Thursday, Apr 21, 1988

Genentech Adopts Preferred Share Rights Purchase Plan

South San Francisco, Calif. -- April 21, 1988 --

The Board of Directors of Genentech, inc., today adopted a Preferred Share Rights Purchase Plan and authorized a new series of preferred stock, issuable upon exercise of the Rights. Under the Plan, shareholders will receive one Right to purchase 1/100th of a share of this preferred stock for each outstanding share of Genentech common stock of record held on May 5, 1988.

The Plan is designed to enable all Genentech shareholders to realize the full value of their investment, to provide for fair and equal treatment for all Genentech shareholders in the event that an attempt is made to acquire the company and to guard against abusive takeover tactics. The Plan will not prevent a takeover, but should encourage persons seeking to acquire the company to negotiate with the Board prior to attempting a takeover. The company is not aware of any proposal to acquire control of Genentech.

The Rights, which will initially trade with the common stock, become exercisable, at a $150 per Right, when someone acquires 20 percent or more of the company's common stock or announces a tender offer which could result in such person owning 20 percent or more of the common stock. Prior to someone acquiring 20 percent, the Rights can be redeemed for $.01 each by action of the Board. Under certain circumstances, if someone acquires 20 percent or more of the common stock, the Rights permit the holders to purchase Genentech common stock at a 50 percent discount. In addition, in the event of a business combination, the Rights permit purchase of the common stock of an acquiror at a 50 percent discount.

A bidder of the company meeting certain conditions may require a shareholder meeting to vote on redemption of the Rights. The Rights expire May 5, 1998. The Rights distribution will not be taxable to shareholders and will be payable May 5, 1988. A summary of the Rights Plan is attached.

Genentech is a leading biotechnology company focusing on the development, manufacture and marketing of pharmaceutical products produced by recombinant DNA technology.

Genentech, Inc.
Summary Description Of Preferred Share Rights Purchase Plan

The following is a summary of the significant portions of the Genentech, Inc. Preferred Share Rights Purchase Plan adopted by the Board of Directors on April 21, 1988

  1. Each shareholder of record on May 5, 1988 will receive one Right for each share of common stock held on that date. Under certain circumstances, each Right will entitle the holder to purchase 1/100th of a share of a new series of preferred stock for each share of common stock held. Initially the Rights will not be exercisable, certificates will not be sent to shareholders, and the Rights will automatically trade with the common stock.

  2. In the event that someone acquires 20% or more of the company's common stock or announces an offer which would result in their owning 20% or more of the company's common stock (even if they make no purchases) the Rights will become exercisable and separate certificates will be distributed. If that happens, the Rights will begin to trade separately from the company's common stock but will not have any voting power. The Board has the power to postpone distribution and exercisability of the Rights prior to someone actively acquiring 20% or more of the company's common stock.

  3. When the Rights become exercisable, unless a person or group has acquired 20% or more of the company's common stock a Rightsholder will be entitled to buy from the company 1/100th of a share of a new series of preferred stock for $150 (the Exercise Price).

  4. If an acquiror purchases 20% or more of the company's outstanding common stock (except through a cash tender offer for all shares in which the acquiror increases its stake from less than 20% to 80% or more of the outstanding shares of common stock), a provision in the Plan will become effective which entitles the Rightsholder (other than the acquiror) to buy shares of common stock of Genentech which have a market value of twice the Exercise Price of each Right. This is known as the "flip in" provision.

    Under the "flip in" provision, for example, if an acquiror purchases 25% of the company's common stock with a per share value equal to $35, the holder of each Right (other than the acquiror) would have the opportunity to buy 8.57 shares of Genentech Common Stock for $150. Hence, Genentech shares are acquired, in the example, for a 50% discount.

  5. If an acquiror purchases at least 20% of the company's common stock, but has not achieved a 50% stake, the Board may exchange the Rights (other than the acquiror's Rights) for one share of common stock (or 1/100th of a share of the new series of preferred stock) per Right. This provision will have an economically dilutive effect on the acquiror while providing corresponding benefit to the remaining Rightsholders comparable to the "flip in" provision.

  6. If the company is involved in a merger or other business combination, the Rights will be modified so that a Rightsholder may buy shares of common stock of the acquiring company with a market value of twice the exercise price of each Right. This is known as the "flip over" provision. For example, if at the time of the business combination the acquiring company's stock has a per share value of $40, Rightsholders would be entitled to receive 7.5 shares of the acquiring company's common stock for $150. The effect of the "flip over" is to permit Rightsholders to purchase shares of an acquiror at a 50% discount. This provision will have a dilutive effect on the acquiror.

  7. The Rights may be redeemed by the Board at one cent ($.01)per Right prior to the purchase of 20% or more of the company's common stock by a single acquiror. The Rights should not interfere with any merger or business combination approved by the Board of Directors prior to that time.

  8. The Rights may also be redeemed by shareholder action in connection with an acquisition proposal. If a bidder who does not own, and has not for the past 12 months owned, more than 1% of the company's common stock proposes to buy all of the company's common stock for cash at a price which a nationally recognized investment banker states in writing is fair, and if the bidder has obtained full financing commitments (or has full financing) to complete the transaction, then at the bidder's request, the company will hold a special meeting of shareholders to consider the proposal. If a majority of the outstanding shares which can vote on the proposal are in favor of it, then so long as no person or group acquires 20% or more of the company's common stock, the Rights will be automatically redeemed. That would occur immediately prior to the consummation of any tender offer, provided the offer was completed within 60 days of the special shareholders meeting and was for all of the company's common stock at a price per share in cash no less than the price offered by the bidder and approved by the shareholders.

  9. Under certain circumstances, the Board may reduce the 20% threshold referred to above to the greater of 10% or the percentage owned by the company's largest shareholder.

  10. Issuance of the Rights does not in any way weaken the company's financial strength or interfere with its business plans. It has no dilutive effect, will not affect reported earnings per share, is not taxable to the company or to shareholders and will not change the way in which shareholders can presently trade shares of the company's common stock.

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