<PAGE> 1
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>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
</TABLE>
PHARMCHEM LABORATORIES, 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:
- --------------------------------------------------------------------------------
[ ] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
May 2, 2000
Dear Shareholders:
Enclosed is a duplicate set of Proxy Materials for our Shareholders Meeting
scheduled on May 16, 2000. The enclosures are identical to the materials
previously mailed to you on or about April 17, 2000, except that the enclosed
[BLUE] Proxy Card is a different color from the Proxy Card previously mailed.
This second proxy solicitation is being made because the Proxy Materials
previously sent to you and some other shareholders were inadvertently mailed
prior to submission of the Definitive Proxy Statement to the Securities and
Exchange Commission (SEC) on April 20, 2000. Proxy solicitation rules specify
that Proxy Materials not be mailed to shareholders before the Definitive Proxy
Statement has been submitted to the SEC.
We are requesting that you again vote your shares by marking each of the
boxes, sign your name(s) and return the Proxy Card in the envelope provided.
YOUR VOTE ON THE PROXY CARD PREVIOUSLY SENT TO YOU WILL NOT BE COUNTED AT THE
SHAREHOLDERS MEETING.
We apologize for any inconvenience resulting from this second mailing, but
we wanted to assure that our proxy solicitation conformed to all applicable
legal requirements.
THERE HAVE BEEN NO CHANGES TO THE PROXY STATEMENT, BALLOT OR ANNUAL REPORT
PREVIOUSLY SENT TO YOU.
Thank you for your cooperation.
Very truly yours,
/s/ David A. Lattanzio
--------------------------------------
David A. Lattanzio
Secretary
DAL/vlf
Enclosure
<PAGE> 3
PHARMCHEM LOGO
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 16, 2000
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of PharmChem
Laboratories, Inc., a California corporation (the "Company"), will be held on
May 16, 2000, at 10:00 a.m., local time, at the Sheraton Hotel, 1100 North
Mathilda Avenue, Sunnyvale, California 94089 for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To change the state of incorporation of the Company from California
to Delaware.
3. To ratify the appointment of KPMG LLP as independent public
accountants for the Company for the 2000 fiscal year.
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on April 3, 2000, are
entitled to notice of and to vote at the Annual Meeting.
All shareholders are cordially invited to attend the Annual Meeting in
person. However, to assure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy as promptly as possible
in the postage-prepaid envelope enclosed for that purpose. Any shareholder
attending the Annual Meeting may vote in person even if such shareholder has
returned a proxy.
David A. Lattanzio
Secretary
Menlo Park, California
April 14, 2000
IMPORTANT:
Whether or not you plan to attend the Annual Meeting, you are requested to
complete and promptly return the enclosed proxy in the envelope provided.
<PAGE> 4
PHARMCHEM LOGO
1505-A O'BRIEN DRIVE
MENLO PARK, CALIFORNIA 94025
------------------------
PROXY STATEMENT FOR 2000
ANNUAL MEETING OF SHAREHOLDERS
------------------------
The enclosed proxy is solicited by the Board of Directors of PharmChem
Laboratories, Inc. (the "Company") for use at the Annual Meeting of Shareholders
(the "Annual Meeting") to be held on Tuesday, May 16, 2000, at 10:00 a.m., local
time, and at any adjournment thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Shareholders. The Annual Meeting
will be held at the Sheraton Hotel, 1100 North Mathilda Avenue, Sunnyvale,
California 94089. The Company's principal executive offices are located at
1505-A O'Brien Drive, Menlo Park, California 94025 and the Company's telephone
number is (650) 328-6200.
The proxy solicitation materials were mailed on or about April 14, 2000, to
all shareholders entitled to vote at the Annual Meeting.
INFORMATION CONCERNING SOLICITATION AND VOTING
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a later
date or by attending the Annual Meeting and voting in person.
RECORD DATE
Shareholders of record at the close of business on April 3, 2000, are
entitled to notice of the Annual Meeting and to vote at the Annual Meeting. At
the record date, 5,822,123 shares of the Company's Common Stock were issued and
outstanding.
VOTING AND SOLICITATION; QUORUM
Each shareholder of record as of the record date is entitled to one vote
for each share held. A majority of the shares outstanding on the record date
constitutes the quorum required to transact business at the Annual Meeting.
With respect to the election of directors, shareholders have cumulative
voting rights, which means that each shareholder has that number of votes equal
to the number of shares held multiplied by the number of directors to be
elected. Each shareholder may give all such votes to one candidate or distribute
such shareholder's votes among the candidates as the shareholder chooses.
However, the right to cumulate votes may not be exercised until the candidate or
candidates have been nominated and a shareholder has given notice at the Annual
Meeting of the shareholder's intention to vote cumulatively. If any shareholder
present at the Annual Meeting gives such notice, all shareholders may cumulate
their votes. The candidates receiving the highest number of votes of shares
entitled to vote for them, up to the number of directors to be elected, will be
elected. Votes withheld will be counted for the purposes of determining the
presence or absence of a quorum for the transaction of business at the Annual
Meeting, but will have no other legal effect upon the election of
<PAGE> 5
directors under California law. The Company seeks discretionary authority to
cumulate votes in the event that additional persons are nominated at the Annual
Meeting for the election of directors. In the event that cumulative voting is
invoked, the proxy holders intend to cast the votes covered by the proxies
received by them in such a manner under cumulative voting as they believe will
ensure the election of as many of the Company's nominees as possible.
With respect to Proposal 2 to change the Company's state of incorporation,
such proposal must be approved by the affirmative vote of the holders of a
majority of the outstanding shares of the Company's Common Stock. Approval of
Proposal 3 to ratify the Company's independent public accountants requires the
affirmative vote of a majority of the shares of the Company's Common Stock
present in person or represented by proxy at the Annual Meeting.
While there is no definitive statutory or case law authority in California
as to the proper treatment of abstentions and broker non-votes, the Company
believes that both abstentions and broker non-votes should be counted for
purposes of determining whether a quorum is present at the Annual Meeting.
Abstentions and broker non-votes will not be counted for the purposes of
determining the outcome of the vote on the election of directors or the proposal
to ratify the appointment of the Company's independent public accountants. Since
the required vote for the approval of Proposal 2 is based upon the number of
outstanding shares, rather than upon shares present or voted at the Annual
Meeting, abstentions and broker non-votes will have the effect of a vote against
Proposal 2.
An automated system administered by the Company's transfer agent tabulates
the proxies received prior to the date of the Annual Meeting. Proxies received
on the date of the Annual Meeting at or prior to the time of voting are
tabulated manually by a representative of the transfer agent.
The cost of soliciting proxies will be borne by the Company. In addition,
the Company may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may be solicited by certain of the
Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or facsimile. The Company may also
retain a professional solicitor to assist in the solicitation of proxies, at a
cost estimated not to exceed $4,000 plus out-of-pocket expenses.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the Company's 2001 Annual Meeting of Shareholders must
be received by the Company no later than December 15, 2000 in order to be
considered for inclusion in the proxy statement and form of proxy relating to
that meeting. The Company's By-laws provide that, to be timely, a shareholder's
notice of a proposal (whether or not for inclusion in the proxy statement and
form of proxy) or director nomination to be presented at an annual meeting must
be delivered to and received by the Secretary of the Company at least ninety
days in advance of the anniversary date of the preceding year's annual meeting.
Such advance notice must be delivered to and received by the Secretary of the
Company no later than February 15, 2001 in order to be timely for the 2001
Annual Meeting of Shareholders. The By-laws of the Company further require that
such a proposal, among other things, include a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting and the age, address and principal occupation or
employment of a nominee for director.
2
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
Common Stock as of January 31, 2000, by all persons known to the Company to be
the beneficial owners of more than 5% of the Company's Common Stock, by each
director, by the Chief Executive Officer, by each of the four most highly
compensated executive officers other than the Chief Executive Officer, and by
all directors and executive officers as a group. Such figures are based upon
information furnished by the persons named.
<TABLE>
<CAPTION>
NUMBER PERCENT OF
NAME OF SHARES TOTAL
---- --------- ----------
<S> <C> <C>
Palo Alto Investors(1)...................................... 1,380,100 23.8%
470 University Avenue
Palo Alto, CA 94301
Prism Partners I, L.P.(2)................................... 576,200 9.9%
909 Montgomery Street, Suite 400
San Francisco, CA 94133
Botti Brown Asset Management, LLC(3)........................ 553,850 9.5%
One Montgomery Street, Suite #3300
San Francisco, CA 94104
Banner Partners(4).......................................... 516,183 8.9%
3000 Sand Hill Road
Building #1, Suite 190
Menlo Park, CA 94025
Micro Cap Partners, L.P.(5)................................. 514,500 8.9%
470 University Avenue
Palo Alto, CA 94301
Willow Creek Capital Management(6).......................... 489,800 8.4%
17 East Sir Francis Drake Boulevard, Suite 100
Larkspur, CA 94939
Spring Point Partners,L.P.(7)............................... 375,450 6.5%
One Montgomery Street, Suite #3300
San Francisco, CA 94104
Dimensional Fund Advisors Inc.(8)........................... 333,600 5.7%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Joseph W. Halligan(9)....................................... 194,241 3.3%
Neil A. Fortner(10)......................................... 64,583 1.1%
David A. Lattanzio(11)...................................... 78,000 1.4%
Elizabeth M. Lison(12)...................................... 19,500 *
Joseph L. Kurta (13)........................................ 12,500 *
Richard D. Irwin (14)....................................... 132,235 2.3%
Donald R. Stroben(15)....................................... 5,585 *
All executive officers and directors as a group (7 506,644 8.7%
persons)..................................................
</TABLE>
- ---------------
* Less than 1.0%
(1) William L. Edwards, the president and controlling shareholder of Palo Alto
Investors, may be deemed to be a beneficial owner of the shares of which
Palo Alto Investors is deemed to be a beneficial owner. Palo Alto Investors
is deemed a beneficial owner by virtue of its voting and dispositive power
with respect to such shares, as an investment adviser managing
discretionary accounts for the benefit of third persons or as a general
partner of partnerships holding such shares. Palo Alto Investors and Mr.
Edwards have shared voting and dispositive power with respect to 432,700 of
such shares and Mr. Edwards has sole voting power with respect to 53,800 of
these shares held by Mr. Edwards individually. Of these shares, 379,100
shares are held and managed for the benefit of Banner Partners and have
also been included in the number of shares beneficially owned by Banner
Partners (footnote 4 below), and
3
<PAGE> 7
514,500 shares are held and managed for the benefit of Micro Cap Partners,
L.P. and have also been included in the number of shares beneficially owned
by Micro Cap Partners, L.P. (footnote 5 below).
(2) Weintraub Capital Management, an investment adviser to and general partner
of Prism Partners I, and Jerald M. Weintraub, managing general partner of
Weintraub Capital Management, may be deemed to be beneficial owners of the
shares held by Prism Partners I, L.P. Prism Partners I, L.P., Jerald M.
Weintraub and Weintraub Capital Management have shared voting and
dispositive power with respect to all of such shares.
(3) John D. Botti and Donald S. Brown, the controlling members of Botti Brown
Asset Management, LLC, may be deemed to be beneficial owners of the shares
held by Botti Brown Asset Management, LLC, a registered investment advisor.
John D. Botti, Donald S. Brown and Botti Brown Asset Management, LLC have
shared voting and dispositive power with respect to all of such shares and
share voting and dispositive power with respect to 375,450 of the shares
with Spring Point Partners, L.P., of which Donald S. Brown and John D.
Botti are the managing partners. Botti Brown Asset Management, LLC holds
and manages the 375,450 shares for the benefit of Spring Point Partners,
L.P. (footnote 7 below).
(4) Of these shares, 379,100 shares are held and managed for the benefit of
Banner Partners by Palo Alto Investors. Banner Partners has shared voting
and dispositive power with respect to such shares. Such shares have also
been included in the number of shares beneficially owned by Palo Alto
Investors. See footnote 1 above. Independently of Palo Alto Investors,
Banner Partners owns an additional 137,083 shares of the Company. Banner
Partners has sole voting and dispositive power with respect to such shares.
As general partners of Banner Partners, William C. Edwards and Alan R.
Brudos may be deemed to be beneficial owners of shares beneficially owned
by Banner Partners.
(5) These shares are held and managed for the benefit of Micro Cap Partners,
L.P. by Palo Alto Investors, the general partner of Micro Cap Partners,
L.P. Micro Cap Partners, L.P. has shared voting and dispositive power with
respect to such shares. Such shares have also been included in the number
of shares beneficially owned by Palo Alto Investors. See footnote 1 above.
(6) Aaron H. Braun, the controlling shareholder of Willow Creek Capital
Management, may be deemed to be a beneficial owner of the shares held by
Willow Creek Capital Management, an investment advisor. Willow Creek
Capital Management and Aaron H. Braun have shared voting and dispositive
power with respect to all of such shares.
(7) Botti Brown Asset Management, L.L.C holds and manages all of these shares
for the benefit of Spring Point Partners, L.P. Such shares have also been
included in the number of shares beneficially owned by Botti Brown Asset
Management, L.L.C. See footnote 3 above.
(8) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, furnishes investment advice to four registered investment
companies, and serves as investment manager to certain other commingled
group trusts and separate accounts. Dimensional has sole voting and
dispositive power with respect to all of such shares and is deemed to have
beneficial ownership of all of such shares. Dimensional disclaims such
beneficial ownership.
(9) These shares include 5,000 owned directly by Mr. Halligan and 189,241 which
are purchasable by Mr. Halligan within 60 days of January 31, 2000,
pursuant to outstanding options. Mr. Halligan is a director and chief
executive officer of the Company.
(10) These shares are purchasable by Mr. Fortner within 60 days of January 31,
2000, pursuant to outstanding options. Mr. Fortner is an executive officer
of the Company.
(11) These shares include 3,000 owned directly by Mr. Lattanzio and 75,000 which
are purchasable by Mr. Lattanzio within 60 days of January 31, 2000,
pursuant to outstanding options. Mr. Lattanzio is an executive officer of
the Company.
(12) These shares are purchasable by Ms. Lison within 60 days of January 31,
2000, pursuant to outstanding options. Ms. Lison is an executive officer of
the Company.
(13) These shares are purchasable by Mr. Kurta within 60 days of January 31,
2000, pursuant to outstanding options. Mr. Kurta is an executive officer of
the Company.
4
<PAGE> 8
(14) These shares include 19,000 owned directly by Mr. Irwin and 13,229 shares
purchasable within 60 days of January 31, 2000, pursuant to outstanding
options. These shares also include 37,386 shares held by partnerships of
which Mr. Irwin is the general partner, 6,605 shares held by a corporation
in which Mr. Irwin is a director, officer and controlling shareholder,
6,015 shares held by a revocable trust of which Mr. Irwin is the trustee
and 50,000 shares held in the Virginia Irwin Charitable Remainder Unitrust
of which Mr. Irwin is the trustee. Mr. Irwin has sole voting and
dispositive power with respect to all of such shares. Mr. Irwin is a
director of the Company.
(15) These shares include 1,835 owned by a revocable trust of which Mr. Stroben
is trustee and 3,750 which are purchasable by Mr. Stroben within 60 days of
January 31, 2000, pursuant to outstanding options. Mr. Stroben is a
director of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and the holders of 10% or more of
the Company's Common Stock to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in ownership of equity
securities of the Company. Based upon a review of Forms 3 and 4, and written
representations of the Company's directors, executive officers and 10%
shareholders that Forms 5 were not required to be filed by them, the Company
believes that all reports required pursuant to Section 16(a) with respect to the
1999 fiscal year were timely filed.
REPORT OF THE OFFICERS COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Officers Compensation Committee of the Board of Directors reviews and
approves salaries, bonuses and other benefits payable to the Company's executive
officers and administers the Company's 1988 Incentive Stock Plan (which expired
in 1998), the 1997 Equity Incentive Plan and the 1992 Director Option Plan with
respect to officers and directors. The Officers Compensation Committee is
composed of two non-employee directors.
The philosophy used by the Officers Compensation Committee in establishing
compensation for executive officers, including the Chief Executive Officer, is
to attract and retain key personnel through the payment of competitive base
salaries, annual bonuses and housing allowances and the granting of stock
options. Where appropriate, relocation benefits are paid to attract key
individuals.
Salaries of executive officers have been negotiated between the Company and
each executive officer, and were influenced by such factors as salaries paid by
similar companies for similar positions, the skills, training and experience of
the individual executive officer, the availability of persons with similar
abilities and the geographic location of the Company's offices. The companies
that the Officers Compensation Committee considers to be similar to the Company
for purposes of making such determination are principally those companies
against which the Company competes for executive personnel, namely, other
companies (two of which comprise the peer group index on page 11) in the
business of providing drug testing, clinical testing and related services. The
Officers Compensation Committee also reviews salaries of executive officers of
companies outside the industry located in the Silicon Valley of Northern
California and companies whose size approximates that of the Company. The
Officers Compensation Committee believes that it has an adequate knowledge of
the compensation levels of such other companies as a result of information
gathered through information available to the public, recruitment efforts and
compensation negotiations directed at candidates employed by such other
companies, as well as data gathered from time to time by independent consultants
(including a study by a national compensation group of compensation paid in 1999
in related industries) and as a result of interactions between the Company's
personnel and the personnel of such other companies. Based on the information it
has been able to gather with respect to companies in the business of providing
drug testing, clinical testing and related services, the Officers Compensation
Committee believes that the salaries of the Company's executive officers are
below the mean of the executive salary levels of such other companies. The
Company's headquarters and main laboratory are located in the Silicon Valley of
Northern California.
5
<PAGE> 9
This area's unemployment rate ranks below that of the nation as well as that of
the entire State of California. Furthermore, the cost of living is one of the
highest in the United States. Accordingly, the recruitment and retention of key
employees (including executive officers) is subject to intense competition which
often makes it quite difficult to locate, hire and/or retain qualified
personnel. The Officers Compensation Committee, therefore, also takes these
factors into consideration when evaluating salary increases and bonus awards.
In its annual review and adjustment of executive officers' salaries, the
Officers Compensation Committee takes into account primarily the performance of
the individual executive officer during the prior year, increases in the cost of
living, and the executive officer's participation in strategic projects of
long-term benefit to the Company such as improvement of laboratory process-flow
programs, turn around time, cost reduction programs, increases in average
selling prices and gross margins, product sales as a percentage of total sales
and profitability. In determining the Company's ability to increase salaries
paid to its executive officers, the Officers Compensation Committee also takes
into account the operating results and overall operations of the Company as a
whole. In determining the salary increase and bonus of any particular executive
officer, the Officers Compensation Committee takes into account those elements
of the Company's operations within the scope of authority of the particular
executive. The emphasis placed on any particular element of the Company's
operations depends on the nature of the executive officer's responsibilities.
For example, revenues, product sales and average selling prices are scrutinized
more closely in setting the compensation level of an officer in charge of sales
or customer service functions than an officer in charge of laboratory operations
or scientific matters. The consideration of additional factors and the weight
given to any particular factor are within the discretion of the Officers
Compensation Committee.
The Officers Compensation Committee believes that, because the Chief
Executive Officer is responsible for the overall operations of the Company, his
personal performance should be judged based on the performance of the Company as
a whole, determined primarily by reference to the Company's operating results
and net income, and his contributions to the long-term success of the Company.
Adjustments to the Chief Executive Officer's salary are influenced accordingly.
The Officers Compensation Committee has traditionally taken a conservative
approach to salary increases, choosing to provide incentives to executive
officers primarily through the Company's bonus plan and stock options. Total
compensation to executive officers in 1999, based on the "Salary," "Bonus,"
"Other Annual Compensation" and "All Other Compensation" captions in the Summary
Compensation Table which follows, increased 27.5% from the prior year. The total
compensation paid to Mr. Halligan in 1999 represented a 26.7% increase over the
compensation paid to Mr. Halligan in 1998. The increase in total compensation
paid to all executive officers as well as that of Mr. Halligan is principally
the result of the $167,000 increase in bonuses earned in 1999. The higher bonus
is based on the Company achieving or exceeding goals established for 1999.
Under the Company's bonus plan, employees, including executive officers,
are eligible to receive an annual bonus at the end of each year if financial
targets relating to average selling prices, gross profit margin, operating
income, cash flow and return on invested capital and other non-financial targets
set annually by the Officers Compensation Committee are achieved. In the past,
the Officers Compensation Committee has authorized the payment of bonuses even
when these targets were not fully met and may decide to do so again in the
future, particularly when such payments are deemed appropriate to retain key
personnel as described above. Since these targets for 1999 were achieved or
exceeded, bonuses were paid at an increased level over 1997 and 1998 as
determined by the Officers Compensation Committee. The portion of the bonus pool
set aside for executive officers, and the allocation of that amount among the
executive officers, is set by the Officers Compensation Committee after
considering the report of the Chief Executive Officer regarding individual
performance and contribution. For 1999, the aggregate amount paid under the
bonus plan to executive officers was 42.4% of the aggregate base salaries paid
to executive officers compared to 25.7% in 1998 and 16.6% in 1997. Bonus
payments to executive officers for 1999 were based upon each individual's
performance as well as the overall results of the Company. The overall results
of the Company include the ongoing installation of a new infrastructure to
position the Company to move forward and seize upon sales opportunities more
quickly and efficiently, the introduction of laboratory improvement/process-flow
programs, the introduction of web-based services, and increases in average
selling prices, gross profit margin, product
6
<PAGE> 10
sales and operating income. Based upon the information available to the Company
with respect to companies in the business of providing drug testing, clinical
testing and related services, the Officers Compensation Committee believes that
the total compensation (including salaries and bonuses) of the Company's
executive officers is below the mean of total compensation levels of such other
companies.
Options and stock purchase rights were granted under the Company's 1988
Incentive Stock Plan (which expired in 1998) and are granted under the 1997
Equity Incentive Plan (the "Plans") in order to give employees a stake in the
long term success of the Company. Awards to executive officers are generally
made at the time of their employment with the Company, and from time to time
thereafter within the discretion of the Officers Compensation Committee. The
factors considered by the Officers Compensation Committee in determining the
timing of grants under the Plans, and the number of shares subject thereto, are
similar to the factors considered by the Officers Compensation Committee in
adjusting base salary.
Options granted in fiscal 1999 to purchase common shares of the Company
were as follows:
<TABLE>
<CAPTION>
NAME POSITION NO. OF SHARES
---- -------- -------------
<S> <C> <C>
Neil A. Fortner....................... Vice President, Laboratory Operations 10,000
Joseph L. Kurta....................... Vice President, Sales and Marketing 10,000
Elizabeth M. Lison.................... Vice President, Customer Service 10,000
</TABLE>
Option grants under the Company's 1992 Director Option Plan are automatic
and nondiscretionary.
Monthly housing allowances have been approved for certain executive
officers, including the Company's Chief Executive Officer, in recognition of the
high cost of living in the area in which the Company is located.
The Officers Compensation Committee has considered the potential future
effects of Section 162(m) of the Internal Revenue Code of 1986, as amended,
which limits the deductibility by corporations of executive compensation in
excess of $1 million per executive per year. The Officers Compensation Committee
currently does not intend to adopt a policy attempting to qualify any portion of
the compensation paid to its executive officers for an exemption from the
deductibility limitations of Section 162(m). The non-equity based compensation
paid to the Chief Executive Officer and the four highest paid other executive
officers in fiscal year 1999, and expected to be paid in fiscal year 2000, does
not exceed $1 million for any individual.
Richard D. Irwin
Donald R. Stroben
EXECUTIVE OFFICERS AND COMPENSATION
EXECUTIVE OFFICERS OF PHARMCHEM
Information listed under the caption "Executive Officers of PharmChem" at
the end of Part I of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, as filed with the Securities and Exchange
Commission, is incorporated in this Proxy Statement by reference.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Officers Compensation Committee of the Company's Board of Directors is
composed of two non-employee directors, Richard D. Irwin and Donald R. Stroben.
No interlocking relationship exists between the Company's Board of Directors or
Officers Compensation Committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
CERTAIN TRANSACTIONS
In connection with his relocation at the time of accepting employment with
the Company in July 1991, the Board approved a loan from the Company to Neil A.
Fortner, Vice President, Laboratory Operations, in the amount of $109,000 (the
"Fortner Loan") for the purpose of purchasing a primary residence. In lieu of
7
<PAGE> 11
interest payments on the Fortner Loan, the Company is entitled to 25% of the net
proceeds upon the sale of such residence. The Fortner Loan is evidenced by a
loan agreement and promissory note, and is secured by a Deed of Trust on the
primary residence. During 1999, the maximum principal amount outstanding under
the Fortner Loan was $109,000, and the amount outstanding as of December 31,
1999, was $109,000. The Board also approved payment of monthly housing
allowances to Mr. Halligan, Mr. Fortner and Mr. Lattanzio in recognition of the
high cost of living in the area in which the Company is located. Such allowances
during 1999 totaled $15,708 for Mr. Halligan, $35,237 for Mr. Fortner and
$27,600 for Mr. Lattanzio.
CASH COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid, with respect to the
three most recent fiscal years, to the Chief Executive Officer and the four most
highly compensated executive officers other than the Chief Executive Officer who
were serving as executive officers at the end of fiscal 1999.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
---------------
NUMBER OF
ANNUAL COMPENSATION SHARES OF
--------------------------------------- COMMON STOCK
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS GRANTED COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#)(2) ($)
--------------------------- ---- ------- ------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph W. Halligan..................... 1999 292,347 145,000 15,708 0 1,962(3)
President and Chief 1998 260,961 80,000 15,708 378,480 2,558(4)
Executive Officer 1997 250,000 55,000 0 0 2,386(5)
Neil A. Fortner........................ 1999 123,613 50,000 35,237 10,000 5,216(6)
Vice President, Laboratory 1998 107,538 25,000 35,237 30,000 4,345(7)
Operations 1997 104,845 15,000 35,237 0 4,145(8)
Joseph L. Kurta........................ 1999 124,422 38,000 4,361 10,000 5,877(9)
Vice President, Sales and 1998 93,289 15,000 4,361 20,000 2,320(10)
Marketing
David A. Lattanzio..................... 1999 156,157 74,000 27,600 0 5,062(11)
Vice President, Chief Financial 1998 140,114 40,000 27,600 150,000 4,001(12)
Officer and Secretary 1997 135,000 35,000 0 0 3,306(13)
Elizabeth M. Lison..................... 1999 132,960 45,000 0 10,000 4,903(14)
Vice President, Customer 1998 118,654 25,000 7,500 26,000 3,372(15)
Service 1997 118,654 15,000 15,000 0 2,375(16)
</TABLE>
- ---------------
(1) Housing allowances in the case of Messrs. Halligan, Fortner and Lattanzio
and Ms. Lison, and an auto allowance in the case of Mr. Kurta.
(2) Includes shares underlying options granted on March 24, 1998 in connection
with "repriced" options as more fully described below.
(3) Includes $1,367, $504, and $91 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively.
(4) Includes $1,972, $504, and $82 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively.
(5) Includes $1,800, $504 and $82 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively.
(6) Includes $4,015, $447, and $91 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $663 for the Company matching contribution to the 401(k) plan.
(7) Includes $3,446, $366, and $91 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $442 for the Company matching contribution to the 401(k) plan.
8
<PAGE> 12
(8) Includes $3,132, $356 and $82 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $575 for the Company matching contribution to the 401(k) plan.
(9) Includes $5,359, $427, and $91 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively.
(10) Includes $2,080, $194, and $46 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively.
(11) Includes $3,603, $504, and $91 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $864 for the Company matching contribution to the 401(k) plan.
(12) Includes $2,891, $479, and $91 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $540 for the Company matching contribution to the 401(k) plan.
(13) Includes $2,645, $454 and $82 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $125 for the Company matching contribution to the 401(k) plan.
(14) Includes $3,603, $477, and $91 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $732 for the Company matching contribution to the 401(k) plan.
(15) Includes $2,404, $403, and $91 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $474 for the Company matching contribution to the 401(k) plan.
(16) Includes $1,805, $386 and $82 for the Company portion of health insurance,
group term life insurance and long-term disability premiums, respectively,
and $102 for the Company matching contribution to the 401(k) plan.
OPTIONS
The following sets forth, as to the executive officers named in the Summary
Compensation Table, certain information relating to options for the purchase of
Common Stock granted and exercised during fiscal 1999, and held at the end of
fiscal 1999.
9
<PAGE> 13
OPTION GRANTS IN FISCAL 1999
Options for the purchase of Common Stock granted to the executive officers
during fiscal 1999 named in the Summary Compensation Table are presented below.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------------ ANNUAL RATES OF
% OF TOTAL STOCK PRICE
NUMBER OF SHARES OPTIONS APPRECIATION FOR
OF COMMON STOCK GRANTED EXERCISE OR OPTION TERM(3)
UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION --------------------
GRANTED(#)(1) FISCAL YEAR(2) ($/SH) DATE 5%($) 10%($)
------------------ --------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Neil A. Fortner........ 10,000 33 1/3% $3.375 3/31/09 $21,230 $53,790
Joseph L. Kurta........ 10,000 33 1/3% $3.375 3/31/09 $21,230 $53,790
Elizabeth M. Lison..... 10,000 33 1/3% $3.375 3/31/09 $21,230 $53,790
</TABLE>
- ---------------
(1) All options vest in 48 equal monthly installments commencing one month
following the date of grant.
(2) Total number of shares subject to options granted to employees in fiscal
1999 was 30,000, which excludes options granted to non-employee directors.
(3) The Potential Realizable Value is calculated based on the fair market value
on the date of grant, which is equal to the exercise price of fiscal 1999
granted options, assuming that the stock appreciates in value from the date
of grant until the end of the option term at the annual rate specified (5%
and 10%). Potential Realizable Value is net of the option exercise price.
The assumed rates of appreciation are specified in rules of the Securities
and Exchange Commission and do not represent the Company's estimate or
projection of future stock price. Actual gains, if any, resulting from stock
option exercises and Common Stock holdings are dependent on the future
performance of the Common Stock and overall stock market conditions, as well
as the option holder's continued employment through the vesting period.
There can be no assurance that the amounts reflected in this table will be
achieved.
OPTION EXERCISES IN FISCAL 1999 AND FISCAL 1999 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF COMMON
STOCK UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT FY-END(#) AT FY-END($)
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- --------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph W. Halligan.............. 0 0 165,585 / 212,895 $258,727 / $332,648
Neil A. Fortner................. 0 0 62,083 / 27,917 $110,584 / $ 27,491
Joseph L. Kurta................. 0 0 10,625 / 19,375 $ 14,727 / $ 22,148
David A. Lattanzio.............. 0 0 65,625 / 84,375 $102,539 / $131,836
Elizabeth M. Lison.............. 0 0 17,250 / 22,750 $ 26,578 / $ 27,422
</TABLE>
10
<PAGE> 14
STOCKHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the cumulative total returns for
the five years ended December 31, 1999 of a $100 investment on December 31, 1994
in the Company's Common Stock, the Standard & Poors Small Cap 600 Composite
Index and a peer group of companies selected by the Company. The graph assumes
that all dividends, if any, were reinvested. The companies comprising the peer
group are Psychemedics Corporation and Medtox Scientific, Inc., which the
Company believes are the only companies providing substantially comparable
services to those of the Company.
<TABLE>
<CAPTION>
PHARMCHEM LABORATORIES, S&P SMALL CAP 600
INC. PEER GROUP INDEX COMPOSITE INDEX
----------------------- ---------------- -----------------
<S> <C> <C> <C>
1994 100.00 100.00 100.00
1995 225.00 140.87 129.96
1996 268.75 126.03 157.67
1997 131.25 120.80 198.01
1998 231.25 104.39 195.42
1999 165.60 114.44 219.66
</TABLE>
11
<PAGE> 15
PROPOSAL ONE:
ELECTION OF DIRECTORS
NOMINEES
A board of three (3) directors is to be elected at the Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the Company's three (3) nominees named below. In the event that any
nominee of the Company is unable or declines to serve as a director at the time
of the Annual Meeting, the proxies will be voted for any nominee who is
designated by the present Board of Directors to fill the vacancy. It is not
expected that any nominee will be unable or will decline to serve as a director.
The term of office of each person elected as a director will continue until the
next Annual Meeting of Shareholders or until a successor has been elected and
qualified.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE SINCE PRINCIPAL OCCUPATION
---- --- -------- --------------------
<S> <C> <C> <C>
Joseph W. Halligan............. 55 1995 President and Chief Executive Officer of the
Company
Richard D. Irwin............... 64 1987 President of Grumman Hill Associates, Inc.
Donald R. Stroben.............. 69 1998 Private Investor
</TABLE>
Mr. Halligan has been President and Chief Executive Officer of the Company
since November 1995. From 1988 to 1995, Mr. Halligan was President and CEO of
E.S.I. Consulting Group, a private consulting practice, specializing in advising
and operating high growth, consumer and service oriented companies. Before
forming his consulting practice, Mr. Halligan served from 1983 to 1987 as
President and CEO of a privately-held company, Laura Scudder's, Inc. From 1969
to 1983, Mr. Halligan served as Senior Vice President of Fotomat Corporation and
President of its subsidiary, Video Services of America.
Mr. Irwin has been Chairman of the Board of Directors of the Company since
November 1995. Mr. Irwin is a co-founder and President of Grumman Hill
Associates, Inc. ("Grumman Hill"), a venture capital firm headquartered in New
Canaan, Connecticut. Prior to founding Grumman Hill in 1985, he served as a
Managing Director of Dillon, Read & Co., Inc. from 1983 to 1985. Mr. Irwin is a
member of the board of directors of Broadwing, Inc.
Mr. Stroben has been a Director since May 1998. From 1981 to 1999, Mr.
Stroben was Managing General Partner of Princeton/Montrose Partners, a venture
capital partnership headquartered in Solana Beach, California. Mr. Stroben is
currently a private investor and director of several private companies.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of six meetings during
the fiscal year ended December 31, 1999. Each director attended all of the
meetings of the Board of Directors held during fiscal year 1999 and all of the
meetings held by all committees of the Board of Directors on which he served.
The Audit Committee, which consists of Messrs. Stroben and Irwin, met once
during fiscal year 1999. The functions of the Audit Committee are to recommend
selection of independent public accountants to the Board of Directors, to review
the scope and results of the year-end audit with management and the independent
public accountants and to review the Company's accounting principles and its
system of internal accounting controls.
The Officers Compensation Committee, which consists of Messrs. Stroben and
Irwin, met once during fiscal year 1999. The function of the Officers
Compensation Committee is to review and approve salaries, bonuses and other
benefits payable to the Company's executive officers and to administer the
Company's 1988 Incentive Stock Plan (under which no further options may be
granted), 1997 Equity Incentive Plan and 1992 Director Option Plan. See "Report
of the Officers Compensation Committee of the Board of Directors."
The Company does not have a nominating committee.
12
<PAGE> 16
COMPENSATION
Each Board member who is not also an employee of the Company has the right
to a fee of $1,000 per meeting attended in consideration of services as a
director. Board members are also reimbursed for their expenses for each meeting
attended. Under the Company's 1992 Director Option Plan each non-employee
director annually receives an option to purchase 10,000 shares of Common Stock.
On November 30, 1999 and February 18, 2000, the Director Option Plan was amended
to (a) change the date of the annual automatic option grant from January 1 to
March 1; (b) extend the term of the plan from March 31, 2002 to March 31, 2004;
(c) establish ten years as the term of the new grants commencing in 2000; and
(d) increase the number of shares subject to the annual option from 5,000 to
10,000. The exercise price of options granted under the 1992 Director Option
Plan is the fair market value at the date of grant. Except as described above,
directors do not receive additional compensation for their services as directors
of the Company or as members of committees of the Board of Directors.
VOTE REQUIRED; RECOMMENDATION OF BOARD OF DIRECTORS
With respect to the election of directors, shareholders have cumulative
voting rights, which means that each shareholder has that number of votes equal
to the number of shares held multiplied by the number of directors to be
elected. Each shareholder may give all such votes to one candidate or distribute
such shareholder's votes among the candidates as the shareholder chooses.
However, the right to cumulate votes may not be exercised until the candidate or
candidates have been nominated and a shareholder has given notice at the Annual
Meeting of the shareholder's intention to vote cumulatively. If any shareholder
present at the Annual Meeting gives such notice, all shareholders may cumulate
their votes. The candidates receiving the highest number of votes of shares
entitled to vote for them, up to the number of directors to be elected, will be
elected. Votes withheld will be counted for the purposes of determining the
presence or absence of a quorum for the transaction of business at the Annual
Meeting, but will have no other legal effect upon the election of directors
under California law. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE NOMINEES SET FORTH HEREIN.
PROPOSAL TWO:
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"). Throughout this Proxy Statement, the term "PharmChem
California" or the "Company" refers to PharmChem Laboratories, Inc., the
existing California corporation, and the term "PharmChem Delaware" refers to the
new Delaware corporation, PharmChem, Inc., a Delaware corporation and a wholly
owned subsidiary of PharmChem California, which is the proposed successor to
PharmChem California in the Reincorporation. Shareholders should note that the
name of the new Delaware corporation will be PharmChem, Inc. rather than
PharmChem Laboratories, Inc., the name of the California corporation.
SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS SECTION OF THE PROXY
STATEMENT, INCLUDING THE RELATED EXHIBITS REFERENCED BELOW AND ATTACHED TO THIS
PROXY STATEMENT, BEFORE VOTING ON THE REINCORPORATION.
As discussed below, the principal reasons for the Reincorporation are the
greater flexibility of Delaware corporate law and the substantial body of case
law interpreting that law, as well as the increased ability of the Company to
attract and retain qualified directors and officers. The Company believes that
its shareholders will benefit from the well established principles of corporate
governance that Delaware law affords. The Reincorporation is not being proposed
in order to prevent any specific unsolicited takeover attempt, and the Board of
Directors is not aware of any present attempt by any person to acquire control
of the Company,
13
<PAGE> 17
obtain representation on the Board of Directors or take any action that would
materially affect the governance of the Company.
The Reincorporation will be effected by merging PharmChem California into
PharmChem Delaware (the "Merger"). Upon completion of the Merger, PharmChem
California will cease to exist as a corporate entity and PharmChem Delaware will
continue to operate the business of the Company under a new name, PharmChem,
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 PharmChem California Common Stock, no par value per share (the "Common
Stock"), will be automatically converted into one share of PharmChem Delaware
Common Stock, par value $0.001 per share, upon the effective date of the Merger.
Each stock certificate representing issued and outstanding shares of PharmChem
California Common Stock will continue to represent the same number of shares of
Common Stock of PharmChem Delaware. IT WILL NOT BE NECESSARY FOR SHAREHOLDERS TO
EXCHANGE THEIR EXISTING STOCK CERTIFICATES FOR STOCK CERTIFICATES OF PHARMCHEM
DELAWARE. However, shareholders may exchange their certificates if they so
choose. The Common Stock of PharmChem California is listed for trading on the
Nasdaq National Market and, after the Merger, PharmChem Delaware's Common Stock
will be traded on the Nasdaq National Market without interruption, under the
same symbol ("PCHM") as the shares of PharmChem California Common Stock are
currently traded.
The Reincorporation has been unanimously 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
PharmChem California will have no appraisal rights with respect to the Merger.
The discussion set forth below is qualified in its entirety by reference to
the Merger Agreement, the Certificate of Incorporation of PharmChem Delaware and
the By-laws of PharmChem Delaware, copies of which are attached hereto as
Appendices A, B and C, respectively.
APPROVAL BY SHAREHOLDERS OF THE REINCORPORATION WILL CONSTITUTE APPROVAL OF THE
MERGER AGREEMENT, THE CERTIFICATE OF INCORPORATION AND THE BYLAWS OF PHARMCHEM
DELAWARE AND ALL PROVISIONS THEREOF, INCLUDING THE CHANGE OF NAME FROM PHARMCHEM
LABORATORIES, INC. TO PHARMCHEM, INC.
VOTE REQUIRED AND RECOMMENDATION OF THE BOARD OF DIRECTORS
Under California law, the affirmative vote of a majority of the outstanding
shares of Common Stock of PharmChem California is required for approval of the
Merger Agreement and the other terms of the Reincorporation. Approval of the
Reincorporation will also constitute approval of (i) the Merger Agreement and
the Certificate of Incorporation and the By-laws of PharmChem Delaware,
including the change of name from PharmChem Laboratories, Inc. to PharmChem,
Inc., (ii) the assumption of PharmChem California's employee benefit plans and
stock option and incentive plans by PharmChem Delaware, (iii) the assumption of
PharmChem California's Rights Agreement by PharmChem Delaware and the conversion
of each Preferred Share Purchase Right of PharmChem California issued pursuant
to such Rights Agreement to a Preferred Share Purchase Right of PharmChem
Delaware, and (iv) the assumption by PharmChem Delaware of all
14
<PAGE> 18
other agreements to which PharmChem California is a party, including without
limitation the indemnification agreements with its directors and officers.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" THE REINCORPORATION.
PRINCIPAL REASONS FOR THE PROPOSED REINCORPORATION
Prominence, Predictability and Flexibility of Delaware Law
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 Company. 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 and a number of public companies have obtained the
approval of their shareholders to reincorporate in 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. As a result of these factors,
it is anticipated that Delaware law will provide greater predictability in the
Company's legal affairs than is presently available under California law.
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.
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 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.
NO CHANGE IN BUSINESS, MANAGEMENT OR OPERATIONS
The Reincorporation will effect only a change in the legal domicile of the
Company, a change in the name of the Company from PharmChem Laboratories, Inc.
to PharmChem, Inc. and certain other changes of a legal nature which are
described in this Proxy Statement. The Reincorporation will not result in any
change in the business, management, fiscal year, assets or liabilities or
location of the principal facilities of the Company. The three directors who
will be elected at the Annual Meeting of Shareholders will become the directors
of PharmChem Delaware. All employee benefit, stock option and incentive plans of
PharmChem
15
<PAGE> 19
California will be assumed and continued by PharmChem 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 PharmChem 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 will also constitute approval of the assumption of these plans
by PharmChem Delaware. Other employee benefit arrangements of PharmChem
California will also be continued by PharmChem Delaware upon the terms and
subject to the conditions currently in effect. After the merger, the shareholder
rights plan, adopted by the Board of Directors of PharmChem California on
November 30, 1999, will become the rights plan of PharmChem Delaware and all
other agreements to which PharmChem California is a party, including without
limitation indemnification agreements with its directors and officers, will be
assumed by PharmChem Delaware. As noted above, after the Merger the shares of
Common Stock of PharmChem Delaware will continue to be traded, without
interruption, in the same principal market (the Nasdaq Stock Market) and under
the same symbol ("PCHM") as the shares of Common Stock of PharmChem California
are currently traded. The Company believes that the Reincorporation will not
affect any of its material contracts with any third parties and that PharmChem
California's rights and obligations under such material contractual arrangements
will continue and be assumed by PharmChem Delaware.
ANTITAKEOVER EFFECTS
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 by-laws or
otherwise. The Reincorporation is NOT being proposed in order to prevent any
specific change in control, and the Board of Directors is not aware of any
present attempt by any person to acquire control of the Company, obtain
representation on the Board of Directors or take any action that would
materially affect the governance of the Company.
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
authorization of preferred stock, the rights and preferences of which may be
determined by the Board of Directors ("Blank Check Preferred"), the elimination
of cumulative voting, the elimination of the ability of shareholders to act by
written consent without a meeting, and the elimination of the right of
shareholders to call special meetings. The Board of Directors of PharmChem
California adopted a shareholder rights plan on November 30, 1999. After the
Merger, such shareholder rights plan will become a rights plan of PharmChem
Delaware. While shareholder rights plans have not been tested in California,
Delaware courts have approved the adoption of shareholder rights plans and the
use of such plans by a board of directors to protect the long-term interests of
stockholders from the dangers associated with hostile takeover attempts. The
Reincorporation would provide greater certainty as to the validity of the rights
plan. The establishment of Blank Check Preferred has been implemented by
PharmChem California under California law and has been provided for by PharmChem
Delaware under Delaware law. For a detailed discussion of all of the changes
which will be implemented as part of the Proposed Reincorporation, see "Charters
and By-laws of PharmChem California and PharmChem Delaware," and "Significant
Differences Between the Corporation Laws of California and Delaware" below.
Certain aspects of the Reincorporation may have the effect of deterring
hostile takeover attempts. Section 203 of the Delaware General Corporation Law,
from which PharmChem Delaware does not intend to opt out, 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 depressed stock prices; (ii) a non-negotiated takeover bid may be designed to
16
<PAGE> 20
foreclose or minimize the possibility of more favorable competing bids or
alternative transactions; and (iii) a non-negotiated takeover bid may involve
the acquisition of only a controlling interest, without affording all
shareholders the opportunity to receive the same economic benefits.
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 and 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, 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 price or over
their cost basis in such shares. As a result of such effects of the
Reincorporation, 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.
CHARTERS AND BY-LAWS OF PHARMCHEM CALIFORNIA AND PHARMCHEM DELAWARE
The provisions of the PharmChem Delaware Certificate of Incorporation (the
"Certificate") and By-laws (the "Delaware By-laws") are similar to those of the
PharmChem California Amended and Restated Articles of Incorporation (the
"Articles") and By-laws (the "California By-laws") in many respects. However,
the Reincorporation includes the implementation of certain provisions in the
Certificate and Delaware By-laws which alter the rights of shareholders and the
powers of management. Some of these provisions have antitakeover implications,
as described in this Proxy Statement. Approval by shareholders of the
Reincorporation will constitute an approval of the inclusion in the Certificate
and Delaware By-laws of each of the provisions described below. For a discussion
of such changes, see also "Significant Differences Between the Corporation Laws
of California and Delaware." This discussion of the Certificate and Delaware
By-laws is qualified in its entirety by reference to Appendices B and C hereto,
respectively.
Increase in Authorized Shares
The Articles currently authorize the Company to issue up to 10,000,000
shares of Common Stock and 2,000,000 shares of Preferred Stock, all of which are
without par value. The Certificate provides that PharmChem Delaware will have
25,000,000 authorized shares of Common Stock, par value $0.001 per share, and
5,000,000 authorized shares of Preferred Stock, par value $0.001 per share. Like
the Articles, the Certificate provides that the Board of Directors is entitled
to determine the powers, preferences, designations and rights, and the
qualifications, limitations or restrictions, of the authorized and unissued
Preferred Stock. The Board of Directors has no immediate plans to issue
additional shares of Common Stock (other than through the exercise of stock
options) or Preferred Stock. However, the larger number of authorized shares
provided for in the Certificate will provide PharmChem Delaware with the
flexibility to undertake various types of transactions, including stock splits
(in the form of stock dividends), financings, increases in the shares reserved
for issuance pursuant to stock incentive plans, acquisitions or other corporate
transactions not yet determined.
The additional shares that would become available for issuance could also
be used by PharmChem Delaware to oppose a hostile takeover attempt or delay or
prevent changes in control or management. For example, without further
stockholder approval, the Board could sell shares of Common Stock or Preferred
Stock in a private transaction to purchasers who would oppose a takeover or
favor the current Board. Although the proposed increase in the authorized Common
Stock and Preferred Stock has been prompted by business and financial
considerations and not by the threat of any hostile takeover attempt,
shareholders should be aware that approval of this proposal could facilitate
future efforts by the Company to deter or prevent changes
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in control of the Company, including transactions in which the shareholders
might otherwise receive a premium for their shares over then current market
prices.
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 laws of the respective states. 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.
For a more detailed explanation of the foregoing, see "Significant Differences
Between the Corporation Laws of California and Delaware -- Limitation of
Liability."
Size of Board of Directors
The Certificate provides that the number of directors of PharmChem Delaware
shall be such as from time to time shall be fixed by, or in the manner provided
in, the Delaware By-laws. The Delaware By-laws provide for a Board of Directors
consisting of not less than three (3) nor more than seven (7) directors with the
exact number to be set by the Board in accordance with the provisions of the
Delaware By-laws. The California By-laws provide for a Board of Directors
consisting of not less than three (3) nor more than five (5) directors, within
which the exact number is currently set at three (3) 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 by-laws, if the stated range has 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 by-laws, unless
the directors are not authorized to amend the by-laws 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 authorizes the Board of Directors to adopt, alter, amend or repeal
the By-laws. Following the Reincorporation, the Board of Directors of PharmChem
Delaware could amend the By-laws to change the size of the Board of Directors
from three (3) directors without further stockholder approval. If the
Reincorporation is approved, the three (3) directors of PharmChem California who
are elected at the Annual Meeting of Shareholders will continue as the three
(3)directors of PharmChem Delaware after the 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, all shareholders may cumulate
their votes. Cumulative voting means that each shareholder has that number of
votes equal to the number of shares held multiplied by the number of directors
to be elected. A shareholder may give all such votes to one candidate or
distribute such shareholder votes among the candidates as the shareholder
chooses. 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 included in the Nasdaq National Market, such as
the Company, can also eliminate cumulative voting with shareholder approval. The
Company has not sought shareholder approval to eliminate cumulative voting.
Under Delaware law, cumulative voting in the election of directors is not
mandatory, but is a permitted option. The Certificate does not provide for
cumulative voting rights.
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Power to Call Special Meetings of Shareholders
Under California law and the California By-laws, a special meeting of
shareholders may be called by the Board of Directors, the chairman of the board,
the president, or one or more shareholders holding 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 by-laws.
The Delaware By-laws authorize a special meeting of stockholders to be called by
the Board of Directors, the chairman of the board or the president, 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 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 the time that the Board believes such consideration
to be appropriate or 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. The elimination of the right of shareholders to call special meetings
means that a shareholder proposal, including a proposal to replace the Board,
would be restricted to only annual meetings. 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 Delaware By-laws
without stockholder approval.
Action Without a Meeting
Under California law and the California By-laws, any action that may be
taken at an annual or special meeting of shareholders may be taken without a
meeting and without prior notice, if a consent in writing, setting forth the
action so taken, is signed by holders of outstanding shares 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 on that action were
present and voted. Under Delaware law, unless otherwise provided in a company's
certificate of incorporation, any action required or permitted to be taken at
any annual or special meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent or consents in writing,
setting forth the action to be 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 and shall be properly
delivered to the corporation. The Certificate contains a provision eliminating
the ability of stockholders to act by written consent without a meeting.
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 by-law approved by the corporation's
shareholders. Neither the Articles nor the California By-laws permit the
directors to fill a vacancy 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 by-laws. The Delaware By-laws 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.
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Voting by Ballot
California law provides that the election of directors need not be by
ballot unless a shareholder demands election by ballot or unless the by-laws so
require. 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 By-laws so
provide. The Delaware By-laws provide that the Board of Directors, in its
discretion, or the officer 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 PharmChem 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.
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 on
business combinations by 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 Board believes that most Delaware corporations have availed
themselves of this statute and have not opted out of Section 203.
The Board believes that Section 203 will encourage any potential acquiror
to negotiate with the Board. Section 203 also might have the effect of limiting
the ability of a potential acquiror to make a two-tiered bid for PharmChem
Delaware in which all stockholders would not be treated equally. Shareholders
should note, however, that the application of Section 203 to PharmChem 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 PharmChem Delaware's shares over the then current market
price. Section 203 would also discourage certain potential acquirors unwilling
to negotiate with the Board.
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 stockholders are not
treated equally.
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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 makes 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. The Certificate and Delaware By-laws do not
provide for a classified board, and the adoption of a classified board in the
future would require stockholder approval.
California. Under California law, a Company whose shares are listed on a
national exchange or included in the Nasdaq National Market may also provide for
a classified board of directors by adopting amendments to its articles of
incorporation or by-laws, which amendments must be approved by the shareholders.
Although PharmChem California qualifies to adopt a classified board of
directors, the Articles and California By-laws 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 By-laws do not provide for a classified board
of directors nor do they eliminate shareholders' rights to cumulative voting.
The Certificate will not provide for either a classified Board or cumulative
voting. As a result, after the Reincorporation, directors could be removed with
or without cause with the approval of a majority of the outstanding shares
entitled to vote at an election of directors.
Limitation of Liability
The laws of both Delaware and California 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, however, certain differences between the
laws of the two states respecting 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 from
which the director derived an improper personal benefit. Such limitation of
liability provisions also may not eliminate or 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
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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; (f) transactions between the
corporation and a director who has a material financial interest in such
transaction; or (g) liability for improper distributions, loans or guarantees.
Indemnification
California and Delaware Law. California and Delaware have similar laws
respecting indemnification by a corporation of its officers, directors,
employees and other agents. There are, however, certain differences between the
laws of the two states respecting indemnification which are summarized below.
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. However, without court approval, 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. If the Reincorporation is approved, PharmChem
Delaware will enter into indemnification agreements with its officers and
directors that are substantially similar to those entered into between PharmChem
California and its officers and directors in 1998. The indemnification
agreements between PharmChem Delaware and its officers and directors will
conform to and be governed by Delaware law and will provide for indemnification
of officers and directors to the maximum extent permitted by Delaware law, and a
vote in favor of the Reincorporation is also approval of the adoption of such
indemnification agreements. Among other things, the indemnification agreements
will include within their purview future changes in Delaware law that expand the
permissible scope of indemnification of directors and officers of Delaware
corporations.
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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 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 are retained 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 (meaning that the value of the assets
of the corporation is less than the amount represented by the aggregate
outstanding shares of the capital stock of the corporation) and such redemption
or repurchase would not impair the capital of the corporation. The ability of a
Delaware corporation to pay dividends on, or to make repurchases or redemptions
of, its shares is dependent on the financial status of the corporation standing
alone and not on a consolidated basis. In determining the amount of surplus of a
Delaware corporation, the assets of the corporation, including stock of
subsidiaries owned by the corporation, may be valued at their fair market value
as determined by the board of directors, regardless of their historical book
value.
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 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. There are
exceptions to the foregoing rules for repurchases pursuant to employee stock
plans. Additionally, a corporation cannot make a distribution if, as a result of
such distribution, the corporation would likely be unable to meet its
liabilities as they come due or if such distribution would impair certain
preference rights of the holders of preferred stock.
Shareholder Approval of Mergers
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
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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. Delaware law generally does not
require class voting for mergers, reorganizations, sales of assets or similar
transactions, except in certain situations involving an amendment of the
certificate of incorporation that adversely affects a specific class of shares.
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. With certain exceptions, California law requires a majority vote of each
class of shares outstanding to approve mergers, reorganizations, certain sales
of assets and similar transactions.
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 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 included in the Nasdaq National Market 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 included in the Nasdaq National Market 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
or on the Nasdaq National Market System 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 or regulation
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.
Pursuant to California law, appraisal rights are not available to the
Company's shareholders with respect to the Merger.
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 does not
contain any such supermajority voting requirement.
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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 he or she later received the stock 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
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 Reincorporation, the Common Stock of PharmChem 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 PharmChem
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 PharmChem California Common Stock who exchange their PharmChem
California Common Stock for PharmChem 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 Reincorporation. This summary does not purport to be a
comprehensive description of all of the tax consequences applicable to a holder
of PharmChem California Common Stock in light of such holder's 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 PharmChem California Common Stock as part of a straddle,
hedging, or conversion transaction, to holders who have acquired PharmChem
California Common Stock pursuant to exercise of employee stock options or
otherwise as compensation, or to holders of PharmChem California Common Stock
options. 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 PharmChem California Common Stock have held such stock, and will
hold their PharmChem Delaware Common Stock received in exchange therefor, as
capital assets (generally, property held for investment). EACH HOLDER OF
PHARMCHEM CALIFORNIA COMMON STOCK IS URGED TO CONSULT SUCH HOLDER'S TAX ADVISOR
REGARDING THE TAX CONSEQUENCES OF EXCHANGING PHARMCHEM CALIFORNIA COMMON STOCK
FOR PHARMCHEM DELAWARE COMMON STOCK PURSUANT TO THE REINCORPORATION, INCLUDING
THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
25
<PAGE> 29
The Company believes that the Reincorporation 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 PharmChem
California Common Stock upon receipt of PharmChem Delaware Common Stock
pursuant to the Reincorporation.
2. The aggregate tax basis of the PharmChem Delaware Common Stock
received by each holder should be equal to the aggregate tax basis of the
PharmChem California Common Stock transferred in exchange therefor.
3. The holding period of the PharmChem Delaware Common Stock received
by each holder should include the period for which such holder held
PharmChem California Common Stock.
4. The Company should not recognize any gain or loss as a result of
the Reincorporation.
A successful challenge by the Internal Revenue Service to the
reorganization status of the Reincorporation, in consequence of a failure to
satisfy the "continuity of interest" requirement or otherwise, would result in a
shareholder recognizing a gain or loss with respect to each share of PharmChem
California Common Stock exchanged in the Reincorporation equal to the difference
between the shareholder's basis in such share and the fair market value, as of
the time of the Reincorporation, of the PharmChem Delaware Common Stock received
in exchange for PharmChem California Common Stock. In such event, a
shareholder's aggregate basis in the shares of PharmChem Delaware Common Stock
received in the exchange would equal their fair market value on such date, and
the shareholder's holding period for such shares would not include the period
during which the shareholder held PharmChem California Common Stock.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE REINCORPORATION.
PROPOSAL THREE:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Upon recommendation of the Audit Committee, the Board of Directors has
selected KPMG LLP to audit the consolidated financial statements of the Company
for 2000. Representatives of KPMG LLP are expected to be present at the Annual
Meeting, will have the opportunity to make a statement if they desire to do so,
and are expected to be available to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
RATIFICATION OF THE SELECTION OF KPMG LLP.
OTHER MATTERS
The Company knows of no other matters to be submitted to the Annual
Meeting. If any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed proxy card to vote the shares
they represent in accordance with the best judgment of such persons.
THE BOARD OF DIRECTORS
Menlo Park, California
April 14, 2000
INFORMATION LISTED UNDER THE CAPTION "EXECUTIVE OFFICERS OF PHARMCHEM" AT
THE END OF PART I OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1999, AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, IS INCORPORATED IN THIS PROXY STATEMENT BY REFERENCE.
26
<PAGE> 30
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
OF
PHARMCHEM, INC.,
A DELAWARE CORPORATION
AND
PHARMCHEM LABORATORIES, INC.,
A CALIFORNIA CORPORATION
THIS AGREEMENT AND PLAN OR MERGER dated as of ___________, 2000 (this
"Merger Agreement") is between PharmChem, Inc., a Delaware corporation
("PharmChem Delaware"), and PharmChem Laboratories, Inc., a California
corporation ("PharmChem California"). PharmChem Delaware and PharmChem
California are sometimes referred to herein as the "Constituent Corporations."
RECITALS
A. PharmChem California desires to merge with and into PharmChem
Delaware and PharmChem Delaware desires to merge with PharmChem California, all
upon the terms and subject to the conditions of this Merger Agreement.
B. PharmChem Delaware is a corporation duly organized and existing under
the Laws of the State of Delaware and has an authorized capital of 30,000,000
shares, 25,000,000 of which are designated "Common Stock," par value $.001 per
share, and 5,000,000 of which are designated "Preferred Stock," par value $.001
per share. As of the date hereof, 100 shares of Common Stock are issued and
outstanding, and no shares of Preferred Stock are issued and outstanding.
C. PharmChem California is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital of
12,000,000 shares, 10,000,000 of which are designated "Common Stock," no par
value, and 2,000,000 shares of which are designated "Preferred Stock," no par
value. As of the date hereof, ______ shares of Common Stock are issued and
outstanding, and no shares of Preferred Stock are issued and outstanding.
D. The Board of Directors of PharmChem California has determined that,
for the purpose of effecting the reincorporation of PharmChem California in the
State of Delaware, it is advisable and in the best interests of PharmChem
California and its shareholders that PharmChem California merge with and into
PharmChem Delaware upon the terms and conditions herein provided.
<PAGE> 31
E. The respective Boards of Directors of PharmChem Delaware and
PharmChem California have approved this Merger Agreement and have directed that
this Merger Agreement be submitted to a vote of their respective sole
stockholder and shareholders and executed by officers thereof.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, PharmChem Delaware and PharmChem California hereby agree,
subject to the terms and conditions hereinafter set forth, as follows:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the
following meanings, respectively:
1.1 "California Law" shall mean the California Corporations Code as
currently in effect on the date of this Agreement.
1.2 "Delaware Law" shall mean the Delaware General Corporation Law as
currently in effect on the date of this Agreement.
1.3 "Effective Date" shall mean the date and time when the Merger shall
have become effective, in accordance with Section 2.3 below.
1.4 "Merger" shall mean the merger of the PharmChem California with and
into PharmChem Delaware.
1.5 "Surviving Corporation" shall mean PharmChem Delaware from and after
the Effective Date.
ARTICLE II
MERGER
2.1 MERGER. In accordance with the provisions of this Merger Agreement,
Delaware Law and California Law, PharmChem California will be merged with and
into PharmChem Delaware (the "Merger"), the separate existence of PharmChem
California will cease and PharmChem Delaware will survive the Merger and will
continue to be governed by the laws of the State of Delaware. The name of the
Surviving Corporation will be PharmChem, Inc.
2.2 FILING AND EFFECTIVENESS. The Merger will become effective when the
following actions will have been completed:
(a) This Merger Agreement and the Merger will have been adopted and
approved by the sole stockholder of PharmChem Delaware and the shareholders of
PharmChem California, in accordance with the requirements of Delaware Law and
California Law;
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<PAGE> 32
(b) All of the covenants and conditions precedent to the consummation of
the Merger specified in this Merger Agreement will have been satisfied or duly
waived by the party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed counterpart of this
Merger Agreement meeting the requirements of Delaware Law will have been filed
with the Secretary of State of the State of Delaware; and
(d) An executed Certificate of Merger or an executed counterpart of this
Merger Agreement meeting the requirements of California Law will have been filed
with the Secretary of State of the State of California.
2.3 The Merger shall become effective for all purpose of Delaware Law
when proper documentation has been filed with the Secretary of State of the
State of Delaware in accordance with Section 2.2 above. The Merger shall become
effective for purpose of California Law as of the time the Merger becomes
effective in Delaware, once proper documentation has been filed with the
Secretary of State of the State of California in accordance with Section 2.2
above.
2.4 EFFECT OF THE MERGER. Upon the Effective Date of the Merger, the
separate existence of PharmChem California will cease and PharmChem Delaware, as
the Surviving Corporation, (i) will continue to possess all of its assets,
rights, powers and property as constituted immediately prior to the Effective
Date of the Merger, (ii) will be subject to all actions previously taken by its
and PharmChem California's Boards of Directors, (iii) will succeed, without
other transfer, to all of the assets, rights, power and property of PharmChem
California in the manner more fully set forth in Section 259 of Delaware Law,
(iv) will continue to be subject to all of the debts, liabilities and
obligations of PharmChem Delaware as constituted immediately prior to the
Effective Date of the Merger, and (v) will succeed, without other transfer, to
all of the debts, liabilities and obligations of PharmChem California in the
same manner as if PharmChem Delaware had itself incurred them, all as more fully
provided under the applicable provisions of Delaware Law and California Law.
ARTICLE III
CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
3.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
PharmChem Delaware as in effect immediately prior to the Effective Date of the
Merger will continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
3.2 BY-LAWS. The by-laws of PharmChem Delaware as in effect immediately
prior to the Effective Date of the Merger will continue in full force and effect
as the by-laws of the Surviving Corporation until duly amended in accordance
with the provisions thereof and applicable law.
3.3 DIRECTORS AND OFFICERS. The directors and officers of PharmChem
California immediately prior to the Effective Date of the Merger will be the
directors and officers of the Surviving Corporation until their successors will
have been duly elected and
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<PAGE> 33
qualified or until as otherwise provided by law, the Certificate of
Incorporation of the Surviving Corporation or the by-laws of the Surviving
Corporation.
ARTICLE IV
MANNER OF CONVERSION OF STOCK
4.1 PHARMCHEM CALIFORNIA COMMON STOCK. Upon the Effective Date of the
Merger, each share of PharmChem California Common Stock issued and outstanding
immediately prior thereto will, by virtue of the Merger and without any action
by the Constituent Corporations, the holder of such shares or any other person,
be converted into and exchanged for one (1) fully paid and nonassessible share
of Common Stock, par value $0.001 per share, of the Surviving Corporation.
4.2 PHARMCHEM CALIFORNIA OPTIONS.
(a) Upon the Effective Date of the Merger, the Surviving Corporation
will assume and continue the stock option and incentive plans and all other
employee benefit plans of PharmChem California. Each outstanding and unexercised
option or other right to purchase PharmChem California Common Stock will become
an option or right to purchase the Surviving Corporation's Common Stock on the
basis of one (1) share of the Surviving Corporation's Common Stock for each
share of PharmChem California Common Stock issuable pursuant to any such option
or stock purchase right, on the same terms and conditions and at an exercise
price per share equal to the exercise price applicable to any such PharmChem
California option or stock purchase right at the Effective Date of the Merger.
(b) A number of shares of the Surviving Corporation's Common Stock will
be reserved for issuance upon the exercise of options and stock purchase rights
equal to the number of shares of PharmChem California Common Stock so reserved
immediately prior to the Effective Date of the Merger.
4.3 PHARMCHEM CALIFORNIA SHAREHOLDER RIGHTS. Upon the Effective Date of
the Merger, the Surviving Corporation will assume and continue the Rights
Agreement of PharmChem California (the "Rights Agreement"). Each outstanding
preferred share purchase right of PharmChem California issued pursuant to the
Rights Agreement will become a preferred share purchase right of PharmChem
Delaware.
4.4 PHARMCHEM DELAWARE COMMON STOCK. Upon the Effective Date of the
Merger, each share of Common Stock , par value $0.001 per share, of PharmChem
Delaware issued and outstanding immediately prior thereto will, by virtue of the
Merger and without any action by PharmChem Delaware, the holder of such shares
or any other person, be canceled and returned to the status of authorized but
unissued shares.
4.5 EXCHANGE OF CERTIFICATES. After the Effective Date of the Merger,
each holder of an outstanding certificate representing shares of PharmChem
California Common Stock may, at such holder's option, surrender the same for
cancellation to Chase Mellon Shareholder Services, L.L.C., a New Jersey limited
liability company, as exchange agent (the "Exchange Agent"), and each such
holder will be entitled to receive in exchange therefor a certificate or
certificates representing the number of shares of the Surviving Corporation's
-4-
<PAGE> 34
Common Stock into which the surrendered shares were converted as herein
provided. Unless and until so surrendered, each outstanding certificate
theretofore representing shares of PharmChem California Common Stock will be
deemed for all purposes to represent the number of shares of the Surviving
Corporation's Common Stock into which such shares of PharmChem California Common
Stock were converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any shares of stock represented by such
outstanding certificate will, until such certificate will have been surrendered
for transfer or conversion or otherwise accounted for to the Surviving
Corporation or the Exchange Agent, have and be entitled to exercise any voting
and other rights with respect to and to receive dividends and other
distributions upon the shares of Common Stock of the Surviving Corporation
represented by such outstanding certificate as provided above.
Each certificate representing Common Stock of the Surviving Corporation
so issued in the Merger will bear the same legends, if any, with respect to the
restrictions of transferability as the certificates of PharmChem California so
converted and given in exchange therefor, unless otherwise determined by the
Board of Directors of the Surviving Corporation in compliance with applicable
laws, the legend evidencing the rights granted pursuant to the Rights Agreement
and any additional legends agreed upon by the holder and the Surviving
Corporation.
If any certificate for shares of PharmChem Delaware stock is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it will be a condition of issuance thereof that
the certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer, that such transfer otherwise be proper and comply with
applicable securities laws and that the person requesting such transfer pay to
PharmChem Delaware or the Exchange Agent any transfer or other taxes payable by
reason of issuance of such new certificate in a name other than that of the
registered holder of the certificate surrendered or establish to the
satisfaction of PharmChem Delaware that such tax has been paid or is not
payable.
4.6 VALIDITY OF DELAWARE COMMON STOCK. All shares of Delaware Common
Stock into which California Common Stock is to be converted pursuant to the
Merger shall not be subject to any statutory or contractual preemptive rights,
shall be validly issued, fully paid and nonassessible and shall be issued in
full satisfaction of all rights pertaining to such California Common Stock.
4.7 RIGHTS OF FORMER HOLDERS. From and after the Effective Date, no
holder of certificates which evidence California Common Stock immediately prior
to the Effective Date shall have any rights with respect to the shares formerly
evidenced by those certificates, other than to receive the shares of Delaware
Common Stock into which such California Common Stock shall have been converted
pursuant to the Merger.
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<PAGE> 35
ARTICLE V
GENERAL
5.1 COVENANTS OF PHARMCHEM DELAWARE. PharmChem Delaware covenants and
agrees that it will, on or before the Effective Date of the Merger:
(a) qualify to do business as a foreign corporation in the State of
California and in connection therewith irrevocably appoint an agent for service
of process as required under the provisions of Section 2105 of California Law;
(b) file any and all documents with the California Franchise Tax Board
necessary for the assumption by PharmChem Delaware of all of the franchise tax
liabilities of PharmChem Delaware; and
(c) take such other actions as may be required by the California Law.
5.2 AUTHORIZATION. The holders of a majority of the California Common
Stock shall have approved and adopted this Agreement and the Merger in
accordance with California Law. All necessary action shall have been taken to
authorize the execution, delivery and performance of this Agreement by PharmChem
California and PharmChem Delaware. PharmChem California and PharmChem Delaware
shall have full power and authority to consummate the Merger.
5.3 CONSENTS AND APPROVALS. All authorizations, consents and approvals
(contractual or otherwise) of any state, federal, local or foreign government
agency, regulatory body or official or any person (other than PharmChem
California or PharmChem Delaware) necessary for the valid consummation of the
Merger in accordance with this Agreement shall have been obtained and shall be
in full force and effect.
5.4 FURTHER ASSURANCES. From time to time, and when required by
PharmChem Delaware or by its successors or assigns, there will be executed and
delivered on behalf of PharmChem California such deeds and other instruments,
and there will be taken or caused to be taken by PharmChem California such
further and other actions as will be appropriate or necessary in order to vest
or perfect in or conform of record or otherwise by PharmChem Delaware the title
to and possession of all the property, interests, assets, rights, privileges,
immunities, powers, franchises and authority of PharmChem California and
otherwise to carry out the purposes of this Merger Agreement, and the officers
and directors of PharmChem Delaware are fully authorized in the name and on
behalf of PharmChem California or otherwise to take any and all such action and
to execute and deliver any and all such deeds and other instruments.
5.5 ABANDONMENT. At any time before the Effective Date of the Merger,
this Merger Agreement may be terminated and the Merger may be abandoned for any
reason whatsoever by the Board of Directors of either PharmChem California or of
PharmChem Delaware, or of both, notwithstanding the approval of this Merger
Agreement by either the shareholders of PharmChem California or by the sole
stockholder of PharmChem Delaware, or by both.
-6-
<PAGE> 36
5.6 AMENDMENT. The Boards of Directors of the Constituent Corporations
may amend this Merger Agreement at any time prior to the filing of this Merger
Agreement (or certificate in lieu thereof) with the Secretaries of State of the
States of Delaware and California, provided that an amendment made subsequent to
the adoption of this Merger Agreement by either the sole stockholder of
PharmChem Delaware or the shareholders of PharmChem California shall not: (i)
alter or change the amount or kind of shares, securities, cash, property and/or
rights to be received in exchange for or on conversion of all or any of the
shares of any class or series thereof of such Constituent Corporation; (ii)
alter or change any terms of the Certificate of Incorporation of the Surviving
Corporation to be effective immediately after the Merger; or (iii) alter or
change any of the terms and conditions of this Merger Agreement if such
alteration or change would adversely affect the holders of any class or series
of capital stock of either Constituent Corporation.
5.7 REGISTERED OFFICE. The registered office of the Surviving
Corporation in the State of Delaware shall be Corporation Trust Center, 1209
Orange Street, in the City of Wilmington, 19801, County of New Castle and The
Corporation Trust Company will be the registered agent of the Surviving
Corporation at such address.
5.8 AGREEMENT. Executed copies of this Merger Agreement will be on file
at the principal place of business of the Surviving Corporation at 1505-A
O'Brien Drive, Menlo Park, California 94025 and copies thereof will be furnished
to any holder of any class or series of capital stock of either Constituent
Corporation, upon request and without cost.
5.9 GOVERNING LAW. This Merger Agreement will in all respects be
construed, interpreted and enforced in accordance with and governed by the Laws
of the State of Delaware and, so far as applicable, the merger provisions of
California Law.
IN WITNESS WHEREOF, this Merger Agreement having first been approved by
the resolutions of the Boards of Directors of PharmChem, Inc., a Delaware
corporation, and PharmChem Laboratories, Inc., a California corporation, is
hereby executed on behalf of each of such two corporations by their respective
officers thereunto duly authorized as of the date first above written.
PharmChem Laboratories, Inc.,
a California corporation
By:
-------------------------------
Joseph W. Halligan
President
PharmChem, Inc.,
a Delaware corporation
-7-
<PAGE> 37
By:
-------------------------------
Joseph W. Halligan
President
-8-
<PAGE> 38
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
PHARMCHEM, INC.
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
I.
The name of the corporation is PharmChem, Inc. (the "Corporation").
II.
The registered office of the Corporation is to be located at Corporation
Trust Center, 1209 Orange Street, in the City of Wilmington, County of
Newcastle, State of Delaware, 19801. The name of its registered agent at that
address is The Corporation Trust Company.
III.
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.
IV.
The Corporation is authorized to issue two classes of stock to be
designated as "Common Stock" and "Preferred Stock". The total number of shares
of stock which the Corporation is authorized to issue is twenty-five million
(25,000,000) shares of Common Stock, $.001 par value and five million
(5,000,000) shares of Preferred Stock, $.001 par value.
<PAGE> 39
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to fix or alter the powers,
preferences, designations and rights, and the qualifications, limitations and
restrictions, including without limitation the dividend rights, dividend rate,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price or prices, and liquidation
preferences of any wholly unissued series of Preferred Stock, and the number of
shares constituting any such series and the designation thereof, or any of them;
and to increase or decrease the number of shares of any series subsequent to the
issue of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
V.
The name and address of the sole incorporator is:
Robin M. Edwards
Sonnenschein Nath & Rosenthal
685 Market Street, 6th Floor
San Francisco, CA 94105
VI.
The number of directors of the Corporation shall be such as from time to
time shall be fixed by, or in the manner provided in, the by-laws. Election of
directors need not be by ballot unless the by-laws so provide.
VII.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders,
-2-
<PAGE> 40
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. If the Delaware General
Corporation Law is amended after approval by the stockholders of this Article to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation Law,
as so amended.
VIII.
The Board of Directors may from time to time make, amend, supplement or
repeal the by-laws; provided, however, that the stockholders may change or
repeal any by-law adopted by the Board of Directors by the affirmative vote of
the holders of a majority of the voting power of all of the then outstanding
shares of the capital stock of the Corporation entitled to vote; and, provided
further, that no amendment or supplement to the by-laws adopted by the Board of
Directors shall vary or conflict with any amendment or supplement thus adopted
by the stockholders.
IX.
The Corporation is to have perpetual existence.
X.
(A) Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision contained in the laws of the
State of Delaware) outside of 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. (B) No action that is required or permitted to be taken by
the
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<PAGE> 41
stockholders of the Corporation at any annual or special meeting of stockholders
may be effected by written consent of the stockholders in lieu of a meeting of
stockholders.
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<PAGE> 42
XI.
The Corporation shall have the authority to indemnify each of the
Corporation's directors and officers to the fullest extent permitted by law. No
repeal or modification of this Article shall adversely affect any right or
protection of a director or officer of the Corporation existing by virtue of
this Article at the time of such repeal or modification.
IN WITNESS WHEREOF, I have hereunto set my hand this 1st day of March,
2000.
-------------------------------
Robin M. Edwards
Sole Incorporator
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<PAGE> 43
EXHIBIT C
BY-LAWS
OF
PHARMCHEM, INC.
<PAGE> 44
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I OFFICES....................................................................1
Section 1 Registered Office..........................................................1
Section 2 Other Offices..............................................................1
ARTICLE II MEETINGS OF STOCKHOLDERS...................................................1
Section 1 Place of Meetings..........................................................1
Section 2 Annual Meetings............................................................1
Section 3 Special Meetings...........................................................1
Section 4 Notice of Stockholders' Meetings...........................................1
Section 5 Nomination of Directors....................................................2
Section 6 Manner of Giving Notice; Affidavit of Notice...............................3
Section 7 Adjournments...............................................................3
Section 8 Quorum.....................................................................4
Section 9 Voting.....................................................................4
Section 10 Proxies....................................................................4
Section 11 Inspectors of Election.....................................................4
Section 12 List of Stockholders Entitled to Vote......................................5
Section 13 Stock Ledger...............................................................5
Section 14 Conduct of Meetings........................................................5
ARTICLE III DIRECTORS..................................................................5
Section 1 Number and Election of Directors...........................................5
Section 2 Vacancies..................................................................5
Section 3 Duties and Powers..........................................................6
Section 4 Meetings...................................................................6
Section 5 Quorum.....................................................................6
Section 6 Actions by Written Consent.................................................6
Section 7 Meetings by Means of Conference Telephone..................................6
Section 8 Committees.................................................................6
Section 9 Compensation...............................................................7
Section 10 Interested Directors.......................................................7
ARTICLE IV OFFICERS...................................................................7
Section 1 General....................................................................7
Section 2 Election...................................................................8
Section 3 Chairman of the Board......................................................8
Section 4 President..................................................................8
Section 5 Vice Presidents............................................................8
Section 6 Secretary..................................................................8
Section 7 Treasurer..................................................................9
Section 8 Assistant Secretaries......................................................9
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C>
Section 9 Assistant Treasurers.......................................................9
Section 10 Other Officers.............................................................9
Section 11 Voting Securities Owned by the Corporation.................................9
ARTICLE V STOCK.....................................................................10
Section 1 Form of Certificates......................................................10
Section 2 Signatures................................................................10
Section 3 Lost Certificates.........................................................10
Section 4 Transfers.................................................................10
Section 5 Record Date...............................................................10
Section 6 Record Owners.............................................................11
ARTICLE VI NOTICES...................................................................11
Section 1 Notices...................................................................11
Section 2 Waivers of Notice.........................................................11
ARTICLE VII GENERAL PROVISIONS........................................................11
Section 1 Dividends.................................................................11
Section 2 Disbursements.............................................................12
Section 3 Fiscal Year...............................................................12
ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS.................................12
Section 1 Right to Indemnification..................................................12
Section 2 Miscellaneous.............................................................12
(a) Non-Exclusivity of Rights.................................................12
(b) Insurance, Contracts and Funding..........................................13
(c) Contractual Nature........................................................13
(d) Severability..............................................................13
ARTICLE IX AMENDMENTS................................................................13
Section 1 Amendments................................................................13
</TABLE>
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<PAGE> 46
BY-LAWS
OF
PHARMCHEM, 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. 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 (i) the chairman of
the board, (ii) the president, (iii) the secretary or (iv) 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, and may not
be called by any other person. 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 4. Notice of Stockholders' Meetings. All notices of meetings of
stockholders shall be sent or otherwise given in accordance with Article VI,
Section 1 of these by-laws not less than ten (10) nor more than sixty (60) days
before the date of the meeting. The notice shall specify the place, date, and
hour of the meeting and (i) in the case of a special meeting, the general nature
of the business to be transacted (no business other than that specified in the
notice may be transacted) or (ii) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to present for action by the stockholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
who, at the time of the notice, the board intends to present for election.
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At any meeting of stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before a meeting, business must be specified in the notice of the meeting (or
any supplement thereto) given by or at the direction of the board of directors
in accordance with this Section 4, otherwise properly brought before the meeting
by or at the direction of the board of directors, or otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the secretary of the Corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received by the
secretary of the Corporation no later than ninety (90) calendar days in advance
of the anniversary date of the prior year's annual meeting of stockholders.
A stockholder's notice to the secretary shall set forth as to each
matter the stockholder proposes to bring before the meeting: (i) a brief
description of the business desired to be brought before the meeting and the
reasons for conducting such business at the meeting, (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business, and (v) if applicable, any other information that
is required to be provided by the stockholder pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), in such
stockholder's capacity as a proponent of a stockholder proposal. Notwithstanding
the foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholders' meeting,
stockholders must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these by-laws to the contrary,
no business shall be conducted at any meeting except in accordance with the
procedures set forth in this Section 4. The chairman of the meeting shall, if
the facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this Section 4, and if the chairman should so determine, the chairman shall so
declare at the meeting that any such business not properly brought before the
meeting shall not be transacted.
Section 5. Nomination of Directors. Nominations for the election of
directors may be made by the board of directors or by any stockholder entitled
to vote for the election of directors. Any stockholder entitled to vote for the
election of directors at a meeting may nominate persons for election as
directors only if written notice of such stockholder's intent to make such
nomination is delivered to or mailed and received by the secretary of the
Corporation no later than (90) days in advance of the anniversary date of the
prior year's annual meeting of stockholders. Each such notice shall 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 Corporation 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 election of directors pursuant to the 1934 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 Corporation 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
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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 such 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 1934 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
Corporation unless nominated in accordance with the procedures set forth in this
Section 5. 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 6. Manner of Giving Notice; Affidavit of Notice. Written notice
of any meeting of stockholders shall be given either (i) personally, or (ii) by
first-class mail, or (iii) by facsimile or other written communication. Notices
not personally delivered shall be sent charges prepaid and shall be addressed to
the stockholder at the address of that stockholder appearing on the books of the
Corporation or given by the stockholder to the Corporation for the purpose of
notice. If no such address appears on the Corporation's books or is given,
notice shall be deemed to have been given if sent to that stockholder by mail or
telegraphic or other written communication to the Corporation's principal
executive office, or if published at least once in a newspaper of general
circulation in the county where that office in located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the Corporation is returned to the
Corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the stockholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
stockholder on written demand of the stockholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the Corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
Section 7. Adjournments. Any meeting of the stockholders, whether or not
a quorum is present, 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 (30) 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.
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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 stockholders for the
transaction of business. The stockholders present at a duly called meeting at
which a quorum is present may continue to transact business notwithstanding the
withdrawal of enough stockholders to leave less than a quorum. If a 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 7, until a quorum shall be present or represented.
Section 9. Voting. Except as otherwise provided by law, the Certificate
of Incorporation or these by-laws, all action taken by the holders of a majority
of the voting power represented at any meeting at which a quorum is present
shall be valid and binding upon the Corporation; provided, however, that
directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. 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. 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. Proxies. Unless otherwise provided in the Certificate of
Incorporation, each stockholder shall, at every meeting of the stockholders, be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, except that no proxy shall be
voted on or after eleven (11) months from its date, unless such proxy provides
for a longer period. A duly executed proxy shall be irrevocable if it states
that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy by the
stockholder or the stockholder's attorney-in-fact (whether by manual signature,
electronic transmission or other means permitted by law, provided that any such
means shall allow the inspector or inspectors of election to determine that such
transmission was authorized by the stockholder). A proxy may be made irrevocable
regardless of whether the interest with which it is coupled is an interest in
the stock itself or an interest in the Corporation generally.
Section 11. Inspectors of Election. The Corporation shall, in advance of
any meeting of stockholders, appoint one or more inspectors to act at the
meeting and make a written report thereof. The Corporation may designate one or
more persons as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting. Each inspector, before entering upon the discharge of his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector(s) shall: (1) ascertain the number of shares outstanding
and the voting power of each; (2) determine the shares represented at a meeting
and the validity of the proxies or ballots; (3) count all votes and ballots; (4)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors; and (5) certify the
determination of the number of shares represented at the meeting, and the count
of all votes and ballots. The inspector(s) may appoint
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or retain other persons or entities to assist the inspector(s) in the
performance of the duties of the inspector(s).
Section 12. 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 (10) 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 (10) 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 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 13. 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 12 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 14. 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
Section 1. Number and Election of Directors. The board of directors
shall consist of not less than three (3) nor more than seven (7) members, the
exact number of which shall be fixed 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
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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, electronic
transmission or any other means permitted by law on twenty-four (24) hours'
notice, or on 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. A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for that meeting. As used in this
Section 5, the term "entire board of directors" means the total number of
directors which the Corporation would have if there were no vacancies.
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, who may
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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 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 and a chief
financial officer or treasurer. The board of directors, in its discretion, also
may choose a chairman of the board (who must be a director) and one or more vice
presidents, assistant secretaries, assistant treasurers and such other officers
as the board of directors shall deem appropriate. Any number of offices may be
held by the same person, unless otherwise prohibited by law or the Certificate
of Incorporation. The officers
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of the Corporation need not be stockholders of the Corporation nor, except in
the case of the chairman of the board, 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 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 compensation of all officers of the Corporation shall be fixed
by, or in the manner determined by, the board of directors.
Section 3. Chairman of the Board. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may from time
to time be assigned by the board of directors or as may be prescribed by these
by-laws. If there is no president, then the chairman of the board shall also be
the chief executive officer of the Corporation and shall have the powers and
duties prescribed in Section 4 of these by-laws.
Section 4. President. Subject to such supervisory powers, if any, as may
be given by the board of directors to the chairman of the board, if there be
such an officer, the president shall be the chief executive officer of the
Corporation and shall be subject to the control of the board of directors, have
general supervision, direction, and control of the business and the officers of
the Corporation. He shall preside at all meetings of the stockholders and, in
the absence or nonexistence of a chairman of the board, at all meetings of the
board of directors. He shall have the general powers and duties of management
usually vested in the office of president of a Corporation, and shall have such
other powers and duties as may be prescribed by the board of directors or these
by-laws.
Section 5. Vice Presidents. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, a vice president designated by the board
of directors, shall perform all 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. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors, these by-laws, the president or the chairman of the board.
Section 6. Secretary. The secretary shall keep or cause to be kept, at
the principal executive office of the Corporation or such other place as the
board of directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and stockholders. The secretary shall keep,
or cause to be kept, at the principal executive office of the Corporation or at
the office of the Corporation's transfer agent or registrar, as determined by
resolution of the board of directors, a share register, or a duplicate share
register, showing the names of all stockholders and their addresses, the number
and classes of shares held by each, the number and date of certificates
evidencing such shares, and the number and date of cancellation of every
certificate surrendered for cancellation. The secretary shall give, or cause to
be given, notice of all meetings of the stockholders and of the board of
directors required to be given by
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law or by these by-laws and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or by these by-laws.
Section 7. Treasurer. The treasurer shall be the chief financial officer
of the Corporation. The treasurer shall keep and maintain, or cause to be keep
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The treasurer shall deposit all money and other
valuables in the name and to the credit of the Corporation with such
depositaries as may be designated by the board of directors. The treasurer shall
disburse the funds of the Corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all transactions as treasurer and of the financial condition
of the Corporation, and shall have such other powers and perform such other
duties as may be prescribed by the board of directors or these by-laws.
Section 8. 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,
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 9. 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,
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.
Section 10. 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.
Section 11. 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.
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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, 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 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 (60) nor less than ten (10) 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 the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the board of directors may fix a new record date for the adjourned meeting.
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<PAGE> 56
(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 (60) 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 stocks
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 stocks, and
shall not be bound to recognize any equitable or other claim to or interest in
such stock or stocks 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
thereon prepaid, and such notice shall be deemed to be given at the time when
the same is received. Written notice may also be given by facsimile, telex or
any other means permitted by law.
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 law 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 stocks 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
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<PAGE> 57
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.
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 the
calendar year.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in or called as a
witness in any Proceeding (as hereinafter defined) because he or she is an
Indemnified Person (as hereinafter defined), shall be indemnified and held
harmless by the Corporation to the fullest extent permitted under the Delaware
General Corporation Law (the "DGCL"), as the same now exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
the DGCL permitted the Corporation to provide prior to such amendment). Such
indemnification shall cover all expenses incurred by an Indemnified Person
(including, but not limited to, attorneys' fees and other expenses of
litigation) and all liabilities and losses (including, but not limited to,
judgments, fines, ERISA or other excise taxes or penalties and amounts paid or
to be paid in settlement) incurred by such person in connection therewith.
Notwithstanding the foregoing the Corporation shall indemnify an
Indemnified Person in connection with a Proceeding (or part thereof) initiated
by such person only if such Proceeding (or part thereof) was authorized by the
board of directors of the Corporation.
For purposes of this Article:
(i) a "Proceeding" is an action, suit or proceeding, whether
civil, criminal, administrative or investigative, and any appeal therefrom;
(ii) an "Indemnified Person" is a person who is, was, or had
agreed to become a director or an officer or a Delegate, as defined herein, of
the Corporation or the legal representative of any of the foregoing; and
(iii) a "Delegate" is a person serving at the request of the
Corporation or a subsidiary of the Corporation as a director, trustee,
fiduciary, or officer of such subsidiary or of another Corporation, partnership,
joint venture, trust or other enterprise.
Section 2. Miscellaneous.
(a) Non-Exclusivity of Rights. The rights conferred on any person
by this Article shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise. The board of directors shall have the authority, by
resolution, to provide for such indemnification of employees or agents of the
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<PAGE> 58
Corporation or others and for such other indemnification of directors, officers
or Delegates as it shall deem appropriate.
(b) Insurance, Contracts and Funding. The Corporation may
maintain insurance, at its expense, to protect itself and any director, officer,
employee, or agent of, or person serving in any other capacity with, the
Corporation or another Corporation, partnership, joint venture, trust or other
enterprise against any expenses, liabilities or losses, whether or not the
Corporation would have the power to indemnify such person against such expenses,
liabilities or losses under the DGCL. The Corporation may enter into contracts
with any director, officer or Delegate of the Corporation in furtherance of the
provisions of this Article and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect the
advancing of expenses and indemnification as provided in this Article.
(c) Contractual Nature. The provisions of this Article shall be
applicable to all Proceedings commenced or continuing after its adoption,
whether such arise out of events, acts or omissions which occurred prior or
subsequent to such adoption, and shall continue as to a person who has ceased to
be a director, officer or Delegate and shall inure to the benefit of the heirs,
executors and administrators of such person. This Article shall be deemed to be
a contract between the Corporation and each person who, at any time that this
Article is in effect, serves or agrees to serve in any capacity which entitles
such person to indemnification hereunder and any repeal or other modification of
this Article or any repeal or modification of the DGCL or any other applicable
law shall not limit any Indemnified Person's entitlement to indemnification
under this Article for Proceedings then existing or later arising out of events,
acts or omissions occurring prior to such repeal or modification, including,
without limitation, the right to indemnification for Proceedings commenced after
such repeal or modification to enforce this Article with regard to Proceedings
arising out of acts, omissions or events occurring prior to such repeal or
modification.
(d) Severability. If this Article or any portion hereof shall be
invalidated or held to be unenforceable on any ground by any court of competent
jurisdiction, the decision of which shall not have been reversed on appeal, such
invalidity or unenforceability shall not affect the other provisions hereof, and
this Article shall be construed in all respects as if such invalid or
unenforceable provisions had been omitted therefrom.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. The board of directors may from time to time
make, amend, supplement or repeal the by-laws; provided, however, that the
stockholders may change or repeal any by-law adopted by the board of directors
by the affirmative vote of the holders of a majority of the voting power of all
of the then outstanding shares of the capital stock of the Corporation entitled
to vote; and, provided further, that no amendment or supplement to the by-laws
adopted by the board of directors shall vary or conflict with any amendment or
supplement thus adopted by the stockholders.
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<PAGE> 59
PHARMCHEM LABORATORIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS MAY 16, 2000
The undersigned shareholder of PharmChem Laboratories, Inc., a California
corporation, hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders and Proxy Statement, each dated April 16, 2000, and hereby appoints
Joseph W. Halligan and David A. Lattanzio, and each of them individually, proxy
and attorney-in-fact, with full power of substitution, on behalf and in the name
of the undersigned, to represent the undersigned at the Annual Meeting of
Shareholders of PHARMCHEM LABORATORIES, INC., to be held on May 16, 2000 at
10:00 a.m. local time, at the Sheraton Hotel, 1100 North Mathilda Avenue,
Sunnyvale, California 94089 and at any adjournment(s) thereof, and to vote all
shares of Common Stock which the undersigned would be entitled to vote if then
and there personally present on the matters set forth below.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS INDICATED, WILL
BE VOTED FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED ON THE REVERSE
SIDE, FOR THE PROPOSAL TO CHANGE THE STATE OF INCORPORATION FROM CALIFORNIA TO
DELAWARE, AND FOR THE APPOINTMENT OF KPMG LLP AS INDEPENDENT PUBLIC ACCOUNTANTS
AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE
MEETING.
Either of such attorneys or substitutes shall have and may exercise all of
the powers of said attorneys-in-fact hereunder.
(TO BE MARKED, DATED AND SIGNED BELOW)
MAIL THIS PROXY BALLOT IN THE ENCLOSED SELF-ADDRESSED STAMPED ENVELOPE TO:
CHASEMELLON SHAREHOLDER SERVICES
PROXY PROCESSING
C/O PHARMCHEM LABORATORIES, INC.
1505 A O'BRIEN DRIVE
MENLO PARK, CALIFORNIA 94025-1435
<PAGE> 60
Please mark
your votes as
indicated in
this sample. [X]
<TABLE>
<S> <C> <C> <C> <C>
WITHHELD
FOR FOR ALL
1. ELECTION OF DIRECTORS: [ ] [ ]
Nominees: Joseph W. Halligan, Richard D. Irwin,
Donald R. Stroben
WITHHELD FOR: (Write that nominee's name in the
space provided below.)
-----------------------------------------------
2. PROPOSAL TO CHANGE THE STATE OF INCORPORATION FROM FOR AGAINST ABSTAIN
CALIFORNIA TO DELAWARE [ ] [ ] [ ]
3. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG LLP FOR AGAINST ABSTAIN
as independent public accountants for the company [ ] [ ] [ ]
for the 2000 fiscal year
4. Upon such other matters as may properly come FOR AGAINST ABSTAIN
before the meeting or any adjournments or [ ] [ ] [ ]
postponements thereof
</TABLE>
Check here if you plan to attend the Annual Meeting. [ ]
PLEASE COMPLETE, DATE AND SIGN THIS PROXY
AND RETURN IT IN THE ACCOMPANYING ENVELOPE.
Signature(s) Date
------------------------------------------- -----------------
NOTE: Please sign exactly as your name appears on this proxy. If signing for an
estate, trust or corporation, your title and capacity should be stated. If
shares are held jointly, each holder should sign.
TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE.
