-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FRJ0DWYiMDZA0h07sptscFTH08dX8dYfEOUQK2F4wdS6n+6zQutWSLznJOx5+i7/ DfbdlPzmDioDxezjvWqR0w== 0000891618-96-001635.txt : 19960911 0000891618-96-001635.hdr.sgml : 19960911 ACCESSION NUMBER: 0000891618-96-001635 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960809 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENELABS TECHNOLOGIES INC /CA CENTRAL INDEX KEY: 0000874443 STANDARD INDUSTRIAL CLASSIFICATION: 2835 IRS NUMBER: 943050093 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19222 FILM NUMBER: 96607036 BUSINESS ADDRESS: STREET 1: 505 PENOBSCOT DR CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 4153699500 10-Q 1 FORM 10-Q PERIOD ENDED 6/30/96 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly report pursuant to Section 13 or 15(d) of the Securities /X/ Exchange Act of 1934 for the quarterly period ended June 30, 1996. or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________________ to _________________. COMMISSION FILE NO. 0-19222 GENELABS TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) CALIFORNIA 94-3010150 (State or other jurisdiction of (I.R.S. employer identification number) incorporation or organization) 505 PENOBSCOT DRIVE, REDWOOD CITY, CALIFORNIA 94063 (Address of principal executive offices) (Zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 369-9500 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- There were 36,343,756 shares of the Registrant's Common Stock issued and outstanding on July 31, 1996. This report consists of 22 sequentially numbered pages. The exhibit index is located on sequentially numbered page 11. 1 2 PART I -- FINANCIAL INFORMATION Item 1. Financial Statements GENELABS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
ASSETS JUNE 30, DECEMBER 31, 1996 1995 ----------- ------------ (Unaudited) (Note) Current assets: Cash and cash equivalents $ 784 $ 22,557 Short-term investments 23,187 -- Accounts receivable 3,276 2,489 Inventories 3,216 3,336 Other current assets 480 716 --------- --------- Total current assets 30,943 29,098 Property and equipment, net 1,730 1,945 Investment in Genelabs Biotechnology Ltd. 4,843 4,828 Other assets 186 327 --------- --------- $ 37,702 $ 36,198 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term obligations $ 227 $ 3,200 Accounts payable and other accrued liabilities 4,273 5,002 Accrued compensation and related expenses 1,711 2,120 --------- --------- Total current liabilities 6,211 10,322 Long-term obligations, excluding current portion 66 124 Shareholders' equity: Preferred stock 9,682 9,682 Common stock 126,538 115,002 Accumulated deficit (104,795) (98,932) --------- --------- Total shareholders' equity 31,425 25,752 --------- --------- $ 37,702 $ 36,198 ========= =========
See notes to condensed consolidated financial statements. Note: The condensed consolidated balance sheet at December 31, 1995 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. 2 3 GENELABS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, 1996 1995 1996 1995 -------- -------- -------- -------- Revenues: Product sales $ 2,971 $ 2,672 $ 5,713 $ 4,811 Contract and other 316 659 529 1,274 Chiron/Ortho diagnostics alliance -- 4,000 -- 6,000 -------- -------- -------- -------- Total revenues 3,287 7,331 6,242 12,085 -------- -------- -------- -------- Operating costs and expenses: Cost of product sales 1,527 1,626 2,996 2,849 Purchased in-process research and development -- -- -- 949 Research and development 2,551 2,589 4,996 5,512 Selling, general and administrative 2,307 2,450 4,446 4,643 -------- -------- -------- -------- Total operating costs and expenses 6,385 6,665 12,438 13,953 -------- -------- -------- -------- Operating (loss)/income (3,098) 666 (6,196) (1,868) Interest income/(expense), net 287 18 528 (22) Other (expense)/income (67) 24 (150) 203 Equity in income/(loss) of Genelabs Biotechnology, Ltd 27 -- (50) -- -------- -------- -------- -------- Net (loss)/income $ (2,851) $ 708 $ (5,868) $ (1,687) ======== ======== ======== ======== Net (loss)/income per share $ (0.08) $ 0.02 $ (0.17) $ (0.07) ======== ======== ======== ======== Weighted average shares outstanding 36,236 31,887 34,978 24,558 ======== ======== ======== ========
See notes to condensed consolidated financial statements. 3 4 GENELABS TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS) (IN THOUSANDS) (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1996 1995 -------- -------- Cash flows from operating activities: Net loss $ (5,868) $ (1,687) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization expense 426 567 Amortization of unearned contract revenue -- (667) Purchased in-process research and development -- 949 Equity in loss of Genelabs Biotechnology, Ltd. 50 -- Changes in assets and liabilities: Receivables (787) (409) Inventories 120 141 Accounts payable, accrued compensation and other accrued liabilities (1,138) (99) Other assets/liabilities 236 230 -------- -------- Net cash used in operating activities (6,961) (975) -------- -------- Cash flows from investing activities: Purchases of securities available-for-sale (25,000) -- Proceeds from sale of securities available-for-sale 1,813 -- Maturities of securities available-for-sale -- 1,031 Capital expenditures (211) (315) Other 78 386 -------- -------- Net cash (used in)/provided by investing activities (23,320) 1,102 -------- -------- Cash flows from financing activities: Payments on long-term obligations (3,031) (32) Proceeds from issuance of convertible preferred stock, net -- 9,713 Proceeds from issuance of common stock, net 11,537 154 -------- -------- Net cash provided by financing activities 8,506 9,835 -------- -------- Effect of exchange rate change on cash 2 45 -------- -------- Net (decrease)/increase in cash and cash equivalents (21,773) 10,007 Cash and cash equivalents, beginning of the period 22,557 3,562 -------- -------- Cash and cash equivalents, end of the period $ 784 $ 13,569 ======== ========
See notes to condensed consolidated financial statements. 4 5 GENELABS TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1996 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include the accounts of Genelabs Technologies, Inc. and its wholly-owned subsidiaries ("Genelabs" or "the Company") after elimination of all significant intercompany accounts and transactions. These financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 1996 are not necessarily indicative of the results for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K, as amended by its Form 10-K/A, for the year ended December 31, 1995. Certain prior year amounts have been reclassified to conform to the current year presentation. 2. INVENTORIES The components of inventory are as follows (in thousands):
June 30, December 31, 1996 1995 -------- ------------ Finished goods $1,150 $1,260 Work-in-process 278 167 Raw materials 1,788 1,909 ------ ------ $3,216 $3,336 ====== ======
3. EXERCISE OF WARRANTS In 1995, the Company issued 6.5 million shares of common stock through a private offering. Each purchaser of these shares was also eligible to receive a warrant to purchase one-half share of common stock for each share purchased in the offering and held until a specified date. The Company had the option to call the warrants if Genelabs' common stock price averaged $5.50 or more over any consecutive 30 trading day period. In February 1996, this target was met and the Company exercised its right to call all warrants issuable in connection with this private offering. During February and March 1996, approximately 3.2 million additional shares of the Company's common stock were issued at $3.39 per share as a result of the exercise of the warrants, resulting in net proceeds of approximately $10.3 million. 5 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements All statements in Management's Discussion and Analysis of Financial Condition and Results of Operations that are not historical are forward-looking statements which involve a number of risks and uncertainties. Among the factors that could cause actual results of the Company's activities to differ materially are product non-approval or delays by the U.S. Food and Drug Administration ("FDA") and foreign regulatory authorities, product development, manufacturing and market acceptance risks, the impact of competitive products, pricing and intellectual property rights, the results of current and future licensing and other collaborative relationships and other factors and risks detailed in the Company's 1995 Annual Report on Form 10-K, 10-K/A and other filings with the U.S. Securities and Exchange Commission. OVERVIEW Genelabs is an international biopharmaceutical and diagnostics company focused on viral and immunological disorders. The Company's mission is to conduct targeted research, exploit new technologies, develop innovative drugs for diseases such as lupus, and commercialize diagnostic and biopharmaceutical products. Using Genelabs' core technologies and expertise in drug and viral discovery, the Company is engaged in the research and development of potential new therapeutics and vaccines, both internally and through collaborations with academic institutions and corporations. The Company's diagnostics business is generating current revenue and expects to generate future revenue from the sale of viral and other diagnostic products, although diagnostic product revenues are not anticipated to offset the Company's total operating expenses. The Company expects to continue to invest in biopharmaceutical product research and development. Substantial revenue from the sale of biopharmaceutical products is not expected until the launch of its first biopharmaceutical products, which is not expected to occur for several years, if at all. The Company is seeking collaborations for certain of its technologies with other pharmaceutical companies to maximize sales of products that may result from those technologies and to obtain funding for a portion of its research and development expenses. However, Genelabs expects to continue to incur operating losses for at least the next several years. RESULTS OF OPERATIONS Revenues Revenues include both diagnostic product sales and contract and other revenue. Diagnostic product sales were $3.0 million for the three months ended June 30, 1996, compared to $2.7 million for the same period in 1995. For the six months ended June 30, 1996, diagnostic product sales were $5.7 million compared to $4.8 million for the same period in 1995. For both the three and six month periods ended June 30, 1996, the most notable increases in product sales were for the Company's Western Blot and Rapid Test products. 6 7 Contract and other revenues include licensing, milestone and research and development payments. Contract and other revenue, exclusive of the 1995 up-front payments received from Chiron Corporation ("Chiron") and Ortho Diagnostic Systems, Inc. ("Ortho"), was $0.3 million and $0.5 million for the three and six month periods ended June 30, 1996, respectively, compared to $0.7 million and $1.3 million for the same periods in 1995. The revenue received from Chiron and Ortho will be discussed separately in the following paragraph. The 1996 decreases, compared to the same period in 1995, were primarily due to the recognition in 1995 of deferred revenue received in an earlier year for a collaboration to develop a vaccine for the hepatitis E virus. For the three months ended June 30, 1995, contract and other revenue included $4.0 million from a collaboration with Chiron and Ortho for development of diagnostic products for the hepatitis G virus ("HGV"), which was discovered by Genelabs. For the six months ended June 30, 1995, contract and other revenue included $6.0 million from this collaboration. Because this revenue represented up-front payments from the signing of an agreement, there was no comparable revenue in 1996. Contract and other revenues recognized in the future will be dependent upon the Company's achieving milestones under current agreements and entering into new research and development and licensing agreements with corporate collaborators. Cost of Product Sales Despite the previously noted increase in diagnostic sales for the second quarter of 1996 compared to the second quarter of 1995, the cost of product sales decreased to $1.5 million, compared to $1.6 million for the same period in 1995. Cost of product sales as a percentage of product sales decreased to 51% from 61% for the same periods. The decrease in cost of product sales, both in dollars and as a percentage of product sales, reflects higher sales levels of more profitable products and better production yields. For the first six months of 1996, cost of product sales was $3.0 million compared to $2.8 million for the same period in 1995. The increase in cost of product sales occurred because of the higher sales levels. Gross margins improved due to better production yields and higher sales levels of more profitable products. Research and Development Expenses The Company's research and development expenses were $2.6 million for both the three months ended June 30, 1996 and the three months ended June 30, 1995. For the six months ended June 30, 1996, research and development expenses were $5.0 million compared to $5.5 million for the same period in 1995. This reduction reflects the Company's concentration of available funds on certain projects while reducing or eliminating others. The Company's principal ongoing research and development expenses are directed toward its priority programs, in particular, the clinical development of GL701 (DHEA) for lupus and research activities concerning DNA-binding technology and the hepatitis G virus. In the first quarter of 1995, the Company recorded a nonrecurring, noncash charge of $0.9 million for purchased in-process research and development for the fair market value of shares issued in 1995 in connection with the 1993 acquisition of Genelabs Diagnostics (Pte.) Ltd. Selling, General and Administrative Expenses Selling, general and administrative expenses were $2.3 million and $2.5 million for the quarters ended June 30, 1996 and 1995, respectively. For the six months ended June 30, 1996 and 1995, selling, general and administrative expenses were $4.5 million and $4.6 million, respectively. The decline in these expenses reflects the Company's continuing efforts to contain operating expenses. Interest Income/(Expense), Net Net interest income increased in 1996 over the comparable periods of 1995 due to higher average cash and short-term investment balances. 7 8 Net Loss The Company has operated at a loss since its inception and had an accumulated deficit of $104.8 million as of June 30, 1996. The net loss for the three months ended June 30, 1996 was $2.9 million, compared to net income of $0.7 million for the same period in 1995. In comparing these two periods, it is important to note that in 1995 $4.0 million in revenue was recognized in connection with the above-noted collaboration among Genelabs, Chiron and Ortho. Excluding this collaboration revenue, the Company's net loss improved by $0.4 million, primarily due to increased gross margin on the Company's diagnostic product sales. For the six months ended June 30, 1996, the net loss was $5.9 million, compared to a loss of $1.7 million for the same period in 1995. Excluding the $6.0 million collaboration revenue from Chiron and Ortho recognized in the first six months of 1995, the net loss improved by $1.8 million, primarily due to improved gross margins on the Company's diagnostic product sales and noncash costs of $0.9 million recognized in the first quarter of 1995, related to a previous year's acquisition. LIQUIDITY AND CAPITAL RESOURCES The Company had cash, cash equivalents and short-term investments totaling $24.0 million at June 30, 1996, compared to $22.6 million at December 31, 1995. In the first quarter of 1996, the Company received $10.3 million from the exercise of warrants issued in connection with an August 1995 private placement and the Company paid $2.8 million upon the maturity of its subordinated convertible debentures. Excluding these two items, cash, cash equivalents and short-term investments would have declined by $6.1 million for the six months ended June 30, 1996. This decline is attributable primarily to the Company's operating activities which used $7.0 million during this six-month period, partially offset by additional proceeds from the issuance of stock unrelated to the warrants. The Company has funded its operations since inception primarily through public and private offerings of its common stock, private offerings of its preferred stock, contract revenues and product sales. The Company has no bank debt or other credit lines. Genelabs' expects to incur substantial additional costs, including costs for clinical trials for products currently under development. The amount of the additional costs, as well as increased expenditures necessary for working capital and capital requirements, will depend on numerous factors, including the timing and outcome of any regulatory actions related to the Company's products. In addition, funding requirements will depend on the progress of the Company's research and development programs as well as its ability to establish and maintain collaborations with other pharmaceutical companies to fund these programs. The Company anticipates that its current resources, expected revenues from existing collaborative agreements and continued efforts to minimize expenses will enable it to maintain its current and planned operations at least through 1997. Thereafter, the Company may need to raise additional funding, for which the Company is pursuing several options, including collaborative research and development arrangements with pharmaceutical companies. There can be no assurance that additional funds will be available on favorable terms, if at all. Insufficient funds may require the Company to delay, scale back or eliminate some or all of its research and product development programs or to license third parties the right to commercialize products or technologies that the Company would otherwise seek to develop itself. 8 9 Certain Business Risks Genelabs is at an early stage of development. The Company has experienced significant operating losses since its inception and expects to incur significant operating losses over the next several years. The development of the Company's proposed products will require a commitment of substantial funds to conduct these costly and time-consuming activities. The Company's technologies, including DNA-binding technology, are in many cases new and still under development. All of Genelabs' proposed therapeutic products, including GL701 for the treatment of lupus, are in research or development and will require substantial additional research and development efforts prior to any commercial use, including extensive clinical testing as well as potentially lengthy regulatory approval. Genelabs currently is discussing the possibility of drug discovery research collaborations using its DNA-binding technology with various pharmaceutical companies. No assurance can be given as to the ability of the Company to complete an agreement with such a collaborator on a timely basis or at all. The Company currently is conducting Phase III clinical trials for GL701. No assurance can be given as to the results of these trials, the safety or efficacy of this drug candidate or, in any event, the ability of Genelabs to obtain regulatory approval for the commercialization of the drug candidate. The active ingredient in GL701 is dehydroepiandrosterone ("DHEA"). DHEA is currently being marketed by others as an over the counter dietary supplement. The Company believes that DHEA is a drug that is subject to regulation and approval by the FDA. The Company further believes that in several instances these supplements do not contain true DHEA, but instead contain related substances that are not biologically equivalent. However, to date the FDA has taken no action to limit or regulate the sale of these dietary supplements, and no assurance can be given as to the willingness or ability of the FDA to do so in the future. In the event that clinical trials for GL701 are promising and the drug candidate receives FDA marketing approval, the concurrent sale of these dietary supplements could adversely affect the market for or selling prices of GL701. The Company is continuing its research and development efforts related to the hepatitis G virus. However, Genelabs has recently reduced expenditures on this program. While the presence of this virus has been detected in blood samples contained in the U.S., Europe, Japan and elsewhere, the Company and its collaborators are still seeking to determine the nature and severity of any diseases specifically caused by HGV. In order to test for HGV generally in the blood banks, the Company and its licensors are continuing efforts to develop a serological assay. To date, no such assay has been introduced. The Company has only limited sales, marketing and distribution capabilities. If the Company successfully develops any new products, Genelabs must either rely on large pharmaceutical companies to market such products or must develop a marketing and sales force with technical expertise and supporting distribution capability in order to market such products directly. Also inherent in the Company's stage of development is a range of additional risks, including competition, uncertainties regarding protection or patents and proprietary rights and the possibility of infringement of the proprietary rights of others, government regulation, and uncertainties regarding health care reform. 9 10 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On May 30, 1996, the Company held its Annual Meeting of shareholders. Matters voted upon at the meeting and the number of affirmative votes, negative votes, withheld votes and abstentions cast with respect to each such matter were as follows:
Affirmative Withheld Votes Votes 1. Election of the Company's Directors: Irene A. Chow 30,750,494 540,335 Edgar G. Engleman 30,706,638 584,191 Zhongxin M. Gong 30,748,134 542,695 Arthur Gray, Jr. 30,737,334 553,495 H.H. Haight 30,750,464 540,365 Frank F.C. Kung 30,740,479 550,350 Damaris Skouras 30,548,055 742,774 Max Wilhelm 30,748,134 542,695
Affirmative Negative Votes Votes Abstentions 2. Approval of the amendment to the 1995 Employee Stock Option Plan 26,787,239 2,285,381 2,218,209 * 3. Approval of the amendment to the 1987 Directors' Stock Option Plan 28,016,349 693,970 2,580,510 * 4. Ratification of Ernst & Young LLP as independent certified public accountants 30,954,069 35,840 300,920
* Includes 1,807,850 broker non-votes. 10 11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 10.30 Registrant's 1996 Genelabs Biotechnology. Ltd. Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 4.04 to the Registrant's Registration Statement on Form S-8 (File No. 33-34806) filed on May 7, 1996 (the "May 1996 Form S-8")). 10.31 Registrant's Non-Plan Stock Option (incorporated herein by reference to Exhibit 4.05 to the May 1996 Form S-8). 10.32 Registrant's 1992 Restricted Stock Award Plan, as amended (incorporated herein by reference to Exhibit 4.06 to the May 1996 Form S-8). 10.33 Registrant's 1995 Employee Stock Option Plan, as amended (incorporated herein by reference to Exhibit 4.04 to the Registrant's Registration Statement on Form S-8 (File No. 333-05769) filed on June 12, 1996). 10.34 Registrant's 1991 Employee Stock Purchase Plan, as amended. (b) REPORTS ON FORM 8-K During the quarter ended June 30, 1996, the Company filed no Current Reports on Form 8-K. 11 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENELABS TECHNOLOGIES, INC. (Registrant) PRINCIPAL EXECUTIVE OFFICER: /s/ IRENE A. CHOW Date: August 8, 1996 _____________________________________ IRENE A. CHOW President and Chief Executive Officer PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER: /s/ CYNTHIA E. NATHAN Date: August 8, 1996 _____________________________________ CYNTHIA E. NATHAN Vice President, Controller 12 EX-10.34 2 GENELABS EMPLOYEE STOCK PURCHASE PLAN 1 Exhibit 10.34 GENELABS TECHNOLOGIES, INC. EMPLOYEE STOCK PURCHASE PLAN (Adopted by the Board of Directors on April 24, 1991) As Amended February 11, 1994, September 20, 1995 and January 26, 1996 1. ESTABLISHMENT OF PLAN Genelabs Technologies, Inc. (the "Company") proposes to grant options for purchase of the Company's Common Stock (an "Offering") to eligible employees of the Company and its Subsidiaries (as hereinafter defined) pursuant to this Employee Stock Purchase Plan (this "Plan"). For purposes of this Plan, "Parent Corporation" and "Subsidiary" (collectively, "Subsidiaries") shall have the same meanings as "parent corporation" and "subsidiary corporation" in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). The Company intends the Plan to qualify as an "employee stock purchase plan" under Section 423 of the Code (including any amendments to or replacements of such Section), and the Plan shall be so construed. Any term not expressly defined in the Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. A total of 500,000 shares of the Company's Common Stock are reserved for issuance under the Plan. Such number shall be subject to adjustments effected in accordance with Section 14 of the Plan. 2. PURPOSE The purpose of the Plan is to provide employees of the Company and Subsidiaries designated by the Board of Directors of the Company (the "Board") as eligible to participate in the Plan with a convenient means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees' sense of participation in the affairs of the Company and Subsidiaries, and to provide an incentive for continued employment. 3. ADMINISTRATION This plan may be administered by the Board or a committee appointed by the Board (the "Committee"). If, at the time the Company registers under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), a majority of the Board is not comprised of Disinterested Persons as defined in Rule 16b-3(d) promulgated under the Exchange Act, the Board shall appoint a committee consisting of not less than three (3) persons (who need not be members of the Board), each of whom is a Disinterested Person. As used in this Plan, references to the "Committee" shall mean either such committee or the Board if no committee has been established. After registration of the Company under the Exchange Act, Board members who are not Disinterested Persons may not vote on any matters affecting the administration of this Plan, but any such member may be counted for determining the existence of a quorum at any meeting of the Board. Subject to the provisions of the Plan and 2 Exhibit 10.34 Genelabs Technologies, Inc. Employee Stock Purchase Plan the limitations of Section 423 of the Code or any successor provision in the Code, all questions of interpretation or application of the Plan shall be determined by the Board and its decisions shall be final and binding upon all participants. Members of the Board shall receive no compensation for their services in connection with the administration of the Plan, other than standard fees as established from time to time by the Board for services rendered by Board members serving on Board committees. All expenses incurred in connection with the administration of the Plan shall be paid by the Company. 4. ELIGIBILITY Any employee of the Company or the Subsidiaries is eligible to participate in an Offering Period (as hereinafter defined) under the Plan except the following: (a) employees who are not employed by the Company or Subsidiaries on the fifteenth (15th) day of the month before the beginning of such Offering Period; (b) employees who are customarily employed for less than 20 hours per week; (c) employees who are customarily employed for less than 5 months in a calendar year; (d) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock or who, as a result of being granted an option under the Plan with respect to such Offering Period, would own stock or hold options to purchase stock possessing 5 percent or more of the total combined voting power or value of all classes of stock of the Company or any of its Subsidiaries. 5. OFFERING DATES The Offering Periods of the Plan (the "Offering Period") shall be of twenty-four (24) months duration commencing on January 2 and July 2 of each year and ending on July 1 and January 1 of each year. Each Offering Period shall consist of four (4) six-month purchase periods (individually, a "Purchase Period") during which payroll deductions of the participants are accumulated under the Plan. The first business day of each Offering Period is referred to as the "Offering Date". The last business day of each Offering Period is referred to as the "Purchase Date". Notwithstanding the foregoing, if the fair market value of the Company's Common Stock on any Purchase Date is less than it was on an Offering Date, then the Offering Period (s) for such Offering Date(s) shall immediately terminate and a new Offering Period shall commence for those employees participating in such terminated Offerings (See also Section 11(c) below). The Board shall have the power to change the duration of Offering Periods or Purchase Periods with respect to offerings without shareholder approval if such change is announced at least fifteen (15) days prior to the scheduled beginning of the first Offering Period or Purchase Period to be affected. -2- 3 Exhibit 10.34 Genelabs Technologies, Inc. Employee Stock Purchase Plan 6. PARTICIPATION IN THE PLAN Eligible employees may become participants in an Offering Period under the Plan upon the commencement of the next Purchase Period after satisfying the eligibility requirements by delivering a subscription agreement to the Company's or Subsidiary's (whichever employs such employee) Treasury Department (the "Treasury Department") not later than the 15th day of the month before such Purchase Period begins unless a later time for filing the subscription agreement authorizing payroll deductions is set by the Board for all eligible employees with respect to a given Purchase Period. An eligible employee who does not deliver a subscription agreement to the Treasury Department by such date after becoming eligible to participate in such Purchase Period shall not participate in that Purchase Period or any subsequent Purchase Period unless such employee enrolls in the Plan by filing a subscription agreement with the Treasury Department not later than the 15th day of the month preceding the beginning of a subsequent Purchase Period. Once an employee becomes a participant in a Purchase Period, such employee will automatically participate in the next Purchase Period unless the employee withdraws from the Plan or terminates further participation in the Purchase Period as set forth in Section 11 below. Such participant is not required to file any additional subscription agreement in order to continue participation in the Plan. 7. GRANT OF OPTION ON ENROLLMENT Enrollment by an eligible employee in the Plan with respect to an Offering Period will constitute the grant (as of the Offering Date) by the Company to such employee of an option to purchase on the Purchase Date up to that number of shares of Common Stock of the Company determined by dividing the amount accumulated in such employee's payroll deduction account during such Purchase Period by the lower of (i) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Offering Date (the "Entry Price") or (ii) eighty-five percent (85%) of the fair market value of a share of the Company's Common Stock on the Purchase Date; provided, however, that the number of shares of the Company's Common Stock subject to any option granted pursuant to this Plan shall not exceed the lesser of (a) the maximum number of shares set by the Board pursuant to Section 10(c) below with respect to the applicable Purchase Period, or (b) the maximum number of shares which may be purchased pursuant to Section 10(b) below with respect to the applicable Purchase Period. Fair market value of a share of the Company's Common Stock shall be determined as provided in Section 8 hereof. 8. PURCHASE PRICE The purchase price per share at which a share of Common Stock will be sold during any Offering Period shall be 85 percent of the lesser of: (a) The fair market value on the Offering Date; or (b) The fair market value on the Purchase Date. -3- 4 Exhibit 10.34 Genelabs Technologies, Inc. Employee Stock Purchase Plan For purposes of the Plan, the term "fair market value" on a given date shall mean the closing price from the previous day's trading of a share of the Company's Common Stock as reported on The Nasdaq National Market. 9. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF SHARES (a) The purchase price of the shares is accumulated by regular payroll deductions made during each Purchase Period. The deductions are made as a percentage of the participant's compensation in one percent increments not less than 2 percent nor greater than 10 percent, not to exceed $25,000 per year or such other limit set by the Committee. Compensation shall mean all W-2 compensation, including, but not limited to base salary, wages, commissions, overtime, shift premiums and bonuses, plus draws against commissions; provided, however, that for purposes of determining a participant's compensation, any election by such participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code shall be treated as if the participant did not make such election. Payroll deductions shall commence on the first payday following the Offering Date and shall continue to the end of the Purchase Period unless sooner altered or terminated as provided in the Plan. (b) A participant may lower (but not increase) the rate of payroll deductions during a Purchase Period by filing with the Treasury Department a new authorization for payroll deductions, in which case the new rate shall become effective for the next payroll period commencing more than 15 days after the Treasury Department's receipt of the authorization and shall continue for the remainder of the Purchase Period unless changed as described below. Such change in the rate of payroll deductions may be made at any time during a Purchase Period, but not more than one change may be made effective during any Purchase Period. A participant may increase or decrease the rate of payroll deductions for any subsequent Purchase Period by filing with the Treasury Department a new authorization for payroll deductions not later than the 15th day of the month before the beginning of such Purchase Period. An increase or decrease in your payroll deduction does not start a new Offering Period. (c) All payroll deductions made for a participant are credited to his or her account under the Plan and are deposited with the general funds of the Company. No interest accrues on the payroll deductions. All payroll deductions received or held by the Company may be used by the Company for any corporate purposes, and the Company shall not be obligated to segregate such payroll deductions. (d) On each Purchase Date, so long as the Plan remains in effect and provided that the participant has not submitted a signed and completed withdrawal form before that date which notifies the Company that the participant wishes to withdraw from that Purchase Period under the Plan and have all payroll deductions accumulated in the account maintained on behalf of the participant as of that date returned to the participant, the Company shall apply the funds then in the participant's account to the purchase of whole shares of Common -4- 5 Exhibit 10.34 Genelabs Technologies, Inc. Employee Stock Purchase Plan Stock reserved under the option granted to such participant with respect to the Purchase Period to the extent that such option is exercisable on the Purchase Date. The purchase price per share shall be as specified in Section 8 of the Plan. Any cash remaining in a participant's account after such purchase of shares shall be refunded to such participant in cash, without interest; provided, however, that any amount remaining in such participant's account on a Purchase Date which is less than the amount necessary to purchase a full share of Common Stock of the Company shall be carried forward, without interest, into the next Purchase Period. In the event that the Plan has been oversubscribed, all funds not used to purchase shares on the Purchase Date shall be returned to the participant, without interest. No Common Stock shall be purchased on a Purchase Date on behalf of any employee whose participation in the Plan has terminated prior to such Purchase Date. (e) As promptly as practicable after the Purchase Date, the Company shall arrange the delivery to each participant of a certificate representing the shares purchased upon exercise of his option; provided that the Board may deliver certificates to a broker or brokers that hold such certificate in a street name for the benefit of each such participant. (f) During a participant's lifetime, such participant's option to purchase shares hereunder is exercisable only by him or her. The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised. Shares to be delivered to a participant under the Plan will be registered in the name of the participant or in the name of the participant and his or her spouse. 10. LIMITATIONS ON SHARES TO BE PURCHASED (a) No employee shall be entitled to purchase stock under the Plan at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company or any Subsidiary, exceeds $25,000 in fair market value, determined as of the Offering Date (or such other limit as may be imposed by the Code) for each calendar year in which the employee participates in the Plan. (b) No more than 200% of the number of shares determined by using 85% of the fair market value of a share of the Company's Common Stock on the Offering Date as the denominator may be purchased by a participant on any single Purchase Date. (c) No employee shall be entitled to purchase more than the Maximum Share Amount (as defined below) on any single Purchase Date. Not less than thirty days prior to the commencement of any Purchase Period, the Board may, in its sole discretion, set a maximum number of shares which may be purchased by any employee at any single Purchase Date (hereinafter the "Maximum Share Amount"). In no event shall the Maximum Share Amount exceed the amounts permitted under Section 10(b) above. If a new Maximum Share Amount is set, then all participants must be notified of such Maximum Share Amount not less than fifteen days prior to the commencement of the next Purchase Period. Once the Maximum Share Amount is set, it shall continue to apply with respect to all succeeding Purchase Dates and Purchase Periods unless revised by the Board as set forth above. -5- 6 Exhibit 10.34 Genelabs Technologies, Inc. Employee Stock Purchase Plan (d) If the number of shares to be purchased on a Purchase Date by all employees participating in the Plan exceeds the number of shares then available for issuance under the Plan, the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be practicable and as the Board shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares to be purchased under a participant's option to each participant affected thereby. (e) Any payroll deductions accumulated in a participant's account which are not used to purchase stock due to the limitations in this Section 10 shall be returned to the participant as soon as practicable after the end of the Purchase Period, without interest. 11. WITHDRAWAL (a) Each participant may withdraw from a Purchase Period under the Plan by signing and delivering to the Treasury Department notice on a form provided for such purpose. Such withdrawal may be elected at any time at least 15 days prior to the end of a Purchase Period. (b) Upon withdrawal from the Plan, the accumulated payroll deductions shall be returned to the withdrawn participant, without interest, and his or her interest in the Plan shall terminate. In the event a participant voluntarily elects to withdraw from the Plan, he or she may not resume his or her participation in the Plan during the same Purchase Period, but he or she may participate in any Purchase Period under the Plan which commences on a date subsequent to such withdrawal by filing a new authorization for payroll deductions in the same manner as set forth above for initial participation in the Plan. (c) For an Offering Period in which a participant is enrolled, if the fair market value of the Company's Common Stock on the Purchase Date is less than it was on the Offering Date, the Company will automatically enroll such participant in the subsequent Offering Period. A participant does not need to file any forms with the Company to automatically be enrolled in the subsequent Offering Period. 12. TERMINATION OF EMPLOYMENT Termination of a participant's employment for any reason, including retirement, death or the failure of a participant to remain an eligible employee, immediately terminates his or her participation in the Plan. In such event, the payroll deductions credited to the participant's account will be returned to him or her or, in the case of his or her death, to his or her legal representative, without interest. For purposes of this Section 12, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company in the case of sick leave, military leave, or any other leave of absence approved by the Board; provided that such leave is for a period of not more than ninety (90) days or reemployment upon the expiration of such leave is guaranteed by contract or statute. -6- 7 Exhibit 10.34 Genelabs Technologies, Inc. Employee Stock Purchase Plan 13. RETURN OF PAYROLL DEDUCTIONS In the event a participant's interest in the Plan is terminated by withdrawal, termination of employment or otherwise, or in the event the Plan is terminated by the Board, the Company shall promptly deliver to the participant all payroll deductions credited to his account. No interest shall accrue on the payroll deductions of a participant in the Plan. 14. CAPITAL CHANGES Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but have not yet been placed under option (collectively, the "Reserves"), as well as the price per share of Common Stock covered by each option under the Plan which has not yet been exercised, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split or the payment of a stock dividend (but only on the Common Stock) or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. In the event of the proposed dissolution or liquidation of the Company, the Purchase Period will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that the options under the Plan shall terminate as of a date fixed by the Board and give each participant the right to exercise his or her option as to all of the optioned stock, including shares which would not otherwise be exercisable. In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each option under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the participant shall have the right to exercise the option as to all of the optioned stock. If the Board makes an option exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the participant that the option shall be fully exercisable for a period of twenty (20) days from the date of such notice, and the option will terminate upon the expiration of such period. The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered -7- 8 Exhibit 10.34 Genelabs Technologies, Inc. Employee Stock Purchase Plan by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, or in the event of the Company being consolidated with or merged into any other corporation. 15. NONASSIGNABILITY Neither payroll deductions credited to a participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 22 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect. 16. REPORTS Individual accounts will be maintained for each participant in the Plan. Each participant shall receive promptly after the end of each Purchase Period a report of his account setting forth the total payroll deductions accumulated, the number of shares purchased, the per share price thereof and the remaining cash balance, if any, carried forward to the next Purchase Period. 17. NOTICE OF DISPOSITION Each participant shall notify the Company if the participant disposes of any of the shares purchased in any Purchase Period pursuant to this Plan if such disposition occurs within two years from the Offering Date or within one year from the Purchase Date on which such shares were purchased (the "Notice Period"). Unless such participant is disposing of any of such shares during the Notice Period, such participant shall keep the certificates representing such shares in his or her name (and not in the name of a nominee) during the Notice Period. The Company may, at any time during the Notice Period, place a legend or legends on any certificate representing shares acquired pursuant to the Plan requesting the Company's transfer agent to notify the Company of any transfer of the shares. The obligation of the participant to provide such notice shall continue notwithstanding the placement of any such legend on the certificates. 18. NO RIGHTS TO CONTINUED EMPLOYMENT Neither this Plan nor the grant of any option hereunder shall confer any right on any employee to remain in the employ of the Company or any Subsidiary, or restrict the right of the Company or any Subsidiary to terminate such employee's employment. 19. EQUAL RIGHTS AND PRIVILEGES All eligible employees shall have equal rights and privileges with respect to the Plan so that the Plan qualifies as an "employee stock purchase plan" within the meaning of Section 423 or any successor provision of the Code and the related regulations. Any provision of the -8- 9 Exhibit 10.34 Genelabs Technologies, Inc. Employee Stock Purchase Plan Plan which is inconsistent with Section 423 or any successor provision of the Code shall, without further act or amendment by the Company or the Board, be reformed to comply with the requirements of Section 423. This Section 19 shall take precedence over all other provisions in the Plan. 20. NOTICES All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 21. SHAREHOLDER APPROVAL OF AMENDMENTS Any required approval by the shareholders of the Company shall be solicited substantially in accordance with Section 14(a) of the Exchange Act, and the rules and regulations promulgated thereunder. Such approval of an amendment shall be solicited at or prior to the first annual meeting of shareholders held subsequent to the grant of an option under the Plan to an employee of the Company. If such shareholder approval is obtained at a duly held shareholders' meeting, it must be obtained by a majority of all of the outstanding shares of the Company, or if such shareholder approval is obtained by written consent, it must be obtained by a majority of all shareholders of the Company; provided, however, that approval at a meeting or by written consent may be obtained by a lesser degree of shareholder approval if the Board determines, in its discretion after consultation with the Company's legal counsel, that such lesser degree of shareholder approval will comply with all applicable laws and will not adversely affect the qualification of the Plan under Section 423 of the Code or Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3"). 22. DESIGNATION OF BENEFICIARY (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of a Purchase Period but prior to delivery to him or her of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to a Purchase Date. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. -9- 10 Exhibit 10.34 Genelabs Technologies, Inc. Employee Stock Purchase Plan 23. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. 24. APPLICABLE LAW The Plan shall be governed by the substantive laws (excluding the conflict of laws rules) of the State of California. 25. AMENDMENT OR TERMINATION OF THE PLAN This Plan shall be effective July 1, 1991, subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted by the Board and the Plan shall continue until the earlier to occur of termination by the Board, issuance of all of the shares of Common Stock reserved for issuance under the Plan, or ten (10) years from the adoption of the Plan by the Board. No purchase of shares pursuant to the Plan shall occur prior to such shareholder approval. The Board may at any time amend or terminate the Plan, except that any such termination cannot affect options previously granted under the Plan, nor may any amendment make any change in an option previously granted which would adversely affect the right of any participant, nor may any amendment be made without approval of the shareholders of the Company obtained in accordance with Section 21 hereof within 12 months of the adoption of such amendment (or earlier if required by Section 21) if such amendment would: (a) increase the number of shares that may be issued under the Plan; (b) change the designation of the employees (or class of employees) eligible for participation in the Plan; or (c) constitute an amendment for which shareholder approval is required in order to comply with Rule 16b-3 (or any successor rule) of the Exchange Act. -10- EX-27.1 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 784 23,187 3,276 0 3,216 30,943 1,730 0 37,702 6,211 0 0 9,682 126,538 0 37,702 5,713 6,242 2,996 2,996 9,642 0 (528) (5,868) 0 (5,868) 0 0 0 (5,868) (0.17) (0.17)
-----END PRIVACY-ENHANCED MESSAGE-----