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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 the Registrant [ ]
Check the appropriate box:
<TABLE>
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[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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
GENELABS TECHNOLOGIES, INC.
------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] 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
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
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[ ] 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,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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April 29, 1999
To Our Shareholders:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders
of Genelabs Technologies, Inc. The meeting will be held at the Company's offices
at 505 Penobscot Drive, Redwood City, California, on Wednesday, June 16, 1999,
at 10:00 a.m. local time.
At the meeting, you will be asked to elect members to the Board of
Directors, approve a change in the Company's state of incorporation, approve
amendments to the Stock Option plan, and approve an amendment to the Employee
Stock Purchase Plan. These matters are described in detail in the following
Notice of Annual Meeting of Shareholders and Proxy Statement.
I would like to thank you for your support as a Genelabs Technologies, Inc.
shareholder and urge you to please complete, date, sign and return the enclosed
proxy as soon as possible. We look forward to seeing you at the meeting.
Sincerely,
Irene A. Chow, Ph.D.
Chairman of the Board
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GENELABS TECHNOLOGIES, INC.
505 PENOBSCOT DRIVE
REDWOOD CITY, CALIFORNIA 94063
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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DATE: WEDNESDAY, JUNE 16, 1999
TIME: 10:00 A.M.
PLACE: 505 PENOBSCOT DRIVE, REDWOOD CITY, CALIFORNIA
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MATTERS TO BE VOTED UPON:
1. To elect the following directors of the Company, each to serve until the
next Annual Meeting of Shareholders and until his or her successor has
been elected and qualified or until his or her earlier resignation or
removal:
[Candidates nominated will be provided in definitive proxy material]
2. To approve a change in the Company's state of incorporation from
California to Delaware by means of a merger of the Company with and into
a wholly-owned Delaware subsidiary.
3. To approve the establishment of a classified Board of Directors of the
Company when the change in its state of incorporation, proposed above,
occurs.
4. To approve (i) an amendment to the 1995 Stock Option Plan to increase
the number of shares reserved for issuance thereunder by 2,000,000
shares and (ii) an amendment to change the number of shares each
optionee may be granted under the 1995 Stock Option Plan, for purposes
of Section 162(m) of the Internal Revenue Code.
5. To approve an amendment to the Employee Stock Purchase Plan to increase
the number of shares reserved for issuance thereunder by 500,000 shares.
6. To transact other business that may properly come before the Annual
Meeting.
Shareholders who are holders of record of the Common Stock and of the Preferred
Stock at the close of business on April 19, 1999 will be entitled to vote at
this Annual Meeting.
By Order of the Board of Directors
James A.D. Smith
President
Redwood City, California
April 29, 1999
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE, WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 4
GENELABS TECHNOLOGIES, INC.
505 PENOBSCOT DRIVE
REDWOOD CITY, CALIFORNIA 94603
------------------------
1999 ANNUAL MEETING OF SHAREHOLDERS
------------------------
PROXY STATEMENT
------------------------
DATE, TIME AND PLACE OF MEETING
The Board of Directors (the "Board") of Genelabs Technologies, Inc. (the
"Company" or "Genelabs") is soliciting your proxy for use at the Annual Meeting
of Shareholders of the Company to be held at Genelabs' principal office located
at 505 Penobscot Drive, Redwood City, California 94063, on June 16, 1999 at
10:00 a.m. local time (the "Meeting"). This Proxy Statement and the accompanying
proxy card were first mailed to shareholders on or about April 29, 1999.
RECORD DATE, OUTSTANDING SHARES AND QUORUM
Only holders of record of the Company's Common Stock and Series A
Convertible Preferred Stock ("Preferred Stock") at the close of business on
April 19, 1999 (the "Record Date") will be entitled to vote at the Meeting. At
the close of business on March 31, 1999, the Company had 39,785,042 shares of
Common Stock outstanding and 44,707,998 shares of Common Stock and Preferred
Stock on an as-converted basis entitled to vote. A majority of the shares
entitled to vote on the Record Date will constitute a quorum for the transaction
of business.
VOTING RIGHTS AND SOLICITATION OF PROXIES
Holders of the Company's Common Stock are entitled to one vote for each
share held as of the above Record Date, except that in the election of directors
each shareholder has cumulative voting rights and is entitled to a number of
votes equal to the number of shares held by such shareholder multiplied by the
number of directors to be elected. The shareholder may cast these votes all for
a single candidate or distribute the votes among any or all of the candidates.
No shareholder will be entitled to cumulate votes for a candidate, however,
unless that candidate's name has been placed in nomination prior to the voting
and the shareholder, or any other shareholder, has given notice at the Meeting
prior to the voting of an intention to cumulate votes. In such an event, the
proxy holder may allocate among the Board of Directors' nominees the votes
represented by proxies in the proxy holder's sole discretion.
Holders of the Company's Preferred Stock are entitled to one vote for each
share of Common Stock into which such Preferred Stock could be converted, in
accordance with a pre-determined formula. Under this formula, the holders of the
Preferred Stock are entitled to vote an aggregate of 4,922,956 shares at the
Meeting.
In the election of directors, the nominees receiving the highest number of
affirmative votes will be elected as directors. All votes will be tabulated by
the Inspector of Elections appointed for the Meeting who will separately
tabulate affirmative and negative votes, abstentions and broker non-votes for
each proposal. Abstentions will be counted towards a quorum. Broker non-votes
will be counted towards a quorum but are not counted for any purpose in
determining whether a matter has been approved.
The expenses of soliciting proxies to be voted at the Meeting will be paid
by the Company. Following the original mailing of the proxies and other
soliciting materials, the Company and/or its agents may also solicit proxies by
mail, telephone, or in person. Following the original mailing of the proxies and
other soliciting materials, the Company will request that brokers, custodians,
nominees and other record holders of the
<PAGE> 5
Company's Common Stock and Preferred Stock forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of Common Stock and
Preferred Stock and request authority for the exercise of proxies. In such
cases, the Company, upon the request of the record holders, will reimburse such
holders for their reasonable expenses.
REVOCABILITY OF PROXIES
Any person signing a proxy card accompanying this Proxy Statement has the
power to revoke it prior to the Meeting or at the Meeting prior to the vote
pursuant to the proxy. A proxy may be revoked by a writing delivered to the
Company stating that the proxy is revoked, by a subsequent proxy that is signed
by the person who signed the earlier proxy and is presented at the Meeting or by
attendance at the Meeting and voting in person.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
[CANDIDATES NOMINATED WILL BE PROVIDED IN DEFINITIVE PROXY MATERIAL]
BOARD OF DIRECTORS' MEETINGS AND COMMITTEES
The Board met 3 times during 1998. All directors attended at least 75% of
the meetings of the Board and of the committees on which they served, except for
Dr. Douglas, who attended less than 75% of the meetings.
The standing committees of the Board are the Finance and Audit Committee
and the Human Resources Committee. The Board does not have a nominating
committee or a committee performing similar functions.
Mr. Gray, Mr. Haight and Mrs. Wang are currently the members of the Finance
and Audit Committee which met 3 times during 1998. The Finance and Audit
Committee reviews the Company's accounting practices, internal control systems,
cash investment policy and Securities and Exchange Commission ("SEC") filings,
and meets with the Company's outside auditors concerning the scope and terms of
their engagement and the results of their audits. In addition, the Finance and
Audit Committee is responsible for reviewing significant finance transactions.
Dr. Douglas and Dr. Engleman are currently the members of the Company's
Human Resources Committee which met 3 times during 1998. The Human Resources
Committee is primarily responsible for reviewing compensation paid to officers
of the Company and for administering the Company's stock option and employee
benefit plans.
COMPENSATION OF DIRECTORS
Each director of the Company who is neither an employee nor consultant is
eligible to receive $1,000 per Board meeting attended. In addition, directors
are reimbursed for actual business expenses incurred in attending each Board
meeting. Each non-employee director, upon his or her first election to the
Board, is granted an option to purchase 20,000 shares of the Company's common
stock at an exercise price equal to the fair market value of the common stock on
the date of grant. At the Company's Annual Meeting of Shareholders following the
second anniversary of his or her election to the Board, and at each subsequent
Annual Meeting of Shareholders, each non-employee director is granted an
additional option to purchase 10,000 shares. Directors who are also employees of
the Company are granted options under the 1995 Stock Option Plan in accordance
with Genelabs' general compensation policy.
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<PAGE> 6
PROPOSAL NO. 2
REINCORPORATION IN DELAWARE
INTRODUCTION
For the reasons set forth below, the Board of Directors believes that it is
in the best interests of the Company and its shareholders to change the state of
incorporation of the Company from California to Delaware (the "Reincorporation
Proposal" or the "Proposed Reincorporation"). SHAREHOLDERS ARE URGED TO READ
CAREFULLY THIS SECTION OF THE PROXY STATEMENT, INCLUDING THE RELATED EXHIBITS
REFERENCED BELOW AND ATTACHED HERETO, BEFORE VOTING ON THE REINCORPORATION
PROPOSAL. Throughout this Proxy Statement, the term "Genelabs California" or the
"Company" refers to Genelabs Technologies, Inc., the existing California
corporation, and the term "Genelabs Delaware" refers to the new Delaware
corporation, Genelabs Technologies, Inc., a Delaware corporation and a wholly
owned subsidiary of Genelabs California, which is the proposed successor to
Genelabs California in the Proposed Reincorporation.
As discussed below, the principal reasons for the Proposed Reincorporation
are the greater flexibility of Delaware corporate law and the substantial body
of case law interpreting that law. The Company believes that its shareholders
will benefit from the well established principles of corporate governance that
Delaware law affords. The Reincorporation Proposal is not being proposed in
order to prevent any specific unsolicited takeover attempt.
The Reincorporation Proposal will be effected by merging Genelabs
California into Genelabs Delaware (the "Merger"). Upon completion of the Merger,
Genelabs California as a corporate entity, will cease to exist and Genelabs
Delaware will continue to operate the business of the Company under its current
name, Genelabs Technologies, Inc.
Pursuant to the Agreement and Plan of Merger, in substantially the form
attached hereto as Appendix A (the "Merger Agreement"), each outstanding share
of Genelabs California Common Stock, no par value per share (the "Common
Stock"), will be automatically converted into one share of Genelabs Delaware
Common Stock, par value $0.001 per share and each outstanding share Genelabs
California Series A Convertible Preferred Stock, no par value per share (the
"Preferred Stock"), will be automatically converted into one share of Genelabs
Delaware Series A Convertible Preferred Stock, par value $0.001 per share, each
upon the effective date of the Merger. Each stock certificate representing
issued and outstanding shares of Genelabs California Common Stock and Preferred
Stock will continue to represent the same number of shares of Common Stock and
Preferred Stock of Genelabs Delaware. IT WILL NOT BE NECESSARY FOR SHAREHOLDERS
TO EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR STOCK CERTIFICATES OF GENELABS
DELAWARE. However, shareholders may exchange their certificates if they so
choose. The Common Stock of Genelabs California is listed for trading on the
Nasdaq National Market and, after the Merger, Genelabs Delaware's Common Stock
will be traded on the Nasdaq National Market without interruption, under the
same symbol ("GNLB") as the shares of Genelabs California Common Stock are
currently traded.
Under California law, the affirmative vote of a majority of the outstanding
shares of Common Stock of Genelabs California is required for approval of the
Merger Agreement and the other terms of the Proposed Reincorporation. Under the
terms of the Preferred Stock, each holder of Preferred Stock is entitled to vote
with the Common Stock on an as-converted basis. See "Vote Required for the
Reincorporation Proposal." The Proposed Reincorporation has been approved by the
Company's Board of Directors. If approved by the shareholders, it is anticipated
that the Merger will become effective no later than 180 days (the "Effective
Date") following the Annual Meeting of Shareholders. However, pursuant to the
Merger Agreement, the Merger may be abandoned or the Merger Agreement may be
amended by the Board of Directors (except that the principal terms may not be
amended without shareholder approval) either before or after shareholder
approval has been obtained and prior to the Effective Date if, in the opinion of
the Board of Directors of the Company, circumstances arise which make it
inadvisable to proceed under the original terms of the Merger Agreement.
Shareholders of Genelabs California will have no appraisal rights with respect
to the Merger.
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The discussion set forth below is qualified in its entirety by reference to
the Merger Agreement, the Certificate of Incorporation of Genelabs Delaware and
the Bylaws of Genelabs Delaware, copies of which are attached hereto as
Appendices A, B and C, respectively.
APPROVAL BY SHAREHOLDERS OF THE PROPOSED REINCORPORATION WILL CONSTITUTE
APPROVAL OF THE MERGER AGREEMENT, THE CERTIFICATE OF INCORPORATION, THE BYLAWS,
AND THE RESTATED INDEMNIFICATION AGREEMENTS OF GENELABS DELAWARE AND ALL
PROVISIONS THEREOF EXCEPT WITH RESPECT TO MORE MATTERS SET FORTH IN PROPOSAL NO.
3 TO BE SEPARATELY VOTED UPON BY THE SHAREHOLDERS.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
The Reincorporation Proposal will also constitute approval of (i) the
Merger Agreement, the Certificate of Incorporation and the Bylaws of Genelabs
Delaware (except those provisions regarding the adoption of a classified Board
of Directors which has been submitted for separate shareholder approval in
Proposal No. 3), (ii) the assumption of Genelabs California's employee benefit
plans and stock option and employee stock purchase plans by Genelabs Delaware
and (iii) restatements of the Company's indemnification agreements with its
officers and directors to afford such persons indemnification by the Company to
the full extent permitted by Delaware law, will require the affirmative vote of
the holders of a majority of each of the outstanding shares of Common Stock and
Preferred Stock of Genelabs California entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED REINCORPORATION.
PRINCIPAL REASONS FOR THE PROPOSED REINCORPORATION
As the Company plans for the future, the Board of Directors and management
believe that it is essential to be able to draw upon well established principles
of corporate governance in making legal and business decisions. The prominence
and predictability of Delaware corporate law provide a reliable foundation on
which the Company's governance decisions can be based, and the Company believes
that shareholders will benefit from the responsiveness of Delaware corporate law
to their needs and to those of the corporation they own.
PROMINENCE, PREDICTABILITY AND FLEXIBILITY OF DELAWARE LAW.
For many years Delaware has followed a policy of encouraging incorporation
in that state and, in furtherance of that policy, has been a leader in adopting,
construing and implementing comprehensive, flexible corporate laws responsive to
the legal and business needs of corporations organized under its laws. Many
corporations have chosen Delaware initially as a state of incorporation or have
subsequently changed corporate domicile to Delaware in a manner similar to that
proposed by the Company. Because of Delaware's prominence as the state of
incorporation for many major corporations, both the legislature and courts in
Delaware have demonstrated an ability and a willingness to act quickly and
effectively to meet changing business needs. The Delaware courts have developed
considerable expertise in dealing with corporate issues, and a substantial body
of case law has developed construing Delaware law and establishing public
policies with respect to corporate legal affairs.
INCREASED ABILITY TO ATTRACT AND RETAIN QUALIFIED DIRECTORS.
Both California and Delaware law permit a corporation to include a
provision in its certificate of incorporation which reduces or limits the
monetary liability of directors for breaches of fiduciary duty in certain
circumstances. The increasing frequency of claims and litigation directed
against directors and officers has greatly expanded the risks facing directors
and officers of corporations in exercising their respective duties. The amount
of time and money required to respond to such claims and to defend such
litigation can be substantial. It is the Company's desire to reduce these risks
to its directors and officers and to limit situations
4
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in which monetary damages can be recovered against directors so that the Company
may continue to attract and retain qualified directors who otherwise might be
unwilling to serve because of the risks involved. The Company believes that, in
general, Delaware law provides greater protection to directors than California
law and that Delaware case law regarding a corporation's ability to limit
director liability is more developed and provides more guidance than California
law.
California Proposition 211. In November 1996, Proposition 211 was rejected
by the California electorate. Proposition 211 would have severely limited the
ability of California companies to indemnify their directors and officers. While
Proposition 211 was defeated, similar initiatives or legislation containing
similar provisions may be proposed in California in the 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
in retaining and attracting new directors.
WELL ESTABLISHED PRINCIPLES OF CORPORATE GOVERNANCE.
There is substantial judicial precedent in the Delaware courts as to the
legal principles applicable to measures that may be taken by a corporation and
as to the conduct of the Board of Directors such as under the business judgment
rule and other standards. The Company believes that its shareholders will
benefit from the well established principles of corporate governance that
Delaware law affords.
NO CHANGE IN THE NAME, BOARD MEMBERS, BUSINESS, MANAGEMENT, EMPLOYEE BENEFIT
PLANS OR LOCATION OF PRINCIPAL FACILITIES OF THE COMPANY
The Reincorporation Proposal will effect only a change in the legal
domicile of the Company and certain other changes of a legal nature which are
described in this Proxy Statement. The Proposed Reincorporation will NOT result
in any change in the name, business, management, fiscal year, assets or
liabilities or location of the principal facilities of the Company. The [number
to be provided in definitive proxy material] directors who will be elected at
the Annual Meeting of Shareholders will become the directors of Genelabs
Delaware. All employee benefit, stock option and employee stock purchase plans
of Genelabs California will be assumed and continued by Genelabs Delaware, and
each option or right issued pursuant to such plans will automatically be
converted into an option or right to purchase the same number of shares of
Genelabs Delaware Common Stock, at the same price per share, upon the same
terms, and subject to the same conditions. Shareholders should note that
approval of the Reincorporation Proposal will also constitute approval of the
assumption of these plans by Genelabs Delaware. Other employee benefit
arrangements of Genelabs California will also be continued by Genelabs Delaware
upon the terms and subject to the conditions currently in effect. As noted
above, after the Merger the shares of Common Stock of Genelabs Delaware will
continue to be traded, without interruption, in the same principal market (the
Nasdaq Stock Market) and under the same symbol ("GNLB") as the shares of Common
Stock of Genelabs California are currently traded. The Company believes that the
Proposed Reincorporation will not affect any of its material contracts with any
third parties and that Genelabs California's rights and obligations under such
material contractual arrangements will continue and be assumed by Genelabs
Delaware.
ANTITAKEOVER IMPLICATIONS
Delaware, like many other states, permits a corporation to adopt a number
of measures designed to reduce a corporation's vulnerability to unsolicited
takeover attempts through amendment of the corporate charter or bylaws or
otherwise. The Reincorporation Proposal is NOT being proposed in order to
prevent any specific change in control.
In the discharge of its fiduciary obligations to its shareholders, the
Board of Directors has evaluated the Company's vulnerability to potential
unsolicited bidders. In the course of such evaluation, the Board of Directors of
the Company has considered certain defensive strategies designed to enhance the
Board's ability to negotiate with an unsolicited bidder. These strategies
include, but are not limited to, the adoption of a shareholder rights plan, the
establishment of a staggered board of directors, and the authorization of
preferred stock, the rights and preferences of which may be determined by the
Board of Directors ("Blank Check
5
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Preferred"). The establishment of Blank Check Preferred has been implemented by
Genelabs California under California law and has been provided for by Genelabs
Delaware under Delaware law and, though no final decision has yet been made by
the Board of Directors, the Company is currently considering the adoption of a
rights plan. For a detailed discussion of all of the changes which will be
implemented as part of the Proposed Reincorporation, see "The Charters and
Bylaws of Genelabs California and Genelabs Delaware" and "Significant
Differences Between the Corporation Laws of California and
Delaware -- Indemnification and Limitation of Liability" below.
Certain effects of the Reincorporation Proposal may be considered to have
antitakeover implications. Section 203 of the Delaware General Corporation Law
restricts certain "business combinations" with "interested stockholders" for
three years following the date that a person becomes an interested stockholder,
unless the Board of Directors approves the business combination. See
"Significant Differences Between the Corporation Laws of California and
Delaware -- Stockholder Approval of Certain Business Combinations."
The Board of Directors believes that unsolicited takeover attempts may be
unfair or disadvantageous to the Company and its shareholders because, among
other reasons: (i) a non-negotiated takeover bid may be timed to take advantage
of temporarily depressed stock prices; (ii) a non-negotiated takeover bid may be
designed to foreclose or minimize the possibility of more favorable competing
bids or alternative transactions; (iii) a non-negotiated takeover bid may
involve the acquisition of only a controlling interest in the corporation's
stock, without affording all shareholders the opportunity to receive the same
economic benefits; and (iv) certain of the Company's contractual arrangements
provide that they may not be assigned pursuant to a transaction which results in
a "change of control" of the Company without the prior written consent of the
licensor or other contracting party.
By contrast, in a transaction in which a potential acquiror must negotiate
with an independent board of directors, the board can and should take account of
the underlying and long-term values of the Company's business, technology and
other assets, the possibilities for alternative transactions on more favorable
terms, possible advantages from a tax-free reorganization, anticipated favorable
developments in the Company's business not yet reflected in the stock price and
equality of treatment of all shareholders.
Despite the belief of the Board of Directors as to the benefits to
shareholders of the Reincorporation Proposal, it may be disadvantageous to the
extent that it has the effect of discouraging a future takeover attempt which is
not approved by the Board of Directors, but which a majority of the shareholders
may deem to be in their best interests or in which shareholders may receive a
substantial premium for their shares over the then current market value or over
their cost basis in such shares. As a result of such effects of the
Reincorporation Proposal, shareholders who might wish to participate in an
unsolicited tender offer may not have an opportunity to do so. In addition, to
the extent that provisions of Delaware law enable the Board of Directors to
resist a takeover or a change in control of the Company, such provisions could
make it more difficult to change the existing Board of Directors and management.
THE CHARTERS AND BYLAWS OF GENELABS CALIFORNIA AND GENELABS DELAWARE
The provisions of the Genelabs Delaware Certificate of Incorporation (the
"Certificate") and Bylaws (the "Delaware Bylaws") are similar to those of the
Genelabs California Restated Articles of Incorporation (the "Articles") and
Amended and Restated Bylaws (the "California Bylaws") in many respects. However,
the Reincorporation Proposal includes the implementation of certain provisions
in the Certificate and Delaware Bylaws which alter the rights of shareholders
and the powers of management. These provisions have antitakeover implications,
as described in this Proxy Statement. Approval by shareholders of the Proposed
Reincorporation will constitute an approval of the inclusion in the Certificate
and Delaware Bylaws of each of the provisions described below. For a discussion
of such changes, see "Significant Differences Between the Corporation Laws of
California and Delaware." This discussion of the Certificate and Delaware Bylaws
is qualified in its entirety by reference to Appendices B and C hereto,
respectively.
The Articles currently authorize the Company to issue up to 75,000,000
shares of Common Stock, and 5,000,000 shares of Preferred Stock, all of which
are without par value. The Certificate provides that Genelabs Delaware will have
75,000,000 authorized shares of Common Stock, par value $0.001 per share, and
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<PAGE> 10
5,000,000 shares of Preferred Stock, par value $0.001 per share. Like the
Articles, the Certificate of Incorporation provides that the Board of Directors
is entitled to determine the powers, preferences and rights, and the
qualifications, limitations or restrictions, of the authorized and unissued
Preferred Stock.
MONETARY LIABILITY OF DIRECTORS.
The Articles and the Certificate both provide for the elimination of
personal monetary liability of directors to the fullest extent permissible under
the law. The provision eliminating monetary liability of directors set forth in
the Certificate is potentially more expansive than the corresponding provision
in the Articles, in that the former incorporates future amendments to Delaware
law with respect to the elimination of such liability. Genelabs Delaware
proposes to enter into new indemnification agreements with all directors after
the Proposed Reincorporation. For a more detailed explanation of the foregoing,
see "Significant Differences Between the Corporation Laws of California and
Delaware -- Indemnification and Limitation of Liability."
SIZE OF BOARD OF DIRECTORS.
The Certificate provides for a Board of Directors consisting of not less
than one nor more than twelve directors with the exact number to be set by the
Board in accordance with the provisions of the Delaware Bylaws. The current
number of [to be provided in the definitive proxy materials] members will
continue until changed by a the Board. The California Bylaws provide for a Board
of Directors consisting of not less than five (5) nor more than nine (9)
directors, within which the exact number is currently set at [nine (9)] members.
Under California law, although changes in the number of directors, in general,
must be approved by a majority of the outstanding shares, the Board of Directors
may fix the exact number of directors within a stated range set forth in the
articles of incorporation or bylaws, if the stated ranges have been approved by
the shareholders. Delaware law permits the board of directors acting alone, to
change the authorized number of directors by amendment to the bylaws, unless the
directors are not authorized to amend the bylaws or the number of directors is
fixed in the certificate of incorporation (in which case a change in the number
of directors may be made only by amendment to the certificate of incorporation
following approval of such change by stockholders). The Certificate provides
that the exact number of directors will be as specified in the Delaware Bylaws
and authorizes the Board of Directors to adopt, alter, amend or repeal the
Bylaws. Following the Proposed Reincorporation, the Board of Directors of
Genelabs Delaware could amend the Bylaws to change the size of the Board of
Directors from [nine] directors without further stockholder approval, but not
above twelve nor below one. If the Reincorporation Proposal is approved, the
[number to be provided in definitive proxy materials] directors of Genelabs
California who are elected at the Annual Meeting of Shareholders will continue
as the [number to be provided in definitive proxy materials] directors of
Genelabs Delaware after the Proposed Reincorporation is consummated and until
their successors have been duly elected and qualified.
CUMULATIVE VOTING FOR DIRECTORS.
Under California law, if any shareholder has given notice of an intention
to cumulate votes for the election of directors, any other shareholder of the
corporation is also entitled to cumulate his or her votes at such election.
Cumulative voting provides that each share of stock normally having one vote is
entitled to a number of votes equal to the number of directors to be elected. A
shareholder may then cast all such votes for a single candidate or may allocate
them among as many candidates as the shareholder may choose. In the absence of
cumulative voting, the holders of the majority of the shares present or
represented at a meeting at which directors are to be elected would have the
power to elect all the directors to be elected at such meeting, and no person
could be elected without the support of the holders of the majority of shares
present or represented at such meeting. Elimination of cumulative voting could
make it more difficult for a minority stockholder adverse to a majority of the
stockholders to obtain representation on the Company's Board of Directors.
California corporations whose stock is listed on a national stock exchange or
those whose stock is held by 800 shareholders of record and included in the
Nasdaq National Market (a "Listed Company") can also eliminate cumulative voting
with shareholder approval. The Company qualifies as a Listed Company but has not
sought shareholder approval to eliminate cumulative voting. Under Delaware law,
cumulative voting in
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the election of directors is not mandatory, but is a permitted option. The
Certificate does not provide for cumulative voting rights.
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, two or more members
thereof, the Chairman of the Board, the President, and one or more holders of
shares entitled to cast not less than 10% of the votes at such meeting. Under
Delaware law, a special meeting of stockholders may be called by the board of
directors or any other person authorized to do so in the certificate of
incorporation or the bylaws. The Delaware Bylaws authorize a special meeting of
stockholders to be called by the Board of Directors, the Chairman of the Board,
the President, any Vice President, the Secretary or any Assistant Secretary, or
a committee of the Board of Directors that has been duly designated by the Board
of Directors and whose powers and authority include the power to call a special
meeting of stockholders. Therefore, after the Proposed Reincorporation holders
of 10% or more of the voting shares of the Company will no longer be able to
call a special meeting of stockholders. The Company believes this change is
warranted as a prudent corporate governance measure to prevent an
inappropriately small number of stockholders from prematurely forcing
stockholder consideration of a proposal over the opposition of the Board of
Directors by calling a special stockholders' meeting before (i) the time that
the Board believes such consideration to be appropriate or (ii) the next annual
meeting (provided that the holders meet the notice requirements for
consideration of a proposal). Such special meetings would involve substantial
expense and diversion of board and management time which the Company believes to
be inappropriate for an enterprise the size of the Company. Aside from the
foregoing, no other change is contemplated in the procedures to call a special
stockholders' meeting, although the Board of Directors could amend the Bylaws of
Genelabs Delaware without stockholder approval.
FILLING VACANCIES ON THE BOARD OF DIRECTORS.
Under California law, any vacancy on the Board of Directors other than one
created by removal of a director may be filled by the Board. If the number of
directors is less than a quorum, a vacancy may be filled by the unanimous
written consent of the directors then in office, by the affirmative vote of a
majority of the directors at a meeting held pursuant to notice or waivers of
notice or by a sole remaining director. A vacancy created by removal of a
director may be filled by the Board only if so authorized by a Corporation's
Articles of Incorporation or by a Bylaw approved by the corporation's
shareholders. The California Bylaws prohibit the directors from filling
vacancies created by removal of a director. Under Delaware law, vacancies and
newly created directorships may be filled by a majority of the directors then in
office (even though less than a quorum) or by a sole remaining director, unless
otherwise provided in the Certificate of Incorporation or Bylaws (or unless the
Certificate of Incorporation directs that a particular class of stock is to
elect such director(s), in which case a majority of the directors elected by
such class, or a sole remaining director so elected, shall fill such vacancy or
newly created directorship). The Delaware Bylaws provide, that a vacancy created
by any reason, including removal, may be filled by the directors, and the person
so elected to fill the vacancy shall hold office until the next succeeding
annual meeting of stockholders at which the class to which the director belongs
is to be elected.
NOMINATIONS OF DIRECTOR CANDIDATES AND INTRODUCTION OF BUSINESS AT SHAREHOLDER
MEETINGS.
The Delaware Bylaws establish an advance notice procedure with regard to
the nomination, other than by or at the direction of the Board or Directors, of
candidates for election as directors (the "Nomination Procedure") and with
regard to certain matters to be brought before an annual meeting or special
meeting of stockholders (the "Business Procedure").
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The Nomination Procedure provides that only persons nominated by or at the
direction of the Board of Directors or by a stockholder who has given timely
written notice to the Secretary of the Company prior to the meeting will be
eligible for election as directors. The Business Procedure provides that at an
annual or special meeting, and subject to any other applicable requirements,
only such business may be conducted as has been brought before the meeting by or
at the direction of the Board of Directors or by a stockholder who has given
timely written notice to the Secretary of the Company of such stockholder's
intention to bring such business before the meeting. To be timely, notice must
be received by the Company (i) in the case of an annual meeting, not less than
sixty (60) days nor more than ninety (90) days prior to the anniversary date of
the immediately preceding annual meeting of stockholders; provided, however,
that in the event that the annual meeting is called for a date that is not
within thirty (30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not later than the close
of business on the tenth (10th) day following the day on which such notice of
the date of the annual meeting was mailed or such public disclosure of the date
of the annual meeting was made, whichever first occurs and (ii) in the case of a
special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the tenth (10th) day following the day
on which notice of the date of the special meeting was mailed or public
disclosure of the date of the special meeting was made, whichever first occurs.
Under the Nomination Procedure, a stockholder's notice to the Company must
contain certain information about the nominee, including name, address, the
consent to be nominated and such other information as would be required to be
included in a proxy statement soliciting proxies for the election of the
proposed nominee, and certain information about the stockholder proposing to
nominate that person, including name, address, a representation that the
stockholder is a holder of record of stock entitled to vote at the meeting and a
description of all arrangements or understandings between the stockholder and
each nominee. Under the Business Procedure, notice relating to the conduct of
business at a meeting other than the nomination of directors must contain
certain information about the business and about the stockholder who proposes to
bring the business before the meeting. If the chairman or other officer
presiding at the meeting determines that a person was not nominated in
accordance with the Nomination Procedure, such person will not be eligible for
election as a director, or if he or she determines that other business was not
properly brought before such meeting in accordance with the Business Procedure,
such business will not be conducted at such meeting. Nothing in the Nomination
Procedure or the Business Procedure will preclude discussion by any shareholder
of any nomination or business properly made or brought before an annual or
special meeting in accordance with the above-described procedures.
By requiring advance notice of nominations by stockholders, the Nomination
Procedure affords the Board of Directors an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform the stockholders about such qualifications. By
requiring advance notice of proposed business, the Business Procedure provides
the Board with an opportunity to inform stockholders of any business proposed to
be conducted at a meeting and the Board's position on any such proposal,
enabling stockholders to better determine whether they desire to attend the
meeting or grant a proxy to the Board of Directors as to the disposition of such
business. Although the Delaware Bylaws do not give the Board any power to
approve or disapprove stockholder nominations for the election of directors or
any other business desired by stockholders to be conducted at a meeting, the
Delaware Bylaws may have the effect of precluding a nomination for the election
of directors or of precluding any other business at a particular meeting if the
proper procedures are not followed. In addition, the procedures may discourage
or deter a third party from conducting a solicitation of proxies to elect its
own slate of directors or otherwise attempting to obtain control of the Company,
even if the conduct of such business or such attempt might be deemed to be
beneficial to the Company and its stockholders.
LOANS TO OFFICERS AND EMPLOYEES
Under California law, any loan or guaranty to or for the benefit of a
director or officer of the corporation or its parent requires approval of the
shareholders unless such loan or guaranty is provided under a plan approved by
shareholders owning a majority of the outstanding shares of the corporation.
However, under California law, shareholders of any corporation with 100 or more
shareholders of record, such as the Company,
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may approve a bylaw authorizing the board of directors alone to approve loans or
guaranties to or 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. In accordance with Delaware law,
Genelabs Delaware may make loans to, guarantee the obligations of or otherwise
assist its officers or other employees and those of its subsidiaries (including
directors who are also officers or employees) when such action, in the judgment
of the directors, may reasonably be expected to benefit the corporation.
VOTING BY BALLOT
California law provides that the election of directors may proceed in the
manner described in a corporation's bylaws. Under Delaware law, the right to
vote by written ballot may be restricted as so provided in the Certificate of
Incorporation. The Certificate provides that election of directors need not be
by ballot unless the Bylaws so provide. The Delaware Bylaws provide that the
Board of Directors, in its discretion, or the officer of the Corporation
presiding at a meeting of stockholders, in such officer's discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
Stockholders of Genelabs Delaware therefore may not continue to demand election
by ballot. It may be more difficult for a stockholder to contest the outcome of
a vote that has not been conducted by written ballot.
CLASSIFIED BOARD
In connection with the Proposed Reincorporation, the Board of Directors
proposes to establish a classified Board of Directors for Genelabs Delaware. See
Proposal No. 3 -- Establishment of a Classified Board of Directors for a full
explanation of the proposed changes.
ACTION BY WRITTEN CONSENT OF THE SHAREHOLDERS.
Any action by the stockholders must be taken at a duly called annual or
special meeting, according to the Certificate. Thus, although the California
Bylaws allow shareholder action by written consent, such action by written
consent will no longer be authorized after the Proposed Reincorporation.
REMOVAL OF DIRECTORS
The Certificate permits a director to be removed solely for cause by a
majority of the outstanding shares of stock then entitled to vote in an election
of directors. California law permits the removal of directors, with or without
cause, by a majority of the outstanding shares then entitled to vote; provided,
however, that no individual director may be removed (unless the entire board is
removed) if the number of votes cast against such removal would be sufficient to
elect the director under cumulative voting. Under Delaware law, a director of a
corporation with a classified board of directors may be removed only for cause,
unless the Certificate of Incorporation otherwise provides. Thus, because
Genelabs Delaware will have a classified board and because the Certificate
explicitly confirms the applicability of Delaware law, stockholders after the
Proposed Reincorporation will no longer be able to remove directors without
cause.
APPROVAL REQUIRED FOR REINCORPORATION
Under California law, the affirmative vote of a majority of the outstanding
shares of each class of the Company's capital stock entitled to vote on the
proposal is required for approval of the Reincorporation. The Common Stock and
the Preferred Stock are the only classes of the Company's capital stock of which
shares are outstanding and entitled to vote on the proposal to approve the
Reincorporation. Abstentions and broker non-votes will have the effect of votes
against the proposal to approve the Reincorporation. The Reincorporation may be
abandoned or the Merger Agreement may be amended (with certain exceptions),
either before or after stockholder approval has been obtained if, in the opinion
of the Board, circumstances arise that make such action advisable.
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SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF CALIFORNIA AND DELAWARE
The following provides a summary of major substantive differences between
the Corporation Laws of California and Delaware. It is not an exhaustive
description of all differences between the two states' laws.
STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
Delaware. Under Section 203 of the Delaware General Corporation Law, a
Delaware corporation is prohibited from engaging in a "business combination"
with an "interested stockholder" for three years following the date that such
person or entity becomes an interested stockholder. With certain exceptions, an
interested stockholder is a person or entity who or which owns, individually or
with or through certain other persons or entities, fifteen percent (15%) or more
of the corporation's outstanding voting stock (including any rights to acquire
stock pursuant to an option, warrant, agreement, arrangement or understanding,
or upon the exercise of conversion or exchange rights, and stock with respect to
which the person has voting rights only). The three-year moratorium imposed by
Section 203 on business combinations of Section 203 does not apply if (i) prior
to the date on which such stockholder becomes an interested stockholder the
Board of Directors of the subject corporation approves either the business
combination or the transaction that resulted in the person or entity becoming an
interested stockholder; (ii) upon consummation of the transaction that made such
person an interested stockholder, the interested stockholder owns at least
eighty-five percent (85%) of the corporation's voting stock outstanding at the
time the transaction commenced (excluding from the 85% calculation shares owned
by directors who are also officers of the subject 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) on or
after the date such person or entity becomes an interested stockholder, the
Board approves the business combination and it is also approved at a stockholder
meeting by sixty-six and two-thirds percent (66 2/3%) of the outstanding voting
stock not owned by the interested stockholder. Although a Delaware corporation
to which Section 203 applies may elect not to be governed by Section 203, the
Board of Directors of the Company intends that the Company shall be governed by
Section 203. The Company believes that most Delaware corporations have availed
themselves of this statute and have not opted out of Section 203.
The Company believes that Section 203 will encourage any potential acquiror
to negotiate with the Company's Board of Directors. Section 203 also might have
the effect of limiting the ability of a potential acquiror to make a two-tiered
bid for Genelabs Delaware in which all stockholders would not be treated
equally. Shareholders should note, however, that the application of Section 203
to Genelabs Delaware will confer upon the Board the power to reject a proposed
business combination in certain circumstances, even though a potential acquiror
may be offering a substantial premium for Genelabs Delaware's shares over the
then-current market price. Section 203 would also discourage certain potential
acquirors unwilling to comply with its provisions.
California. California law requires that holders of common stock receive
common stock in a merger of the corporation with the holder of more than fifty
percent (50%) but less than ninety percent (90%) of the target's common stock or
its affiliate unless all of the target company's shareholders consent to the
transaction. This provision of California law may have the effect of making a
"cash-out" merger by a majority shareholder more difficult to accomplish.
Although Delaware law does not parallel California law in this respect, under
some circumstances Section 203 does provide similar protection to stockholders
against coercive two-tiered bids for a corporation in which the stockholders are
not treated equally.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one on which a certain number, but not all, of the
directors are elected on a rotating basis each year. This method of electing
directors make changes in the composition of the board of directors more
difficult, and thus a potential change in control of a corporation a lengthier
and more difficult process.
Delaware. Delaware law permits, but does not require, a classified Board of
Directors, pursuant to which the directors can be divided into as many as three
classes with staggered terms of office, with only one class of directors
standing for election each year. Simultaneously with reincorporation in
Delaware, the Board of
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Directors proposes to establish a classified Board, dividing the directors into
three equal classes. The directors of each class will serve three-year terms and
the term of one class will expire each year. See Proposal No. 3 -- Establishment
of a Classified Board of Directors for a full explanation of the proposed
changes.
California. Under California law, a Company whose shares are listed on a
national exchange may also provide for a classified board of directors by
adopting amendments to its articles of incorporation or bylaws. Which amendments
must be approved by the shareholders. Although Genelabs California qualifies to
adopt a classified board of directors, the Articles and California Bylaws do not
currently provide for a classified board.
REMOVAL OF DIRECTORS
Delaware. Under Delaware law, any director or the entire Board of Directors
of a corporation that does not have a classified Board of Directors or
cumulative voting may be removed with or without cause with the approval of a
majority of the outstanding shares entitled to vote at an election of directors.
In the case of a Delaware corporation having cumulative voting, if less than the
entire board is to be removed, a director may not be removed without cause if
the number of shares voted against such removal would be sufficient to elect the
director under cumulative voting.
California. Under California law, any director or the entire board of
directors may be removed, with or without cause, with the approval of a majority
of the outstanding shares entitled to vote; however, no individual director may
be removed (unless the entire Board is removed) if the number of votes cast
against such removal would be sufficient to elect the director under cumulative
voting.
The Articles and California Bylaws do not provide for a classified board of
directors nor do they eliminate shareholder's rights to cumulative voting. The
Certificate will provide for a classified Board but will not provide for
cumulative voting.
INDEMNIFICATION AND LIMITATION OF LIABILITY
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. The laws of
both states also permit, with certain exceptions, a corporation to adopt charter
provisions eliminating the liability of a director to the corporation or its
shareholders for monetary damages for breach of the director's fiduciary duty.
There are nonetheless certain differences between the laws of the two states
respecting indemnification and limitation of liability which are summarized
below.
Delaware. The Certificate would eliminate the liability of directors to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permissible under Delaware law, as such
law exists currently and as it may be amended in the future. Under current
Delaware law, such provision may not eliminate or limit a director's monetary
liability for: (a) breaches of the director's duty of loyalty to the corporation
or its stockholders; (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 provisions also may not limit a director's liability for violation of,
or otherwise relieve the Company or its directors from the necessity of
complying with federal or state securities laws, or affect the availability of
nonmonetary remedies such as injunctive relief or rescission.
California. The 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 should be aware of a risk of serious
injury to the corporation or its shareholders; (e) acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation and its shareholders;
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(f) transactions between the corporation and a director who has a material
financial interest in such transaction; and (g) liability for improper
distributions, loans or guarantees.
INDEMNIFICATION COMPARED AND CONTRASTED.
California law requires indemnification when an individual has defended
successfully an action on the merits while Delaware law requires indemnification
whether there has been a successful or unsuccessful defense on the merits or
otherwise. Delaware law generally permits indemnification of expenses, including
attorneys' fees, actually and reasonably incurred in the defense or settlement
of a derivative or third-party action, provided there is a determination by a
majority vote of a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the stockholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in best interests of the corporation. Without court approval, however, no
indemnification may be made in respect of any derivative action in which such
person is adjudged liable for negligence or misconduct 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 any
action, claim, issue, or matter therein, on the merits or otherwise.
Expenses incurred by an officer or director in defending an action may be
paid in advance, under Delaware law and California law, if such director or
officer undertakes to repay such amounts if it is ultimately determined that he
or she is not entitled to indemnification. In addition, the laws of both states
authorize a corporation's purchase of indemnity insurance for the benefit of its
officers, directors, employees and agents whether or not the corporation would
have the power to indemnify against the liability covered by the policy.
California law permits a California corporation to provide rights to
indemnification beyond those provided therein to the extent such additional
indemnification is authorized in the corporation's Articles of Incorporation.
Thus, if so authorized, rights to indemnification may be provided pursuant to
agreements or by-law provisions which make mandatory the permissive
indemnification provided by California law. The Articles permit indemnification
beyond that expressly mandated by California law and limit director monetary
liability to the extent permitted by California law.
Delaware law also permits a Delaware corporation to provide indemnification
in excess of that provided by statute. By contrast to California law, Delaware
law does not require authorizing provisions in the certificate of incorporation
and does not contain express prohibitions on indemnification in certain
circumstances. Limitations on indemnification may be imposed by a court,
however, based on principles of public policy.
Indemnification Agreements. A provision of Delaware law states that
indemnification provided by statute shall not be deemed exclusive of any other
right under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise. Under Delaware law, therefore, the indemnification
agreement entered into by Genelabs California with its officers and directors
may be assumed by Genelabs Delaware upon completion of the Proposed
Reincorporation. If the Proposed Reincorporation is approved, the
indemnification agreements will be amended to the extent necessary to conform
the agreements to Delaware law and to provide for indemnification of officers
and directors and advancement of expenses to the maximum extent permitted by
Delaware law, and a vote in favor of the Proposed Reincorporation is also
approval of such amendments to the indemnification agreements. Among other
things, the indemnification agreements will be amended to include within their
purview future changes in Delaware law that expand the permissible scope of
indemnification of directors and officers of Delaware corporations.
INSPECTION OF SHAREHOLDER LIST
Both California and Delaware law allow any shareholder to inspect the
shareholder list for a purpose reasonably related to such person's interest as a
shareholder. California law provides, in addition, for an absolute right to
inspect and copy the corporation's shareholder list by persons holding an
aggregate of five percent (5%) or more of the corporation's voting shares, or
shareholders holding an aggregate of one percent (1%) or more of such shares who
have contested the election of directors. Delaware law also provides for
inspection rights as to a list of stockholders entitled to vote at a meeting
within a ten day period preceding a
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stockholders' meeting for any purpose germane to the meeting. However, Delaware
law contains no provisions comparable to the absolute right of inspection
provided by California law to certain shareholders.
DIVIDENDS AND REPURCHASES OF SHARES
California law dispenses with the concepts of par value of shares as well
as statutory definitions of capital, surplus and the like. The concepts of par
value, capital and surplus exist under Delaware law.
Delaware. Delaware law permits a corporation to declare and pay dividends
out of surplus or, if there is no surplus, out of net profits for the fiscal
year in which the dividend is declared and/or for the preceding fiscal year as
long as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, Delaware law generally
provides that a corporation may redeem or repurchase its shares only if the
capital of the corporation is not impaired and such redemption or repurchase
would not impair the capital of the corporation.
California. Under California law, a corporation may not make any
distribution to its shareholders unless either: (i) the corporation's retained
earnings immediately prior to the proposed distribution equal or exceed the
amount of the proposed distribution; or (ii) immediately after giving effect to
such distribution, the corporation's assets (exclusive of goodwill, capitalized
research and development expenses and deferred charges) would be at least equal
to 1 1/4 times its liabilities (not including deferred taxes, deferred income
and other deferred credits), and the corporation's current assets would be at
least equal to its current liabilities (or 1 1/4 times its current liabilities
if the average pre-tax and pre-interest expense earnings for the preceding two
fiscal years were less than the average interest expense for such years). Such
tests are applied to California corporations on a consolidated basis.
SHAREHOLDER VOTING
Both California and Delaware law generally require that a majority of the
shareholders of both acquiring and target corporations approve statutory
mergers.
Delaware. Delaware law does not require a stockholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
certificate of incorporation) if: (a) the merger agreement does not amend the
existing certificate of incorporation; (b) each share of stock of the surviving
corporation outstanding immediately before the effective date of the merger is
an identical outstanding share after the merger and; (c) either no shares of
common stock of the surviving corporation and no shares, securities or
obligations convertible into such stock are to be issued or delivered under the
plan of merger, or the authorized unissued shares or shares of common stock of
the surviving corporation to be issued or delivered under the plan of merger
plus those initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under such plan do not exceed twenty
percent (20%) of the shares of common stock of such constituent corporation
outstanding immediately prior to the effective date of the merger.
California. California law contains a similar exception to its voting
requirements for reorganizations where shareholders or the corporation itself,
or both, immediately prior to the reorganization will own immediately after the
reorganization equity securities constituting more than 83.3% (or five-sixths)
of the voting power of the surviving or acquiring corporation or its parent
entity.
APPRAISAL RIGHTS
Under both California and Delaware law, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to appraisal rights pursuant to which such
shareholder may receive cash in the amount of the fair market value of his or
her shares in lieu of the consideration he or she would otherwise receive in the
transaction.
Delaware. Under Delaware law, such fair market value is determined
exclusive of any element of value arising from the accomplishment or expectation
of the merger or consolidation, and such appraisal rights are not available: (a)
with respect to the sale, lease or exchange of all or substantially all of the
assets of a
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corporation; (b) with respect to a merger or consolidation by a corporation the
shares of which are either listed on a national securities exchange or are held
of record by more than 2,000 holders if such stockholders receive only shares of
the surviving corporation or shares of any other corporation that are either
listed on a national securities exchange or held of record by more than 2,000
holders, plus cash in lieu of fractional shares of such corporations; or (c) to
stockholders of a corporation surviving a merger if no vote of the stockholders
of the surviving corporation is required to approve the merger under Delaware
law.
California. The limitations on the availability of appraisal rights under
California law are different from those under Delaware law. Shareholders of a
California corporation whose shares are listed on a national securities exchange
generally do not have such appraisal rights unless the holders of at least five
percent (5%) of the class of outstanding shares claim the right or the
corporation or any law restricts the transfer of such shares. Appraisal rights
are also unavailable if the shareholders of a corporation or the corporation
itself, or both, immediately prior to the reorganization will own immediately
after the reorganization equity securities constituting more than 83.3% (or
five-sixths) of the voting power of the surviving or acquiring corporation or
its parent entity. California law generally affords appraisal rights in sale of
asset reorganizations.
DISSOLUTION
Under California law, shareholders holding fifty percent (50%) or more of
the total voting power may authorize a corporation's dissolution, with or
without the approval of the corporation's Board of Directors, and this right may
not be modified by the articles of incorporation. Under Delaware law, unless the
Board of Directors approves the proposal to dissolve, the dissolution must be
unanimously approved by all the stockholders entitled to vote thereon. Only if
the dissolution is initially approved by the Board of Directors may the
dissolution be approved by a simple majority of the outstanding shares of the
corporation's stock entitled to vote. In the event of such a board-initiated
dissolution, Delaware law allows a Delaware corporation to include in its
certificate of incorporation a supermajority (greater than a simple majority)
voting requirement in connection with dissolutions. The Certificate contains no
such supermajority voting requirement.
INTERESTED DIRECTOR TRANSACTIONS
Under both California and Delaware law, certain contracts or transactions
in which one or more of a corporation's directors has an interest are not void
or voidable because of such interest, provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain minor exceptions, the conditions are
similar under California and Delaware law.
SHAREHOLDER DERIVATIVE SUITS
California law provides that a shareholder bringing a derivative action on
behalf of a corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met. Under Delaware
law, a stockholder may bring a derivative action on behalf of the corporation
only if the stockholder was a stockholder of the corporation at the time of the
transaction in question or if his or her stock thereafter devolved upon him or
her by operation of law. California law also provides that the corporation or
the defendant in a derivative suit may make a motion to the court for an order
requiring the plaintiff shareholder to furnish a security bond. Delaware does
not have a similar bonding requirement.
APPLICATION OF THE GENERAL CORPORATION LAW OF CALIFORNIA TO DELAWARE
CORPORATIONS
Under Section 2115 of the California General Corporation Law, certain
foreign corporations (i.e., corporations not organized under California law)
which have significant contacts with California are subject to a number of key
provisions of the California General Corporation Law. However, an exemption from
Section 2115 is provided for corporations whose shares are listed on a major
national securities exchange or are traded in the Nasdaq National Market and
which have 800 or more shareholders as of the record date of its most recent
annual meeting of shareholders. Following the Proposed Reincorporation, the
Common Stock of
15
<PAGE> 19
Genelabs Delaware will continue to be traded on the Nasdaq National Market and
is anticipated to be owned by more than 800 holders and, accordingly, it is
expected that Genelabs Delaware will be exempt from Section 2115.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain Federal income tax consequences to
holders of Genelabs California Common Stock who exchange their Genelabs
California Common Stock for Genelabs Delaware Common Stock. This summary is
based on the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury regulations promulgated thereunder, and published administrative
rulings and court decisions as of the date hereof. All of the foregoing legal
authorities are subject to change, possibly with a retroactive effect, and any
such change could affect the accuracy of the following discussion. No ruling has
been or will be sought from the Internal Revenue Service concerning the tax
consequences of the Merger. This summary does not purport to be a comprehensive
description of all of the tax consequences applicable to a holder of Genelabs
California Common Stock in light of his particular tax position nor does it
address the tax consequences that may be relevant to holders with a special tax
status (for example, insurance companies, financial institutions, dealers in
securities, foreign persons, and tax-exempt entities), to holders who hold
Genelabs California Common Stock as part of a straddle, hedging, or conversion
transaction, to holders who have acquired Genelabs California Common Stock
pursuant to exercise of employee stock options or otherwise as compensation, or
to holders of Genelabs California Common Stock options, deferred shares, or
similar compensatory issuances. In addition, this summary does not address any
consequences arising under the laws of any state, local, or foreign
jurisdiction. This summary assumes that holders of Genelabs California Common
Stock have held such stock, and will hold their Genelabs Delaware Common Stock
received in exchange therefor, as capital assets (generally, property held for
investment). Each holder of Genelabs California Common Stock is urged to consult
his tax advisor regarding the tax consequences of exchanging Genelabs California
Common Stock for Genelabs Delaware Common Stock pursuant to the Merger,
including the application and effect of Federal, state, local, foreign and other
tax laws.
The Company believes that the Merger should qualify as a reorganization
within the meaning of section 368(a) of the Code. Accordingly, subject to the
qualifications set forth above:
1. No gain or loss should be recognized by holders of Genelabs California
Common Stock upon receipt of Genelabs Delaware Common Stock pursuant to
the Merger.
2. The aggregate tax basis of the Genelabs Delaware Common Stock received
by each holder should be equal to the aggregate tax basis of the
Genelabs California Common Stock transferred in exchange therefor.
3. The holding period of the Genelabs Delaware Common Stock received by
each holder should include the period for which such holder held his
Genelabs California Common Stock.
4. The Company should not recognize any gain or loss as a result of the
Merger.
ACCOUNTING TREATMENT OF THE MERGER
Upon consummation of the merger, all assets and liabilities of the Company
will be transferred to the Genelabs Delaware at book value because the
Reincorporation will be accounted for as a pooling of interests.
VOTE REQUIRED; BOARD RECOMMENDATION
The affirmative vote of a majority of the outstanding shares of each class
of the Company's capital stock entitled to vote at the Annual Meeting will be
required to approve the Reincorporation proposal. Therefore, a majority of each
of the Common Stock and Preferred Stock will be required to approve the
Reincorporation proposal. Abstentions and broker non-votes will have the effect
of votes against the Reincorporation proposal. The persons named as proxies in
the accompanying form of proxy intend to vote in favor of Reincorporation. A
vote FOR the Reincorporation proposal will constitute approval of (i) the change
in the Company's state of incorporation through a merger of the Company into the
Delaware Company, (ii) the Certificate, (iii) the
16
<PAGE> 20
Delaware Bylaws, and (iv) all other aspects of the Reincorporation proposal. If
this Proposal No. 2 and Proposal No. 3 are approved, the Certificate shall
supersede the Articles.
THE BOARD RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSAL
TO REINCORPORATE THE COMPANY IN THE STATE OF DELAWARE.
PROPOSAL NO. 3
ESTABLISHMENT OF A CLASSIFIED BOARD OF DIRECTORS
GENERAL
The Company currently has a board of directors consisting of nine (9)
members elected to one-year terms at each annual meeting of the shareholders. As
part of the Company's Proposed Reincorporation in Delaware (see Proposal No.
2 -- Reincorporation In Delaware) and the Merger into Genelabs Delaware thereby
contemplated, the Company seeks to establish a classified board of directors by
dividing the Board of Directors into three (3) classes with staggered terms.
A classified board is one in which a certain number, but not all, of the
directors are elected on a rotating basis each year. This method of electing
directors makes changes in the composition of the board of directors more
difficult, and thus a coercive change in control of a corporation a lengthier
and more difficult process. Under California law, a company whose shares are
listed on a national exchange may also provide for a classified board of
directors by adopting amendments to its articles of incorporation or bylaws,
which amendments must be approved by the shareholders. Although Genelabs
California qualifies to adopt a classified board of directors, its Board of
Directors has not previously done so. Delaware law permits, but does not
require, a classified board of directors, pursuant to which the directors can be
divided into as many as three classes with staggered terms of office, with only
one class of directors standing for election each year. Assuming shareholder
approval of the Proposed Reincorporation in Delaware, the Board of Directors
recommends the adoption of a classified Board, dividing the directors into three
equal classes. The directors of each class will serve three-year terms and the
term of one class will expire each year after this year's annual meeting.
CLASSIFIED BOARD
To implement a classified Board, the Board would be divided in the
following way: [number to be provided in definitive proxy materials] directors
will be designated as holding Class I positions; [number to be provided in
definitive proxy materials] directors would be designated as holding Class II
positions; and [number to be provided in definitive proxy materials] directors
would be designated as holding Class III positions. At the first Annual Meeting
of Stockholders after the Proposed Reincorporation the term of office of the
initial Class I directors shall expire, at the second succeeding annual meeting
of stockholders the term of office of the initial Class II directors shall
expire and at the third succeeding annual meeting of stockholders the term of
office of the initial Class III directors shall expire. At each annual meeting
scheduled to be held after the first Annual Meeting of Stockholders after the
Proposed Reincorporation, directors to replace those of a Class whose terms
expire at such annual meeting shall be elected to hold office until the third
succeeding annual meeting and until their respective successors shall have been
duly elected and qualified. If the number of directors is later changed, any
newly created directorships or decrease in directorships shall be so apportioned
among the classes as to make all classes as nearly equal in number as is
practicable. Thus, after the Proposed Reincorporation, stockholders will elect
only one-third of the directors at each Annual Meeting of Stockholders.
The Board of Directors believes that dividing the directors into three
classes is advantageous to the Company and its stockholders because by providing
that directors will serve three-year terms rather than one-year terms, the
likelihood of continuity and stability in the policies formulated by the Board
will be enhanced.
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<PAGE> 21
The Board of Directors also believes that a classified board would, if
adopted, effectively reduce the possibility that a third party could effect a
sudden or surprise change in control of the Company's Board of Directors. A
classified board would serve to ensure that the Board and management, if
confronted by a surprise proposal from a third party who has acquired a block of
the Company's common stock, will have sufficient time to review the proposal and
appropriate alternatives to the proposal and to attempt to negotiate a better
transaction, if possible, for the stockholders.
The Board of Directors of the Company believes that if a potential acquiror
were to purchase a significant or controlling interest in the Company, such
potential acquiror's ability to remove the Company's directors and obtain
control of the Board and thereby remove the Company's management would severely
curtail the Company's ability to negotiate effectively with such potential
acquiror. The threat of obtaining control of the Board would deprive the Board
of alternative proposals that would help to ensure that the best price is
obtained in any transaction involving the Company which may ultimately be
undertaken. A classified board is designed to reduce the vulnerability of the
Company to an unsolicited takeover proposal, particularly a proposal that does
not contemplate the acquisition of all of the Company's outstanding shares of
stock, or an unsolicited proposal for the restructuring or sale of all or part
of the Company.
Since the creation of a classified Board will increase the amount of time
required for a takeover bidder to obtain control of the Company without the
cooperation of the Board, even if the takeover bidder were to acquire a majority
of the Company's outstanding Common Stock, the existence of a classified board
could tend to discourage certain tender offers which stockholders might feel
would be in their best interests. Because tender offers for control usually
involve a purchase price higher than the current market price, the creation of a
classified board could also discourage open market purchases by a potential
takeover bidder. Such tender offers or open market purchases could increase the
market price of the Company's stock, enabling stockholders to sell their shares
at a price higher than that which otherwise would prevail. In addition, the
creation of a classified board could make the Company's common stock less
attractive to persons who invest in securities in anticipation of an increase in
price if a takeover attempt develops. Since these provisions will make the
removal of directors more difficult, it will increase the directors' security in
their positions and, since the Board has the power to retain and discharge
management, could perpetuate incumbent management.
The foregoing discussion of the Certificate of Incorporation and Bylaws of
Genelabs Delaware is qualified in its entirety by reference to the relevant
sections of such Certificate and Bylaws attached to this Proxy Statement as
Appendices B and C, respectively.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Approval of the adoption of a classified Board of Directors after the
Proposed Reincorporation, which will also constitute approval of the provisions
of the Certificate and the Delaware Bylaws establishing such a classified Board,
will require the affirmative vote of the majority of outstanding shares of each
of the Common Stock and the Preferred Stock of Genelabs California. As a result,
abstentions and broker non-votes will have the same effect as a vote against the
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
ESTABLISHMENT OF A CLASSIFIED BOARD.
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<PAGE> 22
PROPOSAL NO. 4
APPROVAL OF AMENDMENTS TO THE STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "Stock Option Plan") was adopted
by the Board in April 1995 and approved by the Company's shareholders in May
1995, replacing a previous stock option plan that expired. Genelabs offers this
stock option plan to provide equity incentives for employees, officers,
directors, and, in some cases, independent contractors of the Company. To date,
shareholders have approved a total of 6,000,000 shares for issuance under the
two stock option plans, the status of which is as follows:
<TABLE>
<S> <C>
Stock options currently outstanding....................... 3,524,390
Stock options exercised................................... 2,308,927
Stock options available for grant......................... 166,683
---------
Total options approved.................................... 6,000,000
=========
</TABLE>
The stock options approved consist of 4,912,889 shares under the Stock
Option Plan and 1,087,111 shares under the stock option plan that expired in
1995.
In January 1999, the Board adopted an amendment to the Stock Option Plan to
increase the number of shares reserved for issuance thereunder by an additional
2,000,000 shares to a total of 6,912,889 shares. The Board believes that the
grant of equity based awards, such as stock options, is a highly effective way
to align the interests of management and employees with those of Genelabs'
shareholders and provides a cost-effective means of recognizing employee
contributions to the success of the Company. The Board believes that increasing
the number of shares of common stock available for this purpose will be
important to the future success of the Company by allowing it to remain
competitive in attracting and retaining highly qualified personnel. In addition,
although the purpose of the plan is to attract and retain highly qualified and
motivated personnel, the Company has also received $4.3 million from exercises
of stock options under this plan and its predecessor plan. The options granted
and available for grant are commonly called a Company's "overhang," and for
Genelabs this represents 9.3% of the currently outstanding shares, which
Genelabs believes is much lower than other companies in its biotechnology peer
group. As of March 31, 1999, 166,683 shares of Common Stock remained available
for future grants under the Stock Option Plan and there were options to purchase
a total of 3,524,390 shares of Common Stock outstanding under the Company's
stock option plans.
At the Annual Meeting, the shareholders are being requested to approve:
(i) the increase in number of shares reserved for issuance under the Stock
Option Plan by 2,000,000 shares
(ii) the amendment to change the number of maximum shares each optionee may
be granted under the Stock Option Plan from 800,000 during the term of
the Stock Option Plan to 500,000 shares during any single calendar
year.
Below is a summary of the principal provisions of the Stock Option Plan,
assuming approval of the above amendment.
Shares Subject to the Stock Option Plan. The stock reserved for issuance
under the Stock Option Plan represents shares of the Company's authorized but
unissued Common Stock. The aggregate number of shares that may be issued under
the Stock Option Plan may not exceed 6,912,889. If any portion of an outstanding
option under the Stock Option Plan expires or is terminated, the unexercised
shares of common stock attributable to that option are available for future
option grant under the Stock Option Plan.
Eligibility. Options may be granted to employees, officers, directors,
independent contractors, consultants and advisors of the Company or any parent,
subsidiary or affiliate of the Company (as such terms are defined in the Stock
Option Plan) as the Human Resources Committee may determine (including directors
who are also employees or consultants). The annual maximum number of shares that
can be granted to a single participant under the Stock Option Plan is 500,000
shares.
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<PAGE> 23
Administration. The Stock Option Plan is administered by the Human
Resources Committee appointed by the Board (the "Committee"), currently
consisting of Frank L. Douglas and Edgar G. Engleman. The interpretation by the
Committee of any provision of the Stock Option Plan or of any option granted
under it is final and binding on all the participants.
Terms of Options. Subject to the terms of the Stock Option Plan, the
Committee determines the number of shares for which each option will be granted,
the exercise price of the option (but not less than fair market value), the
periods during which the option may be exercised and other terms and conditions.
Each option is evidenced by an option grant in a form as approved by the
Committee and is subject to the following conditions:
NUMBER OF SHARES: Each option states the number of shares to which it
pertains.
OPTION PRICE: The option exercise price generally may not be less than
100% of the fair market value of the Company's common stock. The exercise
price of any incentive stock option ("ISO") granted to a holder of greater
than 10% of the total combined voting shares of the Company may not be less
than 110% of the fair market value of the shares of Common Stock on the
date of the grant.
FORM OF PAYMENT: The option exercise price is typically payable in
cash or by check. In addition, the option exercise price may also be
payable in shares of fully paid Genelabs common stock that have been owned
for more than six months, by promissory note, by waiver of compensation
due, through a "same day sale," a "margin commitment" or by any combination
of the foregoing that the Committee may authorize.
TERM OF OPTIONS AND VESTING: Under the Stock Option Plan, options are
permitted to be exercisable for up to ten years, except that an ISO granted
to a 10% shareholder can only be exercisable for five years. To date,
options granted under the Stock Option Plan generally become 25% vested on
the first anniversary of the grant, with 1/48 of each grant vesting each
subsequent month for the next three years.
LIMITATIONS ON ISOS: An individual will not be eligible to receive an
ISO unless such individual is an employee of the Company or of a parent or
subsidiary of the Company.
TERMINATION OF EMPLOYMENT: If an option holder ceases to be employed
by the Company, the option holder typically has three months (or twelve
months in the case of the employee's death or disability) to exercise any
options exercisable on the date his or her employment ends.
MERGERS, CONSOLIDATIONS AND RECAPITALIZATIONS: The number of shares
subject to any option will be adjusted in the event of a stock dividend,
stock split, reverse stock split or similar change relating to the
Company's Common Stock. In the event of a dissolution or certain types of
acquisitions of the Company, if the options are not assumed or substituted
by a successor corporation, they will accelerate and become exercisable in
full prior to their termination.
DIRECTOR STOCK OPTIONS: For non-employee directors, the Stock Option
Plan provides for the automatic grant of a nonqualified stock option
("NSO") to purchase 20,000 shares of the Company's common stock upon the
non-employee director's first election to the Board. At Genelabs' Annual
Meeting following the second anniversary of each non-employee director's
election to the Board, and at each subsequent Annual Meeting, the
non-employee directors are each granted an additional option to purchase
10,000 shares. The options granted to non-employee directors are granted at
fair market value and vest in two equal annual installments. The term of
options granted to non-employee directors prior to February 1999 was five
years, in February 1999 the Board amended the Stock Option Plan to extend
the term to ten years.
Amendment of the Stock Option Plan. The Board, to the extent permitted by
law, and with respect to any shares at the time not subject to options, may
suspend or discontinue the Stock Option Plan or revise or amend the Stock Option
Plan in any respect whatsoever; provided that the Board may not, without the
approval of the shareholders, amend the Stock Option Plan in a manner that
requires shareholder approval
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<PAGE> 24
pursuant to the Internal Revenue Code or the regulations thereunder or, if
applicable, pursuant to Rule 16b-3 promulgated under the Exchange Act.
Term of the Stock Option Plan. Options may be granted pursuant to the Stock
Option Plan from time to time until April 14, 2005, which is ten years after the
date the Stock Option Plan was originally adopted by the Board.
Federal Income Tax Information -- Incentive Stock Options. An option holder
does not recognize income upon the grant of an ISO and generally incurs no tax
on its exercise, unless the option holder is subject to the alternative minimum
tax. If the option holder retains the stock acquired upon exercise of an ISO for
more than one year after the date the option was exercised and for more than two
years after the date the option was granted, the option holder generally will
realize long-term capital gain or loss upon disposition of the shares. This gain
or loss will be equal to the difference between the amount realized upon such
disposition and the amount paid for the shares. If the option holder disposes of
the shares prior to the above described term, then gain realized upon such
disposition will generally be treated as ordinary income.
Federal Income Tax Information -- Nonqualified Stock Options. An option
holder does not recognize any taxable income at the time an NSO is granted.
However, upon exercise of an NSO, the option holder must include as taxable
income the difference between the fair market value of the shares on the date of
exercise and the amount paid for that stock. The included amount must be treated
as ordinary income and may be subject to income tax withholding by the Company.
Upon subsequent sale of the shares by the option holder, any later appreciation
or depreciation in the value of the shares will be treated as capital gain or
loss.
Tax Treatment of the Company. The Company is entitled to a deduction upon
the exercise of an NSO by a domestic option holder equivalent to ordinary income
recognized by the option holder. The Company is entitled to a deduction in
connection with the disposition of ISO shares only to the extent that the option
holder recognizes ordinary income on a disqualifying disposition of the ISO
Shares.
It is not possible at this time to determine the future options that will
be granted under the Stock Option Plan if it is approved by the shareholders.
Genelabs has not granted any options under the Stock Option Plan that are
contingent upon approval of this amendment.
The Stock Option Plan is being submitted for shareholder approval pursuant
to the requirements of Sections 422 and 162(m) of the Internal Revenue Code.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL
OF THE AMENDMENTS TO THE STOCK OPTION PLAN.
PROPOSAL NO. 5
APPROVAL OF AMENDMENT TO THE EMPLOYEE STOCK PURCHASE PLAN
The Company's Employee Stock Purchase Plan (the "Stock Purchase Plan") was
originally adopted by the Board and approved by shareholders in April 1991.
Genelabs offers this Stock Purchase Plan to provide eligible employees an
opportunity to acquire an ownership interest in Genelabs through payroll
deductions. The Stock Purchase Plan is intended to operate in compliance with
Section 423 of the Internal Revenue Code.
The Board of Directors amended the Stock Purchase Plan in February 1999 to
increase the number of shares of the Company's common stock reserved for
issuance under the Plan by an additional 500,000 shares, subject to shareholder
approval at the Meeting. The Board believes it is in the best interests of the
Company to continue a program of stock ownership for Genelabs' employees. The
Board also believes that the Stock Purchase Plan provides a meaningful
opportunity for employees to purchase substantial ownership interests in
Genelabs and encourages alignment of the employees' interests with those of
other shareholders. In addition, although the purpose of the plan is to provide
employees with the opportunity to acquire ownership interests in Genelabs, the
Company has received over $1.7 million from the purchase of stock under this
plan. Shareholders have approved the issuance of 1,000,000 shares of common
stock under the Stock Purchase Plan; 662,055 shares have been issued and 337,945
shares currently remain available for future issuance under
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<PAGE> 25
this plan. Based on the Stock Purchase Plan purchases in 1998, the Board
estimates that the current shares remaining available for issuance under the
Stock Purchase Plan will last for approximately another two years. However, the
Board approved an additional 500,000 shares for issuance under this plan in
order to avoid non-cash accounting charges that may result if number of shares
remaining available for issuance drops below two year's projected purchases.
Following is a summary of the principal provisions of the Plan, assuming
approval of the above amendment.
Eligibility. Employees who are employed on the fifteenth day of the month
before the beginning of an Offering Period and are customarily employed at least
20 hours per week and five months in a calendar year are eligible to participate
in the Plan. However, no employee can participate in the Stock Purchase Plan if
they own or have rights to own 5% or more of the total combined voting power or
value of Genelabs' stock. All of the Company's approximately 91 employees are
currently eligible to participate in the Stock Purchase Plan.
Offering Periods. The offering periods of the Plan (the "Offering Periods")
are up to 24 months long and consist of up to four six-month purchase periods
(individually, a "Purchase Period") during which payroll deductions of the
participants are accumulated. Offering Periods begin on January 2 and July 2 of
each year and end on July 1 and January 1 of each year. The first business day
of each Offering Period is referred to as the "Offering Date" and the last
business day of each Offering Period is referred to as the "Purchase Date". If
the stock price on the Purchase Date is lower than the price on the current
Offering Date(s), the current Offering Periods terminate and a new Offering
Period begins on the next scheduled Offering Date. The Board can change the
duration of Offering Periods or Purchase Periods if the change is announced at
least 15 days prior to the beginning of the affected Offering or Purchase
Period.
Administration. The Plan is administered by the Human Resources Committee,
and this committee handles all questions of interpretation or application of the
Plan.
Payroll Deductions. The purchase price of the shares is accumulated by
regular payroll deductions made during the Purchase Periods. Deductions from
participant's payroll checks are made in one percent increments from two percent
to ten percent of gross compensation, up to a maximum of $25,000 per year.
Participants can lower but not raise the rate of payroll deductions during each
Purchase Periods, but can increase or decrease the payroll deductions for
subsequent Purchase Periods. If the Company's stock price has dropped more than
50% from the Offering Date to the Purchase Date, purchases for that period are
limited to twice the number of shares the Participant could have purchased based
on the Offering Date price.
Purchase of Stock. The purchase price for each Offering Period is 85% of
the lesser of the fair market value on the Offering Date or the Purchase Date.
The Stock Purchase Plan defines the term "fair market value" as the closing
price from the previous day's trading as reported on The NASDAQ National Market.
The number of whole shares that a participant will be able to purchase in any
Purchase Period is the total amount of payroll deductions divided by the
purchase price per share.
Withdrawal. Participants can withdraw from Purchase Periods any time prior
to 15 days before the end of the Purchase Period. Accumulated payroll deductions
will be returned without interest, and the Participant's interest in the Stock
Purchase Plan terminates. Termination of a participant's employment immediately
terminates participation in the Stock Purchase Plan, and payroll deductions
credited to the participant's account are returned without interest.
Term of the Plan. Shares of Common Stock may be sold under the Stock
Purchase Plan until the earlier of termination by the Board, issuance of all of
the shares reserved for issuance under the Stock Purchase Plan, or until April
24, 2001, which is ten years after the date the Stock Purchase Plan was adopted
by the Board.
Federal Income Tax Information -- Tax Treatment of the
Participant. Participating employees do not recognize income for federal income
tax purposes either upon enrollment in the Plan or upon the purchase of shares.
All tax consequences are deferred until a participating employee sells the
shares, disposes of the shares by gift, or dies.
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<PAGE> 26
If a participant holds the purchased shares for more than one year after
the Purchase Date and for more than two years from the beginning of the Offering
Period, the participant realizes ordinary income on a sale (or a disposition by
way of gift or upon death) at either the discount at the beginning of the
Offering Period or the actual gain, whichever is lower. Any additional gain upon
the sale of shares is treated as long-term capital gain.
If the shares are sold or otherwise disposed of within either the one-year
or the two-year holding periods described above (called a "disqualifying
disposition"), the participant realizes ordinary income at the time of the
disqualifying disposition in the amount the fair market value of the shares at
the date of purchase was greater than the purchase price. This amount is taxed
as ordinary income in the year of the disqualifying disposition, even if no gain
is realized on the sale or if a gratuitous transfer is made. The difference, if
any, between the proceeds of sale and the fair market value of the shares at the
date of purchase is a capital gain or loss.
Tax Treatment of the Company. The Company receives tax deductions upon the
disposition of shares acquired under the Plan only to the extent that the
participant recognizes ordinary income on a disqualifying disposition of the
shares.
It is not possible at this time to determine the future options that will
be granted under the Stock Purchase Plan. Genelabs has not granted any options
under the Stock Purchase Plan that are contingent upon approval of this
amendment.
The Stock Purchase Plan is being submitted for shareholder approval
pursuant to Section 423 of the Internal Revenue Code.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE AMENDMENT TO THE STOCK PURCHASE PLAN
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<PAGE> 27
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 31, 1999,
with respect to the beneficial ownership of each class of the Company's voting
securities held by (i) each shareholder known by the Company to be the
beneficial owner of more than 5% of either class of the Company's voting
securities, (ii) each director and nominee, (iii) each executive officer named
in the Summary Compensation Table and (iv) all directors and executive officers
as a group.
AMOUNT AND NATURE OF SHARES BENEFICIALLY OWNED(1)
<TABLE>
<CAPTION>
TOTAL
NUMBER OF SHARES PERCENT OF
TITLE OF SHARES RIGHT TO BENEFICIALLY OUTSTANDING
CLASS(2) NAME OWNED ACQUIRE(3) OWNED SHARES
- --------- ---- --------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Common Veron International Limited(4)....... 5,391,633 -- 5,391,633 13.6%
Common SMALLCAP World Fund, Inc.(5)......... 2,085,000 -- 2,085,000 5.2%
Common Edgar G. Engleman.................... 765,401(6) 67,916 833,317 2.1%
Common Irene A. Chow........................ 23,602 566,436 590,038 1.5%
Common Cynthia A. Edwards................... 22,960 158,969 181,929 *
Common James A.D. Smith..................... 14,148 113,272 127,420 *
Common Arthur Gray, Jr...................... 50,000 35,000 85,000 *
Common H. H. Haight......................... 20,162 35,000 55,162 *
Common Marc J. Gurwith...................... 9,605 27,500 37,105 *
Common Nina K. Wang......................... -- 20,000 20,000 *
Common Frank L. Douglas..................... -- 10,000 10,000 *
Common Alan Y. Kwan......................... 4,500 -- 4,500 *
Common J. Richard Crout..................... -- -- -- *
Common Thomas E. Dewey, Jr.................. -- -- -- *
Common All directors and executive officers
as a group (16 persons)(7)......... 939,867 1,094,837 2,034,704 5.0%
Preferred Chiron Corporation(8)................ 5,000 -- 5,000 50.0%
Preferred Johnson & Johnson Development
Corp.(9)........................... 5,000 -- 5,000 50.0%
</TABLE>
- ---------------
* Represents beneficial ownership of less than 1%
(1) This table is based on information supplied by executive officers, directors
and principal shareholders and Schedules 13D and 13G, if any, filed with the
SEC. Unless otherwise indicated in the footnotes to this table and subject
to community property laws where applicable, each of the shareholders named
in this table has sole voting and investment power with respect to the
shares indicated as beneficially owned. Applicable percentages are based on
39,785,042 shares of Common Stock and 10,000 shares of Preferred Stock
outstanding on March 31, 1999, adjusted as required by rules promulgated by
the SEC.
(2) The Company has two classes of voting securities, Common Stock and Series A
Convertible Preferred Stock. The two holders of the Company's Series A
Convertible Preferred Stock are entitled to one vote for each share of
Common Stock into which their Convertible Preferred Stock could be
converted, in accordance with a pre-determined formula. Under this formula,
each holder is entitled to vote 2,461,478 shares at this year's Annual
Meeting.
(3) Represents shares that can be acquired through stock option exercises
through May 30, 1999.
(4) The address of Veron International Limited ("Veron") is Top Floor Chinachem
Golden Plaza, 77 Mody Road, Tsimshatsui East, Kowloon, Hong Kong. Veron is
an investment holding company whose principal shareholder is Mrs. Nina K.
Wang, a Director of the Company.
(5) The address of SMALLCAP World Fund, Inc. is 333 South Hope Street, 52nd
Floor, Los Angeles, California 90071.
24
<PAGE> 28
(6) Represents 715,485 shares held of record by the Engleman Family Trust,
49,916 shares held of record by Dr. Engleman's minor child.
(7) Includes holdings of the above listed officers and directors and four other
executive officers of the Company. This amount does not include shares held
by Veron International, Ltd., an investment holding company whose principal
shareholder is Mrs. Nina K. Wang, a Director of the Company.
(8) The address of Chiron Corporation is 4560 Horton Street, Emeryville,
California 94608-2916.
(9) The address of Johnson & Johnson Development Corporation is One Johnson &
Johnson Plaza, New Brunswick, New Jersey 08933-7002.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------------------------------- ------------------------
OTHER ANNUAL RESTRICTED SECURITIES
COMPENSATION STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) ($) OPTIONS(#)
--------------------------- ---- --------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Irene A. Chow.................. 1998 293,583(2) 97,055 110,479 -- 40,000
President and 1997 276,500(2) 92,435 79,667 -- 100,000
Chief Executive Officer 1996 259,167(2) 114,000 41,666 -- 60,000
James A.D. Smith............... 1998 195,833 45,100 35,191 -- 12,000
Chief Operating Officer 1997 184,250 39,775 21,934 -- 22,600
1996 141,000 41,800 8,000 -- 79,000
Marc J. Gurwith................ 1998 187,750 35,720 21,836(3) -- 4,000
Vice President, 1997 69,375 15,108 -- -- 60,000
Drug Development and
Chief Medical Officer
Cynthia A. Edwards............. 1998 173,083 30,960 28,541 -- 32,000
Chief Scientific Officer 1997 158,933 31,360 18,087 -- 36,400
1996 145,767 28,262 8,666 44,062(4) 81,000
</TABLE>
- ---------------
(1) Unless otherwise noted, amounts in this column represent amounts vested in
the long-term portion of the Company's Annual and Long-term Incentive Based
Compensation Program.
(2) Excludes $89,842, $87,933 and $73,333 in 1998, 1997 and 1996, respectively,
paid on behalf of Genelabs' Taiwan-based affiliate, Genelabs Biotechnology
Co., Ltd. ("GBL"), for Dr. Chow's services as GBL's Chairman of the Board.
(3) Represents $5,036 vesting in the Annual and Long-term Incentive Based
Compensation Program, forgiveness of $14,400 in principal of a loan made to
Dr. Gurwith, and forgiveness of $2,400 in interest on the loan.
(4) Represents a grant of 5,000 shares of common stock to Dr. Edwards in 1996,
which vested in 1996 and had a fair market value at December 31, 1998 of
$13,125.
25
<PAGE> 29
The following table sets forth information regarding individual grants of
stock options pursuant to the Company's 1995 Stock Option Plan during 1998 to
each of the Officers named in the Summary Compensation Table.
INDIVIDUAL GRANTS IN 1998
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS EMPLOYEES PRICE EXPIRATION PRESENT VALUE
NAME GRANTED (#)(1) IN 1998 ($/SHARE) DATE ($)(2)
---- -------------- ------------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Irene A. Chow................. 40,000 6.4 3.4688 02/05/2008 81,860
James A.D. Smith.............. 12,000 1.9 3.4688 02/05/2008 24,558
Marc J. Gurwith............... 4,000 0.6 3.4688 02/05/2008 8,165
Cynthia A. Edwards............ 12,000 1.9 3.4688 02/05/2008 24,558
20,000 3.2 2.0469 10/02/2008 23,869
</TABLE>
- ---------------
(1) Stock options are awarded with an exercise price equal to the fair market
value of the Company's Common Stock on the date of award. Stock options
generally become exercisable with respect to 25% of the number of underlying
shares on the first anniversary of the date of grant with pro-rata monthly
vesting thereafter for the remaining three years, so long as employment with
the Company continues. All of the options granted have a 10-year term.
(2) The estimated "grant date present value" of options granted in 1998 is based
on a Black-Scholes option pricing model, a model that reflects certain
assumptions regarding variable factors such as interest rates and stock
price volatility. Stock options have value only as a result of appreciation
in the price of the Company's Common Stock. If, at the time of exercise, the
price of the Company's Common Stock is the same as or lower than the option
exercise price, there will be no gain to the optionee. Because changes in
the subjective input assumptions can materially affect the fair value
estimate, it is the Company's belief that this model does not necessarily
provide a reliable single measure of the fair value of the options granted.
For the purposes of establishing the "grant date present value" shown in the
table, the model assumed a dividend yield of zero, risk-free interest rate
of 5.0%, volatility factor of the expected market price of the Company's
Common Stock of .80, and an expected life of the options of one year
subsequent to vesting.
During 1998 there were no stock option exercises by any of the Officers
listed in the Summary Compensation Table. The following table sets forth certain
information concerning the number and value of unexercised options held by each
of these Officers at December 31, 1998.
DECEMBER 31, 1998 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT YEAR-END MONEY OPTIONS AT YEAR-END
($)(1) (#)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Irene A. Chow.............................. 532,479 136,426 61,389 4,567
James A.D. Smith........................... 99,586 63,014 23,155 --
Marc J. Gurwith............................ 20,000 44,000 -- --
Cynthia A. Edwards......................... 140,720 91,280 13,805 11,630
</TABLE>
- ---------------
(1) These values are based on the positive spread between the respective
exercise price of outstanding stock options and the fair market value of the
Company's Common Stock at December 31, 1998 ($2.6250). These amounts may not
represent amounts actually realized by the named Officers.
26
<PAGE> 30
The following pages contain a report issued by the Human Resources Committee
relating to executive compensation for 1998 and a chart titled "Company Stock
Price Performance." Shareholders should be aware that under SEC rules, the Human
Resources Committee report and the stock price performance chart are not
considered filed with the SEC under the Securities Act of 1933 or the Securities
Exchange Act of 1934 unless these sections are specifically referenced.
REPORT OF THE HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION
Decisions regarding executive compensation and stock option grants to
executives are made by the Human Resources Committee of the Board of Directors
(the "Committee") subject to the review and, in certain cases, approval by the
Board. The Committee is currently composed of two non-employee directors.
Although Dr. Chow attended the meetings of the Committee during 1998, she did
not vote on any matters that relate to compensation and was excused from
meetings when matters concerning her compensation were discussed.
COMPENSATION POLICY
The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The primary
goal of the Company's compensation policy is to align compensation with the
Company's business objectives and performance. The Committee's primary aim is to
attract, reward, and retain executive officers and other employees who
contribute to the long-term success of the Company. The Committee typically
reviews base salary levels and target bonuses for the Chief Executive Officer
("CEO"), President and other executive officers of the Company and key employees
at or about the beginning of each year. The Committee has adopted a total
compensation package comprised of base salary, bonus, long-term incentive
awards, stock options and stock grant awards.
SALARY AND VARIABLE COMPENSATION
The base salaries, incentive compensation and stock option grants of the
executive officers are determined by the Committee in part by reviewing the
Radford Survey and other published surveys for similar positions in the
biopharmaceutical industry. These surveys are nationally known for their
databases of high technology and biopharmaceutical companies compensation
practices. The Radford Survey itself includes over 1,500 high technology
companies and 335 biopharmaceutical companies. In addition, custom survey data
is also reviewed on a case by case, position by position basis. The compensation
of the Company's executive officers is evaluated against comparable positions
and competitive market compensation levels to determine base salary, target
bonuses and target total cash compensation. The Committee attempts to target
total cash compensation at competitive rates and percentiles of the survey
companies. Practices of such companies with respect to stock option grants are
also reviewed and compared.
In addition to their base salaries, the Company's executive officers,
including the CEO, are each eligible to receive an annual cash bonus under the
Incentive Bonus Program ("IBC Program"). The Committee's philosophy in
compensating executive officers, including the CEO, is to relate compensation
principally to corporate and executive performance. Thus, a portion of the cash
compensation paid to the Company's executive officers, including the CEO, is in
the form of discretionary bonus payments that are paid on an annual basis. Under
the IBC Program, cash bonuses are awarded only if an executive officer achieved
predetermined individual performance objectives and the Company met certain
corporate objectives that were approved by the Committee. Bonus payments are
expressly linked to the attainment of goals established for each executive
officer, as well as overall corporate goals, and are limited by the target bonus
amount established for each executive officer which is a percentage of the
officer's base salary.
In the biopharmaceutical industry, traditional measures of corporate
performance, such as earnings per share or return on equity, may not readily
apply in evaluating the performance of executives. Because the Company has been
engaged primarily in research and development activities, the Company's
objectives are based on other financial and strategic measures, such as the
progress of the Company's research and development programs, the establishment
of cooperative development and marketing relationships with
27
<PAGE> 31
corporate partners, the recruitment of management personnel, and the securing of
capital resources sufficient to enable the Company to further research and
product development plans. General corporate goals for 1998 included a year-end
cash balance target, timely enrollment of a specified number of patients in our
second phase III trial of GL701 for lupus, the hiring of qualified scientists
for key research positions, screening of several chemistry libraries for
DNA-binding properties and renewing existing collaborations for principal
research programs
Under the IBC Program, for certain executive management positions there is
a long-term compensation element which is in addition to the annual bonus
described above. If a person in this category should be eligible for and receive
an annual bonus, the amount of the bonus will also be awarded in the long-term
portion of the Incentive Program. This long-term element is designed to defer
payments to the executive over a three-year period, vesting one third each year.
In doing so, the goal of the plan is to encourage the executive to remain with
the Company on a long-term basis by committing the payment of additional
compensation if employment continues throughout the vesting period.
LONG-TERM EQUITY INCENTIVES
The Company's equity incentive plans include the 1995 Stock Option Plan,
Restricted Stock Plan and Employee Stock Purchase Plan.
Long-term equity incentives for executive officers are provided through the
granting of stock options under the Stock Option Plan. The exercise price of
options granted under the Stock Option Plan is equal to the fair market value of
the Company's Common Stock on the date of award. These options have value only
if the price of the Company's stock increases above the fair market value on the
award date and the executive remains an employee for the period required for the
shares to vest. These options generally become exercisable with respect to 25%
of the number of underlying shares on the first anniversary of the date of grant
with pro-rata monthly vesting thereafter for the remaining three years.
Stock options typically have been granted to executive officers and other
employees when they first join the Company, in connection with a significant
change in responsibilities and, occasionally, to achieve parity within a peer
group. The Committee may, however, grant additional stock options to executives
for other reasons. Generally, the number of shares subject to each stock option
granted may also be based on anticipated future contribution and ability to
impact corporate and/or business unit results, past individual or corporate
performance or consistency within the executive's peer group. In making its
decisions, the Committee considers these factors, as well as the number of
options held by such executive officers as of the date of grant that remained
unvested. In the discretion of the Committee, executive officers may also be
granted stock options under the Stock Option Plan to provide greater incentives
to continue their employment with the Company and to strive to increase the
value of the Company's Common Stock.
1998 EXECUTIVE COMPENSATION
For each of the executive officers, base salaries were increased in
February based on their previous base salary as well as the surveys noted above
and other information available to the Committee. Under the Company's IBC
Program, for 1998 performance, the CEO determined that the executive officers
individually achieved their objectives in various ranges. Based upon the CEO's
recommendations and review of the supporting data for such, the Committee
concluded that the executive officers' objectives were met, and the Committee
awarded cash bonuses to its executive officers. The Committee awarded bonuses
based on the percentage of base salary for which a bonus was available after
giving effect to the degree to which the Committee believed each such executive
officer realized his or her objectives. In addition, stock options were granted
as part of the annual review of performance.
CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Chow's 1998 bonus and salary were set by the Committee with due regard
to her industry experience, competitive salary information and current market
conditions. As with other executive officers, the amount of Dr. Chow's total
compensation was based on the Company's 1998 results and her individual
performance with
28
<PAGE> 32
respect to meeting previously established performance objectives. The Committee
recommended that a bonus of $97,255 be paid to Dr. Chow based upon the
completion of her and the Company's objectives. In particular, the Committee
considered the timely enrollment of more than the targeted number of patients in
our second Phase III trial of GL701 for lupus, successful hiring of qualified
scientists for key research programs, management to budget and attainment of a
specified cash level at year end, approval of the DARPA grant, the renewal of
Genelabs' collaboration with DuPont and screening of chemistry libraries for
identification of DNA-binding molecules.
COMPLIANCE WITH SECTION 162(m) OF THE INTERNAL REVENUE CODE OF 1986
The Company's Stock Option Plan meets the requirements of Section 162(m) of
the Internal Revenue Code of 1986. None of the Company's Executive Officers have
received cash compensation exceeding the statutory limit under Section 162(m).
HUMAN RESOURCES COMMITTEE
Frank L. Douglas
Edgar G. Engleman
29
<PAGE> 33
COMPANY STOCK PRICE PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company for the five-year period from December 31, 1993
through December 31, 1998 with the cumulative total return on the NASDAQ Stock
Market Index (U.S. companies) and the NASDAQ Pharmaceuticals Stock Index over
the same period (assuming the investment of $100 in the Company's Common Stock
and in each of the indexes on December 31, 1993, and reinvestment of all
dividends).
<TABLE>
<CAPTION>
GENELABS TECHNOLOGIES, INC. NASDAQ STOCK MARKET NASDAQ PHARMACEUTICALS
--------------------------- ------------------- ----------------------
<S> <C> <C> <C>
12/31/93 100.00 100.00 100.00
12/31/94 28.40 97.80 75.30
12/31/95 116.40 138.30 138.00
12/31/96 146.30 170.00 138.50
12/31/97 67.20 208.60 143.00
12/31/98 65.70 293.20 183.00
</TABLE>
30
<PAGE> 34
CERTAIN TRANSACTIONS
From January 1, 1998 to the present, there have been no transactions in
which the amount involved exceeded $60,000 to which the Company or any of its
subsidiaries was a party and in which any executive officer, director, 5%
beneficial owner of the Company's Common Stock or member of the immediate family
of any of the foregoing persons had or have a direct or indirect material
interest, except certain transactions identified below.
The Company has entered into an agreement dated as of January 26, 1996 with
Edgar G. Engleman, pursuant to which Dr. Engleman shall receive a fee based on
the Company's net sales of DHEA for the treatment of lupus. There have been no
such sales to date nor are any anticipated in 1999.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the Company's 2000
Annual Meeting of Shareholders must be received by the Company at its principal
office between March 18, 2000 and April 17, 2000 in order to be included in the
Company's Proxy Statement and proxy card for the meeting.
COMPLIANCE UNDER SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock, to file initial reports of ownership and
reports of changes in ownership with the SEC. Such persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms that
they file.
Based solely on its review of the copies of such forms furnished to the
Company and written representations from the executive officers and directors,
the Company believes that all Section 16(a) filing requirements were met.
OTHER BUSINESS
The Board does not presently intend to bring any other business before the
Meeting, and, so far as is known to the Board, no matters are to be brought
before the Meeting except as specified in the Notice of the Meeting. As to any
business that may properly come before the Meeting, however, it is intended that
proxies, in the form enclosed, will be voted in respect thereof in accordance
with the judgment of the persons voting such proxies.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE, WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES, IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
31
<PAGE> 35
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
GENELABS TECHNOLOGIES DELAWARE, INC.,
A DELAWARE CORPORATION
AND
GENELABS TECHNOLOGIES, INC.,
A CALIFORNIA CORPORATION
This Agreement and Plan of Merger (this "Agreement") dated as of [ ], is
by and between Genelabs Technologies Delaware, Inc., a Delaware corporation
(hereinafter sometimes called "Genelabs Delaware"), and Genelabs Technologies,
Inc., a California corporation (hereinafter called "Genelabs California").
Genelabs Delaware and Genelabs California are sometimes hereinafter referred to
as the "constituent corporations."
STIPULATIONS AND RECITALS
A. Genelabs Delaware is a corporation duly organized and existing under
the laws of the State of Delaware, with its principal office located at 505
Penobscot Drive, Redwood City, CA 94063.
Genelabs Delaware has a capitalization of seventy-five million
(80,000,000) authorized shares divided into two classes designated "Common
Stock" and "Preferred Stock"; (a) 75,000,000 shares of Common Stock, par value
$.001 per share, and (b) 5,000,000 shares of Preferred Stock, par value $.001
per share. Genelabs Delaware has 100 shares of Common Stock issued and
outstanding, all of which are owned by Genelabs California.
B. Genelabs California is a corporation duly organized and existing
under the laws of the State of California, with its principal office located at
505 Penobscot Drive, Redwood City, CA 94063.
Genelabs California also has a capitalization of 80,000,000 authorized
shares divided into two classes designated "Common Stock" and "Preferred Stock";
(a) 75,000,000 shares of Common Stock, no par value, and (b) 5,000,000 shares of
Preferred Stock, no par value. Genelabs California has [ ] shares of Common
Stock issued and outstanding and [ ] shares of Preferred Stock issued and
outstanding.
<PAGE> 36
C. Genelabs Delaware and Genelabs California have entered into this
Agreement in accordance with Section 252 of the General Corporation Law of the
State of Delaware (the "DGCL") and Section 1108 of the California Corporations
Code (the "CCC") providing for the merger of Genelabs California with and into
Genelabs Delaware (the "Merger"), which Agreement has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with Section 252(c) of the DGCL.
D. The boards of directors of the constituent corporations deem it
desirable and in the best interests of the corporations and their shareholders
that Genelabs California be merged into Genelabs Delaware in accordance with the
provisions of Section 252 of the DGCL and Chapter 11 of the CCC, in order that
the transaction qualify as a "reorganization" within the meaning of Sections
368(a)(1)(A) and 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended.
E. The CCC permits a merger of a business corporation of the State of
California with and into a business corporation of another jurisdiction.
F. The DGCL permits the merger of a business corporation of another
jurisdiction with and into a business corporation of the State of Delaware.
G. The Agreement has been approved and adopted by the requisite
percentages of the outstanding voting stock of Genelabs California and Genelabs
Delaware.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreement of the parties hereto, being thereunto duly entered into by Genelabs
Delaware and approved by resolutions adopted by its Board of Directors and by
its sole stockholder and being thereunto duly entered into by Genelabs
California and approved by resolutions adopted by its Board of Directors and by
the requisite vote of its shareholders at its 1999 Annual Meeting of
Shareholders, the Merger and the terms and conditions thereof and the mode of
carrying the same into effect, together with any provisions required or
permitted to be set forth herein are hereby determined and agreed upon as
follows:
SECTION ONE -- STATEMENT OF MERGER
Genelabs California shall, pursuant to the provisions of the DGCL, be
merged with and into Genelabs Delaware, and from and after the effective date of
the Merger, Genelabs California shall cease to exist and Genelabs Delaware shall
continue to exist pursuant to the provisions of the DGCL. Genelabs Delaware, as
the surviving corporation from and
<PAGE> 37
after the effective date of the Merger, is sometimes hereinafter referred to as
the "Surviving Corporation."
SECTION TWO -- TERMS AND CONDITIONS
(a) On the effective date of the Merger, the separate existence of
Genelabs California shall cease, and Genelabs Delaware shall succeed to all the
rights, privileges, immunities, and franchises, and all the property, real,
personal and mixed, of Genelabs California, without the necessity for any
separate transfer. Genelabs Delaware shall thereafter be responsible and liable
for all liabilities and obligations of Genelabs California, and neither the
rights of creditors nor any liens on the property of Genelabs California shall
be impaired by the Merger.
(b) Upon approval of this Agreement by shareholders of Genelabs
California and the sole stockholder of Genelabs Delaware, the sole stockholder
of Genelabs Delaware shall be deemed to have adopted and approved (i) the stock
option plans of Genelabs California, (ii) all options that are outstanding under
such stock options plans immediately prior to the Merger, and (iii) all warrants
of Genelabs California that are outstanding immediately prior to the Merger.
Such plans, options and warrants shall be deemed adopted and approved on the
same terms and conditions existing under such plans, options and warrants
immediately prior to the Merger.
SECTION THREE -- CONVERSION OF SHARES
The manner and basis of converting the shares of Genelabs California
into shares of Genelabs Delaware upon the effective date of the Merger shall be
as follows:
(a) Each share of the [ ] shares of Common Stock of Genelabs
California issued and outstanding on the effective date of the Merger shall be
converted into one share of Common Stock of the Surviving Corporation, which
shall thereafter be issued and outstanding shares of Common Stock of the
Surviving Corporation.
(b) Each share of the [ ] shares of Common Stock of Genelabs
Delaware issued and outstanding on the effective date of the Merger shall be
cancelled and shall cease to exist.
(a) Each share of the [ ] shares of the Series A Convertible
Preferred Stock of Genelabs California issued and outstanding on the effective
date of the Merger shall be converted into one share of Series A Convertible
Preferred Stock of the Surviving
<PAGE> 38
Corporation, which shall thereafter be issued and outstanding shares of Series A
Convertible Preferred Stock of the Surviving Corporation.
(c) After the effective date of the Merger, the conversion and exchange
of shares provided by this Section Three shall be effected as follows:
(i) No certificates for shares of the Surviving Corporation's
Common Stock will be issued to holders of any of the shares of Genelabs
California's Common Stock or Preferred Stock upon consummation of the
Merger.
(ii) Certificates representing shares of Genelabs California's
Common Stock and Preferred Stock shall upon the consummation of Merger
be deemed for all purposes to represent that number of shares of Common
Stock of the Surviving Corporation receivable in exchange therefor as
provided in Section 3(a) hereof.
(iii) Genelabs California, as the holder of a certificate for
shares of Common Stock in Genelabs Delaware described in paragraph (b)
of this Section Three, shall surrender such certificate for
cancellation.
(d) Each option under Genelabs California's stock option plans
outstanding immediately prior to the Merger shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
become an option or right to purchase a number of shares of the Surviving
Corporation's Common Stock equal to the number of shares of Common Stock of
Genelabs California subject to such option, without change in the exercise price
therefor and otherwise upon the same terms and conditions of such option.
(e) Each warrant issued by Genelabs California and outstanding
immediately prior to the Merger shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and become a warrant
to purchase a number of shares of the Surviving Corporation's Common Stock equal
to the number of shares of Common Stock of Genelabs California subject to such
warrant, without change in the exercise price therefor and otherwise upon the
same terms and conditions of such warrant.
SECTION FOUR -- CERTIFICATE OF INCORPORATION
Attached hereto as Exhibit A and made a part hereof is a copy of the
Certificate of Incorporation of Genelabs Delaware (the "Certificate") as the
same shall be in force and
<PAGE> 39
effect at the effective time of the Merger. The Certificate shall continue to be
the certificate of incorporation of the Surviving Corporation following the
effective date of the Merger until the same shall be thereafter altered or
amended; provided, however, that on the effective date, Article FIRST of the
Certificate shall be amended to read, in its entirety, as follows:
"FIRST: The name of the Corporation (hereinafter the "Corporation") is:
Genelabs Technologies, Inc."
SECTION FIVE -- BYLAWS
The bylaws of Genelabs Delaware shall continue to be the bylaws of the
Surviving Corporation following the effective date of the Merger until the same
shall be thereafter altered or amended.
SECTION SIX -- DIRECTORS
The directors of Genelabs California as of the effective date of the
Merger shall be the directors of the Surviving Corporation from and after the
effective date of the Merger. All of such directors shall hold their
directorships until the election and qualification of their respective
successors, or until their prior resignation, removal or death.
SECTION SEVEN -- OFFICERS
The officers of Genelabs California as of the effective date of the
Merger shall be the officers of the Surviving Corporation from and after the
effective date of the Merger. All of such officers shall hold their offices
until the election and qualification of their respective successors or until
their tenure is otherwise terminated in accordance with the bylaws of the
Surviving Corporation, or until their prior resignation or death.
SECTION EIGHT -- DEFERRAL, TERMINATION AND AMENDMENT
The parties hereto may amend, modify, supplement or terminate this
Agreement at any time prior to the effective date of the Merger, whether prior
to or after approval of the Merger and this Agreement by the shareholders of
Genelabs California and the sole stockholder of Genelabs Delaware, without
shareholder or stockholder approval, in such manner as may be agreed upon by
Genelabs California and Genelabs Delaware in writing.
<PAGE> 40
SECTION NINE - AGREEMENT ON FILE
An executed copy of this Agreement is on file at the principal place of
business of Genelabs Delaware located in the State of California, 505 Penobscot
Drive, Redwood City, CA 94063.
SECTION TEN -- FURTHER ASSURANCES
In the event that this Agreement shall have been fully approved and
adopted on behalf of Genelabs California in accordance with the provisions of
the CCC and on behalf of Genelabs Delaware in accordance with the provisions of
the DGCL, the constituent corporations agree that they will cause to be executed
and filed and recorded any document or documents prescribed by the laws of the
State of California and by the laws of the State of Delaware, and that they will
cause to be performed all necessary acts within the State of California and the
State of Delaware and elsewhere to effectuate the Merger.
The boards of directors and the proper officers of Genelabs California
and of Genelabs Delaware are hereby authorized, empowered and directed to do any
and all acts and things, and to make, execute, deliver, file and record any and
all instruments, papers and documents which shall be or become necessary, proper
or convenient to carry out or put into effect any of the provisions of this
Agreement.
SECTION ELEVEN -- EFFECTIVE DATE
The Merger shall have become effective on the date of filing of a
certificate of merger with the Secretary of State of the State of Delaware in
accordance with Sections 252(c) and 103 of the DGCL.
[REMAINDER INTENTIONALLY LEFT BLANK]
<PAGE> 41
IN WITNESS WHEREOF, Genelabs Delaware and Genelabs California, as duly
authorized by their respective boards of directors, have caused this Agreement
to be executed and acknowledged as of the date first set forth above.
Genelabs Technologies, Inc.,
a Delaware corporation
By:
------------------------------------
[ ]
[ ]
Genelabs Technologies, Inc.,
a California corporation
By:
------------------------------------
[ ]
[ ]
<PAGE> 42
APPENDIX B
CERTIFICATE OF INCORPORATION
OF
GENELABS TECHNOLOGIES, INC.
FIRST: The name of the Corporation is Genelabs Technologies, Inc.
(hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation
in the State of Delaware is 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of its registered agent at that address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware
Code (the "GCL").
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 75,000 shares of Common Stock, each having a
par value of one one-thousandth ($.001), and 5,000,000 shares of Preferred
Stock, each having a par value of one one-thousandth ($.001).
The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full or
limited, or no voting powers, and such distinctive designations, preferences and
relative, participating, optional or other special rights and such
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series and as may be permitted by
the GCL, including, without limitation, the authority to provide that any such
class or series may be (i) subject to redemption at such time or times and at
such price or prices; (ii) entitled to receive dividends (which may be
cumulative or non-cumulative) at such rates, on such conditions, and at such
times, and payable in preference to, or in such relation to, the dividends
payable on any other class or classes or any other series; (iii) entitled to
such rights upon the dissolution of, or upon any distribution of the assets of,
the Corporation; or (iv) convertible into, or exchangeable for, shares of any
other class or classes of stock, or of any other series of the same or any other
class or classes of stock, of the Corporation at such price or
<PAGE> 43
prices or at such rates of exchange and with such adjustments; all as may be
stated in such resolution or resolutions.
FIFTH: The name and mailing address of the Sole Incorporator is
as follows:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Deborah M. Reusch P.O. Box 636
Wilmington, DE 19899
</TABLE>
SIXTH: The following provisions are inserted for the management
of the business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the Corporation
and of its directors and stockholders:
The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
The Board of Directors shall consist of not less than one
nor more than twelve members, the exact number of which shall initially be fixed
by the Incorporator and thereafter from time to time by the Board of Directors.
Election of directors need not be by written ballot unless the By-Laws so
provide.
The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. The initial division of the Board of Directors
into classes shall be made by the decision of the affirmative vote of a majority
of the entire Board of Directors. The term of the initial Class I directors
shall terminate on the date of the 2000 annual meeting; the term of the initial
Class II directors shall terminate on the date of the 2001 annual meeting; and
the term of the initial Class III directors shall terminate on the date of the
2002 annual meeting. At each succeeding annual meeting of stockholders beginning
in 2003, successors to the class of directors whose term expires at that annual
meeting shall be elected for a three-year term. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a vacancy resulting
from an increase in such class shall hold office for a term that shall coincide
with the remaining term of
<PAGE> 44
that class, but in no case will a decrease in the number of directors shorten
the term of any incumbent director.
A director shall hold office until the annual meeting for
the year in which his or her term expires and until his or her successor shall
be elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
Subject to the terms of any one or more classes or series
of Preferred Stock, any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the Board of
Directors then in office, provided that a quorum is present, and any other
vacancy occurring on the Board of Directors may be filled by a majority of the
Board of Directors then in office, even if less than a quorum, or by a sole
remaining director. Any director of any class elected to fill a vacancy
resulting from an increase in the number of directors of such class shall hold
office for a term that shall coincide with the remaining term of that class. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of his predecessor.
Subject to the rights, if any, of the holders of shares of Preferred Stock then
outstanding, any or all of the directors of the Corporation may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least a majority of the voting power of the Corporation's then
outstanding capital stock entitled to vote generally in the election of
directors. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article
FIFTH unless expressly provided by such terms.
In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, 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, subject, nevertheless, to the provisions of the GCL,
this Certificate of Incorporation, and any By-Laws adopted by the stockholders;
provided, however, that no By-Laws hereafter adopted by the stockholders shall
invalidate any prior act of the directors which would have been valid if such
By-Laws had not been adopted.
<PAGE> 45
SEVENTH: The Corporation shall indemnify its directors and
officers to the fullest extent authorized or permitted by law, as now or
hereafter in effect, and such right to indemnification shall continue as to a
person who has ceased to be a director or officer of the Corporation and shall
inure to the benefit of his or her heirs, executors and personal and legal
representatives; provided, however, that, except for proceedings to enforce
rights to indemnification, the Corporation shall not be obligated to indemnify
any director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors. The right to indemnification conferred by this
Article SEVENTH shall include the right to be paid by the Corporation the
expenses incurred in defending or otherwise participating in any proceeding in
advance of its final disposition.
The Corporation may, to the extent authorized from time to
time by the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation similar to
those conferred in this Article SEVENTH to directors and officers of the
Corporation.
The rights to indemnification and to the advance of
expenses conferred in this Article SEVENTH shall not be exclusive of any other
right which any person may have or hereafter acquire under this Certificate of
Incorporation, the By-Laws of the Corporation, any statute, agreement, vote of
stockholders or disinterested directors or otherwise.
Any repeal or modification of this Article SEVENTH by the
stockholders of the Corporation shall not adversely affect any rights to
indemnification and to the advancement of expenses of a director or officer of
the Corporation existing at the time of such repeal or modification with respect
to any acts or omissions occurring prior to such repeal or modification.
EIGHTH: Meetings of stockholders may be held within or without
the State of Delaware, as the By-Laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
NINTH: In furtherance and not in limitation of the powers
conferred upon it by the laws of the State of Delaware, the Board of Directors
shall
<PAGE> 46
have the power to adopt, amend, alter or repeal the Corporation's By-Laws. The
affirmative vote of at least a majority of the entire Board of Directors shall
be required to adopt, amend, alter or repeal the Corporation's By-Laws. The
Corporation's By-Laws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least eighty percent (80%) of the voting
power of the shares entitled to vote at an election of directors.
TENTH: Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation, and the ability of the
stockholders to consent in writing to the taking of any action is hereby
specifically denied.
ELEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation. Unless
otherwise required by law, special meetings of stockholders, for any purpose or
purposes, may be called by either (i) the Chairman of the Board of Directors, if
there be one, (ii) the President or (iii) the Board of Directors. The ability of
the stockholders to call a special meeting of stockholders is hereby
specifically denied.
I, THE UNDERSIGNED, being the Sole Incorporator
hereinbefore named, for the purpose of forming a corporation pursuant to the
GCL, do make this Certificate, hereby declaring and certifying that this is my
act and deed and the facts herein stated are true, and accordingly have hereunto
set my hand this __ day of _______, 1999.
--------------------------------
Deborah M. Reusch
Sole Incorporator
<PAGE> 47
APPENDIX C
BY-LAWS
OF
GENELABS TECHNOLOGIES, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have offices
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors.
Section 2. Annual Meetings. The Annual Meetings of Stockholders
for the election of directors shall be held on such date and at such time as
shall be designated from time to time by the Board of Directors. Any other
proper business may be transacted at the Annual Meeting of Stockholders.
Section 3. Nature of Business at Meetings of Stockholders. No
business may be transacted at an annual meeting of stockholders, other than
business that is either (a) specified in
<PAGE> 48
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors (or any duly authorized committee thereof), (b)
otherwise properly brought before the annual meeting by or at the direction of
the Board of Directors (or any duly authorized committee thereof) or (c)
otherwise properly brought before the annual meeting by any stockholder of the
Company (i) who is a stockholder of record on the date of the giving of the
notice provided for in this Section 3 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and (ii)
who complies with the notice procedures set forth in this Section 3.
In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary or
Assistant Secretary of the Company.
To be timely, a stockholder's notice to the Secretary or
Assistant Secretary must be delivered to or mailed and received at the principal
executive offices of the Company not less than sixty (60) days nor more than
ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary or Assistant Secretary must set forth as to each matter such
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of such stockholder, (iii) the class or series and number of shares of
capital stock of the Company
<PAGE> 49
which are owned beneficially or of record by such stockholder, (iv) a
description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in accordance
with the procedures set forth in this Section 3; provided, however, that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 3 shall be deemed to preclude
discussion by any stockholder of any such business. If the Chairman of an annual
meeting determines that business was not properly brought before the annual
meeting in accordance with the foregoing procedures, the Chairman shall declare
to the meeting that the business was not properly brought before the meeting and
such business shall not be transacted.
Section 4. Nomination of Directors. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Company, except as may be otherwise provided in the
Certificate of Incorporation with respect to the right of holders of preferred
stock of the Corporation to nominate and elect a specified number of directors
in certain circumstances. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of stockholders, or at any special
meeting of stockholders called for the purpose of electing directors, (a) by or
at the direction of the Board of Directors (or any duly authorized committee
thereof) or (b) by any stockholder of the Company (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 4
and on
<PAGE> 50
the record date for the determination of stockholders entitled to vote at such
meeting and (ii) who complies with the notice procedures set forth in this
Section 4.
In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must have given timely
notice thereof in proper written form to the Secretary or Assistant Secretary of
the Company.
To be timely, a stockholder's notice to the Secretary or
Assistant Secretary must be delivered to or mailed and received at the principal
executive offices of the Company (a) in the case of an annual meeting, not less
than sixty (60) days nor more than ninety (90) days prior to the anniversary
date of the immediately preceding annual meeting of stockholders; provided,
however, that in the event that the annual meeting is called for a date that is
not within thirty (30) days before or after such anniversary date, notice by the
stockholder in order to be timely must be so received not later than the close
of business on the tenth (10th) day following the day on which such notice of
the date of the annual meeting was mailed or such public disclosure of the date
of the annual meeting was made, whichever first occurs; and (b) in the case of a
special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the tenth (10th) day following the day
on which notice of the date of the special meeting was mailed or public
disclosure of the date of the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary or Assistant Secretary must set forth (a) as to each person whom the
stockholder proposes to nominate for election as a director (i) the name, age,
business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class or series and number of
shares of capital stock of the Company which are owned beneficially or of record
by the person and (iv) any other information relating to the person that would
be required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for
<PAGE> 51
election of directors pursuant to Section 14 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations promulgated
thereunder; and (b) as to the stockholder giving the notice (i) the name and
record address of such stockholder, (ii) the class or series and number of
shares of capital stock of the Company which are owned beneficially or of record
by such stockholder, (iii) a description of all arrangements or understandings
between such stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s) are to be
made by such stockholder, (iv) a representation that such stockholder intends to
appear in person or by proxy at the meeting to nominate the persons named in its
notice and (v) any other information relating to such stockholder that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and regulations
promulgated thereunder. Such notice must be accompanied by a written consent of
each proposed nominee to being named as a nominee and to serve as a director if
elected.
No person shall be eligible for election as a director of the
Company unless nominated in accordance with the procedures set forth in this
Section 4. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
Section 5. Special Meetings. Unless otherwise required by law or
by the Certificate of Incorporation of the Corporation, as amended and restated
from time to time (the "Certificate of Incorporation"), Special Meetings of
Stockholders, for any purpose or purposes, may be called by either (i) the
Chairman, if there be one, or (ii) the President, (iii) any Vice President, if
there be one, (iv) the Secretary or (v) any Assistant Secretary, if there be
one, and shall be called
<PAGE> 52
by any such officer at the request in writing of (i) the Board of Directors,
(ii) a committee of the Board of Directors that has been duly designated by the
Board of Directors and whose powers and authority include the power to call such
meetings or (iii) stockholders owning a majority of the capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. At a Special Meeting of
Stockholders, only such business shall be conducted as shall be specified in the
notice of meeting (or any supplement thereto).
Section 6. Notice. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise required by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting.
Section 7. Adjournments. Any meeting of the stockholders may be
adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such 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. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 8. Quorum. Unless otherwise required by law or the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
<PAGE> 53
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
in the manner provided in Section 6, until a quorum shall be present or
represented.
Section 9. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these By-laws, any question brought before any
meeting of stockholders, other than the election of directors, shall be decided
by the vote of the holders of a majority of the total number of votes of the
capital stock represented and entitled to vote thereat, voting as a single
class. Unless otherwise provided in the Certificate of Incorporation, and
subject to Section 5 of Article V hereof, each stockholder represented at a
meeting of stockholders shall be entitled to cast one vote for each share of the
capital stock entitled to vote thereat held by such stockholder. Such votes may
be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in such officer's discretion, may require that any
votes cast at such meeting shall be cast by written ballot.
Section 10. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business,
<PAGE> 54
or an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Every written consent shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within
sixty days of the earliest dated consent delivered in the manner required by
this Section 8 to the Corporation, written consents signed by a sufficient
number of holders to take action are delivered to the Corporation by delivery to
its registered office in the state of Delaware, its principal place of business,
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing
and who, if the action had been taken at a meeting, would have been entitled to
notice of the meeting if the record date for such meeting had been the date that
written consents signed by a sufficient number of holders to take the action
were delivered to the Corporation as provided above in this section.
Section 11. List of Stockholders Entitled to Vote. The officer of
the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at
<PAGE> 55
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder of the Corporation who is present.
Section 12. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 11 of this Article II or the
books of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 13. Conduct of Meetings. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
ARTICLE III
DIRECTORS
<PAGE> 56
Section 1. Number and Election of Directors. The Board of
Directors shall consist of not less than one nor more than twelve members, the
exact number of which shall initially be fixed by the Incorporator and
thereafter from time to time by the Board of Directors. Any director may resign
at any time upon written notice to the Corporation.
Directors need not be stockholders.
Section 2. Vacancies. Unless otherwise required by law or the
Certificate of Incorporation, vacancies arising through death, resignation,
removal, an increase in the number of directors or otherwise may be filled only
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier death, resignation or removal.
Section 3. Duties and Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Regular meetings of the Board of Directors may be held without notice at such
time and at such place as may from time to time be determined by the Board of
Directors. Special meetings of the Board of Directors may be called by the
Chairman, if there be one, or the President. Notice thereof stating the place,
date and hour of the meeting shall be given to each director either by mail not
less than forty-eight (48) hours before the date of the meeting, by telephone or
telegram on twenty-four (24) hours' notice, or on
<PAGE> 57
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances.
Section 5. Quorum. Except as otherwise required by law or the
Certificate of Incorporation, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
Section 6. Actions by Written Consent. Unless otherwise provided
in the Certificate of Incorporation, or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided in the Certificate of Incorporation, members of the Board of
Directors of the Corporation, or any committee thereof, may participate in a
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 7 shall constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee,
<PAGE> 58
who may replace any absent or disqualified member at any meeting of any such
committee. In the absence or disqualification of a member of a committee, and in
the absence of a designation by the Board of Directors of an alternate member to
replace the absent or disqualified member, the member or members thereof 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 absent or disqualified
member. Any committee, to the extent permitted by law and provided in the
resolution establishing such committee, 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. Each committee shall keep regular
minutes and report to the Board of Directors when required.
Section 9. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director, payable in cash or securities. No such payment
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.
Section 10. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because the director or officer's vote is
counted for such purpose if (i) the material facts as
<PAGE> 59
to the director or officer's relationship or interest and as to the contract or
transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (ii) the material facts as to the director or officer's relationship
or interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary or
Assistant Secretary and a Treasurer. The Board of Directors, in its discretion,
also may choose a Chairman of the Board of Directors (who must be a director)
and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and
other officers. Any number of offices may be held by the same person, unless
otherwise prohibited by law or the Certificate of Incorporation. The officers of
the Corporation need not be stockholders of the Corporation nor, except in the
case of the Chairman of the Board of Directors, need such officers be directors
of the Corporation.
Section 2. Election. The Board of Directors, at its first meeting
held after each Annual Meeting of Stockholders, shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold
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office until their successors are chosen and qualified, or until their earlier
death, resignation or removal. Any officer elected by the Board of Directors may
be removed at any time by the affirmative vote of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President or any
other officer authorized to do so by the Board of Directors and any such officer
may, in the name of and on behalf of the Corporation, take all such action as
any such officer may deem advisable to vote in person or by proxy at any meeting
of security holders of any corporation in which the Corporation may own
securities and at any such meeting shall possess and may exercise any and all
rights and power incident to the ownership of such securities and which, as the
owner thereof, the Corporation might have exercised and possessed if present.
The Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation, unless the
Board of Directors designates the President as the Chief Executive Officer, and,
except where by law the signature of the President is required, the Chairman of
the Board of Directors shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board of Directors. During the absence or disability of the
President, the Chairman of the Board of Directors shall exercise all the
<PAGE> 61
powers and discharge all the duties of the President. The Chairman of the Board
of Directors shall also perform such other duties and may exercise such other
powers as may from time to time be assigned by these By-Laws or by the Board of
Directors.
Section 5. President. The President shall, subject to the control
of the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. The President shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, or if the Board of Directors shall otherwise designate, the
President shall be the Chief Executive Officer of the Corporation. The President
shall also perform such other duties and may exercise such other powers as may
from time to time be assigned to such officer by these By-Laws or by the Board
of Directors.
Section 6. Vice Presidents. At the request of the President or in
the President's absence or in the event of the President's inability or refusal
to act (and if there be no Chairman of the Board of Directors), the Vice
President, or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors), shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice President shall perform such
other duties and have such other powers as the Board of Directors from time to
time may prescribe. If there be no Chairman of the Board of Directors
<PAGE> 62
and no Vice President, the Board of Directors shall designate the officer of
the Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors, the Chairman of the Board of Directors or the President, under
whose supervision the Secretary shall be. If the Secretary shall be unable or
shall refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest to the affixing by such officer's signature.
The Secretary shall see that all books, reports, statements, certificates and
other documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name
<PAGE> 63
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall give
the Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of the office of the Treasurer and for the restoration to the
Corporation, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in the Treasurer's possession or under the Treasurer's control
belonging to the Corporation.
Section 9. Assistant Secretaries. Assistant Secretaries, if there
be any, shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of the Secretary's disability or refusal to act, shall
perform the duties of the Secretary, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there
be any, shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If required
by the Board of Directors, an Assistant Treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory
<PAGE> 64
to the Board of Directors for the faithful performance of the duties of the
office of Assistant Treasurer and for the restoration to the Corporation, in
case of the Assistant Treasurer's death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in the Assistant Treasurer's possession or under the Assistant Treasurer's
control belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such stockholder in the Corporation.
Section 2. Signatures. Any or all of the signatures on a
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 such person were such officer, transfer agent or registrar at the date of
issue.
Section 3. Lost Certificates. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been
<PAGE> 65
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or the owner's legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen or destroyed or the
issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers of
stock shall be made on the books of the Corporation only by the person named in
the certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, which shall be cancelled before
a new certificate shall be issued. No transfer of stock shall be valid as
against the Corporation for any purpose until it shall have been entered in the
stock records of the Corporation by an entry showing from and to whom
transferred.
Section 5. 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 which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date 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 notice is waived, at the close of business on the day next
preceding
<PAGE> 66
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; providing, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(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 or 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 be not 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.
Section 6. Record Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise required by
law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law,
the Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
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thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given by facsimile, telex or telegram.
Section 2. Waivers of Notice. Whenever any notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto. Attendance of
a person at a meeting, present in person or represented by proxy, shall
constitute a waiver of notice of such meeting, except where the person attends
the 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.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the requirements of the DGCL and the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting of the Board of Directors (or any action by
written consent in lieu thereof in accordance with Section 6 of Article III
hereof), and may be paid in cash, in property, or in shares of the Corporation's
capital stock. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
<PAGE> 68
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall
be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings
other than Those by or in the Right of the Corporation. Subject to Section 3 of
this Article VIII, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
<PAGE> 69
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by
or in the Right of the Corporation. Subject to Section 3 of this Article VIII,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the
<PAGE> 70
specific case upon a determination that indemnification of the director or
officer is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Section 1 or Section 2 of this
Article VIII, as the case may be. Such determination shall be made, with respect
to a person who is a director or officer at the time of such determination, (i)
by a majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (ii) by a committee of such
directors designated by a majority vote of such directors, even though less than
a quorum, or (iii) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion or (iv) by the
stockholders. Such determination shall be made, with respect to former directors
and officers, by any person or persons having the authority to act on the matter
on behalf of the Corporation. To the extent, however, that a present or former
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith, without the necessity of authorization in
the specific case.
Section 4. Good Faith Defined. For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe such
person's conduct was unlawful, if such person's action is based on the records
or books of account of the Corporation or another enterprise, or on information
supplied to such person by the officers of the Corporation or another enterprise
in the course of their duties, or on the advice of legal counsel for the
Corporation or another enterprise or on information or records given or reports
made to the Corporation or another enterprise by an independent certified public
accountant or by
<PAGE> 71
an appraiser or other expert selected with reasonable care by the Corporation or
another enterprise. The term "another enterprise" as used in this Section 4
shall mean any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise of which such person is or was serving
at the request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Section 1 or 2 of this Article VIII,
as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to the Court of Chancery in the State of Delaware
for indemnification to the extent otherwise permissible under Sections 1 and 2
of this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding
<PAGE> 72
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized in this Article
VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or granted
pursuant to this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article VIII.
<PAGE> 73
Section 9. Certain Definitions. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
<PAGE> 74
Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. These By-Laws may be altered, amended or
repealed, in whole or in part, or new By-Laws may be adopted by the stockholders
or by the Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of a 80% of the outstanding
capital stock entitled to vote thereon or by a majority of the entire Board of
Directors then in office.
Section 2. Entire Board of Directors. As used in this Article IX
and in these By-Laws generally, the term "entire Board of Directors" means the
total number of directors which the Corporation would have if there were no
vacancies.
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Adopted as of: _____________________
Last Amended as of: ________________
<PAGE> 76
PROXY
GENELABS TECHNOLOGIES, INC.
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
JUNE 16, 1999
The undersigned hereby appoints Irene A. Chow and James A.D. Smith, and each of
them, with power of substitution, to represent the undersigned at the Annual
Meeting of Shareholders of Genelabs Technologies, Inc. (the "Company") to be
held at the Company's principal executive offices located at 505 Penobscot
Drive, Redwood City, California 94063 on June 16, 1999, at 10:00 a.m. P.D.T.,
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:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
FOLD AND DETACH HERE
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WITHHELD
1. ELECTION OF DIRECTORS FOR FOR ALL
[Candidates nominated will be provided in definitive [ ] [ ]
proxy material]
Instruction: To withhold authority to vote for any
individual nominee, write that nominee's name on the
space provided below.
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FOR AGAINST ABSTAIN
2. CHANGE IN THE COMPANY'S STATE OF INCORPORATION FROM [ ] [ ] [ ]
CALIFORNIA TO DELAWARE.
FOR AGAINST ABSTAIN
3. ESTABLISHMENT OF A CLASSIFIED BOARD OF DIRECTORS. [ ] [ ] [ ]
FOR AGAINST ABSTAIN
4. APPROVAL OF AMENDMENTS TO THE 1995 STOCK OPTION PLAN. [ ] [ ] [ ]
FOR AGAINST ABSTAIN
5. APPROVAL OF AN AMENDMENT TO THE EMPLOYEE STOCK [ ] [ ] [ ]
PURCHASE PLAN.
I PLAN TO ATTEND THE MEETING. [ ]
The Board of Directors recommends a vote FOR all nominees for election and FOR
Proposal 2, 3, 4 and 5.
THIS PROXY WILL BE VOTED AS DIRECTED ABOVE, IN THE ABSENCE OF DIRECTION, THIS
PROXY WILL BE VOTED FOR THE COMPANY'S NOMINEES FOR ELECTION AND FOR PROPOSAL 2,
3, 4 AND 5. 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.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THIS PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE SO
THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
Signature(s) Date
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Please sign exactly as your name(s) appear(s) on your stock certificate. If
shares of stock 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 shares of stock are held of record by a
corporation, the proxy should be exactly by the president or vice president and
the secretary or assistant secretary. Executors, administrators, or other
fiduciaries who exercise the above proxy for a decreased shareholder should give
their full title. Please date the proxy.
