancies on the Committee, however caused. B. The Committee shall at all times have the authority to make discretionary option grants under the Plan to eligible Employees who are not members of the Board. C. Subject to the express provisions of the Plan, the committee shall have plenary authority: (i) to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations deemed necessary or advisable in administering the Plan; and (ii) to change the terms and conditions of any outstanding discretionary option grant or unvested stock issuance, provided such action does not, without the consent of the holder, adversely affect the rights and obligations such individual may have under the Plan or the outstanding grant or stock issuance. D. Determinations of the Committee on all matters relating to the Plan and any discretionary option grants or stock issuances made hereunder shall be final, binding and conclusive on all persons having any interest in the Plan or any options granted or shares issued under the Plan. III. STRUCTURE OF THE PLAN A. The Plan shall be divided into three separate components: the Regular Option Grant Program specified in Article Two, the Automatic Grant Program specified in Article Three and the Stock Incentive Program specified in Article Four. Under the Regular Option Grant Program, eligible Employees, non-Employee Board members and Consultants may be granted options to purchase shares of Common Stock at an exercise price equal to not less than 50% of the Closing Selling Price per share on the grant date, and a special option grant is to be made in accordance with Section VII of Article Two. Under the Automatic Grant Program, non-Employee Board members shall automatically be granted options to purchase shares of Common Stock at an exercise price of 100% of the Closing Selling Price per share of Common Stock on the date of grant, provided, however, that options granted under the Automatic Grant Program in 1990 shall have an exercise price per share equal to the Closing Selling Price on the date thirty (30) days after (i) the effective date of the Merger (defined in Article Six) or (ii) the termination date of the Merger Agreement (defined in Article Six), as applicable. B. Under the Stock Incentive Program, eligible Employees, non-Employee Board members and Consultants may be awarded shares of Common Stock as a reward for past services or as an incentive to the performance of future services. Such shares may be issued as fully-vested shares or as shares vesting over time. C. The provisions of Articles One, Five and Six of the Plan shall apply to the Regular Option Grant Program, the Automatic Option Grant Program and the Stock Incentive Program and shall accordingly govern the interests of all individuals in the Plan. 4 IV. ELIGIBILITY FOR OPTION GRANTS AND STOCK ISSUANCES The individuals eligible to receive option grants ("Optionees") and/or stock incentives ("Recipients") pursuant to the Plan shall be limited to (i) those Employees, non-Employee Board members and Consultants selected by the Committee and (ii) those non-Employee Board members who are entitled to option grants pursuant to the Automatic Option Grant Program of Article Three. V. STOCK SUBJECT TO THE PLAN A. The Common Stock issuable under the Plan shall be made available either from authorized but unissued shares of Common Stock or from shares of Common Stock reacquired by the Company on the open market. The aggregate number of shares of Common Stock issuable over the term of this Plan, whether through exercised options or direct stock issuances shall not exceed 11,500,000 shares (subject to adjustment from time to time in accordance with paragraphs C. and D. below). B. Should an option granted under this Plan expire or terminate for any reason prior to exercise or surrender in full (including options canceled in accordance with the cancellation-regrant provisions of the Regular Option Grant Program), the shares subject to the portion of the option not so exercised or surrendered shall be available for subsequent option grants under this Plan. Shares subject to stock appreciation rights exercised in accordance with the Stock Appreciation Right provisions of Article Two and shares repurchased by the Company pursuant to its repurchase rights under the Plan shall not be available for subsequent issuance, whether through option grants, stock appreciation rights or direct issuances, under this Plan. C. In the event any change is made to the Common Stock issuable under the Plan by reason of any stock dividend, stock split, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without receipt of consideration, then appropriate adjustments shall be made by the Committee to (i) the aggregate number and/or class of shares issuable under this Plan, the maximum number and/or class of shares purchasable per Employee-director pursuant to the applicable limitation of Section II.B of this Article One and the number and/or class of shares for which the special option grant is to be made pursuant to the automatic grant provisions of Section VII of Article Two and for which the automatic option grants are to be made pursuant to the provisions of Article Three, to reflect the effect of such change upon the Company's capital structure, (ii) the number and/or class of shares and the exercise price per share of the stock subject to each outstanding option in order to preclude the dilution or enlargement of benefits thereunder and (iii) the number and/or class of shares and the exercise price per share in effect under each outstanding stock appreciation right in order to preclude the dilution or enlargement of benefits thereunder. All adjustments made by the Committee pursuant to this paragraph C. shall be final, binding and conclusive. D. Subject to the special priority provisions of Article Six of the Plan, in the event that (i) the Company is the surviving entity in any Corporate Transaction that does not result in the termination of outstanding options pursuant to the Corporate Transaction provisions of the Plan or (ii) the outstanding options under the Plan are to be assumed in connection with such 5 Corporate Transaction, then each such continuing or assumed option shall, immediately after such Corporate Transaction, be appropriately adjusted to apply and pertain to the number and class of securities which would be issuable, in consummation of such Corporate Transaction, to an actual holder of the same number of shares of Common Stock as are subject to such option immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the exercise price payable per share subject to each option, provided the aggregate exercise price of such option shall remain the same. In addition, the aggregate number and/or class of shares issuable under this Plan shall be appropriately adjusted to reflect the effect of such Corporate Transaction upon the Company's capital structure. ARTICLE TWO REGULAR OPTION GRANT PROGRAM I. TERMS AND CONDITIONS OF OPTIONS A. Except for the special option grant to be made pursuant to Section VII of this Article Two, the Committee shall have plenary authority (subject to the express provisions of the Plan and Section 144 of the Delaware General Corporation Law) to determine which Employees, non-Employee Board members and Consultants are to be granted options under this Regular Option Grant Program, the number of shares to be covered by each such option, the status of the granted option as either an incentive stock option ("Incentive Option") which meets the requirements of Section 422A of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), or a non-statutory option not intended to meet such requirements, the time or times at which such option is to become exercisable, the time or times at which such option (or the Shares subject to such option) becomes vested (referred to herein as the "vesting schedule") and the term for which the option is to remain outstanding, up to a maximum term of twenty (20) years. B. The granted options shall be evidenced by instruments in such form as the Committee shall from time to time approve; provided, however, that each such instrument (other than the instrument evidencing the special grant to be made under Section VII of this Article Two) shall comply with and incorporate the terms and conditions specified below, except as such terms and conditions must be modified for Incentive Options as set forth below in Section IV of this Article Two. 1. Exercise Price. a. The exercise price per share shall be fixed by the Committee, but in no event shall the exercise price per share be less than fifty percent (50%) of the Closing Selling Price per share of Common Stock on the date of the option grant. b. The exercise price shall become immediately due upon exercise of the option and shall, subject to the loan provisions of this Article Two, be payable in one of the alternative forms specified below: (A) full payment in cash or check made payable to the Company's order; or 6 (B) full payment in shares of Common Stock held by the Optionee for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the Closing Selling Price on the Exercise Date (as such term is defined below); or (C) full payment in a combination of shares of Common Stock held by the Optionee for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the Closing Selling Price on the Exercise Date and cash or check. c. For purposes of subparagraph b. above, the Exercise Date shall be the first date on which there is delivered to the Company both (I) written notice of the exercise of the option and (II) payment of the exercise price for the purchased shares. 2. Term and Exercise of Options. a. Each option granted under this Regular Option Grant Program shall be exercisable in one or more installments over the Optionee's period of Service as shall be determined by the Committee and set forth in the instrument evidencing such option; provided, however, that no such option granted to a Section 16(b) Insider shall become exercisable in whole or in part within the first six (6) months after the grant date, except in the event of the Optionee's death or disability. b. An option may be exercisable by the Optionee or, in the event the Optionee is permanently disabled (as such term is defined in Section 22(e) of the Code), by his or her spouse, and such option may be transferred by the Optionee to a trust for such Optionee's benefit or the benefit of an immediate family member or by will or the laws of descent or distribution. c. The Committee may, at its discretion, accelerate the vesting schedule of any outstanding option at any time. 3. Termination of Service. a. Should an Optionee cease to continue in Service for any reason (other than termination due to death, permanent disability or retirement from employment by the Company after reaching age sixty-five (65)) while the holder of one or more outstanding options under this Regular Option Grant Program, then such options shall not be exercisable at any time after the earlier of (i) the specified expiration date of the option term or (ii) the expiration of three (3) months after the Optionee's cessation of Service. Each such option shall, during the applicable period following cessation of Service, be exercisable only to the extent of the number of shares (if any) in which the Optionee is vested on the date of such cessation of Service; provided, however, that the Committee shall have the discretion to specify, either at the time the option is granted or at the time that the Optionee ceases Service, that vesting of such option may be extended for a period not to exceed three (3) years from the date of cessation of Service and that the applicable period set forth in clause (ii) may be increased to a period of up to five (5) years. b. Should an Optionee cease to continue in Service due to permanent disability while the holder of one or more outstanding options under this Regular Option Grant Program, then such options 7 shall not be exercisable at any time after the earlier of (i) the specified expiration date of the option term or (ii) the expiration of three (3) months after the Optionee's cessation of Service. Each such option shall, during the applicable period following cessation of Service, be exercisable only to the extent of the number of shares (if any) in which the Optionee is vested on the date of such cessation of Service; provided, however, that the Committee shall have the discretion to specify, either at the time the option is granted or at the time that the Optionee ceases Service, that the vesting of such option may be accelerated or extended from the date of cessation of Service and that the period of exercisability can be increased up to the expiration date of the option term. Should an Optionee cease to continue in Service due to death or retirement from employment by the Company after reaching age sixty-five (65), while the holder of one or more outstanding options under this Regular Option Grant Program, then all unvested options on such date shall automatically become vested and the expiration date of the option shall automatically be extended to the expiration date of the option term. c. Any option granted to an Optionee under this Regular Option Grant Program and outstanding in whole or in part on the date of the Optionee's death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution in the case of the Optionee's death, and any option granted to an Optionee under this Regular Option Grant Program which is outstanding in whole or in part on the date of the Optionee's cessation of Service due to permanent disability may be exercised by the Optionee's spouse or designee. Any such exercise must be in accordance with subparagraph b. d. The Committee shall have complete discretion, exercisable either at the time the option is granted or at the time the Optionee ceases Service, to establish as a provision applicable to the exercise of one or more options granted under this Regular Option Grant Program that during the limited period of exercisability following cessation of Service due to retirement, "plant closing" or "mass layoff" (as such terms are defined at 29 U.S.C. Section 2101) that is subject to the notice requirements of 29 U.S.C. Section 2102, the option will continue to vest according to the vesting schedule that would have applied had the optionee continued in Service. 4. Repurchase Rights. a. The shares of Common Stock acquired upon the exercise of one or more options granted under this Regular Option Grant Program may be subject to repurchase by the Company, at the exercise price paid per share, upon the Optionee's cessation of Service prior to vesting in such shares. b. Any such repurchase right shall be exercisable by the Company upon such terms and conditions (including the establishment of the appropriate vesting schedule and other provision for the expiration of such right in one or more installments over the optionee's period of Service) as the Committee may specify in the instrument evidencing such right, which instrument shall include appropriate terms with respect to the legending of stock certificates and the placing of unvested shares into escrow. 8 c. All of the Company's outstanding repurchase rights shall automatically terminate, and all shares purchased under this Regular Option Grant Program shall immediately vest in full, upon the occurrence of any Corporate Transaction or Change in Control; provided, however, that no such termination of repurchase rights or immediate vesting of the purchased shares shall occur if (and to the extent that): (i) the Company's outstanding repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction or (ii) such termination of repurchase rights and acceleration of vesting are precluded by other limitations imposed by the Committee either at the time the option is granted or at the time the option shares are purchased. 5. Stockholder Rights. An option holder shall have none of the rights of a stockholder with respect to any shares covered by the option until such individual shall have exercised the option, paid the option price and satisfied all other conditions precedent to the issuance of certificates for the purchased shares. II. STOCK APPRECIATION RIGHTS A. The Committee shall have full power and authority, exercisable in its sole discretion, to grant stock appreciation rights to one or more Employees, non-Employee Board members or Consultants eligible for option grants under this Regular Option Grant Program. Each such right shall entitle the holder to a distribution based on the appreciation in the value per share of a designated amount of Common Stock. B. Three types of stock appreciation rights shall be authorized for issuance under the Plan: 1. Tandem Stock Appreciation Rights. These rights require the holder to elect between the exercise of the underlying option for shares of Common Stock and the surrender of such option for an appreciation distribution equal to the excess of (I) the Closing Selling Price (on the date of option surrender) of the vested shares of Common Stock purchasable under the surrendered option over (II) the aggregate option price payable for such shares. 2. Concurrent Stock Appreciation Rights. Concurrent rights may apply to all or any portion of the shares of Common Stock subject to the underlying option and will be exercised automatically at the same time the option is exercised for those shares. The appreciation distribution to which the holder of such concurrent right shall be entitled upon exercise of the underlying option shall be in an amount equal to the excess of (I) the aggregate Closing Selling Price (at date of exercise) of the vested shares purchased under the underlying option with such concurrent rights over (II) the aggregate option price paid for those shares. 3. Limited Stock Appreciation Rights. These rights will entitle the holder to surrender outstanding options in connection with certain Changes in Control (as defined below) for an appreciation distribution equal in amount to the excess of (I) the Change in Control Price (as defined below) of the number of shares in which the Optionee is at the time vested under the surrendered option over (II) the aggregate option price payable for such vested shares. 9 C. The terms and conditions applicable to each Tandem Stock Appreciation Right ("Tandem Right"), Concurrent Stock Appreciation Right ("Concurrent Right") and Limited Stock Appreciation Right ("Limited Right") shall be as follows: 1. Tandem Rights. a. Tandem Rights may be tied to either Incentive Options or non-statutory options. Each such right shall, except as specifically set forth below, be subject to the same terms and conditions applicable to the particular stock option grant to which it pertains. b. The Appreciation Distribution payable on the exercised Tandem Right shall be in an amount equal to the excess of (I) the Closing Selling Price (on the date of the option surrender) of the number of shares of Common Stock in which the Optionee is vested under the surrendered option over (II) the aggregate option price payable for such vested shares. c. The Appreciation Distribution may, in the Committee's discretion, be made in cash, in shares of Common Stock or in a combination of cash and Common Stock. Any shares of Common Stock so distributed shall be valued at the Closing Selling Price on the date the option is surrendered, and the shares of Common Stock subject to the surrendered option shall not be available for subsequent issuance under this Plan. 2. Concurrent Rights. a. Concurrent Rights may be tied to any or all of the shares of Common Stock subject to any Incentive Option or non-statutory option grant made under this Regular Option Grant Program. The Concurrent Right shall, except as specifically set forth below, be subject to the same terms and conditions applicable to the particular stock option grant to which it pertains. b. The Concurrent Right shall be automatically exercised at the same time the underlying option is exercised for the particular shares of Common Stock to which the Concurrent Right pertains. c. The Appreciation Distribution payable on the exercised Concurrent Right shall be equal to the excess of (I) the aggregate Closing Selling Price (on the Exercise Date) of the vested shares of Common Stock purchased under the underlying option which have Concurrent Rights appurtenant to them over (II) the aggregate option price paid for such shares. d. The Appreciation Distribution may, in the Committee's discretion, be paid in cash, in shares of Common Stock or in a combination of cash and Common Stock. Any shares of Common Stock so distributed shall be valued at the Closing Selling Price on the date the Concurrent Right is exercised and shall reduce on a one-for-one basis the number of shares of Common Stock thereafter issuable under this Plan. 10 3. Terms Applicable to Both Tandem Rights and Concurrent Rights. a. To exercise any outstanding Tandem or Concurrent Right, the holder must provide written notice of exercise to the Company in compliance with the provisions of the instrument evidencing such right. b. If a Tandem or Concurrent Right is granted to an individual who is at the time a Section 16(b) Insider, then the instrument of grant shall incorporate all the terms and conditions at the time necessary to assure that the subsequent exercise of such right shall qualify for the safe-harbor exemption from short-swing profit liability provided by SEC Rule 16b-3 (or any successor rule or regulation). c. No limitation shall exist on the aggregate amount of cash payments the Company may make under this Article Two Program in connection with the exercise of Tandem or Concurrent Rights. 4. Limited Rights. a. Each Section 16(b) Insider shall have the Limited Right, exercisable in the event there should occur a Change in Control (as such term is defined below), to surrender any or all of the options (whether incentive stock options or non-statutory options) held by such individual under this Article Two Program, to the extent such options (I) have been outstanding for at least six (6) months and (II) are at the time exercisable for vested shares. b. In exchange for each option surrendered in accordance with subparagraph a. above, the Section 16(b) Insider shall receive an Appreciation Distribution in an amount equal to the excess of (I) the Change in Control Price (determined as of the date of surrender) of the number of shares in which the Section 16(b) Insider is at the time vested under the surrendered option over (II) the aggregate option price payable for such vested shares. For purposes of such Appreciation Distribution, the Change in Control Price per share of the vested Common Stock subject to the surrendered option shall be deemed to be equal to the greater of (a) the Closing Selling Price per share on the date of surrender or (b) the highest reported price per share paid in effecting the Change in Control. However, if the option is an Incentive Option, then the Change in Control Price of the vested shares subject to the surrendered option shall not exceed the value per share determined under clause (a) above. c. The Appreciation Distribution shall be made entirely in cash, and the shares of Common Stock subject to each surrendered option shall not be available for subsequent issuance under this Plan. III. CORPORATE TRANSACTION/CHANGE IN CONTROL A. In the event of any of the following transactions (a "Corporate Transaction"): (i) a merger or acquisition in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation, 11 (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company to any entity other than a Subsidiary of the Company, or (iii) any reverse merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company's outstanding voting stock held by persons who are not "Subject Persons" as defined in Article Eleventh of the Company's Certificate of Incorporation (as in effect on the effective date of the Merger) including persons included in such definition by subparagraph (b) thereof is transferred to holders different from those who held the stock immediately prior to such merger, then the exercisability of each option outstanding under this Regular Option Grant Program shall be automatically accelerated so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of shares of Common Stock purchasable under such option and may be exercised for all or any portion of such shares. However, an outstanding option under this Regular Option Grant Program shall not be so accelerated if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof, or (ii) such option is to be replaced by a comparable cash incentive program of the successor corporation based on the value of the option at the time of the Corporate Transaction, or (iii) the acceleration of such option is subject to other applicable limitations imposed by the Committee at the time of grant. The determination of comparability under clause (i) or (ii) above shall be made by the Committee, and its determination shall be final, binding and conclusive. B. Upon the consummation of the Corporate Transaction, all outstanding options under this Regular Option Grant Program shall, to the extent not previously exercised or assumed by the successor corporation or its parent company, terminate and cease to be outstanding. C. In the event of any of the following transactions (a "Change in Control"): (i) the acquisition by a person or group of related persons, other than the Company or any person controlling, controlled by or under common control with the Company, of beneficial ownership (as determined pursuant to the provisions of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities pursuant to a transaction or series of related transactions which the Board does not approve; or (ii) the first date within any period of thirty-six (36) consecutive months or less on which there is effected any change in the composition of the Board such that the majority of the Board (determined by rounding up to the next whole number) ceases to be comprised of individuals who either (I) have been members of the Board continuously since the beginning of such period or (II) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (I) who were still in office at the time such election or nomination was approved by the Board; then the exercisability of each option outstanding under this Regular Option Grant Program shall be automatically accelerated so that each such option shall become exercisable, immediately prior to such Change in Control, for the 12 full number of shares purchasable under such option and may be exercised for all or any portion of such shares. However, an outstanding option under this Regular Option Grant Program shall not be so accelerated if and to the extent one or more limitations imposed by the Committee at the time of grant preclude such acceleration upon a Change in Control. D. The grant of options under this Regular Option Grant Program shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. INCENTIVE OPTIONS A. The terms and conditions specified below shall be applicable to all Incentive Options granted under this Regular Option Grant Program. Options which are specifically designated as "nonstatutory" options when issued under this Regular Option Grant Program shall not be subject to such terms and conditions. 1. Option Price. The option price per share of the Common Stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the Closing Selling Price per share of Common Stock on the grant date. 2. 10% Stockholder. If any individual to whom an Incentive Option is to be granted pursuant to the provisions of this Regular Option Grant Program is on the grant date the owner of stock (as determined under Section 424(d) of the Internal Revenue Code) possessing 10% or more of the total combined voting power of all classes of stock of the Company or any one of its parent or subsidiary corporations (such person to be herein referred to as a 10% Stockholder), then (i) the option price per share shall not be less than one hundred and ten percent (110%) of the Closing Selling Price per share of Common Stock on the grant date and (ii) the maximum term of the option shall not exceed five (5) years from the grant date. 3. Dollar Limitation. The aggregate fair market value (determined on the basis of the Closing Selling Price in effect on the respective date or dates of grant) of the Common Stock for which one or more options granted to any Employee under this Plan (or any other option plan of the Company or its parent or subsidiary corporations) may for the first time become exercisable as incentive stock options under the Federal tax laws during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability thereof as incentive stock options under the Federal tax laws shall be applied on the basis of the order in which such options are granted. 13 4. Term and Exercise of Options. a. No Incentive Option shall have a term in excess of ten (10) years from the grant date. b. An Incentive Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionee only by the Optionee. 5. Termination of Service. A. An Incentive Option must be exercised within the three (3)-month period commencing with the date of cessation of Employee status for any reason other than death, except that in the event the Optionee's cessation of Employee status is due to permanent disability, such period shall be one (1) year from the date of such cessation of Employee status. Incentive Options not exercised within the applicable period shall be treated as non-statutory options. B. Except as modified by the preceding provisions of this Incentive Options section, all the provisions of this Regular Option Grant Program shall be applicable to the Incentive Options granted hereunder. V. CANCELLATION AND RE-GRANT OF OPTIONS The Committee shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under this Regular Option Grant Program (other than the special grant to be made pursuant to Section VII of this Article Two) and to grant in substitution therefor new options under this Plan covering the same or different numbers of shares of Common Stock but having an option price per share not less than fifty percent (50%) of the Closing Selling Price (one hundred percent (100%) of the Closing Selling Price in the case of an Incentive Option or, in the case of a 10% Stockholder, not less than one hundred and ten percent (110%) of the Closing Selling Price) per share of Common Stock on the new grant date. VI. LOANS OR GUARANTEE OF LOANS The Committee may assist any Employee (including any officer or director) in the exercise of one or more options under this Regular Option Grant Program (other than the special grant to be made pursuant to Section VII of this Article Two) by (a) authorizing the extension of a loan to such Employee from the Company, (b) permitting the Employee to pay the option price for the purchased Common Stock in installments over a period of years or (c) authorizing a guarantee by the Company of a third-party loan to the Employee. The terms of any loan, installment method of payment or guarantee (including the interest rate and terms of repayment) shall be established by the Committee in its sole discretion. Loans, installment payments and guarantees may be granted without security or collateral, but the maximum credit available to the Optionee shall not exceed the sum of (i) the aggregate exercise price (less the par value) of the purchased shares plus (ii) any Federal and State income and employment tax liability incurred by the Employee in connection with the exercise of the option. 14 VII. SPECIAL OPTION GRANT [RESERVED] ARTICLE THREE AUTOMATIC GRANT PROGRAM I. AUTOMATIC GRANTS On July 18, 1990, each individual who is a non-Employee member of the Board on such date shall automatically be granted a nonstatutory option under this Article Three to purchase 15,000 shares of Common Stock. On April 30, 1992, each individual who is a non-Employee member of the Board on such date shall automatically be granted a non-statutory option under this Article Three to purchase 15,000 shares of Common Stock. Each non-Employee who is first elected a member of the Board after such date shall automatically be granted, on the date of such individual's election to the Board, a non-statutory option under this Article Three to purchase 15,000 shares of Common Stock. Each Employee director who is first elected a member of the Board and who subsequently becomes a non-Employee director after January 1, 1992 shall automatically be granted, on the date of such individual's change from Employee to non-Employee, a non- statutory option under this Article Three to purchase 15,000 shares of Common Stock. This provision shall terminate on April 30, 1995. II. TERMS AND CONDITIONS OF GRANT Each option granted in accordance with the provisions of this Article Three shall be evidenced by an instrument in such form as the Committee approves from time to time for grants made under Article Two; provided, however, that each such automatic grant shall be subject to the following terms and conditions: A. Exercise Price. The exercise price per share shall be one hundred percent (100%) of the Closing Selling Price per share of Common Stock on the grant date; provided, however, that options granted under this Article Three in 1990 shall have an exercise price per share equal to the Closing Selling Price on the date thirty (30) days after (i) the effective date of the Merger (defined in Article Six) or (ii) the termination date of the Merger Agreement (defined in Article Six), as applicable. B. Term and Vesting of Options. 1. Except as otherwise specified below, each option shall vest in increments of 5,000 shares on the first, second and third anniversaries of the grant date and shall thereafter remain exercisable until the expiration or earlier termination of the option term. 2. Each granted option shall have a term of ten (10) years measured from the grant date. 15 C. Exercise of Option. Upon exercise of the option, the option exercise price for the purchased shares shall become immediately due and payable in full in one of the alternative forms specified below: (i) cash or check payable to the Company's order; (ii) shares of Common Stock held by the optionee for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the Closing Selling Price on the date of exercise; or (iii) any combination of the foregoing so long as the total payment equals the aggregate exercise price for the purchased shares. D. Effect of Termination of Board Membership. 1. Should an optionee cease to be a member of the Board for any reason (other than death) prior to the expiration date of one or more automatic grants held by the optionee under this Article Three, then each such grant shall remain exercisable, for any shares of Common Stock for which the option is exercisable at the time of such cessation of Board membership, for a period not to exceed the earlier of (i) the expiration of the three (3)-month period following the date of such cessation of Board membership or (ii) the specified expiration date of the option term. 2. Should the optionee's membership on the Board cease by reason of death, then each outstanding grant held by the optionee under this Article Three may be subsequently exercised, for any shares of Common Stock for which the option is exercisable at the time of the optionee's cessation of Board membership, by the personal representative of the optionee's estate or by the person or persons to whom the option is transferred pursuant to the optionee's will or in accordance with the laws of descent and distribution. Any such exercise must, however, occur prior to the earlier of (i) the expiration of the twelve (12)-month period following the date of the optionee's death or (ii) the specified expiration date of the option term. E. Stockholder Rights. An option holder shall have none of the rights of a stockholder with respect to any shares covered by an option granted under this Article Three until such individual shall have exercised the option, paid the option exercise price in full and satisfied all other conditions precedent to the issuance of certificates for the purchased shares. III. CORPORATE TRANSACTION A. In the event of one or more of the following transactions (a "Corporate Transaction"): (i) a merger or acquisition in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation; 16 (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company to any entity other than a Subsidiary of the Company; or (iii) any reverse merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company's outstanding voting stock held by persons who are not "Subject Persons" as defined in Article Eleventh of the Company's Certificate of Incorporation (as in effect on the effective date of the Merger) including persons included in such definition by subparagraph (b) thereof is transferred to holders different from those who held the stock immediately prior to such merger; then each option grant under this Article Three outstanding at the time and not otherwise at the time fully exercisable shall automatically accelerate and become exercisable for any or all of the shares subject to the option immediately prior to the specified effective date for the Corporate Transaction. Upon the consummation of such Corporate Transaction, all outstanding options granted under this Article Three shall, to the extent not previously exercised by the optionee or assumed by the successor corporation or its parent company, terminate and cease to be outstanding. B. The Automatic Grant Program in effect under this Article Three shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. CHANGE IN CONTROL A. In the event of one or more of the following transactions (a "Change in Control"): (i) the acquisition by a person or group of related persons, other than the Company or any person controlling, controlled by or under common control with the Company, of beneficial ownership (as determined pursuant to the provisions of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities pursuant to a transaction or series of related transactions which the Board does not approve; or (ii) the first date within any period of thirty-six (36) consecutive months or less on which there is effected any change in the composition of the Board such that the majority of the Board (determined by rounding up to the next whole number) ceases to be comprised of individuals who either (I) have been members of the Board continuously since the beginning of such period or (II) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (I) who were still in office at the time such election or nomination was approved by the Board; then all outstanding options granted under this Article Three and not otherwise at the time fully exercisable shall automatically accelerate upon the Change in Control and thereby become exercisable for any or all option shares. In addition, each option grant under this Article Three which has been outstanding for at least six (6) months may be surrendered, on the tenth (10th) business day following the Change in Control, in exchange for a cash payment from the Company in an amount equal to the excess 17 of (i) the Fair Market Value (on the date of such surrender) of the shares of Common Stock subject to the surrendered option over (ii) the aggregate option price payable for such shares. B. For purposes of subparagraph A above, the Fair Market Value per share of Common Stock subject to the surrendered option shall be deemed to be equal to the greater of (a) the Closing Selling Price per share on the date of such surrender, as determined in accordance with the normal valuation provisions of the Plan, or if applicable, (b) the highest reported price per share paid in acquiring ownership of the fifty percent (50%) or greater interest in the Company's outstanding voting securities. ARTICLE FOUR STOCK INCENTIVE PROGRAM I. TERMS AND CONDITIONS OF STOCK ISSUANCES A. Shares may be issued under this Stock Incentive Program as a reward for past services rendered the Company or one or more of its parent or subsidiary corporations or as an incentive for future service with such entities. Any unvested shares so issued shall be evidenced by a Restricted Stock Issuance Agreement ("Issuance Agreement") which complies with the terms and conditions of this Stock Incentive Program and shall include appropriate terms with respect to legending of certificates and escrow of unvested shares. 1. Vesting Schedule. a. The Recipient's interest in the issued shares of Common Stock may, in the absolute discretion of the Committee, be fully and immediately vested upon issuance or may vest in one or more installments. b. The elements of the vesting schedule applicable to any unvested shares issued under this Stock Incentive Program, namely the number of installments in which the shares are to vest, the interval or intervals (if any) which are to lapse between installments and the effect which death, disability or other event designated by the Committee is to have upon the vesting schedule, shall be determined by the Committee and set forth in the Issuance Agreement executed by the Company and the Recipient at the time of the incentive grant. c. Except as may otherwise be provided in the Issuance Agreement, the Recipient may not transfer unvested shares of Common Stock. The Recipient, however, shall have all the rights of a stockholder with respect to such unvested shares, including without limitation the right to vote such shares and to receive all dividends paid on such shares. 2. Cancellation of Shares. a. In the event the Recipient should, while his/her interest in the issued Common Stock remains unvested, cease to continue in Service for any reason whatsoever, then the Company shall have 18 the right to cancel all such unvested shares, and the Recipient shall thereafter have no further stockholder rights with respect to such shares. b. The Committee may in its discretion waive such cancellation of unvested shares in whole or in part and thereby effect the immediate vesting of the Recipient's interest in the shares of Common Stock (or other assets) as to which the waiver applies. 3. Corporate Transaction/Change in Control. All unvested shares under the Stock Incentive Program shall immediately vest in full immediately prior to the occurrence of any Corporate Transaction or Change in Control, except to the extent: (i) the Company's outstanding cancellation rights are to be assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction, or (ii) one or more limitations imposed by the Committee at the time of stock issuance preclude such accelerated vesting. ARTICLE FIVE MISCELLANEOUS I. TAX WITHHOLDING A. The Company's obligation to deliver shares upon the exercise or surrender of stock options or stock appreciation rights granted under Article Two or Article Three or upon the issuance or vesting of shares under Article Four shall be subject to the satisfaction of all applicable Federal, State and local income and employment tax withholding requirements. B. The Committee may, in its discretion and upon such terms and conditions as it may deem appropriate (including the applicable safe-harbor provisions of SEC Rule 16b-3 or any successor rule or regulation) provide any or all Optionees or Recipients with the election to have the Company withhold, from the shares of Common Stock purchased or issued under the Plan, one or more of such shares with an aggregate Closing Selling Price equal to the designated percentage (up to 100% specified by the Optionee or Recipient) of the Federal and State income taxes ("Taxes") incurred in connection with the acquisition of such shares. In lieu of such direct withholding, one or more Optionees or Recipients may also be granted the right to deliver shares of Common Stock to the Company in satisfaction of such Taxes. The withheld or delivered shares shall be valued at the Closing Selling Price on the applicable determination date for such Taxes. II. AMENDMENT OF THE PLAN A. The Board shall have the complete and exclusive authority to amend or modify the Plan in any or all respects whatsoever; provided, however, that no such amendment or modification 19 shall, without the consent of the holders, adversely affect rights and obligations with respect to any stock options, stock appreciation rights or unvested Common Stock at the time outstanding under the Plan. In addition, with a view to making available the benefits provided by Section 422A of the Code and/or SEC Rule 16b-3 as in effect from time to time under the 1934 Act, the Board shall, at the time of each such amendment, determine whether or not to submit such amendment of the Plan to the Company's stockholders for approval. B. No material amendments shall be made to the provisions of the Article Three Program without the approval of the Company's stockholders. III. EFFECTIVE DATE AND TERM OF PLAN A. The Plan shall become effective when adopted by the Board, but no stock option or stock appreciation right granted under the Plan shall become exercisable, and no shares shall be issued, unless and until the Plan shall have been approved by the Company's stockholders. If such stockholder approval is not obtained within twelve (12) months after the date of the Board's adoption of the Plan, then all stock options and stock appreciation rights previously granted under the Plan shall terminate and no further stock options or stock appreciation rights shall be granted. Subject to such limitation, the Committee may grant stock options and stock appreciation rights under the Plan at any time after the effective date and before the date fixed herein for termination of the Plan. B. The Plan shall in all events terminate on the date determined by the Board. Upon such termination, any stock options, stock appreciation rights and unvested shares at the time outstanding under the Plan shall continue to have force and effect in accordance with the provisions of the instruments evidencing such grants or issuances. C. Options may be granted under this Plan to purchase shares of Common Stock in excess of the number of shares then available for issuance under the Plan, provided (i) an amendment to increase the maximum number of shares issuable under the Plan is adopted by the Board prior to the initial grant of any such option and within one year thereafter such amendment is approved by the Company's stockholders, if such stockholder approval is deemed necessary by the Board, and (ii) each option granted is not to become exercisable, in whole or in part, at any time prior to the obtaining of such stockholder approval, and provided further that at any time that the Amended and Restated Governance Agreement dated as of October 25, 1995 between the Company and Roche Holdings, Inc. (the "Amended Governance Agreement") remains in effect, any action by the Board pursuant to the foregoing shall require the approval of a majority of the Independent Directors (as such term is defined in Article Eleventh of the Certificate of Incorporation of the Company). IV. MISCELLANEOUS PROVISIONS A. Any cash proceeds received by the Company from the issuance of shares hereunder shall be used for general corporate purposes. 20 B. The implementation of the Plan, the granting of any stock option or stock appreciation right hereunder, and the issuance of Common Stock under the Regular Option Grant, the Automatic Option Grant or Stock Incentive Programs shall be subject to the Company's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options and stock appreciation rights granted under it and the Common Stock issued pursuant to it. C. Neither the action of the Company in establishing the Plan, nor any action taken by the Board or the Committee hereunder, nor any provision of the Plan itself shall be construed so as to grant any individual the right to remain in the employ or service of the Company or any of its parent or subsidiary corporations for any period of specific duration, and the Company (or any parent or subsidiary retaining the services of such individual) may terminate such individual's employment or service at any time and for any reason, with or without cause. D. Nothing contained in the Plan shall be construed to limit the authority of the Company to exercise its corporate rights and powers, including (without limitation) the right of the Company (a) to grant options for proper corporate purposes otherwise than under this Plan to any Employee or other person, firm or company or association or (b) to grant options to, or assume the option of, any person in connection with the acquisition (by purchase, lease, merger, consolidation or otherwise) of the business and assets (in whole or in part) of any person, firm, company or association. ARTICLE SIX SPECIAL MERGER PROVISIONS I. PRIORITY The provisions of this Article Six shall govern any and all options under this Plan which have been granted prior to, or are granted following, the effective date of the merger of the Company with and into HLR (U.S.) II, Inc. (the "Merger") pursuant to that certain Agreement and Plan of Merger ("Merger Agreement") dated May 23, 1995 among the Company, Roche Holdings, Inc., and HLR (U.S.) II, Inc. To the extent there is a conflict between any of the provisions of this Article Six and any other provision of the Plan, the specific provisions of this Article Six shall be controlling and shall govern the disposition of all such options outstanding at the time of the Merger. II. OPTION ADJUSTMENTS A. None of the options granted under this Plan prior to the effective date of the Merger shall be accelerated in whole or in part in connection with the Merger. B. None of the options granted under this Plan prior to the effective date of the Merger shall be cashed out, or otherwise entitle the option holders to any cash payments, in connection with the consummation of the Merger. 21 C. Each option granted under this Plan prior to the effective date of the Merger shall remain in effect after the Merger upon the same terms and conditions (including, without limitation, the exercise price per share and the number of shares) in effect for such option immediately prior to the Merger, except that the shares purchasable under each such continuing option shall be shares of Special Common Stock. Each such continuing option will become exercisable, and the shares purchasable thereunder shall vest, in accordance with the same installment dates such option would have become exercisable, and such shares would have vested, under the vesting schedule specified for that option at the time of grant. III. PLAN ADJUSTMENTS A. After the effective date of the Merger, all references in the Plan to Common Stock shall automatically become references to Special Common Stock. B. If the Special Common Stock shall be redeemed at any time as provided in Section (c)(ii) of Article Third of the Certificate of Incorporation of the Company, then all outstanding options and stock appreciation rights granted hereunder shall automatically accelerate and become fully exercisable and vested immediately prior to the date fixed for redemption, and upon such redemption the holder of such option or stock appreciation right shall promptly be paid for each such option or right an amount equal to the product of (i) the excess of the redemption price per share fixed in Section (c)(ii) of Article Third (without reduction for the payment of any cash dividends as provided in the fourth sentence of Section (c)(ii)(C) of Article Third) over the exercise price per share, times (ii) the number of shares covered by such option or right. Upon such redemption, any of the redemption price to be paid pursuant to Section (c)(ii) of Article Third of the Certificate of Incorporation of the Company received by a holder of shares issued under the Stock Incentive Program in respect of unvested shares shall be placed in escrow and released to such holder in accordance with the vesting schedule that would have applied to such shares had such redemption not taken place. C. Neither the consummation of the Merger nor the exercise by Roche Holdings, Inc. or its affiliates of its right to designate nominees to the Board of Directors pursuant to Sections 3.01 and 3.02 of the Amended Governance Agreement, nor any change in the composition of the Board of Directors resulting therefrom, shall constitute a Change in Control. D. Upon the conversion of the Special Common Stock into Common Stock, all references in the Plan to Special Common Stock (as provided in Article Five, III. A.) shall automatically become references to Common Stock. Each option granted under this Plan prior to such conversion shall remain in effect after such conversion upon the same terms and conditions (including, without limitation, the exercise price per share and the number of shares) in effect for such option immediately prior to such conversion, except that the shares purchasable under each such continuing option shall be shares of Common Stock. Each such continuing option will become exercisable, and the shares purchasable thereunder shall vest, in accordance with the same installment dates such option would have become exercisable, and such shares would have vested, under the vesting schedule specified for that option at the time of grant. EX-99.2 6 1994 STOCK OPTION PLAN 1 EXHIBIT 99.2 1994 STOCK OPTION PLAN (AS AMENDED EFFECTIVE OCTOBER 16, 1996) ARTICLE ONE GENERAL PROVISIONS I. PURPOSES OF THE PLAN A. This 1994 Stock Option Plan (the "Plan") is intended to promote the interests of Genentech, Inc., a Delaware corporation (the "Company"), by providing a method whereby the Company may retain the services of persons now employed by or serving as consultants or directors to it, secure and retain the services of persons capable of filling such positions and provide incentives for such persons to exert maximum efforts for the success of the Company or its parent or subsidiary corporations. B. For purposes of the Plan, the following definitions shall be in effect: CHANGE IN CONTROL: "Change in Control" shall have the meaning set forth in Article Two, II.C. hereof. CLOSING SELLING PRICE: The Closing Selling Price per share of Special Common Stock on any relevant date under the Plan shall be the closing selling price per share of Special Common Stock, if such Special Common Stock is reported on a national securities exchange or reported on the NASDAQ National Market System (or any successor system), for the trading day immediately preceding the date in question, as such price is published in the Wall Street Journal (or if such publication is not available, a comparable publication selected by the Committee). CONSULTANT: An individual shall be considered to be a Consultant for so long as such individual continues to render personal services to the Company or one or more of its parent or subsidiary corporations as an independent contractor. CORPORATE TRANSACTION: "Corporate Transaction" shall have the meaning set forth in Article Two, II. A. hereof. EMPLOYEE: An individual shall be considered to be an Employee for so long as such individual remains in the employ of the Company or one or more of its Parent or Subsidiary. PARENT: A corporation shall be deemed to be a parent of the Company if it is a corporation (other than the Company) in an unbroken chain of corporations ending with the Company, provided each such corporation in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 2 SECTION 16(b) INSIDER: An individual shall be considered to be a Section 16(b) Insider on any relevant date under the Plan if such individual (A) is at the time an officer or director of the Company subject to the short-swing profit restrictions of the regulations promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act") or (B) unless Section 16 or regulations promulgated thereunder are amended to provide otherwise, was such an officer or director at any time during the six month period immediately preceding the date in question and made any purchase or sale of Special Common Stock during such six-month period. SERVICE: An individual shall be deemed to be in the Service of the Company for so long as such individual renders service on a periodic basis to the Company or one or more of its Parent or Subsidiaries as an Employee or Consultant. SPECIAL COMMON STOCK: The Special Common Stock issuable under the Plan shall be shares of the Company's Callable Putable Common Stock, par value $0.02 per share. SUBSIDIARY: A corporation shall be deemed to be a subsidiary of the Company if it is one of the corporations (other than the Company) in an unbroken chain of corporations beginning with the Company, provided each such corporation (other than the last corporation in the unbroken chain) owns, at the time of determination, stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. For purposes of nonstatutory option grants under Article Two and all Corporate Transaction provisions of the Plan, the term "subsidiary" shall also include any partnership, joint venture or other business entity of which the Company owns, directly or indirectly through another subsidiary corporation, more than a fifty percent (50%) interest in voting power, capital or profits. C. Stock option grants made to any individual under the Plan shall not in any way affect, limit or restrict such individual's eligibility to participate in any other stock plan or other compensation or benefit plan, arrangement or practice now or hereafter maintained by the Company or any Parent or Subsidiary. II. ADMINISTRATION OF THE PLAN A. The Plan shall be administered by the Compensation Committee (the "Committee"). The Committee shall be comprised of not less than two (2) Board members. The Board may from time to time appoint members to the Committee in substitution for (or in addition to) members previously appointed, and the Board shall have the authority to fill any and all vacancies on the Committee, however caused. B. Subject to limitations contained elsewhere herein and to the provisions of Section IV., C. and D. of this Article I relating to adjustments upon changes in stock, the aggregate number of shares of stock that may be subject to options granted to any Employee in a calendar year shall not exceed two hundred fifty thousand (250,000) shares of the Company's Special Common Stock. 3 C. Subject to the express provisions of the Plan, the Committee shall have plenary authority: (i) to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations deemed necessary or advisable in administering the Plan; and (ii) to change the terms and conditions of any outstanding discretionary option grant or unvested stock issuance, provided such action does not, without the consent of the holder, adversely affect the rights and obligations such individual may have under the Plan or an outstanding grant. D. Determinations of the Committee on all matters relating to the Plan and any discretionary option grants made hereunder shall be final, binding and conclusive on all persons having any interest in the Plan or any options granted issued under the Plan. III. STRUCTURE OF THE PLAN A. The Plan shall be divided into two separate components: the Option Grant Program specified in Article Two and the Automatic Grant Program specified in Article Three. Under the Option Grant Program, eligible Employees, non-Employee Board members and Consultants may be granted options to purchase shares of Special Common Stock at an exercise price equal to not less than 50% of the Closing Selling Price per share on the grant date. Under the Automatic Grant Program, non-Employee Board members shall automatically be granted options to purchase shares of Special Common Stock on the dates and in the amounts specified in Article Three below at an exercise price of 100% of the Closing Selling Price per share of Special Common Stock on the date of grant. B. The provisions of Articles One, Four and Five of the Plan shall apply to the Option Grant Program and the Automatic Option Grant Program and shall accordingly govern the interests of all individuals in the Plan. IV. ELIGIBILITY FOR OPTION GRANTS The individuals eligible to receive option grants ("Optionees") pursuant to the Plan shall be limited to (i) those Employees, non-Employee Board members and Consultants selected by the Committee; and (ii) those non-Employee Board members who are entitled to option grants pursuant to the Automatic Option Grant Program of Article Three. V. STOCK SUBJECT TO THE PLAN A. The Special Common Stock issuable under the Plan shall be made available either from authorized but unissued shares of Special Common Stock or from shares of Special Common Stock reacquired by the Company on the open market. The aggregate number of shares of Special Common Stock issuable over the term of this Plan, whether through exercised options or direct stock issuances, shall not exceed 4,500,000 shares (subject to adjustment from time to time in accordance with subparagraphs C. and D. below). 4 B. Should an option granted under this Plan expire or terminate for any reason prior to exercise or surrender in full (including options canceled in accordance with the cancellation-regrant provisions of the Option Grant Program), the shares subject to the portion of the option not so exercised or surrendered shall be available for subsequent option grants under this Plan. Shares repurchased by the Company pursuant to its repurchase rights under the Plan shall not be available for subsequent issuance. C. In the event any change is made to the Special Common Stock issuable under the Plan by reason of any stock dividend, stock split, combination of shares, exchange of shares or other change affecting the outstanding Special Common Stock as a class without receipt of consideration, then appropriate adjustments shall be made by the Committee to (i) the aggregate number and/or class of shares issuable under this Plan and the maximum number and/or class of shares purchasable per Employee pursuant to the applicable limitation of Section II.B of this Article One and the number and/or class of shares for which the automatic option grants are to be made pursuant to the provisions of Article Three, to reflect the effect of such change upon the Company's capital structure, and (ii) the number and/or class of shares and the exercise price per share of the stock subject to each outstanding option in order to preclude the dilution or enlargement of benefits thereunder. All adjustments made by the Committee pursuant to this subparagraph C. shall be final, binding and conclusive. D. Subject to the special priority provisions of Article Five of the Plan, in the event that (i) the Company is the surviving entity in any Corporate Transaction that does not result in the termination of outstanding options pursuant to the Corporate Transaction provisions of the Plan or (ii) the outstanding options under the Plan are to be assumed in connection with such Corporate Transaction, then each such continuing or assumed option shall, immediately after such Corporate Transaction, be appropriately adjusted to apply and pertain to the number and class of securities which would be issuable, in consummation of such Corporate Transaction, to an actual holder of the same number of shares of Special Common Stock as are subject to such option immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the exercise price payable per share subject to each option, provided that the aggregate exercise price of such option shall remain the same. In addition, the aggregate number and/or class of shares issuable under this Plan shall be appropriately adjusted to reflect the effect of such Corporate Transaction upon the Company's capital structure. ARTICLE TWO OPTION GRANT PROGRAM I. TERMS AND CONDITIONS OF OPTIONS A. The Committee shall have plenary authority (subject to the express provisions of the Plan and Section 144 of the Delaware General Corporation Law) to determine which Employees, non-Employee Board members and Consultants are to be granted options under this Option Grant Program, the number of shares to be covered by each such option, the status of the granted option as either an incentive stock option ("Incentive Option") which meets the requirements of Section 422 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), 5 or a non-statutory option not intended to meet such requirements, the time or times at which such option is to become exercisable, the time or times at which such option (or the Shares subject to such option) becomes vested (referred to herein as the "vesting schedule") and the term for which the option is to remain outstanding, up to a maximum term of twenty (20) years. B. The granted options shall be evidenced by instruments in such form as the Committee shall from time to time approve; provided, however, that each such instrument shall comply with and incorporate the terms and conditions specified below, except as such terms and conditions must be modified for Incentive Options as set forth below in Section III of this Article Two. 1. Exercise Price. a. The exercise price per share shall be fixed by the Committee, but in no event shall the exercise price per share be less than fifty percent (50%) of the Closing Selling Price per share of Special Common Stock on the date of the option grant. b. The exercise price shall become immediately due upon exercise of the option and shall, subject to the loan provisions of this Article Two, be payable in one of the alternative forms specified below: (A) full payment in cash or check made payable to the Company's order; or (B) full payment in shares of Special Common Stock held by the Optionee for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the Closing Selling Price on the Exercise Date (as such term is defined below); or (C) full payment in a combination of shares of Special Common Stock held by the Optionee for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the Closing Selling Price on the Exercise Date and cash or check. c. For purposes of subparagraph b. above, the Exercise Date shall be the first date on which there is delivered to the Company both (i) written notice of the exercise of the option and (ii) payment of the exercise price for the purchased shares. 2. Term and Exercise of Options. a. Each option granted under this Option Grant Program shall be exercisable in one or more installments over the Optionee's period of Service as shall be determined by the Committee and set forth in the instrument evidencing such option; provided, however, that no such option granted to a Section 16(b) Insider shall become exercisable in whole or in part within the first six (6) months after the grant date, except in the event of the Optionee's death or disability. b. An option may be exercisable by the Optionee or, in the event the Optionee is permanently disabled (as such term is defined in Section 22(e) of the Code), by his or her spouse, and such option may be transferred by the Optionee to a trust for such Optionee's benefit or the benefit of an immediate family member or by will or the laws of descent or distribution. 6 c. The Committee may, at its discretion, accelerate the vesting schedule of any outstanding option at any time. 3. Termination of Service. a. Should an Optionee cease to continue in Service for any reason (other than termination due to death, permanent disability or retirement from employment by the Company after reaching age sixty-five (65)) while the holder of one or more outstanding options under this Option Grant Program, then such options shall not be exercisable at any time after the earlier of (i) the specified expiration date of the option term or (ii) the expiration of three (3) months after the Optionee's cessation of Service. Each such option shall, during the applicable period following cessation of Service, be exercisable only to the extent of the number of shares (if any) in which the Optionee is vested on the date of such cessation of Service; provided, however, that the Committee shall have the discretion to specify, either at the time the option is granted or at the time that the Optionee ceases Service, that vesting of such option may be extended for a period not to exceed three (3) years from the date of cessation of Service and that the applicable expiration period set forth in clause (ii) may be increased to a period of up to five (5) years. b. Should an Optionee cease to continue in Service due to permanent disability while the holder of one or more outstanding options under this Option Grant Program, then such options shall not be exercisable at any time after the earlier of (i) the specified expiration date of the option term or (ii) the expiration of three (3) months after the Optionee's cessation of Service. Each such option shall, during the applicable period following cessation of Service, be exercisable only to the extent of the number of shares (if any) in which the Optionee is vested on the date of such cessation of Service; provided, however, that the Committee shall have the discretion to specify, either at the time the option is granted or at the time that the Optionee ceases Service, that the vesting of such option may be accelerated or extended from the date of cessation of Service and that the period of exercisability can be increased up to the expiration date of the option term. Should an Optionee cease to continue in Service due to death or retirement from employment by the Company after reaching age sixty-five (65), while the holder of one or more outstanding options under this Regular Option Grant Program, then all unvested options on such date shall automatically become vested and the expiration date of the option shall automatically be extended to the expiration date of the option term. c. Any option granted to an Optionee under this Option Grant Program and outstanding in whole or in part on the date of the Optionee's death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution in the case of the Optionee's death, and any option granted to an Optionee under this Option Grant Program which is outstanding in whole or in part on the date of the Optionee's cessation of Service due to permanent disability may be exercised by the Optionee's spouse or designee. Any such exercise must be in accordance with subparagraph b. d. The Committee shall have complete discretion, exercisable either at the time the option is granted or at the time the Optionee ceases Service, to establish as a provision applicable to the 7 exercise of one or more options granted under this Option Grant Program that during the limited period of exercisability following cessation of Service due to retirement, "plant closing" or "mass layoff" (as such terms are defined at 29 U.S.C. Section 2101) that is subject to the notice requirements of 29 U.S.C. Section 2102, the option will continue to vest according to the vesting schedule that would have applied had the Optionee continued in Service. 4. Repurchase Rights. a. Options may provide that notwithstanding any vesting schedule pursuant to subparagraph 2.a. above, they may be exercised prior to such vesting schedule so long as the Optionee enters into a repurchase agreement satisfactory to the Company. The shares of Special Common Stock acquired upon the exercise of one or more options granted under this Option Grant Program may be subject to repurchase by the Company, at the exercise price paid per share, upon the Optionee's cessation of Service prior to vesting in such shares. b. Any such repurchase right shall be exercisable by the Company upon such terms and conditions (including the establishment of the appropriate vesting schedule and other provision for the expiration of such right in one or more installments over the Optionee's period of Service) as the Committee may specify in the instrument evidencing such right, which instrument shall include appropriate terms with respect to the legending of stock certificates and the placing of unvested shares into escrow. c. All of the Company's outstanding repurchase rights shall automatically terminate, and all shares purchased under this Option Grant Program shall immediately vest in full, upon the occurrence of any Corporate Transaction or Change in Control; provided, however, that no such termination of repurchase rights or immediate vesting of the purchased shares shall occur if (and to the extent that): (i) the Company's outstanding repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction or (ii) such termination of repurchase rights and acceleration of vesting are precluded by other limitations imposed by the Committee either at the time the option is granted or at the time the option shares are purchased. 5. Stockholder Rights. An option holder shall have none of the rights of a stockholder with respect to any shares covered by the option until such individual shall have exercised the option, paid the option price and satisfied all other conditions precedent to the issuance of certificates for the purchased shares. II. CORPORATE TRANSACTION/CHANGE IN CONTROL A. In the event of any of the following transactions (a "Corporate Transaction"): (i) a merger or acquisition in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation, 8 (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company to any entity other than a Subsidiary of the Company, or (iii) any reverse merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company's outstanding voting stock held by persons who are not "Subject Persons" as defined in Article Eleventh of the Company's Certificate of Incorporation (as in effect on September 7, 1990) including persons included in such definition by subparagraph (b) thereof is transferred to holders different from those who held the stock immediately prior to such merger, then the exercisability of each option outstanding under this Option Grant Program shall be automatically accelerated so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of shares of Special Common Stock purchasable under such option and may be exercised for all or any portion of such shares. However, an outstanding option under this Option Grant Program shall not be so accelerated if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or be replaced with a comparable option to purchase shares of the capital stock of the successor corporation or parent thereof, or (ii) such option is to be replaced by a comparable cash incentive program of the successor corporation based on the value of the option at the time of the Corporate Transaction, or (iii) the acceleration of such option is subject to other applicable limitations imposed by the Committee at the time of grant. The determination of comparability under clause (i) or (ii) above shall be made by the Committee, and its determination shall be final, binding and conclusive. B. Upon the consummation of the Corporate Transaction, all outstanding options under this Option Grant Program shall, to the extent not previously exercised or assumed by the successor corporation or its parent company, terminate and cease to be outstanding. C. In the event of any of the following transactions (a "Change in Control"): (i) the acquisition by a person or group of related persons, other than the Company or any person controlling, controlled by or under common control with the Company, of beneficial ownership (as determined pursuant to the provisions of Rule 13d-3 under the 1934 Act) of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities pursuant to a transaction or series of related transactions which the Board does not approve; or (ii) the first date within any period of thirty-six (36) consecutive months or less on which there is effected any change in the composition of the Board such that the majority of the Board (determined by rounding up to the next whole number) ceases to be comprised of individuals who either (I) have been members of the Board continuously since the beginning of such period or (II) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (I) who were still in office at the time such election or nomination was approved by the Board; then the exercisability of each option outstanding under this Option Grant Program shall be automatically accelerated so that each such option shall become exercisable, immediately prior to such Change in Control, for the full number of shares purchasable under such option and may be exercised for all or any portion of 9 such shares. However, an outstanding option under this Option Grant Program shall not be so accelerated if and to the extent one or more limitations imposed by the Committee at the time of grant preclude such acceleration upon a Change in Control. D. The grant of options under this Option Grant Program shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. III. INCENTIVE OPTIONS A. The terms and conditions specified below shall be applicable to all Incentive Options granted under this Option Grant Program. Options which are specifically designated as "non-statutory" options when issued under this Option Grant Program shall not be subject to such terms and conditions. 1. Option Price. The option price per share of the Special Common Stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the Closing Selling Price per share of Special Common Stock on the grant date. 2. 10% Stockholder. If any individual to whom an Incentive Option is to be granted pursuant to the provisions of this Option Grant Program is on the grant date the owner of stock (as determined under Section 424(d) of the Internal Revenue Code) possessing 10% or more of the total combined voting power of all classes of stock of the Company or any one of its Parent or Subsidiaries (such person to be herein referred to as a 10% Stockholder), then (i) the option price per share shall not be less than one hundred and ten percent (110%) of the Closing Selling Price per share of Special Common Stock on the grant date and (ii) the maximum term of the option shall not exceed five (5) years from the grant date. 3. Dollar Limitation. The aggregate fair market value (determined on the basis of the Closing Selling Price in effect on the respective date or dates of grant) of the Special Common Stock for which one or more options granted to any Employee under this Plan (or any other option plan of the Company or its Parent or Subsidiaries) 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. 10 4. Term and Exercise of Options. a. No Incentive Option shall have a term in excess of ten (10) years from the grant date. b. An Incentive Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionee only by the Optionee. 5. Termination of Service. Notwithstanding any term in the Plan to the contrary, an Incentive Option must be exercised within the three (3) month period commencing with the date of cessation of Employee status for any reason, except that in the event the Optionee's cessation of Employee status is due to permanent disability, such period shall be one (1) year from the date of such cessation of Employee status. Incentive Options not exercised within the applicable period shall be treated as non-statutory options. B. Except as modified by the preceding provisions of this Incentive Options section, all the provisions of this Option Grant Program shall be applicable to the Incentive Options granted hereunder. If any option originally granted as an Incentive Stock Option is modified so as not to qualify under the Code as an Incentive Stock Option, such modified Incentive Stock Option shall be a non-statutory option. IV. CANCELLATION AND RE-GRANT OF OPTIONS The Committee shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under this Option Grant Program and to grant in substitution therefor new options under this Plan covering the same or different numbers of shares of Special Common Stock but having an option price per share not less than fifty percent (50%) of the Closing Selling Price (one hundred percent (100%) of the Closing Selling Price in the case of an Incentive Option or, in the case of a 10% Stockholder, not less than one hundred and ten percent (110%) of the Closing Selling Price) per share of Special Common Stock on the new grant date. V. LOANS OR GUARANTEE OF LOANS The Committee may assist any Employee (including any officer or director) in the exercise of one or more options under this Option Grant Program by (a) authorizing the extension of a loan to such Employee from the Company, (b) permitting the Employee to pay the option price for the purchased Special Common Stock in installments over a period of years or (c) authorizing a guarantee by the Company of a third-party loan to the Employee. The terms of any loan, installment method of payment or guarantee (including the interest rate and terms of repayment) shall be established by the Committee in its sole discretion. Loans, installment payments and guarantees may be granted without security or collateral, but the maximum credit available to the Optionee shall not exceed the sum of (i) the aggregate exercise price (less the par value) of the purchased shares plus (ii) any Federal 11 and State income and employment tax liability incurred by the Employee in connection with the exercise of the option. ARTICLE THREE AUTOMATIC GRANT PROGRAM I. AUTOMATIC GRANTS On April 30, 1995, each individual who is a non-Employee member of the Board on such date shall automatically be granted a non-statutory option under this Article Three to purchase 15,000 shares of Special Common Stock. Each non-Employee who is first appointed or elected a member of the Board after April 30, 1995 shall automatically be granted, on the date of such individual's election to the Board, a non-statutory option under this Article Three to purchase 15,000 shares of Special Common Stock. Each Employee director who is first elected a member of the Board and who subsequently becomes a non-Employee director after April 30, 1995 shall automatically be granted, on the date of such individual's change from Employee to non-Employee director, a non-statutory option under this Article Three to purchase 15,000 shares of Special Common Stock. This provision shall terminate on April 30, 1996. II. TERMS AND CONDITIONS OF GRANT Each option granted in accordance with the provisions of this Article Three shall be evidenced by an instrument in such form as the Committee approves from time to time for grants made under Article Two; provided, however, that each such automatic grant shall be subject to the following terms and conditions: A. Exercise Price. The exercise price per share shall be one hundred percent (100%) of the Closing Selling Price per share of Special Common Stock on the grant date. B. Term and Vesting of Options. 1. Except as otherwise specified below, each option shall vest in increments of 5,000 shares on the first, second and third anniversaries of the grant date and shall thereafter remain exercisable until the expiration or earlier termination of the option term. 2. Each granted option shall have a term of ten (10) years measured from the grant date. C. Exercise of Option. Upon exercise of the option, the option exercise price for the purchased shares shall become immediately due and payable in full in one of the alternative forms specified below: (i) cash or check payable to the Company's order; 12 (ii) shares of Special Common Stock held by the optionee for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the Closing Selling Price on the date of exercise; or (iii) any combination of the foregoing so long as the total payment equals the aggregate exercise price for the purchased shares. D. Effect of Termination of Board Membership. 1. Should an Optionee cease to be a member of the Board for any reason (other than death) prior to the expiration date of the automatic grant held by the optionee under this Article Three, then such grant shall remain exercisable, for any shares of Special Common Stock for which the option is exercisable at the time of such cessation of Board membership, for a period not to exceed the earlier of (i) the expiration of the three (3) month period following the date of such cessation of Board membership or (ii) the specified expiration date of the option term. 2. Should the Optionee's membership on the Board cease by reason of death, then each outstanding grant held by the optionee under this Article Three may be subsequently exercised, for any shares of Special Common Stock for which the option is exercisable at the time of the Optionee's cessation of Board membership, by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the optionee's will or in accordance with the laws of descent and distribution. Any such exercise must, however, occur prior to the earlier of (i) the expiration of the twelve (12) month period following the date of the Optionee's death or (ii) the specified expiration date of the option term. E. Stockholder Rights. An option holder shall have none of the rights of a stockholder with respect to any shares covered by an option granted under this Article Three until such individual shall have exercised the option, paid the option exercise price in full and satisfied all other conditions precedent to the issuance of certificates for the purchased shares. III. CORPORATE TRANSACTION A. In the event of a Corporate Transaction, options granted under the Automatic Grant Program shall be treated as described in Section II of Article Two, except the provisions of clause (iii) of the penultimate sentence of Section II A(iii) of Article Two shall not apply. IV. CHANGE IN CONTROL A. In the event of a Change in Control, options granted under the Automatic Grant Program shall be treated as described in Section II of Article Two, except the last sentence of Section II C.(ii) of Article Two shall not apply. 13 ARTICLE FOUR MISCELLANEOUS I. TAX WITHHOLDING A. The Company's obligation to deliver shares upon the exercise or surrender of stock options granted under Article Two shall be subject to the satisfaction of all applicable Federal, State and local income and employment tax withholding requirements. B. The Committee may, in its discretion and upon such terms and conditions as it may deem appropriate (including the applicable safe-harbor provisions of SEC Rule 16b-3 or any successor rule or regulation) provide any or all Optionees or Recipients with the election to have the Company withhold, from the shares of Special Common Stock purchased or issued under the Plan, one or more of such shares with an aggregate Closing Selling Price equal to the designated percentage (up to 100% specified by the Optionee or Recipient) of the Federal and State income taxes ("Taxes") incurred in connection with the acquisition of such shares. In lieu of such direct withholding, one or more Optionees or Recipients may also be granted the right to deliver unrestricted shares of Special Common Stock to the Company in satisfaction of such Taxes. The withheld or delivered shares shall be valued at the Closing Selling Price on the applicable determination date for such Taxes. II. AMENDMENT OF THE PLAN A. The Board shall have the complete and exclusive authority to amend or modify the Plan in any or all respects whatsoever; provided, however, that no such amendment or modification shall, without the consent of the holders, adversely affect rights and obligations with respect to any stock options then outstanding under the Plan. In addition, with a view to making available the benefits provided by Section 422 of the Code and/or SEC Rule 16b-3 as in effect from time to time under the 1934 Act, the Board shall, at the time of each such amendment, determine whether or not to submit such amendment of the Plan to the Company's stockholders for approval. B. No material amendments shall be made to the provisions of the Automatic Grant Program without the approval of the Company's stockholders. III. EFFECTIVE DATE AND TERM OF PLAN A. The Plan shall become effective when adopted by the Board, but no stock option granted under the Plan shall become exercisable, and no shares shall be issued, unless and until the Plan shall have been approved by the Company's stockholders. If such stockholder approval is not obtained within twelve (12) months after the date of the Board's adoption of the Plan, then all stock options previously granted under the Plan shall terminate and no further stock options shall be granted. Subject to such limitation, the Committee may grant stock options under the Plan at any time after the effective date and before the date fixed herein for termination of the Plan. 14 B. The Plan shall in all events terminate on the date determined by the Board, but in no event shall the Plan terminate later than February 22, 2004. Upon such termination, any stock options at the time outstanding under the Plan shall continue to have force and effect in accordance with the provisions of the instruments evidencing such grants. C. Options may be granted under this Plan to purchase shares of Special Common Stock in excess of the number of shares then available for issuance under the Plan, provided (i) an amendment to increase the maximum number of shares issuable under the Plan is adopted by the Board prior to the initial grant of any such option and within one year thereafter such amendment is approved by the Company's stockholders, if such stockholder approval is deemed necessary by the Board, and (ii) each option granted is not to become exercisable, in whole or in part, at any time prior to the obtaining of such stockholder approval, and provided further that at any time that the Amended and Restated Governance Agreement dated as of October 25, 1995 between the Company and Roche Holdings, Inc. (the "Amended Governance Agreement") remains in effect, any action by the Board pursuant to the foregoing shall require the approval of a majority of the Independent Directors (as such term is defined in Article Eleventh of the Certificate of Incorporation of the Company). IV. MISCELLANEOUS PROVISIONS A. Any cash proceeds received by the Company from the issuance of shares hereunder shall be used for general corporate purposes. B. The implementation of the Plan, the granting of any stock option hereunder, and the issuance of Special Common Stock under the Option Grant Program or the Automatic Grant Program, shall be subject to the Company's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options granted under it and the Special Common Stock issued pursuant to it. C. Neither the action of the Company in establishing the Plan, nor any action taken by the Board or the Committee hereunder, nor any provision of the Plan itself shall be construed so as to grant any individual the right to remain in the employ or service of the Company or any of its Parent or Subsidiaries for any period of specific duration, and the Company (or any parent or subsidiary retaining the services of such individual) may terminate such individual's employment or service at any time and for any reason, with or without cause. D. Nothing contained in the Plan shall be construed to limit the authority of the Company to exercise its corporate rights and powers, including (without limitation) the right of the Company (a) to grant options for proper corporate purposes otherwise than under this Plan to any Employee or other person, firm or company or association or (b) to grant options to, or assume the option of, any person in connection with the acquisition (by purchase, lease, merger, consolidation or otherwise) of the business and assets (in whole or in part) of any person, firm, company or association. 15 ARTICLE FIVE SPECIAL REDEMPTION PROVISIONS I. PRIORITY To the extent there is a conflict between any of the provisions of this Article Five and any other provision of the Plan, the specific provisions of this Article Five shall be controlling and shall govern the disposition of all such options outstanding at the time the Redemption (as defined below) occurs or no longer can occur. II. EFFECT OF REDEMPTION ON VESTED OPTIONS A. If the Special Common Stock shall be redeemed at any time as provided in Section (c)(ii) of Article Third of the Certificate of Incorporation of the Company (the "Redemption"), then holders of all outstanding options granted hereunder, to the extent vested immediately prior to the date fixed for the Redemption ("Vested Options"), shall promptly be paid for each such Vested Option or right an amount equal to the product of (i) the excess of the redemption price per share fixed in Section (c)(ii) of Article Third (without reduction for the payment of any cash dividends as provided in the fourth sentence of Section (c)(ii)(C) of Article Third) over the exercise price per share, times (ii) the number of shares covered by such Vested Option or right. III. EFFECT OF REDEMPTION ON UNVESTED OPTIONS A. Upon the Redemption, each option granted under this Plan, to the extent not vested immediately prior to the date fixed for the Redemption, shall be replaced by a comparable incentive program. Each such continuing option will become exercisable, and the shares purchasable thereunder shall vest, in accordance with the same installment dates such option would have become exercisable, and such shares would have vested, under the vesting schedule specified for that option at the time of grant. IV. EFFECT OF NO REDEMPTION A. If the Redemption does not occur, upon conversion of the Special Common Stock into Common Stock, each option granted under this Plan prior to such conversion shall remain in effect after such conversion upon the same terms and conditions (including, without limitation, the exercise price per share and the number of shares) in effect for such option immediately prior to such conversion, except that the shares purchasable under each such continuing option shall be shares of Common Stock. Each such continuing option will become exercisable, and the shares purchasable thereunder shall vest, in accordance with the same installment dates such option would have become exercisable, specified for that option at the time of grant. 16 V. OTHER A. After the earlier of the Redemption or the Conversion Date (as defined in Article Third of the Certificate of Incorporation of the Company), all references in the Plan to Special Common Stock shall automatically become references to Common Stock. B. The exercise by Roche Holdings, Inc. or its affiliates of its right to designate nominees to the Board of Directors pursuant to Sections 3.01 and 3.02 of the Amended Governance Agreement shall not constitute a Change in Control. EX-99.3 7 1996 STOCK OPTION/STOCK INCENTIVE PLAN 1 EXHIBIT 99.3 1996 STOCK OPTION/STOCK INCENTIVE PLAN (as amended effective October 16, 1996) ARTICLE ONE GENERAL PROVISIONS I. PURPOSES OF THE PLAN A. This 1996 Stock Option/Stock Incentive Plan (the "Plan") is intended to promote the interests of Genentech, Inc., a Delaware corporation (the "Company"), by providing a method whereby the Company may retain the services of persons now employed by or serving as consultants or directors to it, secure and retain the services of persons capable of filling such positions and provide incentives for such persons to exert maximum efforts for the success of the Company or its parent or subsidiary corporations. B. For purposes of the Plan, the following definitions shall be in effect: CHANGE IN CONTROL: "Change in Control" shall have the meaning set forth in Article Two, III.C. hereof. CHANGE IN CONTROL PRICE: "Change in Control Price" shall have the meaning set forth in Article Two, II.C.4.b. hereof. CLOSING SELLING PRICE: The Closing Selling Price per share of Special Common Stock on any relevant date under the Plan shall be the closing selling price per share of Special Common Stock, if such Special Common Stock is reported on a national securities exchange or reported on the NASDAQ National Market System (or any successor system), for the trading day immediately preceding the date in question, as such price is published in the Wall Street Journal (or if such publication is not available, a comparable publication selected by the Committee). CONSULTANT: An individual shall be considered to be a Consultant for so long as such individual continues to render personal services to the Company or one or more of its Parent or Subsidiaries as an independent contractor or continues to have an effective and unexpired consulting agreement with the Company. CORPORATE TRANSACTION: "Corporate Transaction" shall have the meaning set forth in Article Two, III.A. hereof. EMPLOYEE: An individual shall be considered to be an Employee for so long as such individual remains in the employ of the Company or one or more of its Parent or Subsidiaries, irrespective of whether employment services are actually provided by the individual. PARENT: A corporation shall be deemed to be a parent of the Company if it is a corporation (other than the Company) in an unbroken chain of corporations ending with the Company, provided each such corporation in the unbroken chain (other than the Company) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. SECTION 16(b) INSIDER: An individual shall be considered to be a Section 16(b) Insider on any relevant date under the Plan if such individual (A) is at the time an officer or director of the Company subject to the short-swing profit restrictions of the regulations promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the "1934 Act") or (B) unless Section 16 or regulations promulgated thereunder, are amended to provide otherwise, was such an officer or director at any time during the six month period 2 immediately preceding the date in question and made any purchase or sale of Special Common Stock during such six-month period. SERVICE: An individual shall be deemed to be in the Service of the Company for so long as such individual renders service on a periodic basis to the Company or one or more of its Parent or Subsidiaries as an Employee or Consultant. SPECIAL COMMON STOCK: The Special Common Stock issuable under the Plan shall be shares of the Company's Callable Putable Common Stock, par value $0.02 per share. All references to "shares" or "stock", shall be deemed to be references to shares of the Special Common Stock. SUBSIDIARY: A corporation shall be deemed to be a subsidiary of the Company if it is one of the corporations (other than the Company) in an unbroken chain of corporations beginning with the Company, provided each such corporation (other than the last corporation in the unbroken chain) owns, at the time of determination, stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. For purposes of non-statutory option grants under Article Two and stock incentive grants under Article Four and all Corporate Transaction provisions of the Plan, the term "subsidiary" shall also include any partnership, joint venture or other business entity of which the Company owns, directly or indirectly through another subsidiary corporation, more than a fifty percent (50%) interest in voting power, capital or profits. C. Neither stock option grants nor stock bonus issuances made to any individual under the Plan shall in any way affect, limit or restrict such individual's eligibility to participate in any other stock plan or other compensation or benefit plan, arrangement or practice now or hereafter maintained by the Company or any Parent or Subsidiary. II. ADMINISTRATION OF THE PLAN A. The Plan shall be administered by the Compensation Committee (the "Committee"). The Committee shall be comprised of not less than two (2) Board members. The Board may from time to time appoint members to the Committee in substitution for (or in addition to) members previously appointed, and the Board shall have the authority to fill any and all vacancies on the Committee, however caused. B. Subject to limitations contained elsewhere herein and to the provisions of Section V., C. and D. of this Article I relating to adjustments upon changes in stock, the aggregate number of shares of stock that may be subject to options and stock appreciation rights granted hereunder to any Employee in a calendar year shall not exceed two hundred fifty thousand (250,000) shares of the Company's Special Common Stock. C. Subject to the express provisions of the Plan, the Committee shall have plenary authority: (i) to interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it, and to make all other determinations deemed necessary or advisable in administering the Plan; and (ii) to change the terms and conditions of any outstanding discretionary option grant or unvested stock issuance, provided such action does not, without the consent of the holder, adversely affect the rights and obligations such individual may have under the Plan or the outstanding grant or stock issuance. D. Determinations of the Committee on all matters relating to the Plan and any discretionary option grants or stock issuances made hereunder shall be final, binding and conclusive on all persons having any interest in the Plan or any options granted or shares issued under the Plan. III. STRUCTURE OF THE PLAN A. The Plan shall be divided into three separate components: the Regular Option Grant Program specified in Article Two, the Automatic Grant Program specified in Article Three and the Stock Incentive Program specified in Article Four. Under the Regular Option Grant Program, eligible Employees, non-Employee 3 Board members and Consultants may be granted options to purchase shares of Special Common Stock at an exercise price equal to not less than 50% of the Closing Selling Price per share on the grant date. Under the Automatic Grant Program, non-Employee Board members shall automatically be granted options to purchase shares of Special Common Stock on the dates and in the amounts specified in Article Three below at an exercise price of 100% of the Closing Selling Price per share of Special Common Stock on the date of grant. B. Under the Stock Incentive Program, eligible Employees, non-Employee Board members and Consultants may be awarded shares of Special Common Stock as a reward for past services or as an incentive to the performance of future services. Such shares may be issued as fully-vested shares or as shares vesting over time. C. The provisions of Articles One, Five and Six of the Plan shall apply to the Regular Option Grant Program, the Automatic Option Grant Program and the Stock Incentive Program and shall accordingly govern the interests of all individuals in the Plan. IV. ELIGIBILITY FOR OPTION GRANTS AND STOCK ISSUANCES A. The individuals eligible to receive option grants ("Optionees") and/or stock incentives ("Recipients") pursuant to the Plan shall be limited to (i) those Employees, non-Employee Board members and Consultants selected by the Committee and (ii) those non-Employee Board members who are entitled to option grants pursuant to the Automatic Option Grant Program of Article Three. V. STOCK SUBJECT TO THE PLAN A. The Special Common Stock issuable under the Plan shall be made available either from authorized but unissued shares of Special Common Stock or from shares of Special Common Stock reacquired by the Company on the open market. The aggregate number of shares of Special Common Stock issuable over the term of this Plan, whether through exercised options or direct stock issuances shall not exceed 9,000,000 shares (subject to adjustment from time to time in accordance with paragraphs C. and D. below). B. Should an option granted under this Plan expire or terminate for any reason prior to exercise or surrender in full (including options canceled in accordance with the cancellation-regrant provisions of the Regular Option Grant Program), the shares subject to the portion of the option not so exercised or surrendered shall be available for subsequent option grants under this Plan. Shares subject to stock appreciation rights exercised in accordance with the Stock Appreciation Right provisions of Article Two and shares repurchased by the Company pursuant to its repurchase rights under the Plan shall not be available for subsequent issuance, whether through option grants, stock appreciation rights or direct issuances, under this Plan. C. In the event any change is made to the Special Common Stock issuable under the Plan by reason of any stock dividend, stock split, combination of shares, exchange of shares or other change affecting the outstanding Special Common Stock as a class without receipt of consideration, then appropriate adjustments shall be made by the Committee to (i) the aggregate number and/or class of shares issuable under this Plan, the maximum number and/or class of shares purchasable per Employee pursuant to the applicable limitation of Section II.B of this Article One and the number and/or class of shares for which the automatic option grants are to be made pursuant to the provisions of Article Three, to reflect the effect of such change upon the Company's capital structure, (ii) the number and/or class of shares and the exercise price per share of the stock subject to each outstanding option in order to preclude the dilution or enlargement of benefits thereunder and (iii) the number and/or class of shares and the exercise price per share in effect under each outstanding stock appreciation right in order to preclude the dilution or enlargement of benefits thereunder. All adjustments made by the Committee pursuant to this paragraph C. shall be final, binding and conclusive. D. Subject to the special priority provisions of Article Six of the Plan, in the event that (i) the Company is the surviving entity in any Corporate Transaction that does not result in the termination of outstanding 4 options pursuant to the Corporate Transaction provisions of the Plan or (ii) the outstanding options under the Plan are to be assumed in connection with such Corporate Transaction, then each such continuing or assumed option shall, immediately after such Corporate Transaction, be appropriately adjusted to apply and pertain to the number and class of securities which would be issuable, in consummation of such Corporate Transaction, to an actual holder of the same number of shares of Special Common Stock as are subject to such option immediately prior to such Corporate Transaction. Appropriate adjustments shall also be made to the exercise price payable per share subject to each option, provided that the aggregate exercise price of such option shall remain the same. In addition, the aggregate number and/or class of shares issuable under this Plan shall be appropriately adjusted to reflect the effect of such Corporate Transaction upon the Company's capital structure. ARTICLE TWO REGULAR OPTION GRANT PROGRAM I. TERMS AND CONDITIONS OF OPTIONS A. The Committee shall have plenary authority (subject to the express provisions of the Plan and Section 144 of the Delaware General Corporation Law) to determine which Employees, non-Employee Board members and Consultants are to be granted options under this Regular Option Grant Program, the number of shares to be covered by each such option, the status of the granted option as either an incentive stock option ("Incentive Option") which meets the requirements of Section 422 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), or a non-statutory option not intended to meet such requirements, the time or times at which such option is to become exercisable, the time or times at which such option (or the Shares subject to such option) becomes vested (referred to herein as the "vesting schedule") and the term for which the option is to remain outstanding, up to a maximum term of ten (10) years. B. The granted options shall be evidenced by instruments in such form as the Committee shall from time to time approve; provided, however, that each such instrument shall comply with and incorporate the terms and conditions specified below, except as such terms and conditions must be modified for Incentive Options as set forth below in Section IV of this Article Two. 1. Exercise Price. a. The exercise price per share shall be fixed by the Committee, but in no event shall the exercise price per share be less than fifty percent (50%) of the Closing Selling Price per share of Special Common Stock on the date of the option grant. b. The exercise price shall become immediately due upon exercise of the option and shall, subject to the loan provisions of this Article Two, be payable in one of the alternative forms specified below: (A) full payment in cash or check made payable to the Company's order; or (B) full payment in shares of Special Common Stock held by the Optionee for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the Closing Selling Price on the Exercise Date (as such term is defined below); or (C) full payment in a combination of shares of Special Common Stock held by the Optionee for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the Closing Selling Price on the Exercise Date and cash or check. c. For purposes of subparagraph b. above, the Exercise Date shall be the first date on which there is delivered to the Company both (i) written notice of the exercise of the option and (ii) payment of the exercise price for the purchased shares. 5 2. Term and Exercise of Options. a. Each option granted under this Regular Option Grant Program shall be exercisable in one or more installments over the Optionee's period of Service as shall be determined by the Committee and set forth in the instrument evidencing such option; provided, however, that no such option granted to a Section 16(b) Insider shall become exercisable in whole or in part within the first six (6) months after the grant date, except in the event of the Optionee's death or disability. b. An option may be exercisable by the Optionee or, in the event the Optionee is permanently disabled (as such term is defined in Section 22(e) of the Code), by his or her spouse, and such option may be transferred by the Optionee to a trust for such Optionee's benefit or the benefit of an immediate family member or by will or the laws of descent or distribution. c. The Committee may, at its discretion, accelerate the vesting schedule of any outstanding option at any time. 3. Termination of Service. a. Should an Optionee cease to continue in Service for any reason (other than termination due to death, permanent disability or retirement from employment by the Company after reaching age sixty-five (65)) while the holder of one or more outstanding options under this Regular Option Grant Program, then such options shall not be exercisable at any time after the earlier of (i) the specified expiration date of the option term or (ii) the expiration of three (3) months after the Optionee's cessation of Service. Each such option shall, during the applicable period following cessation of Service, be exercisable only to the extent of the number of shares (if any) in which the Optionee is vested on the date of such cessation of Service; provided, however, that the Committee shall have the discretion to specify, either at the time the option is granted or at the time that the Optionee ceases Service, that vesting of such option may be extended for a period not to exceed three (3) years from the date of cessation of Service and that the applicable expiration period set forth in clause (ii) may be increased to a period of up to five (5) years. b. Should an Optionee cease to continue in Service due to permanent disability while the holder of one or more outstanding options under this Regular Option Grant Program, then such options shall not be exercisable at any time after the earlier of (i) the specified expiration date of the option term or (ii) the expiration of three (3) months after the Optionee's cessation of Service. Each such option shall, during the applicable period following cessation of Service, be exercisable only to the extent of the number of shares (if any) in which the Optionee is vested on the date of such cessation of Service; provided, however, that the Committee shall have the discretion to specify, either at the time the option is granted or at the time that the Optionee ceases Service, that the vesting of such option may be accelerated or extended from the date of cessation of Service and that the period of exercisability can be increased up to the expiration date of the option term. Should an Optionee cease to continue in Service due to death, or retirement from employment by the Company after reaching age sixty-five (65), while the holder of one or more outstanding options under this Regular Option Grant Program, then all unvested options on such date shall automatically become vested and the expiration date of the option shall automatically be extended to the expiration date of the option term. c. Any option granted to an Optionee under this Regular Option Grant Program and outstanding in whole or in part on the date of the Optionee's death may be subsequently exercised by the personal representative of the Optionee's estate or by the person or persons to whom the option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution in the case of the Optionee's death, and any option granted to an Optionee under this Regular Option Grant Program which is outstanding in whole or in part on the date of the Optionee's cessation of Service due to permanent disability may be exercised by the Optionee's spouse or designee. Any such exercise must be in accordance with subparagraph b. 6 d. The Committee shall have complete discretion, exercisable either at the time the option is granted or at the time the Optionee ceases Service, to establish as a provision applicable to the exercise of one or more options granted under this Regular Option Grant Program that during the limited period of exercisability following cessation of Service due to retirement, "plant closing" or "mass layoff" (as such terms are defined at 29 U.S.C. Section 2101) that is subject to the notice requirements of 29 U.S.C. Section 2102, the option will continue to vest according to the vesting schedule that would have applied had the optionee continued in Service. 4. Repurchase Rights. a. Options may provide that notwithstanding any vesting schedule pursuant to subparagraph 2. a. above, they may be exercised prior to such vesting schedule so long as the Optionee enters into a repurchase agreement satisfactory to the Company. The shares of Special Common Stock acquired upon the exercise of one or more options granted under this Regular Option Grant Program may be subject to repurchase by the Company, at the exercise price paid per share, upon the Optionee's cessation of Service prior to vesting in such shares. b. Any such repurchase right shall be exercisable by the Company upon such terms and conditions (including the establishment of the appropriate vesting schedule and other provision for the expiration of such right in one or more installments over the optionee's period of Service) as the Committee may specify in the instrument evidencing such right, which instrument shall include appropriate terms with respect to the legending of stock certificates and the placing of unvested shares into escrow. c. All of the Company's outstanding repurchase rights shall automatically terminate, and all shares purchased under this Regular Option Grant Program shall immediately vest in full, upon the occurrence of any Corporate Transaction or Change in Control; provided, however, that no such termination of repurchase rights or immediate vesting of the purchased shares shall occur if (and to the extent that): (i) the Company's outstanding repurchase rights are to be assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction or (ii) such termination of repurchase rights and acceleration of vesting are precluded by other limitations imposed by the Committee either at the time the option is granted or at the time the option shares are purchased. 5. Stockholder Rights. An option holder shall have none of the rights of a stockholder with respect to any shares covered by the option until such individual shall have exercised the option, paid the option price and satisfied all other conditions precedent to the issuance of certificates for the purchased shares. II. STOCK APPRECIATION RIGHTS A. The Committee shall have full power and authority, exercisable in its sole discretion, to grant stock appreciation rights to one or more Employees, non-Employee Board members or Consultants eligible for option grants under this Regular Option Grant Program. Each such right shall entitle the holder to a distribution based on the appreciation in the value per share of a designated amount of Special Common Stock. B. Three types of stock appreciation rights shall be authorized for issuance under the Plan: 1. Tandem Stock Appreciation Rights. These rights require the holder to elect between the exercise of the underlying option for shares of Special Common Stock and the surrender of such option for an appreciation distribution equal to the excess of (i) the Closing Selling Price (on the date of option surrender) of the vested shares of Special Common Stock purchasable under the surrendered option over (ii) the aggregate option price payable for such shares. 7 2. Concurrent Stock Appreciation Rights. Concurrent rights may apply to all or any portion of the shares of Special Common Stock subject to the underlying option and will be exercised automatically at the same time the option is exercised for those shares. The appreciation distribution to which the holder of such concurrent right shall be entitled upon exercise of the underlying option shall be in an amount equal to the excess of (i) the aggregate Closing Selling Price (at date of exercise) of the vested shares purchased under the underlying option with such concurrent rights over (ii) the aggregate option price paid for those shares. 3. Limited Stock Appreciation Rights. These rights will entitle the holder to surrender outstanding options in connection with certain Changes in Control (as defined below) for an appreciation distribution equal in amount to the excess of (i) the Change in Control Price (as defined below) of the number of shares in which the Optionee is at the time vested under the surrendered option over (ii) the aggregate option price payable for such vested shares. C. The terms and conditions applicable to each Tandem Stock Appreciation Right ("Tandem Right"), Concurrent Stock Appreciation Right ("Concurrent Right") and Limited Stock Appreciation Right ("Limited Right") shall be as follows: 1. Tandem Rights. a. Tandem Rights may be tied to either Incentive Options or non-statutory options. Each such right shall, except as specifically set forth below, be subject to the same terms and conditions applicable to the particular stock option grant to which it pertains. b. The Appreciation Distribution payable on the exercised Tandem Right shall be in an amount equal to the excess of (i) the Closing Selling Price (on the date of the option surrender) of the number of shares of Special Common Stock in which the Optionee is vested under the surrendered option over (ii) the aggregate option price payable for such vested shares. c. The Appreciation Distribution may, in the Committee's discretion, be made in cash, in shares of Special Common Stock or in a combination of cash and Special Common Stock. Any shares of Special Common Stock so distributed shall be valued at the Closing Selling Price on the date the option is surrendered, and the shares of Special Common Stock subject to the surrendered option shall not be available for subsequent issuance under this Plan. 2. Concurrent Rights. a. Concurrent Rights may be tied to any or all of the shares of Special Common Stock subject to any Incentive Option or non-statutory option grant made under this Regular Option Grant Program. The Concurrent Right shall, except as specifically set forth below, be subject to the same terms and conditions applicable to the particular stock option grant to which it pertains. b. The Concurrent Right shall be automatically exercised at the same time the underlying option is exercised for the particular shares of Special Common Stock to which the Concurrent Right pertains. c. The Appreciation Distribution payable on the exercised Concurrent Right shall be equal to the excess of (i) the aggregate Closing Selling Price (on the Exercise Date) of the vested shares of Special Common Stock purchased under the underlying option which have Concurrent Rights appurtenant to them over (ii) the aggregate option price paid for such shares. d. The Appreciation Distribution may, in the Committee's discretion, be paid in cash, in shares of Special Common Stock or in a combination of cash and Special Common Stock. Any shares of Special Common Stock so distributed shall be valued at the Closing Selling Price on the date the Concurrent Right is exercised and shall reduce on a one-for-one basis the number of shares of Special Common Stock thereafter issuable under this Plan. 3. Terms Applicable to Both Tandem Rights and Concurrent Rights. 8 a. To exercise any outstanding Tandem or Concurrent Right, the holder must provide written notice of exercise to the Company in compliance with the provisions of the instrument evidencing such right. b. If a Tandem or Concurrent Right is granted to an individual who is at the time a Section 16(b) Insider, then the instrument of grant shall incorporate all the terms and conditions at the time necessary to assure that the subsequent exercise of such right shall qualify for the safe-harbor exemption from short-swing profit liability provided by SEC Rule 16b-3 (or any successor rule or regulation). c. No limitation shall exist on the aggregate amount of cash payments the Company may make under this Article Two Program in connection with the exercise of Tandem or Concurrent Rights. 4. Limited Rights. a. Each Section 16(b) Insider shall have the Limited Right, exercisable in the event there should occur a Change in Control (as such term is defined below), to surrender any or all of the options (whether incentive stock options or non-statutory options) held by such individual under this Article Two Program, to the extent such options (i) have been outstanding for at least six (6) months and (ii) are at the time exercisable for vested shares. b. In exchange for each option surrendered in accordance with subparagraph a. above, the Section 16(b) Insider shall receive an Appreciation Distribution in an amount equal to the excess of (i) the Change in Control Price (determined as of the date of surrender) of the number of shares in which the Section 16(b) Insider is at the time vested under the surrendered option over (ii) the aggregate option price payable for such vested shares. For purposes of such Appreciation Distribution, the Change in Control Price per share of the vested Special Common Stock subject to the surrendered option shall be deemed to be equal to the greater of (a) the Closing Selling Price per share on the date of surrender or (b) the highest reported price per share paid in effecting the Change in Control. However, if the option is an Incentive Option, then the Change in Control Price of the vested shares subject to the surrendered option shall not exceed the value per share determined under clause (a) above. c. The Appreciation Distribution shall be made entirely in cash, and the shares of Special Common Stock subject to each surrendered option shall not be available for subsequent issuance under this Plan. III. CORPORATE TRANSACTION/CHANGE IN CONTROL A. In the event of any of the following transactions (a "Corporate Transaction"): (i) a merger or acquisition in which the Company is not the surviving entity, except for a transaction the principal purpose of which is to change the State of the Company's incorporation, (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Company to any entity other than a Subsidiary of the Company, or (iii) any reverse merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company's outstanding voting stock held by persons who are not "Subject Persons" as defined in Article Eleventh of the Company's Certificate of Incorporation (as in effect on September 7, 1990) including persons included in such definition by subparagraph (b) thereof is transferred to holders different from those who held the stock immediately prior to such merger, then the exercisability of each option outstanding under this Regular Option Grant Program shall be automatically accelerated so that each such option shall, immediately prior to the specified effective date for the Corporate Transaction, become fully exercisable with respect to the total number of shares of Special Common Stock purchasable under such option and may be exercised for all or any portion of such shares. However, an outstanding option under this Regular Option Grant Program shall not be so accelerated if and to the extent: (i) such option is, in connection with the Corporate Transaction, either to be assumed by the successor corporation or parent thereof or be replaced with a comparable option to purchase shares of the capital stock of the successor 9 corporation or parent thereof, or (ii) such option is to be replaced by a comparable cash incentive program of the successor corporation based on the value of the option at the time of the Corporate Transaction, or (iii) the acceleration of such option is subject to other applicable limitations imposed by the Committee at the time of grant. The determination of comparability under clause (i) or (ii) above shall be made by the Committee, and its determination shall be final, binding and conclusive. B. Upon the consummation of the Corporate Transaction, all outstanding options under this Regular Option Grant Program shall, to the extent not previously exercised or assumed by the successor corporation or its parent company, terminate and cease to be outstanding. C. In the event of any of the following transactions (a "Change in Control"): (i) the acquisition by a person or group of related persons, other than the Company or any person controlling, controlled by or under common control with the Company, of beneficial ownership (as determined pursuant to the provisions of Rule 13d-3 under the 1934 Act) of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company's then outstanding securities pursuant to a transaction or series of related transactions which the Board does not approve; or (ii) the first date within any period of thirty-six (36) consecutive months or less on which there is effected any change in the composition of the Board such that the majority of the Board (determined by rounding up to the next whole number) ceases to be comprised of individuals who either (I) have been members of the Board continuously since the beginning of such period or (II) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (I) who were still in office at the time such election or nomination was approved by the Board; then the exercisability of each option outstanding under this Regular Option Grant Program shall be automatically accelerated so that each such option shall become exercisable, immediately prior to such Change in Control, for the full number of shares purchasable under such option and may be exercised for all or any portion of such shares. However, an outstanding option under this Regular Option Grant Program shall not be so accelerated if and to the extent one or more limitations imposed by the Committee at the time of grant preclude such acceleration upon a Change in Control. D. The grant of options under this Regular Option Grant Program shall in no way affect the right of the Company to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets. IV. INCENTIVE OPTIONS A. The terms and conditions specified below shall be applicable to all Incentive Options granted under this Regular Option Grant Program. Options which are specifically designated as "non-statutory" options when issued under this Regular Option Grant Program shall not be subject to such terms and conditions. 1. Option Price. The option price per share of the Special Common Stock subject to an Incentive Option shall in no event be less than one hundred percent (100%) of the Closing Selling Price per share of Special Common Stock on the grant date. 2. 10% Stockholder. If any individual to whom an Incentive Option is to be granted pursuant to the provisions of this Regular Option Grant Program is on the grant date the owner of stock (as determined under Section 424(d) of the Internal Revenue Code) possessing 10% or more of the total combined voting power of all classes of stock of the Company or any one of its Parent or Subsidiaries (such person to be herein referred to as a 10% 10 Stockholder), then (i) the option price per share shall not be less than one hundred and ten percent (110%) of the Closing Selling Price per share of Special Common Stock on the grant date and (ii) the maximum term of the option shall not exceed five (5) years from the grant date. 3. Dollar Limitation. The aggregate fair market value (determined on the basis of the Closing Selling Price in effect on the respective date or dates of grant) of the Special Common Stock for which one or more options granted to any Employee under this Plan (or any other option plan of the Company or its Parent or Subsidiaries) may for the first time become exercisable as incentive stock options under the Federal tax laws during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability thereof as incentive stock options under the Federal tax laws shall be applied on the basis of the order in which such options are granted. 4. Term and Exercise of Options. a. No Incentive Option shall have a term in excess of ten (10) years from the grant date. b. An Incentive Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionee only by the Optionee. 5. Termination of Service. A. Notwithstanding any terms in the Plan to the contrary, an Incentive Option must be exercised within the three (3) month period commencing with the date of cessation of Employee status for any reason, except that in the event the Optionee's cessation of Employee status is due to permanent disability, such period shall be one (1) year from the date of such cessation of Employee status. Incentive Options not exercised within the applicable period shall be treated as non-statutory options. B. Except as modified by the preceding provisions of this Incentive Options section, all the provisions of this Regular Option Grant Program shall be applicable to the Incentive Options granted hereunder. If any option originally granted as an Incentive Stock Option is modified so as not to qualify under the Code as an Incentive Stock Option, such modified Incentive Stock Option shall be a non-statutory option. V. CANCELLATION AND RE-GRANT OF OPTIONS The Committee shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under this Regular Option Grant Program and to grant in substitution therefor new options under this Plan covering the same or different numbers of shares of Special Common Stock but having an option price per share not less than fifty percent (50%) of the Closing Selling Price (one hundred percent (100%) of the Closing Selling Price in the case of an Incentive Option or, in the case of a 10% Stockholder, not less than one hundred and ten percent (110%) of the Closing Selling Price) per share of Special Common Stock on the new grant date. VI. LOANS OR GUARANTEE OF LOANS The Committee may assist any Employee (including any officer or director) in the exercise of one or more options under this Regular Option Grant Program by (a) authorizing the extension of a loan to such Employee from the Company, (b) permitting the Employee to pay the option price for the purchased Special Common Stock in installments over a period of years or (c) authorizing a guarantee by the Company of a third-party loan to the Employee. The terms of any loan, installment method of payment or guarantee (including the interest rate and terms of repayment) shall be established by the Committee in its sole discretion. Loans, installment payments and guarantees may be granted without security or collateral, 11 but the maximum credit available to the Optionee shall not exceed the sum of (i) the aggregate exercise price (less the par value) of the purchased shares plus (ii) any Federal and State income and employment tax liability incurred by the Employee in connection with the exercise of the option. ARTICLE THREE AUTOMATIC GRANT PROGRAM I. AUTOMATIC GRANTS On April 30, 1996 each individual who is a non-Employee member of the Board on such date shall automatically be granted a non-statutory option under this Article Three to purchase 20,000 shares of Special Common Stock. Each non-Employee who is first appointed or elected a member of the Board after April 30, 1996 shall automatically be granted, on the date of such individual's election to the Board, a non-statutory option under this Article Three to purchase 20,000 shares of Special Common Stock. Each Employee director who is first elected a member of the Board and who subsequently becomes a non-Employee director after April 30, 1996 shall automatically be granted, on the date of such individual's change from Employee to non-Employee director, a non-statutory option under this Article Three to purchase 20,000 shares of Special Common Stock. II. TERMS AND CONDITIONS OF GRANT Each option granted in accordance with the provisions of this Article Three shall be evidenced by an instrument in such form as the Committee approves from time to time for grants made under Article Two; provided, however, that each such automatic grant shall be subject to the following terms and conditions: A. Exercise Price. The exercise price per share shall be one hundred percent (100%) of the Closing Selling Price per share of Special Common Stock on the grant date. B. Term and Vesting of Options. 1. Except as otherwise specified below, each option shall vest in increments of 5,000 shares on the first, second, third and fourth anniversaries of the grant date and shall thereafter remain exercisable until the expiration or earlier termination of the option term. 2. Each granted option shall have a term of ten (10) years measured from the grant date. C. Exercise of Option. Upon exercise of the option, the option exercise price for the purchased shares shall become immediately due and payable in full in one of the alternative forms specified below: (i) cash or check payable to the Company's order; (ii) shares of Special Common Stock held by the optionee for the requisite period necessary to avoid a charge to the Company's reported earnings and valued at the Closing Selling Price on the date of exercise; or (iii) any combination of the foregoing so long as the total payment equals the aggregate exercise price for the purchased shares. D. Effect of Termination of Board Membership. 12 1. Should an optionee cease to be a member of the Board for any reason (other than death) prior to the expiration date of the automatic grant held by the optionee under this Article Three, then each such grant shall remain exercisable, for any shares of Special Common Stock for which the option is exercisable at the time of such cessation of Board membership, for a period not to exceed the earlier of (i) the expiration of the three (3) month period following the date of such cessation of Board membership or (ii) the specified expiration date of the option term. 2. Should the optionee's membership on the Board cease by reason of death, then each outstanding grant held by the optionee under this Article Three may be subsequently exercised, for any shares of Special Common Stock for which the option is exercisable at the time of the optionee's cessation of Board membership, by the personal representative of the optionee's estate or by the person or persons to whom the option is transferred pursuant to the optionee's will or in accordance with the laws of descent and distribution. Any such exercise must, however, occur prior to the earlier of (i) the expiration of the twelve (12) month period following the date of the optionee's death or (ii) the specified expiration date of the option term. E. Stockholder Rights. An option holder shall have none of the rights of a stockholder with respect to any shares covered by an option granted under this Article Three until such individual shall have exercised the option, paid the option exercise price in full and satisfied all other conditions precedent to the issuance of certificates for the purchased shares. III. CORPORATE TRANSACTION In the event of a Corporate Transaction, options granted under the Automatic Grant Program shall be treated as described in Section III of Article Two, except the provisions of clause (iii) of the penultimate sentence of Section III A.(iii) of Article Two shall not apply. IV. CHANGE IN CONTROL In the event of a Change in Control, options granted under the Automatic Grant Program shall be treated as described in Section III of Article Two, except the last sentence of Section III C.(ii) of Article Two shall not apply. ARTICLE FOUR STOCK INCENTIVE PROGRAM I. TERMS AND CONDITIONS OF STOCK ISSUANCES A. Shares may be issued under this Stock Incentive Program as a reward for past services rendered the Company or one or more of its Parent or Subsidiaries or as an incentive for future service with such entities. Any unvested shares so issued shall be evidenced by a Restricted Stock Issuance Agreement ("Issuance Agreement") which complies with the terms and conditions of this Stock Incentive Program and shall include appropriate terms with respect to legending of certificates and escrow of unvested shares. 1. Vesting Schedule. a. The Recipient's interest in the issued shares of Special Common Stock may, in the absolute discretion of the Committee, be fully and immediately vested upon issuance or may vest in one or more installments. b. The elements of the vesting schedule applicable to any unvested shares issued under this Stock Incentive Program, namely the number of installments in which the shares are to vest, the interval or intervals (if any) 13 which are to lapse between installments and the effect which death, disability or other event designated by the Committee is to have upon the vesting schedule, shall be determined by the Committee and set forth in the Issuance Agreement executed by the Company and the Recipient at the time of the incentive grant. c. Except as may otherwise be provided in the Issuance Agreement, the Recipient may not transfer unvested shares of Special Common Stock. The Recipient, however, shall have all the rights of a stockholder with respect to such unvested shares, including without limitation the right to vote such shares and to receive all dividends paid on such shares. 2. Cancellation of Shares. a. In the event the Recipient should, while his/her interest in the issued Special Common Stock remains unvested, cease to continue in Service for any reason whatsoever, then the Company shall have the right to cancel all such unvested shares, and the Recipient shall thereafter have no further stockholder rights with respect to such shares. b. The Committee may in its discretion waive such cancellation of unvested shares in whole or in part and thereby effect the immediate vesting of the Recipient's interest in the shares of Special Common Stock (or other assets) as to which the waiver applies. 3. Corporate Transaction/Change in Control. All unvested shares under the Stock Incentive Program shall immediately vest in full immediately prior to the occurrence of any Corporate Transaction or Change in Control, except to the extent: (i) the Company's outstanding cancellation rights are to be assigned to the successor corporation (or parent thereof) in connection with the Corporate Transaction, or (ii) one or more limitations imposed by the Committee at the time of stock issuance preclude such accelerated vesting. ARTICLE FIVE MISCELLANEOUS I. TAX WITHHOLDING A. The Company's obligation to deliver shares upon the exercise or surrender of stock options or stock appreciation rights granted under Article Two or Article Three or upon the issuance or vesting of shares under Article Four shall be subject to the satisfaction of all applicable Federal, State and local income and employment tax withholding requirements. B. The Committee may, in its discretion and upon such terms and conditions as it may deem appropriate (including the applicable safe-harbor provisions of SEC Rule 16b-3 or any successor rule or regulation) provide any or all Optionees or Recipients with the election to have the Company withhold, from the shares of Special Common Stock purchased or issued under the Plan, one or more of such shares with an aggregate Closing Selling Price equal to the designated percentage (up to 100% specified by the Optionee or Recipient) of the Federal and State income taxes ("Taxes") incurred in connection with the acquisition of such shares. In lieu of such direct withholding, one or more Optionees or Recipients may also be granted the right to deliver unrestricted shares of Special Common Stock to the Company in satisfaction of such Taxes. The withheld or delivered shares shall be valued at the Closing Selling Price on the applicable determination date for such Taxes. II. AMENDMENT OF THE PLAN 14 A. The Board shall have the complete and exclusive authority to amend or modify the Plan in any or all respects whatsoever; provided, however, that no such amendment or modification shall, without the consent of the holders, adversely affect rights and obligations with respect to any stock options, stock appreciation rights or unvested Special Common Stock at the time outstanding under the Plan. In addition, with a view to making available the benefits provided by Section 422 of the Code and/or SEC Rule 16b-3 as in effect from time to time under the 1934 Act, the Board shall, at the time of each such amendment, determine whether or not to submit such amendment of the Plan to the Company's stockholders for approval. B. No material amendments shall be made to the provisions of the Automatic Grant Program without the approval of the Company's stockholders. III. EFFECTIVE DATE AND TERM OF PLAN A. The Plan shall become effective when adopted by the Board, but no stock option or stock appreciation right granted under the Plan shall become exercisable, and no shares shall be issued, unless and until the Plan shall have been approved by the Company's stockholders. If such stockholder approval is not obtained within twelve (12) months after the date of the Board's adoption of the Plan, then all stock options and stock appreciation rights previously granted under the Plan shall terminate and no further stock options or stock appreciation rights shall be granted. Subject to such limitation, the Committee may grant stock options and stock appreciation rights under the Plan at any time after the effective date and before the date fixed herein for termination of the Plan. B. The Plan shall in all events terminate on the date determined by the Board but in no event shall the Plan terminate later than February 6, 2006. Upon such termination, any stock options, stock appreciation rights and unvested shares at the time outstanding under the Plan shall continue to have force and effect in accordance with the provisions of the instruments evidencing such grants or issuances. C. Options may be granted under this Plan to purchase shares of Special Common Stock in excess of the number of shares then available for issuance under the Plan, provided (i) an amendment to increase the maximum number of shares issuable under the Plan is adopted by the Board prior to the initial grant of any such option and within one year thereafter such amendment is approved by the Company's stockholders, if such stockholder approval is deemed necessary by the Board, and (ii) each option granted is not to become exercisable, in whole or in part, at any time prior to the obtaining of such stockholder approval, and provided further that at any time that the Amended and Restated Governance Agreement dated as of October 25, 1995 between the Company and Roche Holdings, Inc. (the "Amended Governance Agreement") remains in effect, any action by the Board pursuant to the foregoing shall require the approval of a majority of the Independent Directors (as such term is defined in Article Eleventh of the Certificate of Incorporation of the Company). IV. MISCELLANEOUS PROVISIONS A. Any cash proceeds received by the Company from the issuance of shares hereunder shall be used for general corporate purposes. B. The implementation of the Plan, the granting of any stock option or stock appreciation right hereunder, and the issuance of Special Common Stock under the Regular Option Grant, the Automatic Grant Program or Stock Incentive Program shall be subject to the Company's procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options and stock appreciation rights granted under it and the Special Common Stock issued pursuant to it. C. Neither the action of the Company in establishing the Plan, nor any action taken by the Board or the Committee hereunder, nor any provision of the Plan itself shall be construed so as to grant any individual the right to remain in the employ or service of the Company or any of its Parent or Subsidiaries for any period of specific duration, and the Company (or any parent or subsidiary retaining the services of such 15 individual) may terminate such individual's employment or service at any time and for any reason, with or without cause. D. Nothing contained in the Plan shall be construed to limit the authority of the Company to exercise its corporate rights and powers, including (without limitation) the right of the Company (a) to grant options for proper corporate purposes otherwise than under this Plan to any Employee or other person, firm or company or association or (b) to grant options to, or assume the option of, any person in connection with the acquisition (by purchase, lease, merger, consolidation or otherwise) of the business and assets (in whole or in part) of any person, firm, company or association. ARTICLE SIX SPECIAL REDEMPTION AND PUT PROVISIONS I. PRIORITY To the extent there is a conflict between any of the provisions of this Article Six and any other provision of the Plan, the specific provisions of this Article Six shall be controlling and shall govern the disposition of all such options outstanding at the time of the Redemption (as defined below), upon the exercise of the Put Rights (as defined below), or when both events may no longer occur. Any rights under Section 1.04 of the Governance Agreement dated as of September 7, 1990 between the Company and Roche Holdings, Inc., ("Roche") and Section 1.04 of the Amended Governance Agreement which a holder of an option, stock appreciation right, or stock issued under the Stock Incentive Program may have are superseded in their entirety by this Article Six. II. EFFECT OF REDEMPTION ON VESTED OPTIONS AND VESTED STOCK APPRECIATION RIGHTS AND VESTED SHARES ISSUED UNDER THE STOCK INCENTIVE PROGRAM A. If the Special Common Stock shall be redeemed by the Company (the "Redemption") at any time as provided in Section (c)(ii) of Article Third of the Certificate of Incorporation of the Company as in effect on October 25, 1995 (the "Certificate") or the put rights are exercisable by the stockholders of the Company (the "Put Rights") at any time as provided in Section (c)(iii) of Article Third of the Certificate, then holders of all outstanding options and stock appreciation rights granted hereunder, to the extent vested immediately prior to the date fixed for the Redemption or to the extent to which the Put Rights were properly exercised by such holder for their outstanding vested options and stock appreciation rights granted hereunder ("Vested Securities"), shall promptly be paid for such Vested Securities an amount equal to the product of (i) the excess of the redemption price or put price per share fixed in Section (c)(ii) or (iii) of Article Third of the Certificate, as applicable (without reduction for the payment of any cash dividends as provided in the fourth sentence of Section (c)(ii)(C) of Article Third of the Certificate), over the exercise price per share, times (ii) the number of shares covered by such Vested Security. If either the Redemption or exercise of the Put Rights occurs as described in the preceding sentence, then holders of all outstanding shares issued under the Stock Incentive Program, to the extent vested immediately prior to the date fixed for the Redemption or to the extent to which the Put Rights were properly exercised by such holder for their outstanding vested shares issued under the Stock Incentive Program ("Vested Shares"), shall promptly be paid for such Vested Shares an amount equal to the product of (i) the redemption price or put price per share fixed in Section (c)(ii) or (iii) of Article Third of the Certificate, as applicable (without reduction for the payment of any cash dividends as provided in the fourth sentence of Section (c)(ii)(C) of Article Third of the Certificate), times (ii) the number of Vested Shares. All payments hereunder shall be reduced by any appropriate tax withholding. III. EFFECT OF REDEMPTION ON UNVESTED OPTIONS AND STOCK APPRECIATION RIGHTS, AND UNVESTED SHARES ISSUED UNDER THE STOCK INCENTIVE PROGRAM A. Upon the Redemption each option and stock appreciation right granted under this Plan, to the extent not vested immediately prior to the date fixed for the Redemption shall be canceled. Upon the Redemption, all unvested shares issued under the Stock Incentive Program shall be canceled. 16 IV. EFFECT OF NO REDEMPTION A. If the Redemption does not occur, each option and stock appreciation right granted and each share awarded under the Stock Incentive Program under this Plan which is outstanding on July 1, 1999 shall remain outstanding on the same terms and conditions (including, without limitation, the exercise price per share (in the case of options and stock appreciation rights), and the number of shares for options, stock appreciation rights and shares issued under the Stock Incentive Program) in effect for such option, stock appreciation right or share issued under the Stock Incentive Program immediately prior to July 1, 1999, except that the shares purchasable under each such option, stock appreciation right or shares issued under the Stock Incentive Program shall continue to be shares of Special Common Stock prior to the Conversion Date (as defined in Section (c)(vi) of Article Third of the Certificate) and shares of Common Stock on and after the Conversion Date. Each such continuing option, stock appreciation right and share issued under the Stock Incentive Program will become exercisable, and shall vest in accordance with the same installment dates such option, stock appreciation right or share issued under the Stock Incentive Program would have become exercisable at the time of grant. Notwithstanding any provision in this Article Six, Section IV, to the contrary, if at any time following July 1, 1999 the shares of Genentech's capital stock are no longer listed for trading on the New York Stock Exchange, the Nasdaq National Market, or any other national exchange for any reason, any unvested options, stock appreciation rights and shares issued under the Stock Incentive Program shall automatically be cancelled as of such date. V. EXAMPLE A. For purposes of this example assume that it is July 1, 1999, the Redemption has not occurred, the Put Rights are exercisable, an individual holds an option for 100 shares of Special Common Stock with an exercise price of $50 per share, 75 of such shares are vested and 25 shares are unvested, the Special Common Stock is trading on the New York Stock Exchange at $62 per share, and the Put Price (as defined in the Certificate) is $60 per share. During the Put Period (as defined in the Certificate) the holder may properly exercise the holder's Put Rights with respect to none, some or all of the 75 vested shares. If, for example, the holder exercised Put Rights for 40 of the 75 shares, that holder would receive (40 shares) x (60 - 50 dollars per share) = $400, reduced by appropriate tax withholding. So long as the Special Common Stock (during the Put Period) or the Common Stock (following the Put Period) are listed for trading on the New York Stock Exchange, the Nasdaq National Market, or any other national exchange, (i) the 35 remaining vested shares for which Put Rights were not exercised shall remain exercisable to acquire shares of Special Common Stock or Common Stock, as appropriate, and (ii) the 25 unvested shares would continue to vest and, to the extent vested, be exercisable to acquire shares of Special Common Stock or Common Stock, as appropriate. If the Special Common Stock or the Common Stock is no longer listed for trading on the New York Stock Exchange, the Nasdaq National Market, or any other national exchange for any reason, any of the 25 shares that are unvested on such date shall automatically be cancelled. VI. OTHER A. On the Conversion Date, all references in the Plan to Special Common Stock shall automatically become references to Common Stock. B. The exercise by Roche Holdings, Inc. or its affiliates of its right to designate nominees to the Board of Directors pursuant to Sections 3.01 and 3.02 of the Amended Governance Agreement shall not constitute a Change in Control. EX-99.4 8 RESOLUTIONS OF THE EXCUTIVE COMMITTEE 1 EXHIBIT 99.4 ACTION BY UNANIMOUS WRITTEN CONSENT OF THE EXECUTIVE COMMITTEE OF THE BOARD OF DIRECTORS OF GENENTECH, INC. We, the undersigned, representing all of the members of the Executive Committee of the Board of Directors of Genentech, Inc. (the "Company"), do hereby consent to, approve and adopt by unanimous written consent the actions and resolutions set forth on Exhibit A and Exhibit B to this Action, in lieu of a meeting pursuant to Section 141(f) of the Delaware General Corporation Law. This Action may be signed in counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Date: June 9, 1999 /s/ HERBERT W. BOYER - ------------------------------------- Herbert W. Boyer /s/ FRANZ B. HUMER - ------------------------------------- Franz B. Humer /s/ ARTHUR D. LEVINSON - ------------------------------------- Arthur D. Levinson /s/ J. RICHARD MONROE - ------------------------------------- J. Richard Monroe 2 EXHIBIT B GENENTECH, INC. RESOLUTIONS OF THE EXECUTIVE COMMITTEE OF THE BOARD OF DIRECTORS RELATING TO EMPLOYEE COMPENSATION WHEREAS, Roche Holdings, Inc. ("ROCHE") has the right to require the redemption (the "REDEMPTION") by the Company of its callable putable common stock, par value $0.02 per share (the "SPECIAL COMMON STOCK"), pursuant to the certificate of incorporation of the Company (the "CERTIFICATE OF INCORPORATION"), and WHEREAS, this Committee is authorized to exercise all the powers and authority of the Board to the fullest extent permitted by Section 141(c)(2) of the General Corporation Law of the State of Delaware, including without limitation the powers to administer and interpret the terms of the Company's 1984 Non-Qualified Stock Option Plan, as amended and restated (the "1984 NON-ISO PLAN"), the 1984 Incentive Stock Option Plan, as amended and restated (the "1984 ISO PLAN" and together with the 1984 Non-ISO Plan, the "1984 PLANS"), the 1990 Stock Option/Stock Incentive Plan, as amended (the "1990 PLAN"), the 1994 Stock Option Plan, as amended (the "1994 PLAN"), the 1996 Stock Option/Stock Incentive Plan (the "1996 PLAN" and together with the 1984 Plans, the 1990 Plan and the 1994 Plan, the "STOCK OPTION PLANS") and the Deferred Compensation Plan (the "DC PLAN"); NOW THEREFORE, this Committee adopts the following resolutions, each conditioned upon the delivery by Roche to the Company of notice of its exercise of its right to require the Redemption: RESOLVED, that (i) all options granted under the 1984 Plans and 1990 Plan outstanding on the date of redemption (the "REDEMPTION DATE"), whether or not vested and (ii) all options granted under the 1994 Plan outstanding on the Redemption Date that are not vested on the Redemption Date will be canceled on the Redemption Date and, within three business days thereof, the Company will pay to the holder of each such option in cash an amount equal to the product of (A) $82.50 minus the exercise price per share under such option and (B) the number of shares of Special Common Stock subject to such option. Notwithstanding the foregoing, in the discretion of the Board of Directors or the Compensation Committee or this Committee, certain options granted under the 1990 Plan and 1994 Plan to employees of the Company hired during the period between January 1, 1997 and the date hereof that are outstanding but are not vested on the Redemption Date may be converted into options to purchase shares of common stock, par value $0.02 per share, of the Company ("COMMON STOCK"), exercisable for the same number of shares and at the same exercise price as the options prior to such conversion. RESOLVED, that all options granted under the 1994 Plan and the 1996 Plan to employees as of the Redemption Date and that are vested and outstanding as of the Redemption Date ("CONVERTING OPTIONS") will be converted, as of such date, into options ("CONVERTED OPTIONS") to purchase shares of Common Stock, provided that the holder of such option has not 3 elected prior to the Redemption Date to receive cash in exchange for the cancellation of such option pursuant to a "cashless" exercise or otherwise. Each Converted Option will entitle the holder to purchase a number of shares of Common Stock equal to the number of shares of Special Common Stock that the holder was entitled to purchase under the applicable Converting Option, at the same exercise price per share as applied under such applicable Converting Option (subject, in each case, to adjustment as appropriate to reflect any changes in the capitalization of the Company in connection with or following the Redemption). Each Converted Option will otherwise be subject to the same terms and conditions as applied to the applicable Converting Option. RESOLVED, that all options granted under the 1996 Plan that are not vested as of the Redemption Date ("CANCELED OPTIONS") will be canceled as of such date. Upon a subsequent public offering by the Company or its shareholder of Common Stock, the former holder of each Canceled Option who remains an employee of the Company will receive a new option (a "REPLACEMENT OPTION") which will vest over a three-year period and shall entitle the holder to purchase shares of Common Stock at a per share exercise price equal to the offering price per share of Common Stock under the initial public offering. The number of shares of Common Stock for which each Replacement Option may be exercised shall be 1.33 times the number of shares covered by the applicable Canceled Option, subject to any adjustments necessary to reflect any capital contributions by Roche. Notwithstanding the foregoing, the Board or the Executive Committee or the Compensation Committee may, in its discretion, provide for alternative treatment of certain of the unvested options under the 1996 Plan. RESOLVED, that the Authorized Officers are hereby authorized and directed to restrict the exercisability of any outstanding option under the Stock Option Plans prior to and including the Redemption Date, to the extent requested by Roche as necessary to facilitate the orderly consummation of the Redemption. Such restrictions will not apply to "cashless" exercises not involving the issuance by the Company of additional shares of Special Common Stock. RESOLVED, that the DC Plan is hereby canceled and terminated and shall be considered to be of no force or effect. RESOLVED, that in lieu of issuing Special Common Stock to an optionholder upon the exercise of an option prior to the Redemption Date, the Company may permit a "cashless" exercise by paying an optionholder, in consideration for the relinquishment of his or her vested option, an amount equal to the product of (A) $82.50 minus the exercise price per share under such option and (B) the number of shares of Special Common Stock subject to such option. RESOLVED, that the AUTHORIZED OFFICERS of the Company, for purposes of the foregoing resolutions, shall be the Chief Executive Officer, the Chief Operating Officer, the Chief Financial Officer, any Senior Vice President, and any Vice President. The Authorized Officers are, and each of them is, authorized to make such amendments and modifications to the forms of plans, contracts and other arrangements adopted or authorized herein as in his, her or their sole discretion are deemed necessary or desirable, appropriate and consistent with the intent of the foregoing resolutions. -----END PRIVACY-ENHANCED MESSAGE-----