SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-
12
/X/ No fee required.
APHTON CORPORATION
(Name or Registrant as Specified In Its Charter)
APHTON CORPORATION
(Name of Person(s) Filling Proxy Statement)
Payment of Filling Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii) or 14a-6(i)(1).
/ / Fee Computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange
Act Rule 0-11 (set forth the amount on which the filling fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, of the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
<PAGE>
(3) Filing Party:
(4) Date Filed:
<PAGE>
October 9, 1997
Dear Shareholder:
A Special Meeting of Shareholders of Aphton Corporation will be held on
Thursday, November 6, 1997, at 9:00 A.M. at the offices of White & Case,
located at First Union Financial Center, 200 South Biscayne Boulevard, Miami,
Florida 33131-2352.
The Notice of Special Meeting and the Proxy Statement are enclosed herewith.
Shareholders will be asked to vote on various matters, which are described in
detail in the attached Proxy Statement. Your Board of Directors recommends
that you vote "for" these proposals.
Please review the Proxy Statement and at your earliest convenience and sign,
date and return the enclosed proxy card so that your shares will be
represented at the meeting. A prepaid return envelope is enclosed for this
purpose.
Yours truly,
Philip C. Gevas
Chairman, President and Chief Executive Officer
PCG/ma
encl.
<PAGE>
October 10, 1997
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS ON
NOVEMBER 6, 1997
A Special Meeting of Shareholders of Aphton Corporation, a California
corporation,will be held at the offices of White & Case, located at First
Union Financial Center, 200 South Biscayne Boulevard, Miami, Florida 33131-
2352, on November 6, 1997, at 9:00 A.M. for the following purposes:
(1) To approve a proposal to change the state of incorporation of the
Company from California to Delaware and related changes to the
Company's Article of Incorporation and bylaws, to enable the Company
to attract and retain highly qualified officers and directors, and
to take advantage of the flexibility afforded by Delaware law to
adopt measures designed to protect shareholders in the face of
unsolicited and coercive takeover attempts.
(2) If the Reincorporation Proposal is not approved, to approve an
amendment to the Articles of Incorporation to increase the
authorized number of shares of common stock to 30,000,000 shares and
to authorize 2,000,000 shares of preferred stock.
(3) To transact such other business as may properly come before the
meeting.
On any business day from October 23, 1997 until November 5, 1997, during
ordinary business hours, shareholders may examine the list of shareholders for
any purpose germane to the meeting at the Office of the Company's attorneys,
White & Case, First Union Financial Center, 200 South Biscayne Boulevard,
Miami, Florida 33131.
The Board of Directors has fixed the close of business on Thursday, September
25, 1997, as the record date for determination of shareholders entitled to be
notified of and to vote at the Special Meeting.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE MEETING, THE BOARD REQUESTS THAT YOU SIGN,
DATE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING SELF-ADDRESSED, STAMPED
ENVELOPE. YOUR PROXY WILL NOT BE USED IF YOU ARE PRESENT AT THE MEETING AND
WISH TO VOTE YOUR SHARES PERSONALLY.
By Order of the Board of Directors
Philip C. Gevas
Chairman, President and
Chief Executive Officer
<PAGE>
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
OF APHTON CORPORATION
November 6, 1997
INTRODUCTION
This Proxy Statement is being mailed on or about October 10, 1997, to
shareholders of Aphton Corporation (the "Company") in connection with the
solicitation of Proxies by the Company's Board of Directors for use at the
Company's Special Meeting of Shareholders to be held on November 6, 1997, for
the purposes set forth herein and in the accompanying Notice of Special
Meeting of Shareholders. The accompanying proxy, and all expenses incident to
the solicitation, are to be paid by the Company.
The persons named in the accompanying proxy have advised the Company that they
intend to vote the proxies received by them in their discretion in favor of
each of the proposals. Any shareholder may revoke his or her proxy at any
time prior to its use by filing with the Secretary of the Company a written
notice of revocation or a duly executed proxy bearing a later date.
Only holders of record of the Company's common stock, no par value (the
"common stock"), at the close of business on September 25, 1997, will be
entitled to notice of and to vote at the meeting or any adjournments thereof.
At such record date, the Company had outstanding and entitled to vote
13,733,101 shares of common stock. Each share of stock is entitled to one
vote on all matters to be voted on.
The presence, in person or by proxy duly authorized, of the holders of a
majority of the voting shares of common stock of the Company will constitute a
quorum for the transaction of business at the meeting and any continuation or
adjournment thereof. Broker non-votes (i.e. shares held by broker or nominee
which are represented at the meeting, but with respect to which such broker or
nominee is not empowered to vote on a particular purpose) will be counted in
determining whether a quorum is present at the meeting. The proposals
submitted to the shareholders in this Proxy Statement must be approved by the
vote of the holders of a majority of the votes of the shares of the Company
represented in person or by proxy and entitled to vote at the meeting except
for the proposal to approve the reincorporation of the Company in the State of
Delaware which requires the approval of a majority of the voting power of all
shares of the Company entitled to vote at the meeting. In determining whether
such proposals have been approved, abstentions and broker non-votes are not
counted as votes for or against the proposal; except that for the proposal to
approve the reincorporation of the Company in the State of Delaware,
abstentions and broker non-votes will have the same effect as a negative vote.
<PAGE>
Set forth below are the names and principal occupations of the present
directors of the Company and the respective number of shares of common stock
beneficially owned, directly or indirectly, by them and by all directors and
officers as a group as of August 31, 1997, according to information furnished
to the Company by such persons.
<TABLE>
<CAPTION>
Shares Beneficially
Name and Principal Year First Owned as of Percent
Occupation Age Elected
August 31, 1997 of Class
<S> <C> <C> <C> <C>
Philip C. Gevas 64 1981 1,979,050<F1> 14.4
Chairman, President and Chief Executive
Officer
Aphton Corporation
Robert S. Basso 52 1988 30,166 <F2>
President
Correspondent Services Corporation
William A. Hasler 55 1991 35,000 <F2>
Dean of the Graduate and Undergraduate
Schools of Business
University of California, Berkeley
Nicholas John Stathis 73 1994 50,000 <F2>
Attorney
All Directors and Officers as a group 2,204,416 16.1
(6 persons)
<FN>
<F1> Includes 120,000 shares in a trust of which Mr. Gevas is an uncompensated trustee with no pecuniary interest in the trust
assets.
<F2> Less than 1% of total outstanding shares.
</TABLE>
<PAGE>
PRINCIPAL SHAREHOLDERS
To the Company's knowledge, except as hereinafter described, no single
shareholder of record owned or beneficially owned, as of August 31, 1997, more
than 5% of the Company's common stock. As of August 31, 1997, Cede & Co., a
nominee of securities depositories for various segments of the financial
industry, held approximately 6,100,000 shares, representing approximately 45%
of the Company's outstanding common stock, none of which was owned
beneficially by Cede & Co. The Company believes that each of the entities or
individuals named below beneficially owns 5% or more of the Company's common
stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER NUMBER OF SHARES % OF COMMON STOCK
<S> <C> <C>
Smith Barney Mutual Funds 1,481,900 10.8
Management, Inc.
388 Greenwich Street
Legal Dept., 20th Floor
New York, New York 10013
Eliezer Benjamini, Ph.D. 731,500 5.3
P.O. Box 1049
Woodland, California 95776
Joy Benjamini 731,500 5.3
P.O. Box 1049
Woodland, California 95776
Philip C. Gevas 1,979,050<F1> 14.4
P.O. Box 1049
Woodland, California 95776
Richard L. Littenberg, M.D. 1,246,250 9.1
P.O. Box 1049
Woodland, California 95776
Robert J. Scibienski, Ph.D. 1,613,800 11.8
P.O. Box 1049
Woodland, California 95776
All Executive Officers and 2,204,416 16.1
Directors as a group (6 persons)
<FN>
<F1> Includes 120,000 shares in a trust of which Mr. Gevas is an uncompensated trustee with no pecuniary interest in the trust
assets.
</TABLE>
<PAGE>
PROPOSAL NO. 1 - APPROVAL OF REINCORPORATION OF THE COMPANY INTO THE STATE OF
DELAWARE AND RELATED CHANGES TO THE COMPANY'S ARTICLES OF INCORPORATION AND
BYLAWS AND THE RIGHTS OF SHAREHOLDERS
GENERAL
The Board of Directors has unanimously approved a proposal to change the
Company's state of incorporation from California to Delaware and certain
related changes to the Company's Articles of Incorporation and Bylaws (the "
Reincorporation Proposal"). The Board of Directors believes the change in
domicile to be in the best interests of the Company and its shareholders for
several reasons. Principally, the Board of Directors believes that
reincorporation will enhance the Company's ability to attract and retain
qualified members of the Company's Board of Directors as well as encourage
directors to continue to make independent decisions in good faith on behalf of
the Company and its shareholders. To date, the Company has not experienced
difficulty in retaining directors. However, although California Proposition
211, which would have severely limited the ability of companies to indemnify
directors and officers, was not enacted in November, 1996, the Company
believes that initiatives and legislation containing similar provisions may be
proposed in the near future. As a result, the Company believes that the more
favorable corporate environment afforded by Delaware will enable it to compete
more effectively with other public companies, many of which are incorporated
in Delaware, to attract new directors and officers and to retain its current
directors and officers.
In recent years, a number of major public companies have obtained the approval
of their shareholders to reincorporate in Delaware. For the reasons explained
below, the Company believes it is beneficial and important that the Company
likewise avail itself of Delaware law.
Reincorporation in Delaware will allow the Company the increased flexibility
and predictability afforded by Delaware law. For many years Delaware has
followed a policy of encouraging incorporation in that state. Consequently,
Delaware has adopted comprehensive corporate laws which are revised regularly
to meet changing business circumstances. The Delaware Legislature is
particularly sensitive to issues regarding corporate law and is especially
responsive to developments in modern corporate law. The Delaware courts have
developed considerable expertise in dealing with corporate issues as well as a
substantial body of case law construing Delaware's corporate law. As a result
of these factors, it is anticipated that Delaware law will provide greater
predictability in the Company's legal affairs than is presently available
under California law.
In 1986, Delaware amended its corporate statutes to allow corporations to
limit the personal monetary liability of its directors for their conduct as
directors under certain circumstances. It should be noted that Delaware law
does not permit a Delaware corporation to limit or eliminate the liability of
its directors for intentional misconduct, bad faith conduct or any transaction
from which the director derives an improper personal benefit or for violations
of federal laws such as the federal securities laws. In 1987, California
amended its corporate law in a manner similar to Delaware to permit a
California corporation to limit the personal monetary liability of its
directors for their conduct as directors under certain circumstances. The
Company adopted articles and bylaws to take advantage of these changes in
California law. Nonetheless, the Board of Directors believes that the
protection from liability for directors is somewhat greater under the Delaware
law than under California law and therefore that the Company's objectives in
adopting this type of provision can be better achieved by reincorporation in
Delaware. The Directors have elected to adopt such a provision in the
Delaware Certificate (as defined below) and Delaware Bylaws (as defined
below). The Board of Directors believes that Delaware incorporation will
enhance the Company's ability to recruit and retain directors in the future;
however, the shareholders should be aware that such a provision inures to the
<PAGE>
benefit of the directors and the interest of the Board of Directors in
recommending the reincorporation may therefore be in conflict with the
interests of the shareholders. See "-Limitation of Liability and
Indemnification" for a more complete discussion of these issues.
The interests of the Board of Directors of the Company, management and
affiliated shareholders in voting on the reincorporation proposal may not be
the same as those of unaffiliated shareholders. Delaware law does not afford
minority shareholders some of the rights and protections available under
California law. Reincorporation of the Company in Delaware may make it more
difficult for minority shareholders to elect directors and influence Company
policies. A discussion of the principal differences between California and
Delaware law as they affect shareholders begins on page 9 of this Proxy
Statement.
As part of the Reincorporation Proposal the Certificate of Incorporation and
Bylaws of the Company following reincorporation would include certain measures
designed to protect shareholder interests in the event of unsolicited and
coercive takeover attempts against the Company. The Board believes that these
measures would enable the Board to consider fully any proposed takeover
attempt and to negotiate terms that maximize the benefit to the Company and
its shareholders. A hostile takeover attempt may have a positive or a
negative effect on the Company and its shareholders, depending on the
circumstances surrounding a particular takeover attempt. The primary purpose
of these provisions is to ensure that the Company's Board of Director will
have sufficient time to consider fully any proposed takeover attempt in light
of the short and long-term benefits and other opportunities available to the
Company and its shareholders and, to the extent the Board of Directors
determines to proceed with the takeover, to effectively negotiate terms that
would maximize the benefits to the Company and its shareholders. Takeover
attempts that have not been negotiated or approved by the board of directors
of a corporation can seriously disrupt the business and management of a
corporation and generally present to the shareholders the risk of terms which
may be less favorable to all of the shareholders than would be available in a
board-approved transaction. Board-approved transactions may be carefully
planned and undertaken at an opportune time in order to obtain maximum value
for the corporation and all of its shareholders with due consideration to
matters such as the recognition or postponement of gain or loss for tax
purposes, the management and business of the acquiring corporation and maximum
strategic deployment of corporate assets. Therefore, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts are
sufficiently great such that prudent steps that encourage potential acquirors
to negotiate with the Company and its Board of Directors are in the best
interests of the Company and its shareholders.
Notwithstanding the belief of the Board of Directors as to the benefits to the
Company and its shareholders of the changes to the Company's Articles of
Incorporation and Bylaws, shareholders should recognize that one of the
effects of such changes may be to discourage a future attempt to acquire
control of the Company which is not presented to and approved by the Board of
Directors, but which a substantial number and perhaps even a majority of the
Company's shareholders might believe to be in their best interests or in which
shareholders might receive a substantial premium for their shares over the
current market price. As a result, shareholders who might desire to
participate in such a transaction may not have an opportunity to do so.
The Company's current Articles of Incorporation, as amended (the "California
Articles") and Bylaws (the "California Bylaws") lack certain provisions
available to certain public companies under California law that deter hostile
takeover attempts, such as a classified board of directors and the elimination
of cumulative voting. Under the Certificate of incorporation (the "Delaware
Certificate") and Bylaws (the "Delaware Bylaws") of the Company following the
reincorporation, the Company's Board of Directors would be classified,
cumulative voting for directors will be eliminated, shareholders will not be
able to call special meetings and will not be able to take action by written
consent of shareholders. Additionally, vacancies on the Board of Directors
<PAGE>
resulting from an increase in number of directors will be filled by the
majority vote of the directors then in office.
In considering the Reincorporation Proposal, shareholders should be aware that
the overall effect of certain of the proposed provisions of the Delaware
Certificate and the Delaware Bylaws is to make it more difficult for holders
of a majority of the outstanding shares of common stock to change the
composition of the Board of Directors and to remove existing management in
circumstances where a majority of the shareholders may be dissatisfied with
the performance of the incumbent directors or otherwise desire to make
changes. The provisions in the Delaware Certificate and the Delaware Bylaws
would make a proxy contest a less effective means of removing or replacing
existing directors. These provisions are balanced by the ability of the
holders of a majority of the outstanding voting stock to remove directors with
cause and, with certain exceptions, to amend the Delaware Certificate and the
Delaware Bylaws.
The Board of Directors has considered the potential disadvantages of
reincorporation and believes that the potential benefits of the provisions
included in the Delaware Certificate and the Delaware Bylaws outweigh the
possible disadvantages. In particular, the Board of Directors believes that
the benefits associated with attracting and retaining skilled and experienced
outside directors will enable it to fully consider and negotiate proposed
takeover attempts, as well as the greater sophistication, breadth and
certainty of Delaware law, make the proposed reincorporation beneficial to the
Company, its management and its shareholders.
The inclusion of anti-takeover provisions in the Delaware Certificate and the
Delaware Bylaws does not reflect knowledge on the part of the Board of
Directors or management of any proposed takeover or other attempt to acquire
control of the Company. Management may in the future propose other measures
designed to discourage takeovers apart from those proposed as part of the
Reincorporation Proposal, if warranted from time to time in the judgment of
the Board of Directors.
The proposed reincorporation would be accomplished by merging the Company into
a newly formed Delaware corporation which, prior to the merger, will be a
wholly owned subsidiary of the Company (the "Delaware Company"), pursuant to
an Agreement and Plan of Merger (the "Merger Agreement"), substantially in the
form attached as Exhibit A to this Proxy Statement. Upon the effective date
of the merger, the Delaware Company's name will be Aphton Corporation. The
reincorporation will not result in any change in the Company's business,
assets or liabilities, will not cause its corporate headquarters to be moved
and will not result in any relocation of management or other employees.
On the effective date of the proposed reincorporation, each outstanding share
of common stock of the Company will automatically convert into one share of
common stock of the Delaware Company, and shareholders of the Company will
automatically become shareholders of the Delaware Company. On the effective
date of the reincorporation, the number of outstanding shares of common stock
of the Delaware Company will be equal to the number of shares of common stock
of the Company outstanding immediately prior to the effective date of the
reincorporation. In addition, each outstanding option or right to acquire
shares of common stock of the Company will be converted into an option or
right to acquire an equal number of shares of common stock of the Delaware
Company, under the same terms and conditions as the original options or
rights.
No action need be taken by shareholders to exchange their stock certificates
now; this will be accomplished at the time of the next transfer by the
shareholder. Certificates for shares in the Company will automatically
represent an equal number of shares in the Delaware Company upon completion of
the merger. The Company intends to apply for the listing and registration of
the common stock of the Delaware Company on the Nasdaq National Market.
Under the California Bylaws, the affirmative vote of a majority of the
<PAGE>
outstanding shares of the Company's voting stock is required for approval of
the Reincorporation Proposal. If approved by the shareholders, it is
anticipated that the reincorporation would be completed as soon thereafter as
practicable. The reincorporation may be abandoned or the Merger Agreement may
be amended (with certain exceptions), either before or after shareholder
approval has been obtained, if in the opinion of the Board of Directors
circumstances arise that make such action advisable; provided that any
amendment that would effect a material change from the charter provisions
discussed in this Proxy Statement would require further approval by the
holders of a majority of the outstanding voting shares.
SIGNIFICANT CHANGES CAUSED BY REINCORPORATION
In general, the Company's corporate affairs are governed at present by the
corporate law of California, the Company's state of incorporation, and by the
California Articles and the California Bylaws, which have been adopted
pursuant to California law. The California Articles and California Bylaws are
available for inspection during business hours at the principal New York
offices of White & Case. In addition, copies may be obtained by writing to
the Company at P. O. Box 1049, Woodland, CA 95776.
If the Reincorporation Proposal is adopted, the Company will merge into, and
its business will be continued by, the Delaware Company. Following the
merger, issues of corporate governance and control would be controlled by
Delaware, rather than California law (however, see "-Application of California
Law After Reincorporation"). The California Articles and California Bylaws
will, in effect, be replaced by the Delaware Certificate and the Delaware
Bylaws, copies of which are attached as Exhibits B and C to this Proxy
Statement. Accordingly, the differences among these documents and between
Delaware and California law are relevant to your decision whether to approve
the Reincorporation Proposal.
A number of differences between California and Delaware law and among the
various charter documents are summarized below. Shareholders are requested to
read the following discussion in conjunction with the Merger Agreement, the
Delaware Certificate and the Delaware Bylaws attached to this Proxy Statement.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitations on Director Liability. Both California and Delaware permit a
corporation to limit the personal liability of a director to the corporation
or its shareholders for monetary damages for breach of certain duties as a
director. The California and Delaware laws adopt a self-governance approach
by enabling a corporation to take advantage of these provisions only if an
amendment to the charter limiting such liability is approved by a majority of
the outstanding shares or such language is included in the original charter.
The California Articles eliminate the liability of directors to the
corporation to the fullest extent permissible under California law.
California law does not permit the elimination of monetary liability where
such liability is based on: (a) intentional misconduct or knowing and
culpable violation of law; (b) acts or omissions that a director believes to
be contrary to the best interests of the corporation or its shareholders, or
that involve the absence of good faith on the part of the director; (c)
receipt of an improper personal benefit; (d) acts or omissions that show
reckless disregard for the director's duty to the corporation or its
shareholders, where the director in the ordinary course of performing a
director's duties was aware, or should have been aware of a risk of serious
injury to the corporation or its shareholders; (e) acts or omissions that
constitute an unexecuted pattern of inattention that amounts to an abdication
of the director's duty to the corporation and its shareholders; (f) interested
transactions between the corporation and a director in which a director has a
material financial interest; or (g) liability for improper distributions,
loans or guarantees.
The Delaware Certificate also eliminates the liability of directors to the
<PAGE>
fullest extent permissible under Delaware law, as such law exists currently or
as it may be amended in the future. Under Delaware law, such provision may
not eliminate or limit director monetary liability for (a) breaches of the
director's duty of loyalty to the corporation or its shareholders; (b) acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law; (c) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (d) transactions in which the director received
an improper personal benefit. Such limitation of liability provision also may
not limit director's liability for violation of, or otherwise relieve the
Delaware Company or its directors from the necessity of complying with,
federal or state securities laws or affect the availability of non-monetary
remedies such as injunctive relief or rescission.
Shareholders should recognize that the proposed reincorporation and associated
measures are designed to shield a director from suits by the Delaware Company
or its stockholders for monetary damages for negligence or gross negligence by
the director in failing to satisfy the director's duty of care. As a result,
an action for monetary damages against a director predicated on a breach of
the duty of care would be available only if the Delaware Company or its
shareholders were able to establish that the director was disloyal in his
conduct, failed to act in good faith, engaged in intentional misconduct,
knowingly violated the law, derived an improper personal benefit or approved
an illegal dividend or stock repurchase or redemption. Consequently, the
effect of such measures may be to limit or eliminate an effective remedy which
might otherwise be available to a shareholder who is dissatisfied with the
Board of Directors' decisions. Although an aggrieved shareholder could sue to
enjoin or rescind an action taken or proposed by the Board of Directors, such
remedies may not be timely or adequate to prevent or redress injury in all
cases.
The Company believes that directors are motivated to exercise due care in
managing the Company's affairs primarily by concern for the best interests of
the Company and its shareholders rather than by the fear of potential monetary
damage awards. As a result, the Company believes that the reincorporation
proposal should sustain the Board of Directors' continued high standard of
corporate governance without any decrease in accountability by directors to
the Company and its shareholders.
Indemnification of Officers and Directors. The California Articles and
California Bylaws and the Delaware Certificate and Delaware Bylaws relating to
indemnification similarly require that the California Company and the Delaware
Company, respectively, indemnify its directors and its executive officers to
the fullest extent permitted by the respective state law; provided, that the
Company may modify the extent of such indemnification by individual contracts
with its directors and executive officers, and, provided, further, that the
Company will not be required to indemnify any director or executive officer in
connection with a proceeding initiated by such person, with certain
exceptions. Such charter documents and Bylaws permit the California Company
and the Delaware Company, respectively, to provide indemnification to its
other officers, employees and agents as set forth in the respective state law.
Such indemnification is intended to provide the full flexibility available
under such laws. The Delaware Bylaws contain provisions similar to the
California Bylaws with respect to advances in that the Company is required to
advance expenses related to any proceeding contingent on such person's
commitment to repay any advances unless it is determined ultimately that such
persons are entitled to be indemnified.
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. There are
nonetheless certain differences between the laws of the two states.
California law permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to derivative actions (a) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines such person is
<PAGE>
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine and (b) no indemnification
may be made under California law, without court approval in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a threatened
or pending action or amounts incurred in defending a pending action which is
settled or otherwise disposed of without prior court approval. Delaware
allows indemnification of such expenses without court approval.
Indemnification is permitted by both California and Delaware law providing the
requisite standard of conduct is met, as determined by a majority vote of a
disinterested quorum of the directors, independent legal counsel (if a quorum
of independent directors is not obtainable), a majority vote of a quorum of
the shareholders (excluding shares owned by the indemnified party) or the
court handling the action.
California law requires indemnification when the individual has successfully
defended the action on the merits, as opposed to Delaware law which requires
indemnification relating to a successful defense on the merits or otherwise.
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is
a determination by a disinterested quorum of the directors, by independent
legal counsel or by a majority vote of a quorum of the shareholders that the
person seeking indemnification acted in good faith and in a manner reasonably
believed to be in or (in contrast to California law) not opposed to the best
interests of the corporation. Without court approval, however, no
indemnification may be made in respect of expenses incurred in any derivative
action in which such person is adjudged liable in the performance of his or
her duty to the corporation. Delaware law requires indemnification of
expenses when the individual being indemnified has successfully defended the
action on the merits or otherwise.
California corporations may include in their Articles of Incorporation a
provision which extends the scope of indemnification through agreements,
bylaws or other corporate action beyond that specifically authorized by
statute.
A provision of Delaware law states that the indemnification provided by
statute shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise.
Under Delaware law, rights to indemnification and expenses are non-exclusive,
in that they need not be limited to those expressly provided by statute.
California law is similar in that it permits non-exclusive indemnification if
authorized in the Company's charter. The California Articles contain such an
enabling provision. Under Delaware law and the Delaware Bylaws, the Delaware
Company is permitted to indemnify its directors, officers, employees and other
agents, within the limits established by law and public policy, pursuant to an
express contract, bylaw provision, shareholder vote or otherwise, any or all
of which could provide indemnification rights broader than those currently
available under the California Bylaws or the California indemnification
statutes.
The indemnification and limitation of liability provisions of California law,
and not Delaware law, will apply to actions of the directors and officers of
the California Company made prior to the proposed reincorporation.
Nevertheless, the Board of Directors has recognized in considering the
Reincorporation Proposal that the individual directors have a personal
interest in obtaining the application of Delaware law to such indemnity and
limitation of liability issues affecting them and the Company in the event
they arise from a potential future case, and that the application of Delaware
law, to the extent that any director or officer is actually indemnified in
circumstances where indemnification would not be available under California
law, would result in expense to the Company which the Company would not incur
if the Company were not reincorporated. The Company believes, however, that
the overall effect of reincorporation is to provide a corporate legal
environment that enhances the Company's ability to attract and retain high
quality outside directors and thus benefits the interests of the Company and
<PAGE>
its shareholders.
There is no pending or, to the Company's knowledge, threatened litigation to
which any of its directors is a party in which the rights of the Company or
its shareholders would be affected if the Company currently were subject to
the provisions of Delaware law rather than California law.
California and Delaware corporate law, the bylaws of both the Company and of
the Delaware Company, as well as any indemnity agreements, may permit
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act") or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Board of Directors has been advised that,
in the opinion of the Securities and Exchange Commission ("SEC"),
indemnification for liabilities arising under the Securities Act is contrary
to public policy and is therefore unenforceable, absent a decision to the
contrary by a court of appropriate jurisdiction.
CLASSIFIED BOARD OF DIRECTORS REMOVABLE ONLY FOR CAUSE
Delaware law permits the adoption of a classified Board of Directors with
staggered terms. A maximum of three classes of directors is permitted by
Delaware law, with members of one class to be elected each year for a maximum
term of three years. The classification system of electing directors may tend
to maintain the incumbency of a board as it generally makes it more difficult
for shareholders to change a majority of the directors. A classified board
may also contribute to the continuity and stability of leadership and policy.
In addition, a classified board might make it more difficult for a person
acquiring shares to take immediate control of the Board of Directors.
The Board of Directors has proposed the inclusion in the Delaware Certificate
of certain provisions establishing a classified Board of Directors removable
only for cause, as discussed below (the "Classified Board Provisions"). The
directors of the California Company, will continue to be the directors of the
Company until the next annual meeting of shareholders or until their
successors are elected and qualified, regardless of whether this
Reincorporation Proposal is approved. Under the Classified Board Provisions,
the Board of Directors at the 1998 Annual Meeting of Stockholders will be
divided into three classes, designated Class I, Class II and Class III. The
directors in Class I will hold office until the 1999 Annual Meeting of
Stockholders, the directors in Class II will hold office until the 2000 Annual
Meeting of Stockholders, and the directors in Class III will hold office until
the 2001 Annual Meeting of Stockholders (and, in each case, until their
successors are duly elected and qualified or until their earlier resignation,
removal from office or death). After each such election, the directors shall
then serve in succeeding terms of three years and until their successors are
duly elected and qualified.
Under California law, a director may be removed with or without cause by the
affirmative vote of a majority of the outstanding shares. Under Delaware law,
a director on a classified board of directors can be removed from office
during his term by shareholders only for cause unless the Certificate of
Incorporation provides otherwise. The Delaware Certificate does not provide
otherwise. Therefore, if the Reincorporation Proposal is approved, the
Company's directors may be removed from office only for cause by the
affirmative vote of the holders of a majority of the voting power of the then
outstanding shares of voting stock of the Company entitled to vote in the
election of directors.
California law generally requires that directors be elected annually but does
permit a "classified" Board of Directors if (i) a corporation is listed on a
national stock exchange or (ii) the corporation's shares are traded on the
Nasdaq National Market and are held by at least 800 shareholders. California
law also allows the election of one or more directors by the holders of a
particular class or series of shares. The California Articles currently do
not provide for a classified Board of Directors.
<PAGE>
The Classified Board Provisions proposed for inclusion in the Delaware
Certificate, together with other provisions relating to the inability of
stockholders to act by written consent or call special meetings of
stockholders that will be reflected in the Delaware Certificate and Delaware
Bylaws, will unless directors are removed for cause, have the result that at
least two annual meetings of stockholders will be required for a majority of
stockholders to make a change in control of the Board of Directors.
Classification of the Board of Directors is also expected to contribute to the
continuity and stability of leadership and policy. A significant effect of a
classified Board of Directors may be to deter hostile takeover attempts
because an acquiror would experience delay in replacing a majority of the
directors.
If the Reincorporation Proposal is not approved, all directors of the Company
will continue to be elected at each annual meeting.
CUMULATIVE VOTING FOR DIRECTORS
Cumulative voting permits a holders of shares of stock entitled to vote in the
election of directors to cast an aggregate number of votes which equal the
number of shares owned by such shareholder multiplied by the number of
directors to be elected. The holder may allocate all votes represented by the
stockholder's shares to a single candidate or may allocate those votes among
as many candidates as he or she chooses. Thus, a shareholder with a
significant minority percentage of the outstanding shares may be able to elect
one or more directors if voting is cumulative. In contrast, the holder or
holders of a majority of the shares entitled to vote in an election of
directors are able to elect all the directors in the absence of cumulative
voting.
Under California law, cumulative voting in the election of directors is
mandatory upon notice given by a shareholder at a shareholder's meeting at
which directors are to be elected. In order to cumulate votes a shareholder
must give notice at the meeting, prior to the voting, of the shareholder's
intention to vote cumulatively. If any one shareholder gives such a notice,
all shareholders may cumulate their votes. However, California law permits a
company, by amending its articles of incorporation or bylaws, to eliminate
cumulative voting when the Company's shares are listed on the New York Stock
Exchange or the American Stock Exchange or designated for trading on the
Nasdaq National Market System if the corporation has at least 800 holders of
its equity securities as of the record date of the corporation's most recent
annual meeting of shareholders. Cumulative voting has not been eliminated
under the California Articles or Bylaws.
Cumulative voting is not available under Delaware law unless so provided in
the corporation's certificate of incorporation. The Delaware Certificate does
not provide for cumulative voting.
The elimination of cumulative voting could deter investors from acquiring a
minority block in the Company, with a view toward obtaining a board seat and
influencing Company policy. It is also conceivable that the absence of
cumulative voting might deter efforts to seek control of the Company on a
basis which some shareholders might deem favorable.
OTHER MATTERS RELATING TO DIRECTORS
Number of Directors. California law allows the number of persons constituting
the board of directors of a corporation to be fixed by the bylaws or the
articles of incorporation, or permits the bylaws to provide that the number of
directors may vary within a specified range. California law further provides
that, in the case of a variable board, the maximum number of directors may not
exceed two times the minimum number minus one. The California Bylaws provide
for a board of directors that may vary between three and five members,
inclusive, and the exact number of directors is presently four. California
law also requires that any change in the range of a variable board of
directors specified in the articles and bylaws must be approved by a majority
<PAGE>
in interest of the outstanding shares entitled to vote (or such greater
proportion of the outstanding shares as may be required by the articles of
incorporation), provided that a change reducing the minimum number of
directors to less than three cannot be adopted if votes cast against its
adoption are equal to more than 162/3% (one sixth) of the outstanding shares
entitled to vote.
Delaware law permits a board of directors to change the authorized number of
directors by amendment to the bylaws unless the number of directors is fixed
in the certificate of incorporation or the manner of fixing the number of
directors is set forth in the certificate of incorporation, in which case the
number of directors may be changed only by amendment of the certificate of
incorporation or consistent with the manner specified in the certificate of
incorporation, as the case may be. The Delaware Certificate and Delaware
Bylaws provide that the exact number of directors shall be fixed from time to
time by the Board of Directors by resolution.
Removal of Directors. Under California law, a director may be removed with or
without cause by the affirmative vote of a majority of the outstanding shares
subject to certain exceptions designed to protect the right of cumulative
voting. Under Delaware law, a director can be removed from office during his
term by shareholders with or without cause, unless (i) the board is
classified, in which case stockholders may only remove directors for cause,
unless the certificate of incorporation otherwise provides; or (ii) in the
case of a corporation having cumulative voting, if less than the entire board
is to be removed, no director may be removed without cause if the votes cast
against his removal would be sufficient to elect him if then cumulatively
voted or, if there are classes of directors, at an election of the class of
directors of which he is a part. The Delaware Certificate will provide for a
classified Board of Directors, will not permit removal other than for cause
and will not provide for cumulative voting. Therefore, if the Reincorporation
Proposal is approved, the Company's directors may only be removed by
stockholders for cause. This may have the effect of making it more difficult
to remove and replace a majority of the Company's Board of Directors even if
such a change is desired by stockholders due to dissatisfaction with the
performance of the Company's Board of Directors. It also, however, will
contribute to the continuity and stability of the Company's leadership and
policy.
Filling Board Vacancies. Under California law, if, after the filling of any
vacancy by the directors of a corporation, the directors then in office who
have been elected by the corporation's shareholders constitute less than a
majority of the directors then in office, then: (i) any holder of more than
5% of the corporation's outstanding shares of voting stock entitled to vote
(the "Voting Stock") may call a special meeting of shareholders, or (ii) the
superior court of the appropriate county may order a special meeting of the
shareholders to elect the entire board of directors of the corporation.
Delaware law provides that if, at the time of filling any vacancy or newly
created directorship, the directors then in office constitute less than a
majority of the entire board of directors as constituted immediately prior to
any increase, the Delaware Court of Chancery may, upon application of any
shareholder or shareholders holding at least 10% of the total number of shares
at the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships or to replace the directors chosen by the directors then in
office.
The proposed Delaware Certificate and Delaware Bylaws provide that vacancies
shall, unless the Board of Directors determines by resolution that any such
vacancies be filled by the shareholders or as otherwise provided by law, be
filled only by the affirmative vote of a majority of directors then in office,
even if such directors comprise less than a quorum of the Board of Directors.
The proposed Delaware Certificate provides that any new director elected to
fill a vacancy on the Board will serve for the remainder of the full term of
the class in which the vacancy occurred rather than until the next Annual
Meeting of Shareholders.
<PAGE>
CAPITALIZATION; BLANK CHECK PREFERRED
The Company's capital stock currently consists of 20,000,000 authorized shares
of common stock, no par value, of which 13,733,101 shares were issued and
outstanding as of August 31, 1997.
The Delaware Certificate provides that the Company's capital stock shall
consist of 30,000,000 shares of common stock, no par value, and 2,000,000
shares of preferred stock. If the Reincorporation Proposal is approved,
regardless of whether or not Proposal No. 2 is approved, the Delaware
Company's capitalization shall be as set forth in the preceding sentence.
Upon the approval of the increase in the number of authorized shares of common
stock pursuant to Proposal No. 2, the Company's capital stock will consist of
30,000,000 authorized shares of common stock, no par value and 2,000,000
shares of preferred stock, no par value, consistent with maintaining adequate
capitalization for the current needs of the Company. If Proposal No. 2 is not
approved and the Reincorporation Proposal is not approved, the Company's
capital stock will continue to consist of 20,000,000 authorized shares of
common stock, no par value, consistent with maintaining adequate
capitalization for the current needs of the Company.
Under the Delaware Certificate, the Board of Directors has the authority to
determine or alter the rights, preferences, privileges and restrictions to be
granted to or imposed upon any wholly unissued series of preferred stock and
to fix the number of shares constituting any such series and to determine the
designation thereof.
If the Reincorporation Proposal is approved, the Board of Directors may
authorize the issuance of preferred stock for the purpose of adopting
shareholder rights plans and in connection with various corporate
transactions, including corporate partnering arrangements. If the
Reincorporation Proposal is approved, it is not the present intention of the
Board of Directors to seek shareholder approval prior to any issuance of
preferred stock, except as required by law or regulation. See "-Certain Anti-
Takeover Effects."
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDERS' MEETINGS
Under California law and the California Bylaws, a special meeting of
shareholders may be called by the Board of Directors, the Chairman of the
Board of Directors, the President or the holders of shares entitled to cast
not less than 10% of the votes at such meeting and such persons as are
authorized by the articles of incorporation or bylaws. Under Delaware law, a
special meeting of shareholders may be called by the Board of Directors or by
any other person authorized to do so in the certificate of incorporation or
the bylaws. California Bylaws state that special meetings may be called by
the Board of Directors, the Chairman of the Board, the President or holders of
shares entitled to cast not less than 10% of the votes at a meeting. The
Delaware Bylaws provide that such a meeting may only be called by the Board of
Directors, the Chairman of the Board of Directors, the President or the Chief
Executive Officer and do not enable stockholders to call a special meeting.
Pursuant to the Delaware Bylaws, if the meeting is called by a person or
persons other than the Board of Directors (i.e., by the Chairman of the Board
of Directors, the President or the Chief Executive Officer), the Board of
Directors shall determine the time and the place of such meeting which shall
be from 35 to 120 days after the receipt of the request of the meeting.
ACTIONS BY WRITTEN CONSENT OF SHAREHOLDERS
Under California and Delaware law, shareholders may execute an action by
written consent in lieu of a shareholder meeting. Both California and
Delaware law permits a corporation to eliminate such actions by written
consent in its charter. The California Articles permit shareholders to act by
written consent. The Delaware Certificate eliminates actions by written
consent of shareholders.
<PAGE>
Elimination of shareholder action by written consent may lengthen the amount
of time required to take shareholder actions because certain actions by
written consent are not subject to the minimum notice requirement of a
shareholders' meeting. The elimination of shareholder action by written
consent may deter hostile takeover attempts because of the lengthened
shareholder approval process. Without the ability to act by written consent,
a holder or group of holders controlling a majority in interest of the
Delaware Company's capital stock will not be able to amend the Delaware Bylaws
or remove directors pursuant to a written consent. Any such holder or group
of holders would have to wait until a shareholders' meeting was held to take
any such action. The Delaware Certificate and Delaware Bylaws do not enable
shareholders to call a special meeting of shareholder's as described above.
Consequently, any shareholder action could only be taken at the Delaware
Company's annual meeting of shareholders. Moreover, together with the
Classified Board Provisions, the prohibition on shareholder action by written
consent and on the ability to call special meetings of stockholders make it
difficult to replace the Company's Board of Directors in fewer than two annual
meetings of shareholders. The Company believes this provision, like the other
provisions to be included in the Delaware Certificate and Delaware Bylaws,
will enhance the Board of Directors' ability to fully consider and effectively
negotiate in the context of a hostile takeover attempt.
ADVANCE NOTICE REQUIREMENT FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
There is no specific statutory requirement under either California or Delaware
law with regard to advance notice of director nominations and shareholder
proposals. Absent a bylaw restriction, director nominations and shareholder
proposals may be made without advance notice at the annual meeting. The
California Bylaws have no provisions regarding advance notice of directors'
nominations and shareholder proposals. However, federal securities laws
generally provide that shareholder proposals that the proponent wishes to
include in the Company's proxy materials must be received not less than 120
days in advance of the date of the proxy statement released in connection with
the previous year's annual meeting.
The Delaware Bylaws provide that for director nominations or shareholder
proposals to be properly brought before the meeting, the shareholder must have
delivered timely and proper notice to the Secretary of the corporation. To be
timely, notice must be delivered not less than 90 nor more than 120 days prior
to the shareholders' meeting; provided, that if less than 100 days' notice or
other public disclosure of the date of the meeting is given or made to
shareholders, to be timely notice by the shareholders must be received no
later than the close of business on the 10th day following the earlier of the
day on which notice of the date of the meeting was mailed or other public
disclosure was made. Additionally, to be in proper form the notice must set
forth certain information including the following: a description of the
proposal or nominee; identification of the Shareholder Proponent; and shares
owned; with respect to nomination for director, a description of arrangements
between the nominee and the shareholder proponent as well as certain
information about the nominee; and such information regarding the nominee or
shareholder proposal as would be required pursuant to Regulation 14A under the
Securities Exchange Act of 1934. These notice requirements help ensure that
shareholders are aware of all proposals to be voted on at the meeting and have
the opportunity to consider each proposal in advance of the meeting.
CERTAIN ANTI-TAKEOVER EFFECTS
Delaware law has been widely viewed to permit a corporation greater
flexibility in governing its internal affairs and its relationships with
shareholders and other parties than do the laws of many other states,
including California. In particular, Delaware law permits a corporation to
adopt a number of measures designed to reduce a corporation's vulnerability to
unsolicited and coercive takeover attempts. Certain of such measures are
either not currently permitted or are more narrowly drawn under California
law. Among these measures are the elimination of the ability of the
<PAGE>
stockholders to remove directors without cause and the elimination of the
right of shareholders to call special shareholders' meetings. In addition,
shareholder rights plans, or poison pills, have been upheld by Delaware
courts, while California courts have yet to decide on the validity of such
defenses, thus rendering their effectiveness in California less certain.
As discussed above, numerous differences between California and Delaware law,
effective without additional action by the Delaware Company, could have a
bearing on unapproved takeover attempts. One such difference is the existence
of a Delaware statute regulating tender offers, which statue is intended to
limit coercive takeovers of companies incorporated in that state. California
has no comparable statute. The Delaware law provides that a corporation may
not engage in any business combination with any interested shareholder for a
period of three years following the date that such shareholder became an
interested shareholder, unless (i) prior to the date the shareholder became an
interested shareholder the Board of Directors approved the business
combination or the transaction which resulted in the shareholder becoming an
interested shareholder, or (ii) upon consummation of the transaction which
resulted in the shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of the Voting Stock (excluding from the eighty-
five (85) percent calculation shares owned by directors who are also officers
of the target corporation and shares held by employee stock plans that do not
give employee participants the right to decide confidentially whether to
accept a tender or exchange offer), or (iii) the business combination is
approved by the Board of Directors and authorized by 66 2/3% of the
outstanding voting stock which is not owned by the interested shareholder. An
interested shareholder means any person that is the owner of 15% or more of
the outstanding voting stock; however, the statue provides for certain
exceptions to parties who otherwise would be designated interested
shareholders. Any corporation may decide to opt out of the statute in its
original certificate of incorporation or, at any time, by action of its
shareholders. The Company has no present intention of opting out of the
statute and the Delaware Certificate contains no such opt-out provision.
There can be no assurance that the Board of Directors would not adopt any
further anti-takeover measures available under Delaware law (some of which may
not require shareholder approval). Moreover, the availability of such
measures under Delaware law, whether or not implemented, may have the effect
of discouraging a future takeover attempt which a majority of the Delaware
Company's shareholders may deem to be in their best interests or in which
shareholders may receive a premium for their shares over the then current
market price. As a result, shareholders who might desire to participate in
such transactions may not have the opportunity to do so. Shareholders should
recognize that, if adopted, the effect of such measures, along with the
possibility of discouraging takeover attempts, may be to limit in certain
respects the rights of shareholders of the Delaware Company compared with the
rights of shareholders of the California Company.
The Board of Directors believes that the potential disadvantages of
unsolicited and coercive takeover attempts (such as disruption of the
Company's business and the possibility of terms which may be less favorable to
all of the shareholders than would be available in a board-approved
transaction) are sufficiently great such that prudent steps to reduce the
likelihood of such takeover attempts and to enable the Board of Directors to
fully consider the proposed takeover attempt and actively negotiate its terms
are in the best interests of the Company and its shareholders.
In addition to the various anti-takeover measures that would be available to
the Delaware Company after reincorporation due to the application of Delaware
law, the Delaware Company would continue to have the ability to issue shares
of its authorized but unissued capital stock. Following the effectiveness of
the proposed reincorporation, shares of authorized and unissued common stock
and preferred stock of the Delaware Company could (within the limits imposed
by applicable law) be issued in one or more transactions, or preferred stock
could be issued with terms, provisions and rights which would make more
difficult and, therefore, less likely, a takeover of the Delaware Company.
<PAGE>
Any such issuance of additional stock could have the effect of diluting the
earnings per share and book value per share of existing shares of common stock
and preferred stock, and such additional shares could be used to dilute the
stock ownership of persons seeking to obtain control of the Delaware Company.
It should be noted that the voting rights to be accorded to any unissued
series of preferred stock of the Delaware Company ("Delaware preferred stock")
remain to be fixed by the Board of Directors of the Delaware Company (the
"Delaware Board"). Accordingly, if the Delaware Board so authorizes, the
holders of Delaware preferred stock might be entitled to vote separately as a
class in connection with approval of certain extraordinary corporate
transactions in circumstances where Delaware law does not ordinarily require
such a class vote, or might be given a disproportionately large number of
votes. Such Delaware preferred stock could also be convertible into a large
number of shares of common stock of the Delaware Company under certain
circumstances or have other terms which might make acquisition of a
controlling interest in the Delaware Company more difficult or more costly,
including the right to elect additional directors to the Delaware Board.
Potentially, subject to the limitations imposed by Delaware Law, the Delaware
preferred stock could be used to create voting impediments or to frustrate
persons seeking to effect a merger or otherwise to gain control of the
Delaware Company. Also, the Delaware preferred stock could be privately
placed with purchasers who might oppose an unsolicited tender offer or other
attempt to obtain control.
In addition (subject to the considerations referred to above as to applicable
law), the Delaware Board could authorize issuance of shares of common stock of
the Delaware Company ("Delaware common stock") or Delaware preferred stock to
a holder who might thereby obtain sufficient voting power to ensure that any
proposal to alter, amend or repeal provisions of the Delaware Certificate
unfavorable to a suitor would not receive the necessary vote of a majority of
the voting stock required for passage of the proposed amendments.
If the reincorporation is approved it is not the present intention of the
Board of Directors to seek shareholder approval prior to any issuance of the
Delaware preferred stock or Delaware common stock, except as required by law
or regulation. Frequently, opportunities arise that require prompt action,
and it is the belief of the Board of Directories that the delay necessary for
shareholder approval of a specific issuance would be a detriment to the
Delaware Company and its shareholders. The Board of Directors does not intend
to issue any Delaware preferred stock except on terms which the Board of
Directors deems to be in the best interests of the Delaware Company and its
then existing shareholders.
SUPER-MAJORITY VOTE REQUIREMENT FOR AMENDMENT OF DELAWARE CERTIFICATE AND
BYLAWS
The proposed Delaware Certificate contains super-majority voting requirements
for amendments to certain provisions of the Delaware Certificate and Bylaws as
described below. The Board of Directors believes that this measure will
enable it to more effectively consider any proposed takeover attempt and to
negotiate terms that maximize the benefit to the Company and its shareholders.
Both Delaware and California law permit super-majority voting requirements on
most matters which may be voted upon by shareholders or directors. California
law permits super-majority voting requirements for corporations if the
corporation is listed on a national stock exchange or the corporation's shares
are traded on the Nasdaq National Market and are held by at least 800
shareholders, on most matters which may be voted upon by shareholders and
directors, provided that such provisions are included in the Company's
Articles of Incorporation after shareholder approval. However, shareholders
of a California corporation must vote to renew such provisions every two
years. Delaware law does not provide similar restrictions on super-majority
voting provisions.
<PAGE>
The California Articles may be amended following the approval by the Board of
Directors and by a majority of the outstanding shares. The Board of Directors
has proposed that the Delaware Certificate include a provision under which the
affirmative vote of eighty percent (80%) of the outstanding shares entitled to
vote would be required for amendment of the following provisions of the
Delaware Certificate (except for the approval of these amendments pursuant to
this Proxy Statement): (i) the Classified Board Provisions, (ii) the right of
the directors to fill vacancies on the Board of Directors (subject to the
rights of holders of any series of preferred stock); (iii) the elimination of
the right of shareholders to call a special shareholders meeting).
AMENDMENT OF BYLAWS
The California Bylaws may be amended or repealed either by the Board of
Directors or by the holders of a majority in interest of the outstanding stock
of the Company, except that the Board of Directors may not change the
authorized range of directors. The Board of Directors has proposed that the
Delaware Bylaws include a provision under which the Delaware Bylaws may be
adopted, amended or repealed by the Board of Directors or by the affirmative
vote of the holders of a majority of the shares of Delaware Common Stock
entitled to vote thereon.
LOANS TO OFFICERS, DIRECTORS AND EMPLOYEES
California law provides that any loan or guaranty (other than loans to permit
the purchase of shares under certain stock purchase plans) for the benefit of
any officer or director, or any employee benefit plan authorizing such loan or
guaranty (except certain employee stock purchase plans), must be approved by
the majority of the disinterested shareholders of a California corporation.
However, under California law, shareholders of a corporation with 100 or more
shareholders of record, such as the Company, may approve a bylaw authorizing
the board of directors alone to approve loans to or guaranties on behalf of
officers (whether or not such officers are directors) if the board determines
that any such loan or guaranty may reasonably be expected to benefit the
corporation.
Under Delaware law, a corporation may make loans to, or guarantee the
obligations of, officers or other employees when, in the judgment of the board
of directors, the loan or guaranty may reasonably by expected to benefit the
corporation. Both California law and Delaware law permit such loans or
guaranties to be unsecured and without interest.
CLASS VOTE FOR CERTAIN REORGANIZATIONS
With certain exceptions, California law requires that mergers,
reorganizations, certain sale of assets and similar transactions be approved
by a majority vote of each class of shares outstanding. Delaware law
generally does not require class voting for such transactions, except in
certain situations involving an amendment to the certificate of incorporation
which adversely affects a specific class of shares.
California law also requires that holders of a California corporation's common
stock receive nonredeemable common stock in a merger of the corporation with
the holder (or an affiliate of the holder) of more than 50% but less than 90%
of the California corporation's common stock, unless all of the holders of its
common stock consent to the merger or the merger has been approved by the
California Commission of Corporations at a "fairness hearing." California law
also requires, with certain exceptions, that all shareholders receive in
writing an affirmative opinion as to the fairness of the consideration to be
paid. This provision of California law may have the effect of making a cash
"freezeout" merger by a majority shareholder more difficult to accomplish. A
cash freezeout merger is a transaction whereby a minority shareholder is
forced to relinquish his or her share ownership in a corporation in exchange
for cash, subject in certain instances to dissenter rights. Delaware law has
no comparable provision, however, under some circumstances Section 203 does
provide protection against coercive two-tiered bids for a corporation in which
<PAGE>
the stockholders are not treated equally.
INSPECTION OF SHAREHOLDER LISTS
California law provides for an absolute right of inspection of the shareholder
list for shareholders holding 5% or more of a corporation's outstanding voting
shares or shareholders holding 1% or more of such shares who have filed a
Schedule 14A with the SEC. Under California law, such absolute inspection
rights also apply to a corporation formed under the laws of any other state if
its principal executive offices are in California or if it customarily holds
meetings of its board in California. Delaware law provides no such absolute
right or shareholder inspection. However, both California and Delaware law
permit any shareholder of record to inspect the shareholder list for any
purpose reasonably related to that person's interest as a shareholder.
APPRAISAL RIGHTS
Under both California law and Delaware law, a shareholder of a corporation
participating in certain mergers and reorganizations may be entitled to
receive cash in the amount of the "fair value" (Delaware) or "fair market
value" (California) of its shares, as determined by a court, in lieu of the
consideration it would otherwise receive in the transaction. The limitations
on such dissenters' appraisal rights are somewhat different in California and
Delaware.
Shareholders of a California corporation, the shares of which are listed on a
national securities exchange or on the OTC margin stock list, generally do not
have appraisal rights unless the holders of at least 5% of the class of
outstanding shares assert the appraisal right. In any reorganization in which
one corporation or the shareholders of one corporation own more than 5/6 of
the voting power of the surviving or acquiring corporation, shareholders are
denied dissenter's rights under California law. For this reason, appraisal
rights will not be available to shareholders in connection with the
reincorporation proposal.
Under Delaware law appraisal rights are not available to shareholders with
respect to a merger or consolidation by a corporation, the shares of which are
either listed on a national securities exchange or designated as a national
market system security or an interdealer quotation system security by the
National Association of Securities Dealers, Inc., or are held of record by
more than 2,000 holders if the shareholders received shares of the surviving
corporation or shares of any other corporation which are similarly listed or
dispersed, and the shareholders do not receive any other property in exchange
for their shares except cash for fractional shares. Appraisal rights are also
unavailable under Delaware law to shareholders of a corporation surviving a
merger if no vote of those shareholders is required to approve the merger
because, among other things, the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately before the merger and certain other conditions are met.
VOTING APPRAISAL RIGHTS IN CERTAIN TRANSACTIONS
Delaware law does not provide shareholders with voting or appraisal rights
when a corporation acquires another business through the issuance of its
stock, whether in exchange for assets or stock or in a merger with a
subsidiary. California law treats these kinds of acquisitions in the same
manner as a merger of the corporation directly with the business to be
acquired and provides appraisal rights in the circumstances described in the
preceding section.
DIVIDENDS
Under California law, any dividends or other distributions to shareholders
such as redemptions, are limited to the greater of (i) retained earnings or
(ii) an amount which would leave the corporation with assets (excluding
certain intangible assets) equal to at least 125% of its current liabilities.
<PAGE>
Delaware law allows the payment of dividends and redemption of stock out of
surplus (including paid-in and earned surplus) or out of net profits for the
fiscal year in which the dividend is declared and/or the preceding fiscal
year. The Company has not paid any cash dividends to date, and it is
anticipated that the Delaware Company will not pay cash dividends for the
foreseeable future.
APPLICATION OF CALIFORNIA LAW AFTER REINCORPORATION
California law provides that if (i) the average of certain property, payroll
and sales factors results in a finding that more than 50% of the Delaware
Company's business is allocable to California and in a particular fiscal year
more than 50% of the Delaware Company's outstanding voting securities are held
of record by persons having addresses in California, and (ii) the Company's
shares are traded in the Nasdaq National Market and are held by fewer than 800
equity security holders, as of its most recent annual meeting of shareholders,
then the Delaware Company would become subject to certain provisions of
California law regardless of its state of incorporation. The Company does not
currently meet all of the above requirements.
Because the Company's common stock is traded in the Nasdaq National Market and
the Company's shares are held by at least 800 equity security holders as of
its most recent annual meeting of shareholders, California law will not
initially apply to the Delaware Company if the reincorporation is approved.
The Company would not be subject to California law as long as it continued to
meet both of these requirements.
If the Delaware Company were to become subject to the provisions of California
law referred to above, and such provisions were enforced by California courts
in a particular case, many of the Delaware laws described in this Proxy
Statement would not apply to the Delaware Company. Instead, the Delaware
Company could be governed by certain California laws, including those
regarding liability of directors for breaches of the duty of care,
indemnification of directors, dissenters' rights of appraisal, removal of
directors as well as certain other provisions discussed above, to the
exclusion of Delaware law. The effects of applying both Delaware and
California laws to a Delaware corporation whose principal operations are based
in California have not yet been determined.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The reincorporation provided for in the Merger Agreement is intended to be a
tax free reorganization under the Internal Revenue Code of 1986, as amended.
Assuming the reincorporation qualifies as a reorganization, no gain or loss
will be recognized to the holders of capital stock of the Company as a result
of consummation of the reincorporation, and no gain or loss will be recognized
by the Company or the Delaware Company. Each former holder of capital stock
of the Company will have the same basis in the capital stock of the Delaware
Company received by such holder pursuant to the reincorporation as such holder
has in the capital stock of the Company held by such holder at the time of
consummation of the reincorporation. Each shareholder's holding period with
respect to the Delaware Company's capital stock will include the period during
which such holder held the corresponding Company capital stock, provided the
latter was held by such holder as a capital asset at the time of consummation
of the reincorporation. The Company has not obtained a ruling from the
Internal Revenue Service or an opinion of legal or tax counsel with respect to
the consequences of the reincorporation.
The foregoing is only a summary of certain federal income tax consequences.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY OF THE LAWS OF
ANY STATE OR OTHER JURISDICTION.
The foregoing discussion is an attempt to summarize the more important
differences in the corporation laws of Delaware and California and does not
purport to be an exhaustive discussion of all of the differences. Such
<PAGE>
differences can be determined in full by reference to the California
Corporations Code and to the Delaware General Corporation Law. In addition,
both California and Delaware law provide that some of the statutory provisions
as they affect various rights of holders of shares may be modified by
provisions in the charter or bylaws of the corporation.
A vote FOR the reincorporation proposal will constitute approval of the
merger, the Delaware Certificate, the Delaware Bylaws and all other aspects of
this Proposal One.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
REINCORPORATION INTO DELAWARE
PROPOSAL NO. 2 - APPROVAL OF INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF
common stock AND THE CREATION OF A NEW CLASS OF STOCK KNOWN AS preferred
stock
The Board of Directors has adopted, subject to shareholder approval, an
increase to the Company's authorized number of shares of common stock from
20,000,000 shares to 30,000,000 shares. If the Reincorporation Proposal is
approved, the Company's common stock and preferred stock will each have no par
value per share and the Delaware Company's authorized capitalization shall be
as set forth in the preceding sentence. If the Reincorporation Proposal is
not approved, but this proposal is approved, the Company's common stock will
continue to have no par value per share and the additional shares of common
stock and new preferred stock shall be authorized for issuance.
If neither the Reincorporation Proposal nor this proposals is approved, the
Company's common stock will continue to have no par value per share, and the
additional shares of common stock and new preferred stock will not be
authorized for issuance.
On August 31, 1997, 13,733,101 shares of common stock were issued and
outstanding and 2,009,300 shares were reserved for issuance upon exercise of
outstanding options and an indeterminate amount were reserved for issuance
upon the possible conversion of a certain debenture. Thus, as of that date,
the Company had approximately 4,000,000 shares of common stock available for
issuance. The Company had no preferred stock on August 31, 1997. The
proposed increase in the number of authorized shares of common stock from
20,000,000 to 30,000,000 and the creation of a new class of stock known as
preferred stock of 2,000,000 shares would result in additional shares being
available for issuance from time to time for corporate purpose (such as
possible stock splits, stock dividends, acquisitions of companies or assets,
sales of stock or securities convertible into stock and issuances pursuant to
stock option or other employee benefit plans). The Company currently has no
specific plans, arrangements or understanding with respect to the issuance of
these additional shares. The Company believes that the availability of the
additional shares will provide it with the flexibility to meet business needs
as they arise, to take advantage of favorable opportunities and to respond to
a changing corporation environment.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
INCREASE IN THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND THE
AUTHORIZATION OF 2,000,000 SHARES OF PREFERRED STOCK.
SHAREHOLDER PROPOSALS
If a shareholder intends to have a proposal presented at the next Annual
Meeting of Shareholders, tentatively scheduled for the second quarter of 1998,
such a proposal must be received by the Company at its principal executive
offices prior to March 31, 1998.
OTHER MATTERS
<PAGE>
The Board of Directors knows of no other matters that are likely to come
before the meeting. If any such matters should properly come before the
meeting, however, it is intended that the persons named in the accompanying
form of proxy will vote such proxy in accordance with their best judgment on
such matters.
By Order of the Board of Directors
Philip C. Gevas
Chairman and Secretary
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
OF APHTON CORPORATION,
A DELAWARE CORPORATION,
AND
APHTON CORPORATION,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OF MERGER dated as of November__, 1997 (the
"Agreement") is between Aphton Corporation, a Delaware corporation ("Aphton
Delaware"), and Aphton Corporation, a California corporation ("Aphton
California"). Aphton Delaware and Aphton California are sometimes referred to
herein as the "Constituent Corporations."
RECITALS
A. Aphton Delaware is a corporation duly organized and existing
under the laws of the State of Delaware and has an authorized capital of
32,000,000 shares, no par value, of which 30,000,000 shares are designated
"Common Stock" and 2,000,000 shares are designated "Preferred Stock." As of
November __, 1997, [100] shares of Common Stock were issued and outstanding,
all of which are held by Aphton California, and no shares of Preferred Stock
were issued and outstanding.
B. Aphton California is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital of
20,000,000 shares, no par value, all of which are designated "Common Stock."
As of November __, 1997, ________ shares of Common Stock were issued and
outstanding.
C. The Board of Directors of Aphton California has determined
that, for the purpose of effecting the reincorporation of Aphton California in
the State of Delaware, it is advisable and in the best interests of Aphton
California and its shareholders that Aphton California merge with and into
Aphton Delaware upon the terms and conditions herein provided.
D. The respective Boards of Directors of Aphton Delaware and
Aphton California have approved this Agreement and have directed that this
Agreement be submitted to a vote of their respective shareholders and executed
by the undersigned officers.
NOW, THEREFORE, in consideration of the mutual agreements and
covenants set forth herein, Aphton Delaware and Aphton California hereby
agree, subject to the terms and conditions hereinafter set forth, as follows:
I
MERGER
1.1 Merger. In accordance with the provisions of this Agreement,
the Delaware General Corporation Law and the California Corporations Code,
Aphton California shall be merged with and into Aphton Delaware (the
"Merger"), the separate existence of Aphton California shall cease and Aphton
Delaware shall survive the Merger and shall continue to be governed by the
laws of the State of Delaware, and Aphton Delaware shall be, and is herein
sometimes referred to as, the "Surviving Corporation," and the name of the
<PAGE>
Surviving Corporation shall be Aphton Corporation.
1.2 Filing and Effectiveness. The Merger shall become effective
when the following actions shall have been completed:
(a) This Agreement and the Merger shall have been adopted and
approved by the shareholders of each Constituent Corporation in
accordance with the requirements of the Delaware General Corporation Law
and the California Corporations Code;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement shall have been satisfied or duly
waived by the party entitled to satisfaction thereof;
(c) An executed and acknowledged counterpart of this Agreement
meeting the requirements of the Delaware General Corporation Law shall
have been filed with the Secretary of State of the State of Delaware; and
(d) An executed counterpart of this Agreement meeting the
requirements of the California Corporations Code shall have been filed
with the Secretary of State of the State of California.
The date and time when the Merger shall become effective, as
aforesaid, is herein called the "Effective Date of the Merger."
1.3 Effect of the Merger. Upon the Effective Date of the Merger,
the separate existence of Aphton California shall cease and Aphton Delaware,
as the Surviving Corporation, (i) shall continue to possess all of its assets,
rights, powers and property as constituted immediately prior to the Effective
Date of the Merger, (ii) shall be subject to all actions previously taken by
its and Aphton California's Boards of Directors, (iii) shall succeed, without
other transfer, to all of the assets, rights, powers and property of Aphton
California in the manner as more fully set forth in Section 259 of the
Delaware General Corporation Law, (iv) shall continue to be subject to all of
its debts, liabilities and obligations as constituted immediately prior to the
Effective Date of the Merger, and (v) shall succeed, without other transfer,
to all of the debts, liabilities and obligations of Aphton California in the
same manner as if Aphton Delaware had itself incurred them, all as more fully
provided under the applicable provisions of the Delaware General Corporation
Law and the California Corporations Code.
II
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 Certificate of Incorporation. The Certificate of Incorporation
of Aphton Delaware as in effect immediately prior to the Effective Date of the
Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance
with the provisions thereof and applicable law.
2.2 Bylaws. The Bylaws of Aphton Delaware as in effect immediately
prior to the Effective Date of the Merger shall continue in full force and
effect as the Bylaws of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
2.3 Directors and Officers. The directors and officers of Aphton
California immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their respective
successors shall have been duly elected and qualified or until as otherwise
provided by law, or the Certificate of Incorporation of the Surviving
Corporation or the Bylaws of the Surviving Corporation.
III
MANNER OF CONVERSION OF STOCK
<PAGE>
3.1 Aphton California Common Stock. Upon the Effective Date of the
Merger, each share of Aphton California Common Stock, no par value, issued and
outstanding immediately prior thereto shall, by virtue of the Merger and
without any action by the Constituent Corporations, the holder of such shares
or any other person, be changed and converted into and exchanged for one fully
paid and nonassessable share of Common Stock, no par value, of the Surviving
Corporation.
3.2 Aphton California Employee Benefit Plans, Options, Warrants,
Convertible Securities. Upon the Effective Date of the Merger, the Surviving
Corporation shall assume and continue all employee benefit plans of Aphton
California. As of the date hereof, there are __________ options, warrants,
purchase rights for or securities convertible into Common Stock of Aphton
California. Each outstanding and unexercised option, warrant or other right
to purchase Aphton California Common Stock or security convertible into Aphton
California Common Stock shall become an outstanding and unexercised option,
warrant or right to purchase the Surviving Corporation's Common Stock or a
security convertible into the Surviving Corporation's Common Stock on the
basis of one share of the Surviving Corporation's Common Stock for each share
of Aphton California Common Stock issuable pursuant to any such option,
warrant, stock purchase right or convertible security, on the same terms and
conditions and at an exercise price per share equal to the exercise price
applicable to any such Aphton California option, warrant, stock purchase right
or convertible security at the Effective Date of the Merger.
A number of shares of the Surviving Corporation's Common Stock shall
be reserved for issuance upon the exercise of options, warrants, stock
purchase rights or convertible securities equal to the number of shares of
Aphton California Common Stock so reserved immediately prior to the Effective
Date of the Merger.
3.3 Aphton Delaware Common Stock. Upon the Effective Date of the
Merger, each share of Common Stock, no par value, of Aphton Delaware issued
and outstanding immediately prior thereto shall, by virtue of the Merger and
without any action by Aphton Delaware, the holder of such shares or any other
person, be canceled and returned to the status of authorized but unissued
shares.
3.4 Certificates. After the Effective Date of the Merger, each
outstanding certificate theretofore representing shares of Aphton California
Common Stock shall be deemed for all purposes to represent the same number of
whole shares of the Surviving Corporation's Common Stock.
IV
GENERAL
4.1 Covenants of Aphton Delaware. Aphton Delaware covenants and
agrees that it will, on or before the Effective Date of the Merger:
(a) Qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for
service of process as required under the provisions of Section 2105 of
the California Corporations Code;
(b) File any and all documents with the California Franchise Tax
Board necessary for the assumption by Aphton Delaware of all of the
franchise tax liabilities of Aphton California and for obtaining a tax
clearance certificate; and
(c) Take such other actions as may be required by the California
Corporations Code Law.
4.2 Further Assurances. From time to time, as and when required by
Aphton Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of Aphton California such deeds and other instruments, and
<PAGE>
there shall be taken or caused to be taken by Aphton Delaware and Aphton
California such further and other actions, as shall be appropriate or
necessary in order to vest or perfect in or conform of record or otherwise by
Aphton Delaware the title to and possession of all the property, interests,
assets, rights, privileges, immunities, powers, franchises and authority of
Aphton California and otherwise to carry out the purposes of this Agreement,
and the officers and directors of Aphton Delaware are fully authorized in the
name and on behalf of Aphton California or otherwise to take any and all such
action and to execute and deliver any and all such deeds and other
instruments.
4.3 Abandonment. At any time before the filing of this Agreement
with the Secretary of State of the State of Delaware, this Agreement may be
terminated and the Merger may be abandoned for any reason whatsoever by the
Board of Directors of either Aphton California or Aphton Delaware, or both,
notwithstanding the approval of this Agreement by the shareholders of Aphton
California or by the sole stockholder of Aphton Delaware, or by both.
4.4 Amendment. The Boards of Directors of the Constituent
Corporations may amend this Agreement at any time prior to the filing of this
Agreement with the Secretaries of State of the States of California and
Delaware, provided that an amendment made subsequent to the adoption of this
Agreement by the shareholders of either Constituent Corporation shall not:
(1) alter or change the amount or kind of shares, securities, cash, property
and/or rights to be received in exchange for or on conversion of all or any of
the shares of any class or series thereof of such Constituent Corporation, (2)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, (3) alter or change any of the terms
and conditions of this Agreement if such alteration or change would adversely
affect the holders of any class of shares or series thereof of such
Constituent Corporation, or (4) alter or change any of the principal terms of
this Agreement.
4.5 Registered Office. The registered office of the Surviving
Corporation in the State of Delaware is located at Corporation Trust Center,
1209 Orange Center, in the city of Wilmington, County of New Castle, 19801 and
The Corporation Trust Company is the registered agent of the Surviving
Corporation at such address.
4.6 Expenses. Each party to the transactions contemplated by this
Agreement shall pay its own expenses, if any, incurred in connection with such
transactions.
4.7 Agreement. Executed copies of this Agreement will be on file
at the principal place of business of the Surviving Corporation at World Trade
Center Miami, 80 S.W. 8th Street, Miami, FL 33149-3047 and copies thereof will
be furnished to any shareholder of either Constituent Corporation, upon
request and without cost.
4.8 Governing Law. This Agreement shall in all respects be
construed, interpreted and enforced in accordance with and governed by the
laws of the State of Delaware and, so far as applicable, the merger provisions
of the California Corporations Code.
4.9 Counterparts. In order to facilitate the filing and recording
of this Agreement, the same may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which together
shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, this Agreement, having first been approved by
resolutions of the Boards of Directors of Aphton Delaware and Aphton
California, is hereby executed on behalf of each of such two corporations and
attested by their respective officers thereunto duly authorized.
APHTON CORPORATION
a Delaware corporation
By:__________________________
Name:
Title:
ATTEST:
_____________________________
Name:
Title:
APHTON CORPORATION
a California corporation
By:__________________________
Name:
Title:
ATTEST:
_____________________________
Name:
Title:
<PAGE>
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
APHTON CORPORATION
I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, as from time to time amended, do
hereby certify as follows:
FIRST: The name of the Corporation is
APHTON CORPORATION
SECOND: The registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle, 19801, Delaware. The name of its registered agent in
the State of Delaware at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage, directly or
indirectly, in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware as from
time to time in effect.
FOURTH: The total authorized capital stock of the Corporation shall
be 32,000,000 shares consisting of:
1. 30,000,000 shares of Common Stock, no par value; and
2. 2,000,000 shares of Preferred Stock, no par value.
The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of Preferred Stock in
series and, by filing a certificate pursuant to the applicable law of the
State of Delaware, to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers, preferences
and rights of the shares of each such series and any qualifications,
limitations or restrictions thereon.
<PAGE>
FIFTH: The name and mailing address of the incorporator is as
follows:
<TABLE>
<CAPTION>
Name Mailing Address
<C> <C>
Josh DeRienzis 1155 Avenue of the Americas
New York, New York 10036
</TABLE>
SIXTH: BOARD OF DIRECTORS
(1) The general business of the Corporation shall be managed under
the direction of the Board of Directors except as otherwise provided by law.
In addition to the powers and authority expressly conferred upon them by
statute or by this Certificate of Incorporation or the By-laws of the
Corporation, the directors are hereby empowered to exercise all such powers
and do all such acts and things as may be exercised or done by the
Corporation. Election of Directors need not be by written ballot unless the
By-Laws of the Corporation shall so provide.
(2) Number, Election and Terms:
Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, the number
of directors constituting the entire Board of Directors shall be fixed from
time to time exclusively by the Board of Directors pursuant to a resolution
adopted by a majority of the entire Board of Directors (excluding, for the
purpose of determining the number of directors constituting the entire Board,
any vacancies in the Board of Directors). Commencing with the 1998 Annual
Meeting of Stockholders of the Corporation, the directors, other than those
who may be elected by the holders of any series of Preferred Stock under
specified circumstances, shall be divided into three classes, as nearly equal
in number as possible, with the term of office of the first class to expire at
the 1999 Annual Meeting of Stockholders, the term of office of the second
class to expire at the 2000 Annual Meeting of Stockholders and the term of
office of the third class to expire at the 2001 Annual Meeting of
Stockholders, with each director to hold office until such director's
successor shall have been duly elected and qualified. At each Annual Meeting
of Stockholders, commencing with the 1998 Annual Meeting of Stockholders, (i)
Directors elected to succeed those directors whose terms expire shall be
elected for a term of office to expire at the third succeeding Annual Meeting
of Stockholders after their election and (ii) if authorized by a resolution of
the Board of Directors, directors may be elected to fill any vacancy on the
Board of Directors, regardless of how such vacancy shall have been created.
(3) Newly Created Directorships and Vacancies:
Subject to the rights of the holders of any series of Preferred
Stock then outstanding, and unless the Board of Directors otherwise
determines, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, disability, resignation, retirement, disqualification,
removal from office or other cause shall be filled only by a majority vote of
the directors then in office, though less than a quorum, and directors so
chosen shall hold office for a term expiring at the Annual Meeting of
Stockholders at which the term of office of the class to which they have been
elected expires and until such director's successor shall have been duly
elected or qualified. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
<PAGE>
(4) Removal:
Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any director, or the entire Board of Directors, may be
removed from office at any time, but only for cause.
(5) Amendment, repeal or alteration:
Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock required by law, this
Certificate of Incorporation or any series of Preferred Stock, the affirmative
vote of the holders of at least 80 percent of the voting power of all of the
then-outstanding shares of the capital stock entitled to vote for the election
of directors, voting together as a single class, shall be required to alter,
amend or repeal this Article SIXTH.
SEVENTH: Subject to the rights of the holders of any series of
Preferred Stock, (A) any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing by such stockholders and (B) special meetings of
stockholders of the Corporation may be called only by the Chairman of the
Board, the President or the Chief Executive Officer or by the Board of
Directors pursuant to a resolution adopted by a majority of the entire Board
of Directors (excluding, for the purpose of determining the number of
directors constituting the entire Board of Directors, any vacancies in Board
of Directors). Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation required by
law, this Certificate of Incorporation or any series of Preferred Stock, the
affirmative vote of the holders of at lest 80 percent of the voting power of
all of the then-outstanding shares of capital stock entitled to vote for the
election of directors, voting together as a single class, shall be required to
alter, amend or repeal this Article SEVENTH.
EIGHTH: The Board of Directors may make, alter or repeal the By-
Laws of the Corporation subject to the power of the holders of the capital
stock of the Corporation to alter, amend or repeal the Bylaws.
NINTH: The Directors of the Corporation shall be protected from
personal liability, through indemnification or otherwise, to the fullest
extent permitted under the General Corporation Law of the State of Delaware as
from time to time in effect.
1. A Director of the Corporation shall under no circumstances have
any personal liability to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a Director except for those breaches
and acts or omissions with respect to which the General Corporation Law of the
State of Delaware, as from time to time amended, expressly provides that this
provision shall not eliminate or limit such personal liability of Directors.
Neither the modification or repeal of this paragraph 1 of Article EIGHTH nor
any amendment to said General Corporation Law that does not have retroactive
application shall limit the right of Directors hereunder to exculpation from
personal liability for any act or omission occurring prior to such amendment,
modification or repeal.
2. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a Director or
officer, of the Corporation or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another Corporation
<PAGE>
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a Director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors. The right to indemnification conferred in this Bylaw
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that, if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a Director
or officer in his or her capacity as a Director or officer (and not in any
other capacity in which service was or is rendered by such person while a
Director or officer, including without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf
of such Director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such Director or officer is not entitled to be
indemnified under this Bylaw or otherwise. The Corporation may, by action of
its Board of Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
Directors and officers.
3. Right of Claimant to Bring Suit. If a claim under paragraph (a)
of this Bylaw is not paid in full by the Corporation within thirty days after
a written claim has been received by the Corporation, the claimant may at any
time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall
be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its
final disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
4. Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Bylaw shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
<PAGE>
5. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, officer, employee or agent of the
Corporation or another Corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
IN WITNESS WHEREOF, I have hereunto set my hand this th day of
, 1997.
_________________________
Josh DeRienzis
Sole Incorporator
<PAGE>
BYLAWS
of
APHTON CORPORATION
ARTICLE I.
GENERAL PROVISIONS
Section 1.01. Principal Executive Office. The principal executive
office of the Corporation shall be located at World Trade Center, Miami, 80
S.W., 8th Street, Miami, Florida 33149-3047. The Board of Directors shall
have the power to change the principal office to another location and may fix
and locate one or more subsidiary offices.
Section 1.02. Number of Directors. The affairs of the Corporation
shall be managed by a Board of Directors. The number of Directors
constituting the entire Board of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the entire Board of Directors (excluding, for the purpose of
determining the number of directors constituting the entire Board of
Directors, any vacancies in the Board of Directors).
ARTICLE II.
SHARES AND STOCKHOLDERS
Section 2.01. Meetings of Stockholders. (a) Place of Meetings.
Meetings of stockholders shall be held at any place within or without the
State of Delaware designated by the Board of Directors. In the absence of any
such designation, stockholders' meetings shall be held at the principal
executive office of the Corporation.
(b) Annual Meetings. An annual meeting of the stockholders of the
Corporation shall be held on the third Wednesday of January of each year at
10:00 a.m. or at such other date and time as may be designated by the Board of
Directors; provided, however, that should said day fall upon a legal holiday,
the annual meeting of stockholders shall be held at the same time on the next
day thereafter ensuing which is a full business day. At each annual meeting
Directors shall be elected, and any other proper business may be transacted.
(c) Special Meetings. Special meetings of stockholders of the
Corporation may be called only by the Chairman of the Board, the President or
the Chief Executive Officer or by the Board of Directors pursuant to a
resolution adopted by a majority of the entire Board of Directors (excluding,
for the purpose of determining the number of directors constituting the entire
Board of Directors, any vacancies in the Board of Directors).
(d) Notice of Meetings. Notice of any stockholders' meeting shall
be given not less than 10 nor more than 60 days before the date of the meeting
to each stockholder entitled to vote thereat. Such notice shall state the
place, date and hour of the meeting and those matters which the Board, at the
time of the giving of the notice, intends to present for action by the
stockholders. The notice of any meeting at which Directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by management for election.
(e) Adjourned Meeting and Notice Thereof. Any meeting of stock-
holders may be adjourned from time to time by the vote of a majority of the
shares represented either in person or by proxy whether or not a quorum is
present. When a stockholders' meeting is adjourned to another time or place,
<PAGE>
notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting the Corporation may transact any business which might
have been transacted at the original meeting. However, if the adjournment is
for more than 30 days or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
(f) Waiver of Notice. Whenever notice is required to be given
under any provision of the Delaware General Corporation Law,the Certificate of
Incorporation or Bylaws, a written waiver, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice
unless so required by the Certificate of Incorporation or these Bylaws.
(g) Quorum. The presence in person or by proxy of the persons
entitled to vote equalling a majority of the shares entitled to vote at any
meeting shall constitute a quorum for the transaction of business. If a
quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter shall be the act
of the stockholders, unless the vote of a greater number or voting by classes
is required by law or the Certificate of Incorporation of the Corporation. If
there be no such quorum, the holders of a majority of such shares so present
or represented may adjourn the meeting from time to time until a quorum shall
have been obtained.
(h) Organization of Meetings. Meetings of the stockholders shall
be presided over by the Chairman of the Board, if there be one, or if he is
not present, by the President, or if he is not present, by a Chairman to be
chosen at the meeting. The Secretary of the Corporation or in his absence, an
Assistant Secretary, shall act as Secretary at the meeting, if present.
Section 2.02. Voting of Shares. (a) In General. Except as other-
wise provided by law, the Certificate of Incorporation or these Bylaws, in all
matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting
and entitled to vote on the subject matter shall be the act of the
stockholders. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors.
Section 2.03. Proxies. Every person entitled to vote for Directors
or any other matters shall have the right to do so either in person or by one
or more agents authorized by a written proxy signed by the person.
Section 2.04. Record Date. (a) In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the board of directors may fix a
record date, which record date shall not precede the date upon the resolution
fixing the record date is adopted by the board of directions, and which record
date shall not be more than sixty nor less than ten days before the date of
such meeting. If no record is fixed by the board of directors, the record
date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if noticed is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
<PAGE>
(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights of the stockholders entitled to exercise any rights in respect
of any change, conversion or exchange of stock, or for the purpose of any
other lawful action, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall not be more than sixty
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of
business on the day on which the board of directors adopts the resolution
relating thereto.
A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Stockholders on the record date are entitled to notice and to vote
or to receive the dividend, distribution or allotment of rights or to exercise
the rights, as the case may be, notwithstanding any transfer of any shares on
the books of the Corporation after the record date, except as otherwise
provided in the Certificate of Incorporation or by agreement or in the
Delaware General Corporation Law.
Section 2.05. Share Certificates. The shares of the Corporation
shall be represented by certificates; provided, that the Board of Directors
may provide by resolution that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered
to the Corporation. Notwithstanding the adoption of such a resolution by the
Board of Directors, every holder of stock represented by certificates and upon
request every holder of uncertificated shares shall be entitled to have a
certificate signed by, or in the name of the Corporation by the Chairman or
Vice Chairman of the Board of Directors, or the President or Vice President,
and by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation representing the number of shares
registered in certificated form. Any or all of the signatures on the
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with
the same effect as if he were such officer, transfer agent or registrar at the
date of issue.
Section 2.06. Lost Certificates. In the event that any certificate
of stock is lost, stolen, destroyed or mutilated, the Board of Directors may
authorize the issuance of a new certificate or uncertificated share of the
same tenor and for the same number of shares in lieu thereof. The Board of
Directors may in its discretion, before the issuance of such new certificate,
require the owner of the lost, stolen, destroyed or mutilated certificate, or
the legal representative of the owner to make an affidavit or affirmation
setting forth such facts as to the loss, destruction or mutilation as it deems
necessary, and to give the Corporation a bond in such reasonable sum as it di-
rects to indemnify the Corporation.
Section 2.07. Notice of Stockholder Nominations and Proposed
Business.
(a) At any meeting of the stockholders, (i) nominations for the election
of directors and (ii) business to be brought before any such stockholders'
meeting may only be made or proposed (A) pursuant to the Corporation's notice
of meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the Corporation who is a stockholder of record at the time of
giving of the notice provided for in this Bylaw, who shall be entitled to vote
at such meeting and who complies with the notice procedures set forth in this
bylaw.
<PAGE>
(b) Any stockholder may nominate one or more persons for election as
directors at a stockholders' meeting or propose business to be brought before
a stockholders' meeting, or both, pursuant to clause (C) of this paragraph
(a), only if the stockholder has given timely notice thereof in proper written
form to the Secretary of the Corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 90 days nor more than 120 days prior
to the stockholders' meeting; provided, however, that if less than 100 days'
notice or other prior public disclosure of the date of the meeting is given or
made to the stockholders, notice by the stockholder to be timely must be
received no later than the close of business on the 10th day following the
earlier of the day on which notice of the date of the meeting was mailed or
other public disclosure was made. To be in proper written form a
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting:
(1) a brief description of the business proposed and/or persons
nominated, as applicable, and the reasons for proposing such business or
making such nomination;
(2) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business or making such nomination, and
the name and address of the beneficial owner, if any, on whose behalf the
proposal is made;
(3) the class and number of shares of the Corporation which are
owned beneficially and of record by such stockholder of record and by the
beneficial owner, if any, on whose behalf the proposal is made;
(4) with respect to any nomination, (i) a description of all
arrangements and understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made, (ii) the name,
age, business address and residence address of such nominee, (iii) the
class and number of shares of capital stock of the Corporation owned
beneficially and of record by such nominee and (iv) the written consent
of the proposed nominee to being named in the solicitation material and
to serving as a director if elected; and
(5) such other information regarding each nominee or matter of
business to be proposed as would be required to be included in
solicitations of proxies, or is otherwise required, in each case pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended.
(c) Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at any stockholders' meeting and no stockholder
may nominate any person for election at any stockholders' meeting except in
accordance with the procedures set forth in this Bylaw. The Chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting that
any proposed business and/or any proposed nomination for election as director
was not properly brought or made before the meeting or made in accordance with
the procedures prescribed by these Bylaws, and if he should so determine, he
shall so declare to the meeting and any such proposed business or proposed
nomination for election as director not properly brought before the meeting or
made shall not be transacted or considered.
ARTICLE III.
DIRECTORS
Section 3.01. Powers. Subject to the provisions of the Delaware
General Corporation Law and the Certificate of Incorporation, the business and
affairs of the Corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board of Directors. The Board of
<PAGE>
Directors may delegate the management of the day-to-day operations of the
business of the Corporation to a management company or other person provided
that the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board
of Directors.
Section 3.02. Election and Term of Office. Subject to the rights
of the holders of any series of Preferred Stock to elect additional directors
under specified circumstances, the number of directors constituting the entire
Board of Directors shall be fixed from time to time exclusively by the Board
of Directors pursuant to a resolution adopted by a majority of the entire
Board of Directors (excluding, for the purpose of determining the number of
directors constituting the entire Board, any vacancies in the Board of
Directors). Commencing with the 1998 Annual Meeting of Stockholders of the
Corporation, the directors, other than those who may be elected by the holders
of any series of Preferred Stock under specified circumstances, shall be
divided into three classes, as nearly equal in number as possible, with the
term of office of the first class to expire at the 1999 Annual Meeting of
Stockholders, the term of office of the second class to expire at the 2000
Annual Meeting of Stockholders and the term of office of the third class to
expire at the 2001 Annual Meeting of Stockholders, with each director to hold
office until such director's successor shall have been duly elected and
qualified. At each Annual Meeting of Stockholders, commencing with the 1998
Annual Meeting of Stockholders, (i) Directors elected to succeed those
directors whose terms expire shall be elected for a term of office to expire
at the third succeeding Annual Meeting of Stockholders after their election
and (ii) if authorized by a resolution of the Board of Directors, directors
may be elected to fill any vacancy on the Board of Directors, regardless of
how such vacancy shall have been created.
Section 3.03. Committees of the Board of Directors. The Board of
Directors may designate one or more committees, each committee to consist of
one or more of the directors of the Corporation, with such lawfully delegated
powers and duties as it therefor confers, to serve at the pleasure of the
Board of Directors. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members present at
any meeting and not disqualified from voting, whether or not such member or
members constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of
the business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to the following
matters: (i) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by law to be submitted to stockholders for
approval or (ii) adopting, amending or repealing any of these by-laws. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by such rules, its business shall be
conducted as nearly as possible in the same manner as is provided in these
Bylaws for the Board of Directors.
Section 3.04. Vacancies. Subject to the rights of the holders of
any series of Preferred Stock then outstanding, and unless the Board of
Directors otherwise determines, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board
of Directors resulting from death, disability, resignation, retirement,
disqualification, removal from office or other cause shall be filled only by a
majority vote of the directors then in office, though less than a quorum, and
directors so chosen shall hold office for a term expiring at the Annual
<PAGE>
Meeting of Stockholders at which the term of office of the class to which they
have been elected expires and until such director's successor shall have been
duly elected or qualified. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Section 3.05. Removal. Subject to the rights of the holders of any
series of preferred stock then outstanding, any director, or the entire Board
of Directors, may be removed from office at any time, but only for cause.
Section 3.06. Resignation. Any director may resign effective upon
giving written notice to the Chairman of the Board of Directors, the
President, the Secretary or the Board of Directors of the Corporation, unless
the notice specifies a later time for the effectiveness of such resignation.
If the resignation is effective at a future time, a successor may be elected
to take office when the resignation becomes effective.
Section 3.07. Meetings of the Board of Directors. (a) Regular
Meetings. Regular meetings of the Board of Directors shall be held at such
time and place within or without the State as may be designated from time to
time by resolution of the Board of Directors or by written consent of all
members of the Board of Directors or in these Bylaws. Such regular meetings
may be held without notice.
(b) Organization Meetings. Immediately following each annual meet-
ing of stockholders the Board of Directors shall hold a regular meeting for
the purpose of organization, election of officers, and the transaction of
other business. Notice of such meetings is hereby dispensed with.
(c) Special Meetings. Special meetings of the Board of Directors
for any purpose or purposes shall be called at any time by the Board of
Directors, the Chairman of the Board of Directors the President or the Chief
Executive Officer. Special meetings shall be held upon four days' notice by
mail or forty-eight hours' notice delivered personally or by telephone or
telegraph. Notice of a meeting need not be given to any Director who signs a
waiver of notice, whether before or after the meeting, or who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such director.
(d) Notice of Adjournment. A majority of the Directors present,
whether or not a quorum is present, may adjourn any meeting to another time
and place. If the meeting is adjourned for more than 24 hours, notice of such
adjournment to another time and place shall be given prior to the time of the
adjourned meeting to the Directors who were not present at the time of
adjournment.
(e) Place of Meetings. Meetings of the Board of Directors may be
held at any place within or without the state which has been designated in the
notice of the meeting or, if not stated in the notice or there is no notice,
then such meeting shall be held at the principal executive office of the
Corporation, or such other place designated by resolution of the Board of
Directors.
(f) Presence by Conference Telephone Call. Members of the Board of
Directors or any Committee may participate in a meeting through use of
conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another. Such
participation constitutes presence in person at such meeting.
(g) Quorum. A majority of the authorized number of Directors con-
stitutes a quorum of the Board of Directors for the transaction of business.
Every act or decision done or made by a majority of the Directors present at a
meeting duly held at which a quorum is present is the act of the Board of
Directors, unless a greater number be required by law or by the Certificate of
Incorporation. A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of Directors, if any
<PAGE>
action taken is approved by at least a majority of the required quorum for
such meeting.
(h) Waiver of Notice. The transactions of any meeting of the Board
of Directors, however called and noticed or wherever held, shall be as valid
as though had at a meeting duly held after regular call and notice if a quorum
is present and if, either before or after the meeting, each of the Directors
not present signs a written waiver of notice, a consent to holding a meeting
or an approval of the minutes thereof. All such waivers, consents and
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 3.08. Action Without Meeting. Any action required or per-
mitted to be taken at any meeting by the Board of Directors or any Committee,
may be taken without a meeting if all members of the Board of Directors or
Committee shall consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board of
Directors. Such action by written consent shall have the same force and
effect as a unanimous vote of such Directors.
ARTICLE IV.
OFFICERS
Section 4.01. Officers. The officers of the Corporation shall
consist of a Chairman of the Board of Directors or a President, or both, a
Secretary, a Chief Financial Officer, and such additional officers as may be
elected or appointed in accordance with Section 4.03 of these Bylaws and as
may be necessary to enable the Corporation to sign instruments and share
certificates. Any number of offices may be held by the same person.
Section 4.02. Elections. All officers of the Corporation, except
such officers as may be otherwise appointed in accordance with section 4.03 of
these Bylaws, shall be chosen by the Board of Directors, and each shall hold
his office until he shall resign or be removed or is otherwise disqualified to
serve, or until his successor is chosen and qualified.
Section 4.03. Other Officers. The Board of Directors may appoint
one or more vice presidents, one or more assistant secretaries, a treasurer,
one or more assistant treasurers, or such other officers as the business of
the Corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as the Board of Directors may from
time to time determine.
Section 4.04. Removal. Any officer may be removed, either with or
without cause, by the Board of Directors, at any regular or special meeting
thereof, or, except in case of an officer chosen by the Board of Directors, by
any officer upon whom such power of removal may be conferred by the Board of
Directors.
Section 4.05. Resignation. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President, or to the
Secretary of the Corporation without prejudice to the rights, if any, of the
Corporation under any contract to which the officer is a party. Any such
resignation shall take effect at the date of the receipt of such notice or any
later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 4.06. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in
the manner prescribed in these Bylaws for regular appointments to such office.
Section 4.07. Chairman of the Board of Directors. The Chairman of
the Board of Directors, if there shall be such an officer, shall, if present,
preside at all meetings of the Board of Directors and exercise and perform
<PAGE>
such other powers and duties as may be from time to time assigned to him by
the Board of Directors. If there is no President, the Chairman of the Board
of Directors shall in addition be the Chief Executive Officer of the Corpora-
tion and shall have the powers and duties prescribed in Section 4.08 below.
Section 4.08. President. Subject to such supervisory powers, if
any, as may be given by the Board of Directors to the Chairman of the Board of
Directors, if there be such an officer, the President shall be general manager
and Chief Executive Officer of the Corporation and shall, subject to the
control of the Board of Directors, have general supervision, direction and
control of the business and affairs of the Corporation. He shall preside at
all meetings of the stockholders and, in the absence of the Chairman of the
Board of Directors, or if there be none, at all meetings of the Board of
Directors. He shall be ex-officio a member of all the standing committees,
including the executive committee, if any, and shall have the general powers
and duties of management usually vested in the office of President of a
Corporation, and shall have such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws. The President shall have the power
to execute bonds, mortgages and other contracts, agreements and instruments in
the name and on behalf of the Corporation, and shall do and perform such other
duties as from time to time may be assigned to him by the Board of Directors.
Section 4.09. Vice President. In the absence of the President or
in the event of the President's inability or refusal to act, the vice
president, or in the event there be more than one vice president, the vice
presidents in order of their election, shall perform the duties of President
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any vice president shall perform such other
duties as from time to time may be assigned to such vice president by the
President or the Board of Directors.
Section 4.10. Secretary. The Secretary shall keep or cause to be
kept the minutes of proceedings and record of stockholders, as provided for
and in accordance with Section 5.01(a) of these Bylaws.
The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors required by these
Bylaws or by law to be given, and shall have such other powers and perform
such other duties as may be prescribed by the Board of Directors.
Section 4.11. Chief Financial Officer. The Chief Financial Officer
shall have general supervision, direction and control of the financial affairs
of the Corporation and shall have such other powers and duties as may be
prescribed by the Board of Directors or these Bylaws. In the absence of a
named treasurer, the Chief Financial Officer shall also have the powers and
duties of the treasurer as hereinafter set forth and shall be authorized and
empowered to sign as treasurer in any case were such officer's signature is
required.
Section 4.12. Treasurer. The treasurer shall keep or cause to be
kept the books and records of account as provided for and in accordance with
section 5.01(a) of these Bylaws. The books of account shall at all reasonable
times be open to inspection by any Director.
The treasurer shall deposit all moneys and other valuables in the
name and to the credit of the Corporation with such depositaries as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and Directors, whenever they request it, an account of all of his
transactions as treasurer and of the financial condition of the Corporation,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or these Bylaws. In the absence of a
named Chief Financial Officer, the treasurer shall be deemed to be the Chief
Financial Officer and shall have the powers and duties of such office as here-
inabove set forth.
<PAGE>
ARTICLE V.
MISCELLANEOUS
Section 5.01. Records and Reports. (a) Books of Account and Pro-
ceedings. The Corporation shall keep adequate and correct books and records
of account and shall keep minutes of the proceedings of its stockholders,
Board of Directors and committees of the Board of Directors and shall keep at
its principal executive office, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of shares held by each. Such minutes
shall be kept in written form. Such other books and records shall be kept
either in written form or in any other form capable of being converted into
written form.
Section 5.02. Checks, Drafts, Etc. All checks, drafts or other
orders for payment of money, notes or other evidences of indebtedness, issued
in the name of or payable to the Corporation, shall be signed or endorsed by
such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board of Directors.
Section 5.03. Authority to Execute Contracts. The Board of
Directors may authorize any officer or officers, agent or agents, to enter
into any contract or execute any instrument in the name of and on behalf of
the Corporation, and such authority may be general or confined to specific
instances; and, unless so authorized by the Board of Directors, and except as
otherwise provided in these Bylaws, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement
or to pledge its credit or to render it liable for any purpose or to any
amount.
Section 5.04. Representation of Shares of Other Corporations. The
Chairman of the Board of Directors, if any, President or any Vice President
and the Secretary or Assistant Secretary of this Corporation are authorized to
vote, represent and exercise on behalf of this Corporation all rights incident
to any and all shares of any other Corporation or Corporations standing in the
name of this Corporation. The authority herein granted to said officers to
vote or represent on behalf of this Corporation any and all shares held by
this Corporation in any other Corporation or Corporations may be exercised
either by such officers in person or by any other person authorized so to do
by proxy or power of attorney duly executed by said officers.
Section 5.05. Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a Director or
officer, of the Corporation or is or was serving at the request of the
Corporation as a Director, officer, employee or agent of another Corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a Director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
<PAGE>
executors and administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors. The right to indemnification conferred in this Bylaw
shall be a contract right and shall include the right to be paid by the
Corporation the expenses incurred in defending any such proceeding in advance
of its final disposition; provided, however, that, if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a Director
or officer in his or her capacity as a Director or officer (and not in any
other capacity in which service was or is rendered by such person while a
Director or officer, including without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding, shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf
of such Director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such Director or officer is not entitled to be
indemnified under this Bylaw or otherwise. The Corporation may, by action of
its Board of Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
Directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under paragraph
(a) of this Bylaw is not paid in full by the Corporation within thirty days
after a written claim has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant has not met
the standards of conduct which make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Bylaw shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, officer, employee or agent of the
Corporation or another Corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
Section 5.06. Construction and Definitions. Unless the context
otherwise requires, the general provisions, rules of construction and
definitions contained in the Delaware General Corporation Law shall govern the
construction of these Bylaws. Without limiting the generality of the
foregoing, the masculine gender includes the feminine and neuter, the singular
number includes the plural and the plural number includes the singular, and
the term "person" includes a Corporation as well as a natural person.
<PAGE>
ARTICLE VI.
AMENDMENTS
Section 6.01. Power of Stockholders. New Bylaws may be adopted or
these Bylaws may be amended or repealed by the vote of at least a majority of
the shares of stock of the Corporation issued and outstanding and entitled to
vote.
Section 6.02. Power of Directors. Subject to the right of
stockholders as provided in Section 6.01 to adopt, amend or repeal Bylaws, any
Bylaw may be adopted, amended or repealed by the Board of Directors.
IN WITNESS WHEREOF, I have hereunto set my hand this th day of
, 1997.
_________________________
Josh DeRienzis
Sole Incorporator
<PAGE>
APHTON CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
NOVEMBER 6, 1997
The undersigned hereby appoints Phil Gevas and Fred Jacobs, or
either of them, each with power of substitution, to represent the undersigned
at the Annual Meeting of Shareholders of Aphton Corporation (the "Company") to
be held at the offices of White & Case, located at First Union Financial
Center, 200 South Biscayne Boulevard, Miami, Florida 33131-2352 on Wednesday,
November 7, 1997, at 10:00 A.M. local time, and any adjournment thereof, and
to vote the number of shares the undersigned would be entitled to vote if
personally present at the meeting on the following matters:
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
SEE REVERSE SIDE
<PAGE>
PLEASE MARK YOUR CHOICES LIKE THIS [X]
The Board of Directors recommends a vote FOR Proposals 1 and 2.
<TABLE>
<S> <C> <C> <C>
1. REINCORPORATION OF THE COMPANY INTO THE STATE OF DELAWARE FOR AGAINST ABSTAIN
AND RELATED CHANGES TO THE COMPANY'S ARTICLES OF [ ] [ ] [ ]
INCORPORATION AND BYLAWS AND THE RIGHTS OF SHAREHOLDERS.
2. INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK AND FOR AGAINST ABSTAIN
THE CREATION OF A NEW CLASS OF STOCK KNOWN AS PREFERRED [ ] [ ] [ ]
STOCK.
</TABLE>
THIS PROXY WILL BE VOTED AS DIRECTED ABOVE. IN THE ABSENCE OF DIRECTION, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1 and 2. In their discretion, the proxies
are authorized to vote upon such other business as may properly come before
the meeting or any adjournment thereof to the extent authorized by Rule 14a-
4(c) promulgated by the Securities and Exchange Commission.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED, POSTAGE PAID ENVELOPE SO THAT
YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
Signature(s)_____________________________ Dated: ______________, 1997
Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares are held of record in the names of two or more persons or in the name
of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If the shares of stock are held of record
by a corporation, the proxy may be executed by an officer, agent or
proxyholder as the bylaws of the corporation may prescribe, or in the absence
of that determination, by the chairman, president, any vice president or any
other person authorized to do so by the chairman, president or any vice
president. Executors, administrators, or other fiduciaries who execute the
above proxy for a deceased shareholder should give their full title. Please
date the proxy.
