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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.           )

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Preliminary Proxy Statement

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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

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Definitive Proxy Statement

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Soliciting Material Pursuant to §240.14a-12

SANGAMO BIOSCIENCES, INC.
(Name of Registrant as Specified In Its Charter)

 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
         
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SANGAMO BIOSCIENCES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 2004

TO THE STOCKHOLDERS OF SANGAMO BIOSCIENCES, INC.:

        NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Sangamo BioSciences, Inc., a Delaware corporation (the "Company" or "Sangamo"), will be held on Thursday, June 10, 2004, at 10:30 a.m. Pacific time at 501 Canal Blvd, Suite A100, Richmond, California 94804, for the following purposes, as more fully described in the Proxy Statement accompanying this Notice:

        Only stockholders of record at the close of business on April 26, 2004 are entitled to notice of and to vote at the Annual Meeting. The stock transfer books of Sangamo will remain open between the record date and the date of the meeting. A list of stockholders entitled to vote at the Annual Meeting will be available for inspection at the executive offices of Sangamo.

All stockholders are cordially invited to attend the meeting in person. Whether or not you plan to attend, please vote as soon as possible. You may vote by mailing a completed proxy card, by telephone, or over the Internet. Should you receive more than one Proxy because your shares are registered in different names and addresses, each Proxy should be signed and returned or the shares represented thereby should be voted by telephone or over the Internet to assure that all your shares will be voted. You may revoke your Proxy at any time prior to the Annual Meeting. If you attend the Annual Meeting and vote by ballot, your Proxy will be revoked automatically and only your vote at the Annual Meeting will be counted.

    Sincerely,

 
 
GRAPHIC

Edward O. Lanphier II
 President and Chief Executive Officer

Richmond, California
April 29, 2004

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED ENVELOPE. PLEASE REFERENCE THE "VOTING BY MAIL, VIA THE INTERNET OR BY TELEPHONE" SECTION ON PAGE 3 OF THE PROXY STATEMENT FOR ALTERNATE VOTING METHODS.

SANGAMO BIOSCIENCES, INC.
501 Canal Blvd, Suite A100
Richmond, California 94804

PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 10, 2004

General

        The enclosed Proxy ("Proxy") is solicited on behalf of the Board of Directors of Sangamo BioSciences, Inc., a Delaware corporation (the "Company" or "Sangamo"), for use at the Annual Meeting of Stockholders to be held on June 10, 2004 (the "Annual Meeting"). The Annual Meeting will be held at 10:30 a.m. at 501 Canal Blvd, Suite A100 Richmond, California 94804. These Proxy solicitation materials were mailed on or about May 10, 2004, to all stockholders entitled to vote at the Annual Meeting.

Voting

        The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice and are described in more detail in this Proxy Statement. On April 26, 2004, the record date for determination of stockholders entitled to notice of and to vote at the Annual Meeting, 25,087,350 shares of Sangamo's Common Stock, par value $0.01 ("Common Stock"), were issued and outstanding. No shares of Sangamo's preferred stock, par value $0.01, were outstanding. Each stockholder is entitled to one vote for each share of Common Stock held by such stockholder on April 26, 2004. Stockholders may not cumulate votes in the election of directors.

        Holders of a majority of the outstanding shares of Common Stock must be present or represented at the Annual Meeting in order to have a quorum. Abstentions and broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Annual Meeting. Broker non-votes are shares held of record by stock brokerage firms which are not voted due to the failure of the beneficial owners of those shares to provide voting instructions as to those matters as to which the brokerage firms may not vote on a discretionary basis. In the election of directors (Proposal No. 1), the six nominees receiving the highest number of affirmative votes will be elected. Proposal No. 2 and Proposal No. 3 each require the approval of the affirmative vote of a majority of the shares of Common Stock present or represented and entitled to vote. Abstentions will be counted in the tabulation of the votes cast on proposals presented to the stockholders and will have the same effect as negative votes. Broker non-votes are not entitled to vote at the Annual Meeting and will not be counted for purposes of determining whether a proposal has been approved. If the persons present or represented by proxy at the Annual Meeting constitute the holders of less than a majority of the outstanding shares of Common Stock as of the record date, the Annual Meeting may be adjourned to a subsequent date for the purpose of obtaining a quorum. All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes.

Recommendations of the Board of Directors

        The Company's Board of Directors (the "Board of Directors" or the "Board") recommends that you vote FOR each of the nominees of the Board of Directors (Proposal No. 1), FOR the approval of the 2004 Stock Incentive Plan (Proposal No. 2) and FOR ratification of the appointment of Ernst & Young LLP as the Company's independent accountants for the Company's fiscal year ending December 31, 2004 (Proposal No. 3).

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Voting by Mail, via the Internet or by Telephone

        Stockholders whose shares are registered in their own names may vote by mailing a completed proxy card, via the Internet or by telephone. Instructions for voting via the Internet or by telephone are set forth on the enclosed proxy card. To vote by mailing a proxy card, sign and return the enclosed proxy card in the enclosed prepaid and addressed envelope and your shares will be voted at the Annual Meeting in the manner you direct. In the event no directions are specified, such proxies will be voted FOR each of the nominees of the Board of Directors (Proposal No. 1), FOR the approval of the 2004 Stock Incentive Plan (Proposal No. 2) and FOR the ratification of the appointment of Ernst & Young LLP as the Company's independent auditors for the Company's fiscal year ended December 31, 2004 (Proposal No. 3) and in the discretion of the proxy holders as to any other matters that may properly come before the Annual Meeting. You may revoke or change your proxy vote at any time before the Annual Meeting by sending a written notice of revocation or submitting another proxy with a later date to the Inspector of Elections of the Company at the Company's principal executive offices before the beginning of the Annual Meeting. You may also revoke your proxy vote by attending the Annual Meeting and voting in person.

        If your shares are registered in the name of a bank or brokerage firm, you may be eligible to vote your shares over the Internet or by telephone rather than by mailing a completed voting instruction card provided by the bank or brokerage firm. Please check the voting instructions card provided by your bank or brokerage house for available and instructions. If Internet or telephone voting is unavailable from your bank or brokerage house, please complete and return the enclosed voting instruction card in the self-addressed postage paid envelope provided.

Solicitation

        Sangamo will bear the entire cost of solicitation, including the preparation, assembly, printing and mailing of this Proxy Statement and any additional solicitation materials furnished to the stockholders. Copies of solicitation materials will be furnished to brokerage houses, fiduciaries and custodians holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, Sangamo may reimburse such persons for their costs in forwarding the solicitation materials to such beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by telephone, facsimile or other means by directors, officers or employees of the Sangamo. No additional compensation will be paid to these individuals for any such services.

Deadline for Receipt of Stockholder Proposals

        Proposals of stockholders of Sangamo that are intended to be presented by such stockholders at Sangamo's Annual Meeting in 2005 must be received no later than January 12, 2005, in order that they may be included in the Proxy statement and form of Proxy relating to that meeting. In addition, the Proxy solicited by the Board of Directors for the Annual Meeting in 2005 will confer discretionary authority to vote on any stockholder proposal presented at that meeting, unless Sangamo receives notice of such proposal not later than February 10, 2005.


MATTERS TO BE CONSIDERED AT ANNUAL MEETING

PROPOSAL ONE: ELECTION OF DIRECTORS

General

        At the Annual Meeting, six directors constituting the entire board are to be elected to serve until the next Annual Meeting of Stockholders and until a successor for such director is elected and qualified, or until the death, resignation or removal of such director. The six director nominees

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receiving the highest number of affirmative votes will be elected. The nominees for election have agreed to serve if elected, and management has no reason to believe that such nominees will be unavailable to serve. In the event the nominees are unable or decline to serve as directors at the time of the Annual Meeting, the proxies will be voted for any nominee who may be designated by the present Board of Directors to fill the vacancy. Unless otherwise instructed, the Proxy holders will vote the proxies received by them FOR the nominee named below.

Nominees for Term Ending Upon the Annual Meeting of Stockholders in 2005

        Edward O. Lanphier II, the founder of Sangamo BioSciences, Inc., has served as President, Chief Executive Officer and as a member of the Board of Directors since Sangamo's inception. Mr. Lanphier has approximately twenty years of experience in the pharmaceutical and biotechnology industry. From June 1992 to May 1997, he held various positions at Somatix Therapy Corporation, a gene therapy company, including Executive Vice President, Commercial Development and Chief Financial Officer. Prior to Somatix, Mr. Lanphier was President and Chief Executive Officer of BioGrowth, Inc., a biotechnology company that merged with Celtrix Laboratories to form Celtrix Pharmaceuticals, Inc. in 1991. From 1986 to 1987, Mr. Lanphier served as Vice President of Corporate Development at Biotherapeutics, Inc. From 1984 to 1986 he served as Vice President of Corporate Development at Synergen Inc. Prior to Synergen, he was employed by Eli Lilly and Company, a pharmaceutical company, in the strategic business planning-biotechnology group. Mr. Lanphier is a member of the Biotechnology Industry Organization (BIO) Emerging Companies Section and the BIO board of directors. He is also a director of Cengent Pharmaceuticals, Inc. and Cell ExSys, Inc. Mr. Lanphier holds a B.A. in biochemistry from Knox College.

        William G. Gerber, M.D. has served as a member of our Board of Directors since June 1997. Dr. Gerber is currently President, Chief Executive Officer and a Director of Epoch Biosciences, Inc., a biomedical company, where he has been since September 1999. From April 1998 to July 1999, he was President of diaDexus LLC, a pharmacogenomics company. Previous to his appointment at diaDexus, he was Chief Operating Officer of Onyx Pharmaceuticals. Before joining Onyx in 1995, Dr. Gerber was with Chiron Corporation, a biopharmaceutical, vaccine and blood testing company, where he was President of the Chiron Diagnostics business unit after Chiron's merger with Cetus Corporation in December 1991. He joined Cetus in 1987 as Senior Director of Corporate Ventures and was named Vice President and General Manager of the PCR (Polymerase Chain Reaction) Division in November 1988. Dr. Gerber has been Chairman of the Board of Directors of Pathway Diagnostics Corporation, a privately held company, since 2003. Dr. Gerber earned his B.S. and M.D. degrees from the University of California, San Francisco School of Medicine.

        Jon E. M. Jacoby has served as a member of our board of directors since April 2000. Until his retirement on October 1, 2003, Mr. Jacoby had been employed by Stephens Inc. and Stephens Group, Inc., collectively engaged in investment banking and other business activities, since 1963 and remains a director of Stephens Group, Inc. He is also a director of Delta and Pine Land Company, Power-One, Inc. and Conn's Inc., and serves on the boards of several privately held companies. He received his B.S. degree in geology from the University of Notre Dame and his M.B.A. from Harvard Business School.

        John W. Larson has served as a member of our Board of Directors since January 1996. Mr. Larson is currently a partner at the law firm of Morgan, Lewis & Bockius LLP. Mr. Larson served as partner at the law firm of Brobeck, Phleger & Harrison LLP (Brobeck) from 1969 until retiring in January 2003, except for the period from July 1971 to September 1973 when he was in government service as Assistant Secretary of the United States Department of the Interior and Counselor to George P. Shultz, Chairman of the Cost of Living Council. From 1988 until March 1996, Mr. Larson was Chief Executive Officer of Brobeck. Mr. Larson serves on the boards of several privately held

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companies. Mr. Larson holds an L.L.B. and a B.A., with distinction, in economics, from Stanford University.

        William J. Rutter, Ph.D. has served as a member of our Board of Directors since January 2000. He is the co-founder of Chiron Corporation, a biopharmaceutical, vaccine and blood testing company, and served as Chairman of the Board of Directors from Chiron's inception in 1981 until May 1999. From August 1983 through April 1989, in addition to his responsibilities at Chiron, Dr. Rutter was the Director of the Hormone Research Institute at the University of California, San Francisco, and he became a Professor Emeritus in 1991. In 1969, Dr. Rutter joined the faculty of UCSF as a Herzstein Professor, and served as the chairman of the Department of Biochemistry and Biophysics from 1969 to 1982. Dr. Rutter has also served on the Board of Overseers at Harvard University from 1992 to 2000, on the Board of Trustees at the Carnegie Institution of Washington since 1995 and several private company boards. Dr. Rutter is a member of the National Academy of Sciences and the American Academy of Arts and Sciences. He received his Ph.D. in biochemistry from the University of Illinois, an M.S. in biochemistry from the University of Utah and a B.A. in biochemistry from Harvard University.

        Michael C. Wood has served as a member of our Board of Directors since our inception. Mr. Wood is currently Chief Vision and Creative Officer of LeapFrog Enterprises, Inc., an educational company which he founded in January 1995. Mr. Wood has 15 years of experience in the corporate legal representation of high technology firms and venture capital partnerships. From 1991 through 1994, he was a partner in the emerging technology companies group at Cooley Godward LLP. From 1979 to 1991, Mr. Wood practiced corporate law in the high technology practice of Crosby Heafy Roach & May. Mr. Wood received a J.D. from the Hastings College of Law, an M.B.A. from the University of California, Berkeley and his B.A. in political science from Stanford University.

Board Independence

        The Board of Directors has determined that each of its current directors, including all directors standing for re-election, except the Chief Executive Officer, is independent within the meaning of the NASDAQ Stock Market, Inc. director independence standards.

Board Committees and Meetings

        The Board of Directors held four meetings during the fiscal year ended December 31, 2003 (the "2003 Fiscal Year"). The Board of Directors has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee and has adopted a written charter for each of these committees. Each director attended or participated in 75% or more of the aggregate of (i) the total number of meetings of the Board of Directors and (ii) the total number of meetings held by all committees of the Board on which such director served during the 2003 Fiscal Year.

Audit Committee

        The Audit Committee currently consists of three directors: Mr. Jacoby, Dr. Rutter and Mr. Wood, each of whom is independent within the meaning of the NASDAQ Stock Market, Inc. director independence standards and SEC rules. The Board of Directors has determined that Mr. Jacoby is an "audit committee financial expert" as defined in SEC rules. The Audit Committee held four meetings during the 2003 Fiscal Year.

        The Audit Committee assists the Board of Directors in its oversight of the integrity of the Company's financial statements, the risk management and internal controls of the Company and the Company's compliance with legal and regulatory requirements. The Audit Committee interacts directly with and evaluates the performance of the independent auditors, including to determine whether to engage or dismiss the independent auditors and to monitor the independent auditors' qualifications and independence. The Audit Committee also pre-approves all audit services and permissible non-audit services provided by the independent auditors.

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        The Audit Committee Report is included herein on page 37 and the Amended and Restated Audit Committee Charter is attached hereto as Annex A.

Compensation Committee

        The Compensation Committee currently consists of three directors: Dr. Gerber and Messrs. Jacoby and Larson, each of whom is independent within the meaning of the NASDAQ Stock Market Inc. director independence standards. The Compensation Committee reviews and approves the compensation and benefits for our executive officers, makes recommendations to the Board of Directors regarding such matters and performs other duties as may from time to time be determined by the Board. A subcommittee of the Compensation Committee, consisting of Dr. Gerber and Mr. Jacoby, administers the Company's stock plans and makes all grants and awards thereunder. The Compensation Committee held two meetings during the 2003 Fiscal Year.

        The Compensation Committee Report is included herein on page 34.

Compensation Committee Interlocks and Insider Participation

        The members of the Compensation Committee of the Board of Directors are Dr. Gerber and Messrs. Larson and Jacoby. None of our Compensation Committee members has been an officer or employee of Sangamo at any time. Mr. Larson is a partner at Morgan, Lewis & Bockius LLP, our legal counsel. None of our executive officers serves on the Board of Directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board or our Compensation Committee.

Nominating and Corporate Governance Committee

        The Nominating and Corporate Governance Committee consists of Dr. Gerber and Messrs. Larson and Wood, each of whom is independent within the meaning of the NASDAQ Stock Market, Inc. director independence standards.

        The Nominating and Corporate Governance Committee considers and periodically reports on matters relating to the size, identification, selection and qualification of the Board of Directors and candidates nominated for the Board of Directors and its committees; and develops and recommends governance principles applicable to us. The Nominating and Corporate Governance Committee was established in March 2004. The Charter of the Nominating and Corporate Governance Committee is not available on our website, but is attached to this proxy statement as Annex B.

        The Nominating and Corporate Governance Committee considers properly submitted stockholder recommendations for candidates for membership on the Board of Directors as described below under "Identification and Evaluation of Nominees for Directors." In evaluating such recommendations, the Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board of Directors and to address the membership criteria set forth under "Director Qualifications." Stockholder nominees will receive the same consideration that nominees of the Board receive. Any stockholder recommendations proposed for consideration by the Nominating and Corporate Governance Committee should include the candidate's name and qualifications for membership on the Board of Directors and should be addressed to:

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Director Qualifications

        The Nominating and Corporate Governance Committee will use a variety of criteria to evaluate the qualifications and skills necessary for members of our Board of Directors. The Nominating and Corporate Governance Committeee may assess character, judgment, business acumen and scientific expertise, and familiarity with issues affecting the biotechnology and pharmaceutical industries. Other qualifications will be determined on a case-by-case basis, depending on whether the Nominating and Corporate Governance Committee desires to fill a vacant seat or increase the size of the Board to add new directors. In addition, the Nominating and Corporate Governance Committee may also evaluate whether a potential director nominee's skills are complementary to existing Board members' skills or meet the Board's need for operations, management, commercial, financial, or other expertise.

Identification and Evaluation of Nominees for Directors

        The Nominating and Corporate Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. The Nominating and Corporate Governance Committee assesses the appropriate size of the Board of Directors, and whether any vacancies on the Board of Directors are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Nominating and Corporate Governance Committee considers various potential candidates for director. Candidates may come to the attention of the Nominating and Corporate Governance Committee through current members of the Board of Directors, professional search firms, stockholders or other persons. These candidates are evaluated at regular or special meetings of the Nominating and Corporate Governance Committee, and may be considered at any point during the year. The Nominating and Corporate Governance Committee considers properly submitted stockholder recommendations for candidates for the Board of Directors. In evaluating such recommendations, the Nominating and Corporate Governance Committee uses the qualifications standards discussed above and seeks to achieve a balance of knowledge, experience and capability on the Board of Directors.

Annual Meeting Attendance

        Although we do not have a formal policy regarding attendance by members of the Board of Directors at our annual meetings of stockholders, directors are encouraged to attend annual meetings of our stockholders. Five directors attended the 2003 annual meeting of stockholders.

Communications with the Board of Directors

        Although we do not have a formal policy regarding communications with the Board of Directors, stockholders may communicate with the Board of Directors, including the non-management directors, by sending a letter to the Sangamo Board of Directors, c/o Investor Relations, 501 Canal Boulevard, Suite A100, Richmond, California 94804. Stockholders who would like their submission directed to a particular member of the Board of Directors may so specify.

Code of Ethics

        The Board of Directors has adopted a Code of Business Conduct and Ethics, which is applicable to all employees and directors of the Company. We will provide a copy of the Code of Ethics upon request made in writing to Sangamo BioSciences, Inc., Attention: Investor Relations, 501 Canal Boulevard, Suite A100, Richmond, California 94804. In the event that we make any amendments to or grant any waivers of, a provision of the Code of Ethics that applies to the principal executive officer, principal financial officer, or principal accounting officer that requires disclosure under applicable SEC rules, we intend to disclose such amendment or waiver and the reasons therefor, on our website at www.sangamo.com, on the Investor Relations page.

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Director Compensation

        We currently do not provide any cash meeting or retainer fees to any non-employee member of the Board, and directors who are also Sangamo employees do not receive additional compensation for serving as a member of the Board. However, we reimburse our Board members for expenses incurred in connection with their attendance at meetings and other customary expenses.

        Under the Automatic Option Grant Program in effect under the Sangamo 2000 Stock Incentive Plan (the "2000 Plan"), each new non-employee Board member will receive, at the time of his or her initial election or appointment to the Board, an option to purchase 50,000 shares of Common Stock, provided such person has not previously been in Sangamo's employ. In addition, on the date of each annual stockholders' meeting, each individual who has served as a director for the previous six months and who is to continue to serve as a non-employee Board member, whether or not such individual is standing for re-election at that particular Annual Meeting, will be granted an option to purchase 10,000 shares of Common Stock. Each option granted under the Automatic Option Grant Program will have an exercise price per share equal to the fair market value per share of the Common Stock on the grant date and will have a maximum term of 10 years, subject to earlier termination following the optionee's cessation of Board service. Each option is immediately exercisable for all the option shares, but any shares purchased under the option will be subject to repurchase by Sangamo, at the exercise price paid per share, upon the optionee's cessation of Board service prior to vesting in those shares. The shares subject to each automatic option grant vest in monthly installments upon completion of each month of Board service over a designated period. For the initial grant, the designated period is three years, and it is one year in the case of an annual grant. However, the shares subject to each automatic option grant will immediately vest upon (i) the optionee's death or permanent disability while a Board member, (ii) an acquisition of Sangamo by merger or asset sale, (iii) the successful completion of a tender offer for more than 50% of Sangamo's outstanding voting stock or (iv) a change in the majority of the Board effected through one or more proxy contests for Board membership.

        Pursuant to the Automatic Option Grant Program under the 2000 Plan, Dr. Gerber, Mr. Jacoby, Mr. Larson, Dr. Rutter and Mr. Wood each received an option to purchase 10,000 shares of Common Stock with an exercise price per share of $2.45 at the 2003 Annual Meeting.

        Our stockholders are being asked to vote on a proposal to approve the implementation of the 2004 Stock Incentive Plan (the "2004 Plan") as the successor to our 2000 Plan. The Automatic Option Grant Program under the 2004 Plan is identical to the Automatic Option Grant Program under the 2000 Plan in all material respects (See Proposal No. 2, Approval of 2004 Stock Incentive Plan, for a complete description of the Automatic Option Grant Program and the 2004 Plan). In the event stockholder approval of the 2004 Plan is obtained at the Annual Meeting, the following non-employee Board members will each receive an option grant for 10,000 shares of Common Stock under the Automatic Option Grant Program under the 2004 Plan: Dr. Gerber, Mr. Jacoby, Mr. Larson, Dr. Rutter and Mr. Wood. In the event stockholder approval of the 2004 Plan is not obtained, then such non-employee Board members will each receive an option grant for 10,000 shares under the Automatic Option Grant Program under the 2000 Plan. In either case, the grants will be made on the date of the Annual Meeting, and each option will have an exercise price per share equal to the closing selling price per share of Common Stock on such date.

Recommendation of the Board of Directors

        The Board of Directors recommends that the stockholders vote FOR the election of the nominees listed above.

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PROPOSAL NO. 2: APPROVAL OF 2004 STOCK INCENTIVE PLAN

        Introduction.    Our stockholders are being asked to vote on a proposal to approve the implementation of the 2004 Stock Incentive Plan (the "2004 Plan") as the successor to our 2000 Stock Incentive Plan (the "2000 Plan"). Our board of directors adopted the 2004 Plan on March 5, 2004, subject to stockholder approval at the Annual Meeting. The 2004 Plan will only become effective upon such stockholder approval, and no awards will be made under the 2004 Plan prior to that time.

        We believe that equity-based incentives have played a pivotal rule in our efforts to date to attract and retain key personnel essential to our long-term growth and financial success. For that reason, we have structured the 2004 Plan to provide us with more flexibility in designing equity incentives in an environment where a number of companies have moved from traditional option grants to other stock or stock-based awards such as stock appreciation rights, restricted stock and restricted stock units. Accordingly, with the 2004 Plan we will have a broader array of equity incentives to utilize for purposes of attracting and retaining the services of key personnel. We will continue to rely significantly on equity incentives to attract and retain such individuals because we remain convinced that equity incentives are necessary for us to remain competitive in the marketplace for executive talent and other key employees.

        The number of shares of our common stock which will initially be reserved for issuance under the 2004 Plan will not exceed 3,803,867 shares and will be equal to the number of shares which remain available for issuance under the 2000 Plan at the time of the Annual Meeting, less the portion of that share reserve subject to the outstanding options under the 2000 Plan at that time. The actual share reserve under the 2004 Plan will be funded through a transfer of shares from our 2000 Plan, and the remaining share reserve under the 2000 Plan will accordingly be reduced by the number of transferred shares. As of March 31, 2004, 6,557,946 shares remained available for issuance under the 2000 Plan, and 2,754,079 of those shares were subject to outstanding options under that plan. As a result, the maximum number of shares initially authorized for issuance under the 2004 will be limited to 3,803,867 shares, and the total number of shares which will remain available for issuance under the 2000 Plan will not exceed the 6,557,946 shares of common stock which remained available for issuance under the 2000 Plan as of March 31, 2004 less the number of those shares actually transferred to the 2004 Plan. As a result, the number of shares initially reserved for issuance under the 2004 Plan and the remaining share reserve under the 2000 Plan will not exceed 6,557,946 shares in total.

        The share reserve under the new 2004 Plan will automatically increase on the first trading day of January each year, beginning with the 2005 calendar year and continuing over the ten (10) year term of the plan, by an amount equal to three percent (3.0%) of the total number of shares of our common stock outstanding on the last trading day in the immediately preceding calendar year, but in no event will any such annual increase exceed 1,750,000 shares (subject to adjustment for stock dividends, stock splits, recapitalization or similar transactions affecting our outstanding common stock). Currently, the share reserve under the 2000 Plan automatically increases on the first trading day in January each year through calendar year 2010 by an amount equal to three and one-half percent (3.5%) of the outstanding shares of our common stock on the last trading day in the immediately preceding calendar year, up to a maximum annual increase of 2,000,000 shares.

        Principal Differences of New 2004 Plan. It is important for our stockholders to take into consideration the following additional differences between the provisions of the proposed 2004 Plan and our current 2000 Plan. Those differences may be summarized as follows:

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        Contingent Amendments to 2000 Plan. If the 2004 Plan is approved by our stockholders, then the following changes will become effective with respect to the 2000 Plan:

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        Except for the foregoing changes, all of the remaining terms of the 2000 Plan will remain in effect until the expiration of that plan on February 7, 2010.

        Any federal income tax deductions to which we would otherwise be entitled in connection with (A) the exercise of options granted under the 2000 Plan on or after the date of the Annual Meeting, (B) the disposition of shares purchased under those options or (C) the issuance of shares after that date under the stock issuance program of the 2000 Plan will be subject to the $1 million limitation per covered executive officer imposed under Section 162(m) of Internal Revenue Code. This will the case whether or not the 2004 Plan is approved by the stockholders. The Section 162(m) limitation is explained in more detail below.

        Should the 2004 Plan not be approved by the stockholders, then none of the contingent amendments to the 2000 Plan summarized above will take effect because those changes are expressly conditioned upon stockholder approval of the new 2004 plan, and we will continue to make option grants, stock issuances and other stock-based awards under the 2000 Plan in the future in accordance with the terms of that plan currently in effect, including (without limitation) the 3.5% annual share increase provision.

Summary Description of 2004 Plan

        The following is a summary of the principal features of the new 2004 Plan. The summary, however, is not intended to be a complete description of all the terms of the 2004 Plan and is qualified in its entirety by reference to the complete text of the 2004 Plan. Any of our stockholders who wish to obtain a copy of the actual plan document may do so upon written request to our Corporate Secretary at our headquarters at 501 Canal Boulevard, Suite A100, Richmond, California 94804. To the extent there is a conflict between this summary and the actual terms of the 2004 Plan, the terms of the 2004 Plan will govern.

        The 2004 Plan will consist of four separate equity incentive programs: (i) the discretionary grant program, (ii) the stock issuance program, (iii) the salary investment option grant program and (iv) the automatic option grant program for non-employee Board members. The principal features of each program are described later in this Proposal.

        Administration. The Compensation Committee of our Board will have the exclusive authority to administer the discretionary grant and stock issuance programs with respect to grants and stock issuances made to our executive officers and non-employee Board members and will also have the authority to make grants and stock issuances under those programs to all other eligible individuals. The Compensation Committee will also have complete discretion to select the individuals who are to participate in the salary investment option grant program, but all grants made to the selected individuals will be governed by the express terms of that program.

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        Our Board may at any time appoint a secondary committee of one or more Board members to have separate but concurrent authority with the Compensation Committee to make grants and stock issuances under the discretionary grant and stock issuance programs to individuals other than our executive officers and non-employee Board members. The term "plan administrator," as used in this summary, will mean our Compensation Committee and any secondary committee, to the extent each such entity is acting within the scope of its administrative authority under the 2004 Plan. However, neither the Compensation Committee nor any secondary committee will exercise any administrative discretion under the automatic option grant program, and all grants under that program will be made in strict compliance with its express provisions.

        Eligibility. Officers and employees, as well as independent consultants and contractors, in our employ or service or in the employ or service of our parent or subsidiary companies (whether now existing or subsequently established) will be eligible to participate in the discretionary grant and stock issuance programs. The non-employee members of our Board will also be eligible to participate in those two programs as well as the automatic option grant program. As of March 15, 2004, approximately 57 employees (including 4 executive officers) and no consultants were eligible to participate in the discretionary grant and stock issuance programs, and 5 non-employee Board members were eligible to participate in those programs and the automatic option grant program.

        Securities Subject to 2004 Plan. If our stockholders approve the 2004 Plan, the number of shares of our common stock which will initially be reserved for issuance under the 2004 Plan will be limited to the lower of (i) 3,803,867 shares or (ii) the number of shares which remain available for issuance under the 2000 Plan at the time of the Annual Meeting, less the portion of that share reserve which is subject to the options outstanding at that time under the 2000 Plan. The share reserve of the 2004 Plan will be funded through a transfer of a portion of the shares of common stock which remain available for issuance under our 2000 Plan at the time of the Annual Meeting, and the remaining share reserve under the 2000 Plan will be reduced by the number of transferred shares. As of March 31, 2004, 6,557,946 shares remained available for issuance under the 2000 Plan, and 2,754,079 of those shares were subject to outstanding options under that plan. As a result, the maximum number of shares initially authorized for issuance under the 2004 will be limited to 3,803,867 shares, and the total number of shares which will remain available for issuance under the 2000 Plan following that transfer will not exceed the 6,557,946 shares of common stock which remained available for issuance under the 2000 Plan as of March 31, 2004 less the 3,803,867 or lower number of those shares actually transferred to the 2004 Plan.

        The number of shares of common stock reserved for issuance under our 2004 Plan will automatically increase on the first trading day in January each calendar year, beginning in calendar year 2005, by an amount equal to three percent (3%) of the total number of shares of our common stock outstanding on that date. In no event will any such annual increase exceed 1,750,000 shares.

        No participant in the 2004 Plan may receive option grants, stand-alone stock appreciation rights, direct stock issuances (whether vested or unvested) or other stock-based awards for more than 2,000,000 shares of our common stock in any single calendar year, subject to adjustment for subsequent stock splits, stock dividends and similar transactions. Stockholder approval of this proposal will also constitute approval of that 2,000,000-share limitation for purposes of Internal Revenue Code Section 162(m). This limitation, together with the requirement that all stock options and stock appreciation rights under the discretionary grant program have an exercise price (or base price) per share equal to the fair market value per share of our common stock on the grant date, will assure that any deductions to which we would otherwise be entitled upon the exercise of stock options or stock appreciation rights granted under the discretionary grant program or the subsequent sale of the shares purchased under those stock options will not be subject to the $1 million limitation on the income tax deductibility of compensation paid per covered executive officer imposed under Section 162(m). In addition, one or more shares issued under the stock issuance program may also qualify as performance-

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based compensation that is not subject to the Section 162(m) limitation if the issuance of those shares is approved by our Compensation Committee and vesting is tied solely to the attainment of one or more of the corporate performance milestones discussed below in the summary description of that program.

        The shares of common stock issuable under the 2004 Plan may be drawn from shares of our authorized but unissued common stock or from shares of our common stock that we acquire, including shares purchased on the open market or in private transactions.

        Shares subject to any outstanding options or other awards under the 2004 Plan that expire or otherwise terminate prior to the issuance of the shares subject to those option or awards will be available for subsequent issuance under the 2004 Plan. Any unvested shares issued under the 2004 Plan that we subsequently purchase, at a price not greater than the original issue price paid per share, pursuant to our repurchase rights under the 2004 Plan will be added back to the number of shares reserved for issuance under the 2004 Plan and will accordingly be available for subsequent issuance.

        The following additional share counting provisions will be in effect under the 2004 Plan:

        The principal features of each of the four equity incentive programs under the 2004 Plan may be summarized as follows:

        Discretionary Grant Program. Under the discretionary grant program, eligible persons may be granted options to purchase shares of our common stock or stock appreciation rights tied to the value of our common stock. The plan administrator will have complete discretion to determine which eligible individuals are to receive option grants or stock appreciation rights, the time or times when those options or stock appreciation rights are to be granted, the number of shares subject to each such grant, the vesting schedule (if any) to be in effect for the grant, the maximum term for which the granted option or stock appreciation right is to remain outstanding and the status of any granted option as either an incentive stock option or a non-statutory option under the federal tax laws.

        Each granted option will have an exercise price per share determined by the plan administrator, but the exercise price will not be less than one hundred percent of the fair market value of the option shares on the grant date. No granted option will have a term in excess of ten years. The shares subject to each option will generally vest in one or more installments over a specified period of service

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measured from the grant date. However, one or more options may be structured so that they will be immediately exercisable for any or all of the option shares. The shares acquired under such immediately exercisable options will be subject to repurchase by us, at the lower of the exercise price paid per share or the fair market value per share, if the optionee ceases service prior to vesting in those shares.

        Upon cessation of service, the optionee will have a limited period of time in which to exercise his or her outstanding options to the extent exercisable for vested shares. The plan administrator will have complete discretion to extend the period following the optionee's cessation of service during which his or her outstanding options may be exercised and/or to accelerate the exercisability or vesting of those options in whole or in part. Such discretion may be exercised at any time while the options remain outstanding, whether before or after the optionee's actual cessation of service.

        The 2004 Plan will allow the issuance of three types of stock appreciation rights under the discretionary grant program:

        The appreciation distribution on any exercised tandem or stand-alone stock appreciation right may, at the discretion of the plan administrator, be made in cash or in shares of our common stock. All payments with respect to exercised limited stock appreciation rights will be made in cash.

        Upon cessation of service with us, the holder of a stock appreciation right will have a limited period of time in which to exercise that right to the extent exercisable. The plan administrator will have complete discretion to extend the period following the holder's cessation of service during which his or her outstanding stock appreciation rights may be exercised and/or to accelerate the exercisability or vesting of those stock appreciation rights in whole or in part. Such discretion may be exercised at any time while the stock appreciation right remains outstanding, whether before or after the holder's actual cessation of service.

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        Stock Issuance Program. Shares may be issued under the stock issuance program at a price per share not less than their fair market value, payable in cash or other valid consideration under Delaware law. Shares may also be issued as a bonus for past services without any cash outlay required of the recipient. Shares of our common stock may also be issued under the program pursuant to share right awards or restricted stock units which entitle the recipients to receive those shares upon the attainment of designated performance goals or the completion of a prescribed service period or upon the expiration of a designated time period following the vesting of those awards or units, including (without limitation), a deferred distribution date following the termination of the recipient's service with us.

        The plan administrator will have complete discretion under the program to determine which eligible individuals are to receive such stock issuances or stock-based awards, the time or times when those issuances or awards are to be made, the number of shares subject to each such issuance or award and the vesting schedule (if any) to be in effect for the issuance or award. The shares issued may be fully and immediately vested upon issuance or may vest upon the completion of a designated service period or the attainment of pre-established performance goals.

        In order to assure that the compensation attributable to one or more restricted stock issuances, restricted stock units or other stock-based awards under the program will qualify as performance-based compensation which will not be subject to the $1 million limitation on the income tax deductibility of the compensation paid per executive officer which is imposed under Internal Revenue Code Section 162(m), the plan administrator will also have the discretionary authority to structure one or more restricted stock issuances, restricted stock units or other stock-based awards so that the shares of common stock subject to those awards will vest only upon the achievement of certain pre-established corporate performance goals based on one or more of the following criteria: (1) return on total stockholder equity; (2) earnings per share; (3) net income (before or after taxes); (4) earnings before interest, taxes, depreciation and amortization; (5) sales or revenue targets; (6) return on assets, capital or investment; (7) cash flow; (8) market share; (9) cost reduction goals; (10) budget comparisons; (11) measures of customer satisfaction; (12) any combination of, or a specified increase in, any of the foregoing; (13) implementation or completion of projects or processes strategic or critical to our business operations; (14) achievement of advances in research; new product development; development of products to pre-clinical phase; commencement, advancement or completion of clinical trials; FDA or other regulatory body approval for commercialization of products; and (15) the formation of joint ventures, research or development collaborations, or the completion of other corporate transactions intended to enhance our revenue or profitability or increase our customer base. In addition, such performance goals may be based upon the attainment of specified levels of our performance under one or more of the measures described above relative to the performance of other entities and may also be based on the performance of any of our business units or divisions or any parent or subsidiary. Performance goals may include a minimum threshold level of performance below which no award will be earned, levels of performance at which specified portions of an award will be earned and a maximum level of performance at which an award will be fully earned.

        The plan administrator will have the discretionary authority at any time to accelerate the vesting of any and all shares of restricted stock or other unvested shares outstanding under the stock issuance program. However, no vesting requirements tied to the attainment of performance objectives may be waived with respect to shares which were intended at the time of issuance to qualify as performance-based compensation under Code Section 162(m).

        Outstanding restricted stock units or other stock-based awards under the stock issuance program will automatically terminate, and no shares of common stock will actually be issued in satisfaction of those units or awards, if the performance goals or service requirements established for such units or awards are not attained. The plan administrator, however, will have the discretionary authority to issue shares of common stock in satisfaction of one or more outstanding restricted stock units or other stock-based awards as to which the designated performance goals or service requirements are not attained.

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However, no vesting requirements tied to the attainment of performance objectives may be waived with respect to units or awards which were intended at the time of issuance to qualify as performance-based compensation under Code Section 162(m).

        Salary Investment Option Grant Program. Our Compensation Committee will have complete discretion in implementing the salary investment option grant program for one or more calendar years and in selecting the executive officers and other eligible individuals who are to participate in the program for those years. As a condition to participation in the program, each selected individual must, prior to the start of the calendar year of participation, file with the Compensation Committee an irrevocable authorization directing us to reduce his or her base salary for the upcoming calendar year by a specified dollar amount not less than $10,000 nor more than $50,000 and to apply that amount to the acquisition of a special option grant under the program.

        If the salary investment option grant program is implemented in the future, then each individual selected for participation who files a timely salary reduction election will automatically be granted a non-statutory option on the first trading day in January of the calendar year for which that salary reduction is to be in effect. Stockholder approval of this Proposal will also constitute pre-approval of each option granted under the salary investment option grant program and the subsequent exercise of that option in accordance with the terms of the program summarized below.

        The number of shares subject to each such option will be determined by dividing the salary reduction amount by two-thirds of the fair market value per share of our common stock on the grant date, and the exercise price will be equal to one-third of the fair market value of the option shares on the grant date. As a result, the total spread on the option shares at the time of grant (the fair market value of the option shares on the grant date less the aggregate exercise price payable for those shares) will be equal to the salary reduction amount. In effect, the salary reduction will constitute a pre-payment of the remaining two-thirds of the fair market value of the option shares on the grant date.

        The option will become exercisable in a series of twelve equal monthly installments upon the optionee's completion of each calendar month of service in the calendar year for which the salary reduction is in effect and will become immediately exercisable for all the option shares on an accelerated basis upon certain changes in ownership or control. Each option will remain exercisable for any vested shares until the earlier of (i) the expiration of the 10 year option term or (ii) the end of the three year period measured from the date of the optionee's cessation of service.

        Automatic Option Grant Program. Under the automatic option grant program, each individual who first becomes a non-employee Board member at the Annual Meeting or at any time thereafter will automatically receive an option grant for 50,000 shares on the date such individual joins the Board, provided such individual has not been in our prior employ. In addition, on the date of each annual stockholders meeting, beginning with the 2004 Annual Meeting, each individual serving as a non-employee Board member at that time will automatically be granted an option to purchase 10,000 shares of common stock, provided such individual has served on our Board for at least six months.

        Each automatic grant will have an exercise price per share equal to the fair market value per share of our common stock on the grant date and will have a term of ten years, subject to earlier termination following the optionee's cessation of Board service. The option will be immediately exercisable for all of the option shares; however, we may repurchase, at the lower of the exercise price paid per share or the fair market value per share, any shares purchased under the option which are not vested at the time of the optionee's cessation of Board service. The shares subject to each initial 50,000-share automatic option grant will vest in a series of thirty-six successive equal monthly installments upon the optionee's completion of each month of Board service over the thirty-six month period measured from the grant date. The shares subject to each annual 10,000-share automatic option grant made to a continuing Board member will vest in twelve successive equal monthly installments upon that

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individual's completion of each month of Board service over the twelve-month period measured from the grant date. However, the shares will immediately vest in full upon the optionee's death or disability while a Board member or upon the occurrence of certain changes in ownership or control.

        Upon the successful completion of a hostile tender offer for more than fifty percent of our outstanding voting securities, each outstanding option granted under the automatic option g program may be surrendered to us in return for a cash distribution per surrendered option share equal to the excess of (i) the fair market value per share at the time the option is surrendered or, if greater, the highest tender offer price paid per share over (ii) the exercise price payable per share under such option.

        The option grants under the automatic option grant program will be taxable as non-statutory options under the Federal income tax laws.

        Stockholder approval of this Proposal will constitute pre-approval of each option granted pursuant to the provisions of the automatic option grant program and the subsequent exercise or surrender of that option in accordance with its terms, as summarized above.

        No awards will be made under the 2004 Plan unless and until the 2004 Plan is approved by the stockholders at the Annual Meeting. If such stockholder approval is obtained, the following non-employee Board members will each receive an option grant for 10,000 shares of our common stock under the automatic option grant program: Dr. Gerber, Mr. Jacoby, Mr. Larson, Dr. Rutter and Mr. Wood. The grants will be made on the date of the Annual Meeting, and each option will have an exercise price equal to the closing selling price per share of our common stock on that date.

        Vesting Acceleration. The 2004 Plan will include the following vesting acceleration provisions:

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        The acceleration of vesting in the event of a change in the ownership or control may be seen as an anti-takeover provision and may have the effect of discouraging a merger proposal, a takeover attempt or other efforts to gain control of us.

        Changes in Capitalization. In the event any change is made to the outstanding shares of our common stock by reason of any recapitalization, stock dividend, stock split, combination of shares, exchange of shares or other change in corporate structure effected without our receipt of consideration, appropriate adjustments will be made to: (i) the maximum number and/or class of securities issuable under the 2004 Plan; (ii) the maximum number and/or class of securities for which any one person may be granted stock options, stand-alone stock appreciation rights, direct stock issuances (whether vested or unvested) and other stock based awards under the 2004 Plan per calendar year; (iii) the number and/or class of securities and the exercise price or base price per share in effect under each outstanding option or stock appreciation right; (iv) the number and/or class of securities subject to each outstanding restricted stock unit or other stock based award and the issue price (if any) payable per share; (v) the number and/or class of securities for which grants are subsequently to be made under the automatic option grant program to new and continuing non-employee Board members; and (vi) the maximum number and/or class of securities by which the share reserve is to increase automatically each calendar

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year. Such adjustments will be designed to preclude any dilution or enlargement of benefits under the 2004 Plan or the outstanding options thereunder.

        Acquisition of Other Entities. The share reserve under the 2004 Plan may, in the plan administrator's sole discretion, be used to the extent required by applicable tax law to fund the exercise of (i) any incentive stock options granted by a corporation or other entity which we assume in connection with our acquisition of that entity, whether by merger or asset or stock sale, or (ii) any incentive stock options granted under the 2004 Plan in substitution for those incentive stock options of the acquired entity. We may effect the assumption or substitution even if the exercise price per share of our common stock under the assumed or substituted options will be less than the fair market value of our common stock at that time, provided the aggregate spread on each such option immediately after the assumption or substitution (the excess of the fair market value of the option shares over the aggregate exercise price payable for those shares) is not greater than the aggregate option spread immediately prior to the assumption or substitution and certain other requirement are satisfied to assure that the option holder does not receive any additional benefits as a result of the assumption or substitution.

        Valuation. The fair market value per share of our common stock on any relevant date under the 2004 Plan will be deemed to be equal to the closing selling price per share on that date on the Nasdaq National Market. On March 15, 2004, the fair market value per share of our common stock determined on such basis was $6.11.

        Stockholder Rights and Transferability. No optionee will have any stockholder rights with respect to the option shares until such optionee has exercised the option and paid the exercise price for the purchased shares. Options are not assignable or transferable other than by will or the laws of inheritance following optionee's death, and during the optionee's lifetime, the option may only be exercised by the optionee. However, the plan administrator may structure one or more non-statutory options under the 2004 Plan so that those options will be transferable during optionee's lifetime to one or more members of the optionee's family or to a trust established for the optionee and/or one or more such family members or to the optionee's former spouse, to the extent such transfer is in connection with the optionee's estate plan or pursuant to a domestic relations order. Stand alone stock appreciation rights will be subject to the same transferability restrictions applicable to non-statutory options.

        A participant will have full stockholder rights with respect to any shares of common stock issued to him or her under the 2004 Plan, whether or not his or her interest in those shares is vested. A participant will not have any stockholder rights with respect to the shares of common stock subject to a restricted stock unit or other share right award until that unit or award vests and the shares of common stock are actually issued thereunder. However, dividend-equivalent units may be paid or credited, either in cash or in actual or phantom shares of common stock, on outstanding restricted stock units or other share-right awards, subject to such terms and conditions as the plan administrator may deem appropriate.

        Special Tax Election. The plan administrator may provide one or more holders of options, stock appreciation rights, vested or unvested stock issuances, restricted stock units or any other stock-based awards under the 2004 Plan with the right to have us withhold a portion of the shares otherwise issuable to such individuals in satisfaction of the withholding taxes to which they become subject in connection with the exercise of those options or stock appreciation rights, the issuance of vested shares or the vesting of unvested shares issued to them. Alternatively, the plan administrator may allow such individuals to deliver previously acquired shares of our common stock in payment of such withholding tax liability.

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        Amendment and Termination. Our Board may amend or modify the 2004 Plan at any time, subject to any stockholder approval requirements under applicable law or regulation or pursuant to the listing standards of the stock exchange (or the Nasdaq National Market) on which our shares of common stock are at the time primarily traded. Unless sooner terminated by our Board, the 2004 Plan will terminate on the earliest of (i) March 5, 2014, (ii) the date on which all shares available for issuance under the 2004 Plan have been issued as fully-vested shares or (iii) the termination of all outstanding options or stock appreciation rights, restricted stock units or other shares right awards in connection with certain changes in control or ownership.

        The following is a summary of the United States Federal income taxation treatment applicable to us and the participants who receive awards under the 2004 Plan.

        Option Grants. Options granted under the discretionary grant program may be either incentive stock options which satisfy the requirements of Section 422 of the Internal Revenue Code or non-statutory options which are not intended to meet such requirements. The Federal income tax treatment for the two types of options differs as follows:

        Incentive Options. No taxable income is recognized by the optionee at the time of the option grant, and no taxable income is recognized for regular tax purposes at the time the option is exercised, although taxable income may arise at that time for alternative minimum tax purposes. The optionee will recognize taxable income in the year in which the purchased shares are sold or otherwise made the subject of certain other dispositions. For Federal tax purposes, dispositions are divided into two categories: (i) qualifying, and (ii) disqualifying. A qualifying disposition occurs if the sale or other disposition is made more than two (2) years after the date the option for the shares involved in such sale or disposition is granted and more than one (1) year after the date the option is exercised for those shares. If the sale or disposition occurs before these two periods are satisfied, then a disqualifying disposition will result.

        Upon a qualifying disposition, the optionee will recognize long-term capital gain in an amount equal to the excess of (i) the amount realized upon the sale or other disposition of the purchased shares over (ii) the exercise price paid for the shares. If there is a disqualifying disposition of the shares, then the excess of (i) the fair market value of those shares on the exercise date over (ii) the exercise price paid for the shares will be taxable as ordinary income to the optionee. Any additional gain or loss recognized upon the disposition will be recognized as a capital gain or loss by the optionee.

        If the optionee makes a disqualifying disposition of the purchased shares, then we will be entitled to an income tax deduction, for the taxable year in which such disposition occurs, equal to the excess of (i) the fair market value of such shares on the option exercise date over (ii) the exercise price paid for the shares. We will not be entitled to any income tax deduction if the optionee makes a qualifying disposition of the shares.

        Non-Statutory Options. No taxable income is recognized by an optionee upon the grant of a non-statutory option. The optionee will in general recognize ordinary income, in the year in which the option is exercised, equal to the excess of the fair market value of the purchased shares on the exercise date over the exercise price paid for the shares, and the optionee will be required to satisfy the tax withholding requirements applicable to such income.

        If the shares acquired upon exercise of the non-statutory option are unvested and subject to repurchase by us in the event of the optionee's termination of service prior to vesting in those shares, then the optionee will not recognize any taxable income at the time of exercise but will have to report as ordinary income, as and when our repurchase right lapses, an amount equal to the excess of (i) the fair market value of the shares on the date the repurchase right lapses over (ii) the exercise price paid

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for the shares. The optionee may, however, elect under Section 83(b) of the Internal Revenue Code to include as ordinary income in the year of exercise of the option an amount equal to the excess of (i) the fair market value of the purchased shares on the exercise date over (ii) the exercise price paid for such shares. If the Section 83(b) election is made, the optionee will not recognize any additional income as and when the repurchase right lapses.

        We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the optionee with respect to the exercised non-statutory option. The deduction will in general be allowed for our taxable year in which such ordinary income is recognized by the optionee.

        Stock Appreciation Rights. No taxable income is recognized upon receipt of a stock appreciation right. The holder will recognize ordinary income in the year in which the stock appreciation right is exercised, in an amount equal to the excess of the fair market value of the underlying shares of common stock on the exercise date over the base price in effect for the exercised right, and the holder will be required to satisfy the tax withholding requirements applicable to such income.

        We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the holder in connection with the exercise of the stock appreciation right. The deduction will be allowed for the taxable year in which such ordinary income is recognized.

        Direct Stock Issuances. The tax principles applicable to direct stock issuances under the 2004 Plan will be substantially the same as those summarized above for the exercise of non-statutory option grants.

        Restricted Stock Units. No taxable income is recognized upon receipt of a restricted stock unit. The holder will recognize ordinary income in the year in which the shares subject to that unit are actually issued to the holder. The amount of that income will be equal to the fair market value of the shares on the date of issuance, and the holder will be required to satisfy the tax withholding requirements applicable to such income.

        We will be entitled to an income tax deduction equal to the amount of ordinary income recognized by the holder at the time the shares are issued. The deduction will be allowed for the taxable year in which such ordinary income is recognized.

        Deductibility of Executive Compensation. We anticipate that any compensation deemed paid by us in connection with the disqualifying disposition of incentive stock option shares or the exercise of non-statutory options or stock appreciation rights will qualify as performance-based compensation for purposes of Internal Revenue Code Section 162(m) and will not have to be taken into account for purposes of the $1 million limitation per covered individual on the deductibility of the compensation paid to certain of our executive officers. Accordingly, all compensation deemed paid with respect to those options or stock appreciation rights will remain deductible by us without limitation under Section 162(m). However, any compensation deemed paid by us in connection with shares issued under the stock issuance program will be subject to the $1 million limitation, unless the vesting of the shares is tied solely to one or more of the performance milestones described above.

        Accounting Treatment. Under the accounting principles currently in effect, option grants under the discretionary and automatic option grant programs will not result in any direct charge to our reported earnings. However, the fair value of those options is required to be disclosed in the notes to our financial statements, and we must also disclose, in footnotes to our financial statements, the pro-forma impact those options would have upon our reported earnings were the fair value of those options at the time of grant treated as a compensation expense.

        Option grants made to non-employee consultants under the 2004 Plan will result in a direct charge to our reported earnings based upon the fair value of the option measured initially as of the grant date and then subsequently on the vesting date of each installment of the underlying option shares. Such

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charge will accordingly include the appreciation in the value of the option shares over the period between the grant date of the option and the vesting date of each installment of the option shares.

        The number of outstanding options will be a factor in determining our earnings per share on a fully-diluted basis.

        Should one or more individuals be granted tandem or stand-alone stock appreciation rights under the 2004 Plan, then such rights would result in a compensation expense to be charged against our reported earnings. Accordingly, at the end of each fiscal quarter, the amount, if any, by which the fair market value of the shares of common stock subject to such outstanding stock appreciation rights has increased from the prior quarter-end would be accrued as compensation expense, to the extent such fair market value is in excess of the aggregate exercise price in effect for those rights.

        Direct stock issuances under the 2004 Plan will result in a direct charge to our reported earnings equal to the excess of the fair value of the shares on the issuance date over the cash consideration (if any) paid for such shares. If the shares are unvested at the time of issuance, then any charge to our reported earnings will be amortized over the vesting period. However, if the vesting of the shares is tied solely to performance milestones, then the issuance of those shares will be subject to mark to market accounting, and we will have to accrue compensation expense not only for the value of the shares on the date of issuance but also for all subsequent appreciation in the value of those which occurs prior to the vesting date. Similar accounting treatment will be in effect for any restricted stock units issued under the 2004 Plan.

        On March 31, 2004, the Financial Accounting Standards Board ("FASB") released an exposure draft on stock based compensation which would, if adopted as proposed, require expensing of stock options beginning January 2005 and change the accounting treatment of stock appreciation rights settled in stock. Accordingly, the foregoing summary of the applicable accounting treatment for stock options and stock appreciation rights may substantially change in the event the exposure draft is adopted as proposed. In that event, employee stock options and stock appreciation rights payable in stock would have to be valued as of the grant date under an appropriate valuation formula, and that value would then have to be charged as a direct compensation expense against the issuer's reported earnings over the designated vesting period of the award. For direct stock issuances, we would continue to accrue a compensation cost equal to the excess of the fair value of the shares on the issuance date over the cash consideration (if any) paid for such shares. If the shares are unvested at the time of issuance, then any charge to our reported earnings will be amortized over the vesting period. However, such accounting treatment would be applicable whether vesting were tied to service periods or performance goals.

        The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote on the Proposal No. 2 is required for approval of the 2004 Plan. Should such approval not be obtained, then the 2004 Plan will not be implemented, and none of the proposed changes to the existing 2000 Stock Incentive Plan will become effective. Instead, the 2000 Plan will remain in full force and effect in accordance with its pre-existing terms, and stock options, stock appreciation rights and direct stock issuances will continue to be made under the 2000 plan until its expiration date on February 7, 2010. However, any federal income tax deductions to which we would otherwise be entitled in connection with the exercise of options granted under the 2000 Plan on or after the date of the Annual Meeting or the disposition of shares purchased under those option grants or the issuance of shares on or after that date under the stock issuance program of the 2000 plan will be subject to the $1 million limitation per covered executive officer imposed under Code Section 162(m).

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Recommendation of the Board of Directors

        The Board believes that this proposal two is in our best interests and in the best interests of our stockholders and recommends a vote FOR the approval of the 2004 Stock Incentive Plan.


PROPOSAL THREE: RATIFICATION OF INDEPENDENT AUDITORS

        The Board of Directors appointed the firm of Ernst & Young LLP, independent public auditors for Sangamo during the 2003 Fiscal Year, to serve in the same capacity for the year ending December 31, 2004, and is asking the stockholders to ratify this appointment. The decision of the Board of Directors to appoint Ernst & Young LLP was based on the recommendation of the Audit Committee. The affirmative vote of a majority of the shares represented and entitled to vote at the Annual Meeting is required to ratify the selection of Ernst & Young LLP.

        In the event the stockholders fail to ratify the appointment, the Board of Directors will reconsider its selection. Even if the selection is ratified, the Board of Directors in its discretion may direct the appointment of a different independent auditing firm at any time during the year if the Board of Directors believes that such a change would be in the best interests of Sangamo and its stockholders.

        A representative of Ernst & Young LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement if he or she desires to do so, and will be available to respond to appropriate questions.

        The aggregate fees billed in connection with the audit by Ernst & Young LLP of Sangamo's 2003 and 2002 annual financial statements, the review of financial statements in Sangamo's Forms 10-Q filed in 2003 and 2002 and consultations on matters addressed during our audit and review work during 2003 and 2002 amounted to $209,055 and $182,302, respectively.

        The aggregate fees billed in connection with tax compliance, tax advice and tax planning services performed by Ernst & Young, LLP during 2003 and 2002 were $33,200 and $72,975, respectively.

        Other than the above-noted professional services performed by Ernst & Young, LLP, there were no additional fees billed for services rendered during 2003 and 2002.

        Under its charter, the Audit Committee must pre-approve all engagements of the independent auditors for the performance of all audit and non-audit services that are not prohibited and the fees for such services. The Audit Committee has delegated to its Chairman the authority to evaluate and approve service engagements on behalf of the full committee in the event a need arises for specific pre-approval between committee meetings. If the Chairman approves any such engagements, he will report that approval to the full Audit Committee not later than the next committee meeting.

23

        The Audit Committee has determined that the rendering of other professional services for tax compliance and tax advice by Ernst & Young, LLP is compatible with maintaining their independence. The Audit Committee has established a policy governing our use of Ernst & Young, LLP for non-audit services. Under the policy, management may use Ernst & Young, LLP for non-audit services that are permitted under SEC rules and regulations, provided that management obtain the Audit Committee's approval before such services are rendered.

Recommendation of the Board of Directors

        The Board of Directors recommends that the stockholders vote FOR the ratification of the selection of Ernst & Young LLP to serve as Sangamo's independent auditors for the fiscal year ending December 31, 2004.


OTHER MATTERS

        Sangamo knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters properly come before the Annual Meeting, it is the intention of the persons named in the enclosed form of Proxy to vote the shares they represent as the Board of Directors may recommend. Discretionary authority with respect to such other matters is granted by the execution of the enclosed Proxy.


MANAGEMENT

Executive Officers and Directors

        The following table sets forth information regarding our executive officers, directors and key employees as of March 15, 2004:

Name
   Age
   Position
Edward O. Lanphier II   47   President, Chief Executive Officer and Director
Peter Bluford   49   Vice President, Corporate Development
Casey C. Case, Ph.D.   48   Vice President, Research
Greg S. Zante   33   Senior Director, Finance and Administration (Principal Financial and Accounting Officer)
William G. Gerber, M.D.   57   Director
Jon E. M. Jacoby   65   Director
John W. Larson   68   Director
William J. Rutter, Ph.D.   76   Director
Michael C. Wood   51   Director

        Edward O. Lanphier II, the founder of Sangamo BioSciences, Inc., has served as President, Chief Executive Officer and as a member of the Board of Directors since Sangamo's inception. Mr. Lanphier has approximately twenty years of experience in the pharmaceutical and biotechnology industry. From June 1992 to May 1997, he held various positions at Somatix Therapy Corporation, a gene therapy company, including Executive Vice President, Commercial Development and Chief Financial Officer. Prior to Somatix, Mr. Lanphier was President and Chief Executive Officer of BioGrowth, Inc., a biotechnology company that merged with Celtrix Laboratories to form Celtrix Pharmaceuticals, Inc. in 1991. From 1986 to 1987, Mr. Lanphier served as Vice President of Corporate Development at Biotherapeutics, Inc. From 1984 to 1986 he served as Vice President of Corporate Development at Synergen Inc. Prior to Synergen, he was employed by Eli Lilly and Company, a pharmaceutical company, in the strategic business planning-biotechnology group. Mr. Lanphier is a member of the

24

Biotechnology Industry Organization (BIO) Emerging Companies Section and the BIO board of directors. He is also a director of Cengent Pharmaceuticals, Inc. and Cell ExSys, Inc. Mr. Lanphier holds a B.A. in biochemistry from Knox College.

        Peter Bluford has served as Vice President, Corporate Development since December 1997 and has operating responsibility for Sangamo's licensing, intellectual property and business planning activities. Mr. Bluford also served as Senior Director, Corporate Development, from October 1996 to December 1997. From October 1992 to September 1996, Mr. Bluford served as Director, Commercial Development at Somatix Therapy Corporation, where he was responsible for Somatix's strategic business planning activities while also serving as Project Team Leader, Oncology from 1995 to 1996. From 1991 to 1992, Mr. Bluford was with Celtrix Pharmaceuticals, Inc. as Manager, Strategic Market Planning. From 1990 to 1991, he was Manager of Strategic Planning with BioGrowth, Inc. Mr. Bluford received an M.B.A. and a B.S. in biochemistry from the University of California, Berkeley.

        Casey C. Case, Ph.D. has served as Vice President, Research Operations since July 2003. He joined the Company as Vice President, Research in November 1997. From June 1993 to November 1997, Dr. Case served as Director, Cell Biology at Tularik, Inc., a pharmaceutical company focusing on gene regulating drugs, where he was part of the team that established Tularik's cell-based, high throughput screening of small molecule modulators of specific transcription factors. From June 1989 to June 1993, Dr. Case was Director of Transcriptional Research at Oncogene Science, Inc., a pharmaceutical company, where he led Oncogene's research efforts in the development of mammalian cell-based assays for gene transcription and the automation of these assays for selection of therapeutic targets and compounds. Dr. Case earned a Ph.D. in biochemistry from the University of California, Davis and a B.S. in biology from San Diego State University.

        Greg S. Zante, has served as Senior Director, Finance and Administration since August 2003. Prior to joining Sangamo, Mr. Zante was Director, Finance and Administration of Calyx Therapeutics, Inc. a privately held pharmaceutical discovery and development company, from December 2001. From October 1993 until December 2001, Mr. Zante held senior financial managerial positions in several companies including Matrix Pharmaceuticals, Inc. He was employed by Ernst & Young LLP as a Senior Staff Accountant from October 1993 until November 1995. Mr. Zante holds a B.A. in business economics and managerial accounting from the University of California, Los Angeles.

        William G. Gerber, M.D. has served as a member of our Board of Directors since June 1997. Dr. Gerber is currently President, Chief Executive Officer and a Director of Epoch Biosciences, Inc., a biomedical company, where he has been since September 1999. From April 1998 to July 1999, he was President of diaDexus LLC, a pharmacogenomics company. Previous to his appointment at diaDexus, he was Chief Operating Officer of Onyx Pharmaceuticals. Before joining Onyx in 1995, Dr. Gerber was with Chiron Corporation, a biopharmaceutical, vaccine and blood testing company, where he was President of the Chiron Diagnostics business unit after Chiron's merger with Cetus Corporation in December 1991. He joined Cetus in 1987 as Senior Director of Corporate Ventures and was named Vice President and General Manager of the PCR (Polymerase Chain Reaction) Division in November 1988. Dr. Gerber has been Chairman of the Board of Directors of Pathway Diagnostics Corporation, a privately held company, since 2003. Dr. Gerber earned his B.S. and M.D. degrees from the University of California, San Francisco School of Medicine.

        Jon E. M. Jacoby has served as a member of our board of directors since April 2000. Until his retirement on October 1, 2003, Mr. Jacoby had been employed by Stephens Inc. and Stephens Group, Inc., collectively engaged in investment banking and other business activities, since 1963 and remains a director of Stephens Group, Inc. He is also a director of Delta and Pine Land Company, Power-One, Inc. and Conn's Inc., and serves on the boards of several privately held companies. He received his B.S. degree in geology from the University of Notre Dame and his M.B.A. from Harvard Business School.

25


        John W. Larson has served as a member of our Board of Directors since January 1996. Mr. Larson is currently a partner at the law firm of Morgan, Lewis & Bockius LLP. Mr. Larson served as partner at the law firm of Brobeck, Phleger & Harrison LLP (Brobeck) from March 1969 until retiring January 2003, except for the period from July 1971 to September 1973 when he was in government service as Assistant Secretary of the United States Department of the Interior and Counselor to George P. Shultz, Chairman of the Cost of Living Council. From 1988 until March 1996, Mr. Larson was Chief Executive Officer of Brobeck. Mr. Larson serves on the boards of several privately held companies. Mr. Larson holds an L.L.B. and a B.A., with distinction, in economics, from Stanford University.

        William J. Rutter, Ph.D. has served as a member of our Board of Directors since January 2000. He is the co-founder of Chiron Corporation, a biopharmaceutical, vaccine and blood testing company, and served as Chairman of the Board of Directors from Chiron's inception in 1981 until May 1999. From August 1983 through April 1989, in addition to his responsibilities at Chiron, Dr. Rutter was the Director of the Hormone Research Institute at the University of California, San Francisco, and he became a Professor Emeritus in 1991. In 1969, Dr. Rutter joined the faculty of UCSF as a Herzstein Professor, and served as the chairman of the Department of Biochemistry and Biophysics from 1969 to 1982. Dr. Rutter has also served on the Board of Overseers at Harvard University from 1992 to 2000, on the Board of Trustees at the Carnegie Institution of Washington since 1995 and several private company boards. Dr. Rutter is a member of the National Academy of Sciences and the American Academy of Arts and Sciences. He received his Ph.D. in biochemistry from the University of Illinois, an M.S. in biochemistry from the University of Utah and a B.A. in biochemistry from Harvard University.

        Michael C. Wood has served as a member of our Board of Directors since our inception. Mr. Wood is currently President of LeapFrog Enterprises, Inc., an educational company which he founded in January 1995. Mr. Wood has 15 years of experience in the corporate legal representation of high technology firms and venture capital partnerships. From 1991 through 1994, he was a partner of the emerging technology companies group at Cooley Godward LLP. From 1979 to 1991, Mr. Wood practiced corporate law in the high technology practice of Crosby Heafy Roach & May. Mr. Wood received a J.D. from the Hastings College of Law, an M.B.A. from the University of California, Berkeley and his B.A. in political science from Stanford University.

26


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth certain information known to Sangamo with respect to the beneficial ownership of Common Stock as of March 15, 2004, by (i) all persons who are beneficial owners of five percent (5%) or more of Sangamo's Common Stock, (ii) each director and each nominee for director, (iii) the executive officers named in the Summary Compensation Table of the Executive Compensation and Other Information section of this Proxy Statement and (iv) all current directors and executive officers as a group. Unless otherwise indicated, the principal address of each of the stockholders below is c/o Sangamo BioSciences, Inc., 501 Canal Boulevard, Suite A100, Richmond, CA 94804. Except as otherwise indicated, and subject to applicable community property laws, except to the extent authority is shared by both spouses under applicable law, we believe the persons named in the table have sole voting and investment power with respect to all shares of Common Stock held by them.

Name and Address of Beneficial Owner
   Number of
Shares
Beneficially
Owned
   Percentage
of Shares
Beneficially
Owned
  
Kopp Investment Advisors, LLC (1)
7701 France Avenue South, Suite 500
Edina, MN 55435		   4,342,065   17.4 %

Columbia Wanger Asset Management, L.P. (2)
227 West Monroe Street, Suite 3000
Chicago, IL 60606
 
1,700,000
 
6.8
%

Stephens Group, Inc. (3)
111 Center Street
Little Rock, AR 72203
 
1,359,017
 
5.4
%

Edward O. Lanphier II (4)
 
3,406,742
 
13.4
%

Peter Bluford (5)
 
264,699
 
1.1
%

Casey C. Case, Ph.D. (6)
 
263,155
 
1.0
%

J. Tyler Martin (7)
 
2,000
 
*
 

Carl Pabo, Ph.D. (8)
 
289,895
 
1.1
%

Janet Nibel (9)
 
0
 
—
 

William G. Gerber, M.D. (10)
 
129,400
 
*
 

Jon E.M. Jacoby (11)
 
395,734
 
1.6
%

John W. Larson (12)
 
444,360
 
1.8
%

William J. Rutter, Ph.D. (13)
 
796,666
 
3.2
%

Michael C. Wood (14)
 
1,296,500
 
5.2
%

All current directors and executive officers as a group (10 persons) (15)
 
7,287,151
 
27.8
%
*
Less than one percent.

(1)
According to a Schedule 13G/A dated February 5, 2004, Kopp Investment Advisors, LLC had shared dispositive power over 3,016,065 shares, sole dispositive power over 800,000 shares, sole voting power over 3,199,681 shares and aggregate beneficial ownership over 3,917,065 shares. Kopp Holding Company and Kopp Holding Company LLC also reported aggregate beneficial ownership of 3,917,065 shares. The filing also stated that Kopp Holding Company LLC is controlled by Leroy

27

(2)
According to a Schedule 13G dated February 13, 2004, Columbia Wanger Asset Management, L.P. (WAM) reported shared voting power and shared dispositive power over 1,700,000 shares. WAM Acquisition GP, Inc. (WAM GP) is the general partner of WAM and also reported shared voting power and shared dispositive power over 1,700,000 shares. Columbia Acorn Trust (Acorn) reported shared voting power and shared dispositive power over 1,600,000 shares. The Schedule 13G also reported that the shares reported therein have been acquired on behalf of discretionary clients of WAM, including Acorn.

(3)
According to a Schedule 13G/A dated February 17, 2004, Stephens Group, Inc. reported sole voting power and sole dispositive power over 912,165 shares and shared voting power and shared dispositive power over 109,035 shares. Warren Stephens reported sole voting power and sole dispositive power over 132,606 shares and shared voting power and shared dispositive power over 1,226,411 shares. The number of shares of Sangamo BioSciences, Inc. common stock reported as beneficially owned by Stephens Group, Inc. and Warren Stephens includes shares owned by Stephens, Inc., the second tier subsidiary of Stephens Group, Inc., in discretionary accounts for clients, and the number of shares reported as beneficially owned by Warren Stephens also includes shares owned by certain other entities affiliated with Warren Stephens. Mr. Jacoby, a director of Sangamo BioSciences, Inc., was an executive vice president of Stephens Group, Inc. until October 1, 2003 and remains a director of Stephens Group, Inc.

(4)
Includes 400,000 shares of Common Stock issuable upon exercise of options within 60 days of March 15, 2004. Also includes 400,000 shares held by Mr. Lanphier's children and 2,406,742 shares held in trust.

(5)
Includes 117,708 shares of Common Stock issuable upon exercise of options within 60 days of March 15, 2004. Also includes 1,200 shares held by Mr. Bluford's children.

(6)
Includes 191,374 shares of Common Stock issuable upon exercise of options within 60 days of March 15, 2004.

(7)
Mr. Martin resigned his position on March 12, 2004.

(8)
Includes 289,895 shares of Common Stock issuable upon exercise of options within 60 days of March 15, 2004. Mr. Pabo resigned his position on June 30, 2003.

(9)
Ms. Nibel resigned her position on August 15, 2003.

(10)
Includes 30,000 shares of Common Stock issuable upon exercise of options within 60 days of March 15, 2004.

(11)
Includes 80,000 shares of Common Stock issuable upon exercise of options within 60 days of March 15, 2004.

(12)
Includes 30,000 shares of Common Stock issuable upon exercise of options within 60 days of March 15, 2004.

(13)
Includes 30,000 shares of Common Stock issuable upon exercise of options within 60 days of March 15, 2004. Also includes 672,220 shares held in trust.

(14)
Includes 30,000 shares of Common Stock issuable upon exercise of options within 60 days of March 15, 2004.

(15)
Includes 1,198,977 shares of Common Stock issuable upon exercise of options within 60 days of March 15, 2004.

28


EXECUTIVE COMPENSATION AND OTHER INFORMATION

Summary of Cash and Certain Other Compensation

        The following table provides certain summary information concerning the compensation earned for services rendered in all capacities to Sangamo for the fiscal years ended December 31, 2003, 2002 and 2001 by Sangamo's Chief Executive Officer and Sangamo's three other executive officers whose salary and bonus for the 2003 Fiscal Year were in excess of $100,000 and who were serving as executive officers at the end of the 2003 Fiscal Year. In addition, Dr. Pabo and Ms. Nibel are included in the table because they each would have been among the four most highly compensated Sangamo executive officers for the 2003 fiscal year had they not resigned earlier during that year. No other executive officers who would have otherwise been includable in such table on the basis of salary and bonus earned for the 2003 Fiscal Year have been excluded by reason of their termination of employment or change in executive status during that year. The listed individuals shall be hereinafter referred to as the "Named Officers". No Long-term Compensation Awards were awarded to the Named Officers in the fiscal years ended December 31, 2003, 2002 and 2001.


SUMMARY COMPENSATION TABLE

 
    
   Annual Compensation
    
    
  
Name and Principal Position
   Fiscal
Year
   Securities
Underlying
Options
   Other
Compensation $
  
  Salary $
   Bonus $
  
Edward O. Lanphier II
President and Chief Executive Officer		   2003
2002
2001		   375,000
360,000
300,000		   150,000
140,000
164,538

(1)		 —
—
—		   —
25,000
25,000
(2)
(2)

J. Tyler Martin, Sr., M.D. (3)
Vice President, Therapeutic Product Development
 
2003
2002
2001
 
252,083
—
—
 
—
—
—
 
200,000
—
—
 
—
—
—
 

Peter Bluford
Vice President, Corporate Development
 
2003
2002
2001
 
208,000
200,000
180,000
 
25,000
25,000
50,000
 
10,000
60,000
—
 
—
—
—
 

Casey C. Case, Ph.D.
Vice President, Research
 
2003
2002
2001
 
200,000
190,000
180,000
 
50,000
15,000
25,000
 
20,000
30,000
—
 
—
—
—
 

Carl Pabo, Ph.D. (4)
Senior Vice President and Chief Scientific Officer
 
2003
2002
2001
 
147,500
280,000
70,000
 
315,312
25,000
100,000
(8)

(6)
—
50,000
415,000
 
320,677
29,450
12,270
(7)
(5)
(6)

Janet Nibel (9)
Vice President, Finance and Administration
 
2003
2002
2001
 
97,374
38,080
—
 
2,500
—
—
 
—
50,000
—
 
43,287
—
—
(10)
(1)
The bonus reported for Mr. Lanphier for the 2001 fiscal year included $64,538 of loan forgiveness. There was no further balance outstanding on that loan as of December 31, 2001.

(2)
Other compensation for Mr. Lanphier consists of an insurance premium of $25,000 paid by Sangamo in each of the 2001 and 2002 fiscal years on a split dollar life insurance policy of which he has the right to designate the beneficiary. Sangamo will be reimbursed for these insurance premiums out of the cash surrender value of the policy if the policy is surrendered during Mr. Lanphier's lifetime or out of the proceeds paid under the policy upon his death. The face

29

(3)
Mr. Martin resigned his position on March 12, 2004.

(4)
Dr. Pabo resigned his position on June 30, 2003.

(5)
Represents reimbursement of temporary living and relocation costs.

(6)
As a part of his initial compensation package, Sangamo paid Dr. Pabo a sign-on bonus of $100,000 and reimbursed him for $12,270 of temporary living and relocation costs.

(7)
Consists of $318,404 of severance pay, including the cost of his COBRA coverage, and $2,273 of reimbursed moving expenses.

(8)
The bonus reported for Dr. Pabo for the 2003 Fiscal Year includes $263,000 of loan forgiveness. There was no further balance outstanding on such loan as of December 31, 2003.

(9)
Ms. Nibel resigned her position on August 15, 2003.

(10)
Consists of severance pay, including the cost of COBRA coverage.

Option Grants

        The following table sets forth summary information regarding the option grants made to the Named Officers for the 2003 Fiscal Year. No stock appreciation rights were granted to the Named Officers during the 2003 Fiscal Year.


OPTION GRANTS TO NAMED OFFICERS IN 2003

 
    
    
    
    
   Potential Realizable
Value at
Assumed Annual
Rates of
Stock Price
Appreciation for
Option Term $(6)
 
   Number of
Securities
Underlying
Options
Granted
   Percentage of
Total Options
Granted to
Employees in
Fiscal 2003(2)
    
    
Name
   Exercise Price
Per Share $(3)
   Expiration
Date
  5%
   10%
Edward O. Lanphier II   —   —                

J. Tyler Martin, Sr., M.D.
 
150,000
50,000
 
24.0
8.0
%
%
3.25
4.92
 
2/01/13
12/02/13
(4)
(5)
305,737
154,708
 
774,311
392,060

Peter Bluford
 
10,000
 
1.6
%
4.92
 
12/02/13
(5)
30,942
 
78,412

Casey C. Case, Ph.D.
 
20,000
 
3.2
%
4.92
 
12/02/13
(5)
61,883
 
156,824

Carl Pabo, Ph.D.
 
—
 
—
 
 
 
 
 
 
 
 

Janet Nibel
 
—
 
—
 
 
 
 
 
 
 
 
(1)
Each option will vest and become exercisable for 25 percent of the shares upon the optionee's completion of one year of service measured from the grant date and vest and become exercisable for the balance of the shares in 36 successive equal monthly installments upon his or her completion of each additional month of service thereafter. However, the option will vest and become exercisable on an accelerated basis for all the option shares upon a merger or consolidation in which there is a change in ownership of securities possessing more than 50 percent of the total combined voting power of the Sangamo's outstanding securities or a sale of substantially all of its assets, unless the option is assumed or replaced by the acquiring entity.

30

(2)
The percentage of total options was calculated based on options to purchase an aggregate of 592,700 shares of Common Stock granted to employees under the 2000 Plan in 2003.

(3)
The exercise price per share is equal to the fair market value of Common Stock on the date of grant. The exercise price may be paid in cash or in shares of Common Stock valued at fair market value on the exercise date. Alternatively, the option may be exercised through a sale and remittance procedure pursuant to which the optionee provides irrevocable instructions to a brokerage firm to sell the purchased shares and to remit to Sangamo, out of the sale proceeds, an amount equal to the exercise price plus all applicable withholding taxes.

(4)
The grant date for the options was February 10, 2003.

(5)
The grant date for the options was December 2, 2003.

(6)
The potential realizable value was calculated based on the ten-year term of the options and assumed rates of stock appreciation of 5 percent and 10 percent, compounded annually from the date the options were granted to their expiration date based on the fair market value of Common Stock on the date of grant. There can be no assurance provided to any executive officer or other holder of Sangamo's securities that the actual stock price will appreciate over the ten-year option term at the assumed 5 percent or 10 percent levels or at any other level. Unless the market price of the Common Stock appreciates over the option term, no value will be realized from those option grants which were made to the Named Officers with an exercise price equal to the fair market value of the shares on the grant date.

Aggregated Option Exercises and Fiscal Year-End Values

        The following table provides information, with respect to the Named Officers, concerning the exercise of options during the 2003 Fiscal Year and unexercised options held by them at of the end of that fiscal year. None of the Named Officers exercised any stock appreciation rights during the 2003 Fiscal Year and no stock appreciation rights were held by the Named Officers at the end of the year.

31


AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES

 
    
    
    
    
   Value of Unexercised
in-the-Money
Options/SARs at Fiscal
Year-End($)(1)
 
    
    
   Number of Unexercised
Options/SARs
at Fiscal Year-End
Name
   Shares
Acquired on
Exercise
   Value
Realized($)
  Exercisable
   Unexercisable
   Exercisable
   Unexercisable
Edward O. Lanphier II   —   —   400,000   —   2,120,000   —

J. Tyler Martin, Sr., M.D.
 
—
 
—
 
—
 
200,000
 
—
 
360,500

Peter Bluford
 
—
 
—
 
108,333
 
52,501
 
273,315
 
16,222

Casey C. Case, Ph.D.
 
—
 
—
 
185,124
 
46,876
 
759,068
 
21,722

Carl Pabo, Ph.D.
 
30,000
 
148,400
(2)
17,708
 
32,292
 
29,396
 
53,603

Janet Nibel
 
—
 
—
 
—
 
—
 
—
 
—
(1)
Based upon the market price of $5.47 per share, determined on the basis of the closing selling price per share of Common Stock on the Nasdaq National Market on the last day of the 2003 Fiscal Year, less the option exercise price payable per share.

(2)
Based upon the market price of the purchased shares on the exercise date, less the option exercise price paid for those shares.

Equity Compensation Plan Information

        The following table provides information as of December 31, 2003 with respect to the shares of the Company's Common Stock that may be issued under the Company's existing equity compensation plans. There are no outstanding options assumed by Sangamo in connection with its acquisition of other companies, and there are currently no assumed plans under which Sangamo can grant options.

 
   Column (A)

   Column (B)

   Column (C)

  
Plan Category
   Number of
Securities to be
Issued Upon
Exercise of
Outstanding Options
   Weighted
Average
Exercise
Price of
Outstanding Options
   Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column A)
  
Equity Compensation Plans Approved by Stockholders(1)   2,961,252 (2) $ 5.81   3,667,486 (3)(4)

Equity Compensation Plans Not Approved by Stockholders
 
0
 
 
N/A
 
0
 
   
 
 
 
Total   2,961,252   $ 5.81   3,667,486  
   
 
 
 
(1)
Consists solely of the 2000 Stock Incentive Plan and the 2000 Employee Stock Purchase Plan.

(2)
Excludes purchase rights accruing under the Company's 2000 Employee Stock Purchase Plan which has a stockholder-approved reserve of 400,000 shares. Under the Purchase Plan, each eligible employee may purchase up to 2,000 shares of Common Stock at semi-annual intervals on the last U.S. business day of April and October each year at a purchase price per share equal to 85% of the lower of (i) the closing selling price per share of Common Stock on the employee's entry date into the two-year offering period in which that semi-annual purchase date occurs or (ii) the closing selling price per share on the semi-annual purchase date.

32

(3)
Consists of shares available for future issuance under the 2000 Employee Stock Purchase Plan and the 2000 Stock Incentive Plan. As of December 31, 2003, 870,687 shares of Common Stock were available for issuance under the Employee Stock Purchase Plan, and 2,796,799 shares of Common Stock were available for issuance under the 2000 Stock Incentive Plan. The 2,796,799 shares available for issuance under the 2000 Stock Incentive Plan may be issued upon the exercise of stock options or stock appreciation rights granted under discretionary grant and automatic option grant programs, or those shares may be issued under the stock issuance program as stock bonuses or pursuant to restricted stock awards or restricted stock units which vest upon the attainment of prescribed performance milestones or the completion of designated service periods.

(4)
The number of shares of Common Stock available for issuance under the Employee Stock Purchase Plan and the 2000 Stock Incentive Plan automatically increases on the first trading day of January each calendar year by an amount equal to 1% and 3.5%, respectively, of the total number of shares of Common Stock outstanding on the last trading day of December in the immediately preceding calendar year, but in no event will any such annual increase exceed 600,000 shares and 2,000,000 shares, respectively, of Common Stock. If Proposal No. 2 is approved by the stockholders, then no further annual increases will occur to the share reserve under the 2000 Stock Incentive Plan.

Employment Contracts and Change in Control Arrangements

        In May 1997 we entered into an employment agreement with Edward O. Lanphier II, our current President and Chief Executive Officer. Under the terms of the agreement, Mr. Lanphier will receive an annual rate of base salary and have an additional cash bonus potential, each in an amount or at a rate determined annually by the Compensation Committee. In the event Mr. Lanphier terminates his employment due to a material reduction of his duties and responsibilities, a reduction in his base salary by more than 5% (except pursuant to certain pay reductions uniformly applied to Sangamo's management) or a relocation of his principal place of employment to a location more than 40 miles from his home, or in the event Mr. Lanphier is terminated by Sangamo without cause, he will be entitled to receive the following severance benefits: (i) twelve months base salary, (ii) a pro-rated bonus for the year in which such termination occurs, and (iii) continued health care coverage at Sangamo's expense for a period of twelve months. Upon a change in control of Sangamo, Mr. Lanphier will be entitled to receive an immediate lump sum payment equal to (i) twelve months base salary and (ii) a pro-rated bonus for the year in which such change in control occurs, and all of Mr. Lanphier's outstanding stock options will vest in full, and such options shall remain exercisable for all the option shares until the earlier of (i) three years following the date of the change of control or, if later, his termination date, or (ii) the expiration of the option term. However, upon the termination of Mr. Lanphier's employment following such a change in control, he will not be entitled to any of the severance benefits described above, other than continued health care coverage at the expense of Sangamo's successor for a period of twelve months.

        In September, 2001 we entered into an employment agreement with Carl Pabo, as Senior Vice President and Chief Scientific Officer, under which he was to receive an annual base salary of $280,000, target incentive compensation equal to 33% of his base salary, and certain employee benefits. He also received the following additional benefits under that agreement: a stock option grant for 415,000 shares of Common Stock (vesting 25% on October 1, 2002 with the remainder vesting monthly thereafter over a three-year period of continued employment with Sangamo), a sign-on bonus in the amount of $100,000 and reimbursement of temporary living and relocation expenses. Under the agreement, we were also committed to loan Dr. Pabo up to $250,000 as a housing allowance payable in four years from the date of the loan with simple interest at a rate of six percent. Twenty-five percent of the housing loan and associated interest were to be forgiven on each anniversary of the loan, provided Dr. Pabo remained a full-time employee of Sangamo. In connection with the termination of Dr. Pabo's

33


employment effective June 30, 2003, we entered into a Separation Agreement and Release (the "Separation Agreement") with him, pursuant to which he is to receive the following severance benefits: salary continuation payments for a period of one year, and continuation of his health benefits at our expense for that one-year period. In addition, the entire outstanding balance of the housing loan made to Dr. Pabo in May 2002 (principal and accrued interest in the aggregate amount of $263,000) was forgiven. As part of the Separation Agreement, Dr. Pabo has also agreed to serve as Chairman of our Scientific Advisory Board until December 31, 2005. Dr. Pabo will not receive any cash compensation for his service in such capacity; however, his outstanding stock options will continue to vest over his period of service as Chairman of the Scientific Advisory Board. In consideration for the payments received pursuant to the Separation Agreement, Dr. Pabo executed a release of all claims against Sangamo, and Dr. Pabo agreed not to compete with Sangamo by being employed by, consulting for or having an economic interest in certain competitors of Sangamo.

        In connection with the termination of Ms. Nibel's employment effective August 15, 2003, we entered into a Separation Agreement and Release (the "Separation Agreement") with her, pursuant to which she is to receive the following severance benefits: salary continuation payments for a period of ninety days, and continuation of health benefits for herself and her dependants at our expense for up to a one-year period. In consideration for the payments received pursuant to the Separation Agreement, Ms. Nibel executed a release of all claims against Sangamo.

        Sangamo does not have any existing employment agreements with any other Named Officers.

        The Compensation Committee of the Board of Directors, as Plan Administrator of the 2000 Plan, has the authority to provide for accelerated vesting of the shares of Common Stock subject to any outstanding options held by the Chief Executive Officer or any other executive officer or any unvested share issuances actually held by such individual, in connection with certain changes in control of Sangamo or the subsequent termination of the officer's employment following the change in control event.

Board Compensation Committee Report on Executive Compensation

        It is the duty of the Compensation Committee to review and determine the salaries and bonuses of the Company's executive officers, including the Chief Executive Officer, and to establish the general compensation policies for such individuals. For the 2003 fiscal year, the Compensation Committee also had the sole and exclusive authority to make discretionary option grants to executive officers under the Sangamo 2000 Incentive Plan.

        The Compensation Committee believes that the compensation programs for executive officers should reflect both the Company's performance and the value created for its stockholders. In addition, the compensation programs should support the Company's short-term and long-term strategic goals and values and should reward individual contribution to the Company's success. Sangamo is engaged in a highly competitive industry, and the Company's success depends upon its ability to attract and retain qualified executives through the competitive compensation packages it offers to such individuals.

        General Compensation Policy.    The Compensation Committee's policy is to provide the Company's executive officers with compensation opportunities which are based upon their personal performance, the overall performance of the Company and their contribution to that performance and which are competitive enough to attract and retain highly skilled individuals. Each executive officer's compensation package is comprised of three elements: (i) base salary that is competitive with the market and reflects individual performance, (ii) annual variable performance awards payable in cash and tied to both the Company's achievement of annual performance goals and individual performance and (iii) long-term stock-based incentive awards designed to strengthen the mutuality of interests between the executive officers and the stockholders.

34


        Factors.    The principal factors that were taken into account in establishing each executive officer's compensation package for Fiscal Year 2003 are described below. However, the Compensation Committee may in its discretion apply entirely different factors, such as different measures of performance, for future fiscal years.

        Base Salary.    In setting base salaries for the 2003 fiscal year, the Compensation Committee reviewed published compensation survey data for our industry. The Committee also identified a group of companies for comparative compensation purposes for which it reviewed detailed compensation data. This group was comprised of approximately twenty-five biotechnology companies. The base salary for each officer reflects the salary levels for comparable positions in the published surveys and the comparative group of companies, as well as the individual's personal performance and internal alignment considerations. The relative weight given to each factor varies with each individual in the sole discretion of the Compensation Committee. Base salary levels are adjusted each year on the basis of (i) the Compensation Committee's evaluation of each officer's personal performance for the year and (ii) the competitive marketplace for persons in comparable positions. The base salaries set for the executive officers for the 2003 fiscal year ranged from the 40th to the 60th percentile of the salary levels in effect for the executive officers of the comparative group companies.

        Annual Incentive Compensation.    The annual incentive compensation for each executive officer is dependent upon both the Company's financial performance for the year in relation to the business plan objectives set at the start of that year and the officer's individual performance for the year. The amount of such incentive compensation may range from fifteen to fifty percent of the officer's annual base salary, depending upon actual company results and individual performance. On the basis of the Company's performance for the 2003 fiscal year in relation to objectives established at the outset of the year and the officer's individual performance, bonuses were awarded to the executive officers named in the Summary Compensation Table in the indicated amounts.

        Long-term Incentives.    Generally, stock option grants are made annually by the Compensation Committee to certain executive officers. Each grant is designed to align the interests of the executive officer with those of the stockholders and provide each individual with a significant incentive to manage the Company from the perspective of an owner with an equity stake in the business. Each grant allows the officer to acquire shares of the Company's Common Stock at a fixed price per share (the market price on the grant date) over a specified period of time (up to ten years). Each option vests in a series of installments over a four-year period, contingent upon the officer's continued employment with the Company. Accordingly, the option will provide a return to the executive officer only if he or she remains employed by the Company during the vesting period, and then only if the market price of the shares appreciates over the option term.

        The size of the option grant to each executive officer is set by the Compensation Committee at a level that is intended to create a meaningful opportunity for stock ownership based upon the individual's current position with the Company, the individual's personal performance in recent periods and his or her potential for future responsibility and promotion over the option term. The Compensation Committee also takes into account the amount of Common Stock currently owned by the executive officer, as well as unvested options held by the executive officer, in order to maintain an appropriate level of equity incentive for that individual. The relevant weight given to each of these factors varies from individual to individual. The Compensation Committee has established certain guidelines with respect to the option grants made to the executive officers, but has the flexibility to make adjustments to those guidelines at its discretion.

        CEO Compensation.    In setting the total compensation payable the Chief Executive Officer, the Compensation Committee sought to make that compensation competitive with the compensation paid to the chief executive officers of the companies in the surveyed group, while at the same time assuring that a significant percentage of compensation was tied to the Company's performance.

35


        The Compensation Committee adjusted Mr. Lanphier's base salary for the 2003 fiscal year in recognition of his personal performance and with the objective of maintaining his base salary at a competitive level when compared with the base salary levels in effect for similarly situated chief executive officers. With respect to Mr. Lanphier's base salary, it is the Compensation Committee's intent to provide him with a level of stability and certainty each year and not have this particular component of compensation affected to any significant degree by company performance factors. For the 2003 fiscal year, Mr. Lanphier's base salary was approximately at the median of the base salary levels of other chief executive officers at the surveyed companies.

        The remaining components of Mr. Lanphier's compensation, however, were primarily dependent upon corporate performance. Mr. Lanphier was eligible for a cash bonus based upon the Company's attainment of corporate goals set in the 2003 fiscal year business plan and his personal performance. The corporate performance goals governing Mr. Lanphier's bonus were the same as those in effect for the bonus awards for the other executive officers. Mr Lanphier was awarded a bonus of $150,000 for the 2003 fiscal year.

        Compliance with Internal Revenue Code Section 162(m).    Section 162(m) of the Internal Revenue Code disallows a tax deduction to publicly held companies for compensation paid to certain of their executive officers, to the extent that compensation exceeds $1 million per covered officer in any fiscal year. The limitation applies only to compensation which is not considered to be performance-based. The Company was not subject to the $1 million limitation for the 2003 fiscal year by reason of the phase-in period for that limitation applicable to newly public companies. The non-performance based compensation paid to the Company's executive officers for the 2003 fiscal year was not in excess of $1 million for any officer, and the Compensation Committee does not anticipate that the non-performance based compensation to be paid to the executive officers for fiscal year 2004, when the Company becomes subject to the Section 162(m), will exceed the $1 million limit for any executive officer. If the 2004 Stock Incentive Plan is approved by the stockholders at the Annual Meeting, then any compensation deemed paid in connection with the exercise of stock options or stock appreciation rights granted under that plan will qualify as performance-based compensation which will not be subject to the $1 million limitation. Because it is unlikely that the cash compensation payable to any of the executive officers in the foreseeable future will approach the $1 million limit, the Compensation Committee has decided at this time not to take any action to limit or restructure the elements of cash compensation payable to the Company's executive officers. The Compensation Committee will reconsider this decision should the individual cash compensation of any executive officer ever approach the $1 million level.

        It is the opinion of the Compensation Committee that the executive compensation policies and plans provide the necessary total remuneration program to properly align Sangamo's performance and the interests of the stockholders through the use of competitive and equitable executive compensation in a balanced and reasonable manner, for both the short and long-term.

36

Board Audit Committee Report

        The information contained in this report shall not be deemed to be "soliciting material" or to be "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that Sangamo specifically incorporates it by reference into a document filed under the Securities Act of 1933, as amended, or Securities Exchange Act of 1934, as amended.

        The following is the report of the Audit Committee with respect to Sangamo's audited financial statements for the fiscal year ended December 31, 2003, included in the Annual Report on Form 10-K for that year.

        The Audit Committee has reviewed and discussed the audited financial statements for the fiscal year ended December 31, 2003 with the management of Sangamo.

        The Audit Committee has discussed with Sangamo's independent auditors, Ernst & Young LLP, the matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU Section 380), as amended, which include, among other items, matters related to the conduct of the audit of Sangamo's financial statements.

        The Audit Committee has received the written disclosures and the letter from Ernst & Young LLP required by Independence Standards Board Standard No. 1 ("Independence Discussions with Audit Committees"), as amended, and has discussed with Ernst & Young LLP the independence of Ernst & Young LLP from Sangamo.

        Based on the review and discussions referred to above in this report, the Audit Committee recommended to Sangamo's Board of Directors that the audited financial statements be included in Sangamo's Annual Report on Form 10-K for the year ended December 31, 2003 for filing with the Securities and Exchange Commission.

37

Stock Performance Graph

        The graph depicted below shows a comparison of cumulative total stockholder returns for Sangamo, the NASDAQ composite index, and the NASDAQ biotechnology index.

GRAPHIC

(1)
The graph covers the period from April 6, 2000, the commencement date of Sangamo's initial public offering of shares of its Common Stock, to December 31, 2003.

(2)
The graph assumes that $100 was invested on April 6, 2000, in Sangamo's Common Stock and in each index, and that all dividends were reinvested. No cash dividends have been declared on Sangamo's Common Stock.

(3)
Stockholder returns over the indicated period should not be considered indicative of future stockholder returns.

        Notwithstanding anything to the contrary set forth in any of Sangamo's previous filings made under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings made by Sangamo under those statutes, neither the preceding Stock Performance Graph nor the Compensation Committee Report is to be incorporated by reference into any such prior filings, nor shall such graph or report be incorporated by reference into any future filings made by Sangamo under those statutes.

38


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Mr. Larson, a Director, is also a partner at Morgan, Lewis & Bockius LLP, Sangamo's legal counsel.

        In addition to the indemnification provisions contained in Sangamo's Restated Certificate of Incorporation and Bylaws, Sangamo has entered into separate indemnification agreements with each of its directors and officers containing provisions which may require Sangamo, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as officers or directors.


SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        The members of the Board of Directors, the executive officers of Sangamo and persons who hold more than 10 percent of the outstanding Common Stock are subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934 which require them to file reports with respect to their ownership of the Common Stock and their transactions in such Common Stock. Based upon (i) the copies of Section 16 reports which Sangamo received from such persons for their 2003 fiscal year transactions in the Common Stock and their Common Stock holdings, and (ii) written representation that no other reports were required, Sangamo believes that all reporting requirements under Section 16 for such fiscal year were met in a timely manner by its directors, executive officers and greater than ten percent beneficial owners, except that one Form 4 on behalf of each of Mssrs. Bluford, Case and Zante reporting a grant of stock options received in December 2003 was not timely filed.

        The Annual Report on Form 10-K of the Company, for the fiscal year ended December 31, 2003, has been mailed concurrently with the mailing of the Notice of Annual Meeting and Proxy Statement to all stockholders entitled to notice of and to vote at the Annual Meeting. The Annual Report on Form 10-K is not incorporated into this Proxy Statement and is not considered proxy soliciting material.

    THE BOARD OF DIRECTORS OF SANGAMO BIOSCIENCES, INC.

 
 
Dated: April 29, 2004

39

SANGAMO BIOSCIENCES, INC.


AMENDED AND RESTATED CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS

I.     Purpose

II.    Membership

A-1

III.  Meetings and Procedures

IV.    Duties and Responsibilities

A-2

A-3

A-4

SANGAMO BIOSCIENCES, INC.

CHARTER OF THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE
OF THE BOARD OF DIRECTORS

I.     Purpose

II.    Membership

III.  Meetings and Procedures

B-1

IV.    Duties and Responsibilities

        The Committee shall have the following duties and responsibilities:

B-2


SANGAMO BIOSCIENCES, INC.

2004 STOCK INCENTIVE PLAN


ARTICLE ONE

GENERAL PROVISIONS

I.     PURPOSE OF THE PLAN

        This 2004 Stock Incentive Plan is intended to promote the interests of Sangamo Biosciences, Inc., a Delaware corporation, by providing eligible persons in the Corporation's service with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in such service.

        Capitalized terms shall have the meanings assigned to such terms in the attached Appendix.

II.    STRUCTURE OF THE PLAN

III.  ADMINISTRATION OF THE PLAN

IV.    ELIGIBILITY

2

V.     STOCK SUBJECT TO THE PLAN

1
The exact number of shares shall be determined as of the date of the 2004 Annual Stockholders Meeting and shall be equal to the lesser of (i) the amount by which the remaining unissued share reserve under the Corporation's 2000 Stock Incentive Plan on that date exceeds the number of shares of Common Stock subject to options outstanding under such plan on that date or (ii) 3,803,867 shares of Common Stock.

3

4


ARTICLE TWO

DISCRETIONARY GRANT PROGRAM

I.     OPTION TERMS

        Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options.

        Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.

5

6

II.    INCENTIVE OPTIONS

        The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One, Two and Five shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II.

III.  STOCK APPRECIATION RIGHTS

7

8

9

IV.    CHANGE IN CONTROL/HOSTILE TAKE-OVER

10

V.     EXCHANGE/REPRICING PROGRAMS

11

12


ARTICLE THREE

SALARY INVESTMENT OPTION GRANT PROGRAM

I.     OPTION GRANTS

        The Primary Committee shall have the sole and exclusive authority to determine the calendar year or years (if any) for which the Salary Investment Option Grant Program is to be in effect and to select the Section 16 Insiders and other highly compensated Employees eligible to participate in the Salary Investment Option Grant Program for such calendar year or years. Each selected individual who elects to participate in the Salary Investment Option Grant Program must, prior to the start of each calendar year of participation, file with the Plan Administrator (or its designate) an irrevocable authorization directing the Corporation to reduce his or her base salary for that calendar year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely authorization shall automatically be granted an option under the Salary Investment Option Grant Program on the first trading day in January of the calendar year for which the salary reduction is to be in effect.

II.    OPTION TERMS

        Each option shall be a Non-Statutory Option evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below.

13

III.  CHANGE IN CONTROL/HOSTILE TAKE-OVER/HOSTILE TENDER-OFFER

14

IV.    REMAINING TERMS

        The remaining terms of each option granted under the Salary Investment Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Grant Program.

15


ARTICLE FOUR

STOCK ISSUANCE PROGRAM

I.     STOCK ISSUANCE TERMS

        Shares of Common Stock may be issued under the Stock Issuance Program, either as vested or unvested shares, through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to share right awards or restricted stock units which entitle the recipients to receive the shares underlying those awards or units upon the attainment of designated performance goals or the satisfaction of specified Service requirements or upon the expiration of a designated time period following the vesting of those awards or units.

16

17

II.    CHANGE IN CONTROL/HOSTILE TAKE-OVER

18


ARTICLE FIVE

AUTOMATIC OPTION GRANT PROGRAM

I.     OPTION TERMS

19

II.    CHANGE IN CONTROL/HOSTILE TAKE-OVER/HOSTILE TENDER-OFFER

20

III.  REMAINING TERMS

        The remaining terms of each option granted under the Automatic Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Grant Program.

21


ARTICLE SIX

MISCELLANEOUS

I.     TAX WITHHOLDING

II.    ASSUMPTION OR SUBSTITUTION OF OPTIONS

22

III.  SHARE ESCROW/LEGENDS

        Unvested shares may, in the Plan Administrator's discretion, be held in escrow by the Corporation until the Participant's interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares.

IV.    EFFECTIVE DATE AND TERM OF THE PLAN

V.     AMENDMENT OF THE PLAN

23

VI.   USE OF PROCEEDS

        Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.

VII. REGULATORY APPROVALS

VIII.   NO EMPLOYMENT/SERVICE RIGHTS

        Nothing in the Plan shall confer upon the Optionee or the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of the Optionee or the Participant, which rights are hereby expressly reserved by each, to terminate such person's Service at any time for any reason, with or without cause.

24


APPENDIX

        The following definitions shall be in effect under the Plan:

A-1

A-2

A-3

A-4

A-5

DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL

ZSBIC2

PROXY

SANGAMO BIOSCIENCES, INC.

PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS, JUNE 10, 2004

(SEE PROXY STATEMENT FOR DISCUSSION OF ITEMS)

        By signing the proxy, you revoke all prior proxies and appoint Edward O. Lanphier II, with full power of substitution, to vote your shares on the matters shown on the reverse side and any other matters which may come before the Annual Meeting and all adjournments and postponements thereof.

        Whether or not a choice is specified, this proxy, when properly executed, will be voted in the discretion of the proxy holders upon such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof.

SEE REVERSE
SIDE		   CONTINUED AND TO BE SIGNED ON REVERSE SIDE
    		   SEE REVERSE
SIDE

SANGAMO BIOSCIENCES, INC.
C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694

Voter Control Number

    
Your vote is important. Please vote immediately.

 
 
Vote-by-Internet
 
 
 
 
 
Vote-by-Telephone

1.
 
Log on to the Internet and go to http://www.eproxyvote.com/sgmo
 
OR
 
1.
 
Call toll-free 1-877-PRX-VOTE (1-877-779-8683)

2.
 
Enter your Voter Control Number listed above and follow the easy steps outlined on the secured website.
 
 
 
2.
 
Enter your Voter Control Number listed above and follow the easy recorded instructions.

If you vote over the Internet or by telephone, please do not mail your card.

DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL

ZSBIC1

ý   Please mark
votes as in
this example.


THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.

1.   To elect six directors to serve for the ensuing year until their successors are duly elected and qualified or until earlier death or resignation.

Nominees:
 
(01) Edward O. Lanphier II,
(03) Jon E. M. Jacoby,
(05) William J. Rutter, Ph.D.,
 
(02) William G. Gerber, M.D.,
(04) John W. Larson,
(06) Michael C. Wood.
FOR
ALL
NOMINEES		   o   o   WITHHELD
FROM ALL
NOMINEES

o
 
    
For all nominees except as noted above

2.
 
To approve the 2004 Stock Incentive Plan
 
FOR
o
 
AGAINST
o
 
ABSTAIN
o

3.
 
To ratify the Appointment of Ernst & Young LLP as Independent Auditors for the fiscal year ended December 31, 2004
 
FOR
o
 
AGAINST
o
 
ABSTAIN
o

THE SHARES REPRESENTED BY THIS PROXY CARD WILL BE VOTED AS SPECIFIED ABOVE, BUT IF NO SPECIFICATION IS MADE THEY WILL BE VOTED FOR ITEMS 1, 2 AND 3 AND AT THE DISCRETION OF THE PROXY ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING.

MARK HERE
FOR ADDRESS
CHANGE AND
NOTE AT LEFT
 
o
 
MARK HERE
IF YOU PLAN
TO ATTEND
THE MEETING
 
o

NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, GIVE FULL NAME AND TITLE AS SUCH.

PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ACCOMPANYING ENVELOPE.


Signature:
 
    
 
Date:
 
    

Signature:
 
    
 
Date:
 
    



QuickLinks

SANGAMO BIOSCIENCES, INC. NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 10, 2004
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 10, 2004
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SUMMARY COMPENSATION TABLE
OPTION GRANTS TO NAMED OFFICERS IN 2003
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
AMENDED AND RESTATED CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
CHARTER OF THE NOMINATING AND CORPORATE GOVERNANCE COMMITTEE OF THE BOARD OF DIRECTORS
SANGAMO BIOSCIENCES, INC. 2004 STOCK INCENTIVE PLAN
ARTICLE ONE GENERAL PROVISIONS
ARTICLE TWO DISCRETIONARY GRANT PROGRAM
ARTICLE THREE SALARY INVESTMENT OPTION GRANT PROGRAM
ARTICLE FOUR STOCK ISSUANCE PROGRAM
ARTICLE FIVE AUTOMATIC OPTION GRANT PROGRAM
ARTICLE SIX MISCELLANEOUS
APPENDIX