This excerpt taken from the VRUS DEF 14A filed Aug 25, 2009.
At our 2009 Annual Meeting of Stockholders (the 2009 Annual Meeting), our proposal to approve an amendment to our 2007 Equity Incentive Plan (the 2007 Plan) to increase by 500,000 shares the number of shares of our Common Stock authorized under the 2007 Plan was defeated. After the 2009 Annual Meeting, we were informed that many stockholders voted against the proposal because the 2007 Plan allowed stock options to be re-priced, replaced, or re-granted through cancellation or modification without stockholder approval. Before we mailed the Proxy Statement for the 2009 Annual Meeting, no stockholder or other advisory service had communicated concern about this provision. In addition, we had never re-priced, replaced, or re-granted stock options. Indeed, as a matter of corporate governance and policy, our board of directors agrees that stock options granted under the 2007 Plan should not be re-priced, replaced, or re-granted through cancellation or modification without stockholder approval. Consistent with these facts, our board of directors revised the 2007 Plan on July 15, 2009 expressly to so provide.
After the defeat of our proposal at the 2009 Annual Meeting, we communicated with several of our largest stockholders to learn whether, in addition to the option re-pricing provision, any of these investors had other concerns about the 2007 Plan. The only additional concerns communicated to us were from one substantial institutional holder. That holder stated that it does not, in general, support incentive plans that allow performance-based grants of options, stock, or other awards that fully vest in under one year from the date of grant or nonperformance-based grants that fully vest in under three years from the date of grant. In addition, this holder disfavors plan provisions that allow (a) grants of nonqualified stock options at an exercise price less than the fair market value on the date of grant or (b) a plan administrator to have discretion to issue stock, options, or cash awards to non-executive directors without approval of our board of directors or Compensation Committee. In addition, we also noted independently that certain investors disfavor equity incentive plans that contain liberal share recycling policies, such as the recycling of shares withheld in satisfaction of the exercise price of a stock option or in satisfaction of tax withholding obligations arising upon the delivery of shares. Recently, our board of directors approved a revised 2007 Plan to address these items. None of the changes to the 2007 Plan result in any change to our compensation practices and policies. In summary, we actively gained an understanding of our institutional investors corporate governance policies and concerns about our incentive plans and, based on those efforts, revised the 2007 Plan to meet every identified concern. We will refer to the 2007 Plan, revised as described in this Proxy Statement and as detailed in the Appendix, as our Revised 2007 Plan.
As of August 7, 2009, 221,231 shares of our Common Stock remain available for issuance under the Revised 2007 Plan. After providing for the issuance of our regular stock option and restricted stock grants to non-employee directors during the next fiscal year, 67,231 shares will remain available for issuance to
employees, officers, and new hires. As of August 7, 2009, options to purchase 2,649,187 shares of Common Stock were issued and outstanding, which, together with the 221,231 shares available for issuance under the Plan, equals 10.2% of our fully-diluted Common Stock as of the record date (or 28,170,736 shares). The proposed 1,000,000 share increase will cause the number of shares of Common Stock issuable and available for issuance under the Revised 2007 Plan to represent approximately 13.7% of our fully-diluted Common Stock as of the record date.
Incentive-based compensation is a key component of our ability to attract, retain, and motivate officers, directors, and employees. We believe that our ability to grant equity incentives under the Revised 2007 Plan is a valuable and necessary compensation tool that aligns the long-term financial interests of our employees, non-employee directors, and consultants with the financial interests of our stockholders. An increase in the number of shares available for issuance under the Revised 2007 Plan is necessary to meet these objectives. Our board of directors believes that approval of the proposed increase in shares available for issuance under the Revised 2007 Plan is in the best interests of Pharmasset and its stockholders. Accordingly, our board of directors recommends that stockholders vote FOR the proposed 1,000,000 share increase in the number of shares authorized under the Revised 2007 Plan.
The material features of the Revised 2007 Plan are described below and the attached copy of the Revised 2007 Plan is incorporated into such discussion by reference. Approval of the increase in shares authorized under the Revised 2007 Plan requires the affirmative vote of the holders of a majority of the shares of our Common Stock represented in person or represented by proxy and entitled to vote on this proposal at the Special Meeting. If the increase in shares authorized under the Revised 2007 Plan is not approved by stockholders, the Revised 2007 Plan will remain in effect and will remain available for the issuance of new awards with respect to shares still available thereunder (and any additional shares that again become available under the plans share recycling provisions).