FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON APRIL 30, 2001
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(RULE 14A-101)
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STEMCELLS, INC.
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STEMCELLS, INC.
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STEMCELLS, INC.
3155 Porter Drive
Palo Alto, CA 94304
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 31, 2001
To the Stockholders of
STEMCELLS, INC.
Notice is hereby given that the Annual Meeting of Stockholders of
StemCells, Inc. ("StemCells" or the "Company") will be held on May 31, 2001 at
2:00 P.M. at 3155 Porter Drive, Palo Alto, CA 94304 for the following purposes:
1. To elect Class I directors to serve until the 2004 Annual Meeting of
Stockholders;
2. To consider and vote upon a proposal to adopt the 2001 Equity Incentive
Plan as proposed;
3. To consider and vote upon a proposal to ratify the selection of Ernst &
Young LLP as independent public accountants for the Company for the
fiscal year ending December 31, 2001; and
4. To transact any and all other business that may properly come before the
meeting.
The Board of Directors has fixed the close of business on April 23, 2001 as
the record date for determining those Stockholders who are entitled to notice of
and to vote at the meeting. The stock transfer books will not be closed between
the record date and the date of the meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of StemCells is required to constitute a quorum. Accordingly, it is
important that your shares be represented at the meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. Your proxy may be revoked at any
time prior to the time it is voted.
Please read the proxy material carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.
By Order of the Board of Directors,
IRIS BREST
SECRETARY
April 30, 2001
Palo Alto, California
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
OF
STEMCELLS, INC.
The enclosed form of proxy is solicited on behalf of the Board of Directors
of StemCells, Inc. (the "Company") for use at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held on May 31, 2001 at 2:00 P.M. at the Company's
headquarters at 3155 Porter Drive, Palo Alto, California 94304. The cost of
solicitation of proxies will be borne by the Company. Directors, officers and
employees of the Company may also solicit proxies by telephone, facsimile or in
person for no additional compensation. The Company will reimburse banks,
brokerage firms, and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy materials to the beneficial owners of
shares.
Only stockholders of record at the close of business on April 23, 2001 are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. There were 21,470,385 shares of the Company's Common Stock, $.01 par
value (the "Common Stock"), outstanding on such date, each of which is entitled
to one vote for each share on the matters to be voted upon.
Shares of the Company's Common Stock represented by proxies in the form
enclosed which are properly executed and returned to StemCells and not revoked,
will be voted as specified therein by the stockholder. In the absence of
contrary instructions, or in instances where no specification is made, the
shares will be voted FOR the election as directors of the nominees as described
herein under "Proposal Number 1--Election of Directors," FOR adoption of the
proposed 2001 Equity Incentive Plan as described herein under "Proposal
2--Adoption of the 2001 Equity Incentive Plan," FOR ratification of the
selection of accountants as described herein under "Proposal Number
3--Ratification of Selection of Independent Public Accountants," and in the
discretion of the named proxies, as to any other matter that may properly come
before the Annual Meeting. Any stockholder signing and delivering a proxy may
revoke it at any time before it is voted by delivering to the Secretary of the
Company a written revocation or a duly executed proxy bearing a date later than
the date of the proxy being revoked. Any record stockholder attending the Annual
Meeting in person may revoke his or her proxy and vote his or her shares at the
Annual Meeting.
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 2000 will be mailed, along with this Proxy Statement, on or
about May 3, 2001 to all stockholders entitled to vote at the Annual Meeting.
QUORUM, REQUIRED VOTES, AND METHOD OF TABULATION
Consistent with Delaware law and under the Company's Amended and Restated
By-laws, a majority of the shares entitled to be cast on a particular matter,
present in person or represented by proxy, constitutes a quorum as to such
matter. Persons appointed by the Company to act as election inspectors for the
meeting will count votes cast by proxy or in person at the Annual Meeting.
Election of directors by stockholders shall be determined by a plurality of
the votes cast by the stockholders entitled to vote at the election that are
present in person or represented by proxy. The approval of the proposal to adopt
the Company's 2001 Equity Incentive Plan requires the approval of a majority of
the votes entitled to be voted at the Annual Meeting. The approval of the
proposal to ratify the selection of accountants requires a majority of the votes
cast to be affirmative.
The election inspectors will count shares represented by proxies that
withhold authority to vote for a nominee for election as a director or that
reflect abstentions and "broker non-votes" (i.e., shares represented at the
meeting held by brokers or nominees as to which (i) instructions have not been
received from the beneficial owners or persons entitled to vote and (ii) the
broker or nominee does not have discretionary voting power on a particular
matter) only as shares that are present and entitled to vote on the matter for
purposes of determining the presence of a quorum, but neither abstentions nor
broker non-votes have any effect on the outcome of voting on the matter.
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth in this Proxy Statement and in the Notice
accompanying this Proxy Statement. If other matters should properly come before
the meeting, the proxy holders will vote such matters in accordance with their
best judgment. Any stockholder has the right to revoke his or her proxy at any
time before it is voted.
2
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 09, 2001 by (i) each person
known by the Company to be the beneficial owner of more than 5% of the Company's
outstanding Common Stock, (ii) each director and nominee for director,
(iii) each executive officer named in the Summary Compensation Table and
(iv) all executive officers and directors of the Company as a group. Except as
otherwise indicated, the Company believes that the beneficial owners of the
Common Stock listed below, based on information furnished by such owners, have
sole investment and voting power with respect to such shares, subject to
community property laws where applicable, and that there are no other
affiliations among the stockholders listed in the table.
PERCENTAGE
SHARES OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED* BENEFICIALLY OWNED*
--------------------------------------- ------------------- -------------------
Donald Kennedy, Ph.D....................................... 10,309(2) **
Mark J. Levin.............................................. 347,775(3) 1.5%
Martin M. McGlynn.......................................... -- **
Roger Perlmutter, M.D., Ph.D............................... -- **
John J. Schwartz, Ph.D..................................... 115,588(4) **
Irving Weissman, M.D....................................... 291,308(5) 1.3%
George W. Dunbar, Jr....................................... 50,049(6) **
Ann Tsukamoto, Ph.D........................................ 84,521(7) **
Ronnda Bartel, Ph.D........................................ 22,742(8) **
All directors and executive officers as a group (9
persons)................................................. 922,292 4.1%
Millennium Partners, LP.................................... 2,152,393(9) 9.5%
------------------------
* All numbers are based on information obtained by questionnaire or filings on
Forms 13D or 13G received by the Company.
** Less than one percent.
(1) The address of all such persons, except Millennium Partners, LP, is c/o the
Company, 3155 Porter Drive, Palo Alto, California 94304. The address of
Millennium Partners, LP is 551 Fifth Avenue, New York, New York 10176.
(2) Includes 10,309 shares issuable upon exercise of stock options exercisable
within 60 days.
(3) Includes 37,400 shares issuable upon exercise of stock options exercisable
within 60 days. Includes 198,871 shares issuable upon conversion of 6%
cumulative convertible preferred shares at the currently applicable
conversion price. Does not include a warrant to purchase 37,500 shares
exercisable at a price above the current market price. Includes 111,504
shares held outright.
(4) Includes 115,588 shares issuable upon exercise of stock options exercisable
within 60 days.
(5) Includes 34,486 shares issuable upon exercise of stock options exercisable
within 60 days and 7,160 shares issuable upon exercise of warrants
exercisable within 60 days. Includes 198,871 shares issuable upon conversion
of 6% cumulative convertible preferred shares at the currently applicable
conversion price. Does not include a warrant to purchase 37,500 shares
exercisable at a price above the current
3
market price. Includes a total of 50,791 shares owned by trusts for the
benefit of Dr. Weissman's children as to which he disclaims beneficial
ownership.
(6) Includes 26,031 shares issuable upon exercise of stock options exercisable
within 60 days. Includes 24,018 shares held outright. Mr. Dunbar was
appointed Acting President and Chief Executive Officer of the Company's
wholly owned subsidiary, StemCells California, Inc., effective as of
November 8, 1999, and was appointed Acting President and Chief Executive
Officer of the Company effective as of February 1, 2000.
(7) Includes 84,521 shares issuable upon exercise of stock options exercisable
within 60 days.
(8) Includes 22,742 shares issuable upon exercise of stock options exercisable
within 60 days.
(9) Includes 1,054,835 shares held outright. Includes 101,587 shares currently
issuable upon the exercise of warrants issued on August 3, 2000. Includes
19,900 shares currently issuable upon the exercise of warrants issued on
August 30, 2000. Includes 461,894 if shares currently issuable upon exercise
of an option issued on August 3, 2000 to purchase up to $2 million of our
Common Stock based upon the market price of the Common Stock at the time of
the exercise. Includes 50,808 shares issuable upon the exercise of warrants
issuable upon exercise of the aforementioned option. Includes 463,369 shares
issuable upon exercise of an adjustable warrant.
4
INFORMATION CONCERNING THE BOARD AND ITS COMMITTEES
During 2000, the Board of Directors was composed of Mr. Levin and Drs.
Schwartz and Weissman for the entire year, Dr. Richard Rose until his
resignation on January 31, 2000, Dr. Donald Kennedy until his resignation on
December 15, 2000, and Dr. Roger Perlmutter after his appointment on
December 15, 2000. The Board had two standing committees: the Compensation and
Stock Option Committee (the "Compensation Committee") and the Audit Committee.
The Company has no nominating committee, and the Executive Committee was
dissolved on February 23, 2000, without having met. The Compensation Committee
held 3 meetings during the fiscal year ended December 31, 2000 and was composed
of Mr. Levin and Dr. Schwartz. The Compensation Committee makes recommendations
to the Board and the Company's management concerning salaries in general,
determines executive compensation and approves incentive compensation for
Company employees and consultants. The Company's Audit Committee held 2 meetings
during the fiscal year ended December 31, 2000 and was composed of Dr. Schwartz
and, until his resignation from the Board, Dr. Kennedy. The Audit Committee
reviews the results and scope of the audit and other services provided by the
Company's independent auditors.
Prior to the fiscal year ended December 31, 2000, each director who was not
an employee and who did not have a pre-existing consulting relationship with the
Company received an annual retainer of $18,000 payable quarterly, in addition to
$1,500 for each Board meeting attended ($500 for each telephonic meeting) and
$500 for each Committee meeting attended if not contemporaneous with a Board
meeting. Upon election (or contemporaneously with the approval in 1998 of the
revised compensation plan with respect to those directors already serving), each
such director also received an option to purchase 20,000 shares of the Company's
Common Stock exercisable at the fair market value of the Common Stock at the
time of grant, such shares vesting in equal portions over three years on each
anniversary of the grant date. The compensation of the Chairman of the Board is
described under "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." At a meeting
of the Board on February 23, 2000, in order to conserve cash and demonstrate
their continuing confidence in the Company's future, the directors unanimously
adopted a resolution revising their compensation arrangements with the Company,
for the period commencing January 1, 2000. Under the terms of this resolution,
the directors waived any and all cash payments that may accrue to them for their
quarterly retainer and meeting fees and received, in lieu of such cash payments,
compensation in the form of options to purchase shares of the Company's common
stock at below market prices ($0.25 per share). The number of shares to be
distributed to the directors were calculated using the closing price of the
Company's common stock for the date of the subject Board or Committee meeting
(if such Committee meeting was not held contemporaneously with a Board meeting)
or, with respect to the quarterly retainer payments, the closing price for the
last business day of the quarter, less the option price of $0.25 per share. All
options so issued to the directors vested immediately. As of October 1, 2000, as
a result of an amendment to his consulting agreement with the Company,
Dr. Weissman received the same compensation as other non-employee members of the
Board. Under a policy recently approved by the Board of Directors, the Chairman
of the Board receives a retainer of $35,000 annually (in below-market options
calculated as described above), in addition to meeting payments and at-market
options on the same basis as other directors. In addition, the policy now
provides that on the third anniversary of the original appointment of each
re-elected director, such member shall receive an option for 15,000 shares of
the Company's Common Stock to vest annually over three years. Shares of Common
Stock issued to directors in lieu of cash payments for Board service shall be
nonforfeitable, and a director shall have all of the rights of a stockholder of
the Company with respect to such Common Stock. Directors are reimbursed
5
for their expenses in attending meetings of the Board of Directors and meetings
of committees of the Board of Directors.
The Board of Directors of StemCells held 11 meetings during the fiscal year
ended December 31, 2000. During the time they held office, all of the directors
attended at least 75% of the meetings of the Board of Directors and of all
committees on which they served.
6
EXECUTIVE OFFICERS
The executive officers of the Company who are not also directors of the
Company are:
NAME AGE POSITION
---- -------- ------------------------------------------
George W. Dunbar, Jr...................... 53 Acting President and Chief Executive
Officer
Ann Tsukamoto, Ph.D....................... 48 Vice President, Scientific Operations
Ronnda Bartel, Ph.D....................... 42 Vice President, Scientific Development
George W. Dunbar, Jr., was appointed Acting President and Chief Executive
Officer of the Company effective as of February 1, 2000 and held this position
until his resignation on January 15, 2001. Mr. Dunbar joined the Company as
Acting President of StemCells California, Inc., the Company's wholly owned
subsidiary, on November 8, 1999. From September 2000 through the present,
Mr. Dunbar has been CEO and a member of the Board of Directors of Epic
Therapeutics, Inc., a privately held drug delivery technology company. From
September 1999 through the present, Mr. Dunbar has been a founding member of
ICEO, LLC. From July 1991 until July 1999, Mr. Dunbar was President, Chief
Executive Officer and a member of the Board of Directors of Metra Biosystems,
which merged with Quidel Corporation during 1999. Prior to Metra Biosystems,
Mr. Dunbar was a vice president of The Ares-Serono Group, a Swiss healthcare
company, as well as a prior position as a vice president of Amersham's
International plc's life sciences business in the United States. Mr. Dunbar
serves as a Board member for Competitive Technologies, Quidel Corporation, LJL
Biosystems, Sonus Pharmaceuticals and The Valley Medical Center Foundation. He
also sits on the MBA Advisory Board of the Auburn University School of Business,
his alma mater.
Ann Tsukamoto, Ph.D., joined the Company in November 1997 as Senior
Director, Scientific Operations, and was appointed Vice President, Scientific
Operations in June 1998. From 1989 until she joined StemCells, Dr. Tsukamoto was
employed at SyStemix, Inc., where she served in various research capacities
before transitioning to the position of Director of Clinical Science. At
SyStemix, Inc., Dr. Tsukamoto assisted in the launch of its clinical research
program for the hematopoietic stem cell. She received her Ph.D. degree from the
University of California, Los Angeles and did postdoctoral research with
Dr. Harold Varmus at the University of California, San Francisco. Dr. Tsukamoto
is an inventor on six issued U.S. Patents related to the human hematopoietic
stem cell. As of March 5, 2001, Dr. Tsukamoto became a member of the Board of
Directors for the Society of Regenerative Medicine and Stem Cell Biology.
Ronnda Bartel, Ph.D., joined the Company in July 1998, as Senior Director,
Cell Development, and was appointed Vice President, Scientific Development of
StemCells in April 2000. From 1995 until her employment with the Company,
Dr. Bartel was Senior Principal Scientist at Advanced Tissue Sciences Inc.,
responsible for research, development, and manufacturing of tissue engineered
human cell based products. Dr. Bartel was awarded her Ph.D. degree in
biochemistry from the University of Kansas, Lawrence and did postdoctoral work
with Dr. John Voorhees at the University of Michigan, Ann Arbor.
All executive officers of the Company are elected annually and serve at the
discretion of the Board of Directors.
7
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-employee directors served on the Compensation and Stock
Option Committee in 2000: Mr. Levin and Dr. Schwartz. In 1989, 1990 and 1991
Mr. Levin was an executive officer of the Company.
The Company entered in a Consulting Services Agreement with John J. Schwartz
on July 27, 1998, as amended December 19, 1998, for strategic business advice
and counseling services, including assistance in the negotiation and
consummation of strategic collaboration transactions specified by the Company.
Dr. Schwartz was elected to the Board of Directors on December 19, 1998 and
became a member of the Compensation Committee on that date. During the fiscal
year ended December 31, 1999, the Company made payments to Dr. Schwartz under
the Consulting Services Agreement and the letter agreement dated December 19,
1998 and amended as of July 1, 1999 (the "Letter Agreement"), under which he
served as a Director and Chairman of the Board. (SEE "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" HEREIN FOR MORE INFORMATION). Both the Consulting Services
Agreement and the Letter Agreement were terminated as of March 31, 2001.
The Company believes the terms of these agreements were and are no less
favorable to the Company than could have been obtained from unaffiliated third
parties.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As noted in the section immediately above, Dr. Schwartz, a member and
Chairman of the Board of Directors, was retained in July 1998 under a Consulting
Services Agreement to serve as a consultant to the Company rendering strategic
business advice and counseling services, including assistance in the negotiation
and consummation of strategic collaboration transactions specified by the
Company. The Consulting Services Agreement provided for compensation to
Dr. Schwartz in the amount of $50,000 in cash for services rendered during the
period of September 27, 1997 through July 26, 1998, plus a fully vested option
to purchase 20,000 shares of the Company's Common Stock at $1.281, the fair
market value of the Company's Common Stock at the time of the grant. For
services rendered during the term of the Consulting Services Agreement,
Dr. Schwartz was entitled to total cash compensation of $120,000, an option to
purchase 76,000 shares of the Company's Common Stock with an exercise price
equal to the closing bid price for the shares on July 27, 1998, and an option to
purchase 48,000 shares of the Company's Common Stock at the then current fair
market value of the Company's Common Stock on July 27, 1999, vesting at a rate
of 2,000 shares per month. In addition, the Consulting Services Agreement
provided that in the event that, at a time when Dr. Schwartz was not a member of
the Board but the Consulting Services Agreement was still in effect,
Dr. Schwartz materially participated in the negotiation and consummation of a
strategic collaboration transaction specified by the Company, he would have been
be entitled to receive additional compensation equal to 3% of the transaction
consideration, payable half in cash and half in the form of an option or warrant
to purchase shares of the Company's Common Stock at $.20 per share, the number
of shares being calculated based on the fair market value of the Company's
Common Stock ten days prior to the first public announcement of the consummation
of, the execution of a letter of intent for or the existence of discussions
concerning the collaboration transaction. On December 19, 1998, there were no
such strategic collaboration transactions that would have given rise to
additional compensation.
On December 19, 1998, Dr. Schwartz became a member of the Board and its
Chairman and his compensation for services in this capacity was provided for
under the terms of a Letter Agreement, which
8
also incorporated certain compensation provided for under the Consulting
Services Agreement. Under the Letter Agreement, as amended July 1, 1999,
Dr. Schwartz in his capacity as Chairman was entitled to receive $132,000 in
cash per year, plus $1,500 per Board or Committee meeting and $500 per
telephonic meeting. He also received an option to acquire 40,000 shares of the
Company's Common Stock under the 1992 Equity Incentive Plan, with an exercise
price equal to the fair market value on the date of the grant. The time
requirement for his position was set at thirty (30) business days per quarter.
Dr. Schwartz canceled both the Letter Agreement and the Consulting Services
Agreement as of March 31, 2001 (SEE "EMPLOYMENT AND SEVERANCE AGREEMENTS"). He
currently continues to serve in his position as Chairman and member of the Board
of Directors under the terms of the compensation policy recently approved by the
directors and discussed further herein under "Information Concerning the Board
and its Committees."
Dr. Weissman, a member of the Board of Directors, was retained in
September 1997 to serve as a consultant to us. Pursuant to his Consulting
Agreement, Dr. Weissman has agreed to provide consulting services to us and
serve on our Scientific Advisory Board. We agreed to pay Dr. Weissman $50,000
per year for his services and granted him an option to purchase 500,000 shares
of Common Stock for $5.25 per share, of which 31,250 shares vested at the date
of grant. Originally, the remainder of the option would have vested upon the
occurrence of certain milestones related to the Company's stem cell research
program and in the event of certain changes of control. We agreed to amend the
option on October 27, 2000 so that the shares would become exercisable over
eight years from the original grant date (so the option is currently exercisable
for 200,000 shares) or in the event of certain changes of control. We have
recorded a compensation expense of $823,759 during the fourth quarter of 2000 as
a result of this change in the vested portion of the option. The deferred
compensation expense associated with the unvested portion of the grant was
recorded as $669,116. We plan to revalue the options using the Black-Scholes
method on a quarterly basis and recognize additional compensation expense
accordingly. The Company also agreed to nominate Dr. Weissman for a position on
the Board of Directors. The Consulting Agreement contains confidentiality,
noncompetition, and assignment of invention provisions and is for a term of
fifteen years, subject to earlier termination by us for cause or frustration of
purpose and earlier termination by Dr. Weissman for good reason. Dr. Weissman
initially received no compensation as a member of the Board of Directors or for
attending meetings of the Board or its committees or meetings of our Scientific
Advisory Board, but was reimbursed for reasonable expenses he incurred in
attending such meetings. In December 2000, we agreed with Dr. Weissman that we
would pay him the same compensation paid to other members of the Board.
In April 2000, we sold 750 shares of our 6% cumulative convertible preferred
stock plus a warrant to purchase 37,500 shares of our common stock to each of
Dr. Weissman and Mr. Levin for $750,000, for a total of $1,500,000, on terms
more favorable to us than we were able to obtain from outside investors. The
face value of the shares is convertible at the option of the holder into common
stock at $3.77 per share. The holders of the preferred stock have liquidation
rights equal to their original investments plus accrued but unpaid dividends.
The investors would be entitled to make additional investments in our securities
on the same terms as those on which we complete offerings of our securities with
third parties within 6 months, if any such offerings are completed. If offerings
totaling at least $6 million are not completed during the 6 months, the
investors have the right to acquire up to a total of 1,126 additional shares of
convertible preferred stock the face value of which is convertible at the option
of the holder into common stock at $6.33 per share. Any unconverted preferred
stock will be converted into common stock on April 13, 2002 in the case of the
original stock issued and two years after the first acquisition of any of the
additional 1,126 shares, if any are acquired. The warrants expire on April 13,
2005.
9
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by us to our Chief
Executive Officer during the fiscal years ended December 31, 2000, 1999, and
1998 and the two other most highly compensated executive officers who served in
such capacities during the fiscal year ended December 31, 2000 but who were not
serving in such capacities as of the end of such fiscal year. There were no
other persons serving as executive officers at the end of such fiscal year.
SUMMARY COMPENSATION TABLE
AWARDS
--------------------------------------
LONG TERM COMPENSATION
ANNUAL COMPENSATION --------------------------------------
-------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS(#) COMPENSATION
---------------------------- -------- --------- -------- --------------- ---------- ---------- ------------
GEORGE W. DUNBAR, JR. ...... 2000 186,538 50,000 -- -- 36,031 --
Acting President and Chief 1999 48,000
Executive Office(1)
RICHARD M. ROSE M.D. ....... 2000 309,632 -- -- -- -- --
Chief Executive Officer(2) 1999 279,974 -- -- -- -- 4,667(3)
1998 286,553 -- -- -- 150,000(4) 11,330(5)
ANN TSUKAMOTO, PH.D. ....... 2000 159,054 -- -- -- -- 4,783(6)
VP, Scientific Operations
RONNDA BARTEL, PH.D. ....... 2000 129,668 -- -- -- -- 3,245(7)
VP, Scientific Development
--------------------------
(1) Mr. Dunbar became Acting President and Chief Executive Officer effective as
of February 1, 2000, and resigned from that position effective as of
January 15, 2001.
(2) Dr. Rose became Chief Executive Officer on September 26, 1997. Dr. Rose
resigned as a director and officer of the company and its wholly owned
subsidiary effective as of January 31, 2000.
(3) Represents the personal portion of the use of a company vehicle, as well as
$5,000 of fair market value of our matching contributions of common stock to
Dr. Rose's account in the company's 401(k) Plan.
(4) Represents the regrant of an option in the original amount of 200,000 shares
which was reduced to 150,000 shares as a result of the employee equity
incentive repricing plan approved by the Board of Directors on
July 10,1998.
(5) Represents $4,666.56 of fair market value of the company matching
contributions of common stock to Dr. Rose's account in our 401(k) Plan.
(6) Represents $4,783 of fair market value of the company matching contributions
of common stock to Dr. Ann Tsukamoto.
(7) Represents $3,245 of fair market value of the company matching contributions
of common stock to Dr. Ronnda Bartel.
10
EMPLOYMENT AND SEVERANCE AGREEMENTS
Prior to March 31, 2001, Dr. Schwartz, a member and Chairman of the Board of
Directors, served under two agreements with the Company. The terms of these
agreements are discussed in further detail in the section herein entitled
"Certain Relationships and Related Transactions." Dr. Schwartz canceled both the
Letter Agreement and the Consulting Services Agreement as of March 31, 2001. He
continues to serve as a member and Chairman of the Board of Directors of the
Company.
Martin McGlynn joined the company as President and Chief Executive Officer
on January 15, 2001. Under the terms of an agreement between Mr. McGlynn and us,
Mr. McGlynn is entitled to an annual base salary of $275,000 per year,
reviewable annually by the Board of Directors, and a bonus, in the Board's sole
discretion, of up to 25% of his base salary. Mr. McGlynn was granted an option
to purchase 400,000 shares of Common Stock with an exercise price equal to the
fair market value of the Common Stock on the date of his employment. One-fourth
of these options will vest on the first anniversary of his employment and the
remaining three-fourths will vest in equal monthly installments during his
second through fourth years of employment. The Board may, in its sole
discretion, grant Mr. McGlynn a bonus option to purchase up to an additional
25,000 shares. The vesting under the option is subject to acceleration in the
event of certain changes of control. We also agreed to pay Mr. McGlynn a $50,000
relocation bonus and reimburse him for relocation expenses. Our agreement with
Mr. McGlynn provides that if his employment is terminated by the Company without
cause or by Mr. McGlynn for good reason, he will be entitled to severance
payments equal to one year's base salary and he will receive healthcare benefits
under our plans for one year after termination. If Mr. McGlynn's employment is
terminated as a result of his disability, he will receive up to six months' base
salary. If we terminate Mr. McGlynn's employment for cause or if he resigns, he
will not be entitled to any severance or other benefits.
Under the terms of an agreement dated September 25, 1997, Dr. Rose agreed to
serve as President, Chief Executive Officer and a director of the Company.
Dr. Rose was entitled to an annual salary of $275,000 and a bonus of up to 25%
of his salary. The agreement provided for the grant to Dr. Rose of a stock
option covering 200,000 shares of Common Stock that vested as to one quarter of
such number of shares on the first anniversary of the date of grant and equally
as to the remaining shares over the following 36 months. This stock option was
regranted in July 1998 and reduced to 150,000 shares of Common Stock as a result
of the repricing of the stock option, with no change to the vesting schedule
other than a pro-rata reduction of the number of shares which vest on each date.
In addition, Dr. Rose, under the agreement, was granted a stock option covering
100,000 shares of the Company's Common Stock, which option vests upon the
achievement of certain milestones related to the Company's stem cells research
program. The agreement provided for reimbursement of certain moving costs up to
$125,000 and for a bridge loan for purchase of a home up to $200,000. The
agreement also provided for certain employee benefits and contained provisions
regarding confidentiality and noncompetition before and after employment.
Dr. Rose's employment terminated as of the effective date of his resignation,
January 31, 2000. Pursuant to the terms of his agreement, Dr. Rose continued to
receive periodic payments of his base annual salary for the period of
February 1, 2000 through January 31, 2001, and retains his stock option grant
which vests upon the achievement of certain milestones related to the Company's
stem cells research program.
Under the terms of two agreements dated as of November 17, 1999 and
effective as of November 8, 1999, the first between the Company and ICEO, LLC
("ICEO") and the second between the Company and George W. Dunbar, Jr., a member
of ICEO, Mr. Dunbar agreed to serve as Acting President of StemCells
11
California, Inc., the Company's wholly owned subsidiary. Pursuant to the terms
of his agreement with the Company, Mr. Dunbar was entitled to an annual salary
of $175,000 and was granted a stock option to purchase 48,000 shares of the
Company's common stock that vested at the rate of 4,000 shares per month
commencing on December 6, 1999 and continuing until November 6, 2000. Pursuant
to the terms of the agreement between ICEO and the Company, ICEO was entitled to
receive annual compensation of $75,000 for so long as Mr. Dunbar continues to
serve in his role as Acting President of StemCells California, Inc. or in any
other interim role with the Company. In addition, ICEO was granted a stock
option to purchase 48,000 shares of the Company's common stock that vested at
the rate of 4,000 shares per month commencing on December 6, 1999 and continuing
until November 6, 2000. Additionally, the agreements provided that the Board
consider once per quarter the grant of an option for an additional 3,000 shares
for Mr. Dunbar and 3,000 for ICEO if it were determined that the services
rendered by Mr. Dunbar during the preceding quarter exceeded expectations.
Options for 9,000 such additional shares were granted by the Board to each of
ICEO and Mr. Dunbar. As a member of ICEO, Mr. Dunbar was entitled to receive,
once annually, a distribution of his assigned allocable percentage of net
taxable income and net long-term gain with respect to the pooled income and gain
from shares of stock or exercised options received by ICEO from its clients,
including that received from the Company. Mr. Dunbar was also appointed Acting
President and Chief Executive Officer of the Company effective as of
February 1, 2000, with no adjustment to his or ICEO's compensation or stock
options. In the event that during the period of his service as Acting President
and Chief Executive Officer or within 120 days from the termination of such
services, Mr. Dunbar was to become a permanent employee of the Company in any
capacity, the Company would have been obligated under the ICEO agreement to pay
ICEO a fee equal to one-third of the then targeted first year's compensation for
Mr. Dunbar. As of November 6, 2000, the agreement with ICEO terminated, and the
Board entered a new agreement with Mr. Dunbar under which he received a one-time
cash bonus of $50,000, an option to purchase that number of shares equal to
$50,000 divided by the difference between the closing price of one share of the
Company's Common Stock on the date of the grant and $1.094, vesting immediately,
compensation at the rate of $250,000 per year, and an option to purchase 8,000
shares per month of the Company's stock at $1.094 per share, vesting
proportionally over the month so long as he continued to serve as Acting
President and CEO. Mr. Dunbar served in that capacity until January 15, 2001.
The Board extended the time for exercise of Mr. Dunbar's vested but unexercised
options until October 15, 2001.
Under the terms of an agreement dated as of June 8, 1998, and amended and
restated as of June 8, 1999 (the "Agreement"), Philip Yachmetz agreed to serve
as Senior Vice President, Business Development, General Counsel and Secretary of
the Company for a period ending on October 31, 1999 and then to serve as a
consultant to the Company for the period ending on April 30, 2000. Under the
Agreement, Mr. Yachmetz received a stock option grant for 12,000 shares of the
Company's Common Stock that vests 1,500 shares per month commencing
September 1, 1999 through April 1, 2000. While the term of Mr. Yachmetz'
employment expired on October 31, 1999, he is currently acting as a consultant
to the Company pursuant to the terms of the Agreement, under which he is
entitled to a monthly retainer of $2,500 for up to 12 hours of consulting
services and a per diem rate of $1,500 plus expenses for additional consulting
services.
In the case of certain terminations of employment with the Company other
than for cause, all officers are entitled to severance equal to a percentage of
annual base pay, adjusted for length of service with the Company. In addition,
in the event of certain changes of control of the Company, severance payments
payable to senior officers will be increased to an amount equal to annual salary
reduced by the amount of certain stock and option gains.
12
REPORT OF THE AUDIT COMMITTEE
Until December 15, 2000, the Audit Committee consisted of Drs. Schwartz and
Kennedy. Dr. Kennedy resigned from the Audit Committee effective as of
December 15, 2001 when he resigned from the Board of Directors of the Company.
As of the date hereof, the Audit Committee consists of Drs. Schwartz and
Perlmutter. Each of the members of the Audit Committee is independent (as
defined in the NASDAQ's listing standards).
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing financial
reports and other financial information provided by the Company to any
governmental body or the public, the Company's systems of internal controls
regarding finance, accounting, legal compliance and ethics that management and
the Board have established, and the Company's auditing, accounting and financial
processes generally. The Audit Committee annually recommends to the Board of
Directors the appointment of a firm of independent auditors to audit the
financial statements of the Company and meets with such personnel of the Company
to review the scope and the results of the annual audit, the amount of audit
fees, the Company's internal accounting controls, the Company's financial
statements contained in the Company's Annual Report to Stockholders and other
related matters. A more detailed description of the functions of the Audit
Committee can be found in the Company's Audit Committee Charter, attached to
this proxy statement as Annex B.
The Audit Committee has reviewed and discussed with management the financial
statements for fiscal year 2000 audited by Ernst & Young LLP, the Company's
independent auditors. The Audit Committee has discussed with Ernst & Young LLP
various matters related to the financial statements, including those matters
required to be discussed by SAS 61 (Codification of Statements on Auditing
Standards, AU 380). The Audit Committee has also received the written
disclosures and the letter from Ernst & Young LLP required by Independence
Standards Board Standard No. 1 (Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committees), and has discussed with Ernst &
Young LLP its independence. We received the following information concerning the
fees of the independent accountants for the year ended December 31, 2000, and
have considered whether the provision of these services is compatible with
maintaining the independence of the independent accountants:
Audit Fees (including review of 10-Qs)...................... $119,405
Financial Information Systems Design and Implementation
Fees...................................................... 0
All Other Fees.............................................. 177,404
Based upon such review and discussions the Audit Committee recommended to
the Board of Directors that the audited financial statements be included in the
Company's Annual Report on Form 10-K for the fiscal year ending December 31,
2000 for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Dr. Schwartz
Dr. Perlmutter
13
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FUTURE FILINGS,
INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT AND
THE PERFORMANCE GRAPH ON PAGE 17 SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY
SUCH FILINGS.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The reorganization and rationalization of the Company's operations begun in
1999 continued throughout 2000 and presented many unique challenges and periods
of uncertainty for the Company and its employees and executive officers.
Throughout this period the Company used it best efforts to continue to apply a
consistent philosophy of compensation for all employees, including executive
officers. This philosophy is based on the premise that the achievements of the
Company result from the coordinated efforts of all individuals working toward
common objectives within each of the then existing projects of the Company's
respective business units. The Company strives to achieve those objectives
through teamwork focused on meeting or exceeding strategic, scientific and
business goals and the expectations of the Company's shareholders. For the
fiscal year ended December 31, 2000, there were different levels of achievement
of strategic, scientific and business goals between the Company's business units
and to certain extents, the rewards and compensation awarded to the Company's
employees, including executive officers, reflected those differences.
COMPENSATION PHILOSOPHY FOR EXECUTIVE OFFICERS
The goals of the compensation program are to reward individual and team
performance and to encourage future performance by aligning compensation with
scientific and business objectives and performance and to enable the Company to
attract, retain and reward executive officers who contribute to the long-term
success of the Company. The Company's compensation program for executive
officers is based on four principles:
- Company pays competitively.
The Company is committed to a compensation program that helps attract and
retain the best people in the industry. To ensure that its compensation is
competitive, the Company regularly compares its compensation levels with those
companies it considers comparable and sets its compensation parameters based on
this review.
- Company compensates its executive officers for performance.
Executive officers are rewarded based upon both corporate performance and
individual performance. Corporate performance is evaluated by reviewing the
extent to which strategic and business plan goals are met. Individual
performance is evaluated by reviewing organizational and management development
progress against set objectives and the degree to which teamwork and Company
values are fostered by the individual's actions.
In early stage biopharmaceutical companies, performance is best judged by
success in achievement of scientific and technical milestones, product
development progress (including progress toward and through clinical trials),
strategic human resources development, capitalization and financing goals, and
commercialization goals. These are the bases presently used by the Committee.
- Company strives for fairness in the administration of pay.
14
The Company strives to achieve a balance of the compensation paid to a
particular individual and the compensation paid to other executive officers both
inside the Company and at comparable companies.
- Company believes that all employees, including executive officers, should
understand and constructively participate in the performance evaluation
process, which operates as follows:
1. At the beginning of the performance cycle, the evaluating manager (who in
the case of executive officers is the Chief Executive Officer) in
conjunction with the employee sets objectives and key goals for the employee
based upon Company goals previously established by senior management.
2. The evaluating manager gives the employee ongoing feedback about the
employee's performance against established goals.
3. At the end of the performance cycle, the employee submits a summary of the
employee's accomplishments against key goals and the manager reviews and
evaluates this summary.
4. The evaluating manager compares the evaluation results to the results of
evaluations of peers within the Company.
5. The Chief Executive Officer and the Human Resources Director (and absent
such officer, the Chief Financial Officer) review results of all evaluations
except that of the Chief Executive Officer. These evaluations are
subsequently discussed between the evaluating manager and the employee. In
the case of the evaluation of the Chief Executive Officer, the Compensation
Committee serves as the evaluating manager.
6. For executive officers, the results of the performance evaluation are
discussed with the Compensation Committee, which reviews these results and
approves (subject to their review) recommendations for compensation made by
the Chief Executive Officer.
7. Decisions on cash compensation and, where appropriate, stock options or
other long-term incentive compensation are based on the employee's
evaluation compared with the evaluations of all employees of the Company.
COMPENSATION VEHICLES
The Company uses a simple total compensation program consisting of cash and
equity-based compensation. Having a compensation program that allows the Company
to successfully attract and retain executive officers permits it to enhance
shareholder value, motivate technological innovation and foster teamwork. The
vehicles used are:
CASH-BASED COMPENSATION
SALARY--The Company sets base salaries for executive officers by reviewing
the aggregate of base salary and bonus for individuals in competitive positions
in the market and adjusting such aggregate to reflect individual performance.
ANNUAL CASH BONUS--Executive officers and the Chief Executive Officer are
eligible to receive an annual cash bonus upon the attainment of predetermined
corporate objectives approved by the Committee at the beginning of the year,
with progress against them reviewed at year-end to determine the appropriate
bonus payment. At full achievement of objectives, the Chief Executive Officer
would be targeted to receive
15
a bonus of 25% of his annual base salary and the other executive officers to
receive 15% of their respective annual bases salaries. The amount actually paid
in any one year may be more or less than the targeted bonus based on over or
under achievement of objectives. In 2000, in light of the Company's cash
position, no annual cash bonuses were authorized for the year.
EQUITY-BASED COMPENSATION
STOCK OPTION PROGRAM--The purpose of the Company's stock option program is
to provide additional incentives to executive officers to maximize shareholder
value. The Company believes strongly in the use of stock options because they
align employee interests directly with shareholder value. The option program
also utilizes vesting periods to encourage executive officers to remain with the
Company and to encourage long-term increases in Company stock value. The Company
grants stock options to all employees upon hiring and anticipates that it may
use stock options as a bonus vehicle in the future. A program of cash awards for
excellence in performance and attainment of goals is currently in place.
Although provided for under the Company incentive plans, the Company
presently does not use stock appreciation rights as a compensation vehicle.
COMPENSATION OF EXECUTIVE OFFICERS
The only executive officer of the Company for the majority of 2000 was
George W. Dunbar, Jr., who served as the Company's Acting President and CEO. His
compensation is described under EMPLOYMENT AND SEVERANCE AGREEMENTS above.
COMPENSATION AND STOCK OPTION COMMITTEE
Mark J. Levin
John J. Schwartz
16
PERFORMANCE GRAPH
NOTE: THE STOCK PRICE PERFORMANCE SHOWN ON THE GRAPH BELOW IS NOT NECESSARILY
INDICATIVE OF FUTURE STOCK PRICE PERFORMANCE.
The graph below compares the cumulative total returns on the Company's
Common Stock with the cumulative total returns of the Amex Biotechnology Stock
Index and the S&P 500 Index for the period from the Company's initial public
offering until December 31, 2000. (1)
COMPARISON OF CUMULATIVE TOTAL RETURNS ON COMMON STOCK OF STEMCELLS, INC.,
THE AMEX BIOTECHNOLOGY STOCK INDEX AND S&P 500 INDEX
FOR THE PERIOD FROM THE COMPANY'S INITIAL PUBLIC OFFERING UNTIL DECEMBER 31,
2000
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
DOLLARS
MAR '92 DEC '92 DEC '93 DEC '94 DEC '95 DEC '96 DEC '97 DEC '98 DEC '99 DEC '00
COMPANY 100 79.49 125.64 46.15 175.64 92.31 41.03 15.07 15.07 28.58
S&P 200 INDEX 100 110.41 121.53 119.88 160.48 192.99 252.84 263.53 314.99 323.71
AMEX BIOTECH STOCK INDEX 100 94.41 64.07 45.41 74.88 80 89.88 159.9 338.09 343.1
------------------------
(1) Based on the closing price of the Company's Common Stock on the first day of
trading on the NASDAQ National Market System. Cumulative total returns
assume reinvestment of all dividends and a hypothetical investment of $100
on March 26, 1992.
17
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in 2000 to the
named executive officers.
NUMBER OF POTENTIAL REALIZABLE VALUE
SECURITIES PERCENT OF AT ASSUMED ANNUAL RATES OF
UNDERLYING TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(3)
GRANTED EMPLOYEES IN PRICE EXPIRATION ------------------------------
NAME (# OF SHARES) FISCAL YEAR(1) ($/SHARE)(2) DATE 0%($) 5%($) 10%($)
---- ------------- -------------- ------------ ---------- -------- -------- --------
Richard M. Rose, M.D....... 0 0 0 0 0 0 0
George W. Dunbar, Jr....... 73,000(4) 22% 1.094 10/15/01 271,998 307,120 345,580
George W. Dunbar, Jr....... 12,031(4) 4% 4.156 10/15/01 13,162 19,467 26,371
Ann Tsukamoto, Ph.D........ 0 0 0 0 0 0 0
Ronnda Bartel, Ph.D........ 0 0 0 0 0 0 0
------------------------
(1) The Company granted options covering 330,031 shares of Common Stock to
employees in the fiscal year ended December 31, 2000.
(2) The exercise price may be paid by delivery of already-owned shares and tax
withholding obligations related to exercise may be paid by offset of the
underlying shares, subject to certain conditions.
(3) As suggested by the Commission's rules on executive compensation disclosure,
the Company has presented option values based on arbitrary growth rates. The
Company does not necessarily agree that the information presented properly
values the options described.
(4) As of December 31, 2000, options for 85,031 shares were fully vested.
18
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
The following table provides information about option exercises in 2000 by
the named executive officers and the value of such officers' unexercised options
at December 31, 2000.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END(1) FISCAL YEAR-END($)(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
Richard M. Rose, M.D...... 156,250 865,328 0 93,750 0 0
George W. Dunbar, Jr...... 42,000 209,160 24,031 0 11,248 0
Ann Tsukamoto, Ph.D....... 0 0 78,082 33,168 29,638 35,161
Ronnda Bartel, Ph.D....... 0 0 19,270 33,230 24,814 43,058
------------------------
(1) December 31, 2000.
(2) The closing price of the Company's Common Stock on December 29, 2000 (the
last trading day of 2000) on the NASDAQ National Market System was $ 2.500.
The numbers shown reflect the value of options accumulated over all years of
employment.
19
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The number of directors is currently fixed at five. The Company's Restated
Certificate of Incorporation and Amended and Restated By-laws provide for the
classification of the Board of Directors into three classes, as nearly equal in
number as possible, with the term of office of one class expiring each year.
Unless otherwise instructed, the enclosed proxy will be voted to elect the
nominees named below, who are now Class I directors, as Class I directors for a
term of three years expiring at the 2004 Annual Meeting of Stockholders and
until their successors are duly elected and qualified. Proxies cannot be voted
for a greater number of persons than the number of nominees named below. It is
expected that the nominees will be able to serve, but if any are unable to
serve, the proxy will be voted for a substitute nominee or nominees designated
by the Board of Directors. The nominees for election as Class I directors and
the incumbent Class II and III directors are as follows:
NOMINEES FOR ELECTION AS CLASS I DIRECTORS -- TERMS EXPIRE 2004
NAME PRINCIPAL OCCUPATION AGE POSITION
---- ---------------------------- -------- ----------------------------
Mark J. Levin............... Chairman of the Board and 50 Director
Chief Executive Officer of
Millennium
Pharmaceuticals, Inc.
John J. Schwartz, Ph.D...... President, Quantum 67 Director, Chairman of the
Strategies Management Board
Company
Mark J. Levin, a founder of the Company, has served as a director since the
Company's inception. From inception until January 1990 and from May 1990 until
February 1991, Mr. Levin served as the Company's President and acting Chief
Executive Officer. From November 1991 until March 1992, he served as Chief
Executive Officer of Tularik, Inc., a biotechnology company. From August 1991
until August 1993, Mr. Levin was Chief Executive Officer and a director of
Focal, Inc., a biomedical company. Mr. Levin is currently the Chairman of the
Board and Chief Executive Officer of Millennium Pharmaceuticals, Inc., a
biotechnology company. Mr. Levin is also currently on the Board of Directors of
Focal, Inc. and Tularik, Inc.
John J. Schwartz, Ph.D. was elected to the Board of Directors of the Company
in December 1998 and was elected Chairman of the Board at the same time. He is
the former President and Chief Executive Officer of SyStemix, Inc. Dr. Schwartz
is currently President of Quantum Strategies Management Company, a registered
investment advisor located in Atherton, California. Prior to his positions at
SyStemix, he served as Assistant Professor, Vice President and General Counsel
at Stanford University in California. Dr. Schwartz was graduated from Harvard
Law School in 1958 and received his Ph.D. degree in physics from the University
of Rochester in 1965.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF THE
NOMINEES DESCRIBED ABOVE
20
INCUMBENT CLASS II DIRECTOR -- TERM EXPIRES 2002
NAME PRINCIPAL OCCUPATION AGE POSITION
---- ---------------------------- -------- ----------------------------
Irving L. Weissman, M.D..... Professor, Stanford 61 Director
University
Irving L. Weissman, M.D. was elected to the Board of Directors of the
Company in September 1997. Dr. Weissman is the Karel and Avice Beekhuis
Professor of Cancer Biology, Professor of Pathology and Professor of
Developmental Biology at Stanford University. Dr. Weissman is a cofounder and
was a member of the Scientific Advisory Board of SyStemix, Inc. He has also
served on the Scientific Advisory Boards of Amgen Inc., DNAX and T-Cell
Sciences, Inc., all of which are biotechnology companies. Dr. Weissman is a
member of the National Academy of Sciences and also serves as Chairman of the
Scientific Advisory Board of the Company.
21
INCUMBENT CLASS III DIRECTORS -- TERMS EXPIRE 2003
NAME PRINCIPAL OCCUPATION AGE POSITION
---- -------------------------- -------- ----------------------------
Martin McGlynn.................. President and CEO, 54 Director, Executive Officer
StemCells, Inc.
Roger Perlmutter, M.D., Ph.D.... Vice President, Research, 48 Director
Amgen, Inc.
Martin M. McGlynn joined the company on January 15, 2001 when he was
appointed President and Chief Executive Officer of the company and of its
wholly-owned subsidiary, StemCells California, Inc. From 1994 until he joined
the company, Mr. McGlynn was President and Chief Executive Officer of
Pharmadigm, Inc., a privately held company in Salt Lake City, Utah, engaged in
research and development in the fields of inflammation and genetic immunization.
Mr. McGlynn received a bachelor of commerce degree from University College,
Dublin, Ireland in 1968, a diploma in industrial engineering from the Irish
Institute of Industrial Engineering in 1970, and a diploma in production
planning from the University of Birmingham, England in 1971.
Roger M. Perlmutter, M.D., Ph.D., was elected to the board of directors in
December 2000. Dr. Perlmutter is Executive Vice President, Research and
Development, of Amgen, Inc., a position he has held since January 2001. Prior to
joining Amgen, Dr. Perlmutter was Executive Vice President, Worldwide Basic
Research and Preclinical Development, Merck Research Laboratories, a division of
Merck & Co., Inc., a position he held since August 1999. He joined Merck in
February 1997 as Senior Vice President, Merck Research Laboratories, from
February 1997 to December 1998 and as Executive Vice President from
February 1999 to July 1999. Prior to joining Merck, Dr. Perlmutter was a
professor in the Departments of Immunology, Biochemistry and Medicine at the
University of Washington from January 1991 to January 1997 and served as
chairman of the Department of Immunology at the University of Washington from
May 1989 to January 1997. He also was an Investigator at the Howard Hughes
Medical Institute from October 1991 to January 1997. Dr Perlmutter has been a
member of the board of directors of The Irvington Institute for Immunological
Research since 1997 and of the Institute for Systems Biology since 1999.
Dr. Perlmutter is licensed to practice medicine in the State of California and
the State of Washington. He was graduated from Reed College in 1973 and received
his M.D. and Ph.D. degrees from Washington University, St. Louis, Missouri in
1979.
22
PROPOSAL NUMBER 2
ADOPTION OF THE 2001 EQUITY INCENTIVE PLAN
In April 2001, the Board of Directors adopted the 2001 Equity Incentive Plan
(the "Plan"), subject to shareholder approval.
The purpose of the Plan is to advance the interests of the Company by
enhancing its ability to attract and retain executive officers, employees,
directors and other persons or entities providing services to the Company who
are in a position to make significant contributions to the success of the
Company, and to reward participants for such contributions, through ownership of
shares of Common Stock (the "Stock") of the Company. The Plan is intended to
accomplish these goals by enabling the Company to grant awards in the form of
options, stock appreciation rights, restricted stock, unrestricted stock or
deferred stock, or performance awards, loans or supplemental grants or
combinations thereof, all as more fully described below. The Plan will be the
successor to both the Company's 1992 Equity Incentive Plan and its 1992 Stock
Option Plan for Non-Employee Directors. No awards may be made under either of
the 1992 plans after February 12, 2002.
OVERVIEW
The Plan will be administered by the Board of Directors (the "Board"). Under
the Plan, the Board may grant stock options, stock appreciation rights,
restricted stock, unrestricted stock, deferred stock, and performance awards (in
cash or stock), or combinations thereof, and may waive the terms and conditions
of any award. A total of 3,000,000 shares of Stock may be issued under the Plan.
Employees of the Company, including executive officers, directors and other
persons or entities providing services to the Company or its subsidiaries who
are in a position to make a significant contribution to the success of the
Company are eligible to receive awards under the Plan.
Section 162(m) of the Code places annual limitations on the deductibility by
public companies of compensation in excess of $1,000,000 paid to each of the
chief executive officer and the other four most highly compensated officers,
unless, among other things, the compensation is performance-based. For
compensation attributable to stock options and stock appreciation rights to
qualify as performance-based, the plan under which they are granted must state a
maximum number of shares with respect to which options and rights may be granted
to an individual during a specified period and must be approved by the Company's
shareholders. To comply with these requirements, the Plan provides that the
maximum number of shares as to which awards may be granted to any participant
during the life of the Plan is 500,000 and the maximum number of shares as to
which stock appreciation rights may be granted to any participant during the
life of the Plan is 500,000. In addition, the Plan is being submitted for
shareholder approval.
STOCK OPTIONS. The exercise price of an incentive stock option ("ISO")
granted under the Plan or an option intended to qualify as performance-based
compensation under Section 162(m) of the Code shall not be less than 100% of the
fair market value of the Stock at the time of grant. The Board determines the
exercise price of a non-ISO granted under the Plan. No stock options may be
granted under the Plan after March 28, 2011, but stock options previously
granted may extend beyond that date. The exercise price may be paid in cash or
by check payable to the order of the Company. Subject to certain additional
limitations, the Committee may also permit the exercise price to be paid by
tendering shares of Stock, by delivery of a promissory note, by delivery to the
Company of an undertaking by a broker to deliver promptly sufficient funds to
pay the exercise price, or a combination of the foregoing.
23
STOCK APPRECIATION RIGHTS (SARS). Stock appreciation rights ("SARs") may be
granted either alone or in tandem with stock option grants. Each SAR entitles
the holder on exercise to receive an amount in cash or Stock or a combination
thereof (such form to be determined by the Committee) determined in whole or in
part by reference to appreciation in the fair market value of a share of Stock.
SARs may be based solely on appreciation in the fair market value of Stock or on
a comparison of such appreciation with some other measure of market growth.
STOCK AWARDS; DEFERRED STOCK. The Plan provides for awards of
nontransferable shares of restricted Stock subject to forfeiture ("Restricted
Stock"), as well as unrestricted shares of Stock. Share of Restricted Stock may
not be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated until the end of the applicable period and the satisfaction of any
other conditions or restrictions established by the Board. Except as the Plan
may otherwise specifically provide, if a participant ceases to be an employee or
ceases to continue the consulting or other similar relationship engaged in by
such participant with the Company for any reason other than death during the
restricted period, then the Restricted Stock must be offered to the Company for
purchase for the amount of cash paid for the Restricted Stock, or forfeited to
the Company if no cash was paid. The Plan also provides for deferred grants
entitling the recipient to receive shares of Stock in the future at such times
and on such conditions as the Board may specify.
PERFORMANCE AWARDS. The Plan provides for performance awards entitling the
recipient to receive without payment cash or Stock or a combination thereof
following the attainment of performance goals determined by the Board. In the
case of any performance award intended to qualify for the performance-based
remuneration exception described in Section 162(m) of the Code (an "Exempt
Award"), the Board will in writing pre-establish specific performance goals that
are based upon any one or more operational, result or event-specific goals.
LOANS AND SUPPLEMENTAL GRANTS. The Plan provides that the Board has full
authority to decide whether to make a loan to a participant in connection with
the purchase of Stock under an award or with the payment of any applicable
income tax recognized as a result of an award. The Plan also provides that, in
connection with any award, the Board may provide for and grant a cash award with
certain limitations as to the amount of the supplemental grant.
TERMINATION. Except as otherwise provided by the Board, if a participant
dies, options and SARs exercisable immediately prior to death may be exercised
by the participant's executor, administrator or transferee during a period of
one year following such death (or for the remainder of their original term, if
less). Options and SARs not exercisable at a participant's death terminate. In
the case of termination for reasons other than death, options and SARs remain
exercisable, to the extent they were exercisable immediately prior to
termination, for three months (or for the remainder of their original term, if
less); provided that if in the Board's judgment the reason for the award
holder's termination casts discredit on the Company sufficient to justify
immediate termination of the award, then such award will immediately terminate.
CHANGE OF CONTROL. In the case of certain mergers, consolidations or other
transactions in which the Company is acquired or is liquidated and there is a
surviving or acquiring corporation, the Plan permits the Board to arrange for
the assumption of awards outstanding under the Plan or the grant to participants
of replacement awards by that corporation. All outstanding awards not assumed by
the surviving or acquiring corporation shall become exercisable immediately
prior to the consummation of such merger,
24
consolidation or other transaction and upon such consummation all outstanding
awards that have not been assumed or replaced will terminate.
AMENDMENT. The Board may amend the Plan or any outstanding award at any
time, provided that no such amendment will, without the approval of the
shareholders of the Company, effectuate a change for which shareholder approval
is required in order for the Plan to continue to qualify for the award of ISOs
under Section 422 of the Code or for the award of performance-based compensation
under Section 162(m) of the Code.
NEW PLAN BENEFIT
The future benefits or amounts that would be received under the Plan by the
executive officers and the non-executive officer employees are discretionary and
are therefore not determinable at this time. The Company has adopted the
following methodology for granting options to Directors: upon election or
appointment to an initial term on the Board, the Company will grant a Director
an option to purchase 20,000 shares at fair market value, which option will vest
ratably over 3 years. On the third anniversary date, each re-elected Director
will be granted an additional option to purchase 15,000 shares at fair market
value, which option will vest ratably over 3 years. In addition, each Director
will receive a retainer of $18,000 annually and the Chairman of the Board of
Directors will receive a retainer of $35,000 annually, payable in options to
purchase the Company's Common Stock at $.25 per share.
FEDERAL TAX EFFECTS
The following discussion summarizes certain federal income tax consequences
of the issuance and receipt of options under the Plan. The summary does not
purport to cover federal employment tax or other federal tax consequences that
may be associated with the Plan, nor does it cover state, local or non-U.S.
taxes.
INCENTIVE STOCK OPTIONS. In general, an optionee realizes no taxable income
upon the grant or exercise of an ISO. However, the exercise of an ISO may result
in an alternative minimum tax liability to the optionee. With certain
exceptions, a disposition of shares purchased under an ISO within two years from
the date of grant or within one year after exercise produces ordinary income to
the optionee (and a deduction to the Company) equal to the value of the shares
at the time of exercise less the exercise price. Any additional gain recognized
in the disposition is treated as a capital gain for which the Company is not
entitled to a deduction. If the optionee does not dispose of the shares until
after the expiration of these one- and two-year holding periods, any gain or
loss recognized upon a subsequent sale is treated as a long-term capital gain or
loss for which the Company is not entitled to a deduction.
NONSTATUTORY (NON-ISO) OPTIONS. In general, in the case of a non-ISO, the
optionee has no taxable income at the time of grant but realizes income in
connection with exercise of the option in an amount equal to the excess (at the
time of exercise) of the fair market value of the shares acquired upon exercise
over the exercise price. A corresponding deduction is available to the Company.
Upon a subsequent sale or exchange of the shares, appreciation or depreciation
after the date of exercise is treated as capital gain or loss for which the
Company is not entitled to a deduction.
In general, an ISO that is exercised more than three months after
termination of employment (other than termination by reason of death) is treated
as a non-ISO. ISOs are also treated as non-ISOs to the extent they first become
exercisable by an individual in any calendar year for shares having a fair
market value (determined as of the date of grant) in excess of $100,000.
25
Under the so-called "golden parachute" provisions of the Code, the vesting
or accelerated exercisability of awards in connection with a change in control
of the Company may be required to be valued and taken into account in
determining whether participants have received compensatory payments, contingent
on the change in control, in excess of certain limits. If these limits are
exceeded, a substantial portion of amounts payable to the participant, including
income recognized by reason of the grant, vesting or exercise of awards under
the Plan, may be subject to an additional 20% federal tax and may not be
deductible to the Company.
EFFECTIVE DATE OF THE 2001 EQUITY INCENTIVE PLAN. The 2001 Equity Incentive
Plan will become effective as of May 31, 2001, provided that it is approved by
the shareholders at this meeting.
RECOMMENDATION
The Board of Directors of the Company has unanimously approved a proposal to
adopt the 2001 Equity Incentive Plan set forth herein as Annex A (the "Plan")
and recommended that the proposed Plan be submitted to the Company's
stockholders for consideration and approval at the Annual Meeting. The
affirmative vote of a majority of all votes entitled to be cast at the Annual
Meeting will be required to approve the Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ADOPTION OF THE
2001 EQUITY INCENTIVE PLAN AS SET FORTH HEREIN AS ANNEX A.
26
PROPOSAL NUMBER 3
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company is asking the stockholders to ratify the selection of Ernst &
Young LLP as the Company's independent public accountants for the fiscal year
ending December 31, 2001. The affirmative vote of the holders of a majority of
the shares represented and voting at the Annual Meeting will be required to
ratify the selection of Ernst & Young LLP.
In the event the stockholders fail to ratify the appointment, the Audit
Committee of the Board of Directors will consider it as a direction to select
other auditors for the subsequent year. Even if the selection is ratified, the
Board at its discretion may direct the appointment of a different independent
accounting firm at any time during the subsequent year if the Board determines
that such a change would be in the best interests of the Company and its
stockholders.
A representative of Ernst & Young LLP is expected to attend the Annual
Meeting and is not expected to make a statement, but will be available to
respond to appropriate questions and may make a statement if such representative
desires to do so.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO
RATIFY THE SELECTION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 2001.
27
OTHER INFORMATION
ACCOUNTING MATTERS
The Board of Directors has selected the independent accounting firm of
Ernst & Young LLP to audit the accounts of the Company for the year ending
December 31, 2001.
A representative of Ernst & Young LLP who audited the accounts of the
Company for the year ended December 31, 2000 is expected to be present at the
Annual Meeting of Stockholders and will be afforded the opportunity to make a
statement if he or she desires to do so and is expected to be available to reply
to appropriate stockholder inquiries.
STOCKHOLDER PROPOSALS
Proposals of Stockholders submitted for consideration at the next Annual
Meeting of Stockholders must be received by the Company (attention: Secretary)
no later than December 3, 2001.
FORM 10-K
The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (without exhibits), as filed with the Securities and Exchange
Commission, is available without charge upon request by writing to the Company
at 3155 Porter Drive, Palo Alto, CA 94304, Attention: Investor Relations.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's Common Stock, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission
("SEC"). Officers, directors and greater than ten percent stockholders are
required by SEC regulations to furnish to the Company copies of all Forms 3, 4
and 5 they file. Based solely on the Company's review of copies of such forms it
has received, the Company believes that all of its officers, directors and
greater than ten percent beneficial owners complied on a timely basis with all
filing requirements applicable to them for the year ended December 31, 2000.
OTHER BUSINESS
The Board of Directors knows of no business that will come before the
meeting for action except as described in the accompanying Notice of Meeting.
However, as to any such business, the persons designated as proxies will have
discretionary authority to act in their best judgment.
By Order of the Board of Directors
Iris Brest
SECRETARY
April 30, 2001
28
ANNEX A
STEMCELLS, INC.
2001 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this Equity Incentive Plan (the "Plan") is to advance the
interests of StemCells, Inc. (the "Company") by enhancing its ability to attract
and retain employees and other persons or entities who are in a position to make
significant contributions to the success of the Company and its subsidiaries
through ownership of shares of the Company's common stock ("Stock").
The Plan is intended to accomplish these goals by enabling the Company to
grant Awards in the form of Options, Stock Appreciation Rights, Restricted Stock
or Unrestricted Stock Awards, Deferred Stock Awards, Performance Awards, Loans
or Supplement Grants, or combinations thereof, all as more fully described
below.
2. ADMINISTRATION
The Plan will be administered by the Board of Directors of the Company (the
"Board"). The Board will have authority, not inconsistent with the express
provisions of the Plan and in addition to other authority granted under the
Plan, to (a) grant Awards at such time or times as it may choose; (b) determine
the size of each Award, including the number of shares of Stock subject to the
Award; (c) determine the type or types of each Award; (d) determine the terms
and conditions of each Award; (e) waive compliance by a Participant (as defined
below) with any obligations to be performed by the Participant under an Award
and waive any term or condition of an Award; (f) amend or cancel an existing
Award in whole or in part (and if an award is cancelled, grant another Award in
its place on such terms as the Board shall specify), except that the Board may
not, without the consent of the holder of an Award, take any action under this
clause with respect to such Award if such action would adversely affect the
rights of such holder; (g) prescribe the form or forms of instruments that are
required or deemed appropriate under the Plan, including any written notices and
elections required of Participants, and change such forms from time to time;
(h) adopt, amend and rescind rules and regulations for the administration of the
Plan; and (i) interpret the Plan and decide any questions and settle all
controversies and disputes that may arise in connection with the Plan. Such
determinations and actions of the Board, and all other determinations and
actions of the Board made or taken under authority granted by any provision of
the Plan, will be conclusive and will bind all parties. Nothing in this
paragraph shall be construed as limiting the power of the Board to make
adjustments under Section 7.3 or Section 8.6.
The Board may, in its discretion, delegate some or all of its powers with
respect to the Plan to a committee (the "Committee"), in which event all
references (as appropriate) to the Board hereunder shall be deemed to refer to
the Committee. The Committee, if one is appointed, shall consist of at least two
directors. A majority of the members of the Committee shall constitute a quorum,
and all determinations of the Committee shall be made by a majority of its
members. Any determination of the Committee under the Plan may be made without
notice or meeting of the Committee by a writing signed by a majority of the
Committee members. On and after registration of the Stock under the Securities
Exchange Act of 1934 (the "1934 Act"), the Board shall delegate the power to
select directors and officers to receive Awards under the Plan and the timing,
pricing and amount of such Awards to a committee, all members of which shall be
non-employee directors within the meaning of Rule 16b-3 under the 1934 Act and
"outside directors" within the meaning of section 162(m)(4)(C)(i) of the
Internal Revenue Code of 1986, as
1
amended (the "Code"). In addition, the Board may, in its discretion, delegate to
a Committee consisting solely of the chief executive officer of the Company, if
he or she is member of the Board of Directors, the power to grant Awards under
the Plan to persons who are not, and who are not expected to be, officers or
directors of the Company.
3. EFFECTIVE DATE AND TERM OF PLAN
The Plan will become effective on the date on which it is approved by the
stockholders of the Company. Grants of Awards under the Plan may be made prior
to that date (but after Board adoption of the Plan), subject to such approval of
the Plan.
No Award may be granted under the Plan after March 28, 2011, but Awards
previously granted may extend beyond that date.
4. SHARES SUBJECT TO THE PLAN
Subject to the adjustment as provided in Section 8.6 below, the aggregate
number of shares of Stock that may be delivered under the Plan will be
3,000,000. If any Award requiring exercise by the Participant for delivery of
Stock terminates without having been exercised in full, or if any Award payable
in Stock or cash is satisfied in cash rather than Stock, the number of shares of
Stock as to which such Award was not exercised or for which cash was substituted
will be available for future grants.
Stock delivered under the Plan may be either authorized but unissued Stock
or previously issued Stock acquired by the Company and held in treasury. No
fractional shares of Stock will be delivered under the Plan.
Subject to Section 8.6(a), the maximum number of shares of Stock as to which
Options may be granted to any Participant during the life of the Plan is 500,000
and the maximum number of shares of Stock as to which Stock Appreciation Rights
may be granted to any Participant during the life of the Plan is 500,000. For
purposes of this paragraph, except as otherwise provided in regulations or other
guidance issued under Section 162(m) of the Code, any repricing of an Option or
Stock Appreciation Right shall be treated as an additional grant. The
per-individual limitations described in this paragraph shall be construed and
applied consistent with the rules and regulations under Section 162(m) of the
Code.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan ("Participants") will be
employees of the Company or any of its subsidiaries ("Employees") and other
persons or entities (including without limitation non-Employee directors of the
Company or a subsidiary of the Company) who, in the opinion of the Board, are in
a position to make a significant contribution to the success of the Company or
its subsidiaries. A "subsidiary" for purposes of the Plan will be a corporation
in which the Company owns, directly or indirectly, stock possessing 50% or more
of the total combined voting power of all classes of stock.
6. TYPES OF AWARDS
6.1. Options
(a) Nature of Options. An Option is an Award entitling the recipient on
exercise thereof to purchase Stock at a specified exercise price.
Both "incentive stock options," as defined in section 422 of the Code
(any Option intended to qualify as an incentive stock option being
hereinafter referred to as an "ISO"), and
2
Options that are not incentive stock options [non-ISOs], may be
granted under the Plan. ISOs shall be awarded only to Employees.
(b) Exercise Price. The exercise price of an Option will be determined by
the Board subject to the following:
(1) The exercise price of an ISO shall not be less than 100% (110% in
the case of an ISO granted to a ten-percent shareholder) of the
fair market value of the Stock subject to the Option, determined
as of the time the Option is granted. A "ten-percent shareholder"
is any person who at the time of grant owns, directly or
indirectly, or is deemed to own by reason of the attribution
rules of section 424(d) of the Code, stock possessing more than
10% of the total combined voting power of all classes of stock of
the Company or of any of its subsidiaries.
(2) In no case may the exercise price paid for Stock which is part of
an original issue of authorized Stock be less than the par value
per share of the Stock.
(3) The Board may reduce the exercise price of an Option at any time
after the time of grant, but in the case of an Option originally
awarded as an ISO, only with the consent of the Participant.
(c) Duration of Options. The latest date on which an Option may be
exercised will be the tenth anniversary (fifth anniversary, in the
case of an ISO granted to a ten-percent shareholder) of the day
immediately preceding the date the Option was granted, or such
earlier date as may have been specified by the Board at the time the
Option was granted.
(d) Exercise of Options. An Option will become exercisable at such time
or times, and on such conditions, as the Board may specify. The Board
may at any time accelerate the time at which all or any part of the
Option may be exercised.
Any exercise of an Option must be in writing, signed by the proper
person and delivered or mailed to the Company, accompanied by
(1) any documents required by the Board and (2) payment in full in
accordance with paragraph (e) below for the number of shares for
which the Option is exercised.
(e) Payment for Stock. Stock purchased on exercise of an Option must be
paid for as follows: (1) in cash or by check (acceptable to the
Company in accordance with guidelines established for this purpose),
bank draft or money order payable to the order of the Company or
(2) if so permitted by the instrument evidencing the Option (or in
the case of an Option which is not an ISO, by the Board at or after
grant of the Option), (i) through the delivery of shares of Stock
which have been outstanding for at least six months (unless the Board
expressly approves a shorter period) and which have a fair market
value on the last business day preceding the date of exercise equal
to the exercise price, or (ii) by delivery of a promissory note of
the Option holder to the Company, payable on such terms as are
specified by the Board, or (iii) by delivery of an unconditional and
irrevocable undertaking by a broker to deliver promptly to the
Company sufficient funds to pay the exercise price, or (iv) by the
withholding of shares of Stock otherwise deliverable upon exercise
which have a fair market value on the date of exercise at least equal
to the exercise price, or (v) by any combination of the permissible
forms of payment; provided, that if the Stock delivered upon exercise
of the Option is an original issue of authorized Stock, at least so
much of the exercise price as
3
represents the par value of such Stock must be paid other than by the
Option holder's personal check or promissory note.
(f) Discretionary Payments. If the market price of shares of Stock
subject to an Option (other than an Option which is in tandem with a
Stock Appreciation Right as described in Section 6.2 below) exceeds
the exercise price of the Option at the time of its exercise, the
Board may cancel the Option and cause the Company to pay in cash or
in shares of Common Stock (at a price per share equal to the fair
market value per share) to the person exercising the Option an amount
equal to the difference between the fair market value of the Stock
which would have been purchased pursuant to the exercise (determined
on the date the Option is cancelled) and the aggregate exercise price
which would have been paid. The Board may exercise its discretion to
take such action only if it has received a written request from the
person exercising the Option, but such a request will not be binding
on the Board.
6.2. Stock Appreciation Rights
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an
Award entitling the recipient on exercise of the Right to receive an
amount, in cash or Stock or a combination thereof (such form to be
determined by the Board), determined in whole or in part by reference
to appreciation in Stock value.
In general, a Stock Appreciation Right entitles the Participant to
receive, with respect to each share of Stock as to which the Right is
exercised, the excess of the share's fair market value on the date of
exercise over its fair market value on the date the Right was
granted. However, the Board may provide at the time of grant that the
amount the recipient is entitled to receive will be adjusted upward
or downward under rules established by the Board to take into account
the performance of the Stock in comparison with the performance of
other stocks or an index or indices of other stocks. The Board may
also grant Stock Appreciation Rights that provide, in such limited
circumstances following a change in control (as determined by the
Board) of the Company as the Board may specify, that the holder of
such Right will be entitled to receive, with respect to each share of
Stock subject to the Right, an amount equal to the excess of a
specified value (which may include an average of values) for a share
of Stock during a period preceding the change in control over the
fair market value of a share of Stock on the date the Right was
granted.
(b) Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted in tandem with, or independently of, Options granted under
the Plan. A Stock Appreciation Right granted in tandem with an Option
which is not an ISO may be granted either at or after the time the
Option is granted. A Stock Appreciation Right granted in tandem with
an ISO may be granted only at the time the Option is granted.
(c) Rules Applicable to Tandem Awards. When Stock Appreciation Rights are
granted in tandem with Options, the following will apply:
(1) The Stock Appreciation Right will be exercisable only at such
time or times, and to the extent, that the related Option is
exercisable and will be exercisable in accordance with the
procedure required for exercise of the related Option.
(2) The Stock Appreciation Right will terminate and no longer be
exercisable upon the termination or exercise of the related
Option, except that a Stock Appreciation Right
4
granted with respect to less than the full number of shares
covered by an Option will not be reduced until the number of
shares as to which the related Option has been exercised or has
terminated exceeds the number of shares not covered by the Stock
Appreciation Right.
(3) The Option will terminate and no longer be exercisable upon the
exercise of the related Stock Appreciation Right.
(4) The Stock Appreciation Right will be transferable only with the
related Option.
(5) A Stock Appreciation Right granted in tandem with an ISO may be
exercised only when the market price of the Stock subject to the
Option exceeds the exercise price of such option.
(d) Exercise of Independent Stock Appreciation Rights. A Stock
Appreciation Right not granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the
Board may specify. The Board may at any time accelerate the time at
which all or any part of the Right may be exercised.
Any exercise of an independent Stock Appreciation Right must be in writing,
signed by the proper person and delivered or mailed to the Company, accompanied
by any other documents required by the Board.
6.3. Restricted and Unrestricted Stock
(a) Nature of Restricted Stock Award. A Restricted Stock Award entitles
the recipient to acquire, for a purchase price equal to par value,
shares of Stock subject to the restrictions described in
paragraph (d) below ("Restricted Stock").
(b) Acceptance of Award. A Participant who is granted a Restricted Stock
Award will have no rights with respect to such Award unless the
Participant accepts the Award by written instrument delivered or
mailed to the Company accompanied by payment in full of the specified
purchase price, if any, of the shares covered by the Award. Payment
may be by certified or bank check or other instrument acceptable to
the Board.
(c) Rights as a Stockholder. A Participant who receives Restricted Stock
will have all the rights of a stockholder with respect to the Stock,
including voting and dividend rights, subject to the restrictions
described in paragraph (d) below and any other conditions imposed by
the Board at the time of grant. Unless the Board otherwise
determines, certificates evidencing shares of Restricted Stock will
remain in the possession of the Company until such shares are free of
all restrictions under the Plan.
(d) Restrictions. Except as otherwise specifically provided by the Plan,
Restricted Stock may not be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of, and if the Participant ceases to
be an Employee or otherwise suffers a Status Change (as defined at
Section 7.2(a) below) for any reason, must be offered to the Company
for purchase for the amount of cash paid for the Stock, or forfeited
to the Company if no cash was paid. These restrictions will lapse at
such time or times, and on such conditions, as the Board may specify.
The Board may at any time accelerate the time at which the
restrictions on all or any part of the shares will lapse.
5
(e) Notice of Election. Any Participant making an election under
Section 83(b) of the Code with respect to Restricted Stock must
provide a copy thereof to the Company within 10 days of the filing of
such election with the Internal Revenue Service.
(f) Other Awards Settled with Restricted Stock. The Board may, at the
time any Award described in this Section 6 is granted, provide that
any or all the Stock delivered pursuant to the Award will be
Restricted Stock.
(g) Unrestricted Stock. The Board may, in its sole discretion, sell to
any Participant shares of Stock free of restrictions under the Plan
for a price which is not less than the par value of the Stock.
6.4. Deferred Stock
A Deferred Stock Award entitles the recipient to receive shares of Stock
to be delivered in the future. Delivery of the Stock will take place at
such time or times, and on such conditions, as the Board may specify. The
Board may at any time accelerate the time at which delivery of all or any
part of the Stock will take place. At the time any Award described in
this Section 6 is granted, the Board may provide that, at the time Stock
would otherwise be delivered pursuant to the Award, the Participant will
instead receive an instrument evidencing the Participant's right to
future delivery of Deferred Stock.
6.5. Performance Awards; Performance Goals
(a) Nature of Performance Awards. A Performance Award entitles the
recipient to receive, without payment, an amount in cash or Stock or
a combination thereof (such form to be determined by the Board)
following the attainment of Performance Goals. Performance Goals may
be related to personal performance, corporate performance,
departmental performance or any other category of performance deemed
by the Board to be important to the success of the Company. The Board
will determine the Performance Goals, the period or periods during
which performance is to be measured and all other terms and
conditions applicable to the Award.
(b) Other Awards Subject to Performance Condition. The Board may, at the
time any Award described in this Section 6 is granted, impose the
condition (in addition to any conditions specified or authorized in
this Section 6 or any other provision of the Plan) that Performance
Goals be met prior to the Participant's realization of any payment or
benefit under the Award.
6.6. Loans and Supplemental Grants
(a) Loans. The Company may make a loan to a Participant ("Loan"), either
on the date of or after the grant of any Award to the Participant. A
Loan may be made either in connection with the purchase of Stock
under the Award or with the payment of any Federal, state and local
income tax with respect to income recognized as a result of the
Award. The Board will have full authority to decide whether to make a
Loan and to determine the amount, terms and conditions of the Loan,
including the interest rate (which may be zero), whether the Loan is
to be secured or unsecured or with or without recourse against the
borrower, the terms on which the Loan is to be repaid and the
conditions, if any, under which it may be forgiven. However, no Loan
may have a term (including extensions) exceeding ten years in
duration.
6
(b) Supplemental Grants. In connection with any Award, the Board may at
the time such Award is made or at a later date, provide for and grant
a cash award to the Participant ("Supplemental Grant") not to exceed
an amount equal to (1) the amount of any federal, state and local
income tax on ordinary income for which the Participant may be liable
with respect to the Award, determined by assuming taxation at the
highest marginal rate, plus (2) an additional amount on a grossed-up
basis intended to make the Participant whole on an after-tax basis
after discharging all the Participant's income tax liabilities
arising from all payments under this Section 6. Any payments under
this subsection (b) will be made at the time the Participant incurs
Federal income tax liability with respect to the Award.
7. EVENTS AFFECTING OUTSTANDING AWARDS
7.1. Death
If a Participant dies, the following will apply:
(a) All Options and Stock Appreciation Rights held by the Participant
immediately prior to death, to the extent then exercisable, may be
exercised by the Participant's executor or administrator or the
person or persons to whom the Option or Right is transferred by will
or the applicable laws of descent and distribution, at any time
within the one-year period ending with the first anniversary of the
Participant's death (or such shorter or longer period as the Board
may determine), and shall thereupon terminate. In no event, however,
shall an Option or Stock Appreciation Right remain exercisable beyond
the latest date on which it could have been exercised without regard
to this Section 7. Except as otherwise determined by the Board, all
Options and Stock Appreciation Rights held by a Participant
immediately prior to death that are not then exercisable shall
terminate at death.
(b) Except as otherwise determined by the Board, all Restricted Stock
held by the Participant must be transferred to the Company (and, in
the event the certificates representing such Restricted Stock are
held by the Company, such Restricted Stock will be so transferred
without any further action by the Participant) in accordance with
Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not
irrevocably entitled prior to death will be forfeited and the Award
canceled as of the time of death, unless otherwise determined by the
Board.
7.2. Termination of Service (Other Than By Death)
If a Participant who is an Employee ceases to be an Employee for any
reason other than death, or if there is a termination (other than by
reason of death) of the consulting, service or similar relationship in
respect of which a non-Employee Participant was granted an Award
hereunder (such termination of the employment or other relationship being
hereinafter referred to as a "Status Change"), the following will apply:
(a) Except as otherwise determined by the Board, all Options and Stock
Appreciation Rights held by the Participant that were not exercisable
immediately prior to the Status Change shall terminate at the time of
the Status Change. Any Options or Rights that were exercisable
immediately prior to the Status Change will continue to be
exercisable for a period of three months (or such longer period as
the Board may determine), and shall thereupon terminate, unless the
Award provides by its terms for immediate termination in
7
the event of a Status Change or unless the Status Change results from
a discharge for cause which in the opinion of the Board casts such
discredit on the Participant as to justify immediate termination of
the Award. In no event, however, shall an Option or Stock
Appreciation Right remain exercisable beyond the latest date on which
it could have been exercised without regard to this Section 7. For
purposes of this paragraph, in the case of a Participant who is an
Employee, a Status Change shall not be deemed to have resulted by
reason of (i) a sick leave or other bona fide leave of absence
approved for purposes of the Plan by the Board, so long as the
Employee's right to reemployment is guaranteed either by statute or
by contract, or (ii) a transfer of employment between the Company and
a subsidiary or between subsidiary, or to the employment of a
corporation (or a parent or subsidiary corporation of such
corporation) issuing or assuming an option in a transaction to which
section 424(a) of the Code applies.
(b) Except as otherwise determined by the Board, all Restricted Stock
held by the Participant at the time of the Status Change must be
transferred to the Company (and, in the event the certificates
representing such Restricted Stock are held by the Company, such
Restricted Stock will be so transferred without any further action by
the Participant) in accordance with Section 6.3 above.
(c) Any payment or benefit under a Deferred Stock Award, Performance
Award, or Supplemental Grant to which the Participant was not
irrevocably entitled prior to the Status Change will be forfeited and
the Award cancelled as of the date of such Status Change unless
otherwise determined by the Board.
7.3. Certain Corporate Transactions
Except as provided below in this Section 7.3, on the effective date of a
Corporate Transaction (as defined below) (i) each outstanding Option and
Stock Appreciation Right shall automatically become exercisable with
respect to one hundred percent (100%) of any portion of such Option or
Stock Appreciation Right which is not then exercisable, (ii) all
restrictions with respect to one hundred percent (100%) of the shares of
Common Stock then subject to the restrictions of Restricted Stock awards
shall lapse, (iii) one hundred percent (100%) of all payments or other
benefits under each outstanding Deferred Stock Award, Performance Award
and Supplemental Grant which have not then been paid or provided shall be
paid or provided, and (iv) one hundred percent (100%) of the unpaid
principal balance and accrued interest on each outstanding Loan shall be
forgiven.
Provisions (i) through (iv) above shall not apply to the extent an
outstanding Award held by a participant who, following the covered
transaction, will be employed by or otherwise providing services to a
corporation which is a surviving or acquiring corporation in such
transaction or an affiliate of such a corporation, is replaced by such
surviving or acquiring corporation or affiliate with a replacement award
which, in the judgment of the Board, is substantially equivalent to the
Award and which replacement award provides that if the recipient of such
replacement award suffers an Involuntary Termination (as defined below)
within twenty-four (24) months after the effective date of the Corporate
Transaction in which such replacement award was granted then (i) each
replacement option and stock appreciation right will automatically become
exercisable with respect to one hundred percent (100%) of any portion of
such replacement option or stock appreciation right which is
unexercisable at the time of the Involuntary Termination, (ii) all
8
restrictions with respect to one hundred percent (100%) of the shares of
stock subject to replacement restricted stock awards at the time of the
Involuntary Termination shall lapse, (iii) one hundred percent (100%) of
all payments or other benefits under each outstanding replacement
deferred stock award, performance award and supplemental grant which have
not been paid or provided as of the time of the Involuntary Termination
shall be paid or provided, and (iv) one hundred percent (100%) of the
unpaid principal balance and accrued interest at the time of the
Involuntary Termination on each outstanding replacement loan shall be
forgiven.
The term "Corporate Transaction" shall mean the occurrence of any of the
following: (i) a merger or consolidation involving the Company which
results in less than 50% of the combined voting power of the surviving or
resulting entity's outstanding securities being held by the stockholders
of the Company who were stockholders immediately prior to such
transaction, or (ii) the sale, transfer or other disposition of more than
51% of the Company's assets in a single or related series of transactions
or (iii) within any twenty-four (24) consecutive month period, persons
who were members of the Board immediately prior to such twenty-four
(24) month period, together with any persons who were first elected as
directors (other than as a result of any settlement of a proxy or consent
solicitation contest or any action taken to avoid such a contest) during
such twenty-four (24) month period by or upon the recommendation of
persons who were members of the Board immediately prior to such
twenty-four (24) month period and who constituted a majority of the Board
at the time of such election, cease to constitute a majority of the
Board.
The term "Involuntary Termination" shall mean (i) the termination of the
services of any Participant which occurs by reason of such individual's
involuntary dismissal or discharge for reasons other than as a result of
(a) the commission of any act or fraud, embezzlement or dishonesty by the
Participant, (b) material unauthorized use or disclosure by such
individual of confidential information or trade secrets of the Company or
its successor, or (c) any other intentional misconduct by such individual
adversely affecting the business or affairs of the Company or its
successor in a material manner, or (ii) (d) a material diminution of the
responsibilities of a Participant, (e) a reduction of more than 10% in a
Participant's level of compensation (including base salary, benefits or
any non-discretionary and objective-standard incentive payment or bonus
award) or (c) a relocation of a Participant's principal place of
employment by more than 50 miles, only if such change, reduction or
relocation is effected by the Company or the successor thereto without
the Participant's consent.
8. GENERAL PROVISIONS
8.1. Documentation of Awards
Awards will be evidenced by such written instruments, if any, as may be
prescribed by the Board from time to time. Such instruments may be in the
form of agreements to be executed by both the Participant and the
Company, or certificates, letters or similar instruments, which need not
be executed by the Participant but acceptance of which will evidence
agreement to the terms thereof.
8.2. Rights as a Stockholder, Dividend Equivalents
Except as specifically provided by the Plan, the receipt of an Award
will not give a Participant rights as a stockholder; the participant will
obtain such rights, subject to any limitations imposed by the Plan or the
instrument evidencing the Award, upon actual receipt of Stock. However,
the Board may, on such conditions as it deems appropriate, provide that a
Participant will receive a
9
benefit in lieu of cash dividends that would have been payable on any or
all Stock subject to the Participant's Award had such Stock been
outstanding. Without limitation, the Board may provide for payment to the
Participant of amounts representing such dividends, either currently or
in the future, or for the investment of such amounts on behalf of the
Participant.
8.3. Conditions on Delivery of Stock
The Company will not be obligated to deliver any shares of Stock
pursuant to the Plan or to remove restriction from shares previously
delivered under the Plan (a) until all conditions of the Award have been
satisfied or removed, (b) until, in the opinion of the Company's counsel,
all applicable federal and state laws and regulation have been complied
with, (c) if the outstanding Stock is at the time listed on any stock
exchange, until the shares to be delivered have been listed or authorized
to be listed on such exchange upon official notice of notice of issuance,
and (d) until all other legal matters in connection with the issuance and
delivery of such shares have been approved by the Company's counsel. If
the sale of Stock has not been registered under the Securities Act of
1933, as amended, the Company may require, as a condition to exercise of
the Award, such representations or agreements as counsel for the Company
may consider appropriate to avoid violation of such Act and may require
that the certificates evidencing such Stock bear an appropriate legend
restricting transfer.
If an Award is exercised by the Participant's legal representative, the
Company will be under no obligation to deliver Stock pursuant to such
exercise until the Company is satisfied as to the authority of such
representative.
8.4. Tax Withholding
The Company will withhold from any cash payment made pursuant to an
Award an amount sufficient to satisfy all federal, state and local
withholding tax requirements (the "withholding requirements").
In the case of an Award pursuant to which Stock may be delivered, the
Board will have the right to require that the Participant or other
appropriate person remit to the Company an amount sufficient to satisfy
the withholding requirements, or make other arrangements satisfactory to
the Board with regard to such requirements, prior to the delivery of any
Stock. If and to the extent that such withholding is required, the Board
may permit the Participant or such other person to elect at such time and
in such manner as the Board provides to have the Company hold back from
the shares to be delivered, or to deliver to the Company, Stock having a
value calculated to satisfy the withholding requirement.
If at the time an ISO is exercised the Board determines that the Company
could be liable for withholding requirements with respect to a
disposition of the Stock received upon exercise, the Board may require as
a condition of exercise that the person exercising the ISO agree (a) to
inform the Company promptly of any disposition (within the meaning of
section 424(c) of the Code) of Stock received upon exercise, and (b) to
give such security as the Board deems adequate to meet the potential
liability of the Company for the withholding requirements and to augment
such security from time to time in any amount reasonably deemed necessary
by the Board to preserve the adequacy of such security.
10
8.5. Transferability of Awards
Except as the Board may otherwise determine in connection with gifts and
except as provided below, no Award (other than an Award in the form of an
outright transfer of cash or Unrestricted Stock) may be transferred other
than by will or by the laws of descent and distribution, and during an
employee's lifetime an Award requiring exercise may be exercised only by
the Participant (or in the event of the Participant's incapacity, the
person or persons legally appointed to act on the Participant's behalf).
The Board may grant Options that are transferable, (i) without payment of
consideration, to immediate family members of the optionee or to trusts
or partnerships for such family members; the Committee may also amend
outstanding Options to provide for such transferability or (ii) as is
otherwise hereafter permitted in accordance with Rule 16b-3 of the 1934
Act (or any rule promulgated in replacement thereof or in substitution
therefor).
8.6. Adjustments in the Event of Certain Transactions
(a) In the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's
capitalization, or other distribution to common stockholders other
than normal cash dividends, after the effective date of the Plan, the
Board will make any appropriate adjustments to the maximum number of
shares that may be delivered under the Plan under Section 4 above.
(b) In any event referred to in paragraph (a), the Board will also make
any appropriate adjustments to the number and kind of shares of stock
or securities subject to Awards then outstanding or subsequently
granted, any exercise prices relating to Awards and any other
provision of Awards affected by such change. The Board may also make
such adjustments to take into account material changes in law or in
accounting practices or principles, mergers, consolidations,
acquisitions, dispositions or similar corporate transactions, or any
other event, if it is determined by the Board that adjustments are
appropriate to avoid distortion in the operation of the Plan.
8.7. Employment Rights, Etc.
Neither the adoption of the Plan nor the grant of Awards will confer
upon any person any right to continue retention by the Company or any
subsidiary as an Employee or otherwise, or affect in any way the right of
the Company or subsidiary to terminate an employment, service or similar
relationship at any time. Except as specifically provided by the Board in
any particular case, the loss of existing or potential profit in Awards
granted under the Plan will not constitute an element of damages in the
event of termination of an employment, service or similar relationship
even if the termination is in violation of an obligation of the Company
to the Participant.
8.8. Deferral of Payments
The Board may agree at any time, upon request of the Participant, to
defer the date on which any payment under an Award will be made.
8.9. Past Services as Consideration
Where a Participant purchases Stock under an Award for a price equal to
the par value of the Stock the Board may determine that such price has
been satisfied by past services rendered by the Participant.
11
9. EFFECT, DISCONTINUANCE, CANCELLATION, AMENDMENT AND TERMINATION
Neither adoption of the Plan nor the grant of Awards to a Participant will
affect the Company's right to grant to such Participant awards that are not
subject to the Plan, to issue to such Participant Stock as a bonus or otherwise,
or to adopt other plans or arrangements under which Stock will be issued to
Employees.
The Board may at any time or times amend the Plan or any outstanding Award
for any purpose which may at the time be permitted by law, or may at any time
terminate the Plan as to any further grants of Awards, provided that (except to
the extent expressly required or permitted by the Plan) no such amendment will,
without the approval of the stockholders of the Company, effectuate a change for
which stockholder approval is required in order for the Plan to continue to
qualify for the award of ISOs under section 422 of the Code, or for the award of
performance-based compensation under section 162(m) of the Code, or to continue
to qualify under Rule 16b-3 promulgated under Section 16 of the 1934 Act.
12
ANNEX B
CHARTER OF THE AUDIT COMMITTEE
OF THE
BOARD OF DIRECTORS OF STEMCELLS, INC.
This Charter governs the operations of the Audit Committee.
1. STATEMENT OF POLICY
The Audit Committee shall provide assistance to the Board of Directors in
fulfilling its oversight responsibilities concerning:
- the Company's financial reporting process;
- the Company's financial statements and information that will be provided
to the shareholders and others;
- the systems of internal accounting and financial controls;
- the internal audit function, when and if the Company develops one;
- the annual independent audit of the Company's financial statements; and
- the legal compliance and ethics programs as established by Management and
the Board.
In so doing, it is the responsibility of the Committee to maintain free and
open communication between itself, the independent auditors and Management of
the Company. In discharging its oversight role, the Committee is empowered to
investigate any matter brought to its attention with full access to all books,
records, facilities, and personnel of the Company and the power to retain
outside counsel or other experts for this purpose.
2. ORGANIZATION AND MEMBERSHIP
The Committee shall be appointed by the Board of Directors. Beginning no
later than June 14, 2001, the Committee shall consist of at least three
Directors each of whom is an "Independent Director" in the sense that he or she
is not an officer or an employee of the Company or its subsidiary, and does not
have a relationship which, in the opinion of the Board, would interfere with the
exercise of independent judgment in carrying out the responsibilities of a
Director. Individuals who are considered not to be independent under NASDAQ
Rule 4200 shall not be members of the Committee. All Committee members shall be
financially literate, or shall become financially literate within a reasonable
period after appointment to the Committee. At least one member of the Committee
shall be financially sophisticated within the meaning of NASDAQ Rule 4460
(d)(2)(A).
3. SCOPE OF THE RESPONSIBILITIES OF THE AUDIT COMMITTEE
The primary responsibility of the Audit Committee is to oversee the
Company's financial reporting process on behalf of the Board and to report the
results of its activities to the Board.
The Committee shall have a clear understanding with management and the
independent auditors that the Board and the Audit Committee are representatives
of the Company's shareholders, and the independent auditors are ultimately
accountable to them as such. The Committee shall discuss with the auditors their
independence from management and the Company and the matters included in the
written disclosures required by the Independence Standards Board. Annually, the
Committee shall review and
1
recommend to the board the selection of the Company's independent auditors,
subject to shareholders' approval.
The Committee shall take the appropriate actions to assure that the
Company's financial reporting is of high quality, that its decision-making
process for taking business risks is sound, and that its behavior is ethical.
The Committee shall review and reassess the adequacy of this Charter at
least annually and report to the Board of Directors any changes it considers
necessary.
4. ALLOCATION OF RESPONSIBILITIES
MANAGEMENT is responsible for preparing the Company's financial statements.
THE INDEPENDENT AUDITORS are responsible for auditing those financial
statements.
The Board of Directors and the Audit Committee are representatives of
shareholders. As shareholder representatives, they have ultimate authority and
responsibility to select, evaluate, and, where appropriate, replace the outside
auditor; they also have the authority and responsibility to nominate the outside
auditor to be proposed for shareholder approval in any proxy statement. The
independent auditors are ultimately accountable to them.
5. PROCESSES OF THE COMMITTEE
The Committee's procedures in carrying out its responsibilities should
remain flexible, in order to respond to changing conditions and circumstances.
The following shall be the principal recurring processes of the Committee, but
are established as a guide with the understanding that the Committee may
supplement them as appropriate.
- The Committee shall have a clear understanding with Management and the
independent auditors of the responsibilities of each as set forth above.
- The Committee shall take, or recommend that the full Board take,
appropriate action to oversee the independence of the Company's outside
auditor. It shall require a formal written statement from the auditor
delineating all relationships between the auditor and the Company, and
shall engage actively in a dialogue with the auditor with respect to any
disclosed relationships or services that may impact the auditor's
objectivity and independence.
- The Committee shall discuss with the independent auditors the overall
scope and plans for their audit. Also, the Committee shall discuss with
Management and the independent auditors the adequacy and effectiveness of
the accounting and financial controls, including the Company's system to
monitor and manage business risk, and legal and ethical compliance
programs. Further, the Committee shall meet with the independent auditors,
with and without Management present, to discuss the results of their
examinations.
- The Committee shall review the interim financial statements with
Management and the independent auditors prior to the filing of the
Company's Quarterly Report on Form 10-Q. Also, the Committee shall discuss
the results of the quarterly review and any other matters required to be
communicated to the Committee by the independent auditors under generally
accepted auditing standards. The Chair of the Committee may represent the
entire Committee for the purposes of this review.
2
- The Committee shall review with Management and the independent auditors
the financial statements to be included in the Company's Annual Report on
Form 10-K (or the annual report to shareholders if distributed prior to
the filing of Form 10-K), including their judgment about the quality, and
not just the acceptability, of the accounting principles used, the
reasonableness of significant judgments, and the clarity of the
disclosures in the financial statements. Also, the Committee shall discuss
the results of the annual audit and any other matters required to be
communicated to the Committee by the independent auditors under generally
accepted auditing standards.
All references in this Charter to NASDAQ Rules shall be understood to mean
the Rule or its successor as amended from time to time.
3
DETACH HERE
PROXY
STEMCELLS, INC.
ANNUAL MEETING OF STOCKHOLDERS, MAY 31, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder, by completing this card, hereby appoints
Martin McGlynn and Iris Brest, or either of them with power of substitution to
each, proxies of the undersigned to vote at the Annual Meeting of
Stockholders of StemCells, Inc. to be held on May 31, 2001 at 3155 Porter
Drive, Palo Alto, California at 2:00 p.m., local time, or at any
adjournments thereof, all of the shares of Common Stock, par value $.01 per
share, of StemCells, Inc. that the undersigned would be entitled to vote if
personally present. The undersigned instructs such proxies or their
substitutes to act on the following matter as specified by the undersigned,
and to vote in such manner as they may determine on any other matter that may
properly come before the meeting.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
VOTE BY TELEPHONE VOTE BY INTERNET
It's fast, convenient, and immediate! It's fast, convenient, and your vote is
Call toll-free on a touch-tone phone immediately confirmed and posted.
1-877-PRX-VOTE (1-877-779-8683).
Follow these four easy steps: Follow these four easy steps:
1. Read the accompanying Proxy 1. Read the accompanying Proxy
Statement and Proxy Card. Statement and Proxy Card.
2. Call the toll-free number 2. Go to the Website
1-877-PRX-VOTE (1-877-779-8683). http://www.eproxyvote.com/stem.
3. Enter your 14-digit Voter Control 3. Enter your 14-digit Voter Control
Number located on your Proxy Card Number located on your Proxy Card
above your name. above your name.
4. Follow the recorded instructions. 4. Follow the instructions provided.
YOUR VOTE IS IMPORTANT! YOUR VOTE IS IMPORTANT!
Call 1-877-PRX-VOTE anytime! Go to http://www.eproxyvote.com/stem
anytime!
DO NOT RETURN YOU PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET.
DETACH HERE
/X/ Please mark
votes as in
this example.
This proxy when properly executed will be voted in the manner specified by
the undersigned stockholder(s), if no contrary direction is made, this proxy
will be voted FOR The election of the nominee for director named below, FOR
the amendment of the Company's Restated Certificate of Incorporation to
change its corporate name, FOR the ratification of the selection of public
accountants, and in the discretion of the named proxies as to any other
matter that may come before the meeting.
FOR AGAINST ABSTAIN
1. To elect the following nominees as Class 1 directors: 2. To adopt the 2001 Equity Incentive Plan / / / / / /
Nominees: (01) Mark J. Levin, as proposed.
(02) John J. Schwartz, Ph.D.
WITHHELD 3. To ratify the selection of Ernst & Young
FOR FROM LLP as independent public accountants of / / / / / /
BOTH / / / / BOTH the Company for the fiscal year ending
NOMINEES NOMINEES December 31, 2001.
/ / 4. By my signature below, I confer to the named proxies
--------------------------------------- discretionary authority to vote upon such other business as may
(INSTRUCTION, To withhold authority to vote for any properly come before the meeting of any continuations and
individual nominee, write that nominee's name in the adjournments thereof.
space provided above.)
THE BOARD OF DIRECTORS OF STEMCELLS, INC. RECOMMENDS A VOTE FOR THE
NOMINEES FOR DIRECTOR LISTED TO THE LEFT, A VOTE TO ADOPT THE 2001
EQUITY INCENTIVE PLAN, AND A VOTE FOR RATIFICATION OF THE SELECTION
OF INDEPENDENT PUBLIC ACCOUNTANTS.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT / /
Note: Please sign exactly as name appears on this card. All joint
owners should sign. When signing as an executor, administrator,
attorney, or guardian or as a custodian for a minor, please give
full title as such. If a corporation, please sign in full corporate
name and indicate the signer's title. If a partner, sign in
partnership name.
Signature:___________________________ Date:______________ Signature:___________________________ Date:______________