<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities
/X/ Exchange Act of 1934 for the quarterly period ended June 30, 1996.
or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________________
to _________________.
COMMISSION FILE NO. 0-19222
GENELABS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 94-3010150
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
505 PENOBSCOT DRIVE, REDWOOD CITY, CALIFORNIA 94063
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 369-9500
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
There were 36,343,756 shares of the Registrant's Common Stock issued and
outstanding on July 31, 1996.
This report consists of 22 sequentially numbered pages. The exhibit index is
located on sequentially numbered page 11.
1
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
GENELABS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 784 $ 22,557
Short-term investments 23,187 --
Accounts receivable 3,276 2,489
Inventories 3,216 3,336
Other current assets 480 716
--------- ---------
Total current assets 30,943 29,098
Property and equipment, net 1,730 1,945
Investment in Genelabs Biotechnology Ltd. 4,843 4,828
Other assets 186 327
--------- ---------
$ 37,702 $ 36,198
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 227 $ 3,200
Accounts payable and other accrued liabilities 4,273 5,002
Accrued compensation and related expenses 1,711 2,120
--------- ---------
Total current liabilities 6,211 10,322
Long-term obligations, excluding current portion 66 124
Shareholders' equity:
Preferred stock 9,682 9,682
Common stock 126,538 115,002
Accumulated deficit (104,795) (98,932)
--------- ---------
Total shareholders' equity 31,425 25,752
--------- ---------
$ 37,702 $ 36,198
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
Note: The condensed consolidated balance sheet at December 31, 1995 has been
derived from the audited financial statements at that date but does not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements.
2
<PAGE> 3
GENELABS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 2,971 $ 2,672 $ 5,713 $ 4,811
Contract and other 316 659 529 1,274
Chiron/Ortho diagnostics alliance -- 4,000 -- 6,000
-------- -------- -------- --------
Total revenues 3,287 7,331 6,242 12,085
-------- -------- -------- --------
Operating costs and expenses:
Cost of product sales 1,527 1,626 2,996 2,849
Purchased in-process research and development
-- -- -- 949
Research and development 2,551 2,589 4,996 5,512
Selling, general and administrative 2,307 2,450 4,446 4,643
-------- -------- -------- --------
Total operating costs and expenses 6,385 6,665 12,438 13,953
-------- -------- -------- --------
Operating (loss)/income (3,098) 666 (6,196) (1,868)
Interest income/(expense), net 287 18 528 (22)
Other (expense)/income (67) 24 (150) 203
Equity in income/(loss) of Genelabs Biotechnology,
Ltd 27 -- (50) --
-------- -------- -------- --------
Net (loss)/income $ (2,851) $ 708 $ (5,868) $ (1,687)
======== ======== ======== ========
Net (loss)/income per share $ (0.08) $ 0.02 $ (0.17) $ (0.07)
======== ======== ======== ========
Weighted average shares outstanding 36,236 31,887 34,978 24,558
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
GENELABS TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS)
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,868) $ (1,687)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization expense 426 567
Amortization of unearned contract revenue -- (667)
Purchased in-process research and development -- 949
Equity in loss of Genelabs Biotechnology, Ltd. 50 --
Changes in assets and liabilities:
Receivables (787) (409)
Inventories 120 141
Accounts payable, accrued compensation
and other accrued liabilities (1,138) (99)
Other assets/liabilities 236 230
-------- --------
Net cash used in operating activities (6,961) (975)
-------- --------
Cash flows from investing activities:
Purchases of securities available-for-sale (25,000) --
Proceeds from sale of securities available-for-sale 1,813 --
Maturities of securities available-for-sale -- 1,031
Capital expenditures (211) (315)
Other 78 386
-------- --------
Net cash (used in)/provided by investing activities (23,320) 1,102
-------- --------
Cash flows from financing activities:
Payments on long-term obligations (3,031) (32)
Proceeds from issuance of convertible preferred stock, net -- 9,713
Proceeds from issuance of common stock, net 11,537 154
-------- --------
Net cash provided by financing activities 8,506 9,835
-------- --------
Effect of exchange rate change on cash 2 45
-------- --------
Net (decrease)/increase in cash and cash equivalents (21,773) 10,007
Cash and cash equivalents, beginning of the period 22,557 3,562
-------- --------
Cash and cash equivalents, end of the period $ 784 $ 13,569
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
GENELABS TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Genelabs Technologies, Inc. and its wholly-owned subsidiaries
("Genelabs" or "the Company") after elimination of all significant intercompany
accounts and transactions. These financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the six month period ended June 30, 1996 are not necessarily
indicative of the results for the year ending December 31, 1996.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K, as
amended by its Form 10-K/A, for the year ended December 31, 1995.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
2. INVENTORIES
The components of inventory are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- ------------
<S> <C> <C>
Finished goods $1,150 $1,260
Work-in-process 278 167
Raw materials 1,788 1,909
------ ------
$3,216 $3,336
====== ======
</TABLE>
3. EXERCISE OF WARRANTS
In 1995, the Company issued 6.5 million shares of common stock through a private
offering. Each purchaser of these shares was also eligible to receive a warrant
to purchase one-half share of common stock for each share purchased in the
offering and held until a specified date. The Company had the option to call the
warrants if Genelabs' common stock price averaged $5.50 or more over any
consecutive 30 trading day period. In February 1996, this target was met and the
Company exercised its right to call all warrants issuable in connection with
this private offering. During February and March 1996, approximately 3.2 million
additional shares of the Company's common stock were issued at $3.39 per share
as a result of the exercise of the warrants, resulting in net proceeds of
approximately $10.3 million.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
All statements in Management's Discussion and Analysis of Financial Condition
and Results of Operations that are not historical are forward-looking statements
which involve a number of risks and uncertainties. Among the factors that could
cause actual results of the Company's activities to differ materially are
product non-approval or delays by the U.S. Food and Drug Administration ("FDA")
and foreign regulatory authorities, product development, manufacturing and
market acceptance risks, the impact of competitive products, pricing and
intellectual property rights, the results of current and future licensing and
other collaborative relationships and other factors and risks detailed in the
Company's 1995 Annual Report on Form 10-K, 10-K/A and other filings with the
U.S. Securities and Exchange Commission.
OVERVIEW
Genelabs is an international biopharmaceutical and diagnostics company focused
on viral and immunological disorders. The Company's mission is to conduct
targeted research, exploit new technologies, develop innovative drugs for
diseases such as lupus, and commercialize diagnostic and biopharmaceutical
products.
Using Genelabs' core technologies and expertise in drug and viral discovery, the
Company is engaged in the research and development of potential new therapeutics
and vaccines, both internally and through collaborations with academic
institutions and corporations. The Company's diagnostics business is generating
current revenue and expects to generate future revenue from the sale of viral
and other diagnostic products, although diagnostic product revenues are not
anticipated to offset the Company's total operating expenses.
The Company expects to continue to invest in biopharmaceutical product research
and development. Substantial revenue from the sale of biopharmaceutical products
is not expected until the launch of its first biopharmaceutical products, which
is not expected to occur for several years, if at all. The Company is seeking
collaborations for certain of its technologies with other pharmaceutical
companies to maximize sales of products that may result from those technologies
and to obtain funding for a portion of its research and development expenses.
However, Genelabs expects to continue to incur operating losses for at least the
next several years.
RESULTS OF OPERATIONS
Revenues
Revenues include both diagnostic product sales and contract and other revenue.
Diagnostic product sales were $3.0 million for the three months ended June 30,
1996, compared to $2.7 million for the same period in 1995. For the six months
ended June 30, 1996, diagnostic product sales were $5.7 million compared to $4.8
million for the same period in 1995. For both the three and six month periods
ended June 30, 1996, the most notable increases in product sales were for the
Company's Western Blot and Rapid Test products.
6
<PAGE> 7
Contract and other revenues include licensing, milestone and research and
development payments. Contract and other revenue, exclusive of the 1995 up-front
payments received from Chiron Corporation ("Chiron") and Ortho Diagnostic
Systems, Inc. ("Ortho"), was $0.3 million and $0.5 million for the three and six
month periods ended June 30, 1996, respectively, compared to $0.7 million and
$1.3 million for the same periods in 1995. The revenue received from Chiron and
Ortho will be discussed separately in the following paragraph. The 1996
decreases, compared to the same period in 1995, were primarily due to the
recognition in 1995 of deferred revenue received in an earlier year for a
collaboration to develop a vaccine for the hepatitis E virus.
For the three months ended June 30, 1995, contract and other revenue included
$4.0 million from a collaboration with Chiron and Ortho for development of
diagnostic products for the hepatitis G virus ("HGV"), which was discovered by
Genelabs. For the six months ended June 30, 1995, contract and other revenue
included $6.0 million from this collaboration. Because this revenue represented
up-front payments from the signing of an agreement, there was no comparable
revenue in 1996. Contract and other revenues recognized in the future will be
dependent upon the Company's achieving milestones under current agreements and
entering into new research and development and licensing agreements with
corporate collaborators.
Cost of Product Sales
Despite the previously noted increase in diagnostic sales for the second quarter
of 1996 compared to the second quarter of 1995, the cost of product sales
decreased to $1.5 million, compared to $1.6 million for the same period in 1995.
Cost of product sales as a percentage of product sales decreased to 51% from 61%
for the same periods. The decrease in cost of product sales, both in dollars and
as a percentage of product sales, reflects higher sales levels of more
profitable products and better production yields.
For the first six months of 1996, cost of product sales was $3.0 million
compared to $2.8 million for the same period in 1995. The increase in cost of
product sales occurred because of the higher sales levels. Gross margins
improved due to better production yields and higher sales levels of more
profitable products.
Research and Development Expenses
The Company's research and development expenses were $2.6 million for both the
three months ended June 30, 1996 and the three months ended June 30, 1995. For
the six months ended June 30, 1996, research and development expenses were $5.0
million compared to $5.5 million for the same period in 1995. This reduction
reflects the Company's concentration of available funds on certain projects
while reducing or eliminating others. The Company's principal ongoing research
and development expenses are directed toward its priority programs, in
particular, the clinical development of GL701 (DHEA) for lupus and research
activities concerning DNA-binding technology and the hepatitis G virus.
In the first quarter of 1995, the Company recorded a nonrecurring, noncash
charge of $0.9 million for purchased in-process research and development for the
fair market value of shares issued in 1995 in connection with the 1993
acquisition of Genelabs Diagnostics (Pte.) Ltd.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2.3 million and $2.5 million
for the quarters ended June 30, 1996 and 1995, respectively. For the six months
ended June 30, 1996 and 1995, selling, general and administrative expenses were
$4.5 million and $4.6 million, respectively. The decline in these expenses
reflects the Company's continuing efforts to contain operating expenses.
Interest Income/(Expense), Net
Net interest income increased in 1996 over the comparable periods of 1995 due to
higher average cash and short-term investment balances.
7
<PAGE> 8
Net Loss
The Company has operated at a loss since its inception and had an accumulated
deficit of $104.8 million as of June 30, 1996. The net loss for the three months
ended June 30, 1996 was $2.9 million, compared to net income of $0.7 million for
the same period in 1995. In comparing these two periods, it is important to note
that in 1995 $4.0 million in revenue was recognized in connection with the
above-noted collaboration among Genelabs, Chiron and Ortho. Excluding this
collaboration revenue, the Company's net loss improved by $0.4 million,
primarily due to increased gross margin on the Company's diagnostic product
sales.
For the six months ended June 30, 1996, the net loss was $5.9 million, compared
to a loss of $1.7 million for the same period in 1995. Excluding the $6.0
million collaboration revenue from Chiron and Ortho recognized in the first six
months of 1995, the net loss improved by $1.8 million, primarily due to improved
gross margins on the Company's diagnostic product sales and noncash costs of
$0.9 million recognized in the first quarter of 1995, related to a previous
year's acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and short-term investments totaling $24.0
million at June 30, 1996, compared to $22.6 million at December 31, 1995. In the
first quarter of 1996, the Company received $10.3 million from the exercise of
warrants issued in connection with an August 1995 private placement and the
Company paid $2.8 million upon the maturity of its subordinated convertible
debentures. Excluding these two items, cash, cash equivalents and short-term
investments would have declined by $6.1 million for the six months ended June
30, 1996. This decline is attributable primarily to the Company's operating
activities which used $7.0 million during this six-month period, partially
offset by additional proceeds from the issuance of stock unrelated to the
warrants.
The Company has funded its operations since inception primarily through public
and private offerings of its common stock, private offerings of its preferred
stock, contract revenues and product sales. The Company has no bank debt or
other credit lines.
Genelabs' expects to incur substantial additional costs, including costs for
clinical trials for products currently under development. The amount of the
additional costs, as well as increased expenditures necessary for working
capital and capital requirements, will depend on numerous factors, including the
timing and outcome of any regulatory actions related to the Company's products.
In addition, funding requirements will depend on the progress of the Company's
research and development programs as well as its ability to establish and
maintain collaborations with other pharmaceutical companies to fund these
programs.
The Company anticipates that its current resources, expected revenues from
existing collaborative agreements and continued efforts to minimize expenses
will enable it to maintain its current and planned operations at least through
1997. Thereafter, the Company may need to raise additional funding, for which
the Company is pursuing several options, including collaborative research and
development arrangements with pharmaceutical companies. There can be no
assurance that additional funds will be available on favorable terms, if at all.
Insufficient funds may require the Company to delay, scale back or eliminate
some or all of its research and product development programs or to license third
parties the right to commercialize products or technologies that the Company
would otherwise seek to develop itself.
8
<PAGE> 9
Certain Business Risks
Genelabs is at an early stage of development. The Company has experienced
significant operating losses since its inception and expects to incur
significant operating losses over the next several years. The development of the
Company's proposed products will require a commitment of substantial funds to
conduct these costly and time-consuming activities. The Company's technologies,
including DNA-binding technology, are in many cases new and still under
development. All of Genelabs' proposed therapeutic products, including GL701 for
the treatment of lupus, are in research or development and will require
substantial additional research and development efforts prior to any commercial
use, including extensive clinical testing as well as potentially lengthy
regulatory approval. Genelabs currently is discussing the possibility of drug
discovery research collaborations using its DNA-binding technology with various
pharmaceutical companies. No assurance can be given as to the ability of the
Company to complete an agreement with such a collaborator on a timely basis or
at all.
The Company currently is conducting Phase III clinical trials for GL701. No
assurance can be given as to the results of these trials, the safety or efficacy
of this drug candidate or, in any event, the ability of Genelabs to obtain
regulatory approval for the commercialization of the drug candidate. The active
ingredient in GL701 is dehydroepiandrosterone ("DHEA"). DHEA is currently being
marketed by others as an over the counter dietary supplement. The Company
believes that DHEA is a drug that is subject to regulation and approval by the
FDA. The Company further believes that in several instances these supplements do
not contain true DHEA, but instead contain related substances that are not
biologically equivalent. However, to date the FDA has taken no action to limit
or regulate the sale of these dietary supplements, and no assurance can be given
as to the willingness or ability of the FDA to do so in the future. In the event
that clinical trials for GL701 are promising and the drug candidate receives FDA
marketing approval, the concurrent sale of these dietary supplements could
adversely affect the market for or selling prices of GL701.
The Company is continuing its research and development efforts related to the
hepatitis G virus. However, Genelabs has recently reduced expenditures on this
program. While the presence of this virus has been detected in blood samples
contained in the U.S., Europe, Japan and elsewhere, the Company and its
collaborators are still seeking to determine the nature and severity of any
diseases specifically caused by HGV. In order to test for HGV generally in the
blood banks, the Company and its licensors are continuing efforts to develop a
serological assay. To date, no such assay has been introduced.
The Company has only limited sales, marketing and distribution capabilities. If
the Company successfully develops any new products, Genelabs must either rely on
large pharmaceutical companies to market such products or must develop a
marketing and sales force with technical expertise and supporting distribution
capability in order to market such products directly. Also inherent in the
Company's stage of development is a range of additional risks, including
competition, uncertainties regarding protection or patents and proprietary
rights and the possibility of infringement of the proprietary rights of others,
government regulation, and uncertainties regarding health care reform.
9
<PAGE> 10
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 30, 1996, the Company held its Annual Meeting of shareholders. Matters
voted upon at the meeting and the number of affirmative votes, negative votes,
withheld votes and abstentions cast with respect to each such matter were as
follows:
<TABLE>
<CAPTION>
Affirmative Withheld
Votes Votes
1. Election of the Company's Directors:
<S> <C> <C>
Irene A. Chow 30,750,494 540,335
Edgar G. Engleman 30,706,638 584,191
Zhongxin M. Gong 30,748,134 542,695
Arthur Gray, Jr. 30,737,334 553,495
H.H. Haight 30,750,464 540,365
Frank F.C. Kung 30,740,479 550,350
Damaris Skouras 30,548,055 742,774
Max Wilhelm 30,748,134 542,695
</TABLE>
<TABLE>
<CAPTION>
Affirmative Negative
Votes Votes Abstentions
<S> <C> <C> <C>
2. Approval of the amendment to the 1995
Employee Stock Option Plan 26,787,239 2,285,381 2,218,209 *
3. Approval of the amendment to the
1987 Directors' Stock Option Plan 28,016,349 693,970 2,580,510 *
4. Ratification of Ernst & Young LLP as
independent certified public accountants 30,954,069 35,840 300,920
</TABLE>
* Includes 1,807,850 broker non-votes.
10
<PAGE> 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.30 Registrant's 1996 Genelabs Biotechnology. Ltd. Employee Stock Purchase
Plan (incorporated herein by reference to Exhibit 4.04 to the Registrant's
Registration Statement on Form S-8 (File No. 33-34806) filed on May 7, 1996
(the "May 1996 Form S-8")).
10.31 Registrant's Non-Plan Stock Option (incorporated herein by reference to
Exhibit 4.05 to the May 1996 Form S-8).
10.32 Registrant's 1992 Restricted Stock Award Plan, as amended (incorporated
herein by reference to Exhibit 4.06 to the May 1996 Form S-8).
10.33 Registrant's 1995 Employee Stock Option Plan, as amended (incorporated
herein by reference to Exhibit 4.04 to the Registrant's Registration
Statement on Form S-8 (File No. 333-05769) filed on June 12, 1996).
10.34 Registrant's 1991 Employee Stock Purchase Plan, as amended.
(b) REPORTS ON FORM 8-K
During the quarter ended June 30, 1996, the Company filed no Current Reports on
Form 8-K.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENELABS TECHNOLOGIES, INC.
(Registrant)
PRINCIPAL EXECUTIVE OFFICER:
/s/ IRENE A. CHOW
Date: August 8, 1996 _____________________________________
IRENE A. CHOW
President and Chief Executive Officer
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:
/s/ CYNTHIA E. NATHAN
Date: August 8, 1996 _____________________________________
CYNTHIA E. NATHAN
Vice President, Controller
12
<PAGE> 1
Exhibit 10.34
GENELABS TECHNOLOGIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
(Adopted by the Board of Directors on April 24, 1991)
As Amended February 11, 1994, September 20, 1995
and January 26, 1996
1. ESTABLISHMENT OF PLAN
Genelabs Technologies, Inc. (the "Company") proposes to grant options
for purchase of the Company's Common Stock (an "Offering") to eligible employees
of the Company and its Subsidiaries (as hereinafter defined) pursuant to this
Employee Stock Purchase Plan (this "Plan"). For purposes of this Plan, "Parent
Corporation" and "Subsidiary" (collectively, "Subsidiaries") shall have the same
meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e)
and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the
"Code"). The Company intends the Plan to qualify as an "employee stock purchase
plan" under Section 423 of the Code (including any amendments to or replacements
of such Section), and the Plan shall be so construed. Any term not expressly
defined in the Plan but defined for purposes of Section 423 of the Code shall
have the same definition herein. A total of 500,000 shares of the Company's
Common Stock are reserved for issuance under the Plan. Such number shall be
subject to adjustments effected in accordance with Section 14 of the Plan.
2. PURPOSE
The purpose of the Plan is to provide employees of the Company and
Subsidiaries designated by the Board of Directors of the Company (the "Board")
as eligible to participate in the Plan with a convenient means of acquiring an
equity interest in the Company through payroll deductions, to enhance such
employees' sense of participation in the affairs of the Company and
Subsidiaries, and to provide an incentive for continued employment.
3. ADMINISTRATION
This plan may be administered by the Board or a committee appointed by
the Board (the "Committee"). If, at the time the Company registers under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), a majority of
the Board is not comprised of Disinterested Persons as defined in Rule 16b-3(d)
promulgated under the Exchange Act, the Board shall appoint a committee
consisting of not less than three (3) persons (who need not be members of the
Board), each of whom is a Disinterested Person. As used in this Plan, references
to the "Committee" shall mean either such committee or the Board if no committee
has been established. After registration of the Company under the Exchange Act,
Board members who are not Disinterested Persons may not vote on any matters
affecting the administration of this Plan, but any such member may be counted
for determining the existence of a quorum at any meeting of the Board. Subject
to the provisions of the Plan and
<PAGE> 2
Exhibit 10.34
Genelabs Technologies, Inc.
Employee Stock Purchase Plan
the limitations of Section 423 of the Code or any successor provision in the
Code, all questions of interpretation or application of the Plan shall be
determined by the Board and its decisions shall be final and binding upon all
participants. Members of the Board shall receive no compensation for their
services in connection with the administration of the Plan, other than standard
fees as established from time to time by the Board for services rendered by
Board members serving on Board committees. All expenses incurred in connection
with the administration of the Plan shall be paid by the Company.
4. ELIGIBILITY
Any employee of the Company or the Subsidiaries is eligible to
participate in an Offering Period (as hereinafter defined) under the Plan except
the following:
(a) employees who are not employed by the Company or Subsidiaries on
the fifteenth (15th) day of the month before the beginning of such Offering
Period;
(b) employees who are customarily employed for less than 20 hours per
week;
(c) employees who are customarily employed for less than 5 months in a
calendar year;
(d) employees who, together with any other person whose stock would be
attributed to such employee pursuant to Section 424(d) of the Code, own stock or
hold options to purchase stock or who, as a result of being granted an option
under the Plan with respect to such Offering Period, would own stock or hold
options to purchase stock possessing 5 percent or more of the total combined
voting power or value of all classes of stock of the Company or any of its
Subsidiaries.
5. OFFERING DATES
The Offering Periods of the Plan (the "Offering Period") shall be of
twenty-four (24) months duration commencing on January 2 and July 2 of each year
and ending on July 1 and January 1 of each year. Each Offering Period shall
consist of four (4) six-month purchase periods (individually, a "Purchase
Period") during which payroll deductions of the participants are accumulated
under the Plan. The first business day of each Offering Period is referred to as
the "Offering Date". The last business day of each Offering Period is referred
to as the "Purchase Date". Notwithstanding the foregoing, if the fair market
value of the Company's Common Stock on any Purchase Date is less than it was on
an Offering Date, then the Offering Period (s) for such Offering Date(s) shall
immediately terminate and a new Offering Period shall commence for those
employees participating in such terminated Offerings (See also Section 11(c)
below). The Board shall have the power to change the duration of Offering
Periods or Purchase Periods with respect to offerings without shareholder
approval if such change is announced at least fifteen (15) days prior to the
scheduled beginning of the first Offering Period or Purchase Period to be
affected.
-2-
<PAGE> 3
Exhibit 10.34
Genelabs Technologies, Inc.
Employee Stock Purchase Plan
6. PARTICIPATION IN THE PLAN
Eligible employees may become participants in an Offering Period under
the Plan upon the commencement of the next Purchase Period after satisfying the
eligibility requirements by delivering a subscription agreement to the Company's
or Subsidiary's (whichever employs such employee) Treasury Department (the
"Treasury Department") not
later than the 15th day of the month before such Purchase Period begins
unless a later time for filing the subscription agreement authorizing payroll
deductions is set by the Board for all eligible employees with respect to a
given Purchase Period. An eligible employee who does not deliver a subscription
agreement to the Treasury Department by such date after becoming eligible to
participate in such Purchase Period shall not participate in that Purchase
Period or any subsequent Purchase Period unless such employee enrolls in the
Plan by filing a subscription agreement with the Treasury Department not later
than the 15th day of the month preceding the beginning of a subsequent Purchase
Period. Once an employee becomes a participant in a Purchase Period, such
employee will automatically participate in the next Purchase Period unless the
employee withdraws from the Plan or terminates further participation in the
Purchase Period as set forth in Section 11 below. Such participant is not
required to file any additional subscription agreement in order to continue
participation in the Plan.
7. GRANT OF OPTION ON ENROLLMENT
Enrollment by an eligible employee in the Plan with respect to an
Offering Period will constitute the grant (as of the Offering Date) by the
Company to such employee of an option to purchase on the Purchase Date up to
that number of shares of Common Stock of the Company determined by dividing the
amount accumulated in such employee's payroll deduction account during such
Purchase Period by the lower of (i) eighty-five percent (85%) of the fair market
value of a share of the Company's Common Stock on the Offering Date (the "Entry
Price") or (ii) eighty-five percent (85%) of the fair market value of a share of
the Company's Common Stock on the Purchase Date; provided, however, that the
number of shares of the Company's Common Stock subject to any option granted
pursuant to this Plan shall not exceed the lesser of (a) the maximum number of
shares set by the Board pursuant to Section 10(c) below with respect to the
applicable Purchase Period, or (b) the maximum number of shares which may be
purchased pursuant to Section 10(b) below with respect to the applicable
Purchase Period. Fair market value of a share of the Company's Common Stock
shall be determined as provided in Section 8 hereof.
8. PURCHASE PRICE
The purchase price per share at which a share of Common Stock will be
sold during any Offering Period shall be 85 percent of the lesser of:
(a) The fair market value on the Offering Date; or
(b) The fair market value on the Purchase Date.
-3-
<PAGE> 4
Exhibit 10.34
Genelabs Technologies, Inc.
Employee Stock Purchase Plan
For purposes of the Plan, the term "fair market value" on a given date
shall mean the closing price from the previous day's trading of a share of the
Company's Common Stock as reported on The Nasdaq National Market.
9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL
DEDUCTIONS; ISSUANCE OF SHARES
(a) The purchase price of the shares is accumulated by regular payroll
deductions made during each Purchase Period. The deductions are made as a
percentage of the participant's compensation in one percent increments not less
than 2 percent nor greater than 10 percent, not to exceed $25,000 per year or
such other limit set by the Committee. Compensation shall mean all W-2
compensation, including, but not limited to base salary, wages, commissions,
overtime, shift premiums and bonuses, plus draws against commissions; provided,
however, that for purposes of determining a participant's compensation, any
election by such participant to reduce his or her regular cash remuneration
under Sections 125 or 401(k) of the Code shall be treated as if the participant
did not make such election. Payroll deductions shall commence on the first
payday following the Offering Date and shall continue to the end of the Purchase
Period unless sooner altered or terminated as provided in the Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during a Purchase Period by filing with the Treasury Department a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing more than 15 days after the
Treasury Department's receipt of the authorization and shall continue for the
remainder of the Purchase Period unless changed as described below. Such change
in the rate of payroll deductions may be made at any time during a Purchase
Period, but not more than one change may be made effective during any Purchase
Period. A participant may increase or decrease the rate of payroll deductions
for any subsequent Purchase Period by filing with the Treasury Department a new
authorization for payroll deductions not later than the 15th day of the month
before the beginning of such Purchase Period. An increase or decrease in your
payroll deduction does not start a new Offering Period.
(c) All payroll deductions made for a participant are credited to his
or her account under the Plan and are deposited with the general funds of the
Company. No interest accrues on the payroll deductions. All payroll deductions
received or held by the Company may be used by the Company for any corporate
purposes, and the Company shall not be obligated to segregate such payroll
deductions.
(d) On each Purchase Date, so long as the Plan remains in effect and
provided that the participant has not submitted a signed and completed
withdrawal form before that date which notifies the Company that the participant
wishes to withdraw from that Purchase Period under the Plan and have all payroll
deductions accumulated in the account maintained on behalf of the participant as
of that date returned to the participant, the Company shall apply the funds then
in the participant's account to the purchase of whole shares of Common
-4-
<PAGE> 5
Exhibit 10.34
Genelabs Technologies, Inc.
Employee Stock Purchase Plan
Stock reserved under the option granted to such participant with respect to the
Purchase Period to the extent that such option is exercisable on the Purchase
Date. The purchase price per share shall be as specified in Section 8 of the
Plan. Any cash remaining in a participant's account after such purchase of
shares shall be refunded to such participant in cash, without interest;
provided, however, that any amount remaining in such participant's account on a
Purchase Date which is less than the amount necessary to purchase a full share
of Common Stock of the Company shall be carried forward, without interest, into
the next Purchase Period. In the event that the Plan has been oversubscribed,
all funds not used to purchase shares on the Purchase Date shall be returned to
the participant, without interest. No Common Stock shall be purchased on a
Purchase Date on behalf of any employee whose participation in the Plan has
terminated prior to such Purchase Date.
(e) As promptly as practicable after the Purchase Date, the Company
shall arrange the delivery to each participant of a certificate representing the
shares purchased upon exercise of his option; provided that the Board may
deliver certificates to a broker or brokers that hold such certificate in a
street name for the benefit of each such participant.
(f) During a participant's lifetime, such participant's option to
purchase shares hereunder is exercisable only by him or her. The participant
will have no interest or voting right in shares covered by his or her option
until such option has been exercised. Shares to be delivered to a participant
under the Plan will be registered in the name of the participant or in the name
of the participant and his or her spouse.
10. LIMITATIONS ON SHARES TO BE PURCHASED
(a) No employee shall be entitled to purchase stock under the Plan at a
rate which, when aggregated with his or her rights to purchase stock under all
other employee stock purchase plans of the Company or any Subsidiary, exceeds
$25,000 in fair market value, determined as of the Offering Date (or such other
limit as may be imposed by the Code) for each calendar year in which the
employee participates in the Plan.
(b) No more than 200% of the number of shares determined by using 85%
of the fair market value of a share of the Company's Common Stock on the
Offering Date as the denominator may be purchased by a participant on any single
Purchase Date.
(c) No employee shall be entitled to purchase more than the Maximum
Share Amount (as defined below) on any single Purchase Date. Not less than
thirty days prior to the commencement of any Purchase Period, the Board may, in
its sole discretion, set a maximum number of shares which may be purchased by
any employee at any single Purchase Date (hereinafter the "Maximum Share
Amount"). In no event shall the Maximum Share Amount exceed the amounts
permitted under Section 10(b) above. If a new Maximum Share Amount is set, then
all participants must be notified of such Maximum Share Amount not less than
fifteen days prior to the commencement of the next Purchase Period. Once the
Maximum Share Amount is set, it shall continue to apply with respect to all
succeeding Purchase Dates and Purchase Periods unless revised by the Board as
set forth above.
-5-
<PAGE> 6
Exhibit 10.34
Genelabs Technologies, Inc.
Employee Stock Purchase Plan
(d) If the number of shares to be purchased on a Purchase Date by all
employees participating in the Plan exceeds the number of shares then available
for issuance under the Plan, the Company will make a pro rata allocation of the
remaining shares in as uniform a manner as shall be practicable and as the Board
shall determine to be equitable. In such event, the Company shall give written
notice of such reduction of the number of shares to be purchased under a
participant's option to each participant affected thereby.
(e) Any payroll deductions accumulated in a participant's account which
are not used to purchase stock due to the limitations in this Section 10 shall
be returned to the participant as soon as practicable after the end of the
Purchase Period, without interest.
11. WITHDRAWAL
(a) Each participant may withdraw from a Purchase Period under the Plan
by signing and delivering to the Treasury Department notice on a form provided
for such purpose. Such withdrawal may be elected at any time at least 15 days
prior to the end of a Purchase Period.
(b) Upon withdrawal from the Plan, the accumulated payroll deductions
shall be returned to the withdrawn participant, without interest, and his or her
interest in the Plan shall terminate. In the event a participant voluntarily
elects to withdraw from the Plan, he or she may not resume his or her
participation in the Plan during the same Purchase Period, but he or she may
participate in any Purchase Period under the Plan which commences on a date
subsequent to such withdrawal by filing a new authorization for payroll
deductions in the same manner as set forth above for initial participation in
the Plan.
(c) For an Offering Period in which a participant is enrolled, if the
fair market value of the Company's Common Stock on the Purchase Date is less
than it was on the Offering Date, the Company will automatically enroll such
participant in the subsequent Offering Period. A participant does not need to
file any forms with the Company to automatically be enrolled in the subsequent
Offering Period.
12. TERMINATION OF EMPLOYMENT
Termination of a participant's employment for any reason, including
retirement, death or the failure of a participant to remain an eligible
employee, immediately terminates his or her participation in the Plan. In such
event, the payroll deductions credited to the participant's account will be
returned to him or her or, in the case of his or her death, to his or her legal
representative, without interest. For purposes of this Section 12, an employee
will not be deemed to have terminated employment or failed to remain in the
continuous employ of the Company in the case of sick leave, military leave, or
any other leave of absence approved by the Board; provided that such leave is
for a period of not more than ninety (90) days or reemployment upon the
expiration of such leave is guaranteed by contract or statute.
-6-
<PAGE> 7
Exhibit 10.34
Genelabs Technologies, Inc.
Employee Stock Purchase Plan
13. RETURN OF PAYROLL DEDUCTIONS
In the event a participant's interest in the Plan is terminated by
withdrawal, termination of employment or otherwise, or in the event the Plan is
terminated by the Board, the Company shall promptly deliver to the participant
all payroll deductions credited to his account. No interest shall accrue on the
payroll deductions of a participant in the Plan.
14. CAPITAL CHANGES
Subject to any required action by the shareholders of the Company, the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised and the number of shares of Common Stock which have been
authorized for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the price per share of Common Stock
covered by each option under the Plan which has not yet been exercised, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split or the payment of a stock
dividend (but only on the Common Stock) or any other increase or decrease in the
number of shares of Common Stock effected without receipt of consideration by
the Company; provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
shall be final, binding and conclusive. Except as expressly provided herein, no
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to an option.
In the event of the proposed dissolution or liquidation of the Company,
the Purchase Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board. The Board may, in the
exercise of its sole discretion in such instances, declare that the options
under the Plan shall terminate as of a date fixed by the Board and give each
participant the right to exercise his or her option as to all of the optioned
stock, including shares which would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, each option under
the Plan shall be assumed or an equivalent option shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the Board determines, in the exercise of its sole discretion and in lieu
of such assumption or substitution, that the participant shall have the right to
exercise the option as to all of the optioned stock. If the Board makes an
option exercisable in lieu of assumption or substitution in the event of a
merger or sale of assets, the Board shall notify the participant that the option
shall be fully exercisable for a period of twenty (20) days from the date of
such notice, and the option will terminate upon the expiration of such period.
The Board may, if it so determines in the exercise of its sole
discretion, also make provision for adjusting the Reserves, as well as the price
per share of Common Stock covered
-7-
<PAGE> 8
Exhibit 10.34
Genelabs Technologies, Inc.
Employee Stock Purchase Plan
by each outstanding option, in the event that the Company effects one or more
reorganizations, recapitalizations, rights offerings or other increases or
reductions of shares of its outstanding Common Stock, or in the event of the
Company being consolidated with or merged into any other corporation.
15. NONASSIGNABILITY
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an option or to receive shares under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
(other than by will, the laws of descent and distribution or as provided in
Section 22 hereof) by the participant. Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect.
16. REPORTS
Individual accounts will be maintained for each participant in the
Plan. Each participant shall receive promptly after the end of each Purchase
Period a report of his account setting forth the total payroll deductions
accumulated, the number of shares purchased, the per share price thereof and the
remaining cash balance, if any, carried forward to the next Purchase Period.
17. NOTICE OF DISPOSITION
Each participant shall notify the Company if the participant disposes
of any of the shares purchased in any Purchase Period pursuant to this Plan if
such disposition occurs within two years from the Offering Date or within one
year from the Purchase Date on which such shares were purchased (the "Notice
Period"). Unless such participant is disposing of any of such shares during the
Notice Period, such participant shall keep the certificates representing such
shares in his or her name (and not in the name of a nominee) during the Notice
Period. The Company may, at any time during the Notice Period, place a legend or
legends on any certificate representing shares acquired pursuant to the Plan
requesting the Company's transfer agent to notify the Company of any transfer of
the shares. The obligation of the participant to provide such notice shall
continue notwithstanding the placement of any such legend on the certificates.
18. NO RIGHTS TO CONTINUED EMPLOYMENT
Neither this Plan nor the grant of any option hereunder shall confer
any right on any employee to remain in the employ of the Company or any
Subsidiary, or restrict the right of the Company or any Subsidiary to terminate
such employee's employment.
19. EQUAL RIGHTS AND PRIVILEGES
All eligible employees shall have equal rights and privileges with
respect to the Plan so that the Plan qualifies as an "employee stock purchase
plan" within the meaning of Section 423 or any successor provision of the Code
and the related regulations. Any provision of the
-8-
<PAGE> 9
Exhibit 10.34
Genelabs Technologies, Inc.
Employee Stock Purchase Plan
Plan which is inconsistent with Section 423 or any successor provision of the
Code shall, without further act or amendment by the Company or the Board, be
reformed to comply with the requirements of Section 423. This Section 19 shall
take precedence over all other provisions in the Plan.
20. NOTICES
All notices or other communications by a participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when received in the form specified by the Company at the location, or by the
person, designated by the Company for the receipt thereof.
21. SHAREHOLDER APPROVAL OF AMENDMENTS
Any required approval by the shareholders of the Company shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act,
and the rules and regulations promulgated thereunder. Such approval of an
amendment shall be solicited at or prior to the first annual meeting of
shareholders held subsequent to the grant of an option under the Plan to an
employee of the Company. If such shareholder approval is obtained at a duly held
shareholders' meeting, it must be obtained by a majority of all of the
outstanding shares of the Company, or if such shareholder approval is obtained
by written consent, it must be obtained by a majority of all shareholders of the
Company; provided, however, that approval at a meeting or by written consent may
be obtained by a lesser degree of shareholder approval if the Board determines,
in its discretion after consultation with the Company's legal counsel, that such
lesser degree of shareholder approval will comply with all applicable laws and
will not adversely affect the qualification of the Plan under Section 423 of the
Code or Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3").
22. DESIGNATION OF BENEFICIARY
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to a Purchase Date.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares or
cash to the executor or administrator of the estate of the participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its discretion, may deliver such shares or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
-9-
<PAGE> 10
Exhibit 10.34
Genelabs Technologies, Inc.
Employee Stock Purchase Plan
23. CONDITIONS UPON ISSUANCE OF SHARES;
LIMITATION ON SALE OF SHARES
Shares shall not be issued with respect to an option unless the
exercise of such option and the issuance and delivery of such shares pursuant
thereto shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
24. APPLICABLE LAW
The Plan shall be governed by the substantive laws (excluding the
conflict of laws rules) of the State of California.
25. AMENDMENT OR TERMINATION OF THE PLAN
This Plan shall be effective July 1, 1991, subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted by the Board and the Plan shall continue until the earlier to occur of
termination by the Board, issuance of all of the shares of Common Stock reserved
for issuance under the Plan, or ten (10) years from the adoption of the Plan by
the Board. No purchase of shares pursuant to the Plan shall occur prior to such
shareholder approval. The Board may at any time amend or terminate the Plan,
except that any such termination cannot affect options previously granted under
the Plan, nor may any amendment make any change in an option previously granted
which would adversely affect the right of any participant, nor may any amendment
be made without approval of the shareholders of the Company obtained in
accordance with Section 21 hereof within 12 months of the adoption of such
amendment (or earlier if required by Section 21) if such amendment would:
(a) increase the number of shares that may be issued under the Plan;
(b) change the designation of the employees (or class of employees)
eligible for participation in the Plan; or
(c) constitute an amendment for which shareholder approval is required
in order to comply with Rule 16b-3 (or any successor rule) of the Exchange Act.
-10-
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<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 784
<SECURITIES> 23,187
<RECEIVABLES> 3,276
<ALLOWANCES> 0
<INVENTORY> 3,216
<CURRENT-ASSETS> 30,943
<PP&E> 1,730
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,702
<CURRENT-LIABILITIES> 6,211
<BONDS> 0
0
9,682
<COMMON> 126,538
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 37,702
<SALES> 5,713
<TOTAL-REVENUES> 6,242
<CGS> 2,996
<TOTAL-COSTS> 2,996
<OTHER-EXPENSES> 9,642
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (528)
<INCOME-PRETAX> (5,868)
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