AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 2000
REGISTRATION NO. 333-96025
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------
TANOX, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 2836 76-0196733
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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10301 STELLA LINK, SUITE 110
HOUSTON, TEXAS 77025-5497
(713) 664-2288
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------------
NANCY T. CHANG, PH.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
TANOX, INC.
10301 STELLA LINK, SUITE 110
HOUSTON, TEXAS 77025-5497
(713) 664-2288
(Name, address, including zip code, and telephone number,
including area code, of registrant's agent for service)
------------------------------------
COPIES TO:
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WILBURN O. MCDONALD, JR., ESQ. RODD M. SCHREIBER, ESQ.
CHAMBERLAIN, HRDLICKA, SKADDEN, ARPS, SLATE, MEAGHER
WHITE, WILLIAMS & MARTIN & FLOM (ILLINOIS)
1200 SMITH STREET, SUITE 1400 333 WEST WACKER DRIVE
HOUSTON, TEXAS 77002-4310 CHICAGO, ILLINOIS 60606
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AMOUNT OF
SECURITIES TO BE AGGREGATE REGISTRATION
REGISTERED OFFERING PRICE(1) FEE(2)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share...................... $241,500,000 $63,756
- ------------------------------------------------------------------------------------------------------------------------
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(1) Estimated solely for the purpose of calculating the amount of the
Registration Fee in accordance with Rule 457(o) of the Securities Act of
1933, as amended.
(2) The company has previously paid $33,264 of the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 9, 2000
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
7,000,000 SHARES
TANOX, INC.
COMMON STOCK
$ PER SHARE
- --------------------------------------------------------------------------------
This is an initial public offering of common stock of Tanox, Inc.
Tanox expects that the price to the public in the offering will be between
$27.00 and $30.00 per share. The market price of the shares after the offering
may be higher or lower than the offering price.
We have applied to include the common stock on the Nasdaq National Market under
the symbol "TNOX."
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 8.
PER SHARE TOTAL
---------- ----------
Price to the public.................. $ $
Underwriting discount................
Proceeds to Tanox....................
Tanox has granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 1,050,000 additional
shares from Tanox within 30 days following the date of this prospectus to cover
over-allotments.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CIBC WORLD MARKETS
ROBERTSON STEPHENS
WARBURG DILLON READ LLC
ADAMS, HARKNESS & HILL, INC.
KBC SECURITIES
The date of this prospectus is , 2000.
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TABLE OF CONTENTS
PAGE
----
Prospectus Summary ...................................................... 4
Risk Factors ............................................................ 8
Forward-Looking Statements .............................................. 19
Use of Proceeds ......................................................... 20
Dividend Policy ......................................................... 20
Capitalization .......................................................... 21
Dilution ................................................................ 22
Selected Consolidated Financial Data .................................... 23
Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................. 24
Business ................................................................ 29
Management .............................................................. 47
Principal Stockholders .................................................. 56
Certain Transactions .................................................... 58
Description of Capital Stock ............................................ 59
Shares Eligible for Future Sale ......................................... 62
Underwriting ............................................................ 64
Legal Matters ........................................................... 66
Experts ................................................................. 66
Where You Can Find More Information ..................................... 66
Index to Consolidated Financial Statements .............................. F-1
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED IN OTHER PARTS OF THIS PROSPECTUS.
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN THE SHARES. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.
THE COMPANY
OVERVIEW
Tanox identifies and develops therapeutic monoclonal antibodies to address
significant unmet medical needs in the areas of immunology, infectious diseases
and cancer. Monoclonal antibodies are genetically engineered antibodies that
target a specific foreign substance, or antigen. E25, our most advanced product
in development, is an anti-immunoglobulin E, or anti-IgE, antibody. We are
developing E25 in collaboration with Novartis Pharma AG and Genentech, Inc. E25
has successfully completed Phase III clinical trials in both allergic asthma and
seasonal allergic rhinitis (hay fever). Based on the results of these trials,
our collaboration partners intend to file for marketing approval in the United
States and Europe in mid-2000. In addition, we are developing a number of
monoclonal antibodies to treat other allergic diseases or conditions, such as
severe allergic reactions to peanuts, autoimmune diseases, HIV and to restore
the suppressed immune systems of chemotherapy patients.
MONOCLONAL ANTIBODY THERAPEUTICS
Monoclonal antibodies represent an exciting area of novel therapeutic
development. Because of advances in antibody technologies, scientists are now
able to develop antibody products that can be administered to patients on a
chronic basis with reduced concern for adverse responses by the human immune
system. Companies can also manufacture these antibody products more cost-
effectively. As a result, a large number of monoclonal antibodies are now in
clinical and preclinical development. According to an industry survey, 74 out of
350, or 21% of all, biotechnology medicines in clinical trials in 1998 were
antibodies. The FDA has approved eight therapeutic antibodies, six of them in
the last three years. In 1999, total sales of these products exceeded $1.3
billion.
OUR PRODUCTS IN DEVELOPMENT
E25. In 1987, we discovered a novel approach for treating allergies and asthma
by using monoclonal antibodies to inhibit IgE. E25, a product based on this
discovery, is a humanized (human-like) anti-IgE monoclonal antibody in
development for allergic asthma and allergic rhinitis. We estimate that, in the
United States, allergic asthma afflicts approximately 11 million people, and
allergic rhinitis afflicts approximately 40 million people, of whom
approximately 32 million are seasonal sufferers. A pivotal Phase III clinical
trial and a pivotal Phase IIb clinical trial have demonstrated E25's ability to
prevent or reduce symptoms of seasonal allergic rhinitis. Two Phase III clinical
trials in allergic asthma have demonstrated E25's ability to reduce symptoms
related to asthma. Clinicians who participated in the studies presented the
results of those trials at the American Academy of Allergy Asthma and Immunology
in March 2000. As mentioned above, Novartis and Genentech intend to file for
marketing approval for both indications in the United States and Europe in
mid-2000.
OTHER PRODUCT CANDIDATES. Using our comprehensive understanding of the human
immune system, we are building a diverse pipeline of monoclonal antibody product
candidates. In addition to E25, we have two other products in clinical
development and we are evaluating several product candidates in preclinical and
research studies.
o HU-901 is a humanized anti-IgE monoclonal antibody similar to E25 that is
in a Phase I/II trial to test its effectiveness in reducing severe
allergic reactions to peanuts. According to a recently published survey,
peanut or tree nut (e.g., walnut, almond and cashew) allergy affects
about 3 million people in the United States. If our clinical trial
indicates that Hu-901 reduces sensitivity
4
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to peanuts, we may also investigate its benefit to patients with other
food allergies. Novartis and Genentech are currently disputing our right
to independently develop this product.
o 5D12 is an anti-CD40 monoclonal antibody that we are developing to treat
autoimmune diseases. We are currently conducting a Phase I/II trial in
patients with Crohn's disease. We expect the results of this trial to
play an important role in determining clinical indications that we intend
to pursue with this product. We have exclusive rights to 5D12 in Europe
and Japan under a license from Chiron Corporation. We believe potential
autoimmune disease indications, such as Crohn's disease, rheumatoid
arthritis, multiple sclerosis and psoriasis, represent significant market
opportunities in Europe and Japan.
o 5A8 is an anti-CD4 antibody that is in preclinical development for
treating HIV.
o 166-32 is a complement factor D inhibiting antibody in research for
treating acute inflammation.
o 163-93 is an anti-G-CSF receptor activating antibody in research for
treating neutropenia, or suppression of the immune system caused by
depletion of white blood cells during chemotherapy.
OUR STRATEGY
Our objective is to leverage our expertise in monoclonal antibodies and our
understanding of the human immune system to advance our product pipeline and
become a profitable biopharmaceutical company. We intend to accomplish this
through the following strategic initiatives:
o continuing to identify and develop novel monoclonal antibodies using our
demonstrated expertise in immunology and monoclonal antibody technology;
o maximizing the market opportunity for anti-IgE antibodies by exploring
indications beyond allergic asthma and seasonal allergic rhinitis;
o expanding our product pipeline through attractive acquisition and
in-licensing opportunities;
o forming strategic collaborations to complement our research and
development resources and enhance the value of our product development
programs; and
o capturing additional value from our pipeline by retaining marketing
rights for products that we can effectively sell using a small, targeted
sales force.
OTHER INFORMATION
We were incorporated in Texas in March 1986 and we reincorporated in Delaware in
January 2000. Our corporate headquarters, manufacturing facility and principal
research laboratories are located at 10301 Stella Link, Houston, Texas
77025-5497 and our telephone number is 713-664-2288. Tanox and our logo are our
registered service marks.
5
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THE OFFERING
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Common stock offered................. 7,000,000 shares
Common stock to be outstanding after 40,788,731 shares
the offering.......................
Use of proceeds...................... For research and development activities, for capital
expenditures, to finance possible acquisitions and
investments in technology, products or businesses and
for working capital and other general corporate
purposes.
Proposed Nasdaq National Market TNOX
symbol.............................
</TABLE>
The share amounts in the table above are based on the number of shares
outstanding at March 7, 2000 and excludes:
o 2,747,733 shares of common stock issuable on exercise of outstanding
options at a weighted average exercise price of $5.06 per share; and
o 8,200,480 shares of common stock reserved for issuance pursuant to future
grants under our stock option plans.
Unless otherwise stated, all information contained in this prospectus assumes no
exercise of the underwriters' over-allotment option. On February 1, 2000, we
effected a 1.6 for 1 stock split by paying a stock dividend. All common share
numbers in this prospectus reflect the stock split.
6
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 8,939 $ 2,422 $ 1,405
Research and development............. 6,926 11,933 17,163
General and administrative........... 2,230 3,431 8,582
--------- ---------- ----------
Total operating costs and expenses... 9,156 15,364 25,745
--------- ---------- ----------
Income (loss) from operations........ (217) (12,942) (24,340)
Other income, net.................... 1,045 1,240 1,028
--------- ---------- ----------
Income (loss) before income taxes.... 828 (11,702) (23,312)
(Provision) benefit of income
taxes.............................. (198) 1,533 (34)
--------- ---------- ----------
Net income (loss).................... $ 630 $ (10,169) $ (23,346)
========= ========== ==========
Earnings (loss) per share:
Basic........................... $ 0.02 $ (0.35) $ (0.75)
========= ========== ==========
Diluted......................... $ 0.02 $ (0.35) $ (0.75)
========= ========== ==========
Shares used in computing earnings
(loss) per share:
Basic........................... 27,909 29,105 31,113
Diluted......................... 31,190 29,105 31,113
DECEMBER 31, 1999
--------------------------
ACTUAL AS ADJUSTED
--------- --------------
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments........................ $ 47,254 $231,704
Working capital...................... 42,718 227,168
Total assets......................... 55,328 239,778
Long term debt....................... 10,000 10,000
Retained earnings (deficit).......... (30,461) (30,461)
Total stockholders' equity........... 40,007 224,457
The as adjusted balance sheet data in the table above reflects the sale of
7,000,000 shares of common stock in this offering at an assumed public offering
price of $28.50 per share, after deducting estimated underwriters' discounts and
commissions and offering expenses.
7
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO INVEST IN OUR COMMON STOCK.
WE HAVE A HISTORY OF NET LOSSES; WE EXPECT TO CONTINUE TO INCUR NET LOSSES AND
WE MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY.
We have incurred net losses since our inception. As of December 31, 1999, we had
an accumulated deficit of approximately $30.5 million, including a net loss of
approximately $23.3 million for the year ended December 31, 1999. Our losses
have primarily been the result of costs incurred in our research and development
programs and from our general and administrative costs.
We have not earned any revenues from commercial sales of any of our therapeutic
products, and we do not expect sales to commence until at least 2001, if at all.
We have funded our operations principally from licensing fees and milestone
payments under our current or former collaborations and private placements of
our common stock. We expect to continue to incur substantial operating losses
for the foreseeable future, particularly as we increase our research and
development, manufacturing, clinical trial and administrative activities. We
expect that losses will continue until such time, if ever, that we are able to
generate sufficient revenue from milestone payments and royalties on our lead
product candidate, E25, to cover our expenses.
Our ability to achieve and maintain long term profitability depends to a
significant extent on obtaining regulatory approval for and successfully
commercializing E25, and also on successfully completing preclinical and
clinical trials, obtaining required regulatory approvals and successfully
developing, manufacturing and marketing our other current and future product
candidates. We cannot assure you that we will be able to achieve any of the
foregoing or that we will be profitable even if we successfully commercialize
our products.
FAILURE TO COMMERCIALIZE OUR LEAD PRODUCT CANDIDATE, E25, WOULD HAVE A
SIGNIFICANT AND ADVERSE EFFECT ON US AND OUR STOCK PRICE.
E25 is our lead product candidate. Our success will depend, to a great degree,
on the success of E25. In order to successfully commercialize E25, our
collaborators, Novartis and Genentech, must be able to, among other things,
obtain regulatory approvals for and achieve market acceptance of E25.
Neither the U.S. Food and Drug Administration, or FDA, nor any European
regulatory agency, has approved E25. Novartis and Genentech intend to file a
biologics license application, or BLA, for E25 in the United States and apply
for registration of E25 in Europe by mid-2000. We cannot assure you that the FDA
or other regulatory authorities will accept these filings, that E25 will be
approved in a timely manner or that it will be approved at all.
Even if the FDA approves E25, we cannot be certain that physicians, patients,
insurers or other third-party payors will accept E25 as a treatment for its
approved indications in the United States or in any foreign markets. A number of
factors may affect the rate and level of E25's market acceptance including:
o regulatory developments related to manufacturing or using E25;
o E25's price relative to other products or competing treatments;
o the effectiveness of Novartis' and Genentech's sales and marketing
efforts;
o the perception by physicians and other members of the healthcare
community of E25's safety, efficacy and benefits compared to those of
competing products or therapies;
o the willingness of physicians to adopt a new allergy treatment regimen;
o the availability of third-party reimbursement; and
o unfavorable publicity concerning E25 or comparable products or therapies.
If our collaborators fail to successfully obtain regulatory approval for and
commercialize E25, our business, financial condition and results of operations
will be materially harmed. Moreover, since E25 is our most advanced product
candidate, a setback of this nature would cause a sharp drop in our stock price.
Failure of our E25 program could also reflect adversely on our Hu-901
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program, which is also based on anti-IgE technology.
WE DEPEND ON NOVARTIS AND GENENTECH TO DEVELOP, OBTAIN REGULATORY APPROVAL FOR,
MANUFACTURE, MARKET AND DISTRIBUTE E25 AND OTHER ANTI-IGE PRODUCTS. WE WILL ALSO
DEPEND ON FUTURE COLLABORATION PARTNERS TO DEVELOP, MANUFACTURE, MARKET AND
DISTRIBUTE OUR OTHER PRODUCTS. FAILURE BY NOVARTIS OR GENENTECH, OR ANY OTHER
COLLABORATION PARTNER, TO PERFORM UNDER OUR CURRENT OR FUTURE COLLABORATION
AGREEMENTS MAY DELAY OR SIGNIFICANTLY IMPAIR OUR ABILITY TO GENERATE REVENUES OR
OTHERWISE ADVERSELY AFFECT OUR PROFITABILITY.
Under the terms of our collaboration agreements, Novartis and Genentech are
responsible for developing, obtaining regulatory approval for, manufacturing,
marketing and distributing E25 and other anti-IgE products that the
collaboration may select for development. We expect for the extended future that
Novartis and Genentech will manufacture, market and distribute E25 and other
selected anti-IgE products, if the FDA approves any of these products. We also
rely on Novartis and Genentech for significant financial and technical
contributions to develop products covered by our collaboration agreements. Our
ability to profit from these products depends on Novartis' and Genentech's
performance under their agreements with us. We cannot control the amount and
timing of resources Novartis and Genentech will devote to any of our products.
If Novartis or Genentech experiences manufacturing or distribution difficulties,
does not actively market E25 or other selected anti-IgE products or does not
otherwise perform under our collaboration agreements, our potential for revenue
from those products will be dramatically reduced. Novartis and Genentech may
terminate our collaboration agreements on short notice. If Novartis or Genentech
terminates our collaboration, we would experience increased capital requirements
to undertake development and marketing at our expense, and we cannot assure you
that we would be able to develop E25 or our other anti-IgE products on our own.
We will also rely on other collaboration partners to develop, manufacture,
commercialize, market and distribute our other products. Many of our competitors
are similarly seeking to develop or expand their collaboration and license
arrangements with pharmaceutical companies. The success of these efforts by our
competitors could have an adverse impact on our ability to form future
collaboration arrangements. We cannot assure you that we will be able to
negotiate acceptable collaboration agreements in the future or that efforts
under any current or future collaboration agreements will succeed. To the extent
that we choose not to or are unable to enter into future collaboration
agreements or maintain existing collaborations, we would experience increased
capital requirements to undertake research, development and marketing at our own
expense. In addition, we may encounter significant delays in introducing our
product candidates or find that the absence of these collaboration agreements
adversely affects our ability to develop, manufacture or sell our product
candidates.
Our reliance on collaboration partners poses the following additional risks:
o disputes with our partners may arise, delaying or terminating our product
candidates' research, development or commercialization or resulting in
significant litigation or arbitration;
o contracts with our partners may fail to provide significant protection or
may become unenforceable if one of these partners fails to perform;
o our partners could develop, independently or with third parties, products
or treatments that compete with our products;
o our partners may not commit enough capital or other resources to
successfully develop our products;
o our partners may not continue to develop and commercialize products
resulting from our collaborations;
o our partners with marketing and distribution rights to one or more of our
products may not commit enough resources to marketing and distributing
our products;
o our contracts with collaboration partners may expire or terminate and we
may not be able to replace them; and
o the terms of our contracts with our partners may not be favorable to us
in the future.
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If any of these risks occur, our product development and productivity may
suffer, and our business, financial condition and results of operations would be
materially harmed.
WE ARE INVOLVED IN LITIGATION AND ARBITRATION PROCEEDINGS WITH NOVARTIS AND
GENENTECH THAT MAY BE VERY COSTLY TO US AND COULD CAUSE US TO LOSE OUR RIGHTS TO
INDEPENDENTLY DEVELOP PRODUCTS.
We are a party to arbitrations and a related federal district court lawsuit with
our collaboration partners Novartis and Genentech, relating to our rights to
develop Hu-901 and other anti-IgE antibodies independently of our collaboration
with Novartis and Genentech. Novartis and Genentech are disputing our right to
pursue development of Hu-901 independently and are claiming that we are using
their unspecified confidential and proprietary information that we have no right
to use.
If we do not succeed in these proceedings, we could incur substantial damages
that would harm our financial position and we could lose our rights to
independently develop products covered by the collaboration, including Hu-901.
Even if we succeed, we may not be able to secure any recovery or develop
anti-IgE products independently of the collaboration. In either case, we expect
these proceedings to consume substantial amounts of our financial and managerial
resources. Further, because of the substantial amount of discovery required in
connection with this type of litigation, there is a risk that disclosure might
compromise some of our confidential information.
NONE OF OUR PRODUCTS HAVE RECEIVED REGULATORY APPROVAL. IF WE DO NOT RECEIVE AND
MAINTAIN REGULATORY APPROVALS, WE WILL NOT BE ABLE TO MARKET OUR PRODUCTS.
Neither the FDA, nor any regulatory authority, has approved any of our products,
including E25. We cannot assure you that the data collected from our completed
or future clinical trials will support any regulatory approvals. We must receive
FDA approval to manufacture and market our products in the United States. Other
countries have similar requirements.
The process that pharmaceutical products must undergo to receive this approval
is extensive, and includes preclinical testing and clinical trials to
demonstrate safety and efficacy and a review of the manufacturing process to
ensure compliance with good manufacturing practices. This process can last many
years, be very costly and still be unsuccessful. The FDA can delay, limit or not
grant approval for many reasons, including:
o a product candidate may not be safe or effective;
o FDA officials may interpret data from preclinical testing and clinical
trials in different ways than we interpret it;
o the FDA might not approve our manufacturing processes or facilities or
the processes or facilities of our collaboration partners;
o the FDA may change its approval policies or adopt new regulations; and
o the FDA may approve a product candidate for fewer than all the
indications requested.
The process of obtaining approvals in foreign countries is subject to delay and
failure for the same reasons. Any delay in or failure to receive approval for
E25 or any of our current or future product candidates could materially harm our
business, financial condition and results of operations.
Our products other than E25 require significant additional laboratory
development and/or clinical testing and investment prior to commercialization.
We cannot assure you that our product candidates will prove to be safe and
effective in clinical trials. Further, any of our products may prove to have
undesirable and unintended side effects. We may not successfully develop
products currently in research and development, successfully market our products
or produce our products in commercial quantities at an acceptable cost or in
compliance with applicable regulatory guidelines. Our products may not meet
applicable regulatory standards or obtain required regulatory approvals.
Approval of a product candidate could also depend on post-marketing studies. In
addition, any marketed product and its manufacturer continue to be subject to
strict regulation after approval. Any unforeseen problems with an approved
product or any violation of regulations could result in restrictions on the
product, including its withdrawal from the market. Delays in receiving or
failing to
10
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receive regulatory approvals, or losing previously received approvals, would
delay or prevent product commercialization, which would adversely affect our
business, financial condition and results of operations.
WE ARE INVOLVED IN LEGAL PROCEEDINGS WITH OUR FORMER ATTORNEYS THAT MAY BE VERY
COSTLY TO US.
We have been involved in an arbitration regarding a fee dispute with our former
attorneys who represented us in our 1993 lawsuit against Genentech and F.
Hoffman-La Roche, Ltd. and its affiliates, and a 1994 lawsuit filed against us
by Genentech. The arbitration panel issued an award which entitled those
attorneys to receive approximately $3.5 million, including interest, payments
ranging from 33 1/3% to 40% of any future milestone payments received by us from
Genentech following product approval and 10% of the royalties that we receive on
sales of anti-IgE products. We sought a court order vacating the arbitration
award. However, a judgment was entered confirming the award. We intend to pursue
all available remedies, including appealing the decision.
We may not be successful in this proceeding. If this proceeding continues to
result in decisions unfavorable to us, we could lose substantial value from our
collaboration with Novartis and Genentech which could negatively affect our
stock price and harm our business, financial condition and results of
operations. Whether or not we are successful in this proceeding, we expect it to
consume substantial amounts of our financial and managerial resources.
OUR PRECLINICAL AND CLINICAL TESTING RESULTS ARE UNCERTAIN. IF TRIAL RESULTS ARE
NEGATIVE, WE MAY BE FORCED TO STOP DEVELOPING PRODUCTS IMPORTANT TO OUR FUTURE.
We must demonstrate through preclinical studies and clinical trials that our
products are safe and effective for use in each target indication before we can
obtain regulatory approvals to sell our products commercially. These studies and
trials may be very costly and time consuming. The results of preclinical studies
and initial clinical trials of our products do not necessarily predict the
results from later-stage clinical trials. Drugs in later stages of clinical
trials may fail to show the desired safety and efficacy traits despite having
progressed through initial clinical testing. We cannot assure you that the data
collected from clinical trials of our products will be sufficient to support FDA
or other regulatory approval.
The speed with which we are able to enroll patients in clinical trials is an
important factor in determining how quickly we may complete clinical trials.
Many factors affect patient enrollment, including the size of the patient
population, the proximity of patients to clinical sites and the eligibility
criteria for the study. We may target our clinical trial protocols at
indications that have small patient populations, which may make it difficult for
us to enroll enough patients to complete the trials. Delays in patient
enrollment in the trials may result in increased costs, program delays, or both,
which could slow down our product development and approval process, and could
materially harm our business.
Administering any product we develop to humans may produce undesirable side
effects. These side effects could interrupt or delay clinical trials of products
and could result in the FDA or other regulatory authorities denying approval of
our products for any or all targeted indications. The FDA, other regulatory
authorities or we may suspend or terminate clinical trials at any time. Even if
we receive FDA and other regulatory approvals, our products may later exhibit
adverse effects that limit or prevent their widespread use or that force us to
withdraw those products from the market. We cannot assure you that any of our
products will be safe for human use.
WE HAVE LIMITED EXPERIENCE AND CAPABILITY IN MANUFACTURING AND MAY ENCOUNTER
MANUFACTURING PROBLEMS OR DELAYS THAT COULD RESULT IN LOST REVENUE.
To commercialize our products successfully, we and our collaboration partners
must manufacture our products in commercial quantities in compliance with
regulatory requirements and at an acceptable cost. If the manufacturing
facilities used to produce our products cannot pass a pre-approval or periodic
plant inspection, the FDA may not approve our products or it may delay or bar
their sale. Although we expect Novartis and Genentech to manufacture E25 and
other anti-IgE products that our collaboration develops, if the FDA and
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other regulatory authorities approve these products, we have reserved the right
to manufacture up to 50% of the worldwide requirements for these products. We
currently have a process development and manufacturing facility for biological
products located in Houston, Texas. However, we have no experience in
manufacturing commercial quantities of antibodies and currently have limited
manufacturing capacity. In order to obtain regulatory approvals and to create
capacity to produce our products in sufficient quantities for commercial sale at
an acceptable cost, we will have to develop or acquire additional technology for
large scale manufacturing and build or otherwise obtain access to adequate
facilities, which will require substantial additional funds. We will also be
required to demonstrate to the FDA and corresponding foreign authorities our
ability to manufacture our products using controlled, reproducible processes. We
cannot assure you that we can develop the necessary manufacturing technology or
that we will be able to fund or build an adequate commercial manufacturing
facility necessary to obtain regulatory approvals and to produce adequate
commercial supplies of our potential products on a timely basis. We cannot
assure you that we, operating alone or with the assistance of others, will be
able to successfully make the transition to commercial production.
WE LACK SALES AND MARKETING EXPERIENCE, WHICH MAKES US DEPEND ON THIRD PARTIES
FOR THEIR EXPERTISE IN THIS AREA.
If we receive the required regulatory approvals, we expect to market and sell
our products principally through distribution, co-marketing, co-promotion or
licensing arrangements with third parties. Under our current collaboration
agreement, Novartis and Genentech have exclusive marketing rights to E25 and
other selected anti-IgE products. However, commercialization rights may revert
back to us if either we or our collaborators terminate our relationship. We
currently have no sales, marketing or distribution capabilities. Any revenues we
receive from our E25 collaboration will depend primarily on the efforts of our
collaboration partners. We intend to retain marketing rights in the United
States and selected Asian countries for products that we can develop and sell
effectively with a small, targeted sales force. If we elect to market products
directly, we would require significant additional expenditures and management
resources to develop an internal sales force. We cannot assure you that we would
be able to establish a successful sales force should we choose to do so.
WE FACE INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE THAT COULD RESULT IN
PRODUCTS THAT ARE SUPERIOR TO THE PRODUCTS WE ARE DEVELOPING.
The biotechnology and pharmaceutical industries are subject to rapid and
significant technological change. We have numerous competitors in the United
States and abroad, including, among others, major pharmaceutical and chemical
companies, specialized biotechnology firms, universities and other research
institutions. These competitors may develop technologies and products that are
more effective or less costly than any of our current or future products or that
could render our technologies and products obsolete or noncompetitive. Many of
these competitors have substantially more resources and product development,
production and marketing capabilities than we do. In addition, many of our
competitors have significantly greater experience than we do in undertaking
preclinical testing and clinical trials of new or improved pharmaceutical
products and obtaining FDA and other regulatory approvals of products for use in
health care. If we succeed in achieving significant commercial sales of our
products, we also will be competing in manufacturing efficiency and marketing
capability, areas in which we have limited or no experience. Furthermore, our
competitors may obtain FDA approval for products sooner and be more successful
in manufacturing and marketing their products than are we or our collaborators.
Products currently exist in the market that will compete directly with the
products that we seek to develop. Any product candidate that we develop and that
obtains regulatory approval must then compete for market acceptance and market
share. Our product candidates may not gain market acceptance among physicians,
patients, healthcare payors and the medical community. Significant factors in
determining whether we will be able to compete successfully include:
o efficacy and safety of our products;
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o timing and scope of regulatory approval;
o product availability;
o potential advantages over alternative treatment methods;
o development, marketing, distribution and manufacturing capabilities and
support of our collaborators;
o reimbursement coverage from insurance companies and others;
o price and cost-effectiveness of our products; and
o patent protection.
If our products are not competitive based on these or other factors, our
business, financial condition and results of operations will be materially
harmed.
WE DEPEND ON OUR PATENTS AND PROPRIETARY RIGHTS. THE VALIDITY, ENFORCEABILITY
AND COMMERCIAL VALUE OF THESE RIGHTS ARE HIGHLY UNCERTAIN.
Our success depends in part on obtaining, maintaining and enforcing patents,
licensing the rights to patents and patent applications owned by others,
maintaining trade secrets and operating without infringing on the proprietary
rights of third parties. While we file and prosecute patent applications to
protect our inventions, our pending patent applications may not result in the
issuance of valid patents and our issued patents may not provide competitive
advantages. Also, our patent protection may not prevent others from developing
competitive products using related technology. We cannot assure you that pending
patent applications licensed to us will result in patents being issued or that,
if issued, the patents will give us an advantage over competitors with similar
technology.
We own and have licenses to certain issued patents. The patents we own that are
most material to our business are five U.S. patents and six foreign patents
relating to anti-IgE antibodies. However, the patent position of biotechnology
and pharmaceutical firms is highly uncertain and involves many complex legal and
technical issues. There is no clear policy involving the breadth of claims
allowed or the degree of protection afforded under such patents. Issued patents
can be challenged in litigation in the courts and in proceedings in the patent
and trademark office in the United States and in courts and patent offices in
foreign countries. Issuance of a patent is not conclusive as to its validity,
enforceability or the scope of its claim. We cannot assure you that our patents
will not be successfully challenged as to enforceability, invalidated or limited
in the scope of their coverage. Moreover, litigation to uphold the validity of
patents and to prevent infringement can be very costly and can result in
diverting technical and management personnel's time and attention, which may
materially harm our business, financial condition and results of operations. If
the outcome of litigation is adverse to us, third parties may be able to use our
patented technology without paying us. Moreover, we cannot assure you that our
patents will not be infringed or successfully avoided through design innovation.
Any of these events may materially and adversely effect our business.
There may be patent rights belonging to others that require us to alter our
products, pay licensing fees or cease certain activities. If our products
conflict with patent rights of others, the owners of those patent rights could
bring legal actions against us claiming damages and seeking to stop us from
manufacturing and marketing the affected products. If these legal actions are
successful, in addition to any potential liability for damages, we could be
required to obtain a license in order to continue to manufacture or market the
affected products. We cannot assure you that we would prevail in any such action
or that any license required under any such patent would be made available on
acceptable terms or at all. Any of these events may materially harm our
business, financial condition and results of operations.
Researching, developing and commercializing a biopharmaceutical product often
involves alternative development and optimization routes that are presented at
various stages in the development process. We cannot predict the preferred
routes at the outset of a research and development program, because they will
depend on subsequent discoveries and test results. There are numerous
third-party patents in our field, and it is possible that, to pursue the
preferred development route of one or more of our products, we will need to
obtain a license to a patent, which would decrease the ultimate profitability of
the applicable
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product. If we cannot negotiate a license, we might have to pursue a less
desirable development route or terminate the program altogether.
We are aware that other groups have claimed discoveries similar to those covered
by our patent applications. In addition, other companies, some of which may be
our competitors, have filed applications for or have been issued patents and may
obtain additional patents and proprietary rights relating to products or
processes used in, necessary to, competitive with or otherwise related to our
patents and products. These products and processes include, among other items,
patents covering technology relating to humanized monoclonal antibodies that we
anticipate developing. Protein Design Labs, Inc. owns certain patents and patent
applications relating to such humanized antibodies. We have recently taken a
non-exclusive license to these patents and patent applications for one of our
products. We do not know if we can obtain licenses from Protein Design Labs for
our other antibody products.
We must make substantial cash payments and achieve certain milestones and
satisfy certain conditions, including filing investigational new drug
applications, obtaining product approvals and introducing products, to maintain
our rights under certain of our licenses, including our licenses from Chiron and
Biogen, Inc. We cannot assure you that we will be able to maintain our rights
under these licenses. If any of these licenses terminate, we may be unable to
commercialize any related product.
In addition to the intellectual property rights described above, we also rely on
unpatented technology, trade secrets and confidential information. We cannot
assure you that others will not independently develop substantially equivalent
information and techniques or otherwise gain access to our technology or
disclose such technology, or that we can effectively protect our rights in
unpatented technology, trade secrets and confidential information. We require
each of our employees, consultants and advisors to execute a confidentiality
agreement at the commencement of an employment or consulting relationship with
us. We cannot assure you, however, that these agreements will provide effective
protection if an unauthorized use or disclosure of this confidential information
occurs.
WE MAY EXPERIENCE DIFFICULTIES IN MANAGING GROWTH, WHICH COULD MATERIALLY HARM
OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
If our product development efforts and the product development efforts of our
collaborators succeed, our growth could strain our operations, product
development and other managerial and operating resources. Future growth will
impose significant added responsibilities on members of management, including
the need to identify, recruit, maintain and integrate additional employees,
including management. In the future, our financial performance and our ability
to compete effectively will depend, in part, on our ability to manage any future
growth effectively. To that end, we must be able to:
o manage our research and development efforts effectively;
o expand the capacity, scalability and performance of our product
development infrastructure;
o develop our administrative, accounting and management information systems
and controls;
o improve coordination among our research, accounting, finance, marketing
and operations personnel; and
o hire and train additional qualified personnel.
We cannot assure you that we will be able to accomplish these tasks, and our
failure to accomplish any of these tasks could materially harm our business,
financial condition and results of operations.
FAILURE TO ATTRACT AND RETAIN KEY PERSONNEL AND PRINCIPAL MEMBERS OF OUR
SCIENTIFIC AND MANAGEMENT STAFF COULD MATERIALLY HARM OUR BUSINESS, FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Our success depends greatly on our abilities to attract and retain qualified
scientific and technical personnel, as well as to retain the services of our
existing technical management staff. To expand our research and development
programs and pursue our product development plans, we will be required to hire
additional qualified scientific and technical personnel, as well as personnel
with
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expertise in clinical testing and government regulation. There is intense
competition for qualified staff, and we cannot assure you that we will be able
to attract and retain the necessary qualified staff to develop our business. The
failure to attract and retain key scientific and technical personnel and
management staff or the loss of any of our current management team could
materially harm our business and financial condition. We do not maintain, and do
not currently intend to obtain, key employee global life insurance on any of our
personnel.
WE MAY NEED ADDITIONAL FINANCING, BUT OUR ACCESS TO CAPITAL FUNDING IS
UNCERTAIN.
Our current and anticipated development projects require substantial additional
capital. We expect that the net proceeds from this offering, together with our
existing assets and revenue from operations, will sufficiently fund our
operations for the next three years. However, our future capital needs will
depend on many factors, including successfully commercializing E25, receiving
milestone payments from our collaboration partners, and making progress in our
research and development activities. Our success may also depend on the
magnitude and scope of these activities, the progress and level of unreimbursed
costs associated with preclinical studies and clinical trials, the costs
associated with acquisitions, the costs of preparing, filing, prosecuting,
maintaining and enforcing patent claims and other intellectual property rights,
competing technological and market developments, changes in or terminations of
existing collaboration and licensing arrangements, the establishment of
additional collaboration and licensing arrangements, and the cost of
manufacturing scale-up and development of marketing activities, if undertaken by
us. We do not have committed external sources of funding and we cannot assure
you that we will be able to obtain additional funds on acceptable terms, if at
all. If adequate funds are not available, we may be required to:
o delay, reduce the scope of or eliminate one or more of our development
programs;
o obtain funds through arrangements with collaboration partners or others
that may require us to relinquish rights to technologies, product
candidates or products that we would otherwise seek to develop or
commercialize ourselves; or
o license rights to technologies, product candidates or products on terms
that are less favorable to us than might otherwise be available.
If we raise additional funds by issuing additional stock, further dilution to
our stockholders may result, and new investors could have rights superior to
existing stockholders. If funding is insufficient at any time in the future, we
may be unable to develop or commercialize our products, take advantage of
business opportunities or respond to competitive pressures.
WE ARE SUBJECT TO THE UNCERTAINTY RELATED TO REIMBURSEMENT POLICIES AND
HEALTHCARE REFORM MEASURES.
In recent years, there have been numerous proposals to change the healthcare
system in the United States. Some of these proposals have included measures that
would limit or eliminate payments for medical procedures and treatments or
subject pharmaceutical product pricing to government control. In addition, as a
result of the trend towards managed healthcare in the United States, as well as
legislative proposals to reduce government insurance programs, third-party
payors are increasingly attempting to contain healthcare costs by limiting both
coverage and the level of reimbursement of new drug products. Consequently,
significant uncertainty exists as to the reimbursement status of newly-approved
healthcare products. If we or any of our collaborators succeed in bringing one
or more of our products to market, we cannot assure you that third-party payors
will establish and maintain price levels sufficient for us to realize an
appropriate return on our investment in product development. Significant changes
in the healthcare system in the United States or elsewhere, including changes
resulting from adverse trends in third-party reimbursement programs, could
materially reduce our profitability. Such changes could also significantly harm
our ability to raise the capital we would need to continue our operations.
Furthermore, if these proposals affect our collaborators, the proposals may harm
our ability to commercialize the products we develop jointly with them.
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WE ARE EXPOSED TO PRODUCT LIABILITY CLAIMS, AND IT IS UNCERTAIN THAT WE CAN
OBTAIN INSURANCE AGAINST THESE CLAIMS AT A REASONABLE RATE IN THE FUTURE.
Our business exposes us to potential product liability risks, which are inherent
in testing, manufacturing, marketing and selling pharmaceutical products. We may
be held liable if any product we develop, or any product that uses or
incorporates any of our technologies, causes injury or is found otherwise
unsuitable during product testing, manufacturing, marketing or sale. We cannot
assure you that we will be able to avoid product liability exposure. Product
liability insurance for the biopharmaceutical industry is generally expensive,
if available at all. We have obtained product liability insurance coverage in
the amount of $5.0 million per occurrence, subject to a $5.0 million aggregate
limitation. However, we cannot assure you that our present insurance coverage is
now or will continue to be adequate. In addition, some of our license and
collaboration agreements require us to obtain product liability insurance.
Future license and collaboration agreements may also include such a requirement.
We cannot assure you that we can obtain adequate insurance coverage at a
reasonable cost in the future. Our inability to obtain sufficient insurance
coverage at an acceptable cost or otherwise to protect against potential product
liability claims could prevent or inhibit us or our collaborators from
commercializing our products. If we are sued for any injury caused by our
products, our liability could exceed our total assets.
WE DEAL WITH HAZARDOUS MATERIALS AND MUST COMPLY WITH ENVIRONMENTAL LAWS AND
REGULATIONS, WHICH CAN BE EXPENSIVE AND RESTRICT HOW WE DO BUSINESS.
Our research and development work and manufacturing processes involve the
controlled use of hazardous materials, including chemical, radioactive and
biological materials. Our operations also produce hazardous waste products. We
are subject to federal, state and local laws and regulations governing how we
use, manufacture, store, handle and dispose of these materials. Although we
believe that we comply in all material respects with applicable environmental
laws and regulations, we cannot assure you that we will not incur significant
costs to comply with environmental laws and regulations in the future. In
addition, current or future environmental laws and regulations may impair our
research, development or production efforts.
WE COULD BE LIABLE FOR DAMAGES, PENALTIES OR OTHER FORMS OF CENSURE IF WE ARE
INVOLVED IN A HAZARDOUS WASTE SPILL OR OTHER ACCIDENT.
Despite precautionary procedures that we implement for handling and disposing of
hazardous materials, we cannot eliminate the risk of accidental contamination or
discharge or any resultant injury from these materials. If a hazardous waste
spill or other accident occurs, we could be liable for damages, penalties or
other forms of censure. In addition, we may be sued for injury or contamination
that results from our use or the use by third parties of these materials, and
our liability could exceed our total assets.
OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK
AND WILL CONTINUE TO CONTROL OUR COMPANY AND THE OUTCOME OF MATTERS PUT TO A
VOTE OF STOCKHOLDERS AFTER THIS OFFERING.
Immediately after we complete this offering, our executive officers and
directors and their affiliates will, in the aggregate, own shares representing
approximately 36% of our outstanding common stock. As a result, these
stockholders, acting together, will significantly influence our general
management and affairs, and all matters submitted to our stockholders for
approval, including electing directors and approving changes in control. Such
control could discourage others from initiating potential merger, takeover or
other change of control transactions, and may adversely affect the market price
of our common stock. For a more detailed description of our management team and
their ownership of common stock, please refer to "Management" on page 47.
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OUR AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE
LAW CONTAIN CERTAIN PROVISIONS THAT COULD DELAY OR PREVENT A TAKEOVER AND
SUPPRESS OUR STOCK PRICE.
Provisions of our amended and restated certificate of incorporation, bylaws and
Delaware law could delay, defer or prevent a third party from acquiring us,
despite the possible benefit to our stockholders, or otherwise adversely affect
the price of our common stock.
These provisions include:
o the ability of our board of directors to issue shares of preferred stock
and to determine the price and other terms, including preferences and
voting rights, of those shares without stockholder approval;
o a staggered board of directors;
o a limitation on who may call special meetings of stockholders; and
o advance notice requirements for nomination for election to the board of
directors or for proposing matters that stockholders may act on at
stockholder meetings.
In addition to these provisions, we are subject to certain Delaware laws,
including one that prohibits us from engaging in a business combination with any
interested stockholder for a period of three years from the date the person
became an interested stockholder unless certain conditions are met. We may also
adopt a shareholder rights plan or "poison pill" after this offering. All of
this may discourage potential takeover attempts, discourage bids for our common
stock at a premium over market price or adversely affect the market price of,
and the voting and other rights of the holders of, our common stock.
YOU MAY NOT BE ABLE TO TRADE OUR COMMON STOCK IF AN ACTIVE TRADING MARKET DOES
NOT DEVELOP.
Prior to this offering, there has been no public market for our common stock. We
cannot predict the extent to which investor interest in us will lead to an
active trading market in our common stock or how liquid that market might
become. We will determine the initial public offering price for our shares by
negotiating with representatives of the underwriters. This price may not
indicate prices that will prevail in any future trading market. You may not be
able to sell shares of our common stock at or above our initial public offering
price.
MARKET VOLATILITY MAY AFFECT OUR STOCK PRICE AND THE VALUE OF YOUR INVESTMENT
MAY BE SUBJECT TO SUDDEN DECREASES.
The trading price for our common stock is likely to be volatile. Prices for our
common stock will be determined in the marketplace and may be influenced by many
factors, including variations in our financial results, changes in earnings
estimates by industry research analysts, investors' perceptions of us and our
financial prospects, results of the governmental approval process for our
products, results of clinical trials, changes in government regulations,
developments in our relationships with our collaboration partners, developments
in our litigation, announcements of new products, technologies or treatments by
us or our competitors and general economic, industry and market conditions. In
addition, the stock markets from time to time have experienced extreme price and
volume fluctuations. In particular, the market prices of the securities of
biotechnology companies have been especially volatile, and often these
fluctuations do not relate to operating performance. These broad fluctuations
may adversely affect the trading price of our common stock, regardless of our
actual operating performance.
In the past, following periods of market volatility, security holders have
instituted class action litigation. If the market value of our stock experiences
adverse fluctuations and we become involved in this type of litigation, we could
incur substantial legal costs and management's attention could be diverted,
which could materially harm our business or the market price of our common
stock.
SALES OF COMMON STOCK MAY HAVE AN ADVERSE IMPACT ON THE MARKET PRICE OF OUR
COMMON STOCK.
Sales of significant amounts of our common stock after this offering or the
perception that such sales will occur could adversely affect the market price of
our common stock or our future ability to raise capital by selling equity
securities. After this
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offering is completed, 40,788,731 shares of our common stock will be issued and
outstanding. All of the shares of common stock to be sold in this offering will
be freely tradable without restriction or further registration under the federal
securities laws unless purchased by our "affiliates" within the meaning of
Rule 144 under the Securities Act. The 33,788,731 remaining shares of
outstanding common stock will be "restricted securities" under the Securities
Act, subject to restrictions on the timing, manner and volume of sales of those
shares.
Our officers and directors and stockholders who together own 32,040,783 shares
of common stock have agreed for a period of 180 days after the date of this
prospectus not to sell or otherwise dispose of any shares of our common stock,
other than shares acquired in this offering. When the lock-up period expires,
the shares owned by these persons prior to completion of this offering may be
sold into the public market without a registration statement, to the extent
permitted by Rule 144 or exemptions under the Securities Act. Moreover,
following this offering, a substantial number of shares of common stock issuable
on exercise of outstanding options will be eligible for sale in the public
market.
For a more detailed description of additional shares that may be sold in the
future, please refer to "Shares Eligible for Future Sale" on page 62 and
"Underwriting" on page 64.
AS A NEW INVESTOR, YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK
VALUE OF YOUR SHARES.
The public offering price for our shares will be substantially higher than our
net tangible book value per share, which at December 31, 1999, was $1.20 per
share. If you purchase shares of our common stock in this offering, you will
suffer immediate, substantial net tangible book value dilution of $22.93 per
share, or $22.40 per share, if the underwriters exercise their over-allotment
option in full, assuming an initial public offering price of $28.50. You will
also incur additional dilution if the holders of outstanding options to purchase
common stock at prices below our net tangible book value per share after this
offering exercise their options. For a more detailed discussion of dilution,
please refer to "Dilution" on page 22.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO ALLOCATE THE NET PROCEEDS OF THIS
OFFERING AND MAY NOT USE THE PROCEEDS APPROPRIATELY.
Our management will have broad discretion over how we use the proceeds of this
offering. We estimate the net proceeds from this offering to be approximately
$184.5 million, after deducting underwriting discounts and commissions and
estimated offering expenses, assuming an initial public offering price of
$28.50. We plan to use these proceeds to substantially increase clinical
development of our products, expand our research and development infrastructure
and research facilities in the United States, The Netherlands and Taiwan,
acquire or in-license additional technologies and products and market our
products. We have no specific allocations for any other net proceeds of this
offering. The amount of proceeds we will actually expend on general corporate
purposes will vary depending on a number of factors, including successfully
commercializing E25. Our progress in and scope of our research and development
activities, changes in or termination of existing collaboration and licensing
arrangements, costs and magnitude of product or technology acquisitions and our
need for manufacturing capacity. Consequently, management will retain a
significant amount of discretion in spending these proceeds. Because of the
number and variability of factors that will determine the use of these proceeds,
how we spend these proceeds may vary substantially from our current intentions.
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FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. You can find these statements
under "Prospectus Summary," "Risk Factors," "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus.
We typically identify forward-looking statements by using terms such as "may,"
"will," "should," "could," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue" or similar
words, although we express some forward-looking statements differently. You
should be aware that actual events could differ materially from those suggested
in the forward-looking statements due to a number of factors, including:
o the ability to develop safe and efficacious drugs;
o failure to achieve positive results in clinical trials;
o failure to successfully commercialize our products;
o relationships with our collaboration partners;
o variability of royalty, license and other revenues;
o ability to enter into future collaboration agreements;
o competition and technological change; and
o existing and future regulations affecting our business.
You should also consider carefully the statements under "Risk Factors" and
other sections of this prospectus, which address additional factors that could
cause our actual results to differ from those set forth in the forward-looking
statements.
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USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of common stock in
this offering will be approximately $184,450,000. If the underwriters fully
exercise their over-allotment option, we estimate that our net proceeds from the
offering will be $212,280,250. "Net Proceeds" are what we expect to receive
after paying the underwriters' discounts and commissions and other expenses of
the offering. For the purpose of estimating net proceeds, we are assuming an
initial public offering price of $28.50 per share.
We intend to use the net proceeds of this offering primarily for research and
development, capital expenditures and general corporate purposes, including
working capital. We may use a portion of the proceeds to acquire or invest in
technologies, products or businesses that we believe may complement our
business. We currently have no agreements or commitments in this regard. The
amount of proceeds we will actually spend on general corporate purposes will
vary depending on a number of factors, including:
o successfully commercializing E25;
o our progress in and the scope of our research and development activities;
o changes in or termination of existing collaboration and licensing
arrangements;
o costs and magnitude of product or technology acquisitions; and
o our need for manufacturing capacity;
Our management will have broad discretion over how we use the net proceeds of
this offering. Pending such uses, we intend to invest the net proceeds of this
offering in short-term, interest-bearing investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
anticipate that we will retain earnings to support operations and to finance our
business growth and development. Therefore, we do not expect to pay cash
dividends in the foreseeable future.
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CAPITALIZATION
The following table shows:
o our actual capitalization on December 31, 1999; and
o our as adjusted capitalization on December 31, 1999, assuming the
completion of the offering as adjusted for the sale of 7,000,000 shares
of common stock by us at an assumed public offering price of $28.50 per
share, net of estimated underwriters' discounts and commissions and
offering expenses.
DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
-------- ------------
(IN THOUSANDS)
Long term debt....................... $ 10,000 $ 10,000
-------- ------------
Stockholders' equity:
Preferred stock, $.01 par value;
10,000,000 shares authorized, no
shares issued and outstanding;
no shares issued or outstanding,
as adjusted..................... -- --
Common stock, $.01 par value;
120,000,000 shares authorized;
33,324,402 shares issued and
outstanding, actual; 40,324,402
shares issued and outstanding,
as adjusted..................... 333 403
Additional paid-in capital......... 71,701 256,081
Deferred compensation.............. (651) (651)
Loans receivable from employees.... (1,086) (1,086)
Other comprehensive income,
cumulative translation
adjustment...................... 171 171
Retained earnings (deficit)........ (30,461) (30,461)
-------- ------------
Total stockholders' equity...... 40,007 224,457
-------- ------------
Total capitalization.......... $ 50,007 $234,457
======== ============
The shares of common stock outstanding in the actual and as adjusted columns
exclude 3,183,920 shares of common stock issuable upon exercise of options
outstanding at December 31, 1999 at a weighted average exercise price of $4.39
per share.
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DILUTION
Our net tangible book value on December 31, 1999 was approximately $39,965,000,
or $1.20 per share. "Net tangible book value" is total assets minus the sum of
liabilities and intangible assets. "Net tangible book value per share" is net
tangible book value divided by the total number of shares outstanding.
After giving effect to adjustments relating to the offering, our pro forma net
tangible book value on December 31, 1999, would have been $224,415,000 or $5.57
per share. The adjustments made to determine pro forma net tangible book value
per share are the following:
o increasing total assets to reflect the estimated net proceeds of the
offering as described under "Use of Proceeds" assuming that the public
offering price will be $28.50 per share; and
o adding the number of shares offered by this prospectus to the number of
shares outstanding.
The following table illustrates the pro forma increase in net tangible book
value of $4.37 per share and the dilution (the difference between the offering
price per share and net tangible book value per share) to new investors:
Assumed public offering price per
share........................... $ 28.50
Net tangible book value per share
as of December 31, 1999......... $ 1.20
Increase in net tangible book value
per share attributable to the
offering........................ 4.37
---------
Pro forma net tangible book value
per share as of December 31,
1999, after giving effect to the
offering........................ 5.57
---------
Dilution per share to new investors
in the offering................. $ 22.93
=========
The following table shows the difference between existing stockholders as of
December 31, 1999 and new investors with respect to the number of shares
purchased from Tanox, the total consideration paid and the average price paid
per share. We assume that the public offering price will be $28.50 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ------- -------------- ------- -------------
Existing stockholders................ 33,324,402 82.6% $ 61,924,000 23.7% $ 1.86
<S> <C> <C> <C> <C> <C>
New investors........................ 7,000,000 17.4 199,500,000 76.3 28.50
------------ ------- -------------- ------- -------
Total........................... 40,324,402 100.0% 261,424,000 100.0%
============ ======= ============== =======
</TABLE>
In the discussion and tables above, we assume no exercise of outstanding options
to purchase shares of our common stock. As of December 31, 1999, there were
outstanding options to purchase a total of 3,183,920 shares of common stock at a
weighted average exercise price of $4.39 per share. To the extent that option
holders exercise their outstanding options, new investors will be further
diluted.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
This section presents our selected historical financial data. You should read
carefully the consolidated financial statements included in this prospectus,
including the notes to the consolidated financial statements. We do not intend
the selected data in this section to replace the consolidated financial
statements.
We derived the statement of operations data for the years ended December 31,
1997, 1998 and 1999, and balance sheet data as of December 31, 1998 and 1999
from the audited consolidated financial statements in this prospectus, which
Arthur Andersen LLP, independent public accountants, audited. We derived the
statement of operations data for the years ended December 31, 1995 and 1996 and
the balance sheet data as of December 31, 1995, 1996 and 1997 from our audited
consolidated financial statements that we have not included in the prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 6,957 $ 15,017 $ 8,939 $ 2,422 $ 1,405
Research and development............. 5,499 5,626 6,926 11,933 17,163
General and administrative........... 1,707 1,165 2,230 3,431 8,582
--------- --------- --------- ---------- ----------
Total operating costs and expenses... 7,206 6,791 9,156 15,364 25,745
--------- --------- --------- ---------- ----------
Income (loss) from operations........ (249) 8,226 (217) (12,942) (24,340)
Other income, net.................... 470 433 1,045 1,240 1,028
--------- --------- --------- ---------- ----------
Income (loss) before income taxes.... 221 8,659 828 (11,702) (23,312)
(Provision) benefit of income
taxes.............................. (10) (1,922) (198) 1,533 (34)
--------- --------- --------- ---------- ----------
Net income (loss).................... $ 211 $ 6,737 $ 630 $ (10,169) $ (23,346)
========= ========= ========= ========== ==========
Earnings (loss) per share:
Basic........................... $ 0.01 $ 0.26 $ 0.02 $ (0.35) $ (0.75)
========= ========= ========= ========== ==========
Diluted......................... $ 0.01 $ 0.23 $ 0.02 $ (0.35) $ (0.75)
========= ========= ========= ========== ==========
Shares used in computing earnings
(loss) per share:
Basic........................... 26,215 26,215 27,909 29,105 31,113
Diluted......................... 29,418 29,382 31,190 29,105 31,113
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments........................ $ 15,443 $ 18,235 $ 36,857 $ 33,735 $ 47,254
Working capital...................... 13,847 15,575 35,871 34,323 42,718
Total assets......................... 18,147 25,871 44,831 43,422 55,328
Long term debt....................... 7,000 7,000 9,000 10,000 10,000
Retained earnings (deficit).......... (4,313) 2,424 3,054 (7,115) (30,461)
Total stockholders' equity........... 8,470 15,811 34,428 31,540 40,007
</TABLE>
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THIS DISCUSSION TOGETHER WITH THE FINANCIAL STATEMENTS AND OTHER
FINANCIAL INFORMATION INCLUDED IN THIS PROSPECTUS.
OVERVIEW
Tanox identifies and develops therapeutic monoclonal antibodies to address
significant unmet medical needs in the areas of immunology, infectious diseases
and cancer. E25, our most advanced product in development, is an anti-IgE
antibody we are developing in collaboration with Novartis and Genentech. E25 has
successfully completed Phase III clinical trials in both allergic asthma and
seasonal allergic rhinitis (hay fever). Based on the results of these trials, in
mid-2000, our collaboration partners intend to file for marketing approval in
the United States and Europe for both indications. In addition, we are
developing a number of monoclonal antibodies to treat other allergic diseases or
conditions, such as severe allergic reactions to peanuts, autoimmune diseases,
HIV and neutropenia.
We currently have no products available for sale and are focusing on product
development, clinical trials and process development. We have incurred
substantial losses since inception and incurred an accumulated deficit through
December 31, 1999, of $30.5 million. We expect to continue to incur substantial
operating losses for the foreseeable future, particularly as we increase our
research and development, manufacturing, clinical trial and administrative
activities. We expect that losses will continue until such time, if ever, that
we generate sufficient revenue from royalties on E25 to cover our expenses.
Historically, we have earned revenues primarily from license fees, milestone
payments and sponsored research under our collaboration agreements. In the
future, we expect our principal revenues will be milestone payments, royalties
and profit-sharing payments from Novartis and Genentech. We may also receive
royalties from Hoffman-La Roche Ltd. should it participate in selling E25 in
Europe. Our revenues will depend particularly on the success of our
collaboration partners in developing, manufacturing, obtaining regulatory
approvals for and marketing E25. Because a substantial portion of our revenues
for the foreseeable future will depend on achieving development and
commercialization milestones, we anticipate that our results of operations will
vary substantially from year to year and even quarter to quarter.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues decreased to $1.4 million in 1999 from $2.4 million in 1998,
a decrease of $1.0 million. This decrease was primarily due to a difference of
$1.3 million in milestone and sponsored research revenues earned under our
agreements with Novartis and Genentech. These agreements accounted for 76% of
our revenues in 1999 and 98% of our revenues in 1998. The $1.3 million decrease
was partially offset by higher revenues of $0.4 million from foreign government
grants and technology licensing fees.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
to $17.2 million in 1999 from $II.9 million in 1998, an increase of $5.3
million. This increase was principally due to increased personnel, expansion of
preclinical and clinical development activities and a $2.7 million non-cash
charge resulting from extending the exercise periods for stock options to some
research and development employees and consultants. In addition, we incurred a
$3.4 million charge in 1999 and a $2.8 million charge in 1998 for in-process
research and development costs from the first two purchase payments made to the
former shareholders of PanGenetics B.V., a company we acquired in 1998. Please
see "Acquisition of PanGenetics B.V."
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $8.6 million in 1999 from $3.4 million in 1998, an increase of $5.2
million. This increase was primarily attributable to recognizing an arbitration
award of $3.5 million to the attorneys who represented us in our litigation
against
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<PAGE>
Genentech, and a $1.9 million non-cash charge for stock-based compensation,
which was due to extending some employee and consultant stock options.
OTHER INCOME. Other income decreased to $1.0 million in 1999 from $1.2 million
in 1998, a decrease of $0.2 million. This decrease was principally due to a
decline in interest income as a result of lower average cash balances and a loss
in 1999 on foreign currency transactions.
NET LOSS. Net loss increased to $23.3 million in 1999 from $10.2 million in
1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues decreased to $2.4 million in 1998 from $8.9 million in 1997,
a decrease of $6.5 million. This decrease was due to a $4.0 million decline in
revenues from our agreements with Novartis and Genentech and a decline of $2.5
million in revenues from a former collaboration. Revenues from our collaboration
agreements with Novartis and Genentech accounted for 98% of our 1998 revenues
and 71% of our 1997 revenues.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
to $II.9 million in 1998 from $6.9 million in 1997, an increase of $5.0 million.
This increase was primarily due to expanding our research organization,
including $2.8 million of in-process research and development expenses
associated with purchasing PanGenetics in the first quarter of 1998.
Additionally, we incurred a $1.5 million charge in 1998 to license patents that
we may need to commercialize one of our products.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $3.4 million in 1998 from $2.2 million in 1997, an increase of $1.2
million. This increase was principally due to increased expenses associated with
our legal proceedings.
OTHER INCOME. Other income increased to $1.2 million in 1998 from $1.0 million
in 1997, an increase of $0.2 million. This increase was primarily due to a $0.4
million increase in interest income due to higher average cash balances,
partially offset by a $0.2 increase in interest expense.
NET LOSS/INCOME. Net loss totaled $10.2 million in 1998, compared to net income
of $0.6 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through collaboration
and grant revenues, sales of equity securities, interest income and equipment
financing agreements. From inception through 1999, we recognized approximately
$59.3 million in collaboration, grant and other revenues. Additionally, we have
raised approximately $54.9 million from sales of equity securities and $1.5
million from the exercise of stock options, and we have earned approximately
$8.8 million of interest income. As of December 31, 1999, we had approximately
$47.3 million in cash, cash equivalents and short-term investments available for
working capital.
During 1999, we used $8.2 million to finance our operating activities. The
primary use of cash for operating purposes was our net loss of $23.3 million,
although $10.0 million of this amount was attributable to non-cash items. In
1999, changes in working capital were our primary source of cash from operating
activities, including a $2.0 million income tax refund and a $3.5 million
increase in accrued liabilities for the arbitration award. Our investing
activities generated $0.9 million in 1999. Financing activities generated $23.0
million in 1999, principally from selling our common stock. The combination of
the above items resulted in a cash increase of $15.9 million during the year.
During 1998, we used $6.5 million to finance our operating activities. The
primary use of cash for operating activities was $10.2 million to finance our
net loss, although the net loss included $4.8 million of non-cash items. In
1998, we used $1.2 million of cash for working capital. The primary use of cash
for working capital was a $1.6 million increase in taxes receivable from the
carry back of the 1998 net loss to prior years. Our acquisition of PanGenetics
did not have a material impact on working capital. Investing activities used
$6.2 million of cash in 1998, primarily for the purchase of short-term
investments, purchases of fixed assets and leasehold improvements and the
initial cash purchase payment for PanGenetics.
25
<PAGE>
Financing activities generated $4.2 million in 1998, primarily from the sale of
common stock to private investors and $1.0 million from the proceeds of a note
payable to Novartis. As a result of the above items, our cash balance decreased
by $8.5 million during 1998.
Our current and anticipated development projects will require substantial
additional capital to complete. We anticipate that the amount of cash we need to
fund operations will grow substantially in the future as our projects move from
research to preclinical and clinical development. We also expect that we will
need to expand our administrative, clinical development, facilities and business
development activities to support the future development of our programs and to
support the ongoing requirements of a public company.
From 1994 through 1998, Novartis advanced us $10.0 million, pursuant to a loan
agreement to finance our new clinical manufacturing facility. The loan bears
interest at the London Interbank Offered Rate, or LIBOR, plus two percent (7.3%
and 8.1% at December 31, 1998 and 1999, respectively). Through December 31,
1999, Novartis has agreed to forgive interest on the loan. For the years 1997,
1998 and 1999, the interest Novartis has forgiven has been reflected as interest
expense and a capital contribution. Although the loan is currently scheduled to
be due in full on December 31, 2005, Novartis may partially or totally forgive
the principal and future interest payments based on the future use of the
facility.
From inception through December 31, 1999, we have invested approximately $II.6
million in property and equipment, primarily to support research and product
development activities and to construct our new clinical manufacturing facility.
We pledged all of the assets of the new clinical manufacturing facility as
security for the Novartis loan.
We have agreed to loan some employees up to $1.5 million in April 2000 to pay
tax obligations resulting from their stock option exercises in 1999.
At December 31, 1999, we had a net operating loss of approximately $6.6 million
for federal income tax reporting purposes, which begins to expire in 2019. We
also have a foreign net operating loss carryforward of approximately $5.2
million. Additionally, we have an unused U.S. research and development tax
credit carryforward of approximately $1.0 million, which begins to expire in
20II. Because we have incurred cumulative losses to date and there is no
assurance of future taxable income, we have established a valuation allowance to
fully offset the deferred tax asset at December 31, 1999.
We expect to incur substantial additional capital, research and development,
manufacturing and other costs as we continue to develop our products.
Consequently, we may need to raise substantial additional funds. We expect that
the net proceeds from this offering, together with our existing assets and
revenue from operations, will fund our operations for the next three years.
However, our future capital needs will depend on many factors, including
successfully commercializing E25, receiving payments from our collaboration
partners, progress in our research and development activities, the magnitude and
scope of these activities, the progress and level of unreimbursed costs
associated with preclinical studies and clinical trials, the costs and magnitude
of product or technology acquisitions, the cost of preparing, filing,
prosecuting, maintaining and enforcing patent claims and other intellectual
property rights, competing technological and market developments, changes in or
terminations of existing collaboration and licensing arrangements, the
establishment of additional collaboration and licensing arrangements, and
manufacturing scale-up costs and marketing activities, if we undertake those
activities. We do not have committed external sources of funding and we cannot
assure that we will be able to obtain additional funds on acceptable terms, if
at all. If adequate funds are not available, we may be required to:
o delay, reduce the scope of or eliminate one or more of our programs;
o obtain funds through arrangements with collaboration partners or others
that may require us to relinquish rights to technologies, product
candidates or products that we would otherwise seek to develop or
commercialize ourselves; or
o license rights to technologies, product candidates or products on terms
that are less favorable to us than might otherwise be available.
26
<PAGE>
We are currently engaged in litigation and arbitration relating to a fee dispute
with the law firms that represented us in connection with the Genentech
litigation. An arbitration panel issued an award entitling the attorneys to
receive approximately $3.5 million, including interest, payments ranging from
33 1/3% to 40% of the future payments we would receive from Genentech following
product approval, and 10% of the royalties that we would receive on all sales of
anti-IgE products by Genentech and Novartis. We are contesting this award.
During the appeals process, we will either post a bond or place amounts in
escrow to secure payment of the award. See "Business -- Pending Legal
Proceedings."
ACQUISITION OF PANGENETICS B.V.
In March 1998, we purchased PanGenetics B.V., now our subsidiary Tanox Pharma
B.V., for an initial payment to its shareholders of $0.5 million in cash and
226,409 shares of our common stock, valued at $II.25 per share, for a total
initial consideration of $3.1 million. In addition, we agreed to pay future
consideration, in two installments, totaling up to $0.7 million in cash and
484,147 shares of our common stock upon occurrence of certain future events.
In September 1999, we paid the second installment of $0.3 million in cash and
242,075 shares of our common stock, valued at $12.50 per share, for a total
consideration of $3.4 million. If we make the final future payment as scheduled
in March 2001, we will record an additional purchase price amount based on the
cash paid and the fair value of the common stock issued at the time of payment.
If we make the final payment in March 2001, we will allocate the final payment
to acquired in-process research and development and goodwill based on the
appraisal obtained as of the date of the acquisition.
Tanox engaged an independent firm, KPMG LLP, to perform an appraisal of the
assets acquired in the transaction. The appraisal was completed and the report
issued in 1998. We accounted for the costs to acquire PanGenetics under the
purchase method of accounting. At the time of the acquisition, we valued the
total current and future consideration for accounting purposes at $9.2 million,
based on the total of the cash and then fair value of common stock paid, or
expected to be paid, to PanGenetics shareholders. Of this amount, we allocated
approximately $7.2 million to in-process research and development and $2.0
million to goodwill and other assets. See "Note 2 of the Notes to Consolidated
Financial Statements."
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of risks, including foreign currency exchange
fluctuations and changes in interest rates. In the normal course of business, we
have established policies and procedures to manage these risks.
FOREIGN CURRENCY EXCHANGE RATES. During 1999, our operating results reflect
foreign exchange losses of $0.1 million and our balance sheet reflects a foreign
currency translation adjustment of $0.2 million. We are subject to foreign
currency exchange risk because:
o we invest in our foreign subsidiaries;
o we incur a significant portion of our costs and expenses and a smaller
portion of our revenues in the local currencies of the countries where we
do business; and
o we finance part of the cost of our subsidiaries' operations through
dollar denominated inter-company loans and equity investments that are
recorded on their books in the respective local currencies.
Fluctuations in exchange rates have not had a material impact on our revenues or
costs and expenses, but have affected the value of our equity investments and
inter-company loans. As a result of our international operations and our current
financing approach, fluctuations in exchange rates of the local currencies
versus the U.S. dollar impact our operating results. We are primarily exposed to
gains and losses with respect to Dutch guilders and Taiwan dollars because our
subsidiaries conduct business in these currencies. To date, we have not
implemented a program to hedge our foreign currency risk, but we may do so in
the future.
INTEREST RATE RISK. Cash and short-term investments were approximately $47.3
million at December 31, 1999. These assets were primarily invested in investment
grade commercial paper which we hold to
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maturity. We do not invest in derivative securities. Although our portfolio is
subject to fluctuations in interest rates and market conditions, no gain or loss
on any security would actually be recognized in earnings unless we sell the
asset. In addition, our loan from Novartis is based on a premium over LIBOR. As
such, if general interest rates increase, our interest costs will increase.
THE YEAR 2000
During 1998 and 1999, we had a Year 2000 Project (Y2K Project) in place to
address the potential exposures related to the impact on our computer systems
and scientific and manufacturing equipment containing computer-related
components for the Year 2000 and beyond. As of December 31, 1999, all scheduled
Y2K work was completed. As of the date of this prospectus, we have not
encountered any material Y2K system problems and we have not experienced any
impact on operations or expenses.
Nevertheless, we do use and rely on a wide variety of information technologies,
computer systems and scientific and manufacturing equipment containing
computer-related components (such as programmable logic controllers and other
embedded systems). As a result, time-sensitive functions of those software
programs and equipment may yet misinterpret dates after January 1, 2000, to
refer to the twentieth century rather than the twenty-first century. Although we
do not anticipate any material problems, we could suffer system or equipment
shutdowns, failures or miscalculations. Such conditions could result in
inaccuracies in computer output or disruptions of operations, including, among
other things, inaccurate processing of financial information and/or temporary
inabilities to process transactions, manufacture products, or engage in similar
normal business activities.
In addition, although all of our significant suppliers and our significant
service providers indicated that they were or expected to be Year 2000 compliant
by December 31, 1999, and although as of the date of this prospectus we are not
aware of any material Year 2000 compliance problems with these third parties'
systems, we cannot be certain that these third parties made accurate
representations or that their systems are or will continue to be Year 2000
compliant. If any of our significant suppliers or significant service providers
experience Year 2000 compliance problems and we cannot replace them with
alternate sources, our business would be harmed.
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<PAGE>
BUSINESS
OVERVIEW
Tanox identifies and develops therapeutic monoclonal antibodies to address
significant unmet medical needs in the areas of immunology, infectious diseases
and cancer. In 1987, we discovered a novel approach for treating allergies and
asthma by using monoclonal antibodies capable of inhibiting IgE. E25, our most
advanced product in development is a genetically engineered monoclonal antibody
that attaches to, and inhibits, the activity of IgE. We are developing E25 in
collaboration with Novartis and Genentech for treatment of allergic asthma and
allergic rhinitis (hay fever). We estimate that in the United States, allergic
asthma afflicts approximately 11 million people, and allergic rhinitis afflicts
approximately 40 million people, of whom approximately 32 million are seasonal
sufferers. E25 has successfully completed Phase III clinical trials in allergic
asthma and seasonal allergic rhinitis patients. Based on the results of these
trials, our collaboration partners intend to file a BLA with the FDA
concurrently with European registration for both indications in mid-2000.
Using our extensive understanding of the human immune system, we are building a
diverse pipeline of monoclonal antibody product candidates. We are conducting
clinical trials with two additional monoclonal antibodies. Hu-901, an anti-IgE
antibody distinct from E25, is currently in a Phase I/II trial for treating
severe peanut allergy. 5D12, an anti-CD40 antibody, is currently in a Phase I/II
trial for treating Crohn's disease and in preclinical studies for treating other
autoimmune diseases. We are conducting preclinical and research studies with
5A8, an anti-CD4 antibody for treating HIV, 166-32, a complement factor D
inhibiting antibody for treating acute inflammation and 163-93, an anti-G-CSF
receptor activating antibody for treating neutropenia.
STRATEGY
Our objective is to leverage our expertise in monoclonal antibodies and
understanding of the human immune system to advance our product pipeline and
become a profitable biopharmaceutical company. We intend to accomplish this
through the following strategic initiatives:
o CONTINUING TO IDENTIFY AND DEVELOP NOVEL MONOCLONAL ANTIBODIES. We have
focused on the research and development of monoclonal antibodies since
our inception and have successfully identified and obtained patents for
novel monoclonal antibodies with potential therapeutic applications. We
believe that monoclonal antibodies will be one of the primary areas for
pharmaceutical development for the foreseeable future, particularly as
genomic research identifies novel disease targets. We will continue to
apply our expertise in immunology to identify new antibodies that may
bind to these novel targets. We will focus on diseases for which current
therapies are substandard or unavailable and the market opportunities are
large. With product candidates targeting autoimmune diseases, HIV,
inflammation and cancer, we believe that we have a diverse monoclonal
antibody product pipeline.
o MAXIMIZING THE MARKET OPPORTUNITY FOR ANTI-IGE ANTIBODIES. We are focused
on identifying diseases and conditions for which anti-IgE antibodies are
likely to provide a safe and effective therapy. In this regard, we intend
to work with our partners, Novartis and Genentech, in establishing market
awareness for E25 in asthma, allergic rhinitis and potential future
indications targeted through the collaboration. Concurrently with this
effort, we are pursuing the independent development of Hu-901 to
demonstrate the efficacy of anti-IgE antibodies for indications our
partners are not currently pursuing.
o IDENTIFYING ATTRACTIVE ACQUISITION AND IN-LICENSING CANDIDATES. In
addition to our in-house development efforts, we will continue our
efforts to identify opportunities to acquire or in-license products and
technologies. We believe that we are well positioned to continue to
attract in-licensing and acquisition candidates as a result of our
demonstrated expertise in immunology and monoclonal antibodies. Our
anti-CD40 and anti-CD4 programs are the result of in-licensing.
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o FORMING STRATEGIC COLLABORATIONS TO SUPPORT DEVELOPMENT AND
COMMERCIALIZATION OF OUR PRODUCTS. We often deem it advantageous to
partner with large pharmaceutical and biotechnology companies to obtain
funding and marketing support for our development activities. These
collaborations generally:
- enable us to develop a greater number of products than otherwise
would be possible;
- lower the substantial financial investment that is required of us to
develop our products; and
- provide us with domestic and international marketing and sales
expertise for our partnered products once approved.
Under future collaborations, we expect to retain strategically important
development, manufacturing or marketing rights in order to optimize the
value of our drug development opportunities.
o RETAINING STRATEGIC MARKETING RIGHTS TO OUR PRODUCTS. As we pursue
strategic collaborations, we intend to reserve strategic marketing rights
for our products. We will focus initially on markets for which our
products have a clear advantage over other therapies or that we can
market using a relatively small, targeted sales force.
HUMAN IMMUNE SYSTEM
The human immune system has three general mechanisms that protect the body
against infections, toxins and cancer by responding to and clearing foreign
agents, or antigens, that have penetrated the body's protective barriers. These
mechanisms are:
o ANTIBODIES. The body produces proteins called antibodies that deactivate
and help remove the antigens from the body. Each antibody matches an
antigen much as a key matches a lock. Antibodies are made by specialized
white blood cells called B cells, with the help of other white blood
cells, called helper T cells. When a B cell encounters its triggering
antigen, it manufactures millions of identical antibody molecules and
releases them into the bloodstream.
o CELL-MEDIATED IMMUNE RESPONSE. The second protective immune mechanism
relies on cells to recognize and destroy foreign antigens. This mechanism
is known as cell-mediated immunity. T cells are important in
cell-mediated immune responses. Some T cells, called killer T cells, seek
out and kill cancer cells or virus-infected cells. Helper T cells also
play a role in cell-mediated immune response by stimulating inflammatory
cells called macrophages to actively destroy foreign antigens,
microorganisms and cancer cells.
o INNATE IMMUNE RESPONSE. Innate immunity is the body's first line of
defense against injury and infection and serves a surveillance and
maintenance role. One part of the innate immune system involves large
white blood cells called phagocytes (literally, "cell-eaters") that can
engulf and digest foreign microorganisms and other antigens. Important
phagocytes include macrophages, that rid the body of dead cells and other
debris, and granulocytes, including neutrophils, that contain granules
filled with potent chemicals. These chemicals, in addition to destroying
microorganisms, play a key role in acute inflammatory reactions. Another
part of the innate immune response is known as the complement system. The
complement system includes a series of proteins that work to "complement"
the activity of antibodies in destroying bacteria, either by stimulating
the macrophages and neutrophils, or by puncturing the bacterial cell
membrane to kill the cells. These proteins also cause the neutrophils to
accumulate at the site of infection or tissue damage.
Most of the time, the immune system protects us from infections, cancer and some
toxic agents. However, sometimes the immune system actually causes the disease
or symptoms of the disease. For example, in the case of allergic diseases, such
as asthma and hay fever, the immune system responds to the antigen, or allergen
in this case, by producing an IgE form of antibody. IgE is instrumental in
triggering the symptoms of the disease. In other cases, T and B cells may
recognize a part of the body as foreign, triggering an immune response against
the body resulting in an autoimmune disease and associated tissue destruction.
MONOCLONAL ANTIBODIES AS THERAPEUTICS
Monoclonal antibodies represent an exciting area of novel therapeutic product
development. Genetically engineered monoclonal antibodies are man-made
antibodies that target a specific antigen. Most monoclonal antibodies are
derived from animals such as mice. Advances in antibody design technologies have
enabled
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scientists to develop humanized (human-like) and fully human antibody products
that can be administered to patients on a chronic basis with reduced concern for
adverse responses by the human immune system. Advances in antibody production
technologies, such as high productivity fermentation and transgenic plants and
animals, have enabled manufacturers to produce antibody products more
cost-effectively. Because of these advances, a large number of monoclonal
antibodies are currently undergoing clinical and preclinical investigation.
According to a survey conducted by the Pharmaceutical Research and Manufacturers
of America, 74 out of 350, or 21% of all, biotechnology medicines in clinical
trials in 1998 were antibodies. The FDA has approved eight therapeutic
antibodies, six of them in the last three years, with total sales in 1999 in
excess of $1.3 billion.
Generally speaking, there are three basic methods for using monoclonal
antibodies as therapeutics. Each of the approaches described below capitalizes
on the monoclonal antibody's ability to precisely target selected receptors on
specific cells:
o BLOCKING CELL ACTIVITY AND IMMUNE FUNCTIONS -- monoclonal antibodies can
be produced to bind to specific bioactive molecules or cell receptors to
prevent undesirable cell responses, such as allergic reactions and
autoimmune diseases.
o ACTIVATING CELL ACTIVITY AND IMMUNE FUNCTIONS -- monoclonal antibodies
can be produced to bind to specific cell receptors in order to activate a
desired cellular response.
o DELIVERING THERAPEUTIC AGENTS -- monoclonal antibodies bind to specific
target receptors. Consequently, antibodies can be used to deliver active
agents, such as radioactive isotopes and toxins, to specific cells and
tissues targeted for destruction.
PRODUCT DEVELOPMENT PROGRAMS
We have three products in clinical development and are evaluating several
product candidates in preclinical and research studies. Our drugs target various
elements or malfunctions of the immune system, and all are monoclonal
antibodies. We have designed drugs to deactivate or reduce the activity of the
immune system for diseases caused by over-activation or inappropriate activation
of immune responses, such as autoimmune and allergic diseases and acute
inflammation. We also have designed drugs to activate the immune system for
treatment of diseases where boosting immune protection is desirable, such as
AIDS, infectious diseases and cancer. Our products have either resulted from our
internal research and development activities or were in-licensed or acquired.
The table below summarizes the development status for our principal product
candidates.
<TABLE>
<CAPTION>
ANTIBODY
PRODUCT DESCRIPTION INDICATION STATUS PARTNERS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E25 Anti-IgE Allergic Asthma Phase III Novartis/Genentech
Completed
Seasonal Allergic Phase III Novartis/Genentech
Rhinitis Completed
Hu-901 Anti-IgE Severe Peanut Phase I/II --
Allergy
5D12 Anti-CD40 Crohn's Disease Phase I/II --
Other Autoimmune Preclinical --
Diseases
5A8 Anti-CD4 HIV/AIDS Preclinical --
166-32 Anti-complement Acute Research --
Factor D Inflammation
163-93 Anti-G-CSF Chemotherapy-Induced Research --
Receptor Neutropenia
Novartis and Genentech are disputing our rights to independently develop Hu-901.
We discuss the dispute in this prospectus in the section entitled
"Business--Pending Legal Proceedings." In addition, we have the right to
develop and commercialize 5D12 only in Europe and Japan.
</TABLE>
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<PAGE>
ANTI-IGE DEVELOPMENT -- E25
E25 is a humanized anti-IgE monoclonal antibody designed to prevent symptoms of
allergic asthma and allergic rhinitis. E25 works by preventing the ability of
allergens to activate the immune system. We are developing E25 in collaboration
with Novartis and Genentech. The product has successfully completed Phase III
clinical trials in both allergic asthma and seasonal allergic rhinitis. Our
partners intend to file a BLA with the FDA concurrently with European
registration for both indications by mid-2000. We expect E25 to be administered
by subcutaneous injections once or twice per month.
In allergic diseases, the immune system responds to the antigen, or allergen in
this case, by producing IgE. IgE binds to the surface of mast cells and
basophils. These cells, which are found in tissue and also circulate in the
blood, contain chemicals such as histamine and leukotrienes, which induce
inflammation. The first time an allergy-prone person is exposed to an allergen,
he or she makes large amounts of an IgE antibody specific to that allergen.
These IgE molecules attach to the surfaces of mast cells or basophils. When an
IgE antibody sitting on a mast cell or basophil next comes in contact with its
specific allergen, the IgE antibody signals the mast cell or basophil to release
its powerful chemicals, causing tissue inflammation and asthma and allergy
symptoms, including wheezing, bronchospasm, sneezing, runny nose, watery eyes
and itching. E25 blocks IgE from binding to mast cells and basophils, thereby
inhibiting the allergic response.
The diagram below shows how allergic reactions are triggered (The Allergy
Cascade) and how E25 works to prevent or reduce allergy symptoms (How E25
Works).
<TABLE>
<CAPTION>
The Allergy Cascade How E25 Works
<S> <C> <C> <C>
[graphic] When an allergy-prone [graphic] E25 binds
person is exposed to an to IgE and
allergen such as ragweed,
[graphic] he or she makes large [graphic] prevents IgE from
amounts of IgE antibody attaching to mast
to ragweed. cells.
[graphic] These IgE antibodies bind
to receptors on mast cells.
[graphic] The next time a person [graphic] Without IgE on the mast
encounters ragweed, it cross- cell, ragweed cannot cause
links the IgE antibodies on the mast cell to release its
mast cells and the IgE-primed powerful chemicals,
mast cell releases its powerful
chemicals, including histamine.
[graphic] These chemicals cause the [graphic] and the person's asthma
person to suffer asthma and allergy symptoms
and allergy symptoms, such as are prevented or reduced.
wheezing, bronchospasm,
sneezing, runny nose, watery
eyes and itching.
</TABLE>
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<PAGE>
MARKET OPPORTUNITY
Allergic reactions triggered by IgE include allergic rhinitis and allergic
asthma.
ALLERGIC RHINITIS. Allergic rhinitis is a disease characterized by runny nose,
sneezing, congestion, itchy eyes and similar symptoms, and includes hay fever.
Allergic rhinitis afflicts at least 39.5 million people in the United States,
most of whom have seasonal allergies. In 1993, it was estimated that the total
cost associated with all forms of allergic rhinitis in the United States was
$3.4 billion. Doctors commonly treat the symptoms of allergic rhinitis with
antihistamines, decongestants, nasal steroids and other drugs. For many
patients, however, these medications do not completely alleviate the allergic
reactions or eliminate the symptoms. According to a 1997 study, only 26% of
treated allergic rhinitis patients reported symptoms as "well" or completely
controlled. Doctors sometimes prescribe allergy shots, called hyposensitization
therapy, for severely allergic persons to treat allergic rhinitis and systemic
allergic reactions. If the treating health care professional knows the allergen
to which the patient is reacting, hyposensitization can be effective. However,
it is difficult to identify which allergen causes the patient's allergy, and the
frequent and lengthy treatment protocols, as well as the potential for serious
adverse side effects, generally make hyposensitization undesirable.
ASTHMA. Asthma makes breathing difficult and is potentially life threatening.
According to a 1998 report by the Centers for Disease Control, approximately 17
million people in the United States suffer from asthma. Published reports also
indicate that asthma's prevalence in the United States has increased 75% from
1980 to 1994. Approximately two-thirds of these patients have allergic asthma.
The American Lung Association estimates that over $9.8 billion is spent annually
on asthma-related costs in the United States. Corticosteroids and beta-agonists,
the mainstay of asthma therapy, are sometimes effective, yet each is associated
with specific safety drawbacks. Particular side effects of corticosteroid
treatment include growth retardation in children, osteoporosis and cataracts.
Beta-agonists offer only short-term relief and do not control the underlying
inflammation. Leukotriene modifiers, a new class of controller medications with
the potential to reduce steroid requirements, appear to be modestly effective
for some patients. However, these modifiers have been associated with drug
interactions and adverse events including liver injury. Increasing use of
beta-agonists indicates inadequate control of the underlying inflammation
causing asthma.
DEVELOPMENT STATUS AND CLINICAL DATA
SEASONAL ALLERGIC RHINITIS. A Phase III clinical trial of E25 for seasonal
allergic rhinitis was conducted in Scandinavia during the spring 1998 birch
season. The randomized, placebo-controlled, multicenter clinical trial examined
symptoms of rhinoconjunctivitis and rescue medication usage in 251 adult and
adolescent patients with a history of birch pollen allergy. Patients were
treated with 300 mg of E25 or placebo via subcutaneous injection every three or
four weeks and treatment lasted eight or nine weeks. Patients received rescue
medications, such as antihistamines, when their symptoms were severe enough to
require additional medication. This Phase III clinical trial confirmed the
statistically significant results of an earlier pivotal Phase II trial in 536
patients conducted during the 1997 ragweed season in the United States. The
statistical significance of clinical results is determined by a widely-used
statistical method that establishes the par value, or p value, of the clinical
results. A par value of less than 0.01 (p<0.01) means that the chance of the
clinical results occurring by accident is less than 1 in 100.
Results from the Phase III seasonal allergic rhinitis trial were reported in May
1999 and showed that:
o E25 DECREASED THE SEVERITY OF NASAL AND OCULAR ALLERGY SYMPTOMS. Compared
to placebo, E25 treatment improved average daily nasal (p<0.001) and
ocular (p=0.031) symptom severity scores. Patients treated with placebo
experienced recurring sneezing, itchy nose and similar symptoms that
increased over the pollen season and were greatest during highest pollen
exposure. In contrast, patients treated with E25 did not experience an
increase in nasal symptoms over the whole E25 treatment period compared
to symptoms reported before the pollen season began and before treatment
began. 21% of patients treated with E25 reported complete control of
symptoms and an additional 59% reported symptom control was improved
compared to previous seasons. In addition, 6 of 7 patients
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<PAGE>
who discontinued treatment because of unsatisfactory treatment effects
were in the placebo group, even though there were twice as many patients
receiving E25.
o E25 DECREASED USE OF RESCUE MEDICATION. Patients receiving E25 used an
average 0.5 antihistamine tablets per day versus 1.3 tablets per day in
the placebo group (p<0.001), and required rescue medication on half as
many days (p<0.001). Increased use of rescue medication by placebo group
patients may have blunted the difference in symptom scores reported.
o E25 IMPROVED PATIENTS' QUALITY OF LIFE. E25 treatment delivered
clinically meaningful and statistically significant improvement over
placebo in total rhinitis quality of life score (p < 0.001) and in the
specific categories of activity limitations, nasal symptoms, non-nose and
non-eye symptoms and practical problems. E25 treated patients also
experienced improvements in sleep, eye symptoms and emotional state.
o E25 TREATMENT WAS SAFE AND WELL TOLERATED. In this and in the previous
trials, no antibodies against E25 were detected and no serum sickness,
immune complex disease, severe allergic reactions or other
allergy-related side effects were reported. Less than two percent of
patients experienced side effects of headache (1.8%) and upper
respiratory infection (1.2%). Three subjects reported urticaria (skin
itching and hives) following E25 injections (0.5% of all E25 injections).
The incidence of adverse events was similar for the E25 and placebo
groups.
The difference between placebo and E25 in all instances was statistically
significant. In addition, Novartis has announced the initiation of a Phase IV
evaluation in perennial (year-round) allergic rhinitis in the third quarter of
1999.
ALLERGIC ASTHMA. Two Phase III clinical trials in allergic asthma have been
completed in the United States in adults (12-75 years) and children (6-12
years). The two randomized, placebo-controlled, multicenter clinical trials
included 525 patients in the adult study and 334 patients in the pediatric
study. Clinicians who participated in the Phase III clinical trials presented
the results at the American Academy of Allergy Asthma & Immunology meeting in
San Diego, California in March 2000.
In both trials, patients who were experiencing asthma symptoms, despite taking
inhaled corticosteroid therapy, were given either E25 or placebo via
subcutaneous injection every two or four weeks. Patients were monitored for
asthma exacerbations, which were defined as symptoms requiring a doubling of
inhaled corticosteroids or initiation of oral corticosteroids to maintain
adequate asthma control. These trials were conducted over 28 weeks in two
phases, followed by the following treatment extensions:
o a 16-week stable treatment period that monitored patients taking either
E25 or placebo in addition to ongoing treatment with inhaled
corticosteroids and rescue beta-agonists;
o a 12-week steroid reduction period (immediately following the stable
treatment period), where the dosage of inhaled corticosteroids was
gradually reduced in both the E25 and placebo groups; and
o a treatment extension so that long term safety could be evaluated for a
one year period.
In patients receiving E25 versus placebo, the reduction in steroid dosage was
greater in both adults (p<0.001) and children (p=0.001).
In the 525 patient adult trial, steroid dosage was reduced at least 75% in half
of the patients receiving E25 compared to at least 50% in half of the patients
receiving placebo. The percentage of E25 patients experiencing asthma
exacerbations was reduced in both the stable treatment period and the steroid
reduction period. Additionally, the average daily dose of rescue medication
during this period was less in both treatment phases for the E25 group than for
the placebo group. During the stable treatment period, 14.6% (39 of 268
patients) of patients receiving E25 demonstrated asthma exacerbations compared
to 23.3% (60 of 257) of patients receiving placebo (p=0.009). During the steroid
reduction period, 21.3% (57 of 268) of patients receiving E25 experienced asthma
exacerbations compared to 32.3% (83 of 257) of patients receiving placebo
(p=0.026). Additionally, 40% (107 of 268) of patients receiving E25 completely
withdrew from inhaled corticosteroids during this period compared to 19% (49 of
257) of patients receiving placebo.
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<PAGE>
In the 334 patient pediatric trial, steroid dosage was reduced by 100% in more
than half of the patients receiving E25, compared to at least 71% in half of the
patients receiving placebo. The percentage of E25 patients experiencing asthma
exacerbations also was reduced during both the stable treatment period and the
steroid reduction period and the average daily dose of rescue medication was
less in both treatment phases for the E25 group than in the placebo group.
During the stable treatment period, 16% (35 of 225 patients) of patients
receiving E25 demonstrated asthma exacerbations compared to 23% (25 of 109) of
patients receiving placebo (p=0.095). During the steroid reduction period, 18%
(41 of 225) of patients receiving E25 experienced asthma exacerbations compared
to 39% (42 of 109) of patients receiving placebo (p<0.001). 55% (124 of 225) of
patients receiving E25 completely withdrew from inhaled corticosteroids during
this phase compared to 39% (43 of 109) of patients receiving placebo.
Results from the two trials showed that despite decreasing dosages of
conventional therapies, E25 treatment reduced the number of serious asthma
exacerbations. These studies corroborated results from an earlier Phase II
clinical trial in allergic asthma recently reported in THE NEW ENGLAND JOURNAL
OF MEDICINE. Headache and upper respiratory tract infection were the most
frequently reported adverse events. The incidence of adverse events during the
Phase III trials was similar in both the E25 and placebo groups. Safety data
from the five-month follow-up phase of the trials are pending.
Novartis and Genentech intend to file a BLA for E25 in the United States and to
concurrently file for registration in Europe in mid-2000 for both allergic
asthma and seasonal allergic rhinitis.
We and our collaboration partners have begun clinical development of E26, a
humanized anti-IgE monoclonal antibody with improved binding to IgE. Although
E26 may be several years behind the development of E25, we believe the product
may require lower doses to achieve the same clinical benefits as E25.
ANTI-IGE DEVELOPMENT -- HU-901
Hu-901 is a humanized anti-IgE monoclonal antibody that we are developing to
prevent symptoms of peanut induced anaphylaxis, a severe, potentially
life-threatening allergic reaction. Hu-901 binds IgE in a way similar to E25,
and is designed to prevent allergic reactions. At the initiation of our
collaboration with Novartis and Genentech in 1996, Novartis and we were
developing Hu-901, and Genentech was developing E25. We agreed with our
collaboration partners to select E25 for joint development primarily because
commercial-scale manufacturing capability existed for E25.
In July 1999, we initiated our first independent clinical trial with Hu-901. As
discussed in this prospectus under the heading "Business -- Pending Legal
Proceedings," Novartis and Genentech are contesting our right to independently
develop Hu-901. Regardless of the outcome, we believe that our development
program will highlight the potential for additional indications for the use of
anti-IgE antibodies and will encourage our partners to expand the development of
anti-IgE more rapidly into additional indications. If we lose the litigation, we
will terminate independent development of Hu-901.
MARKET OPPORTUNITY. We believe anti-IgE antibodies, such as Hu-901, have
potential applications beyond asthma and allergic rhinitis in treating other
allergic reactions and diseases, including peanut and other food allergies. For
example, patients with severe peanut allergy suffer gastrointestinal, skin and
respiratory symptoms, and may also suffer potentially life-threatening
anaphylaxis in response to ingesting peanuts. According to a recently published
survey, peanut or tree nut (e.g., walnut, almond and cashew) allergy affects
about 3 million people in the United States, 1.1% of the U.S. population.
Current treatment is avoiding peanuts and peanut oil, which is used in preparing
many food products. Complete avoidance requires constant vigilance and is
difficult because prepared food labeling does not always identify peanut-derived
ingredients. Accidental exposures can result in serious allergic reactions and
sometimes death. Patients with severe peanut allergy take antihistamines for
accidental exposure and epinephrine for severe anaphylactic reactions.
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<PAGE>
Approximately 2 to 4% of children and 1 to 2% of adults in the United States
suffer from food allergies. If Hu-901 effectively reduces sensitivity to
peanuts, we may also investigate its use in other food allergies. There is no
approved preventive therapeutic for food allergies.
Another indication for possible treatment with our anti-IgE product is atopic
dermatitis, or eczema, a disease resulting in itching, blisters, redness,
swelling and scaling or hardness of the skin. Eczema correlates with higher IgE
levels and is prevalent in asthma patients. Severe eczema causes much distress
to patients and greatly impairs their quality of life. Eczema is usually treated
with skin hydration and topical steroids, and sometimes treated with
antihistamines. Some individuals resist conventional therapies or develop
unacceptable side effects. Eczema is the most common skin condition in children
under the age of eleven. The percentage of children diagnosed with eczema has
increased in the United States from 3% in the 1960s to 10% in the 1990s.
DEVELOPMENT STATUS. We recently initiated a randomized, placebo-controlled,
multicenter Phase I/II trial with Hu-901. We designed the trial to determine the
extent to which Hu-901 treatment of patients with histories of severe reactions
to peanut products decreases sensitivity to eating small amounts of a peanut
preparation.
ANTI-CD40 DEVELOPMENT -- 5D12
5D12 is an anti-CD40 monoclonal antibody that we are developing for treatment of
autoimmune diseases. 5D12 blocks the CD40 pathway. The CD40 pathway enables B
cells to produce antibodies and regulates cellular immune responses, including
activation of macrophages and killer T cells. T and B cells sometimes recognize
a part of the body as "non-self," triggering an immune response against the
body that results in an autoimmune disease and associated tissue destruction. We
believe that 5D12 is the only antibody in clinical development that binds to
CD40 and inhibits cellular activation. We have exclusive rights to 5D12 in
Europe and Japan under a license from Chiron.
Preclinical studies have shown that interfering with the CD40 pathway may be
beneficial in treating autoimmune diseases, including multiple sclerosis and
lupus, and in preventing grafted organ rejection. 5D12 has potently inhibited
activation of B cells and macrophages in tissue culture systems. 5D12 also was
biologically active in preventing or delaying the appearance of clinical signs
and symptoms in a primate model for multiple sclerosis.
MARKET OPPORTUNITY. Based on our research and preclinical studies with 5D12, we
believe the product could reduce production of antibodies and the activation of
cellular immune responses that cause autoimmune diseases. Examples of such
diseases and estimated potential market sizes in Europe and Japan include:
o Crohn's disease, an inflammatory disease of the bowel (over 165,000
people);
o rheumatoid arthritis (approximately 3 million people);
o multiple sclerosis (approximately 200,000 people);
o lupus (approximately 320,000 people); and
o psoriasis (approximately 1 million people).
DEVELOPMENT STATUS. We have initiated a 20 patient Phase I/II clinical study
with 5D12 in Crohn's disease in Europe. The trial is a single dose,
dose-escalating study designed to provide data regarding the safety of the
product, its behavior, including half-life and clearance characteristics, and
its biological activity using histological examination of biopsy tissue. We
expect the results of this study to play an important role in determining
clinical indications that we will pursue with 5D12.
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<PAGE>
ANTI-CD4 DEVELOPMENT -- 5A8
5A8 is a humanized anti-CD4 monoclonal antibody that is in preclinical
development to treat human immunodeficiency virus, or HIV. The virus enters the
host cell by binding to the CD4 receptors on these cells. In lab studies, our
5A8 antibody binds to the CD4 receptor on the cell surface and prevents viral
entry into the cell, thereby blocking infection. We have exclusive worldwide
rights to 5A8 through a license with Biogen.
MARKET OPPORTUNITY. According to the World Health Organization, HIV infects
approximately 1.4 million people in North America and Western Europe. A number
of drugs targeting viral replication are being used, often in combination. About
30% of the patients treated with drug combinations, however, no longer respond
since HIV has become drug resistant. In addition, many drug combinations produce
a variety of undesirable toxic side effects.
DEVELOPMENT STATUS. 5A8 is now in preclinical development to determine its
usefulness to treat HIV-infected patients. In preliminary preclinical testing,
5A8 has potently blocked infections in all twenty-five strains of primary HIV
isolates tested in cell culture. In a primate model for HIV infection, 5A8
showed robust antiviral activity. Preclinical tests with our 5A8 antibody showed
no reduction in CD4-positive cell numbers, no evidence that any function of the
immune system was suppressed and no toxic effects.
OTHER PRODUCT CANDIDATES
ANTI-FACTOR D DEVELOPMENT. 166-32 is a monoclonal antibody that binds to Factor
D, a component of the complement system, and is in research to treat acute
inflammation. The complement system is the body's first line of defense against
infection. 166-32 binds to Factor D and inhibits complement activation.
While the complement system generally functions to protect the body, complement
system activation can become excessive and uncontrolled resulting in
inflammation and tissue damage. This can occur in cases of acute tissue injury
or surgical procedures that reduce blood flow into a tissue. In addition, during
heart surgery involving cardiopulmonary bypass (CPB), the shunting of blood
outside the body for circulation through mechanical devices has been shown to
activate complement and result in tissue injury. Research studies with 166-32 in
laboratory models for heart injury showed that low levels of 166-32 prevented
heart damage, and that 166-32 inhibited complement activation in a model for
CPB.
ANTI-G-CSF RECEPTOR DEVELOPMENT. 163-93 is a monoclonal antibody that binds to
the receptor for granulocyte colony stimulating factor (G-CSF) to treat a
condition known as neutropenia, which often afflicts cancer patients who have
undergone chemotherapy. Neutropenia is a deficiency of a type of granulocyte (a
specialized white blood cell that contains granules filled with potent
chemicals) called neutrophils, which results in a compromised immune system and
susceptibility to infection. Granulocytes engulf and destroy bacteria and other
microbial pathogens. G-CSF binds specific receptors on the surface of
granulocytes and stimulates their proliferation and controls their activities.
Recombinant G-CSF is sold by Amgen as Neupogen and has been used in cancer
patients to help restore their immune protection. Amgen reported 1999 sales of
$1.3 billion for Neupogen.
We are developing 163-93 to stimulate proliferation and activity of granulocytes
just as does G-CSF. 163-93 activates the same intracellular signaling pathway as
G-CSF and supports the production of granulocytes from human bone marrow as does
G-CSF. In a preliminary study, injecting 163-93 into primates stimulated
granulocyte production without affecting any other blood cells or causing any
toxicity. We believe that 163-93 could provide an alternative to G-CSF for
therapeutic use in cancer patients during chemotherapy and may have the
advantage of less frequent dosing.
ADDITIONAL PRODUCTS IN RESEARCH AND DEVELOPMENT. We have additional discovery
research projects directed towards developing new products and technologies to
treat immunological diseases and cancer.
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COLLABORATION AND LICENSING AGREEMENTS
COLLABORATION WITH NOVARTIS AND GENENTECH. We are developing our lead product,
E25, in collaboration with Novartis and Genentech. In 1990, we established a
collaboration with Novartis to jointly develop anti-IgE antibodies to treat
allergic diseases. In 1996, Genentech joined our collaboration with Novartis and
we agreed to combine our respective anti-IgE development programs in a
three-party collaboration. We and our collaboration partners selected E25 as the
lead product for development and commercialization.
Currently, under the terms of the collaboration agreements:
o DEVELOPMENT. Novartis and Genentech are responsible for completing the
development of and obtaining the regulatory approval for E25 and the
other anti-IgE products developed through the collaboration. Novartis and
Genentech share all development costs relating to E25 and other anti-IgE
products that the collaboration may select for development in the United
States and Europe. We and Novartis equally share development costs
relating to China, Hong Kong, Korea, Singapore and Taiwan. Novartis is
responsible for development costs in the rest of the world.
o MANUFACTURING. Novartis and Genentech are responsible for manufacturing
E25 and other selected anti-IgE products worldwide, subject to our right
to manufacture up to 50% of the worldwide requirements of those products.
o MARKETING. Novartis and Genentech share U.S. marketing rights, and
Novartis has marketing rights in Europe (with Roche retaining the option
to participate in Europe) to products developed through the
collaboration. Novartis is responsible for marketing these products in
the rest of the world, including China, Hong Kong, Korea, Singapore and
Taiwan.
o PAYMENTS. We may receive payments of up to $63.5 million based on
completing development and marketing objectives for E25, $6.5 million of
which we have already received. We may also receive payments of up to
$14.0 million based on completing development objectives for E26, $1.0
million of which we have already received. Our next payments totaling $12
million are due on filing the E25 BLA.
o ROYALTIES AND PROFIT SHARING. We may receive royalties based on net sales
of E25 and other selected anti-IgE products in the United States and a
share of Novartis' profits on these sales. We also may receive royalties
on net sales of E25 and other selected anti-IgE products in Europe and
the rest of the world (except for China, Hong Kong, Korea, Singapore and
Taiwan) and an equal share of Novartis' profits from sales of E25 and
other selected anti-IgE products in China, Hong Kong, Korea, Singapore
and Taiwan.
Our rights to the full amount of the payments, royalties and profits that we
receive could be affected by the on-going legal proceedings with our former
attorneys described under "Business -- Pending Legal Proceedings."
The collaboration agreements provide that we may independently develop, without
our collaboration partners, any anti-IgE product that the partners are not
developing through the collaboration. If we choose to independently develop a
product, Novartis has a right of first refusal on the licensing of that anti-IgE
product. As described in this prospectus under the heading "Business -- Pending
Legal Proceedings," we are currently involved in a dispute with our
collaboration partners regarding our rights to independently develop Hu-901 and
our right to use certain know-how and other information in our independent
development efforts.
Roche has an option to participate in commercializing E25 and other anti-IgE
products which the collaboration selects for development in Japan and Europe.
Roche may exercise this option if specified events relating to commercializing
the product occur. Roche has waived this option for E25 in Japan. In addition,
Roche has an option to assume Genentech's position in the collaboration if
Genentech withdraws from the collaboration, as described below.
Either Novartis or Genentech may withdraw from the collaboration on short
notice. If either Novartis or Genentech withdraws, rights to E25 and any other
products developed by the collaboration (including by
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<PAGE>
the withdrawing partner) revert to us and the remaining collaborator and, if
Genentech is the withdrawing party, to Roche if Roche exercises the option
described above. If the collaboration is dissolved in its entirety, we would
continue to retain rights to develop anti-IgE antibodies under the terms of
separate agreements with Novartis and Genentech.
In addition to the collaboration agreements, we and Genentech entered into a
cross-license agreement under which each party has an option to license the
other party's patents relating to the development of anti-IgE antibodies for use
in developing specific products. This option may be exercised at any time if
either party chooses to independently develop a product as permitted under the
collaboration agreements, if our collaboration with Novartis and Genentech
terminates or if we and Genentech may mutually agree.
OTHER COLLABORATIONS AND LICENSE AGREEMENTS
CHIRON LICENSE. In 1998, our European subsidiary Tanox Pharma, B.V. entered
into an agreement to license from Chiron exclusive research and development
rights (except as to Chiron) to Chiron's murine monoclonal antibodies against
CD40. Subject to our obligations to develop an anti-CD40 product and, under
certain circumstances, to pay maintenance fees, we have an option to obtain a
commercial license to Chiron's anti-CD40 antibodies, patents and technology for
Europe and Japan. Chiron retains its commercial rights in the United States and
the rest of the world. Additionally, Chiron has an option to obtain a commercial
license for the United States and the rest of the world outside Europe and Japan
to use anti-CD40 patents and technology that Tanox Pharma develops. Chiron has
two awarded U.S. patents and has patents pending in Europe, Japan and Canada.
Upon registering a product in Japan, the United Kingdom, France or Germany,
Tanox Pharma has agreed to pay Chiron a registration fee and royalties based on
its European and Japanese sales. Tanox Pharma has also agreed to pay Chiron a
milestone payment if Tanox Pharma develops and commercializes a product. Chiron
has agreed to pay us royalties based on its sales in the United States and the
rest of the world. We may make a $1.0 million product development milestone
payment, in addition to royalty payments under this agreement. The license
terminates on the later of the expiration of 10 years following the first
commercial product sale or the expiration of the last to expire of licensed
patents. The currently licensed patent expires in 2013.
BIOGEN. In 1998, we entered into an agreement to license from Biogen its
anti-CD4 monoclonal antibody and intellectual property on an exclusive worldwide
basis with limited sublicense rights. Biogen owns issued U.S. and European
patents and has pending applications in Australia, Canada and Japan. We paid
Biogen a license fee and agreed to make additional development milestone
payments and royalty payments to Biogen based on annual net sales revenue
levels. Additionally, we agreed to make milestone payments to Biogen that
increase as product development continues and if specified corporate development
events occur. In addition to royalty payments, we may make up to an aggregate of
$10.4 million in product development milestone payments under this agreement.
The license terminates on a country-by-country basis on the later of the
expiration of 12 years following the first commercial product sale or the
expiration or invalidity of applicable patents. The licensed patents expire in
Europe in 2011 and in the United States in 2016.
BIOVATION. We entered into an agreement in 1999 with Biovation Limited of
Aberdeen, United Kingdom, to apply Biovation's proprietary deimmunization
technology to certain of our monoclonal antibodies and protein products.
Biovation also licensed the patents needed to develop and commercialize any
deimmunized monoclonal antibodies it developed, and if the deimmunized
monoclonal antibodies meet certain criteria, we will pay royalties to Biovation.
Additionally, Tanox Pharma and Biovation have agreed to jointly develop their
respective protein engineering technologies. We paid Biovation a license fee
that will decrease if Biovation products transferred to us under the agreement
do not achieve certain specifications. In addition to royalty payments, we may
make up to an aggregate of $1.3 million in product development milestone
payments under this agreement. The license terminates on the earlier of 10 years
from the first commercial product sale, a formal determination that any licensed
patents are invalid or unenforceable or such patents have expired. Biovation has
filed a patent application for the licensed technology; if a patent issues under
the application, it will expire in 2018.
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PATENTS AND PROPRIETARY RIGHTS
We pursue patent protection for our proprietary technology and products. We
typically file U.S. patent applications, then international treaty applications,
usually followed by filing foreign patent applications on our technology and
products in those regions or countries where business considerations warrant
filings. These countries include Japan, Canada, Australia, countries of the
European Union, other European countries, and certain other Asian countries.
We have five U.S. patents that cover and/or relate to the use of anti-IgE and
other allergy/asthma products. We also hold patents in Europe, Canada, Japan,
Singapore, Hong Kong and Australia covering such products. We have additional
anti-IgE patents pending in the United States and internationally. Some of our
patents are co-owned with Novartis. We also cross license Genentech's patents
covering anti-IgE products.
We have filed U.S. and international patent applications relating to anti-Factor
D antibodies and anti-G-CSF receptor antibodies. We anticipate filing
corresponding national phase applications in selected jurisdictions at the
appropriate time. We have a number of other U.S. and foreign patents covering
certain other proprietary technology and products, with over forty U.S. patents
granted to date. Our issued patents expire between 2008 and 2014. We cannot
assure you that one or more of the patents noted above would not be rescinded,
held invalid, successfully opposed or revoked or narrowed or held unenforceable.
Patenting biotechnology-related products and processes can involve uncertain and
complex legal and factual questions and, to date, policies regarding the breadth
of claims allowed in biotechnology patents are not necessarily consistent.
Patents, if issued, may be challenged, invalidated, limited in their scope of
coverage, circumvented or held unenforceable. Thus, any patents that we own or
license from third parties may not provide any protection against competitors.
Our pending patent applications, those we may file in the future, or those we
may license from third parties, may not result in patents being issued. Also,
patent rights may not provide us with proprietary protection or competitive
advantages against competitors with similar technology or different technology.
Furthermore, others may independently develop similar technologies or duplicate
any technology that we have developed. Moreover, the laws of certain foreign
countries do not protect our intellectual property rights to the same extent as
do the laws of the United States.
Litigation may be necessary to enforce any patents issued or licensed to us or
to determine the scope and validity of these patents. We could incur substantial
costs and divert technical and management personnel's time and attention if we
must participate in litigation or if we must defend ourselves against patent
suits against us. If the outcome of litigation is adverse to us, third parties
may be able to use our patented invention without paying us. Moreover, we cannot
assure you that our patents will not be infringed or successfully avoided
through design innovation. Any of these events may materially and adversely
affect our business.
In addition, other companies, some of which may be our competitors, have filed
applications for or have been issued patents, and may obtain additional patents
and proprietary rights, relating to products or processes used in, necessary to,
competitive with or otherwise related to our patents and products. These
products and processes include, among other items, patents covering technology
relating to the type of humanized monoclonal antibodies that we anticipate
developing. Protein Design Labs, Inc. owns certain patents and patent
applications relating to these humanized antibodies. We have recently taken a
non-exclusive license to these patents and patent applications for one of our
products. We do not know if licenses from Protein Design Labs will be available
for our other antibody products. The Medical Research Council also owns patents
relating to humanized antibodies, for which we hold a license. Our Medical
Research Council license includes a sublicense to the Boss patent relating to
antibody co-expression owned by Celltech, Ltd. Genentech has a pending
application (the Cabilly Application) that is involved in an interference before
the U.S. Patent & Trademark Office with the Celltech Boss patent.
We may also develop products that are chimeric antibodies. Genentech owns a
patent (the Cabilly Patent) relating to chimeric antibodies and instituted suit
against us in 1994 claiming that we infringed this patent. We settled the
lawsuit and, pursuant to the settlement, we acquired a non-exclusive license to
the Cabilly Patent, the Cabilly Application and other Genentech patents (or
patents to which Genentech has a license
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and is free to grant a sublicense) relating to our anti-IgE antibody products.
We also have certain rights to acquire a non-exclusive license from Genentech
for the Cabilly Patent, the Cabilly Application and certain other Genentech
patents for products not exclusively or co-exclusively licensed by Genentech to
a third party and for certain products that do not compete with those of
Genentech or its affiliates. In addition, other parties also own patents
covering chimeric and/or deimmunized antibodies and/or processes applicable to
making these antibodies.
In addition, we hold a non-exclusive license to certain patents and patent
applications, including two U.S. patents, owned by Immunex Corporation, relating
to the G-CSF receptor. The patents and applications cover certain reagents that
may be involved in making our anti-G-CSF receptor antibodies and other products
we are developing, under which we must pay license execution and maintenance
fees, milestone payments for each developed product and royalties on net sales
of the product.
The scope, enforceability and validity of these patents, the extent to which we
must obtain licenses under these patents or under other proprietary rights and
the cost and availability of licenses are unknown, but these factors may limit
our ability to market our products. Moreover, even if a license were available,
the payments that would be required could render uneconomic our efforts to
market certain of our products. If we elect to manufacture or market these
products without either a license or a favorable result in litigation, damages
could be assessed that could be materially adverse to us. Further, failure to
obtain a license could result in an injunction prohibiting us from manufacturing
or selling the affected lines of products.
In addition to patents, we rely on trade secrets and proprietary know-how. We
seek protection, in part, through confidentiality and proprietary information
agreements. These agreements may not provide meaningful protection or adequate
remedies for our technology if unauthorized use or disclosure of this
information occurs. The parties to these agreements may breach them.
Furthermore, our trade secrets may otherwise become known to, or be
independently developed by, our competitors.
We require our employees, directors, consultants, advisors, outside scientific
collaborators and sponsored researchers and other advisors to execute
confidentiality agreements on commencing an employment, consulting or other
contractual relationships with us. These agreements provide that all
confidential information developed or made known to the individual during the
course of the relationship is to be kept confidential and not disclosed to third
parties except in specific circumstances. In the case of employees and certain
other parties, the agreements provide that all inventions conceived by the
individual shall be our exclusive property. We cannot assure you, however, that
these agreements will provide meaningful protection for our confidential
information or trade secrets against or in the event of unauthorized use or
disclosure of such information.
GOVERNMENT REGULATION
Producing and marketing our products and our research and development activities
are subject to regulations relating to product safety and efficacy by numerous
governmental authorities in the United States and other countries. In the United
States, drugs are subject to rigorous FDA regulation. The Federal Food, Drug and
Cosmetic Act and other federal and state statutes and regulations govern, among
other things, the testing, manufacture, safety, effectiveness, labeling,
storage, record keeping, approval, advertising and promotion of our products.
Before we may market a pharmaceutical product in the United States, the FDA
requires us to complete the following steps:
o preclinical laboratory and animal tests;
o submission to the FDA of an investigational new drug application, or IND,
which must become effective before human clinical trials may commence;
o adequate and well controlled human clinical trials conforming with good
laboratory and clinical practices to establish the safety and efficacy of
the product;
o submission to the FDA of a New Drug Application, or NDA, with respect to
drugs, and a BLA with respect to biological products; and
o FDA approval of the NDA or BLA before any commercial sale or shipment of
the product.
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In addition, the FDA requires the registration of each drug and approval of each
manufacturing establishment. For our monoclonal antibody products we are subject
to the simplified, interim procedure for well-characterized biologicals.
Domestic manufacturing establishments are subject to FDA inspection and must
comply with current good manufacturing practices, or cGMP, for pharmaceutical
products. To supply products for use in the United States, foreign manufacturing
establishments must comply with cGMP and are subject to periodic FDA or other
regulatory authority inspection under reciprocal agreements with the FDA.
Preclinical tests include laboratory evaluation and animal studies to assess the
potential safety and efficacy of the product and its formulation. To comply with
FDA regulations, laboratories must conduct these preclinical safety tests
according to Good Laboratory Practices. The results of the preclinical tests are
submitted to the FDA as part of an IND, and the FDA reviews the results before
the commencement of human clinical trials. Unless the FDA objects, the IND will
become effective 30 days following its receipt. There is no certainty that
submission of an IND will result in FDA authorization to commence clinical
trials. If we will ship a biological product produced within the United States
to a foreign country for clinical trials, the product must comply with export
regulations promulgated by the FDA before shipment.
Human clinical trials involve the administration of the investigational compound
to patients or other volunteers under the supervision of a qualified principal
investigator. Clinical trials are conducted in accordance with protocols that
detail the objectives of the study, the parameters to be used to monitor safety
and the efficacy criteria to be evaluated. Each protocol must be submitted to
the FDA as part of the IND. Further, each clinical study must be conducted under
the auspices of an independent institutional review board, or IRB, at the
institution where the study will be conducted. The IRB will consider, among
other things, ethical factors, the safety of human subjects and the possible
liability of the institution.
Clinical trials are typically conducted in four sequential phases, which may
overlap. In Phase I, the initial introduction of the product into human
subjects, the product is tested for safety (adverse effects), dosage tolerance,
metabolism, distribution, excretion and clinical pharmacology. Phase II involves
studies in a limited patient population:
o to determine the efficacy of the product for specific, targeted
indications;
o to determine dosage tolerance and optimal dosage; and
o to identify possible adverse effects and safety risks.
When a product is found to be effective and to have an acceptable safety profile
in Phase II evaluations, Phase III trials are undertaken:
o to continue to evaluate clinical efficacy; and
o to test further for safety within an expanded patient population at
geographically dispersed clinical study sites.
We cannot assure you that we will successfully complete clinical testing of our
products within any specified time period, if at all. Furthermore, the FDA or we
may suspend clinical trials at any time if it is felt that the subjects or
patients are being exposed to an unacceptable health risk. Phase IV studies are
typically done post-FDA approval to address safety issues not addressed in the
Phase I/II/III programs, for example, chronic use of the product.
In the case of agents for life-threatening diseases, the initial human testing
is generally done in patients rather than in healthy volunteers. Since these
patients already are afflicted with the target disease, it is possible that
these studies may provide results traditionally obtained in Phase II trials,
potentially expediting the approval process. These trials are frequently
referred to as "Phase I/II" trials.
The results of the pharmaceutical development, preclinical studies and clinical
studies are submitted to the FDA in the form of an NDA or BLA to approve
marketing and commercial shipment of the product. The testing and approval
process frequently requires substantial time and effort and we cannot assure you
that any approval will be granted on a timely basis, if at all. The FDA may deny
an NDA or BLA if applicable regulatory criteria are not satisfied, require
additional testing or information or require postmarketing testing and
surveillance to monitor the safety and efficacy of the product. Notwithstanding
the submission of this data, the FDA may ultimately decide that the application
does not satisfy its regulatory criteria for
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approval. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing.
Among the conditions for NDA or BLA approval is that the prospective
manufacturer's quality control and manufacturing procedures conform to cGMP. In
complying with standards set forth in these regulations, manufacturers must
continue to expend time, monies and effort in the area of production and quality
control to ensure full compliance.
In addition to FDA regulations, we are subject to regulation under the
Occupational Safety and Health Act, the Environmental Protection Act, the Toxic
Substances Control Act, the Resource Conservation and Recovery Act and other
present and future federal, state or local regulations.
For marketing outside the United States, we also are subject to foreign
regulatory requirements governing human clinical trials and marketing approval
for pharmaceutical products. The requirements governing the conduct of clinical
trials, product licensing, pricing and reimbursement vary widely from country to
country. Whether or not we obtain FDA approval,we must obtain approval of a
product by the comparable regulatory authorities of foreign countries before
manufacturing or marketing the product in those countries. The approval process
varies from country to country and the time required for these approvals may
differ substantially from that required for FDA approval. We cannot assure you
that clinical trials conducted in one country will be accepted by other
countries or that approval in one country will result in approval in any other
country. For clinical trials conducted outside the United States, the clinical
stages are comparable to the phases of clinical development established by the
FDA.
COMPETITION
The pharmaceutical and biotechnology industries are characterized by rapidly
evolving technology and intense competition. Many companies, including major
pharmaceutical and chemical companies, as well as specialized biotechnology
companies, perform activities similar to ours. Many of these companies have
substantially greater financial and other resources, larger research and
development staffs and more extensive marketing and manufacturing organizations
than ours. Many of these companies have significant experience in preclinical
testing, human clinical trials and other regulatory approval procedures.
Consequently, we chose to enter into the collaboration agreements with Novartis
and Genentech, in part to secure the benefit of their experience in these areas,
as well as the contribution of their greater financial resources. In addition,
colleges, universities, governmental agencies and other public and private
research organizations conduct research and may market commercial products on
their own or through joint ventures. These institutions are becoming more active
in seeking patent protection and licensing arrangements to collect royalties for
using technology that they have developed. We compete with these institutions in
recruiting and retaining highly qualified scientific personnel.
The diseases that we have targeted, including allergic diseases, autoimmune
diseases, transplantation, cancer, inflammation, and HIV infection, are
intensely competitive areas targeted by both pharmaceutical companies and other
biotechnology companies, including our collaborators, Novartis and Genentech.
All of these companies may have competitive products on the market, may be
testing their products in clinical trials or may be focusing on product
approaches that could prove to be superior to our approaches. For instance, we
are aware that some of these companies, which may be our competitors, have filed
applications for or have been issued patents and may obtain additional patent
and proprietary rights relating to products or processes used in, necessary to,
competitive with or otherwise related to, our products or processes. These
patents include, among other items, patents relating to humanized monoclonal
antibodies.
Additionally, our competition will be determined in part by the potential
indications for which our antibodies are developed and ultimately approved by
regulatory authorities. For some of our potential products, an important factor
in competition may be the timing of market introduction of our products or
competitive products. Accordingly, we expect the relative speed with which we
develop our products, complete the necessary approval processes and are able to
generate and market commercial quantities of the products to be important
competitive factors. We expect that competition among products approved for sale
will also be based, among other factors, on product efficacy and safety, timing
and scope of regulatory
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approval, product availability, advantages over alternative treatment methods,
price and cost-effectiveness, development, distribution and marketing
capabilities, third-party reimbursement and patent position.
We are aware that several companies, including Novartis, have existing products
that will compete with E25, if it is approved for sale, including
corticosteriods, beta-agonists, antihistamines, leukotriene inhibitors and
allergen immunotherapy. In addition, several companies have products in
development that may compete with E25. These companies include, but are not
limited to, IDEC (Anti-CD23), Immunex (sIL-4R), CellTech/Schering-Plough
(Anti-IL5), Merck/Biogen (VLA-4 inhibitors), Magainin/Genentech (anti-IL-9) and
Protein Design Labs (Anti-IL4).
Our competitive position also depends upon our ability to:
o attract and retain qualified personnel;
o obtain patent protection or otherwise develop proprietary products or
processes;
o discover new therapeutic products that successfully treat human diseases;
o secure sufficient capital resources to complete product development and
regulatory processes;
o build or obtain manufacturing facilities; and
o build or obtain a sales organization.
MANUFACTURING
We have a small-scale production and purification facility in which we have
produced our products in compliance with cGMP standards for use in Phase I
and/or Phase II clinical trials. With funding from Novartis, we recently
completed construction of a pilot manufacturing facility that we may use for
larger-scale process development and cGMP production of animal cell culture
derived products. The facility includes a 1500L bioreactor and occupies
approximately 14,000 square feet of space now under lease to us in Houston,
Texas. The new manufacturing facility is not yet operational, and the Company is
pursuing required cGMP validation. The facility is available to both us and
other companies for production of monoclonal antibodies and other biologic
products for large-scale clinical trials and initial market launch.
Under our agreements with Novartis and Genentech, Novartis and Genentech must
manufacture E25 and any other anti-IgE products selected by us and our
collaboration partners for development, although we have retained the right to
manufacture and supply up to 50% of the worldwide requirements for E25 and the
other selected products. Genentech will supply the initial quantities of E25 for
product launch. Novartis has announced that it intends to supply E25 from a
facility now under construction that has a capacity of more than one ton of
active substance per year.
Our current facility will not be adequate for commercial scale manufacturing
requirements if we successfully develop our products. If we decide to establish
a full-scale manufacturing facility, we will require substantial additional
funds and must hire and train significant numbers of employees and comply with
the extensive FDA regulations applicable to that facility.
MARKETING AND SALES
Novartis and Genentech will market E25 and the other products selected for
development by the collaboration. Novartis and Genentech share U.S. marketing
rights, and Novartis has marketing rights in Europe (with Roche retaining the
option to participate in Europe). Novartis can market these products in the rest
of the world, including China, Hong Kong, Korea, Singapore and Taiwan, where we
will share costs and profits with Novartis.
To effectively serve the worldwide markets, we intend to continue to collaborate
with major pharmaceutical companies or prominent pharmaceutical sales and
distribution organizations that can successfully market our products on a
worldwide basis or within specific geographic territories. As we pursue
strategic collaborations, we intend to reserve marketing rights for our
products, to the extent commercially reasonable, including rights in the United
States and selected Asian countries. We will focus initially on markets for
which our products have a clear advantage over other therapies or which we may
target using a
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relatively small sales force. We currently do not have an internal sales and
marketing capability. If we elect to retain marketing rights, we will have to
build a sales and marketing infrastructure.
FACILITIES
We currently lease 35,624 square feet of laboratory and office space in Houston,
Texas, under a lease which expires in March 2002, subject to a five-year renewal
option. This space includes a biological product manufacturing facility
occupying approximately 14,000 square feet of space. We lease approximately
2,690 square feet of temporary laboratory and office space in the Amsterdam
Science Park in The Netherlands and intend to lease approximately 10,760 square
feet of space there when it becomes available in 2001. We also lease
approximately 6,500 square feet of space in the Hsinchu Science Based Industrial
Park in Taiwan.
We plan to obtain temporary additional space, before the end of 2000, to expand
our research, clinical development and production capabilities. We are exploring
alternatives to meet our longer term facility requirements for our U.S.
operations. We do not foresee any significant difficulties in obtaining
additional facilities.
HUMAN RESOURCES
Including the employees of our subsidiaries, we have 71 full-time employees, 58
of whom are based in the United States, 12 of whom are based in The Netherlands
and one of whom is based in Taiwan. Approximately 55 of our employees are
involved in research and product development activities. Twenty-nine of our
employees hold Ph.D., M.D. or Sc.D. degrees and ten employees hold other
advanced degrees. We consider our relations with our employees to be good. None
of our employees are covered by collective bargaining agreements. We enter into
confidentiality agreements with all of our employees, directors and consultants.
We do not maintain, and do not currently intend to obtain, key employee life
insurance on any of our personnel.
PENDING LEGAL PROCEEDINGS
TANOX BIOSYSTEMS, INC. VS. AKIN, GUMP, STRAUSS, HAUER AND FELD, L.L.P., THE
ROBINSON LAW FIRM AND WILLIAMS, BIRNBERG & ANDERSON, AMERICAN ARBITRATION
ASSOCIATION NO. 70-199-0167-96. We are arbitrating a fee dispute with the law
firms that represented us in connection with a lawsuit involving Genentech and
Roche relating to, among other things, the intellectual property rights of the
parties surrounding the development of anti-IgE technology. We settled the
litigation contemporaneously with the formation of our collaboration with
Genentech.
We initiated the arbitration proceeding after we and our attorneys could not
reach agreement on the fee owed pursuant to the terms of our written fee
agreement. The arbitration panel issued an award entitling the attorneys to
receive approximately $3.5 million, including interest, payments ranging from
33 1/3% to 40% of the future milestone payments received by us from Genentech
under the collaboration following product approval and 10% of the royalties that
we receive on sales of anti-IgE products.
We sought a court order vacating the arbitration award on the grounds that the
arbitration decision exceeds the scope of the fee agreement in dispute, deviates
materially from the evidence presented and is unsupportable as a matter of law.
However, a judgment was entered confirming the award. We intend to pursue all
available remedies, including appealing the decision.
TANOX, INC. VS. NOVARTIS PHARMA AG, AMERICAN ARBITRATION ASSOCIATION NO. 50 T
153 00119 99; GENENTECH, INC., GENENTECH INTERNATIONAL LIMITED AND NOVARTIS
PHARMA AG VS. TANOX, INC., CASE NO. C 99-2060; AND TANOX, INC. VS. GENENTECH,
INC. AND GENENTECH INTERNATIONAL LIMITED, AMERICAN ARBITRATION ASSOCIATION NO.
74 Y 181 1113 99. We are currently pursuing clinical development of Hu-901 to
determine its potential in treating peanut induced anaphylaxis independently of
Novartis and Genentech. Novartis and Genentech have disputed our right to pursue
development of Hu-901 independently and have claimed that we are using
unspecified confidential and proprietary information of Novartis and Genentech
that we have no right to use. We believe our agreements with Novartis and
Genentech allow us to pursue the development of Hu-901.
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In an effort to resolve this dispute, we initiated an arbitration with Novartis
in March 1999 pursuant to our agreement with Novartis. In the arbitration, we
are seeking to confirm our rights to independently develop certain anti-IgE
products, including Hu-901, and to use know-how we received from Novartis.
Novartis has claimed that the dispute does not constitute a dispute which we
must arbitrate under our agreements and that our claimed rights to independently
develop Hu-901 do not exist. Novartis has also claimed damages arising from our
action.
In response to the arbitration initiated by us against Novartis, Novartis and
Genentech jointly filed suit against us in April 1999 in the United States
District Court for the Northern District of California. In the lawsuit, Novartis
and Genentech seek declarations that we cannot develop Hu-901 independently,
that we cannot use confidential and proprietary information obtained from
Novartis or Genentech for independent product development, and that we cannot
pursue separate arbitrations on these matters against both Novartis and
Genentech. Novartis and Genentech also claim undetermined actual and punitive
damages resulting from our independent development of Hu-901, and they also seek
a permanent injunction stopping our Hu-901 development and preventing us from
continuing with our arbitrations on these matters.
At the time the lawsuit was filed, Novartis also asked the Federal court for an
emergency temporary stay of the arbitration requested by us. The United States
District Court Judge denied Novartis' request and ordered Novartis to proceed
with the arbitration.
In July 1999, we initiated an arbitration proceeding against Genentech. In this
arbitration, we are seeking to confirm that Genentech expressly acknowledged our
independent development rights in our agreement with them and that Genentech
agreed to allow us to use and disclose their confidential and proprietary
information for purposes contemplated by our separate agreement with Novartis.
We also are seeking to confirm that we have not used any of their confidential
and proprietary information and that Genentech's lawsuit claims are
unsupportable and made in bad faith, have impaired our ability to exercise our
rights under our agreements with Novartis, violate our agreed dispute resolution
procedures and violate their agreement not to interfere in our separate disputes
with Novartis. In response, Genentech asserts that their disputes with us are
not subject to arbitration, and should remain in Federal court. Additionally,
Genentech asserts that our arbitration with Novartis should be joined with
Genentech's arbitration.
In September 1999, the United States District Court Judge issued an order
staying all proceedings in the lawsuit and both arbitrations, except for the
parties' opportunity to engage in limited written discovery in the form of
requests for production of documents and written questions to each other. The
Judge's order required the parties, with their respective chief executive
officers present, to undertake to mediate all matters in dispute between them.
The mediation took place on November 2 and 3, 1999 in San Francisco, California,
and concluded unsuccessfully. To continue our arbitration proceedings, we must
ask the court to allow our respective arbitrations with Novartis and Genentech
to proceed.
We intend to continue to pursue independent development of Hu-901 during the
pendency of the above-described actions. If we are unsuccessful in these
actions, we may not independently develop Hu-901 and other anti-IgE products
covered by the collaboration with Novartis and Genentech and could be required
to pay damages that could be significant.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our directors, executive officers and key employees, and their ages and
positions as of March 7, 2000 are:
NAME AGE POSITION
- ----------------------------------- --- ------------------------------
Nancy T. Chang, Ph.D............... 50 Chairman of the Board,
President and Chief Executive
Officer
John C. Morris..................... 56 Senior Vice President of
Operations
David W. Thomas, Ph.D. ............ 52 Senior Vice President of
Research and Development
David Duncan, Jr................... 51 Vice President of Finance and
Chief Financial Officer
John Blickenstaff.................. 46 Vice President of
Administration, Secretary and
Treasurer
George Y. Wang, Sc.D............... 46 Vice President of Process
Development and Production
Eric P. Mirabel, J.D., LL.M. ...... 43 Vice President of Intellectual
Property
Tse Wen Chang, Ph.D.(1)(2)......... 52 Director
Osama I. Mikhail, Ph.D.(1)(2)...... 52 Director
William J. Jenkins, M.D.(2)........ 52 Director
- ---------------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
NANCY T. CHANG, PH.D. is one of our co-founders and has served as our President
and Chairman of the Board of Directors since our organization in March 1986. Dr.
Chang has served as our Chief Executive Officer since June 1990. From 1986 to
1992, Dr. Chang served as an Associate Professor at Baylor College of Medicine
in the Division of Molecular Virology. Between 1981 and 1986, Dr. Chang was
employed by Centocor, Inc., serving as the Director of Research, Molecular
Biology Group, from 1984 to 1986. From 1980 to 1981, she was employed by Roche
Institute of Molecular Biology. Dr. Chang received her Ph.D. in biological
chemistry from Harvard University.
JOHN C. MORRIS has served as our Senior Vice President of Operations since
September 1997. From September 1996 to September 1997, he served as our Vice
President of Quality Assurance. Prior to coming to us, Mr. Morris served as
President at Oread Laboratories, Inc. from 1995 to 1996. From 1992 to 1995, Mr.
Morris served as Vice President of Production Development, Regulatory Affairs
and Quality Assurance at Sanofi Animal Health Inc. Mr. Morris received an M.S.
in microbial biochemistry from the University of Missouri.
DAVID W. THOMAS, PH.D. has served as our Senior Vice President of Research and
Development since November 1997. Prior to joining us, Dr. Thomas served as Vice
President of Biological Research at Hybridon, Inc. in 1997. From 1988 to 1997,
he served as Director of Cell Biology and Immunology at Biogen, Inc. Prior to
his positions at Biogen and Hybridon, Dr. Thomas held professorships at the
University of Michigan Medical School and Washington University in St. Louis,
Missouri. He received his Ph.D. degree in microbiology and immunology from the
University of Colorado Health Sciences Center, followed by a postdoctoral
fellowship in the Laboratory of Immunology of the National Institute of Allergy
and Infectious Disease at the National Institutes of Health.
DAVID DUNCAN, JR. has served as our Vice President of Finance and Chief
Financial Officer since August 1998. Prior to joining us, from 1994 to March
1998, he served as Chief Financial Officer at Neuromedical Systems, Inc., which
filed a voluntary petition for bankruptcy under Chapter 11 of the U.S.
bankruptcy code on March 26, 1999. From 1988 to 1994, Mr. Duncan served as Chief
Financial Officer at Telios
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Pharmaceuticals, Inc. From 1983 to 1988, he served as the Controller at
Hybritech Incorporated. Mr. Duncan received an MBA from Indiana University.
JOHN BLICKENSTAFF has served as our Vice President of Administration since April
1989 and has also served as Vice President of Finance from that time until March
1996. Mr. Blickenstaff also served as our Chief Financial Officer from June 1990
until March 1996. He joined us in March 1987 as Director of Finance and
Administration, becoming our Secretary and Treasurer in September 1987. Between
1984 and 1987, Mr. Blickenstaff served as Operations Manager at Montgomery
Engineering Company. Mr. Blickenstaff holds a B.S. in health sciences and an MBA
from Brigham Young University.
GEORGE Y. WANG, SC.D. has served as our Vice President of Process Development
and Production since October 1994. He joined us in 1991 as our Assistant
Director, BioProcessing Development. Prior to joining us, Dr. Wang held various
engineering and management positions at IDEC Pharmaceuticals Corp., BP Amoco
Corporation and MGI Pharmaceuticals, Inc. Dr. Wang received his Sc.D. in
biochemical engineering from Massachusetts Institute of Technology.
ERIC MIRABEL has served as our Vice President of Intellectual Property since
1994. He joined us in 1990 as our Patent Counsel. From 1986 to 1990 Mr. Mirabel
practiced intellectual property law with the Houston firm of Butler and Binion.
Mr. Mirabel received a B.S. in biochemistry from the University of British
Columbia, a J.D. from Northwestern School of Law at Lewis and Clark College, and
an LL.M. in patent and trade regulation law from the National Law Center at
George Washington University.
TSE WEN CHANG, PH.D. is one of our co-founders and has served as a member of our
board of directors since our organization in March 1986. Dr. Chang served as our
Vice President of Research and Development and Chief Scientific Officer from
March 1986 until January 1997 when he resigned that position to assume the
position of Dean of the College of Life Sciences at National Tsing Hua
University in Hsinchu, Taiwan. Dr. Chang is currently a professor there. Dr.
Chang was a professor at Baylor College of Medicine in the Division of Molecular
Virology from 1986 to 1991. From 1984 to 1986, Dr. Chang served as Vice
President of Research at Centocor, Inc. Dr. Chang obtained his Ph.D. from
Harvard University in cell and developmental biology.
OSAMA MIKHAIL, PH.D. has served as a member of our board of directors since
1994, and also has served as a consultant to us since 1993. Dr. Mikhail is
currently Senior Vice President and Chief Strategic Officer at St. Luke's
Episcopal Health System and Professor of Management and Policy Sciences at the
University of Texas, School of Public Health, both in the Texas Medical Center,
Houston, Texas. Dr. Mikhail has been associated with St. Luke's and the
University of Texas School of Public Health since 1989. Dr. Mikhail received an
MBA from the University of Pennsylvania's Wharton School and an M.S. and Ph.D.
from the Graduate School of Industrial Administration, Carnegie-Mellon
University.
WILLIAM J. JENKINS, M.D. has served as a member of our board of directors since
November 1999. Since the beginning of 1999, Dr. Jenkins has been a strategic
consultant to the pharmaceutical industry, primarily at Hoffman-La Roche Inc.
Prior to that, he served as Head of Clinical Development & Regulatory Affairs
and a member of the board of directors of Novartis Pharma AG in Basel,
Switzerland since 1992. Dr. Jenkins served as Head of Clinical Research for the
Glaxo Group from 1988 to 1992. Dr. Jenkins received his medical degrees from the
University of Cambridge.
48
<PAGE>
SCIENTIFIC ADVISORS
An important component of our scientific strategy is to establish collaborative
relationships with leading researchers in our fields of interest. Certain of our
scientific advisors attend periodic meetings and provide us with specific
expertise in both research and clinical development. In addition, we have
collaborative research relationships with certain individual advisors. We do not
employ our scientific advisors, and they may have commitments to or consulting
or advisory agreements with other entities that may limit their availability to
us. These companies may also compete with us. Several of our advisors have, from
time to time, devoted significant time and energy to our affairs. In general,
our scientific advisors may hold stock options, own our stock and/or receive
financial remuneration for their services.
Our scientific advisors include:
NAME TITLE AND AFFILIATION
- -------------------------------------------------------------------------
K. Frank Austen, M.D................ Director, Inflammation and Allergic
Diseases
Brigham and Women's Hospital, Boston,
Massachusetts
James Larrick, M.D., Ph.D........... Managing Director and Founder,
Panorama Research, Inc.
Ethan M. Shevach, M.D............... Chief, Cellular Immunology Section,
National Institutes of Health
COMPOSITION OF THE BOARD OF DIRECTORS
Our amended and restated certificate of incorporation and bylaws divide our
board of directors into three classes of equal number: Classes I, II and III.
Our stockholders elected directors comprising Class I to a term of office to
expire at the 2001 annual meeting of stockholders; directors comprising Class II
to a term of office to expire at the 2002 annual meeting of stockholders; and
directors comprising Class III to a term of office to expire at the 2003 annual
meeting of stockholders. At each annual meeting of stockholders beginning in
2001, the stockholders will elect the successors to directors whose terms will
then expire. These directors will serve from the time of election and
qualification until the third annual meeting of stockholders following election
and until a successor is duly elected and qualified.
Our bylaws also authorize the board of directors to fix the number of directors
at not less than one nor more than nine. The board of directors currently has
four members. The board of directors is considering an increase in the number of
directors. Currently, Osama Mikhail is designated as a Class I director, whose
term expires at the 2001 annual meeting of stockholders; Tse Wen Chang is
designated as a Class II director, whose term expires at the 2002 annual meeting
of stockholders; and Nancy T. Chang and William J. Jenkins are designated as
Class III directors, whose terms expire at the 2003 annual meeting of
stockholders. Each officer serves at the discretion of the board of directors.
There are no family relationships among any of our directors, executive officers
or key employees, although Drs. Nancy T. Chang and Tse Wen Chang previously were
married.
Our bylaws also require the affirmative vote of holders of at least two-thirds
of the issued and outstanding shares of common stock to remove any director or
the entire board of directors. Directors can only be removed for "cause."
DIRECTOR COMPENSATION
As compensation for serving on the board of directors, we granted Dr. Mikhail
options to acquire 108,000 shares of common stock, 96,000 of which were granted
at an exercise price per share of $1.04 and are all currently exercisable, 8,000
of which were granted at an exercise price per share of $4.06, none of which are
currently exercisable, and 4,000 of which were granted at an exercise price per
share of $12.50, none of which are currently exercisable. All of his options
vest over a three-year period. On February 17, 2000, we granted Dr. Jenkins
options to acquire 24,000 shares of common stock at an exercise price per share
of $12.50, none of which are currently exercisable, and all of which vest over a
two-year period. Outside directors also receive $1,000 for each board meeting
attended and $500 for each committee meeting attended, except for Dr. Tse Wen
Chang, who is compensated under a consulting agreement with us. Other
49
<PAGE>
than the foregoing, the directors receive no other compensation for their
services as directors. We reimburse our outside directors, on request, for
reasonable out-of-pocket expenses incurred in attending board meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors currently has two committees: an audit committee and a
compensation committee.
The audit committee makes recommendations to our board of directors regarding
the selection of independent auditors, reviews the results and scope of audit
and other services provided by our independent auditors and reviews the
accounting principles and auditing practices and procedures to be used for our
financial statements.
The compensation committee reviews and makes recommendations to our board of
directors regarding the compensation of officers and other managerial employees.
The compensation committee also considers and recommends grants of stock options
under our stock option plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The compensation committee made decisions concerning the compensation of our
executive officers for the years ended December 31, 1997, 1998 and 1999, during
which time Nancy T. Chang, our Chairman of the Board, President and Chief
Executive Officer has been a member of the committee. No interlocking
relationship exists between any member of our board of directors or our
compensation committee and any member of the board of directors or compensation
committee of any other company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual compensation we paid during the year
1999 to our chief executive officer and the four highest paid executive officers
whose total annual salary and bonus exceeded $100,000. These individuals are
referred to as the "named executive officers" here and elsewhere in this
prospectus.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- ------------------------------------- ----------- ----------- -------------
<S> <C> <C> <C>
Nancy T. Chang....................... $ 368,622 $58,000 $12,132(1)
Chairman of the Board, President
and Chief Executive Officer
John C. Morris....................... 154,587 10,000 --
Senior Vice President of Operations
David W. Thomas...................... 199,548 10,000 --
Senior Vice President of Research
and Development
David Duncan, Jr..................... 164,221 5,000 10,569(2)
Vice President of Finance and
Chief Financial Officer
George Y. Wang....................... 134,359 -- --
Vice President of Process
Development
and Production
</TABLE>
- ---------------------------
(1) Dr. Chang's other annual compensation includes $7,549 of taxable income
associated with a company car, $4,000 associated with 401(k) matching and
$583 relating to group term life insurance.
(2) Mr. Duncan's other annual compensation includes $8,800 related to housing
expenses, $1,054 associated with 401(k) matching and $715 relating to group
term life insurance.
50
<PAGE>
1999 OPTION GRANTS
The following table sets forth information regarding options granted to each of
our named executive officers during the year 1999. The exercise prices of the
options we granted were the fair market value of our common stock on the date of
grant, as determined by the compensation committee of our board of directors. In
determining the fair market value, the compensation committee considered
information contained in a then current valuation report made for tax purposes,
market conditions, business prospects, and the absence of a market for our
common stock.
The potential realizable value is calculated based on the ten-year term of the
option at the time of grant. Stock price appreciation of 5% and 10% is assumed
pursuant to rules promulgated by the Securities and Exchange Commission and does
not represent our prediction of our stock price performance. The potential
realizable values at 5% and 10% appreciation are calculated by:
o multiplying the number of shares of common stock under the option by
$28.50 per share;
o assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and
o subtracting from that result the aggregate option exercise price.
The options in this table were granted under our 1997 Stock Plan, have 10-year
terms, will terminate before their expiration dates if the optionee leaves his
employment with us, and, unless otherwise noted, vest over a period of five
years. We have not granted any stock appreciation rights.
The percentage shown below of options granted is based on an aggregate of
117,120 options we granted to employees during 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS GRANTED PRICE APPRECIATION FOR
UNDERLYING TO EMPLOYEES OPTION TERM
OPTIONS IN FISCAL EXERCISE PRICE EXPIRATION ----------------------
NAME GRANTED YEAR 1999 PER SHARE DATE 5% 10%
- ------------------------------------- ------------ ---------------- ---------------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Nancy T. Chang....................... -- -- -- -- -- --
John C. Morris(1).................... 16,000 13.7% $ 8.13 01/25/09 $ 612,696 $ 1,052,667
8,000 6.8 12.50 12/01/09 271,388 491,373
David W. Thomas(2)................... 16,000 13.7 8.13 01/25/09 612,696 1,052,667
16,000 13.7 12.50 12/01/09 542,776 982,747
David Duncan, Jr..................... -- -- -- -- -- --
George Y. Wang(3).................... 4,000 3.4 12.50 12/01/09 135,694 245,687
</TABLE>
- ---------------------------
(1) The vesting start date for the options to purchase 16,000 shares of common
stock granted to Mr. Morris is January 25, 1999. 9,600 of these options
vest over a period of three years and the remaining 6,400 of these options
vest over a period of five years. The vesting start date for the options to
purchase 8,000 shares of common stock granted to Mr. Morris is December 1,
1999. 4,800 of these options vest over a period of three years and the
remaining 3,200 of these options vest over a period of five years.
(2) The vesting start date for the options to purchase 16,000 shares of common
stock granted to Mr. Thomas is January 25, 1999. The vesting start date for
the options to purchase an additional 16,000 shares of common stock granted
to Mr. Thomas is December 1, 1999.
(3) The vesting start date for these options is December 1, 1999.
51
<PAGE>
1999 OPTION VALUES
The following table describes for the named executive officers the exercisable
and unexercisable options held by them as of December 31, 1999. No options were
exercised by the named executive officers during the fiscal year ended December
31, 1999. The "Value of Unexercised In-the-Money Options at December 31, 1999"
shown in the table is based on an initial public offering price of $28.50 per
share, less the per share exercise price, multiplied by the number of shares
issued upon exercise of the option.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS AT
AT DECEMBER 31, 1999 DECEMBER 31, 1999
------------------------------ ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Nancy T. Chang....................... 260,800 391,200 $ 5,476,800 $8,215,200
John C. Morris....................... 51,199 100,801 1,075,179 2,066,821
David W. Thomas...................... 80,000 152,000 1,980,000 3,552,000
David Duncan, Jr..................... 38,399 153,601 782,380 3,129,620
George Y. Wang....................... 201,600 4,000 5,523,171 64,000
</TABLE>
EMPLOYMENT AGREEMENTS
We do not have employment agreements with our executive officers, other than
agreements that we maintain with all of our employees and option agreements
under which we issue incentive and non-qualified stock options to employees.
EMPLOYEE BENEFIT PLANS
1987 STOCK OPTION PLAN
Our 1987 Stock Option Plan expired on June 24, 1997. This plan provided for the
grant of incentive stock options, which were intended to qualify for favorable
tax treatment, and non-qualified stock options to eligible parties who were
employees. Our board of directors adopted and our stockholders approved the plan
on June 25, 1987. Under the terms of the plan, as amended in April 1989, we
could issue options on 4,320,000 shares of our common stock.
Special provisions applied to incentive stock options granted under the plan,
including requirements that the exercise price of incentive stock options be at
least equal to the fair market value of the common stock on the date of the
grant. There was also a $100,000 limit on the value of stock, determined at the
time of grant, covered by incentive stock options that first become exercisable
by a holder in any calendar year.
No person could receive an incentive stock option under the plan if, at the time
of grant, the person owned directly or indirectly more than 10% of our total
combined voting power. This restriction did not apply, however, if the option
price was at least 110% of the fair market value of the common stock, and the
exercise period was limited to five years.
If a reorganization, recapitalization, stock dividend, merger, consolidation or
other change in corporate structure affecting the number of issued shares of our
common stock occurred, then our board of directors could make equitable
adjustments to the terms of this plan. In particular, the board could make an
equitable adjustment in the number and type of shares authorized by this plan,
the number and type of shares covered by outstanding awards under this plan and
the exercise prices of these awards. After the adjustments, any incentive stock
options granted under the plan must have continued to constitute incentive stock
options under applicable tax laws. Our board of directors could amend or
terminate this plan at any time, although certain amendments required
stockholder approval and an amendment or termination could not adversely affect
any rights under outstanding stock options without the holder's consent.
52
<PAGE>
For the year ended December 31, 1999, we granted no options, we cancelled
options to purchase 32,000 shares of common stock and the holders of options to
purchase 1,738,320 shares of common stock exercised those options. As of
December 31, 1999, options to purchase an aggregate of 2,242,800 shares of
common stock held by 26 employees were outstanding under the plan at exercise
prices ranging from $0.28 to $7.50 per share with a weighted average exercise
price of $4.03 per share. These options consist of incentive stock options to
purchase 856,264 shares at a weighted average exercise price of $3.78 per share
and non-qualified options to purchase 1,386,536 shares at a weighted average
exercise price of $4.19 per share. At December 31, 1999, no shares were
available for future option grants under the plan. After December 31, 1999,
employees exercised options to purchase 379,800 shares of common stock.
1997 STOCK PLAN
The board of directors adopted our 1997 Stock Plan on September 19, 1997, and
our stockholders approved the plan to be effective as of November 1, 1997. This
plan provides for the grant of incentive stock options to our employees and the
grant of non-qualified stock options, awards of stock, stock appreciation
rights, purchase rights and performance units to all types of eligible parties.
The board of directors or, in the discretion of the board, the compensation
committee or other committee appointed by the board of directors, consisting of
at least two members of the board of directors administers the plan. We may
grant options or other rights under the plan to some of our and our
subsidiaries' directors, employees, consultants and advisors. We may also, with
the consent of the holder, convert a holder's incentive stock options into
on-qualified stock options. We have reserved 8,000,000 shares of authorized but
unissued common stock for issuance under the plan. The plan extends for a
10-year period, beginning November 1, 1997.
Special provisions apply to incentive stock options granted under the plan in a
manner that is similar to those granted under the 1987 Stock Option Plan. The
1997 Stock Plan also contains adjustment provisions that are similar to those in
the 1987 Stock Option Plan.
For the year ended December 31, 1999, we granted options to purchase an
aggregate of 125,120 shares of common stock under the 1997 Stock Plan at a
weighted average exercise price of $10.60 per share. This includes incentive
stock options to purchase 102,720 shares at a weighted average exercise price of
$10.59 per share and non-qualified options to purchase 22,400 shares at a
weighted average exercise price of $10.63 per share. In 1999, options to
purchase 3,200 shares of common stock were exercised and options to purchase
8,000 shares were cancelled.
As of December 31, 1999, 30 individuals held options to purchase a total of
636,320 shares of common stock under the plan at exercise prices ranging from
$3.75 to $12.50 per share with a weighted average exercise price of $7.05 per
share. These options consist of incentive stock options to purchase 206,656
shares at a weighted average exercise price of $9.71 per share and non-qualified
options to purchase 429,664 shares at a weighted average exercise price of $5.77
per share. At December 31, 1999, there were 7,360,480 shares available for
future option grants under the plan. After December 31, 1999 we granted options
to purchase 8,000 shares of common stock, and option holders exercised options
to purchase 13,987 shares of common stock.
1992 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Under our 1992 Non-Employee Directors Stock Option Plan, we may grant
non-qualified stock options to certain directors who are not also our employees.
The plan was adopted by the board of directors and approved by our stockholders
on January 10, 1992. The number of shares of common stock eligible for issuance
under the plan is 480,000. The compensation committee administers the plan. We
may issue options under the plan at any exercise price determined by the
compensation committee. Generally, options granted under the plan expire upon
voluntary resignation of the holder from the board of directors. Upon
termination of a holder's tenure as a director for any other reason, the holder
must exercise the options within 60 days thereafter or within 180 days after the
holder's death or disability, but in no event later than the originally
prescribed term of the option. Unless otherwise determined by the compensation
committee,
53
<PAGE>
options granted under the plan vest over a three-year period. The plan
terminates on January 10, 2002, unless earlier terminated by the board of
directors.
For the year ended December 31, 1999, we granted options to purchase a total of
12,000 shares of common stock under the plan at a weighted average exercise
price of $6.88 per share. As of December 31, 1999, one director held options to
purchase an aggregate of 108,000 shares of common stock under the plan at
exercise prices ranging from $1.04 to $12.50 per share with a weighted average
of $1.69 per share. At December 31, 1999, 372,000 shares were available for
future option grants under the plan. After December 31, 1999, we granted options
to purchase 24,000 shares of common stock to one of our directors at an exercise
price per share of $12.50 that vest over a two-year period. No options issued
under the plan have been exercised.
2000 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Our board of directors adopted, and our stockholders approved, the 2000
Non-Employee Directors' Stock Option Plan on February 17, 2000. The plan
automatically grants options to purchase shares of our common stock to our
non-employee directors. The board of directors administers the plan. We have
reserved a total of 500,000 shares of our common stock for issuance under the
plan. We have not issued any options under this plan.
After this offering, we will automatically issue options to our non-employee
directors under this plan as follows:
o each person who is elected or appointed to be a non-employee director for
the first time will automatically receive an initial grant to purchase
15,000 shares; and
o each person who is re-elected or re-appointed as a non-employee director
will automatically receive a grant to purchase 5,000 shares.
Directors serving on the board as of February 17, 2000 may not receive any
options under this plan.
The options are exercisable immediately but vest 1/36th per month for each month
after the date of the grant over three years. As long as the option holder
continues to serve with us or with an affiliate of ours, whether in the capacity
of a director, an employee or a consultant, the option will continue to vest and
be exercisable during its term.
The options have an exercise price equal to 100% of the fair market value of our
common stock on the grant date.
The option term is ten years. Options terminate on the earlier of normal option
termination or three months after the option holder's service terminates. If
this termination is due to the option holder's disability, the post-termination
exercise period is extended to the earlier of normal option termination or 12
months. If termination is due to the option holder's death or if the option
holder dies within three months of the date on which his or her service
terminates, the post-termination exercise period is extended to the earlier of
normal option termination or 18 months following death.
The option holder may transfer the option by gift to immediate family members or
for estate planning purposes. The option holder may also designate a beneficiary
to exercise the option if the option holder dies. If the option holder does not
designate a beneficiary, the option exercise rights will pass by the option
holder's will or by the laws of descent and distribution.
If an option holder does not purchase the shares subject to his or her option
before the option expires or otherwise terminates, the shares that are not
purchased will again become available for issuance under the plan.
Transactions that do not involve our receiving consideration, including a
merger, consolidation, reorganization, stock dividend and stock split, may
trigger a change in the class and number of shares subject to this plan and to
outstanding options. If any of these events occurs, the board of directors will
appropriately adjust the plan as to the class and the maximum number of shares
subject to the plan and the
54
<PAGE>
automatic option grants. It will also adjust outstanding options as to the
class, number and price of shares subject to these options.
If we dissolve or liquidate, outstanding options will terminate immediately
before this event. However, we treat outstanding options differently in the
following situations:
o a sale, lease or other disposition of all or substantially all of our
assets;
o a merger or consolidation in which we are not the surviving corporation;
and
o a reverse merger in which we are the surviving corporation but the shares
of our common stock outstanding immediately before the merger are
converted by virtue of the merger into other property.
In these situations, any surviving entity will either assume or replace all
outstanding options under the plan. Otherwise, the vesting of the options will
accelerate.
The board of directors may suspend or terminate the plan at any time.
GENERAL
We intend to file a registration statement on Form S-8 upon the completion of
this offering to register the sale of common stock issuable upon exercise of
stock options issued under our stock option plans.
401(K) PLAN
Effective January 1, 1992, we adopted a qualified retirement plan, or 401(k)
plan, covering all of our employees who are at least 21 years of age and have
completed at least one year of service with us. Under the plan, employees may
elect to reduce their current compensation by up to the statutorily prescribed
annual limit ($10,500 in 2000) and have the amount of the reduction contributed
to the plan. The plan is covered by the Employee Retirement Income Security Act
of 1974. We also intend for the plan to satisfy certain federal income tax law
requirements so that the contributions by employees or by us to the plan, and
income earned on plan contributions, are not taxable to employees until they
withdraw from the plan. We also intend for any contributions we make to the plan
to be deductible by us for federal income tax purposes.
The trustee of the plan, at the direction of each participant, invests the
assets of the plan in any of nine investment options. The plan permits, but does
not require, us to make additional matching contributions on behalf of all
participants in the plan. For the year ended December 31, 1998, we contributed
matching contributions of approximately $66,000 to the plan. Our matching
contribution for the year ending December 31, 1999 was 50% of employee
contributions up to a maximum employer contribution of 2.5% of each
participant's total compensation. Our matching contribution for the year ending
December 31, 2000 will be 50% of employee contributions up to a maximum employer
contribution of 2.5% of each participant's total compensation. The compensation
committee of the board of directors administers the plan.
OTHER OPTIONS
We have granted non-qualified stock options not covered by the 1987 Stock Option
Plan, the 1997 Stock Plan or the 1992 Non-Employee Directors Stock Option Plan
to an outside, non-affiliated director and to key advisors and consultants to
purchase an aggregate of 196,800 shares of common stock, net of cancellations,
as of December 31, 1999, at a weighted average exercise price of $1.31 per
share. All of these options are currently exercisable. After December 31, 1999,
consultants exercised options to purchase 74,400 shares of common stock.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of our
common stock as of March 7, 2000 by:
o each stockholder known by us to be the beneficial owner of more than 5%
of the outstanding shares of common stock;
o each of our directors;
o each of our named executive officers; and
o all directors and officers as a group.
Beneficial ownership is determined according to the rules of the Securities and
Exchange Commission, and generally means that person has beneficial ownership of
a security if he or she possesses sole or shared voting or investment power of
that security, and includes options that are currently exercisable or
exercisable within 60 days. Each director, officer or 5% or more stockholder, as
the case may be, has furnished us information with respect to beneficial
ownership. Except as otherwise indicated, we believe that the beneficial owners
of the common stock listed below, based on the information each of them has
given to us, have sole investment and voting power with respect to their shares,
except where community property laws may apply.
This table lists applicable percentage ownership based on 33,788,731 shares of
common stock outstanding as of March 7, 2000, and also lists applicable
percentage ownership based on 40,788,731 shares of common stock outstanding
after completion of this offering. Options to purchase shares of our common
stock that are exercisable within 60 days of March 7, 2000, are deemed to be
beneficially owned by the persons holding these options for the purpose of
computing percentage ownership of that person, but are not treated as
outstanding for the purpose of computing any other person's ownership
percentage. Shares underlying options that are deemed beneficially owned are
listed in this table separately in the column labeled "Shares Subject to
Options." These shares are included in the number of shares listed in the
column labeled "Total Number."
Unless otherwise indicated, the principal address of each stockholder below is:
c/o Tanox, Inc., 10301 Stella Link, Houston, Texas 77025.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------------------------------------
TOTAL SHARES SUBJECT PERCENT BEFORE PERCENT AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER TO OPTIONS OFFERING OFFERING
- ------------------------------------- --------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
DIRECTORS AND NAMED OFFICERS
Nancy T. Chang(1).................... 6,977,643 260,800 20.5% 17.0%
Tse Wen Chang(2)..................... 6,564,239 -- 19.4 16.1
George Y. Wang....................... 209,925 142,000 * *
Osama I. Mikhail(3).................. 103,467 103,467 * *
David W. Thomas(4)................... 86,400 83,200 * *
John C. Morris....................... 54,399 54,399 * *
David Duncan, Jr. ................... 38,399 26,092 * *
William J. Jenkins(5)................ -- -- -- --
All directors and officers as a group
(10 persons)(6).................... 15,018,760 863,858 43.3 36.1
5% STOCKHOLDERS
Novartis AG(7)....................... 6,373,732 -- 18.9% 15.6%
Alafi Capital Company(8)............. 2,514,724 -- 7.4 6.2
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
56
<PAGE>
- ---------------------------
* Less than 1%
(1) Includes 6,429,318 shares of common stock owned by Robinhood Ventures,
L.P. and 34,816 shares of common stock owned by AMC Ventures, L.P. Apex
Enterprises, Inc., a corporation wholly-owned by Dr. Chang, is the sole
general partner of Robinhood Ventures, L.P. and AMC Ventures, L.P. and has
voting and investment control over the common stock owned by them.
Includes 248,847 shares held in trust by Dr. Chang for her children.
Includes 3,862 shares held by Dr. Chang's minor daughter, with respect to
which Dr. Chang disclaims beneficial ownership.
(2) Includes 256,481 shares held in trust by Dr. Chang for his children. Dr.
Chang's address is College of Life Sciences, National Tsing Hua
University, Hsinchu, Taiwan, Republic of China.
(3) Dr. Mikhail's address is 6720 Bertner Ave., Suite B111, Houston, Texas
77030.
(4) Includes 2,400 shares held by Dr. Thomas' spouse and children, with
respect to which Dr. Thomas disclaims beneficial ownership.
(5) Dr. Jenkins' address is Gelham, Church Road, Waxham, Norfolk NR12 0DY,
United Kingdom.
(6) See footnotes 1, 2 and 4 above. Includes 790,388 shares of common stock
and 193,900 shares subject to options held by officers not shown in the
table above.
(7) The address of Novartis AG is S-202.502, CH-4002, Basel, Switzerland.
(8) Includes 216,000 shares of common stock held by the Alafi Family
Foundation, a non-profit organization, with respect to which Mr. Alafi
disclaims beneficial ownership. Mr. Alafi is the General Partner of Alafi
Capital Company. Alafi Capital Company's address is P.O. Box 7338,
Berkeley, California 94707.
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CERTAIN TRANSACTIONS
REGISTRATION RIGHTS
Some of our stockholders, including Nancy T. Chang, our Chairman, President and
Chief Executive Officer, and Novartis and Tse Wen Chang, each of whom owns more
than 10% of our common stock, have certain registration rights, which they may
exercise after this offering. They may request that we register their shares for
sale with the Securities and Exchange Commission, and, if all of the conditions
that are contained in our agreements with them are met, we must register their
shares. We must bear all the expenses of a registration. There are some
restrictions on their rights, including that we are not obligated to effect more
than one registration for their shares, except that we may be required, in
certain circumstances, to register their shares up to three times using a
short-form registration. For a more detailed description see also "Description
of Capital Stock -- Registration Rights."
NOVARTIS NOTE PAYABLE
We have a loan agreement with Novartis, which, prior to this offering, held
18.9% of our common stock. Under the agreement, Novartis loaned us $10.0
million, bearing interest at a rate equal to LIBOR plus two percent (8.1% at
December 31, 1999). Novartis has agreed to forgive interest on the loan through
December 31, 1999. The loan is due December 31, 2005. Tanox and Novartis have
agreed in principle that Novartis may partially or totally forgive the principal
and future interest payments based on our future use of the facility.
COLLABORATION AGREEMENTS WITH NOVARTIS
We also have agreements with Novartis to jointly develop anti-IgE antibody
products. For a more detailed description see "Business -- Collaboration and
License Agreements."
TRANSACTIONS WITH DIRECTORS
In addition to being one of our directors, Tse Wen Chang is a consultant to us.
In 1999, we paid $48,000 to Dr. Chang under the terms of his consulting
agreement. Our Taiwan subsidiary, TanAsia Pharma, Ltd., also entered into a
collaboration agreement, which expired in June 1999, with Dr. Chang and the
National Tsing Hua University. Dr. Chang is a professor, and was formerly Dean
of the College of Life Sciences, at National Tsing Hua University. Under the
agreement with the university, Dr. Chang and other scientists at the university
participated in certain research and development activities for our benefit. In
1999, we paid the university $20,250 under the terms of that agreement.
LOANS TO MANAGEMENT
In April 1999, we loaned John Blickenstaff, our Vice President of
Administration, Secretary and Treasurer, $161,250 to enable him to purchase
258,000 shares of our common stock, pursuant to stock options he held that were
soon to expire. This full recourse loan is secured by shares of our common stock
owned by Mr. Blickenstaff, bears interest at a rate of 8.5% and is due and
payable in full in September 2001.
In October 1999, we loaned David W. Thomas, our Senior Vice President of
Research and Development, $150,000 to enable him to purchase a residence in
Houston. The loan is unsecured, bears interest at a rate of 8.5% per annum and
is due and payable in full on the first to occur of the sale of his
Massachusetts residence or July 15, 2000.
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DESCRIPTION OF CAPITAL STOCK
We may issue up to 120,000,000 shares of common stock, par value $.01 per share,
and 10,000,000 shares of preferred stock, par value $.01 per share. As of March
7, 2000, there were 33,788,731 shares of common stock outstanding held by 185
stockholders of record, and no shares of preferred stock were outstanding.
We do not intend the following summary description of our capital stock to be
complete and we qualify the description by referring to the provisions of
applicable law and to our amended and restated certificate of incorporation and
our bylaws, filed as exhibits to the registration statement of which this
prospectus is a part.
COMMON STOCK
Based on the number of shares outstanding as of March 7, 2000 and giving effect
to the issuance of the 7,000,000 shares of common stock offered pursuant to this
prospectus there will be 40,788,731 shares of common stock outstanding upon the
completion of this offering. In addition, as of March 7, 2000, there were
outstanding stock options to purchase 2,747,733 shares of common stock.
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of directors.
Holders of common stock may receive ratably the dividends, if any, declared from
time to time by the board of directors out of legally available funds. Holders
of common stock have no conversion, redemption or preemptive rights to subscribe
to any of our securities. If any liquidation, dissolution or winding-up of our
affairs occurs, holders of common stock may share ratably in our assets
remaining after provision for payment of liabilities to creditors. The rights,
preferences and privileges of holders of common stock are subject to the rights
of the holders of any shares of preferred stock that we may issue in the future.
PREFERRED STOCK
We have no present plans to issue any shares of preferred stock. However, the
board of directors may, without action by the stockholders, designate and issue
preferred stock in one or more series and designate the rights, preferences and
privileges of each series, which may be greater than the rights of the common
stock.
REGISTRATION RIGHTS
After the completion of this offering, the holders of 21,530,980 shares of
common stock will be entitled to rights with respect to the registration of
these shares under the Securities Act. These rights include demand registration
rights.
Under the terms of the agreements providing registration rights, the holders of
a specified minimum number of shares can demand that we register their shares.
We must use our best efforts to effect a registration, subject to conditions and
limitations. We are not required to effect more than three of these
registrations pursuant to these demand registration rights. Under the terms of
the agreements providing registration rights, if we propose to register any of
our securities under the Securities Act, either for our own account or for the
account of other security holders exercising registration rights, these holders
are entitled to notice of the registration and may include shares of common
stock in the registration. The rights are subject to conditions and limitations,
among them the right of the underwriters of an offering subject to the
registration to limit the number of shares included in the registration. These
registration rights have been waived with respect to this offering. Furthermore,
stockholders with demand registration rights may require us to file additional
registration statements on Form S-3, subject to conditions and limitations. We
generally must bear all of the expenses of all of these registrations, except
underwriting discounts and selling commissions. We also have agreed to indemnify
stockholders who include shares in a registration statement from losses arising
from violations by us of applicable securities laws in connection with the
registration. Registration of any of the shares of common stock held by
stockholders with registration rights would
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<PAGE>
result in shares becoming freely tradable without restriction under the
Securities Act immediately upon effectiveness of the registration.
ANTI-TAKEOVER EFFECTS OF VARIOUS PROVISIONS OF DELAWARE LAW AND OUR AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION AND BYLAWS
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW. We are subject to the
provisions of Section 203 of the Delaware General Corporation Law, which
regulates corporate takeovers. Subject to some exceptions, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless:
o before the date of the business combination, the board of directors of
the corporation approves the transaction;
o upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owns at
least 85% of the outstanding stock; or
o the board of directors and at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder approve the
business combination.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to
various exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. This statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to us and,
accordingly, may discourage attempts to acquire us.
In addition, various provisions of our amended and restated certificate of
incorporation and our bylaws, which are summarized in the following paragraphs,
may be deemed to have an anti-takeover effect and may delay, defer or prevent a
tender offer or takeover attempt that a stockholder might consider in its best
interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
REMOVAL OF DIRECTORS; VACANCIES. Our bylaws provide that directors may be
removed from office only for cause and only by the affirmative vote of the
holders of at least two-thirds of our total outstanding voting stock. Vacancies
on our board of directors, including those resulting from an increase in the
number of directors, may be filled only by the remaining directors, not by
stockholders.
CLASSIFIED BOARD OF DIRECTORS. Our bylaws divide our board into three classes
of directors serving staggered, three year terms. The classification of the
board has the effect of requiring at least two annual stockholder meetings,
instead of one, to replace a majority of the members of the board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Our bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders must provide timely notice thereof in
writing. To be timely, a stockholder's notice must be delivered to or mailed and
received at our principal executive offices not less than 30 nor more than 60
days prior to the annual meeting. If less than 40 days notice has been given to
the stockholders for the meeting, notice by the stockholder, to be timely, must
be received not later than the close of business on the 10th day following the
date on which notice of the meeting is given to stockholders.
Our bylaws also specify certain requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from bringing
matters before an annual meeting.
SPECIAL MEETINGS OF STOCKHOLDERS. Our bylaws provide that only a majority of
the board of directors, the chairman of our board of directors or our president
or chief executive officer may call a special meeting of our stockholders.
PREFERRED STOCK. The board of directors may, without action by the
stockholders, designate and issue preferred stock in one or more series and
designate the rights, preferences and privileges of each series, which may be
greater than the rights of the common stock. We cannot predict the effect of the
issuance of any shares of preferred stock upon the rights of holders of our
common stock until the board of directors
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determines the specific rights of the holders of our preferred stock. However,
the effects could include one or more of the following:
o restricting dividends on our common stock;
o diluting the voting power of our common stock;
o impairing the liquidation rights of our common stock; or
o discouraging or preventing a change in our control.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Section 145 of the Delaware General Corporation Law authorizes a corporation's
board of directors to indemnify directors and officers in terms sufficiently
broad to permit indemnification under certain circumstances for liabilities,
including reimbursement for expenses incurred, arising under the Securities Act.
As permitted by Delaware law, our amended and restated certificate of
incorporation includes a provision that eliminates the personal liability of our
directors for monetary damages for breach of fiduciary duty as a director,
except for liability:
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
o under Section 174 of the Delaware General Corporation Law regarding
unlawful dividends and stock purchases; or
o for any transaction from which the director derived an improper personal
benefit.
As permitted by Delaware law, our bylaws provide that:
o we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
o we must advance expenses, as incurred, to our directors and officers in
connection with a legal proceeding, subject to certain limited
exceptions; and
o the rights conferred in the bylaws are not exclusive.
We have entered into indemnification agreements with each of our officers and
directors to give them additional contractual assurances regarding the scope of
the indemnification provided in our amended and restated certificate of
incorporation and bylaws and to provide additional procedural protections. These
agreements, among other things, require us to indemnify each director and
officer to the fullest extent permitted by Delaware law, including
indemnification for expenses such as attorneys' fees, judgments, fines and
settlement amounts incurred by the director or officer in any action or
proceeding, including any action by or in the right of us, arising out of the
person's services as a director or officer of us, any subsidiary of ours or any
other company or enterprise to which the person provides services at our
request. At present, we are not aware of any pending or threatened litigation or
proceeding involving any of our directors, officers, employees or agents where
indemnification would be required or permitted. We believe that the provisions
of our amended and restated articles of incorporation, bylaws and these
indemnification agreements are necessary to attract and retain qualified persons
as directors and officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is American Stock Transfer
and Trust Company, New York, New York.
LISTING
We have applied for quotation of the common stock on the Nasdaq National Market
under the symbol "TNOX."
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our common
stock. Future sales of substantial amounts of common stock in the public market
or the perception that sales could occur, could adversely affect the market
price of our common stock and our ability to sell equity securities.
When we complete this offering, we will have a total of 40,788,731 shares of
common stock outstanding. The 7,000,000 shares offered by this prospectus will
be freely tradeable unless they are purchased by our "affiliates," as defined
in Rule 144 under the Securities Act. Shares purchased by affiliates may
generally only be sold pursuant to an effective registration statement under the
Securities Act or in compliance with Rule 144 as described below. The remaining
shares are "restricted," which means they were originally sold in offerings
that were not subject to a registration statement filed with the Securities and
Exchange Commission. These restricted shares may be resold only through
registration under the Securities Act or under an available exemption from
registration, such as provided through Rule 144.
Directors and officers and stockholders who together own 32,040,783 shares of
common stock will be subject to lock-up agreements providing that they will not
offer, sell or otherwise dispose of common stock owned by them, other than
shares of common stock acquired in this offering for a period of 180 days after
the date of this prospectus. CIBC World Markets Corp., however, may in its sole
discretion, at any time, without notice, release all or any portion of the
shares subject to lock-up agreements. Upon expiration of the lock-up agreements,
7,724,426 shares will become eligible for sale pursuant to Rule 144(k),
21,334,800 shares will become eligible for sale under Rule 144 and 1,749,884
shares will become eligible for sale under Rule 701.
RULE 144
Generally, Rule 144 as currently in effect provides that, beginning 90 days
after the first date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year may sell within any three-month
period, a number of shares that does not exceed the greater of:
o 1% of the number of shares of common stock then outstanding, which, based
on the shares outstanding as of March 7, 2000 will equal approximately
337,887 shares; or
o the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of
the notice on Form 144 with respect to the sale.
Rule 144 provides limitations on the manner of sales and imposes requirements as
to notice and the availability of current public information about us.
RULE 144(K)
Under Rule 144(k), a person who has not been one of our affiliates at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, may sell his or her shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144. Therefore, unless otherwise restricted, a person
who has been a non-affiliate for at least two years may sell his or her shares
in the open market immediately after the lock-up agreements expire.
RULE 701
Rule 701 permits any of our employees, officers, directors, or consultants who
purchased their shares under a compensatory stock or option plan or other
written agreement prior to the effective date of this offering and who are not
an affiliate to sell these shares under Rule 144 without complying with the
holding period, public information, volume limitation or notice requirements of
Rule 144. Rule 701 permits these persons who are our affiliates to sell these
shares without complying with the holding period requirement of Rule 144. All
holders of Rule 701 shares may not sell their Rule 701 shares until 90 days
after the date of this prospectus. However, substantially all shares of our
common stock issued under Rule 701 are subject to lock-up agreements described
above.
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Shortly following the date of this prospectus, we intend to file a registration
statement on Form S-8 under the Securities Act covering shares of common stock
reserved for issuance under our stock option plans. Shares registered under this
registration statement will, subject to Rule 144 volume limitations applicable
to our affiliates, be available for sale in the open market immediately after
the lock-up agreements expire. As of March 7, 2000, an aggregate of 2,747,733
shares of common stock were subject to outstanding options.
REGISTRATION RIGHTS
As of March 7, 2000, holders of 21,530,980 shares of common stock will be
entitled to certain rights with respect to the registration of those shares
under the Securities Act. After we register these shares, they will be freely
tradeable. For a description of these rights, see "Description of Capital
Stock."
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UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., FleetBoston Robertson Stephens Inc., Warburg
Dillon Read LLC, Adams, Harkness & Hill, Inc. and KBC Securities Inc. are acting
as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:
UNDERWRITER NUMBER OF SHARES
- ------------------------------------- -----------------
CIBC World Markets Corp..............
FleetBoston Robertson Stephens
Inc..................................
Warburg Dillon Read LLC..............
Adams, Harkness & Hill, Inc..........
KBC Securities Inc...................
-----------------
Total.............................. 7,000,000
=================
The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any are purchased. Under the underwriting agreement, if an underwriter
defaults in its commitment to purchase shares, the commitments of non-defaulting
underwriters may be increased or the underwriting agreement may be terminated,
depending on the circumstances.
The shares should be ready for delivery on or about , 2000, against
payment in immediately available funds. The representatives have advised us that
the underwriters propose to offer the shares directly to the public at the
public offering price that appears on the cover page of this prospectus. In
addition, the representatives may offer some of the shares to other securities
dealers at such price less a concession of $ per share. The underwriters may
also allow, and such dealers may reallow, a concession not in excess of $ per
share to other dealers. After the shares are released for sale to the public,
the representatives may change the offering price and other selling terms at
various times.
We have granted the underwriters an over-allotment option. This option, which is
exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of 1,050,000 additional shares from us to
cover over-allotments. If the underwriters exercise all or part of this option,
they will purchase shares covered by the option at the initial public offering
price that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to the public
will be $__________, and the total proceeds to us will be $_________________.
The underwriters have severally agreed that, to the extent the over-allotment
option is exercised, they will each purchase a number of additional shares
proportionate to the underwriter's initial amount reflected in the above table.
The following table provides information regarding the amount of the discount to
be paid to the underwriters by us:
<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE OF TOTAL WITH FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
---------- -------------------------- ----------------------------
<S> <C> <C> <C>
Tanox................................ $ $ $
</TABLE>
We estimate that our total expenses of the offering, excluding the underwriting
discount, will be approximately $__________.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.
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KBC Bank, N.V., an affiliate of KBC Securities, Inc., one of our underwriters,
has agreed with John Blickenstaff, our Vice President of Administration,
Secretary and Treasurer, and one of our other employees, to purchase, at the
option of Mr. Blickenstaff and our other employee, shares of common stock having
a value of up to $3.7 million at the initial public offering price or, if the
offering is not completed by May 16, 2000, at $28.50 per share, less a discount
of seven percent. KBC will not resell any shares acquired under the agreement in
this offering. KBC has also agreed not to resell these shares except in limited
circumstances where the resale would be registered with the Securities and
Exchange Commission under the Securities Act or subject to an exemption
therefrom.
We and our officers and directors and substantially all other stockholders have
agreed to a 180-day "lock up" with respect to 32,040,783 shares of common
stock that they beneficially own, including securities that are convertible into
shares of common stock and securities that are exchangeable or exercisable for
shares of common stock. This means that, subject to certain exceptions, for a
period of 180 days following the date of this prospectus, we and such persons
may not offer, sell, pledge or otherwise dispose of these securities without the
prior written consent of CIBC World Markets Corp.
The representatives have informed us that they do not expect discretionary sales
by the underwriters to exceed 5% of the shares offered by this prospectus.
The underwriters have reserved for sale up to 350,000 shares for employees and
their direct family members, directors and other persons associated with us.
These reserved shares will be sold at the initial public offering price that
appears on the cover page of this prospectus. The number of shares available for
sale to the general public in the offering will be reduced to the extent
reserved shares are purchased by such persons. The underwriters and we reserve
the right to terminate this program. The underwriters will offer to the general
public, on the same terms as other shares offered by this prospectus, any
reserved shares that are not purchased by such persons.
There is no established trading market for the shares. The offering price for
the shares has been determined by us and the representatives, based on the
following factors:
o prevailing market and general economic conditions;
o our financial information;
o our history and prospects;
o Tanox and the industry in which we compete;
o an assessment of our management, its past and present operations, and the
prospects for, and timing of, our future revenues; and
o the present stage of our development and the above factors in relation to
the market values and various valuation measures of other companies
engaged in activities similar to ours.
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
o Stabilizing transactions -- The representatives may make bids or
purchases for the purpose of pegging, fixing or maintaining the price of
the shares, so long as stabilizing bids do not exceed a specified
maximum.
o Over-allotment and syndicate covering transactions -- The underwriters
may create a short position in the shares by selling more shares than are
set forth on the cover page of this prospectus. If a short position is
created in connection with the offering, the representatives may engage
in syndicate covering transactions by purchasing shares in the open
market. The representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option.
o Penalty bids -- If the representatives purchase shares in the open market
in a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
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Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither we nor the underwriters make any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.
LEGAL MATTERS
Chamberlain, Hrdlicka, White, Williams & Martin, Houston, Texas will pass upon
certain legal matters with respect to the legality of the issuance of the shares
of common stock offered by this prospectus. Skadden, Arps, Slate, Meagher & Flom
(Illinois), Chicago, Illinois will pass upon certain legal matters in connection
with this offering for the underwriters.
Wilburn O. McDonald, Jr. and seven other shareholders of Chamberlain, Hrdlicka,
White, Williams & Martin, hold an aggregate of 9,266 shares of our common stock.
EXPERTS
The financial statements as of December 31, 1998 and 1999, and for each of the
three years in the period ended December 31, 1999 included in this prospectus
and elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
Certain legal matters with respect to the statements in this prospectus under
the captions "Risk Factors -- We depend on our patents and proprietary rights.
The validity, enforceability and commercial value of these rights are highly
uncertain," and "Business -- Patents and Proprietary Rights" have been
reviewed and approved by Chamberlain, Hrdlicka, White, Williams & Martin,
Houston, Texas, our patent counsel who are experts in these matters and are
subject to an opinion to be rendered to the underwriters. We are including this
information relying on their review and approval.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission in connection with this offering. In addition, upon
completion of the offering, we must file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission.
You may read and copy the registration statement and any other documents filed
by us at the Securities and Exchange Commission's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the Public
Reference Room. Our Securities and Exchange Commission filings are also
available to the public at the Securities and Exchange Commission's Internet
site at "http://www.sec.gov."
This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to any contract or other document of ours, the
reference may not be complete and you should refer to the exhibits that are a
part of the registration statement for a copy of the contract or document.
After the offering, we intend to provide annual reports to our stockholders that
include financial information examined and reported on by an independent public
accounting firm.
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TANOX, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
Report of Independent Public Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1999....... F-3
Consolidated Statements of Operations and Comprehensive Income
(Loss) for the years ended December 31, 1997, 1998 and 1999...... F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1998 and 1999........................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999................................. F-6
Notes to Consolidated Financial Statements......................... F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Tanox, Inc.:
We have audited the accompanying consolidated balance sheets of Tanox, Inc., a
Delaware corporation, and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations and comprehensive income (loss),
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tanox, Inc., and
subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
December 31, 1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 1, 2000
F-2
<PAGE>
TANOX, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------------
1998 1999
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....... $ 28,352,000 $ 44,242,000
Short-term investments.......... 5,383,000 3,012,000
Accounts receivable............. 74,000 125,000
Interest receivable............. 253,000 414,000
Income taxes receivable......... 2,052,000 132,000
Prepaid expenses................ 91,000 114,000
------------- -------------
Total current assets....... 36,205,000 48,039,000
PROPERTY AND EQUIPMENT:
Laboratory and office
equipment...................... 8,709,000 9,369,000
Leasehold improvements.......... 1,902,000 2,102,000
Furniture and fixtures.......... 92,000 119,000
------------- -------------
10,703,000 11,590,000
Less -- Accumulated depreciation
and amortization............... (3,577,000) (4,577,000)
------------- -------------
Net property and
equipment............... 7,126,000 7,013,000
OTHER ASSETS, net of accumulated
amortization of $25,000 and
$59,000, respectively........... 91,000 276,000
------------- -------------
Total assets............... $ 43,422,000 $ 55,328,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................ $ 802,000 $ 874,000
Accrued liabilities............. 1,080,000 947,000
Accrued arbitration award....... -- 3,500,000
------------- -------------
Total current
liabilities............. 1,882,000 5,321,000
NOTE PAYABLE TO RELATED PARTY........ 10,000,000 10,000,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value;
10,000,000 shares authorized;
none outstanding............... -- --
Common stock, $.01 par value;
120,000,000 shares authorized;
29,310,175 shares in 1998 and
33,324,402 shares in 1999
issued and outstanding......... 293,000 333,000
Additional paid-in capital...... 39,266,000 71,701,000
Deferred compensation........... (902,000) (651,000)
Loans receivable from
employees...................... -- (1,086,000)
Other comprehensive income,
cumulative translation
adjustment..................... (2,000) 171,000
Retained earnings (deficit)..... (7,115,000) (30,461,000)
------------- -------------
Total stockholders'
equity.................. 31,540,000 40,007,000
------------- -------------
Total liabilities and
stockholders' equity.... $ 43,422,000 55,328,000
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
TANOX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
------------ -------------- --------------
<S> <C> <C> <C>
REVENUES:
Development agreement with
related party................. $ 1,271,000 $ 2,369,000 $ 1,063,000
Other development agreements and
licensing fees................ 7,668,000 53,000 342,000
------------ -------------- --------------
Total revenues........ 8,939,000 2,422,000 1,405,000
OPERATING COSTS AND EXPENSES:
Research and development........ 6,926,000 11,933,000 17,163,000
General and administrative...... 2,230,000 3,431,000 8,582,000
------------ -------------- --------------
Total operating costs
and expenses........ 9,156,000 15,364,000 25,745,000
------------ -------------- --------------
LOSS FROM OPERATIONS................. (217,000) (12,942,000) (24,340,000)
OTHER INCOME (EXPENSE):
Interest income................. 1,684,000 2,061,000 1,884,000
Interest expense................ (639,000) (825,000) (741,000)
Other........................... -- 4,000 (115,000)
------------ -------------- --------------
Total other income.... 1,045,000 1,240,000 1,028,000
------------ -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES.... 828,000 (11,702,000) (23,312,000)
(Provision) benefit of
income taxes........ (198,000) 1,533,000 (34,000)
------------ -------------- --------------
NET INCOME (LOSS).................... $ 630,000 $ (10,169,000) $ (23,346,000)
============ ============== ==============
EARNINGS (LOSS) PER SHARE:
Basic........................... $ 0.02 $ (0.35) $ (0.75)
============ ============== ==============
Diluted......................... $ 0.02 $ (0.35) $ (0.75)
============ ============== ==============
SHARES USED IN COMPUTING EARNINGS
(LOSS) PER SHARE:
Basic........................... 27,909,000 29,105,000 31,113,000
============ ============== ==============
Diluted......................... 31,190,000 29,105,000 31,113,000
============ ============== ==============
COMPREHENSIVE NET INCOME (LOSS):
Net income (loss)............... $ 630,000 $ (10,169,000) $ (23,346,000)
Foreign currency translation
adjustment.................... -- (2,000) 173,000
------------ -------------- --------------
TOTAL COMPREHENSIVE NET INCOME
(LOSS)............................. $ 630,000 $ (10,171,000) $ (23,173,000)
============ ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
TANOX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
LOANS
COMMON STOCK RECEIVABLE
--------------------- ADDITIONAL DEFERRED TREASURY FROM
SHARES PAR VALUE PAID-IN CAPITAL COMPENSATION STOCK EMPLOYEES
--------- --------- --------------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996.......... 26,215,004 $262,000 $13,125,000 $ -- $ -- $ --
Issuance of common stock for
cash, $7.50 per share, net of
issuance costs................. 2,331,262 23,000 17,308,000 -- -- --
Purchase of treasury stock,
10,425 shares.................. -- -- -- -- (78,000) --
Issuance of common stock upon
exercise of stock options...... 36,614 1,000 (9,000) -- 78,000 --
Capital contribution from
forgiveness of interest by
related party.................. -- -- 639,000 -- -- --
Deferred compensation related to
stock options.................. -- -- 750,000 (750,000) -- --
Amortization of deferred
compensation related to stock
options........................ -- -- -- 25,000 -- --
Net income....................... -- -- -- -- -- --
--------- --------- --------------- ------------ -------- ----------
BALANCES, December 31, 1997.......... 28,582,880 286,000 31,813,000 (725,000) -- --
Issuance of common stock for
cash, $II.25 per share, net of
issuance costs................. 273,686 3,000 3,046,000 -- -- --
Issuance of common stock upon
exercise of stock options...... 230,400 2,000 223,000 -- -- --
Exchange of mature common stock
to exercise stock options...... (3,200) -- (36,000) -- -- --
Issuance of common stock to
acquire foreign subsidiary..... 226,409 2,000 2,545,000 -- -- --
Income tax benefit from stock
options exercised.............. -- -- 400,000 -- -- --
Capital contribution from
forgiveness of interest by
related party.................. -- -- 825,000 -- -- --
Deferred compensation related to
stock options.................. -- -- 450,000 (450,000) -- --
Amortization of deferred
compensation related to stock
options........................ -- -- -- 273,000 -- --
Exchange translation
adjustment..................... -- -- -- -- -- --
Net loss......................... -- -- -- -- -- --
--------- --------- --------------- ------------ -------- ----------
BALANCES, December 31, 1998.......... 29,310,175 293,000 39,266,000 (902,000) -- --
Issuance of common stock for
cash, $12.50 per share, net of
issuance costs................. 1,896,000 19,000 22,907,000 -- -- --
Issuance of common stock upon
exercise of stock options...... 1,789,520 18,000 1,131,000 -- -- --
Issuance of common stock on a net
issuance basis upon exercise of
warrants....................... 86,632 -- -- -- -- --
Issuance of common stock to
acquire foreign subsidiary..... 242,075 3,000 3,023,000 -- -- --
Capital contribution from
forgiveness of interest by
related party.................. -- -- 738,000 -- -- --
Deferred compensation related to
stock options.................. -- -- 4,636,000 (60,000) -- --
Amortization of deferred
compensation related to stock
options........................ -- -- -- 311,000 -- --
Loans receivable from
employees...................... -- -- -- -- -- (1,086,000)
Exchange translation
adjustment..................... -- -- -- -- -- --
Net loss......................... -- -- -- -- -- --
---------- --------- --------------- ------------ -------- -----------
BALANCES, December 31, 1999.......... 33,324,402 $333,000 $71,701,000 $ (651,000) $ -- $(1,086,000)
========== ========= =============== ============ ======== ===========
<CAPTION>
OTHER
COMPREHENSIVE
INCOME-
CUMULATIVE RETAINED TOTAL
TRANSLATION EARNINGS STOCKHOLDERS'
ADJUSTMENT (DEFICIT) EQUITY
------------- ----------- -------------
<S> <C> <C> <C>
BALANCES, December 31, 1996.......... $ -- $ 2,424,000 $15,811,000
Issuance of common stock for
cash, $7.50 per share, net of
issuance costs................. -- -- 17,331,000
Purchase of treasury stock,
10,425 shares.................. -- -- (78,000)
Issuance of common stock upon
exercise of stock options...... -- -- 70,000
Capital contribution from
forgiveness of interest by
related party.................. -- -- 639,000
Deferred compensation related to
stock options.................. -- -- --
Amortization of deferred
compensation related to stock
options........................ -- -- 25,000
Net income....................... -- 630,000 630,000
------------- ----------- -------------
BALANCES, December 31, 1997.......... -- 3,054,000 34,428,000
Issuance of common stock for
cash, $II.25 per share, net of
issuance costs................. -- -- 3,049,000
Issuance of common stock upon
exercise of stock options...... -- -- 225,000
Exchange of mature common stock
to exercise stock options...... -- -- (36,000)
Issuance of common stock to
acquire foreign subsidiary..... -- -- 2,547,000
Income tax benefit from stock
options exercised.............. -- -- 400,000
Capital contribution from
forgiveness of interest by
related party.................. -- -- 825,000
Deferred compensation related to
stock options.................. -- -- --
Amortization of deferred
compensation related to stock
options........................ -- -- 273,000
Exchange translation
adjustment..................... (2,000) -- (2,000)
Net loss......................... -- (10,169,000) (10,169,000)
------------- ----------- -------------
BALANCES, December 31, 1998.......... (2,000) (7,115,000) 31,540,000
Issuance of common stock for
cash, $12.50 per share, net of
issuance costs................. -- -- 22,926,000
Issuance of common stock upon
exercise of stock options...... -- -- 1,149,000
Issuance of common stock on a net
issuance basis upon exercise of
warrants....................... -- -- --
Issuance of common stock to
acquire foreign subsidiary..... -- -- 3,026,000
Capital contribution from
forgiveness of interest by
related party.................. -- -- 738,000
Deferred compensation related to
stock options.................. -- -- 4,576,000
Amortization of deferred
compensation related to stock
options........................ -- -- 311,000
Loans receivable from
employees...................... -- -- (1,086,000)
Exchange translation
adjustment..................... 173,000 -- 173,000
Net loss......................... -- (23,346,000) (23,346,000)
------------- ------------ ------------
BALANCES, December 31, 1999.......... $ 171,000 $(30,461,000) $40,007,000
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
TANOX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1998 1999
------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............... $ 630,000 $ (10,169,000) $ (23,346,000)
Adjustments to reconcile net
income (loss) to net cash used
in operating activities --
Depreciation and
amortization............. 199,000 934,000 1,034,000
Interest expense forgiven
by related party......... 639,000 825,000 738,000
Amortization of deferred
compensation related to
stock options............ 25,000 273,000 4,887,000
In-process research and
development.............. -- 2,798,000 3,359,000
Changes in operating assets and
liabilities --
Increase in accounts and
interest receivables and
prepaid expenses......... (17,000) (15,000) (235,000)
Change in taxes receivable
or payable............... (463,000) (1,576,000) 1,920,000
(Decrease) increase in
accounts payable and
accrued liabilities...... (694,000) 391,000 3,439,000
Decrease in collaboration
advances................. (500,000) -- --
------------- -------------- --------------
Net cash used in
operating
activities.......... (181,000) (6,539,000) (8,204,000)
------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term
investments................... -- (9,517,000) (12,082,000)
Maturity of short-term
investments................... -- 4,134,000 14,453,000
Purchases of property and
equipment..................... (520,000) (455,000) (887,000)
Increase in other assets........ -- -- (219,000)
Purchase of wholly owned
subsidiary (net of cash
acquired)..................... -- (364,000) (333,000)
------------- -------------- --------------
Net cash provided by
(used in) investing
activities.......... (520,000) (6,202,000) 932,000
------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of note payable to
related party................. 2,000,000 1,000,000 --
Issuance of employee loans in
connection with the exercise
of stock options.............. -- -- (1,086,000)
Proceeds from issuance of common
stock......................... 17,401,000 3,238,000 24,075,000
Purchases of treasury stock..... (78,000) -- --
------------- -------------- --------------
Net cash provided by
financing activities..... 19,323,000 4,238,000 22,989,000
IMPACT OF EXCHANGE RATES ON CASH..... -- (2,000) 173,000
------------- -------------- --------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ 18,622,000 (8,505,000) 15,890,000
CASH AND CASH EQUIVALENTS, beginning
of year............................ 18,235,000 36,857,000 28,352,000
------------- -------------- --------------
CASH AND CASH EQUIVALENTS, end of
year............................... $ 36,857,000 $ 28,352,000 $ 44,242,000
============= ============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for
taxes......................... $ 661,000 $ 37,000 $ 137,000
Noncash investing and financing
activities --
Capital contribution from
forgiveness of interest
by a related party....... 639,000 825,000 738,000
Receivable related to
income tax benefit from
stock options
exercised................ -- 400,000 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BUSINESS AND RISK FACTORS:
Tanox, Inc. (Tanox), was formerly known as Tanox Biosystems, Inc. and was
originally incorporated as a Texas corporation on March 19, 1986. Tanox was
reincorporated in Delaware in January 2000. Tanox is engaged in the discovery
and development of therapeutic products that beneficially influence or are
derived from the immune system. Tanox is focusing its product development
efforts on therapeutics in three broad areas: immunology (asthma/allergy,
autoimmune diseases and inflammation), infectious diseases and oncology.
Tanox has not yet generated any significant revenues from product sales, nor is
there any assurance of significant future revenues from product sales. The
research and development activities engaged in by Tanox involve a high degree of
risk and uncertainty. The ability of Tanox to successfully develop, manufacture
and market its proprietary products is dependent upon many factors. These
factors could include, but are not limited to, the need for additional
financing, the reliance on collaborative arrangements for research and
development, marketing and product commercialization and the ability to develop
or obtain manufacturing, sales and marketing capabilities. Additional factors
could include resolution of ongoing contingencies, including legal proceedings,
changes in the level of sponsored research revenue, uncertainties as to patents
and proprietary technologies, technological change and risk of obsolescence,
development of its products, competition, government regulations and regulatory
approval, and product liability exposure. As a result of the aforementioned
factors and related uncertainties, there can be no assurance of Tanox's future
success.
Tanox entered into a development and licensing agreement with Novartis Pharma AG
(Novartis) in May 1990. Under this agreement, Tanox and Novartis agreed to
jointly develop certain products for IgE-mediated diseases, including asthma and
allergies. Tanox received a contract payment upon signing the agreement and has
received additional contract payments and reimbursement payments upon the
occurrence of specified events. Under a separate agreement (the Stock
Agreement), Tanox and Novartis also agreed to the sale and purchase of shares of
Tanox's common stock. Sales of these shares were completed in May 1990, May 1992
and June 1994. Tanox notified Novartis of the termination of the Stock Agreement
as provided therein, and the termination was effective as of May 10, 1997.
Novartis owned approximately 19.1 percent of Tanox's outstanding common stock at
December 31, 1999.
On December 22, 1993, Tanox sued Genentech, Inc. (Genentech), F. Hoffman-La
Roche, Ltd., Roche Holdings, Inc., Roche Holding Ltd. and Hoffman-La Roche, Inc.
(collectively referred to as "Roche"), in Harris County District Court in
Houston, Texas. The action arose from collaboration discussions between Tanox
and Genentech in 1989 and 1990 relating to Tanox's anti-IgE product as a
treatment for IgE-mediated diseases, including allergy and asthma. In response,
Genentech filed suit against Tanox for patent infringement and subsequently
named Novartis in the suit. Tanox's litigation against Genentech and Roche and
Genentech's litigation against Tanox and Novartis were settled in July 1996.
Contemporaneously with the settlement, Genentech, Novartis and Tanox also
entered into a binding agreement in principle to combine their existing anti-IgE
antibody programs into a cooperative effort to develop and commercialize
selected anti-IgE antibodies (the Three-Party Collaboration). Tanox also entered
into additional licensing arrangements with Genentech. Tanox received an initial
payment upon entering into the Three-Party Collaboration and settling the
litigation. Tanox received and will receive additional milestone and royalty
payments upon the accomplishment of specified subsequent events. Novartis or
Genentech may terminate their participation in the Three-Party Collaboration on
short notice, subject to reversion of product rights to Tanox and the remaining
collaborator.
F-7
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITION OF PANGENETICS B.V.:
In March 1998, Tanox acquired the common stock of Tanox Pharma B.V. (formerly
PanGenetics), a biotechnology company located in Amsterdam, The Netherlands.
Tanox recorded the transaction for accounting purposes as a purchase, and the
consolidated financial statements include the operations of Tanox Pharma
subsequent to the acquisition date. Under the terms of the agreement, Tanox
purchased Tanox Pharma for an initial cash payment of $508,000 and 226,409
shares of common stock, valued at $II.25 per share, for a total initial
consideration of $3,055,000. In addition, Tanox agreed to pay future
consideration, in two installments, totaling up to $667,000 in cash and 484,147
shares of common stock upon occurrence of specified future events. These events
include originating at least three additional reseach projects within a three
year period, retaining the services of two individuals for 36 months and
maintaining a certain level of government grants and subsidies. Any additional
consideration will be paid to all shareholders in proportion to their ownership
at the acquisition date. In September 1999, Tanox made the second installment
payments of $333,000 in cash and 242,075 shares of common stock valued at $12.50
per share, for a total additional consideration of $3,359,000. If the specified
future events take place and the final future payment is made in March 2001,
Tanox will record an additional purchase price amount based on the cash paid and
fair value of the common stock issued at the time of payment.
Tanox engaged an independent firm to perform an appraisal of the assets acquired
in the transaction. The appraisal was completed and the report issued in 1998.
The acquisition of Tanox Pharma was accounted for under the purchase method of
accounting in which the aggregate purchase price was allocated to tangible and
intangible assets acquired based on their relative fair values as of the date of
the transactions. At the time of the acquisition, the total current and future
consideration of the acquisition was valued for accounting purposes at $9.2
million, based on the total of the cash and then fair value of common stock paid
to Tanox Pharma shareholders. Of this amount, we allocated approximately $0.2
million to tangible fixed assets, $0.1 million to intangible assets, $7.2
million to in-process research and development and $1.7 million to goodwill.
The valuation of acquired in-process research and development considered:
o the current technological feasibility, scientific and development states
of the anti-CD40 research project;
o the expected amount of time and resources required to complete the
projects;
o the alternative future use of the acquired research and development; and
o valuation and allocation approaches.
Tanox's ability to commercialize the acquired anti-CD40 research project is
affected by several risks. These risks include:
o Tanox's ability to construct low cost versions of the antibody;
o successful preclinical testing;
o successful completion of Phase I, II and III clinical testing;
o successful filing and acceptance of European and Japanese regulatory
submissions;
o Tanox's ability to successfully commercialize the anti-CD40 monoclonal
antibody by itself or in connection with a collaborative partner; and
o Tanox's ability to manufacture the anti-CD40 monoclonal antibody at a
competitive cost.
F-8
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At the time of the acquisition, the anti-CD40 monoclonal antibody required
additional development work and preclinical testing to enter clinical trials. In
order for anti-CD40 to become a marketable product, it was necessary to conduct
several clinical trials and to improve the manufacturing of the product. Tanox
estimated at the time of the acquisition that it would take from seven to nine
years and cost at least $50 million to complete the development of the anti-CD40
product.
The initial purchase price installment was allocated as follows:
In-process research and development $2,798,000
Net working capital ............... 125,000
Intangible assets ................. 100,000
Tangible fixed assets ............. 22,000
Noncurrent financial assets ....... 10,000
----------
Total ........................ $3,055,000
==========
The allocation of the second installment payment of $3,359,000 was assigned to
in-process research and development based on the appraisal. Accordingly, Tanox's
financial statements for the years ended December 31, 1998 and 1999 include a
charge of $2,798,000 in 1998 and $3,359,000 in 1999 for expensing the cost of
the in-process research and development. If the final purchase price payments
are made to the former shareholders of Tanox Pharma in 2001, Tanox anticipates
that the cost of such additional payments will be allocated to acquired
in-process research and development and goodwill based upon the appraisal
obtained as of the date of the acquisition.
If Tanox had acquired PanGenetics prior to January 1, 1997, the unaudited pro
forma financial results would have been as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------- -------------- --------------
<S> <C> <C> <C>
Total assets......................... $ 44,984,000 $ 43,422,000 $ 55,328,000
Total revenues....................... 9,384,000 2,439,000 1,405,000
Net income (loss).................... 557,000 (7,473,000) (19,988,000)
Basic earnings (loss) per share...... 0.02 (0.25) (0.64)
Diluted earnings (loss) per share.... 0.02 (0.25) (0.64)
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of Tanox
and its wholly owned subsidiaries, Tanox Pharma International, Inc., Tanox
Pharma B.V. and TanAsia Pharma, Ltd. Intercompany transactions and balances are
eliminated in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of expenses during the reporting
period. Actual results could differ from those estimates.
F-9
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
Revenues associated with development agreements which include rights to license
or sublicense Tanox's technology or product rights are recognized when payments
are earned. Revenues earned under development agreements include payments for
milestone achievements and payments for sponsored research. Milestone payments
are received under best efforts contracts, and such revenues are not refundable.
Any revenue from milestones is recognized when the milestones are achieved and
there are no remaining performance obligations. Revenues earned in connection
with sponsored research are recognized as Tanox performs its obligations related
to such research. Any revenue contingent upon future performance by Tanox is
deferred and recognized as the performance is completed.
Tanox recognized revenues of $6.3 million, $2.4 million and $1.1 million during
1997, 1998 and 1999, respectively, under the Three-Party Collaboration described
in Note 1. Included in these revenues are milestone payments of $5.0 million,
$1.5 million and $1.0 million, respectively. The remainder of the revenues
related to sponsored research. Expenses incurred related to these agreements
were approximately $1.3 million, $0.2 million and $0.1 million in 1997, 1998 and
1999, respectively. Revenues from collaborative agreements with Novartis
accounted for 15 percent of 1997 revenues, 98 percent of 1998 revenues and 76
percent of 1999 revenues. Revenues from collaborative agreements with Genentech
accounted for 56 percent of 1997 revenues and none of 1998 and 1999 revenues. At
December 31, 1998, Tanox had accounts receivable of approximately $14,000 for
estimated costs reimbursable under the Three-Party Collaboration. There were no
receivables under the Three-Party Collaboration at December 31, 1999.
Tanox recognized revenues of $2.5 million in 1997 from advances for sponsored
research made to Tanox in 1996 and 1997 under a development and licensing
agreement (the Takara Agreement) with Takara Shuzo, Ltd.. The Takara Agreement
was concluded effective November 30, 1997. The Takara Agreement accounted for 28
percent of 1997 revenues.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments with an original maturity
of three months or less when purchased.
SHORT-TERM INVESTMENTS
Short-term investments consist of U.S. Government agency debt obligations and
investment grade commercial paper with an original maturity greater than three
months but less than one year. Tanox's policy is to hold short-term investments
until maturity. Short-term investments are recorded at cost, which approximates
fair value. Tanox has no available-for-sale or trading securities.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost and depreciated on a straight-line
basis over the estimated useful economic lives of the assets or, in the case of
leasehold improvements, over the remaining term of the lease. The estimated
useful lives employed in computing depreciation are three to seven years for
laboratory and office equipment, five to seven years for furniture and fixtures,
and the lesser of nine years or the remaining lease term for leasehold
improvements. When property is retired or otherwise disposed of, the cost and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included in income. Maintenance and repairs are charged to expense when
incurred.
F-10
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Tanox has adopted Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." Management periodically reviews long-lived assets and
certain identifiable intangibles whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If factors
indicate that an asset should be evaluated for possible impairment, management
compares estimated undiscounted future operating cash flow from the related
asset to the carrying amount of the asset. If the carrying amount of the asset
were greater than undiscounted future operation cash flow, an impairment loss
would be recognized. Any impairment loss would be computed as the excess of the
carrying amount of the asset over the estimated fair value of the asset
(calculated based on discounting estimated future operating cash flows). The
application of SFAS No. 121 has had no material impact on Tanox's financial
position or results of operations.
RESEARCH AND DEVELOPMENT
Research and development costs, including incidental patent costs, are expensed
as incurred.
ACCRUED LIABILITIES
Accrued liabilities at December 31, 1998 and 1999, consist of the following:
1998 1999
---------- ----------
Accrued payroll ......... $ 413,000 $ 282,000
Accrued vacation ........ 178,000 153,000
Accrued taxes ........... 122,000 55,000
Accrued rent ............ 7,000 24,000
Accrued professional fees 270,000 264,000
Other ................... 90,000 169,000
---------- ----------
$1,080,000 $ 947,000
========== ==========
See Note 9 for discussion of accrued arbitration award as of December 31, 1999.
INCOME TAXES
Tanox accounts for income taxes using the liability method prescribed by SFAS
No. 109, "Accounting for Income Taxes." Under this method, deferred income tax
assets and liabilities reflect the impact of temporary differences between the
financial accounting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
FOREIGN CURRENCY TRANSACTIONS AND TRANSLATIONS
The balance sheet accounts of Tanox are translated into U.S. dollars at exchange
rates in effect on reporting dates. These amounts are reflected in other
comprehensive income. Income statement items are translated at average exchange
rates in effect during the financial statement period. Gains and losses
resulting from foreign currency transactions denominated in currency other than
the functional currency are classified as other income (expense).
F-11
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share," requires dual presentation of basic and
diluted earnings per share (EPS). Basic EPS is computed by dividing net income
by the weighted average number of shares of common stock outstanding during the
year. Diluted EPS is computed in the same manner as basic EPS, except that
diluted EPS reflects the potential dilution that would occur if outstanding
options and warrants were exercised.
The following table reconciles basic and diluted EPS for the year ended December
31, 1997. Since Tanox incurred net losses for the years ended December 31, 1998
and 1999, basic and diluted EPS are the same.
NET PER SHARE
INCOME SHARES AMOUNT
---------- ------------ ---------
For the year ended December 31,
1997 --
Basic EPS....................... $ 630,000 27,909,000 $0.02
=========
Effect of dilutive securities --
Options and warrants
outstanding................... -- 3,281,000
---------- ------------
Diluted EPS..................... $ 630,000 31,190,000 $0.02
========== ============ =========
OTHER COMPREHENSIVE INCOME (LOSS)
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and displaying comprehensive income and its components in an entity's
financial statements, and is effective for fiscal years beginning after December
15, 1997. The standard requires that all items that meet the definition of
components of comprehensive income be reported in Tanox's financial statements.
Tanox has included comprehensive income in its consolidated statements of
operations and comprehensive income (loss).
CONCENTRATION OF CREDIT RISK
Tanox's receivables are primarily associated with research collaborations with
pharmaceutical and biotechnology companies and grants from foreign government
entities. Tanox does not believe this concentration of credit risk presents a
material risk to Tanox. Tanox does not require collateral from these entities.
Tanox has invested its excess cash generally in high-quality commercial paper
and U.S. Government agency debt obligations. As of December 31, 1999, these
investments mature within 68 days of year-end and, therefore, management
believes that they bear minimal risk. Tanox has not experienced any losses on
its investments.
F-12
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. GEOGRAPHIC AREAS:
Tanox operates in a single business segment. Tanox's operations by geographic
area for the years ended December 31, 1997, 1998 and 1999, are presented below:
<TABLE>
<CAPTION>
TOTAL NET INCOME IDENTIFIABLE
REVENUES (LOSS) ASSETS
------------ ------------ ------------
<S> <C> <C> <C>
Year ended December 31, 1997 --
North America ............ $ 8,939,000 $ 630,000 43,330,000
Asia ..................... -- -- 1,501,000
------------ ------------ ------------
$ 8,939,000 $ 630,000 $ 44,831,000
============ ============ ============
Year ended December 31, 1998 --
North America ............ $ 3,089,000 $ (8,983,000) $ 42,794,000
Europe ................... 39,000 (1,192,000) 282,000
Asia ..................... -- 6,000 1,507,000
Interarea eliminations ... (706,000) -- (1,161,000)
------------ ------------ ------------
$ 2,422,000 $(10,169,000) $ 43,422,000
============ ============ ============
Year ended December 31, 1999 --
North America ............ $ 3,865,000 $(19,242,000) $ 58,522,000
Europe ................... 244,000 (4,039,000) 754,000
Asia ..................... -- (65,000) 1,534,000
Interarea eliminations ... (2,704,000) -- (5,482,000)
------------ ------------ ------------
$ 1,405,000 $(23,346,000) $ 55,328,000
============ ============ ============
</TABLE>
5. NOTE PAYABLE TO RELATED PARTY:
Novartis has advanced Tanox $10.0 million pursuant to a loan agreement to
finance a new clinical manufacturing facility. The loan bears interest at LIBOR
plus two percent (7.3 percent and 8.1 percent at December 31, 1998 and 1999,
respectively). Through December 31, 1999, Novartis has agreed to forgive
interest on the loan. For the years ended December 31, 1997, 1998 and 1999, the
interest forgiven by Novartis has been reflected as interest expense and a
capital contribution. These amounts totalled $639,000, $825,000 and $738,000,
respectively for the years 1997 through 1999. The loan is due December 31, 2005.
Subject to modifications agreed to in principle concurrent with completion of
the Three-Party Collaboration, the principal and future interest payments may be
partially or totally forgiven by Novartis based on the future use of the
facility.
6. INCOME TAXES:
Tanox's pretax income (loss) consists of the following:
1997 1998 1999
------------ -------------- --------------
U.S. ............................ $ 1,253,000 $ (7,973,000) $ (16,505,000)
Foreign.......................... (425,000) (3,729,000) (6,807,000)
------------ -------------- --------------
$ 828,000 $ (11,702,000) $ (23,312,000)
============ ============== ==============
F-13
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the provision (benefit) for income taxes are as follows:
1997 1998 1999
---------- ------------- ---------
Current.............................. $ 198,000 $ (1,533,000) $ 34,000
Deferred............................. -- -- --
---------- ------------- ---------
$ 198,000 $ (1,533,000) $ 34,000
========== ============= =========
Tanox's effective income tax rate for 1997 was less than the statutory federal
income tax rate of 35 percent primarily due to benefits from franchise tax
adjustments and research and developments tax credits that were partially offset
by increases in the valuation allowance. For 1998 and 1999, the benefit was less
than that computed at the statutory rate primarily due to an increase in the
valuation allowance and nondeductible foreign losses. At December 31, 1998,
Tanox recorded a $2.1 million income tax receivable related to the carryback of
1998 losses to prior periods. Of this receivable $2.0 million was collected in
1999 and the remaining $0.1 million will be received in 2000.
Significant components of Tanox's deferred tax assets are as follows:
1998 1999
------------- --------------
Federal net operating loss
carryforward....................... $ -- $ 1,821,000
In-process research and
development........................ 979,000 2,038,000
Foreign net operating loss
carryforwards...................... 417,000 1,831,000
Deferred compensation related to
stock options...................... 360,000 1,909,000
Research and development tax
credits............................ 278,000 1,019,000
Alternative minimum tax credit....... 171,000 248,000
Differences in book and tax
depreciation....................... 211,000 --
Capitalized interest................. 308,000 300,000
Accruals not currently deductible.... 157,000 1,291,000
Other, net........................... 4,000 28,000
------------- --------------
Total deferred tax assets....... 2,885,000 10,485,000
Differences in book and tax
depreciation....................... -- (130,000)
Deferred tax valuation allowance..... (2,885,000) (10,355,000)
------------- --------------
Net deferred taxes.............. $ -- $ --
============= ==============
At December 31, 1999, Tanox has a net operating loss of approximately $6,560,000
for federal income tax reporting purposes. Tanox's intent is to carry back
approximately $1,360,000 of the net operating loss to prior years to obtain a
refund of approximately $132,000. The remaining net operating loss will begin to
expire in 2019. Tanox also has a foreign net operating loss carryforward of
approximately $5,230,000 which will be available to offset the separate company
taxable incomes of certain foreign subsidiaries. Additionally, Tanox has an
unused U.S. research and development tax credit carryforward at December 31,
1999, of approximately $1,019,000 which will begin to expire in 20II. Tanox also
has alternative minimum tax credit carryforwards of approximately $248,000 as of
December 31, 1999. As Tanox has incurred cumulative losses to date and there is
no assurance of future taxable income, a valuation allowance has been
established to fully offset the deferred tax asset at December 31, 1998 and
1999. Tanox's valuation allowance increased from $2,885,000 at December 31,
1998, to $10,355,000 at December 31, 1999, primarily due to Tanox's increase in
net operating loss carryforwards, tax credit carryforwards and deferred
compensation.
F-14
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LEASE OBLIGATIONS:
Tanox leases its facilities pursuant to various operating leases that expire at
various dates through March 2002. Future minimum lease obligations under
noncancelable leases at December 31, 1999, are as follows:
Year ending December 31 --
2000 ................ $305,000
2001 ................ 258,000
2002 ................ 65,000
--------
Total .......... $628,000
========
Tanox incurred rent expense of $287,000, $344,000 and $331,000 in 1997, 1998 and
1999, respectively. Certain of the facility leases include escalation clauses
for operating expenses and real estate taxes.
At December 31, 1999, Tanox had outstanding an unsecured, irrevocable letter of
credit for $20,000 related to a lease agreement.
8. CAPITAL STOCK:
PREFERRED STOCK
Tanox is authorized to issue up to 10,000,000 shares of $.01 par value preferred
stock. The board of directors has the authority to issue these shares in one or
more series and to establish the rights, preferences and dividends. No shares of
preferred stock have been issued.
STOCK SPLIT
On March 31, 1997, Tanox declared a stock dividend to effect a stock split that
provided two shares of Tanox's common stock for every one share of Tanox's
common stock held by stockholders of record as of March 21, 1997. On February 1,
2000, Tanox declared a stock dividend to effect a stock split that provided 1.6
shares of Tanox's common stock for every one share of Tanox's common stock held
by stockholders of record as of January 31, 2000. In both cases the aggregate
par value of the dividend was transferred from additional paid-in capital to
common stock. The stock splits have been retroactively reflected in the
accompanying consolidated financial statements.
STOCK OPTIONS
During 1987, Tanox established the 1987 Stock Option Plan (the 1987 Plan)
covering key employees, officers and directors of Tanox. Under the terms of the
1987 Plan, as amended, the number of shares of common stock eligible for
issuance was 4,320,000. Options issued under the 1987 Plan were generally
granted at a purchase price equal to the fair market value at the date of grant
and are generally exercisable beginning two years after the date of grant for 40
percent of the shares, with the balance to become exercisable cumulatively in
three installments of 20 percent each year thereafter. Options expire ten years
after the date of grant. At December 31, 1999, options to purchase 2,242,800
shares of Tanox's common stock were outstanding under the 1987 Plan. The 1987
Plan expired June 24, 1997, and no more shares may be granted under this plan.
Tanox established the 1997 Stock Plan (the 1997 Plan) in November 1997. Under
the terms of the 1997 Plan, Tanox may grant options to purchase up to 8,000,000
shares of Tanox's common stock to employees,
F-15
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
directors, advisors and consultants. The 1997 Plan also provides for several
types of grants including incentive stock options, non-qualified stock options,
stock appreciation rights, stock awards, stock purchases and performance units.
Incentive stock options provide the right to purchase common stock at a price
not less than 100 percent of the fair value of common stock on the date of the
grant. Non-qualified stock options provide the right to purchase common stock at
a price not less than 50 percent of the fair value of the common stock on the
date of the grant. The options granted under the 1997 Plan generally expire ten
years after date of grant and are generally completely exercisable five years
after the grant date. At December 31, 1999, options to purchase 636,320 shares
of common stock were outstanding and 7,360,480 were available for future grants.
The 1997 Plan will expire on October 31, 2007.
In January 1992, Tanox established the 1992 Non-Employee Directors Stock Option
Plan (the Directors Plan) and reserved 480,000 shares of common stock for
issuance upon the exercise of options granted pursuant to the Directors Plan.
Unless otherwise provided, options granted under the Directors Plan will vest
one-third annually from the date of grant. The exercise price of the options
granted will be determined by a committee appointed by Tanox's board of
directors. At December 31, 1999, options to purchase 108,000 shares of Tanox's
common stock were outstanding under the Directors Plan and options to purchase
372,000 shares were available for future grants.
In addition to the plans discussed above, Tanox has entered into various stock
option agreements with certain outside consultants and advisors. At December 31,
1999, options to purchase 196,800 shares of Tanox's common stock were
outstanding under such agreements. All of the outstanding options issued under
these agreements were issued prior to 1996, are currently exercisable and expire
in either 2002 or 2003.
At December 31, 1999, options to purchase 3,183,920 shares were outstanding with
a weighted average exercise price of $4.39 per share, of which options to
purchase 2,106,318 shares were exercisable at a weighted average exercise price
of $2.79 per share. The following table summarizes stock option transactions
since December 31, 1996:
WEIGHTED
NUMBER OF EXERCISE AVERAGE
SHARES PRICE EXERCISE PRICE
------------ ------------- --------------
Outstanding, December 31, 1996.... 3,680,400 $ 0.21- 5.28 $ 0.95
Granted...................... 1,337,600 3.75- 7.50 6.94
Exercised.................... (47,040) 0.63- 2.50 1.50
Canceled..................... (54,240) 0.21- 3.02 1.47
------------ ------------- --------------
Outstanding, December 31, 1997.... 4,916,720 0.21- 7.50 2.57
Granted...................... 322,400 5.63-II.25 7.81
Exercised.................... (230,400) 0.21- 2.29 0.98
Canceled..................... (127,600) 2.29- 7.50 6.86
------------ ------------- --------------
Outstanding, December 31, 1998.... 4,881,120 0.21-II.25 2.88
Granted...................... 137,120 4.06-12.50 10.27
Exercised.................... (1,789,520) 0.63- 5.63 0.64
Canceled..................... (44,800) 2.29-II.25 7.61
------------ ------------- --------------
Outstanding, December 31,
1999....................... 3,183,920 $ 0.21-12.50 $ 4.39
============ ============= ==============
Exercisable, December 31,
1999....................... 2,106,318 $ 0.21-12.50 $ 2.79
============ ============= ==============
F-16
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Tanox follows SFAS No. 123 which permits one of two methods of accounting for
stock options. Tanox adopted Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee stock options. SFAS No. 123, however, requires Tanox
to disclose the income statement effect of the alternative fair value method
assuming Tanox was required to record compensation expense for stock options
equal to the assumed fair value on the grant date.
Under APB No. 25, Tanox recognizes as compensation expense the excess of the
estimated fair value of the common stock issuable upon exercise of such options
over the aggregate exercise price of such options on the date of grant. This
compensation expense is amortized ratably over the vesting period of each
option. The compensation expense of such options, net of reversals for
terminations, was $25,000, $273,000 and $311,000 during the years ended December
31, 1997, 1998 and 1999, respectively.
The fair value of each option grant is estimated using the Black-Scholes option
pricing model. The Black-Scholes model uses grant price, as stated in the option
agreements, market price as established by stock sales in 1997, 1998 and 1999
and deemed market prices established by the Compensation Committee of Tanox's
board of directors. The following assumptions were used for options granted in
1997: risk-free interest rate of six percent, expected option life of ten years,
no expected dividends, no expected turnover and a 20 percent volatility factor.
The following assumptions were used for options granted in 1998: risk-free
interest rate of five percent, expected option life of six years, no expected
dividends, expected turnover of 20 percent and a volatility factor of 20
percent. The assumptions used for options granted in 1999 were the same as those
used in 1998, with the exception of the risk-free interest rate which was six
percent and the volatility factor which was 42 percent.
Assuming the compensation cost for these plans had been determined pursuant to
the fair value method under SFAS No. 123, Tanox's pro forma net income (loss)
would have been as follows:
1997 1998 1999
---------- -------------- --------------
Net income (loss) --
As reported.................. $ 630,000 $ (10,169,000) $ (23,346,000)
Pro forma.................... 176,000 (11,260,000) (24,551,000)
Basic EPS --
As reported.................. 0.02 (0.35) (0.75)
Pro forma.................... 0.01 (0.39) (0.79)
Diluted EPS --
As reported.................. 0.02 (0.35) (0.75)
Pro forma.................... 0.01 (0.39) (0.79)
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1996, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
F-17
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The number and weighted average fair value of options granted in 1997, 1998 and
1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES FAIR VALUE SHARES FAIR VALUE SHARES FAIR VALUE
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Option price equals fair market
value.............................. 1,137,600 $3.69 234,400 $2.71 129,120 $5.24
Option price greater than fair market
value.............................. -- -- 8,000 1.18 -- --
Option price less than fair market
value.............................. 200,000 5.46 80,000 5.63 8,000 5.65
</TABLE>
The following table summarizes information about fixed-price stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
- ---------------------------------------------------------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ---------------------------------
OUTSTANDING REMAINING EXERCISABLE
AS OF CONTRACTUAL WEIGHTED AS OF WEIGHTED
RANGE OF DECEMBER 31, LIFE AVERAGE DECEMBER 31, AVERAGE
EXERCISE PRICES 1999 (IN YEARS) EXERCISE PRICE 1999 EXERCISE PRICE
- ------------------------------------- ------------ ------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
$ 0.21 - $ 2.50 1,386,000 2.3 $ 1.06 1,386,000 $ 1.06
2.50 - 5.00 354,400 5.7 3.46 226,400 3.28
5.00 - 7.50 1,080,000 7.1 7.35 443,839 7.30
7.50 - 10.00 264,800 8.8 8.13 42,079 8.13
10.00 - 12.50 98,720 8.9 12.20 8,000 12.50
------------ ------------
$ 0.21 - 12.50 3,183,920 5.0 $ 4.39 2,106,318 $ 2.79
============ ============
</TABLE>
In April 1999, Tanox loaned 12 employees approximately $1,086,000 to enable the
employees to exercise 1,738,320 options to purchase shares of Tanox's common
stock, pursuant to stock options held by such employees. All of the loans are
full-recourse, secured by shares of Tanox's common stock owned by the employees,
bear interest at a rate of 8.5 percent, and are due and payable in full in
September 2001. The loans have been reflected as a contra equity in the
accompanying financial statements.
Also during 1999, Tanox agreed to extend, for an additional three-year period,
the term of 524,400 stock options held by certain employees and consultants that
were scheduled to expire. In connection with this extension, Tanox expensed, for
accounting purposes, approximately $4,576,000 of compensation expense
representing the fair value of the options as of the remeasurement date. For
employees, compensation expense was recorded for the difference between the fair
value of the underlying stock on the date of the extension and the exercise
price of the option. For consultants, compensation expense was calculated using
the Black-Scholes valuation model on the date of the extension.
WARRANTS
In connection with the issuance of notes payable to an unrelated company for
equipment financing in 1989, Tanox issued warrants to purchase 93,053 shares of
Tanox's common stock at $0.86 per share. All of the
F-18
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
warrants were exercised on a net issuance basis in 1999 and converted into
86,632 shares of common stock. As of December 31, 1999, there were no
outstanding warrants.
9. COMMITMENTS AND CONTINGENCIES:
ARBITRATIONS
Following settlement of Tanox's lawsuit against Genentech and Roche referred to
in Note 1, Tanox filed a demand for arbitration against the attorneys who
represented Tanox in the litigation in order to resolve a dispute over the
amount of attorneys' fees due by Tanox. On September 29, 1999, the arbitration
panel issued an award entitling the attorneys to receive approximately $3.5
million, including interest, payments ranging from 33 1/3 percent to 40 percent
of the future payments that Tanox may receive from Genentech following product
approval and ten percent of the royalties that Tanox may receive on sales of
anti-IgE products. At December 31, 1999, Tanox has reflected an accrued expense
of $3.5 million for the arbitration award in its consolidated financial
statements.
Tanox sought a court order vacating this arbitration award. However, a judgment
was entered confirming the award. Tanox intends to pursue all available
remedies, including appealing the decision. If Tanox is ultimately required to
pay all or part of the award to the attorneys, Tanox could be required to pay up
to $3.5 million, plus accrued interest would become due, and the award would
effectively reduce certain future milestone payments from Genentech by up to 40
percent and reduce future royalties from the Three-Party Collaboration by ten
percent. Tanox's future revenues, results of operations, cash flows and
financial condition could be materially adversely affected. During the appeals
process we will either post a bond or place cash in escrow to secure payment of
the award.
Tanox is also engaged in a dispute with Novartis and Genentech over its right to
independently develop certain of its anti-IgE monoclonal antibodies, which are
not being developed in connection with the Three-Party Collaboration. Tanox is
attempting to resolve the dispute in separate arbitrations with each of Novartis
and Genentech and they are attempting to resolve the dispute in federal court.
If Tanox ultimately loses its right to independently develop these anti-IgE
monoclonal antibodies, Tanox may be required to discontinue development of
Hu-901.
LITIGATION
From time to time, Tanox is a defendant in lawsuits incidental to its business.
Management believes that the outcome of these lawsuits will not be material to
Tanox's financial statements.
MILESTONES AND ROYALTIES
Tanox has agreements with several institutions that call for payments upon the
achievement of milestones by Tanox and royalty payments based upon a percentage
of product sales. No milestone or royalty expense has been incurred related to
these agreements.
LOAN COMMITMENTS
Tanox has agreed that under certain conditions, it will lend certain of its
employees up to $1,500,000 in April 2000 for payment of their tax obligations
pursuant to the exercise of their stock options.
F-19
<PAGE>
TANOX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REGISTRATION RIGHTS
Some of Tanox's stockholders including founders, some early investors and
persons who hold 15 percent or more of our stock, have certain registration
rights.
401(K) PLAN
Effective January 1, 1992, Tanox adopted a qualified retirement plan (the 401(k)
Plan) covering all of Tanox's employees who are at least 21 years of age and
have completed at least one year of service with Tanox. Pursuant to the 401(k)
Plan, employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit and have the amount of such reduction
contributed to the 401(k) Plan. The 401(k) Plan permits, but does not require,
additional matching contributions by Tanox on behalf of all participants in the
401(k) Plan. Tanox's contributions totaled approximately $81,000, $54,000 and
$66,000 in 1997, 1998 and 1999, respectively, representing matching 50 percent
of employee contributions, including those made by executive officers. Tanox's
matching contribution only applies to the first five percent of each employee's
total compensation.
F-20
<PAGE>
(This page has been intentionally left blank)
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
TANOX, INC.
7,000,000 SHARES
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
, 2000
CIBC WORLD MARKETS
ROBERTSON STEPHENS
WARBURG DILLON READ LLC
ADAMS, HARKNESS & HILL, INC.
KBC SECURITIES
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than underwriting discounts
and commissions payable by the Registrant in connection with the sale of the
common stock being registered. All the amounts shown are estimates except for
the registration fee, NASD filing fee and the Nasdaq National Market listing
fee.
Registration fee..................... $ 63,756
NASD filing fee...................... 24,650
Nasdaq National Market listing fee... 95,000
Printing and engraving expenses...... 170,000*
Legal fees and expenses.............. 300,000*
Accounting fees and expenses......... 200,000*
Blue Sky fees and expenses........... 15,000*
Transfer agent and registrar fees.... 15,500*
Premium for directors and officers
insurance............................ 150,000*
Miscellaneous........................ 51,094*
------------
Total........................... 1,085,000*
============
- ---------------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our amended and restated certificate of incorporation requires us to indemnify
our directors and officers against liabilities they may incur in these
capacities, including liabilities under the Securities Act, as amended, to the
fullest extent permitted by Section 145 of the Delaware General Corporation Law.
Our bylaws require that we indemnify each of our directors and officers for the
expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with any type of threatened, pending or
completed action, suit or proceeding (other than actions by us or on our behalf)
if he or she:
o acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to our best interests; and
o in the case of a criminal proceeding (including preliminary), had no
reason to believe his or her conduct was unlawful.
Under our bylaws we also must indemnify a director and officer for expenses of
an action brought by us or on our behalf if he or she acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to our best
interests. We may not indemnify a director or officer for expenses of an action
brought by us or on our behalf if the director or officer is adjudged liable to
the corporation, unless a court determines that, despite such adjudication but
in view of all of the circumstances, he or she is entitled to indemnification of
such expenses.
We have a duty to indemnify only if the director or officer has met the
applicable standard of conduct described above. This is determined by:
o a majority vote of the disinterested directors; or
o a majority vote of a committee of disinterested directors designated by a
majority vote of the disinterested directors; or
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o if there are no disinterested directors, or if the disinterested
directors so direct, independent legal counsel in a written opinion; or
o the stockholders.
We must indemnify a director or officer for all expenses of litigation or other
legal proceedings actually and reasonably incurred when he or she is successful
on the merits or otherwise in defense of the litigation or proceeding or in
defense of any claim, issue or matter therein.
We must advance to a director or officer the actually and reasonably incurred
expenses incurred in defending an action before the action is finally disposed
if the director undertakes to repay these expenses if the director is ultimately
determined not entitled to be indemnified in connection with the action to which
the expenses relate. We may advance to an officer the expenses incurred in
defending an action before the action is finally disposed if the board of
directors authorizes the advance, and the officer undertakes to repay these
expenses if the officer is ultimately determined not entitled to be indemnified
in connection with the action to which the expenses relate. The board of
directors may not consider the officer's financial ability to repay these
advances in determining whether to authorize the advancement.
We may purchase and maintain insurance on behalf of any director and officer to
the extent permitted by Section 145. We intend to purchase liability insurance
policies covering our directors and officers in certain circumstances.
In addition to the indemnification rights described above, our amended and
restated certificate of incorporation eliminates, in certain circumstances, our
directors' liability for monetary damages for breach of fiduciary duty as a
director. These provisions do not eliminate a director's liability:
o for any breach of the director's duty of loyalty to us or our
stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under Section 174 of the Delaware General Corporation Law, which relates
to the declaration of dividends and purchase or redemption of shares in
violation of this law; or
o for any transaction from which the director derived an improper personal
benefit.
Prior to the completion of this offering, we have entered into indemnification
agreements with each of our directors and officers to give them additional
contractual assurances regarding the scope of the indemnification provided in
our amended and restated certificate of incorporation and bylaws and to provide
additional procedural protections.
The underwriting agreement (exhibit 1.1 to this Registration Statement) provides
that the underwriters must, under some circumstances, indemnify our directors,
officers and controlling persons against specified liabilities, including
liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since January 1, 1997, the Registrant has sold and issued the following
unregistered securities:
(a) Between February 21, 1997 and September 4, 1997, the Registrant issued and
sold an aggregate of 2,331,260 shares of its common stock to 23 non-U.S.
persons in reliance on Regulation S promulgated under the Securities Act
for an aggregate consideration of $17,484,468.
(b) Between February 16, 1998 and April 6, 1998, the Registrant issued and
sold an aggregate of 273,684 shares of its common stock to 8 non-U.S.
persons in reliance on Regulation S promulgated under the Securities Act
for an aggregate consideration of $3,078,972.
(c) Between August 31, 1999 and December 30, 1999, the Registrant issued and
sold an aggregate of 880,000 shares of its common stock to 14 non-U.S.
persons in reliance on Regulation S promulgated under the Securities Act
for an aggregate consideration of $11,000,000. The placement agent was KBC
Securities, NV. The Registrant paid to KBC Securities, N.V. a placement
agent fee of $715,000.
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(d) Between October 25, 1999 and December 10, 1999, the Registrant issued and
sold an aggregate of 1,016,000 shares of its common stock to 12 non-U.S.
persons in reliance on Regulation S promulgated under the Securities Act
for an aggregate consideration of $12,700,000.
(e) Between March 12, 1998 and September 12, 1999, the Registrant issued
468,726 shares of its common stock, at a price per share (as of March 12,
1998) of $18, with an aggregate value of $4,395,150, to 3 United States
residents and 5 non-U.S. persons in connection with the Registrant's
acquisition of Tanox Pharma, formerly PanGenetics B.V. The sale and
issuance were exempt from registration under Section 4(2) of the
Securities Act.
(f) From time to time since January 1, 1997, the Registrant has granted stock
options to purchase shares of its common stock to various employees,
directors and consultants pursuant to its 1997 Stock Plan and its 1992
Non-Employee Directors Stock Option Plan. With respect to all grants of
options, exemption from registration was unnecessary in that the
transactions did not involve a "sale" of securities as that term is used
in Section 2(a)(3) of the Securities Act.
(g) As of March 8, 2000, the Registrant had issued and sold, in the aggregate,
2,292,747 shares of its common stock for per share exercise prices ranging
from $0.28 to $8.13 to employees and one consultant pursuant to their
exercise of stock options granted under the Registrant's 1987 Stock Option
Plan and 1997 Stock Plan. The Registrant relied on the exemption provided
by Rule 701 under the Securities Act.
(h) Between June 24, 1997 and February 9, 2000, the Registrant issued and sold
242,000 shares of its common stock for per share exercise prices ranging
from $0.21 to $2.29, to consultants of the Registrant, pursuant to their
exercise of stock options. The Registrant relied on the exemption provided
by Rule 701 under the Securities Act.
(i) On October 25, 1999, the Registrant issued and sold to Phoenix Leasing
Incorporated 86,632 shares of its common stock, on a net issuance basis,
at a price per share of $0.86, for an aggregate consideration of 6,421
shares of common stock, pursuant to the exercise by Phoenix Leasing
Incorporated of warrants.
All sales of common stock made pursuant to the exercise of stock options were
made in reliance on Section 701 under the Securities Act or Section 4(2) of the
Securities Act. All other sales were made in reliance on Section 4(2) of the
Securities Act and Regulation S promulgated under the Securities Act. These
sales were made without general solicitation or advertising, to investors who
were sophisticated and had access to all relevant information necessary to
evaluate the investment, and who represented to the Registrant that they were
acquiring the securities for investment and appropriate legends were affixed to
the share certificates issued in such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
1.1+ -- Form of Underwriting Agreement.
3.1 -- Amended and Restated Certificate of
Incorporation of the Registrant, as
amended, as currently in effect.
3.2 -- Bylaws of the Registrant, as
currently in effect.
4.1 -- Specimen of Common Stock Certificate,
$.01 par value, of the Registrant.
4.2 -- Warrant to Purchase 6,462 Shares of
Common Stock, dated November 1989, by
and between the Registrant and
Phoenix Venture Incorporated.
5.1+ -- Opinion of Chamberlain, Hrdlicka,
White, Williams & Martin.
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10.1 -- Form of Indemnification Agreement
between the Registrant and its
officers and directors.
10.2 -- 1987 Stock Option Plan of the
Registrant, as amended.
10.3 -- 1992 Non-employee Directors Stock
Option Plan of the Registrant.
10.4 -- 1997 Stock Plan of the Registrant.
10.5 -- Lease of premises at 10301 Stella
Link, Suite 110, Houston, Texas,
dated December 3, 1986, as amended.
10.6 -- Stock Purchase Agreement, dated July
14, 1987, by and among the Registrant
and Tse Wen Chang, Nancy T. Chang,
Alafi Capital Company, Shireen Alafi,
Joseph Heskel, Trustee for
Christopher Alafi, and Invitron
Corporation.
10.7++* -- License for Winter Patent, dated June
26, 1989, by and between Medical
Research Council and the Registrant.
10.8++* -- Amendment to the License for Winter
Patent, dated February 9, 1990, by
and between Medical Research Council
and the Registrant.
10.9++* -- Development and Licensing Agreement,
dated May 11, 1990, by and between
the Registrant and Ciba-Geigy
Limited.
10.10 -- Term Sheet for Secured Loan, dated
December 14, 1994, by and between the
Registrant and Ciba-Geigy Limited.
10.11++* -- Chiron-PanGenetics Research and
Development License and Options for
Commercial License, dated September
25, 1995, by and between PanGenetics,
B.V., Panorama Research, Inc. and
Chiron Corporation.
10.12 -- Stock Purchase Agreement, dated as of
March 12, 1998, by and between the
Registrant and the holders of shares
of PanGenetics, B.V.
10.13++* -- License Agreement, dated June 1,
1998, by and between Biogen, Inc. and
the Registrant.
10.14++* -- Outline of Terms for Settlement of
the Litigations Among Genentech,
Inc., Genentech International, Ltd.,
the Registrant and Ciba-Geigy Limited
Relating to Anti-IgE Inhibiting
Monoclonal Antibodies, dated July 8,
1996.
10.15++* -- Supplemental Agreement between the
Registrant and Ciba-Geigy Limited,
dated July 8, 1996.
10.16++* -- Settlement and Cross-Licensing
Agreement, dated July 8, 1996, by and
between the Registrant and Genentech,
Inc. and Genentech International
Limited.
10.17++* -- Settlement and Participation
Agreement, dated July 8, 1996, by and
between the Registrant and F.
Hoffman-La Roche, Ltd., Hoffman-La
Roche, Inc., Roche Holding Ltd. and
Roche Holdings, Inc.
10.18++* -- Patent License Agreement, dated June
30, 1998, by and between Protein
Design Labs, Inc. and the Registrant.
10.19++* -- Amendment to Patent License
Agreement, dated June 28, 1999, by
and between Protein Design Labs, Inc.
and the Registrant.
10.20 -- Research and License Agreement, dated
April 21, 1999, by and between the
Registrant and Biovation Limited.
10.21 -- Material Transfer and Commercial
Evaluation Agreement, dated March 9,
1999, by and between Tanox, Inc. and
Biovation Limited.
10.22++* -- G-CSF Receptor Non-exclusive License
Agreement, dated January 11, 2000, by
and between Immunex Corporation and
the Registrant.
10.23 -- 2000 Non-Employee Directors' Stock
Option Plan.
21.1 -- List of Subsidiaries of the
Registrant.
23.1 -- Consent of Arthur Andersen LLP dated
March 6, 2000.
23.2+ -- Consent of Chamberlain, Hrdlicka,
White, Williams & Martin (included in
Exhibit 5.1).
23.3 -- Consent of KPMG LLP, dated March 5,
2000.
24.1* -- Power of Attorney.
27* -- Financial Data Schedule.
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+ To be filed by amendment.
++ Certain confidential material contained in the document has been omitted and
filed separately with the Securities and Exchange Commission pursuant to
Rule 406 of the Securities Act.
* Previously filed
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(b) Financial Statement Schedules
All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) That for the purposes of determining any liability under the Securities
Act, each posteffective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered
in such names as required by the underwriters to permit prompt delivery
to each purchaser.
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<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON,
STATE OF TEXAS ON MARCH 9, 2000.
TANOX, INC.
By: /s/ NANCY T. CHANG
NANCY T. CHANG, PH.D.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 2 TO THE
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON MARCH 9, 2000.
By: /s/ NANCY T. CHANG
NANCY T. CHANG, PH.D.
ATTORNEY-IN-FACT
Chairman of the Board,
NANCY T. CHANG, PH.D. President, and Chief
Executive Officer
Vice President of Finance
DAVID DUNCAN, JR. and Chief Financial Officer
Director
TSE WEN CHANG, PH.D.
Director
OSAMA MIKHAIL, PH.D.
Director
WILLIAM J. JENKINS, M.D.
II-6
EXHIBIT 3.1
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TANOX, INC.
TANOX, INC., a corporation organized and existing under the laws of the
State of Delaware, hereby certifies as follows:
1. The name of the corporation is Tanox, Inc. The date of filing of its
original Certificate of Incorporation with the Secretary of State was the 23rd
day of December 1999. The date of filing of its Amended and Restated Certificate
of Incorporation with the Secretary of State was the 28th day of December 1999.
The date of filing of its Second Amended and Restated Certificate of
Incorporation was the 1st day of February, 2000.
2. This Third Amended and Restated Certificate of Incorporation restates,
integrates and also further amends the certificate of incorporation, as provided
herein.
3. This Third Amended and Restated Certificate of Incorporation was duly
adopted by the affirmative vote of a majority of its stockholders in accordance
with Sections 242 and 245 of the Delaware General Corporation Law.
ARTICLE ONE
The name of the corporation is Tanox, Inc.
ARTICLE TWO
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, New Castle County,
Wilmington, Delaware 19801. The name of its registered agent at such address is
The Corporation Trust Company.
ARTICLE THREE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware (the "DGCL").
ARTICLE FOUR
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 130,000,000 shares which shall be divided into
(a) 10,000,000
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shares, designated as Preferred Stock, having a par value of $.01 per share (the
"Preferred Stock"), and (b) 120,000,000 shares, designated as Common Stock,
having a par value of $.01 per share (the "Common Stock").
A statement of the powers, preferences and rights, and the qualifications,
limitations or restrictions thereof, in respect of each class of stock of the
Corporation is as follows:
A. PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of this Certificate of Incorporation and the limitations prescribed by law, the
Board of Directors is expressly authorized by adopting resolutions to issue the
shares, fix the number of shares and change the number of shares constituting
any series, and to provide for or change the voting powers, designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, including dividend rights
(and whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), a redemption price or prices, conversion
rights and liquidation preferences of the shares constituting any class or
series of the Preferred Stock, without any further action or vote by the
stockholders.
B. COMMON STOCK
1. DIVIDENDS.
Subject to the preferred rights of the holders of shares of any class or
series of Preferred Stock as provided by the Board of Directors with respect to
any such class or series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive, as and when declared by the Board of Directors out
of the funds of the Corporation legally available therefor, such dividends of
the funds of the Corporation legally available therefor, such dividends (payable
in cash, stock or otherwise) as the Board of Directors may from time to time
determine, payable to stockholders of record on such dates, not exceeding 60
days preceding the dividend payment dates, as shall be fixed for such purpose by
the Board of Directors in advance of payment of each particular dividend.
2. LIQUIDATION.
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the distribution or payment
to the holders of shares of any class or series of Preferred Stock as provided
by the Board of Directors with respect to any such class or series of Preferred
Stock, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among and paid to the holders of Common Stock
ratably in proportion to the number of shares of Common Stock held by them
respectively.
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3. VOTING RIGHTS.
Except as otherwise required by law, each holder of shares of Common Stock
shall be entitled to one vote for each share of Common Stock standing in such
holder's name on the books of the Corporation.
ARTICLE FIVE
A. BOARD OF DIRECTORS.
The number of directors shall be fixed from time to time exclusively by
the Board of Directors pursuant to a resolution adopted by a majority of the
directors then in office.
Except as otherwise provided in the initial Bylaws of the Corporation, at
each annual meeting of stockholders, the successors to the directors whose term
expires at that meeting shall be elected to hold office for a term expiring at
the annual meeting of stockholders held in the year following the year of their
election and until their successors have been duly elected and qualified. At
each annual meeting of stockholders at which a quorum is present, the persons
receiving a plurality of the votes cast shall be directors. No director may be
removed from office by a vote of the stockholders at any time except for cause.
Election of directors need not be by written ballot unless the Bylaws of the
Corporation so provide.
B. VACANCIES.
Any vacancy on the Board of Directors resulting from death, retirement,
resignation, disqualification or removal from office or other cause, as well as
any vacancy resulting from an increase in the number of directors which occurs
between annual meetings of the stockholders at which directors are elected,
shall be filled only by a majority vote of the remaining directors then in
office, though less than a quorum, except that those vacancies resulting from
removal from office by a vote of the stockholders may be filled by a vote of the
stockholders at the same meeting at which such removal occurs. The directors
chosen to fill vacancies shall hold office for a term expiring at the end of the
next annual meeting of stockholders at which the term to which they have been
elected expires. No decrease in the number of directors constituting the Board
of Directors shall shorten the term of any incumbent director.
Notwithstanding the foregoing, whenever the holders of one or more classes
or series of Preferred Stock shall have the right, voting separately, as a class
or series, to elect directors, the election, term of office, filling of
vacancies, removal and other features of such directorships shall be governed by
the terms of the resolution or resolutions adopted by the Board of Directors
pursuant to ARTICLE FOUR applicable thereto, and each director so elected shall
not be subject to the provisions of this ARTICLE FIVE unless otherwise provided
therein.
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C. POWER TO MAKE, ALTER AND REPEAL BYLAWS.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, amend and repeal the
Bylaws of the Corporation subject to the power of the stockholders of the
Corporation to adopt, amend and repeal any Bylaw whether adopted by them or
otherwise.
ARTICLE SIX
The Corporation reserves the right to amend, alter, change or repeal any
provision in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute.
ARTICLE SEVEN
No director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages for 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, (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 DGCL or (iv) for any transaction from which the director
derived an improper personal benefit.
ARTICLE EIGHT
The Corporation shall, to the fullest extent permitted by Section 145 of
the DGCL, as the same may be amended and supplemented, indemnify each director
and officer of the Corporation from and against any and all of the expenses,
liabilities or other matters referred to in or covered by such section and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any Bylaw, agreement,
vote of stockholders, vote of disinterested directors or otherwise, and shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such persons
and the Corporation may purchase and maintain insurance on behalf of any
director or officer to the extent permitted by Section 145 of the DGCL.
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<PAGE>
ARTICLE NINE
Special Meetings of the Corporation's stockholders may be called by the
President, the Board of Directors, or such other person or persons as may be
authorized in the Bylaws.
ARTICLE TEN
Any action required or permitted to be taken by the stockholders of the
Corporation at an annual or special meeting of stockholders must be effected at
a duly called meeting and may not be taken or effected by a written consent of
stockholders in lieu thereof.
IN WITNESS WHEREOF, Tanox, Inc. has caused this Third Amended and Restated
Certificate of Incorporation to be signed by John Blickenstaff, its Vice
President of Administration, Secretary and Treasurer this ___ day of
_______________, 2000 to be effective as of the ___ day of ______________, 2000.
TANOX, INC.
_______________________________________
John Blickenstaff, Vice President of
Administration, Secretary and Treasurer
5
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
TANOX, INC.
ARTICLE I.
OFFICES
SECTION 1.1. REGISTERED OFFICE. The registered office of the corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware
until otherwise established by a vote of a majority of the board of directors in
office, and a statement of such change is filed in the manner provided by
statute.
SECTION 1.2. OTHER OFFICES. The corporation may also have offices at such
other places within or without the State of Delaware as the board of directors
may from time to time determine or the business of the corporation requires.
ARTICLE II.
STOCKHOLDERS
SECTION 2.1. ANNUAL MEETING. The annual meeting of Stockholders for the
election of Directors and such other business as may in accordance with these
Bylaws be properly brought before the meeting shall be held on such date and at
such time and as shall be designated by the Board of Directors and stated in the
notice of the meeting.
To be properly brought before the annual meeting of Stockholders for
consideration, business must be (a) specified in the notice of meeting given by
or at the direction of the Board of Directors (or any supplement thereto); (b)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors; or (c) properly brought before the meeting by a Stockholder.
If a Stockholder desires to bring business before the meeting for consideration,
he must submit timely written notice of the proposed business to the Secretary
of the Corporation, including with such notice the information specified below.
To be timely, a Stockholder's notice of proposed business must be delivered to
or mailed and received at the principal office of the Corporation, not less than
thirty (30) nor more than sixty (60) days prior to the meeting. If, however,
less than forty (40) days'
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notice of the date of the annual meeting of Stockholders is given, a
Stockholder's notice of proposed business must be received not later than the
close of business on the tenth (10th) day following the day on which the notice
of the date of the annual meeting of Stockholders was given. A Stockholder's
notice of proposed business shall set forth as to each matter the Stockholder
proposes to bring before the annual meeting of Stockholders the following
information:
(a) a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the annual
meeting;
(b) the name and address of the Stockholder, as they appear in the
Corporation's records, proposing such business;
(c) the class, series (if applicable) and number of shares of the
Corporation which are beneficially owned by the Stockholder;
(d) any material interest of the Stockholder in the business proposed;
and
(e) any other information that is required to be provided by the
stockholder under Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "1934 Act").
After receipt of Stockholder's notice and prior to commencement of the
annual meeting of Stockholders, the Board of Directors, to the extent allowed by
law, may consider the subject matter of the proposed business and reasons for
conducting such business at the annual meeting to determine if such business
should be considered.
Business timely submitted by a Stockholder in accordance with the
foregoing procedures will be considered at the annual meeting of Stockholders,
unless the Board of Directors determines that the proposed business should not
be conducted at the annual meeting. If the business will not be considered at
the annual meeting, the Board of Directors shall notify the presiding officer of
the annual meeting of such determination and the presiding officer shall declare
to the meeting that such proposed business is not properly before the meeting
and will not be considered.
With respect to any business to be considered, the presiding officer of
the annual meeting may determine that such business has not been brought
properly before the meeting in accordance with the provisions of this Section
and, if such determination is made, such business will not be considered.
SECTION 2.2. SPECIAL MEETINGS. Special meetings of the Stockholders may be
called by the Directors upon the affirmative vote of a majority of the Board of
Directors, the Chairman of the Board, the Chief Executive Officer, if any, or
the President. No other person or persons may call a special meeting. The
business transacted at a special meeting shall be confined to the purposes
specified in the notice thereof.
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SECTION 2.3. PLACE OF MEETING. Meetings of Stockholders may be held at any
place designated in the notice or waiver of notice of the meeting, either within
or without the State of Delaware. If no designation is so made, meetings of
Stockholders shall be held at the principal office of the Corporation.
SECTION 2.4. NOTICE OF MEETING. Written or printed notice stating the
place, day and hour of the meeting, and in case of a special meeting the purpose
or purposes for which the meeting is called, shall be delivered not less than
ten (10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the President or the Secretary,
or the officer or persons calling the meeting, to each Stockholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, addressed to the Stockholder
at his address as it appears on the stock transfer books of the Corporation,
with postage thereon prepaid.
Any notice required to be given a Stockholder by statute, the Certificate
of Incorporation or these Bylaws need not be given if notice of two consecutive
annual meetings and all intervening special meetings, if any, or all, but not
less than two (2), payments of distributions or interest payable within a twelve
(12) month period, have been mailed to the Stockholder at his address as shown
in the records of the Corporation and returned undeliverable. All actions taken
and meetings held without a Stockholder being given notice pursuant to this
Section shall have the same force and effect as if notice had been duly given.
Upon the Corporation's receipt of the Stockholder's written notice of his
then current address, the notice requirements applicable to the Corporation
shall be reinstated.
SECTION 2.5. FIXING OF RECORD DATE. The Board of Directors may fix in
advance a date as the record date for the purpose of determining Stockholders
entitled to notice of or to vote at any meeting of Stockholders or any
adjournment thereof, or Stockholders entitled to receive payment of a
distribution by the Corporation (other than a distribution involving the
purchase or redemption of its own shares) or a share dividend, or in order to
make a determination of Stockholders for any other purpose, the date to be not
more than sixty (60) days, and in case of a meeting of Stockholders not less
than ten (10) days prior to the date on which the particular action requiring
determination of Stockholders is to be taken. If no record date is fixed for
determination of Stockholders entitled to notice of or to vote at a meeting of
Stockholders, or Stockholders entitled to receive payment of a distribution or
share dividend, the date on which the resolution of the Board of Directors
authorizing such distribution or share dividend is adopted shall be the record
date for determination of Stockholders. When a determination of Stockholders
entitled to vote at any meeting of Stockholders has been made as provided in
this Section, such determination shall apply to any adjournment thereof
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 2.6. VOTING LISTS. The officer or agent having charge of the stock
transfer books of the Corporation shall make a complete alphabetical list of
Stockholders entitled to vote at such
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meeting, or any adjournment thereof, their addresses and the number of shares
held by each. The last shall be kept on file at the registered office of the
Corporation for a period of at least ten (10) days prior to such meeting and
shall be subject to inspection by any Stockholder at anytime during ordinary
business hours. The Stockholder lists shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
Stockholder during the entire meeting. The original stock transfer books shall
be prima facie evidence as to Stockholders entitled to examine such lists or
transfer books, or to vote at any meeting of Stockholders. Notwithstanding the
foregoing, failure to comply with the requirements of this Section shall not
affect the validity of any action taken at such meeting.
SECTION 2.7. QUORUM. The holders of a majority of the outstanding shares
of the Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of Stockholders unless otherwise provided in
the Certificate of Incorporation of the Corporation. If the holders of less than
a majority of the outstanding shares are represented at a meeting, the holders
of a majority of the shares so represented may adjourn the meeting from time to
time without further notice. At such adjourned meeting at which a quorum shall
be present or represented, only such business may be transacted which might have
been transacted at the meeting as originally noticed. The Stockholders present
at a duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough Stockholders to leave less than a
quorum.
SECTION 2.8. PROXIES. At all meetings of Stockholders, a Stockholder may
vote by proxy executed in writing by the Stockholder or by his duly authorized
attorney-in-fact. Any copy, facsimile telecommunication or other reproduction
could be used, provided that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original writing or
transmission. No proxy will be valid after eleven (11) months from the date of
its execution, unless otherwise provided in the proxy. If such proxy shall
designate two (2) or more persons to act as proxies, unless, such instrument
shall provide the contrary, a majority of such persons present at any meeting at
which their powers thereunder are to be exercised shall have and may exercise
all the powers of voting or giving consents thereby conferred, or if only one be
present, then such powers may be exercised by that one; or, if an even number
attend and a majority do not agree on any particular issue, each proxy so
attending shall be entitled, if so empowered by such proxy, to exercise such
powers in respect to the proportion of the shares as he is of the proxies
representing such shares. A proxy shall be revocable unless it shall
conspicuously state that it is irrevocable and the proxy is coupled with an
interest sufficient in law to support an irrevocable power.
SECTION 2.9. VOTING OF SHARES. Each outstanding share entitled to vote
shall be entitled to the number or percentage of votes accorded such share as
set forth in the Certificate of Incorporation of the Corporation.
SECTION 2.10. MAJORITY VOTE. When a quorum is present at any meeting of
Stockholders, the vote of the holders of a majority of the then issued and
outstanding shares entitled to vote at such
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meeting, present in person or represented by proxy, shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of statute, the Certificate of Incorporation or these Bylaws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
SECTION 2.II. ORDER OF BUSINESS AND RULES OF PROCEDURE. The Chairman of
the Board, or in his absence, the Vice Chairman, if any, or in the absence of
the Chairman and Vice Chairman of the Board, the President shall preside at a
meeting of Stockholders. In the absence of the Chairman of the Board, the Vice
Chairman of the Board and the President a chairman of the meeting shall be
chosen by the Stockholders from the remaining Directors present at such meeting
and such Director shall preside. The Secretary of the Corporation shall act as
secretary of the meeting, or in the absence of the Secretary the Assistant
Secretary, if any. In the absence of the Secretary and any Assistant Secretary,
the presiding officer may appoint any person to act as secretary of the meeting.
Minutes of the proceedings shall be kept and placed in the minute book of the
Corporation. At all annual and special meetings of Stockholders the following
order of business may be used to the extent the chairman of the meeting
determines the order to be helpful:
(a) Call to order;
(b) Presentation of Proof of due calling and notice of the meeting;
(c) Presentation and examination of proxies;
(d) Ascertainment and announcement of presence of quorum;
(e) Approval of or waiver of approval of prior minutes;
(f) Report of officers;
(g) Nomination of Directors;
(h) Receipt of motions of resolutions;
(i) Discussion of election of Directors, motions and resolutions;
(j) Vote on Directors, motions and resolutions;
(k) Any other unfinished business;
(l) Any other new business properly brought before the meeting;
(m) Receipt of the report of inspectors regarding the results of
elections and votes on motions and resolutions; and
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(n) Adjournment.
SECTION 2.12. INSPECTORS OF ELECTION. In advance of any meeting of
Stockholders, the Board of Directors shall appoint one (1) or more inspectors of
election and may designate one (1) or more alternate inspectors to replace any
inspector who fails to act. If any appointed person or alternate fails to serve,
the person presiding at the meeting shall appoint one (1) or more inspectors to
serve at the meeting. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability. The
inspector of election shall: (a) ascertain the number of shares outstanding and
the voting power of each; (b) determine the shares represented at a meeting and
the validity of proxies and ballots; (c) count all votes and ballots; (d)
determine and retain for a reasonable period a record of the disposition of any
challenges made to any determination by the inspectors and (e) certify their
determination of the number of shares represented at the meeting, and their
count of all votes and ballots. The inspectors may appoint or retain other
persons or entities to assist the inspectors in the performance of their duties.
The date and time of the opening and closing of the polls for each matter
upon which the Stockholders will vote at a meeting shall be announced at the
meeting. No ballot, proxies or votes, nor any revocations thereof or changes
thereto, shall be accepted by the inspectors after the closing of the polls
unless the Court of Chancery upon application of a Stockholder shall determine
otherwise.
In determining the validity and counting of proxies and ballots, the
inspectors may examine and consider such records or factors as allowed by the
General Corporation Laws of the State of Delaware.
ARTICLE III.
DIRECTORS
SECTION 3.1. GENERAL POWERS. The property, business and affairs of the
Corporation shall be managed and controlled by or under the direction of its
Board of Directors.
SECTION 3.2. NUMBER, ELECTION AND TERM. The initial number of Directors of
the Corporation shall be the number of the members of the initial Board of
Directors set forth in the Certificate of Incorporation. The number of Directors
constituting the Board of Directors may be increased or decreased from time to
time by resolution of the Board of Directors adopted by the affirmative vote of
a majority of the entire Board of Directors then serving, but no decrease in
such number shall have the effect of shortening the term of any incumbent
director. The number of Directors of the Corporation shall never be less than
one (1) nor more than nine (9). Directors need not be residents of the State of
Delaware or Stockholders of the Corporation but they must have been
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nominated in accordance with the provisions of these Bylaws in order to be
eligible for election as directors.
The Board of Directors shall be divided into three (3) classes designated
Class I, Class II and Class III, each such class being as nearly equal in number
as possible. At the first annual meeting of Stockholders, or at a special
meeting of Stockholders called for such purpose, the Stockholders shall elect
Directors comprising Class I to a term of office to expire at the first annual
meeting of Stockholders occuring at least 12 months after their election,
Directors comprising Class II to a term of office to expire at the second annual
meeting of Stockholders occuring at least 12 months after their election, and
Directors comprising Class III to a term to expire at the third annual meeting
of Stockholders occuring at least 12 months after their election.
At each annual meeting of Stockholders, Directors equal in number to the
Class whose term then expires shall be elected to succeed the Class of Directors
whose term expires and each Director elected to succeed a Director of the Class
of Directors whose term expires shall be elected to hold office for a term of
three (3) years and until his successor shall be duly elected and qualified, or
until his death, resignation or removal in accordance with these bylaws and the
Certificate of Incorporation. The number of Directors to be elected shall be set
forth in the notice of each meeting of Stockholders held for the purpose of
electing Directors.
In the event of any increase or decrease in the authorized number of
Directors, (a) each Director then serving shall nevertheless continue as a
Director of the class of which he is a member until the expiration of his
current term or until his prior death, retirement, reservation or removal from
office in accordance with these Bylaws, and (b) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of Directors so as to maintain
such classes as nearly equal in number as possible.
SECTION 3.3. NOMINATION OF DIRECTORS. Nominations of persons for election
to the Board of Directors of the Corporation at the annual meeting of
Stockholders or any special meeting of Stockholders called for the specific
purpose of electing Directors may be made at such meeting of Stockholders by or
at the direction of the Board of Directors, by any nominating committee or
person appointed by the Board to make such nominations, or by any Stockholder of
the Corporation entitled to vote for the election of Directors at such meeting
and who complies with the nominated procedures set forth in this Section.
Except for nominations made by or at the direction of the Board of
Directors or by any nominating committee or person appointed by the Board of
Directors to make such nominations, nominations shall be made only pursuant to
written notice of Stockholder's intent to nominate, given to the Secretary of
the Corporation by delivering such notice to the principal office of the
Corporation not less than forty (40) days prior to the annual meeting of
Stockholders or special meeting at which Stockholder desires the nomination be
made. However, in the event less than fifty (50) days' notice of the date of
such meeting is given to Stockholders, Stockholder's notice must be received by
the Secretary not later than the close of business on the tenth (10th) day
following the day on which notice of such meeting is given.
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Stockholder's notice shall set forth as to each person whom the
Stockholder proposes to nominate for election or reelection as Director (the
"Nominee"), (a) the Nominee's name, age, business and residence address; (b) the
principal occupation or employment of such Nominee; (c) the class, series, if
applicable, and number of shares of capital stock of the Corporation
beneficially owned by the Nominee, if any, and (d) any other information
relating to the Nominee that is required to be disclosed in solicitations of
proxies for election of Directors pursuant to Regulation 14A promulgated under
the 1934 Act (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); and shall
further include the name and address of record of the Stockholder giving the
notice and the class, series, if applicable, and number of shares of capital
stock of the Corporation beneficially owned by such Stockholder. The Corporation
may require any proposed Nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of such
proposed Nominee to serve as a Director of the Corporation.
No person shall be eligible for Nomination as Director of the Corporation
at any meeting of Stockholders unless nominated in accordance with the
procedures set forth herein. If the chairman of the meeting determines that a
nomination was not made in accordance with the foregoing procedure, he shall
indicate to the meeting that the defective nomination has been disregarded.
SECTION 3.4. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held, if a quorum be present, without notice immediately after, and at
the same place as, the annual meeting of Stockholders. By resolution, the Board
of Directors may hold additional regular meetings, either within or without the
State of Delaware, with or without notice as prescribed in these Bylaws and at
such time and at such place as shall from time to time be determined by the
Board of Directors.
SECTION 3.5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman or Vice Chairman of the
Board, if any, or the President or by either of such officers at the request of
a majority of the entire Board then serving. The person or persons authorized to
call special meetings of the Board of Directors may fix any place, either within
or without the State of Delaware, as the place for holding any special meeting
of the Board of Directors called by them.
SECTION 3.6. NOTICE. Notice of any special meeting, effective upon
delivery in accordance herewith, shall be given at least three (3) days prior
thereto, provided that any directors can waive requirement of such notice. Such
notice can be given orally or in writing, delivered personally or by written
notice mailed to each Director at his business address, or by telegram or
facsimile transmission. If mailed, the notice shall be deemed to be delivered
three (3) days following deposit in the United States Mail so addressed, postage
prepaid. If notice is given by telegram, it shall be deemed to be delivered when
delivered to the telegraph company. If notice is given by facsimile
transmission, it shall be deemed to be delivered upon confirmation of successful
facsimile transmission of the entire document sent. The attendance of a Director
at a meeting shall constitute
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a waiver of notice of such meeting, except where a Director attends a meeting
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice of such meeting.
SECTION 3.7. QUORUM. A majority of the number of Directors constituting
the entire Board of Directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
majority is present at any meeting, a majority of Directors present may adjourn
the meeting from time to time without further notice other than announcement at
the meeting until a quorum shall be present.
SECTION 3.8. MANNER OF ACTING. The act of the majority of the Directors
present at a meeting which a quorum is present shall be the act of the Board of
Directors.
SECTION 3.9. VACANCY. A vacancy occurring in the Board of Directors as a
result of the increase in the number of Directors constituting the Board of
Directors may be filled by the affirmative vote of a majority of Directors then
serving. However, no more than two such vacancies shall be filled by the Board
of Directors during any period between any two successive annual meetings of
Stockholders. A Director elected to fill a vacancy due to the increase in the
number of Directors shall hold office until the next election by the
Stockholders of one or more Directors. Any vacancy occurring in the Board of
Directors which is not the result of an increase in the number of Directors,
whether caused by death, resignation, retirement, disqualification, removal or
otherwise, may be filled by the affirmative vote of a majority of the remaining
Directors, though less than a quorum of the Board of Directors. A Director
elected to fill a vacancy resulting other than from increase in the number of
Directors shall be elected for the unexpired term of his predecessor in office.
SECTION 3.10. RESIGNATION AND REMOVAL. Any Director or the entire Board of
Directors may be removed at any time, with cause, at a meeting expressly called
for that purpose by the affirmative vote for removal by the holders of
two-thirds (2/3) of the issued and outstanding shares entitled to vote generally
in an election of Directors. Any Director of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors or
the President. Such resignation shall take effect at the time of receipt of the
notice or at such later time designated therein.
SECTION 3.II. COMPENSATION. By resolution of the Board of Directors, the
Directors may be paid a fixed sum and/or their expenses, if any, of attendance
at each meeting of the Board of Directors, or may be paid a stated salary for
acting as a Director. No such payment shall preclude any Director from serving
the Corporation in any other capacity and receiving compensation therefor.
SECTION 3.12. PRESUMPTION OF ASSENT. A Director who is present at a
meeting of the Board of Directors shall be presumed to have assented to any
action taken thereat unless his dissent shall be entered in the minutes of the
meeting or unless he shall file his written dissent to such action with
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the secretary of the meeting before adjournment thereof or shall forward his
dissent by registered mail to the Secretary of the Corporation immediately after
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
SECTION 3.13. ORDER OF BUSINESS AND RULES OF PROCEDURE. At meetings of the
Board of Directors, business shall be transacted in such order as from time to
time the Board of Directors may determine. At meetings of the Board of
Directors, the Chairman of the Board, if any, shall preside. In the absence of
the Chairman of the Board, the Vice Chairman of the Board, if any, shall preside
and in the absence of the Chairman and the Vice Chairman, the President shall
preside. In the absence of the Chairman, Vice Chairman and President, a chairman
shall be chosen from among the Directors present. The Secretary of the
Corporation shall act as secretary of the meetings of the Board of Directors,
and in the absence of the Secretary, the Assistant Secretary, if any, shall act
as Secretary. In the absence of the Secretary and the Assistant Secretary, the
presiding officer may appoint any person present to act as secretary of the
meeting. The Board of Directors shall keep minutes of its proceedings which
shall be placed in the minute book of the Corporation.
ARTICLE IV
COMMITTEES OF DIRECTORS
SECTION 4.1. DESIGNATION, POWERS AND NAME. The Board of Directors may, by
resolution passed by the affirmative vote of a majority of the whole Board of
Directors, designate one or more committees, including, if they shall so
determine, an Executive Committee; an Audit Committee and a Compensation
Committee, each such committee to consist of two 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 replace any absent or disqualified
member at any meeting of such committee. In the absence or disqualification of
any member of such committee or committees, the member or members thereof
present at any meeting and disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Such committee or committees shall have such name or names and such
limitations of authority as may be determined from time to time by resolution
adopted by the Board of Directors. The designation of any committee and the
delegation of authority thereof shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed upon it or him
by law.
SECTION 4.2. MINUTES. Each committee of Directors shall keep regular
minutes of its proceedings and report the same to the Board of Directors when
required.
SECTION 4.3. COMPENSATION. Members of special or standing committees may
be allowed compensation for attending committee meetings, if the Board of
Directors shall so determine.
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ARTICLE V.
ADVISORY DIRECTORS
SECTION 5.1. DESIGNATION AND POWERS. The Board of Directors may, from time
to time by resolution, name one or more persons to serve as advisory directors,
to serve for such term and on such basis as may be set forth in the resolution
appointing such advisory directors. Advisory directors may be identified by such
titles or designations (such as Scientific Advisory Directors) as the Board of
Directors may establish. Advisory directors upon invitation of the Board of
Directors from time to time, may meet and confer with the Board of Directors
with regard to their respective areas of expertise, knowledge and prominence,
separately or in groups as may be specified by the Board of Directors in its
invitation. The Board of Directors may further establish by resolution one or
more advisory groups, comprised of two or more members. An advisory director's
capacity shall be exclusively advisory to the Board of Directors and he shall
not have the rights of or be subject to the liabilities imposable upon a member
of the Board of Directors. Advisory directors may be indemnified to the full
extent permitted pursuant to statute or these Bylaws.
SECTION 5.2. MINUTES. If advisory directors meet separately as an advisory
group, such advisory group, upon the request of the Board of Directors, shall
keep regular minutes of its meetings and report the same to the Board of
Directors if so requested.
SECTION 5.3. COMPENSATION. Advisory directors may be compensated for their
attendance at meetings in such amounts as the Board of Directors may determine.
ARTICLE VI.
OFFICERS
SECTION 6.1. NUMBER. The executive officers of the Corporation shall be a
President and a Secretary and, if the Board of Directors so determines, a
Chairman of the Board, a Vice Chairman of the Board, a Chief Executive Officer,
a Chief Operating Officer, an Executive Vice President, a Chief Financial
Officer, one or more Vice Presidents, a Treasurer and such other officers and
assistant officers as may be elected or appointed by the Board of Directors. The
Board of Directors may implement from time to time such organizational
relationships and lines of authority among such officers as may be appropriate
and may consider, in connection therewith, any multiple offices held by the same
person, as permitted hereunder.
Any two (2) or more offices may be held by the same person. If any two (2)
or more offices are held by the same person, such person shall be entitled to
exercise the rights and duties of each such office as set forth hereinafter. If
the holder of two (2) or more corporate offices is required to sign any
corporate documents, instruments, certificates, agreements, or any other
documents on the
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Corporation's behalf, then the signature of such person in any one (1) of his
capacities shall be sufficient to bind the Corporation.
The Chairman of the Board and Vice Chairman of the Board, if any, shall be
elected from among the Directors. No other officer is required to be a Director,
and no officer is required to be a Stockholder of the Corporation.
SECTION 6.2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected at the annual meeting of the Board of Directors. If the
election of officers shall not be held at the annual meeting, such election
shall be held as soon thereafter as may be convenient. Each officer shall hold
office until his death, resignation or removal; until he is no longer qualified;
or until his successor shall have been duly elected and shall have qualified.
Election or appointment shall not of itself create any contract rights.
SECTION 6.3. REMOVAL AND RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed with or without cause by the
affirmative vote of a majority of the Board of Directors whenever, in its
judgment, the best interests of the Corporation shall be served thereby. Such
removal shall be without prejudice to the contractual rights, if any, of the
person so removed. Any officer may resign at any time by giving written notice
to the Corporation. Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 6.4. VACANCIES. A vacancy occurring in any office of the
Corporation by death, resignation, removal, disqualification or otherwise, may
be filled by the Board of Directors for the unexpired portion of the term, or,
in its discretion, the Board of Directors may leave unfilled for any period as
it may determine, or for an indefinite period, any office excepting that of the
President.
SECTION 6.5. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors
shall be responsible only for general supervision and control the affairs of the
Corporation and assistance to the President, as necessary. The Chairman shall
formulate and submit to the Board of Directors matters of general policy for the
Corporation. He shall preside at all meetings of the Stockholders, and of the
Board of Directors. He shall vote, or give a proxy to any other officer of the
Corporation to vote, all shares of stock of any other corporation standing in
the name of the Corporation, and shall perform such other duties as usually
appertain to the office or as may be prescribed by the Board of Directors. In
the Chairman's absence, such duties shall be attended to by the Vice Chairman
(if such office has been created by the Board).
SECTION 6.6. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall
assist the Chairman of the Board, if any, in determining and effecting the
general business policies and affairs of the Corporation. He shall preside at
all meetings of the Executive Committee, if such a Committee has been designated
by the Board of Directors, and shall formulate and submit matters of general
corporate policy to the Board of Directors and the Executive Committee. In the
absence
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of the President, he shall perform any necessary duties of the President, or
delegate same to the Chief Operating Officer or Executive Vice President, as he
may determine. He shall perform such other duties as usually appertain to the
office or as may be prescribed by the Board of Directors or the Executive
Committee. In the Chief Executive Officer's absence, such duties shall be
attended to by the President.
SECTION 6.7. PRESIDENT. The President shall in general supervise and
administer all of the business and affairs of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect. In
the absence of the Chairman of the Board and Vice Chairman, if any such officers
have been elected, the President shall preside at all meetings of the Board of
Directors and of the Stockholders. He may also preside at any such meeting
attended by the Chairman or Vice Chairman of the Board if he is designated as
the presiding officer. He shall have the power to appoint and remove subordinate
officers, agents and employees, except those elected or appointed by the Board
of Directors. The President shall keep the Board of Directors fully informed of
the business of the Corporation and shall consult them concerning such business.
He may sign with the Secretary or any other officer of the Corporation
authorized by the Board of Directors, certificates for shares of the Corporation
and any deeds, bonds, mortgages, contracts, checks, notes, drafts or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof has been expressly delegated by
these Bylaws or by the Board of Directors to some other officer or agent of the
Corporation, or shall be required by law to be otherwise executed. He shall
perform all duties incident to the office of President and such other duties as
may be prescribed by the Board of Directors or the Executive Committee from time
to time.
SECTION 6.8. CHIEF OPERATING OFFICER. The Chief Operating Officer shall in
general supervise and control all operations of the Corporation. He shall be
responsible for formulation of operations policies and procedures and shall
submit such policies to the Board of Directors, as necessary. He shall perform
such other duties as usually appertain to the office or as may be prescribed by
the Board of Directors.
SECTION 6.9. EXECUTIVE VICE PRESIDENT. The Executive Vice President,
subject to the control of the President, shall in general supervise and control
all the business and affairs of the Corporation. In the absence of the President
or Chief Operating Officer or in the event of either of their deaths, inability
or refusal to act, the Executive Vice President shall perform all the duties and
exercise all of the powers of and be subject to all the restrictions upon the
President or Chief Operating Officer. The Executive Vice President may sign with
the Secretary or an Assistant Secretary, certificates for shares of the
Corporation, and shall perform such other duties as may be assigned to him by
the Board of Directors or the Executive Committee, if such Committee has been
established.
SECTION 6.10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
in general supervise and control the financial affairs of the Corporation. He
shall formulate and submit to the Board of Directors or the Executive Committee,
if any, matters of general fiscal policy of the
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Corporation. He shall further develop and maintain procedures necessary for the
financial control of business and safeguarding of the assets of the Corporation,
direct internal auditing, maintain internal accounting activities, and prepare,
or cause to be prepared, for submission to the Board of Directors, the Executive
Committee, the Chief Executive Officer or the President, upon instruction of the
Board of Directors or at the request of the Chief Executive Officer, or the
President, a statement of financial condition of the Corporation, in such detail
as may be required. In the absence of a Treasurer, he shall also perform all of
the duties of the Treasurer. The Chief Financial Officer shall perform such
other duties as usually appertain to the office or as may be prescribed by the
Board of Directors or the Executive Committee.
SECTION 6.II. CHIEF SCIENTIFIC OFFICER. The Chief Scientific Officer of
the Company generally shall supervise and control all scientific affairs of the
Corporation. He shall be responsible for formulation of recommendations to the
Board of Directors relating to the various scientific activities of the
Corporation, as necessary. He shall perform such other duties as usually
appertain to the office or as may be prescribed by the Board of Directors.
SECTION 6.12. VICE PRESIDENTS. In the absence of the Executive Vice
President or Chief Operating Officer or in the event of both the President's and
the Executive Vice President's death, inability, or refusal to act, the Vice
President (or in the event there be more than one (1) Vice President, the Vice
Presidents in the order designated at the time of their election, or in the
absence of any designation then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. Any Vice President
shall perform such other duties as from time to time may be assigned to him by
the President, Chief Operating Officer or by the Board of Directors.
SECTION 6.13. SECRETARY. The Secretary shall (a) keep the minutes of the
meetings of the Stockholders, the Board of Directors and each committee of
Directors; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws and as required by law; (c) be custodian of the
corporate records and of the seal of the Corporation, and see that the seal of
the Corporation or a facsimile thereof is affixed to all certificates for shares
prior to the issuance thereof; (d) keep or cause to be kept a register of the
mailing address of each Stockholder which shall be furnished by such
Stockholder; (e) sign with the President, or the Executive Vice President,
certificates for shares of the Corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general charge
of the stock transfer books of the Corporation; and (g) in general, perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the President, the Board of Directors, or the
Executive Committee.
SECTION 6.14. TREASURER. If required by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine. He
shall (a) have charge and custody of and be responsible for all funds and
securities of the Corporation; receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever and deposit all such
moneys in the name of the
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<PAGE>
Corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of Section 8.4 of these Bylaws; (b)
prepare, or cause to be prepared, for submission at each regular meeting of the
Board of Directors, at each annual meeting of the Stockholders, and at such
other times as may be required by the Board of Directors, the Chief Financial
Officer, the President, or any Committee, a statement of financial condition of
the Corporation in such detail as may be required; and (c) in general, perform
all the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the President or the Board of Directors
or the Chief Financial Officer.
SECTION 6.15. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform the
duties of the Secretary or the Treasurer, respectively, in his absence and such
other duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the President, the Board of Directors or the Executive
Committee.
SECTION 6.16. SALARIES. The salaries of the officers shall be fixed from
time to time subject to approval of the Board of Directors, and no officer shall
be prevented from receiving a salary by reason of the fact that he is also a
Director of the Corporation. Any payments made to an officer of the Corporation
such as salary, commission, bonus, interest, rent, or entertainment expense
incurred by him which shall be disallowed the Corporation rent, or entertainment
expense incurred by him which shall be disallowed the Corporation in whole or in
part as a deductible expense by the Internal Revenue Service shall be reimbursed
by the officer to the Corporation to the full extent of the disallowance if
required by the Board of Directors.
ARTICLE VII.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND
OTHER AUTHORIZED REPRESENTATIVES
SECTION 7.01. INDEMNIFICATION OF AUTHORIZED REPRESENTATIVES IN THIRD PARTY
PROCEEDINGS. The corporation shall indemnify any person who was or is an
authorized representative of the corporation, and who was or is a party or is
threatened to be made a party to any third party proceeding, by reason of the
fact that such person was or is an authorized representative of the corporation,
against expenses, judgments, penalties, fines and amounts paid in settlement,
actually and reasonably incurred by such person in connection with such third
party proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal third party proceeding (including
any action or investigation which could or does lead to a criminal third party
proceeding) had no reasonable cause to believe such conduct was unlawful. The
termination of any third party proceeding by judgment, order, settlement,
indictment, conviction or upon a plea of nolo contendere or its equivalent,
shall not of itself create a presumption that the authorized representative did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to,
15
<PAGE>
the best interests of the corporation, and, with respect to any criminal third
party proceeding, had reasonable cause to believe that such conduct was
unlawful.
SECTION 7.02. INDEMNIFICATION OF AUTHORIZED REPRESENTATIVES IN CORPORATE
PROCEEDINGS. The corporation shall indemnify any person who was or is an
authorized representative of the corporation and who was or is a party or is
threatened to be made a party to any corporate proceeding by reason of the fact
that such person was or is an authorized representative of the corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such corporate action if such person acted in
good faith and in a manner reasonably believed to be in, or not opposed to, the
best interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such corporate proceeding was pending
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such authorized representative is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
SECTION 7.03. MANDATORY INDEMNIFICATION OF AUTHORIZED REPRESENTATIVES. To
the extent that an authorized representative of the corporation has been
successful on the merits or otherwise in defense of any third party or corporate
proceeding or in defense of any claim, issue or matter therein, such person
shall be indemnified against expenses actually and reasonably incurred by such
person in connection therewith.
SECTION 7.04. DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION. Any
indemnification under Section 7.01, 7.02 or 7.03 of this Article (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the authorized representative
is proper in the circumstances because such person has either met the applicable
standard of conduct set forth in Section 7.01 or 7.02 or has been successful on
the merits or otherwise as set forth in Section 7.03 and that the amount
requested has been actually and reasonably incurred. Such determination shall be
made:
(1) By the board of directors by a majority of a quorum consisting of
directors who were not parties to such third party or corporate
proceeding, or
(2) If such a quorum is not obtainable, or, even if obtainable, a
majority vote of such quorum so directs, by independent legal
counsel in a written opinion, or
(3) By the stockholders.
SECTION 7.05. ADVANCING EXPENSES. Expenses actually and reasonably
incurred in defending a third party or corporate proceeding shall be paid on
behalf of a director by the corporation in advance of the final disposition of
such third party or corporate proceeding upon receipt of an undertaking by or on
behalf of the director to repay such amount if it shall ultimately
16
<PAGE>
be determined that such person is not entitled to be indemnified by the
corporation as authorized in this Article.
Expenses actually and reasonably incurred in defending a third party or
corporate proceeding shall be paid on behalf of an authorized representative
other than a director by the corporation in advance of the final disposition of
such third party or corporate proceeding as authorized by the board of directors
upon receipt of an undertaking by or on behalf of such authorized representative
to repay if it shall ultimately be determined that such person is not entitled
to be indemnified by the corporation as authorized in this Article.
The financial ability of any authorized representative to make a repayment
contemplated by this Section shall not be a prerequisite to the making of an
advance, and shall not be considered by the board of directors in determining
whether to authorize advancement of expenses.
SECTION 7.06. DEFINITIONS. For purposes of this Article:
(1) "authorized representative" shall mean a director, officer or
employee of the corporation, or a person serving at the
request of the corporation as a director, officer, employee or
trustee, of another corporation, partnership, joint venture,
trust or other enterprise;
(2) "corporation" shall include in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors,
officers, employees or agents, so that any person who is or
was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position
under the provisions of this Article with respect to the
resulting or surviving corporation as such person would have
with respect to such constituent corporation if its separate
existence had continued;
(3) "corporate proceeding" shall mean any threatened, pending or
completed action or suit by or in the right of the corporation
to procure a judgment in its favor or investigative proceeding
by the corporation;
(4) "criminal third party proceedings" shall include any action or
investigation which could or does lead to a criminal third
party proceeding;
(5) "expenses" shall include attorney's fees and disbursements;
17
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(6) "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan;
(7) "not opposed to the best interests of the corporation" shall
include such actions taken in good faith and in a manner the
authorized representative reasonably believed to be in the
interest of the participants and beneficiaries of a benefit
plan;
(8) "other enterprises" shall include employee benefit plans;
(9) "party" shall include the giving of testimony or similar
involvement;
(10) "serving at the request of the corporation" shall include any
service as a director, officer or employee of the corporation
which imposes duties on, or involves service by, such
director, officer or employee with respect to an employee
benefit plan, its participants, or beneficiaries; and
(11) "third party proceeding" shall mean any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative, other than an action by or
in the right of the corporation.
SECTION 7.07. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in such a capacity, or arising out of his status as
such, whether or not the corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article.
SECTION 7.08. SCOPE OF ARTICLE. The indemnification of authorized
representatives and advancement of expenses, as authorized by the preceding
provisions of this Article, shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any statute, agreement, vote of stockholders or disinterested directors or
otherwise, both as to the action in an official capacity and as to action in
another capacity. The indemnification and advancement of expenses provided by or
granted pursuant to this Article shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be an
authorized representative and shall inure to the benefit of the heirs, executors
and administrators of such a person.
SECTION 7.09. RELIANCE ON PROVISIONS. Each person who shall act as an
authorized representative of the corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article.
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ARTICLE VIII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 8.1. CONTRACTS. Subject to the provisions of Section 6.1, the
Board of Directors may authorize any officer, officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of and
on behalf of the Corporation and such authority may be general or confined to
special instances.
SECTION 8.2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. This authorization may be
general or confined to specific instances.
SECTION 8.3. CHECKS, ETC. All checks, demands, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers or such
agent or agents of the Corporation, and in such manner, as shall be determined
by the Board of Directors.
SECTION 8.4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
SECTION 8.5. INTERESTED PARTIES. A 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 not be void or voidable solely as a
result of such circumstances, 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 his or their
votes are counted for such purpose, if:
(a) The material facts as to his 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 vote
of a majority of the disinterested Directors, even though the
disinterested Directors be less than a quorum; or
(b) The material facts as to his 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
(c) The contract or transaction is fair to the Corporation as of the
time it is authorized, approved, or ratified by the Board of Directors, a
committee thereof, or the Stockholders.
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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 IX.
CERTIFICATES OF STOCK
SECTION 9.1. ISSUANCE. Each Stockholder of this Corporation shall be
entitled to a certificate or certificates showing the number of shares of stock
registered in his name on the books of the Corporation. The certificates shall
be in such form as may be determined by the Board of Directors, shall be issued
in numerical order and shall be entered in the books of the Corporation as they
are issued. They shall exhibit the holder's name and number of shares and shall
be signed by the Chairman of the Board, the President or a Vice President and by
the Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer, whose signatures may be sealed with the Seal of the Corporation or a
facsimile thereof. Any or all of the signatures on the 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.
If the Corporation shall be authorized to issue more than one class of
capital stock or more than one series of any class, the designations,
preferences and relative participating, optional or other special rights of each
class of capital stock or series thereof and the qualifications, limitations or
restrictions of such preferences and rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of capital stock. Alternatively, except
as otherwise provided by statute, there may be set forth on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of capital stock a statement that the Corporation will furnish to each
Stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of capital stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and rights.
All certificates surrendered to the Corporation for transfer shall be
cancelled and no new certificate shall be issued until the former certificate
for a like number of shares shall have been surrendered and cancelled, except
that in the case of a lost, stolen, destroyed or mutilated certificate a new one
may be issued therefor upon such terms and with such indemnity, if any, to the
Corporation as the Board of Directors may prescribe.
SECTION 9.2. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact
20
<PAGE>
by the person claiming the certificate of stock to be lost, stolen or destroyed.
When authorizing such issue of a new certificate or certificates, 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
certificates, or his legal representative, to advertise the same in such manner
as it shall require 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 or certificates alleged to have been lost,
stolen or destroyed, or both.
SECTION 9.3. TRANSFERS. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books. Transfers of shares shall be made only on the books
of the Corporation by the registered holder thereof, or by his attorney-in-fact
authorized by power of attorney and filed with the Secretary of the Corporation
or the Transfer Agent.
SECTION 9.4. REGISTERED STOCKHOLDERS. Except as expressly provided by law,
the Corporation shall be entitled to treat the holder of record of any share or
shares of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by law.
ARTICLE X.
DISTRIBUTIONS AND SHARE DIVIDENDS
SECTION 10.1. DECLARATION. Distributions and share dividends may be
authorized by the Board of Directors subject to and in accordance with
provisions of law, the Certificate of Incorporation and these Bylaws, at any
regular or special meeting of the Directors. Distributions may be paid in cash,
property or shares of the Corporation's capital stock.
SECTION 10.2. RESERVE. Before payment of any distribution there may be set
aside out of any funds of the Corporation available for distribution such sum or
sums as the Board of Directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, of the Corporation
or for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors may determine
to be in the best interest of the Corporation. The Directors may modify or
abolish any such reserve in the manner in which it was created.
SECTION 10.3. PAYMENT. Distributions of the Corporation whether cash or
property, including distributions payable but not paid and being held in
suspense, or which were paid or delivered into an escrow account, trust or to a
custodian, shall be payable by the Corporation, escrow
21
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agent, trustee or custodian to the registered owner as recorded in the Stock
transfer records of the Corporation as of the record date determined pursuant to
any provision of statute or these Bylaws. The Corporation nor any of its
officers, directors or agents, shall be liable for making a distribution to the
person in whose name the shares were so registered or to his heirs, successors
or assigns, if applicable, even though such person, or his heirs, successors or
assigns may not possess a share certificate representing such shares.
ARTICLE XI.
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
ARTICLE XII.
SEAL
The Board of Directors may provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the Corporation
and its state of incorporation.
ARTICLE XIII.
NOTICE
SECTION 13.1. METHODS OF GIVING NOTICE. Whenever under the provisions of
the statutes, the Certificate of Incorporation or these Bylaws, notice is
required to be given to any Director, member of any committee or Stockholder,
such notice shall be writing and delivered either personally or by mail to such
Director, committee member or Stockholder; provided that in the case of a
Director or a member of any committee such notice may be given orally or by
telephone or telegram. If mailed, notice to a Director, member of any committee
or Stockholder shall be deemed given when deposited in the United States Mall
postage prepaid, addressed, in the case of a Stockholder, to such Stockholder at
his address as it appears in the records of the Corporation or, in the case of a
Director or a member of any committee, to such person at his business address.
Such notice shall be deemed to have been delivered three (3) days following the
date it was mailed. If sent by telegraph, notice to a Director or member of any
committee shall be deemed given when the telegram, so addressed, is delivered to
the telegraph company.
SECTION 13.2. WRITTEN WAIVER. Whenever any notice is required to be given
under any provision of statute, the Certificate of Incorporation or these
Bylaws, a waiver thereof in writing signed by the person or persons entitled to
said notice, whether before or after the time stated therein,
22
<PAGE>
shall be deemed equivalent such required notice. Attendance of a person at a
meeting shall constitute a waiver of such meeting, except when 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. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board of Directors, any Committee, or
Stockholders need be specified in the waiver of notice of meeting.
ARTICLE XIV.
ACTION WITHOUT MEETING
SECTION 14.1. WRITTEN CONSENT. Any action required or permitted to be
taken at a meeting of the Board of Directors or any Committee may be taken
without a meeting if a written consent setting forth the action so taken is
signed by all the Directors or Committee Members, as the case may be, and such
action shall have the same force and effect as if it were approved by a
unanimous vote at a meeting thereof, duly and regularly called.
SECTION 14.2. CONFERENCE TELEPHONE. Stockholders, Directors, or members of
any committee may participate in and hold a meeting thereof by means of a
conference telephone or similar communications equipment whereby all persons
participating in the meeting can hear each other, and such participation in that
manner at a meeting shall constitute presence in person at the meeting, except
where a person participates in the meeting for the express purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened. Minutes of any meeting involving participation by
conference telephone shall be prepared and kept in the same manner as minutes of
any other meetings.
SECRETARY'S CERTIFICATION
I hereby certify that the foregoing is the form of Bylaws of the
Corporation duly adopted to be effective as of the 17th day of February, 2000.
_________________________________
John Blickenstaff, Secretary
23
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
[TANOX LOGO]
TANOX, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 87588Q 10 9
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE, OF
TANOX, INC., transferable on the books of the Corporation in person or by duly
authorized attorney on surrender of this certificate properly endorsed. This
Certificate shall not be valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the signatures of its
duly authorized officers.
Dated:
/s/ JOHN BLICKENSTAFF /s/ NANCY T. CHANG
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
[TANOX
CORPORATE SEAL
DELAWARE]
<PAGE>
Tanox, Inc.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS
THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR
OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
SUCH REQUESTS SHALL BE MADE TO THE CORPORATION'S SECRETARY AT THE PRINCIPAL
OFFICE OF THE CORPORATION.
The following abbreviations, when used in the Inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT-________________Custodian_________________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of
survivorship and not as tenants under Uniform Gifts to Minors
in common Act _________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received,____________________________________________________________
hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the capital stock represented by the within Certificate and does hereby
irrevocably constitute and appoint _____________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated _____________________________________
NOTICE:
THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRES- X_______________________________________
POND WITH THE NAME(S) AS (SIGNATURE)
WRITTEN ON THE FACE OF
THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTER- X_______________________________________
ATION OR ENLARGEMENT OR (SIGNATURE)
ANY CHANGE WHATEVER.
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
- --------------------------------------------------------------------------------
SIGNATURE(S) GUARANTEED BY:
EXHIBIT 4.2
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION
OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED , (iii) RECEIPT OF A
NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION OR (iv)
OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION 7 OF THIS
WARRANT.
TANOX BIOSYSTEMS, INC.
WARRANT TO PURCHASE 6,462 SHARES
OF COMMON STOCK
THIS CERTIFIES THAT, for value received, Phoenix Venture Incorporated is
entitled to subscribe for and purchase 6,462 shares (as adjusted pursuant to
Paragraph 4 hereof, the "Shares") of the fully paid and non-assessable Common
Stock of TANOX BIOSYSTEMS, INC., a Texas corporation (the "Company"), at the
price of $12.38 per share (such price and such other price as shall result, from
time to time, from the adjustments specified in Paragraph 4 hereof is herein
referred to as the "Warrant Price"), subject to the provisions and upon the
terms and conditions hereinafter set forth. As used herein, (a) the term "Common
Stock" shall mean the Company's presently authorized Common Stock, and any stock
into or for which such Common Stock may hereafter be converted or exchanged, (b)
the term "Date of Grant" shall mean November 15, 1989, and (c) the term Other
Warrants" shall mean any other warrants issued by the Company in connection with
the transaction with respect to which this Warrant was issued, and any warrant
issued upon transfer or partial exercise of this Warrant.
1. TERM. The purchase right represented by this Warrant is exercisable, in
whole or, subject to the provisions of Paragraph 2 hereof, in part, at any time
and from time to time from the Date of Grant through the later of (i) ten (10)
years after the Date of Grant or (ii) five (5) years after the closing of the
Company's initial underwritten public offering of its Common Stock effected
pursuant to a Registration Statement on Form S-l or Form S-18 (or their
successor forms) filed under the Securities Act of 1933.
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT. Subject to
Paragraph 1 hereof, the purchase right represented by this Warrant may be
exercised by the holder hereof, in whole or in part and from time to time, by
either, at the election of the holder hereof, (a) the surrender of this Warrant
(with the notice
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of exercise form attached hereto as Exhibit A duly executed) at the principal
office of the Company and by the payment to the Company, by check, of an amount
equal to the then applicable Warrant Price per share multiplied by the number
of Shares then being purchased, or (b) if in connection with a registered public
offering of the Company's securities, the surrender of this Warrant (with the
notice of exercise form attached hereto as Exhibit A-l duly executed) at the
principal office of the Company together with notice of arrangements reasonably
satisfactory to the Company for payment to the Company either by check or from
the proceeds of the sale of shares to be sold by the holder in such public
offering of an amount equal to the then applicable Warrant Price per share
multiplied by the number of Shares then being purchased. Notwithstanding
anything herein to the contrary, the minimum number of Shares purchasable
hereunder at each time of exercise shall be the lesser of (i) 2,000 Shares (as
proportionately adjusted for stock splits, stock dividends or recapitalizations
occurring after the Date of Grant), (ii) if the exercise is in connection with
an underwritten public offering, then the number of Shares that the holder is
entitled to include in such public offering under Paragraph 9 hereof, or (iii)
the total number of Shares then purchasable under this Warrant. The person or
persons in whose name(s) any certificate(s) representing shares of Common Stock
shall be issuable upon exercise of this Warrant shall be deemed to have become
the holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed to
have been issued) immediately prior to the close of business on the later of (A)
the date upon which this Warrant or portion thereof is exercised, or (B) the
date upon which the Company receives payment for such shares in accordance with
the provisions of this Warrant. In the event of any exercise of the rights
represented by this Warrant, certificates for the shares of stock so purchased
shall be delivered to the holder hereof as soon as possible and in any event
within thirty days of receipt of such payment and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion of the
Shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be issued to the holder hereof as soon as possible and in
any event within such thirty-day period.
3. STOCK FULLY PAID; RESERVATION OF SHARES. All Shares that may be issued
upon the exercise of the rights represented by this Warrant will, upon issuance,
be fully paid and non-assessable, and free from all taxes, liens and charges
with respect to the issue thereof. During the period within which the rights
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of the issue upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of
its Common Stock to provide for the exercise of the rights represented by this
Warrant.
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4. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number and kind of
securities purchasable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
(a) RECLASSIFICATION OR MERGER. In case of any reclassification,
change or conversion of securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any merger or consolidation of the Company with or into another
corporation (other than a merger or consolidation with another corporation in
which the Company is the acquiring and the surviving corporation and which does
not result in any reclassification or change of outstanding securities issuable
upon exercise of this Warrant), or in case of any sale of all or substantially
all of the assets of the Company, the Company, or such successor or purchasing
corporation, as the case may be, shall duly execute and deliver to the holder of
this Warrant a new Warrant (in form and substance satisfactory to the holder of
this Warrant), so that the holder of this Warrant shall have the right to
receive, at a total purchase price not to exceed that payable upon the exercise
of the unexercised portion of this Warrant, and in lieu of the shares of Common
Stock theretofore issuable upon exercise of this Warrant, the kind and amount of
shares of stock, other securities, money and property receivable upon such
reclassification, change or merger by a holder of the number of shares of Common
Stock then purchasable under this Warrant. Such new Warrant shall provide for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Paragraph 4. The provisions of this
subparagraph (a) shall similarly apply to successive reclassifications, changes,
mergers, consolidations and transfers.
(b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Common Stock, the Warrant Price shall be proportionately decreased in the
case of a subdivision or increased in the case of a combination.
(c) STOCK DIVIDENDS. If the Company at any time while this Warrant is
outstanding and unexpired shall (i) pay a dividend with respect to Common Stock
payable in Common Stock, or (ii) make any other distribution with respect to
Common Stock (except any distribution specifically provided for in the foregoing
subparagraphs (a) and (b)) of Common Stock, then the Warrant Price shall be
adjusted, from and after the date of determination of shareholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Warrant Price in effect immediately prior to such date of determination by a
fraction (i) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such
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dividend or distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such dividend or
distribution.
(d) PRICE ANTIDILUTION. The Warrant Price shall also be subject to
adjustment from time to time as follows:
(i) (A) If, at any time after the Date of Grant, the Company shall
Issue any Additional Stock (as hereinafter defined) without consideration
or for a consideration per share less than the Warrant Price in effect
immediately prior to the issuance of such Additional Stock, then the
Warrant Price in effect immediately prior to each such issuance shall
forthwith be reduced to the Warrant Price determined by dividing (X) an
amount equal to the sum of (a) the product derived by multiplying the
Warrant Price in effect immediately prior to such issue or sale times the
number of shares of Common Stock of the Company outstanding immediately
prior to such issue or sale, plus (b) the consideration, if any, received
or deemed to be received by the Company upon such issue or sale, by (Y) the
number of shares of Common Stock of the Company outstanding immediately
after such issue or sale.
(B) No adjustment of the Warrant Price pursuant to this
Paragraph 4(d) shall have the effect of increasing the Warrant Price above
the Warrant Price in effect immediately prior to such adjustment.
(C) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefore
before deducting any reasonable discounts, commissions or other expenses
allowed, paid or incurred by the Company for any underwriting or otherwise
in connection with the issuance and sale thereof.
(D) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to be the fair value thereof as determined by the
Board of Directors of the Company.
(E) In the case of the issuance of options to purchase or
rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or options to purchase or rights to
subscribe for such convertible or exchangeable securities (where the shares
of Common Stock issuable upon exercise of such options or rights or upon
conversion or exchange of such securities are not excluded from the
definition of Additional Stock), the following provisions shall apply:
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at
the
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time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in
Paragraphs 4(d)(i)(C) and 4(d)(i)(D), if any, received by the
Company upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and
for a consideration equal to the consideration, if any, received
by the Company for any such securities and related options or
rights (excluding any cash received on account of accrued interest
or accrued dividends), plus the additional consideration, if any,
to be received by the Company upon the conversion or exchange of
such securities or the exercise of any related options or rights
(the consideration in each case to be determined in the manner
provided in Paragraphs 4(d) (i)(C) and 4(d) (i) (D)).
(ii) "Additional Stock" shall mean any shares of Common Stock
issued (or deemed to have been issued pursuant to Paragraph 4(d) (i) (E) by
the Company after the Date of Grant other than:
(A) Common Stock issued pursuant to a transaction described in
Paragraphs 4(b) or 4(c), or
(B) Common Stock issued upon the conversion or exercise of any
securities convertible into Common Stock or options to purchase Common
Stock outstanding on the Date of Grant, or
(C) Common Stock, options, or rights to subscribe issued or
granted pursuant to employee, director, or consultant stock option,
purchase, bonus, exchange, or other such plans or transactions, in
each case approved by the Company's Board of Directors, or
(D) Common Stock issued pursuant to a transaction described in
Paragraph 4(h) hereof.
(e) NO IMPAIRMENT. The Company will not, by amendment of its Articles
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying
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out of all the provisions of this Paragraph 4 and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against material impairment.
(f) NOTICES OF RECORD DATE. In the event of any taking by the Company
of a record of its shareholders for the purpose of determining shareholders who
are entitled to receive payment of any dividend (other than a cash dividend) or
other distribution, any right to subscribe for, purchase or otherwise acquire
any shares of any class or any other securities or property, or to receive any
other right, the Company shall mail to the holder of this Warrant, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(g) REDUCTION IN SHARES. If on December 31, 1990, the aggregate
original principal amount of the Loans (as defined in the Loan and Security
Agreement dated as of November 6, 1989 between Phoenix Venture Incorporated
("Phoenix") and the Company (the "Loan Agreement") made to the Company pursuant
to the Loan Agreement is less than $800,000, and Phoenix has elected not to make
a Loan to the Company pursuant to the Loan Agreement after a request by the
Company in connection with which the Company has satisfied (or has agreed to,
and has demonstrated the ability to, satisfy) all the conditions to funding set
forth in the Loan Agreement other than those conditions set forth in Section
l(a), subparagraphs (ix) and/or (x), then the number of Shares issuable upon
exercise of this Warrant shall be reduced by a number of Shares which bears the
same relationship to the number of Shares originally issuable under this Warrant
as the aggregate amount of the Loans that Phoenix has so elected not to make to
the Company pursuant to the Loan Agreement bears to $800,000.
(h) ADJUSTMENT BASED ON NEW EQUITY. If the Company closes an equity
offering of its capital stock after the Date of Grant but on or before 90 days
after the initial Loan by Phoenix pursuant to the Loan Agreement, with net
proceeds to the Company of at least $1,000,000 and at a price per common-share
equivalent other than the Warrant Price, then the Warrant Price shall be
adjusted immediately upon the closing of such offering to the average price per
common-share equivalent received by the Company in such offering. In addition,
if the Company closes an equity offering of its capital stock after the Date of
Grant but on or before twelve months after the initial Loan by Phoenix pursuant
to the Loan Agreement, with net proceeds to the Company of at least $1,000,000
and at a price per common-share equivalent less than the Warrant Price, then the
Warrant Price shall be reduced immediately upon the closing of such offering to
the average price per common-share equivalent received by the Company in such
offering.
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(i) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the
Warrant Price (including without limitation an adjustment pursuant to Paragraph
4(h) hereof), the number of Shares of Common Stock purchasable hereunder shall
be adjusted, to the nearest whole share, to the product obtained by multiplying
the number of Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
5. NOTICE OF ADJUSTMENTS. Whenever the Warrant Price or the number of
Shares purchasable hereunder shall be adjusted pursuant to Paragraph 4 hereof,
the Company shall make a certificate signed by its chief financial officer
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated,
and the Warrant Price and the number of Shares purchasable hereunder after
giving effect to such adjustment, and shall cause copies of such certificate
to be mailed (by first class mail, postage prepaid) to the holder of this
Warrant.
6. FRACTIONAL SHARES. No fractional shares of Common Stock will be issued
in connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefore based on the fair market value
of the Com- mon Stock on the date of exercise as reasonably determined in good
faith by the Company's Board of Directors.
7. COMPLIANCE WITH SECURITIES ACT; DISPOSITION OF WARRANT OR SHARES OF
COMMON STOCK.
(a) COMPLIANCE WITH SECURITIES ACT. The holder of this Warrant, by
acceptance hereof, acknowledges those representations set forth on Schedule 1
attached as a part of Exhibit A hereto, and agrees that this Warrant and the
shares of Common Stock to be issued upon exercise hereof are being acquired for
investment and that such holder will not offer, sell or otherwise dispose of
this Warrant or any shares of Common Stock to be issued upon exercise hereof
except under circumstances which will not result in a violation of the
Securities Act of 1933, as amended (the "Act"). Upon exercise of this Warrant,
unless the Shares being acquired are registered under the Act or an exemption
from such registration is available, the holder hereof shall confirm in writing,
by executing the form attached as Schedule 1 to Exhibit A hereto, that the
shares of Common Stock so purchased are being acquired for investment and not
with a view toward distribution or resale. This Warrant and all Shares issued
upon exercise of this Warrant (unless registered under the Act) shall be stamped
or imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i)
AN EFFECTIVE REGISTRATION STATEMENT RE-
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LATED THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED,
(iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF SECTION
7 OF THE WARRANT UNDER WHICH THIS SECURITY WAS ISSUED."
(b) DISPOSITION OF WARRANT OR SHARES. With respect to any offer, sale or
other disposition of this Warrant or any shares of Common Stock acquired
pursuant to the exercise of this Warrant prior to registration of such shares,
the holder hereof and each subsequent holder of this Warrant agrees to give
written notice to the Company prior thereto, describing briefly the manner
thereof, together with a written opinion of such holder's counsel, if reasonably
requested by the Company, to the effect that such offer, sale or other
disposition may be effected without registration or qualification (under the Act
as then in effect or any federal or state law then in effect) of this Warrant or
such shares of Common Stock and indicating whether or not under the Act
certificates for this Warrant or such shares of Common Stock to be sold or
otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to insure compliance with the Act.
Promptly upon receiving such written notice and reasonably satisfactory opinion,
if so requested, the Company, as promptly as practicable, shall notify such
holder that such holder may sell or otherwise dispose of this Warrant or such
shares of Common Stock, all in accordance with the terms of the notice delivered
to the Company. If a determination has been made pursuant to this subparagraph
(b) that the opinion of counsel for the holder is not reasonably satisfactory to
the Company, the Company shall so notify the holder promptly after such
determination has been made. Notwithstanding the foregoing, this Warrant or such
shares of Common Stock may be offered, sold or otherwise disposed of in
accordance with Rule 144 under the Act, provided that the Company shall have
been furnished with such information as the Company may reasonably request to
provide a reasonable assurance that the provisions of Rule 144 have been
satisfied. Each certificate representing this Warrant or the shares of Common
Stock thus transferred (except a transfer pursuant to Rule 144) shall bear a
legend as to the applicable restrictions on transferability in order to insure
compliance with the Act, unless in the aforesaid opinion of counsel for the
holder, such legend is not required in order to insure compliance with the Act.
The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
8. RIGHTS AS SHAREHOLDERS; INFORMATION. No holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of Common
Stock or any other securities of the Company which may at any time be issuable
on the exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the holder of this Warrant, as such, any of the rights
of a shareholder of the Company or any right to
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vote for the election of directors or upon any matter submitted to shareholders
at any meeting thereof, or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until this Warrant shall have been
exercised and the Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. Notwithstanding the foregoing,
the Company will transmit to the holder of this Warrant such information,
documents and reports as are generally distributed to the shareholders of the
Company concurrently with the distribution thereof to such shareholders,
including without limitation the following: (a) within 120 days after the end of
each fiscal year of the Company, an audited consolidated balance sheet of the
Company as of the end of such year and audited consolidated statements of
income, shareholders' equity and changes in financial position for such year,
which year-end financial reports shall be in reasonable detail and shall be
accompanied by the opinion of the independent public accountants of recognized
standing selected by the Company, and (b) such other information, documents and
reports as the holder of this Warrant may reasonably request in order to assist
such holder in determining whether to exercise its rights to acquire Shares
under this Warrant.
9. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
9.1 DEFINITIONS. For purposes of this Section 9:
(a) The terms "register," "registered," and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon exercise or conversion of this Warrant or upon exercise
or conversion of the Other Warrants, and (ii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such Common Stock; excluding in all
cases, however, any Registrable Securities sold or transferred by a person in a
transaction in which his rights under this Section 9 are not assignable;
(c) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 9.10 hereof; and
(d) The term "Form S-3" means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently adopted
by the Securities and Exchange
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Commission ("SEC") which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
9.2 PIGGY-BACK REGISTRATION. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities (other than a registration relating solely to the sale of
securities to participants in a Company stock plan, or a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities), the Company, at each such time, shall promptly give
each Holder written notice of such registration. Upon the written request of
each Holder given within twenty (20) days after receipt of such notice, the
Company, subject to the provisions of Section 9.6 shall cause to be registered
under the Act all of the Registrable Securities that each such Holder has
requested to be registered. The Company shall be obligated to effect only two
(2) such registrations pursuant to this Paragraph 9.2.
9.3 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Section 9.2 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be reasonably required to effect the
registration of their Registrable Securities.
9.4 EXPENSES OF PIGGY-BACK REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 9.2 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionate thereto provided, however, that the selling Holders
shall bear the expenses of any underwriting discounts and commissions
attributable to the sale of their shares and shall pay the fees and
disbursements of any counsel, experts or other professionals selected by such
Holders; and provided, further, that the fees and expenses of complying with
blue sky laws shall be borne by the selling Holders if and to the extent that
the appropriate administrative official of such state requires that such Holders
(rather than the Company) pay such fees and expenses.
9.5 UNDERWRITING REQUIREMENTS. In connection with any offering involving
an underwriting of shares being issued by the Company, the Company shall not be
required under Section 9.2 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it. If the total amount of
securities, including Registrable Securities, requested to be included in such
offering exceeds the amount of
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securities that the underwriters reasonably believe compatible with the success
of the offering or, in the initial public offering of the Company, exceeds
twenty percent (20%) of the total number of shares proposed to be registered,
then the Company shall be required to include in the offering only that number
of such securities which the underwriters believe will not jeopardize the
success of the offering or, in the initial public offering, only that number of
such securities not exceeding such twenty percent (20%) (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders).
9.6 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 9:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors or partners of each
Holder, any underwriter (as defined in the Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the Act or
the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934 Act
or any state securities law; and the Company will reimburse each such Holder,
officer or director or partner, underwriter or controlling person for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this section 9.6(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability,
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holder, underwriter or
controlling person.
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(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter and any
other person selling securities in such registration statement or any of its
directors or officers or partners or any person who controls such Holder,
against any losses, claims, damages, or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, or underwriter or
controlling person or other such person or director, officer or partner or
controlling person may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or
controlling person, other Holder, officer, director or partner, or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this Section 9.6(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section 9.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 9.6, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 9.6.
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9.7 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is reasonable to enable the
Holders to utilize, except for any requisite financial, listing or quotation
requirements, Form S-3 for the sale of their Registrable Securities when same
becomes available, such action to be initiated as soon as reasonably practicable
after the end of the fiscal year in which the first registration statement filed
by the Company for the offering of its securities to the general public is
declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith (i) upon request a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) upon availability, a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) upon request, such other
information as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or pursuant to such form.
The Company's obligations under this Paragraph 9.7 shall terminate at such
time as the Company may no longer be required to file reports or other documents
under the 1934 Act and will terminate as to each Holder covered hereby at such
time as such Holder shall be entitled to sell its Registrable Securities; under
the provisions of Rule 144(k).
9.8 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any re-
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lated qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Paragraph 9.8: (1)
within 180 days of the effective date of any public offering of securities by
the Company; (2) if the Company is not qualified as a registrant entitled to use
Form S-3 for the sale of shares by its shareholders; (3) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public of less than
$200,000; (4) if the Company shall furnish to the Holders a certificate signed
by the President of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be detrimental to the Company and
its shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 120 days after receipt of
the request of the Holder or Holders under this Paragraph 9.8; provided,
however, that the Company shall not utilize this right more than once in any
twelve (12) month period; (5) if the Company has, within the twelve (12) month
period preceding the date for such request, already effected any registration in
which each of the Holders was entitled to register at least twenty percent (20%)
of the Registrable Securities then held by such Holder, whether pursuant to this
Paragraph 9.8 or otherwise; (6) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance, or with respect to which such registration, qualification or
compliance is unduly burdensome; or (7) if the Company has effected at least
three (3) of such registrations pursuant to this Paragraph 9.8 for one or more
of the Holders.
(c) Subject to the foregoing, the Company will use its best efforts
to file a registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as reasonably practicable after
receipt of the request or requests of the Holders. All expenses incurred in
connection with a registration requested pursuant to this
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Paragraph 9.8, including (without limitation) all registration, filing,
qualification, printers' and accounting fees and the reasonable fees and
disbursements of counsel for the selling Holder or Holders and counsel for the
Company (collectively, "S-3 Expenses") shall be borne as follows: The selling
Holders shall pay the first $5,000, and 50% of any amounts over $5,000 but less
than $10,000, of the selling Holders' pro rata portion of the S-3 Expenses
attributable to the sale of their shares in any registration initiated by the
Holders pursuant to this Paragraph 9.8, and all other S-3 Expenses shall be paid
by the Company or by other parties pursuant to agreements with the Company;
provided, however, that the selling Holders shall bear the expenses of any
underwriting discounts and commissions attributable to the sale of their shares.
Registrations effected pursuant to this Paragraph 9.8 shall not be counted as
registrations effected pursuant to Paragraph 9.2 and registrations effected
pursuant to Paragraph 9.2 shall not be counted as registrations effected
pursuant to this Paragraph 9.8.
9.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 9 may be assigned by
a Holder (after identification of such Holder under this Section 9 or with
respect to registrations pursuant to Paragraph 9.8) to a transferee or assignee
of such securities provided (a) such assignment complies with, and such
transferee or assignee agrees in writing to comply with and be bound by all of
the terms and provisions of this Section 9, (b) the Company is, within a
reasonable time prior to such transfer, furnished with written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned; and (c) such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted under
the Act.
9.10 NO CONFLICTING AGREEMENTS. The Company represents and warrants to
the Holders that the Company is not a party to any agreement that conflicts in
any manner with the Holders' rights to cause the Company to register Registrable
Securities pursuant to this Section 9. The Company covenants and agrees that it
shall not, without the prior written consent of persons holding a majority of
the outstanding securities registrable under this Section 9 or otherwise
entitled to registration rights, enter into any agreement with any holder or
prospective holder of any securities of the Company that would allow such holder
to include such securities in any registration if the inclusion of such holder's
securities would reduce on other than a pro-rata basis (based on the number of
shares owned) the amount of the Registrable Securities of the holders that may
be included in such registration. In addition, the Company covenants and agrees
that it shall not, without the prior written consent of the Holders of a
majority of the outstanding Registrable Securities, enter into any agreement
that would adversely affect the registration rights of the Holders of
Registrable Securities in a different manner than the registration rights of
holders of other securities of the Company entitled to registration rights.
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9.11 MARKET STAND-OFF AGREEMENT. Each Holder hereby agrees that it shall
not, to the extent requested by the Company and an underwriter of Common Stock
(or other securities) of the Company, sell or otherwise transfer or dispose
(other than to donees who agree to be similarly bound) of any Registrable
Securities for such period of time (not to exceed 180 days) following the
effective date of a registration statement of the Company filed under the Act as
the Company and the underwriters may specify; provided, however, that all
officers and directors of the Company and all other persons with registration
rights (whether or not pursuant to this Warrant) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of any such period specified.
9.12 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 9.
9.13 RIGHTS AND OBLIGATIONS SURVIVE EXERCISE AND EXPIRATION OF WARRANT.
The rights and obligations of the Company, of the holder of this Warrant and of
the holder of shares of Common Stock issued upon exercise or conversion of this
Warrant, contained in this Section 9 shall survive the exercise, conversion and
expiration of this Warrant.
10. ADDITIONAL LIQUIDITY RIGHTS.
10.1 SECONDARY SALES. The Company will promptly provide the holder of
this Warrant with notice of any offer of which the Company is aware to acquire
from the Company's security holders more than five percent (5%) of the total
voting power of the Company.
10.2 MERGERS. The Company will provide the holder of this Warrant with
at least 20 days' notice of the terms and conditions of any proposed (i) sale,
lease, exchange, conveyance or other disposition of all or substantially all of
its property or business, or (ii) merger into or consolidation with any other
corporation (other than a wholly-owned subsidiary of the Company), or any
transaction (including a merger or other reorganization) or series of related
transactions, in which more than 50% of the voting power of the Company is
disposed of.
10.3 RIGHT TO CONVERT WARRANT INTO COMMON STOCK.
(a) RIGHT TO CONVERT. In addition to and without limiting the rights
of the holder under the terms of this Warrant, the holder shall have the right
to convert this Warrant or
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any portion thereof (the "Conversion Right") into shares of Common Stock as
provided in this Paragraph 10.3 at any time or from time to time during the term
of this Warrant. Upon exercise of the Conversion Right with respect to a
particular number of shares subject to this Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the holder (without payment by the
holder of any exercise price or any cash or other consideration) that number of
shares of fully paid and nonassessable Common Stock equal to the quotient
obtained by dividing (x) the value of this Warrant (or the specified portion
hereof) on the Conversion Date (as defined in subparagraph (b) hereof), which
value shall be determined by subtracting (A) the aggregate Warrant Price of the
Converted Warrant Shares immediately prior to the exercise of the Conversion
Right from (B) the aggregate fair market value of the Converted Warrant Shares
issuable upon exercise of this Warrant (or the specified portion hereof) on the
Conversion Date (as herein defined) by (y) the fair market value of one share of
Common Stock on the Conversion Date (as herein defined). Notwithstanding
anything herein to the contrary, the minimum number; of Converted Warrant Shares
convertible hereunder at any time, shall equal the minimum number of Shares then
purchasable under the provisions of Paragraph 2 hereof. No fractional shares
shall be issuable upon exercise of the Conversion Right, and if the number of
shares to be issued determined in accordance with the foregoing formula is other
than a whole number, the Company shall pay to the holder an amount in cash equal
to the fair market value of the resulting fractional share on the Conversion
Date (as herein defined). For purposes of Section 9 of this Warrant, shares
issued pursuant to the Conversion Right shall be treated as if they were issued
upon the exercise of this Warrant.
(b) METHOD OF EXERCISE. The Conversion Right may be exercised by the
holder by the surrender of this Warrant at the principal office of the Company
together with a written statement specifying that the holder thereby intends to
exercise the Conversion Right and indicating the number of shares subject to
this Warrant which are being surrendered (referred to in subparagraph (a) hereof
as the Converted Warrant Shares) in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date" ) and, at the election of the holder
hereof, may be made contingent upon the closing of the consummation of the sale
of the Company's Common Stock to the public in a public offering pursuant to a
Registration Statement under the Securities Act of 1933, as amended (a "Public
Offering"). Certificates for the shares issuable upon exercise of the Conversion
Right and, if applicable, a new warrant evidencing the balance of the shares
remaining subject to this Warrant, shall be issued as of the Conversion Date and
shall be delivered to the holder within thirty (30) days following the
Conversion Date.
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(c) Determination of Fair Market Value. For purposes of this
Paragraph 10.3, fair market value of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
(i) If the Conversion Right is exercised in, connection with a
Public Offering, and if the Company's Registration Statement relating to such
Public Offering ("Registration Statement") has been declared effective by the
Securities and Exchange Commission, then the initial "Price to Public" specified
in the final prospectus with respect to such offering.
(ii) If the Conversion Right is not exercised in connection with
and contingent upon a Public Offering, then as follows:
(A) If traded on a securities exchange, the fair market
value shall be deemed to be the average of the closing prices of the Common
Stock on such exchange over the 30-day period ending five business days
prior to the Determination Date;
(B) If traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid prices of the Common Stock
over the 30-day period ending five business days prior to the Determination
Date; and
(C) If there is no public market for the Common Stock, then
fair market value shall be determined by mutual agreement of the holder of
this Warrant and the Company, and if the holder and the Company are unable
to so agree, by an investment banker of national reputation selected by the
Company and reasonably acceptable to the holder of this Warrant.
II. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to
the holder of this Warrant as follows:
(a) This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms;
(b) The Shares have been duly authorized and reserved for issuance by
the Company and, when issued in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable;
(c) The rights, preferences, privileges and restrictions granted to or
imposed upon the Shares and the holders thereof are as set forth in the
Company's Articles of Incorporation, as amended, a true and complete copy of
which has been delivered to the original holder of this Warrant;
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<PAGE>
(d) The execution and delivery of this Warrant are not, and the issuance
of the Shares upon exercise of this Warrant in accordance with the terms hereof
will not be, inconsistent with the Company's Articles of Incorporation or
by-laws, do not and will not contravene any law, governmental rule or
regulation, judgment or order applicable to the Company, and do not and will not
conflict with or contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument of which the Company is a
party or by which it is bound or require the consent or approval of, the giving
of notice to, the registration with or the taking of any action in respect of or
by, any Federal, state or local government authority or agency or other person
except such consents or approvals as have been obtained prior to the Date of
Grant pursuant to Paragraph 10(e) below; and
(e) The Company has obtained all consents required in order to issue
this Warrant and grant the holder of this Warrant the rights described in
section 9 hereof.
12. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
13. NOTICES. Any notice, request or other document required or permitted to
be given or delivered to the holder hereof or the Company shall be delivered, or
shall be sent by certified or registered mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor on the signature page of this Warrant.
14. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon any
corporation succeeding the Company by merger, consolidation or acquisition of
all or substantially all of the Company's assets, and all of the obligations of
the Company relating to the Common Stock issuable upon the exercise or
conversion of this Warrant shall survive the exercise, conversion and
termination of this Warrant and all of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the holder
hereof. The Company will, at the time of the exercise or conversion of this
Warrant, in whole or in part, upon request of the holder hereof but at the
Company's expense, acknowledge in writing its continuing obligation to the
holder hereof in respect of any rights (including, without limitation, any right
to registration of the shares of Registrable Securities) to which the holder
hereof shall continue to be entitled after such exercise or conversion in
accordance with this Warrant; provided, that the failure of the holder hereof to
make any such request shall not affect the continuing obligation of the Company
to the holder hereof in respect of such rights.
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15. LOST WARRANTS OR STOCK CERTIFICATES. The Company covenants to the
holder hereof that upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction, or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon
receipt of an indemnity reasonably satisfactory to the Company, or in the case
of any such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, In lieu of the lost, stolen, destroyed or mutilated
Warrant or stock certificate.
16. DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
17. GOVERNING LAW. This Warrant shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Texas.
TANOX BIOSYSTEMS, INC.
By: /s/ NANCY T. CHANG
Nancy T. Chang, President
Address:
10301 Stella Link
Houston, Texas 77025
Date: November, 1989
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<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
To: TANOX BIOSYSTEMS, INC.
1. The undersigned hereby elects to purchase _____ shares of Common Stock
of TANOX BIOSYSTEMS, INC. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name or names as are specified below:
------------------------------------
(Name)
------------------------------------
------------------------------------
(Address)
3. The undersigned represents that the aforesaid shares are being acquired
for the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned has
no present intention of distributing or reselling such shares. In support
thereof, the undersigned has executed an Investment Representation Statement
attached hereto as Schedule 1.
------------------------------------
(Signature)
- ---------------------------
(Date)
21
<PAGE>
Schedule 1
INVESTMENT REPRESENTATION STATEMENT
Purchaser :
Company: TANOX BIOSYSTEMS, INC.
Security: Common Stock
Amount :
Date :
In connection with the purchase of the above-listed securities (the
"Securities"), the undersigned (the "Purchaser") represents to the Company as
follows:
(a) The Purchaser is aware of the Company's business affairs and financial
condition, and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. The Purchaser is
purchasing the Securities for its own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933 ("Securities Act").
(b) The Purchaser understands that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of the
Purchaser's investment intent as expressed herein. In this connection, the
Purchaser understands that, in the view of the Securities and Exchange
Commission ("SEC"), the statutory basis for such exemption may be unavailable if
the Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future.
(c) The Purchaser further understands that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, the Purchaser
understands that the Company is under no obligation to register the Securities.
In addition, the Purchaser understands that the certificate
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<PAGE>
evidencing the Securities will be imprinted with the legend referred to in the
Warrant under which the Securities are being purchased.
(d) The Purchaser is aware of the provisions of Rule 144, promulgated under
the Securities Act, which, in substance, permit limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, if applicable, including, among other
things: The availability of certain public information about the Company; the
resale occurring not less than two years after the party has purchased and paid
for the securities to be sold: the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934) and
the amount of securities being sold during any three-month period not exceeding
the specified limitations stated therein.
(e) The Purchaser further understands that at the time it wishes to sell
the Securities there may be no public market upon which to make such a sale, and
that, even if such a public market then exists, the Company may not be
satisfying the current public information requirements of Rule 144, and that, in
such event, the Purchaser may be precluded from selling the Securities under
Rule 144 even if the two-year minimum holding period had been satisfied.
(f) The Purchaser further understands that in the event all of the
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive,
the Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
Purchaser:
------------------------------------
Date: ________________, 19__
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EXHIBIT A-l
NOTICE OF EXERCISE
To: TANOX BIOSYSTEMS, INC. (the "Company")
1. Contingent upon and effective immediately prior to the closing (the
"Closing") of the Company's public offering contemplated by the Registration
Statement on Form S- ____, filed ____________, 19__, the undersigned hereby
elects to purchase shares of Common Stock of the Company (or such lesser number
of shares as may be sold on behalf of the undersigned at the Closing) pursuant
to the terms of the attached Warrant.
2. Please deliver to the custodian for the selling shareholders a stock
certificate representing such _____ shares.
3. The undersigned has instructed the custodian for the selling
shareholders to deliver to the Company $_________ or, if less, the net proceeds
due the undersigned from the sale of shares in the aforesaid public offering. If
such net proceeds are less than the purchase price for such shares, the
undersigned agrees to deliver the difference to the Company prior to the
Closing.
--------------------------
(Signature)
- -----------------------
(Date)
24
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
This Agreement is made this _____ day of __________, 2000, between
Tanox, Inc., a Delaware corporation (the "Company") and
________________________ ("Agent").
RECITALS
1. The Agent is serving as a director, officer, employee or other agent of
the Company or, at the request of the Company, another corporation or
enterprise, and the Company desires the Agent to continue to serve in this
capacity.
2. The Company and the Agent recognize that qualified persons are often
reluctant to serve publicly-held corporations as directors, officers, employees
or agents of such corporations or, at the request of such corporations, other
corporations or enterprises, unless they are provided with adequate protection
through insurance or adequate indemnification against inordinate risks of claims
and actions against them arising out of their service to, and activities on
behalf of, the corporation.
3. The Company's board of directors has determined that the inability to
attract and retain qualified persons would be detrimental to the best interests
of the Company's stockholders and that the Company should act to assure these
persons that there will be increased certainty of adequate protection in the
future.
4. The Company has adopted bylaws (the "Bylaws") providing for
indemnification of the directors, officers, employees and other agents of the
Company, including persons serving at the request of the Company in these
capacities with other corporations or enterprises, to the fullest extent
permitted under the Delaware General Company Law (the "GCL").
5. The bylaws, and the GCL, by their non-exclusive nature, permit
contracts between the Company and its directors, officers, employees and other
agents with respect to indemnification.
6. To induce the Agent to continue to serve as a director, officer,
employee or other agent of the Company or, at the request of the Company, other
corporations or enterprises, the Company has determined it to be in its best
interest to enter into this Agreement to indemnify the Agent to the fullest
extent permitted by law.
NOW, THEREFORE, for and in consideration of the mutual covenants and
conditions contained herein, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Agent agree as follows:
<PAGE>
ARTICLE 1. AGREEMENT TO SERVE
Agent will serve at the will of the Company as a director, officer,
employee or other agent of the Company or, at the request of the Company, other
corporations or enterprises, faithfully and to the best of her or his ability so
long as she or he is duly elected and qualified unless she or he is removed or
terminated in accordance with applicable law or until such time as she or he
tenders her or his resignation in writing.
ARTICLE 2. INDEMNIFICATION
2.1 INDEMNITY OF AGENT. In consideration of the Agent's service to the
Company, the Company hereby agrees to hold harmless and indemnify Agent to the
full extent authorized or permitted by the provisions of the Bylaws and the GCL,
as same may be amended from time to time (but only to the extent that such
amendment permits the Company to provide broader indemnification rights than the
Bylaws or the GCL permitted before adoption of such amendment).
2.2 ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in
Paragraph 2.3, the Company hereby further agrees to hold harmless and indemnify
Agent against:
(a) any and all expenses (including attorneys' fees), fees, damages,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by Agent in connection with any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (including an action by or
on behalf of the Company) to which Agent is, was or at any time
becomes a party, or is threatened to be made a party, by reason of
the fact that Agent is, was or at any time becomes a director,
officer, employee or agent of the Company, or is or was serving or
at any time serves at the request of the Company as a director,
officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by the
Company under the non-exclusivity provisions of the GCL and the
Bylaws.
2.3 LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Paragraph 2.2 may be paid by the Company:
(a) if indemnity is not lawful (and, in this respect, both the Company
and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising
under the federal securities laws is against public policy and is,
therefore, unenforceable and that claims for indemnification should
be submitted to appropriate courts for adjudication);
(b) if judgment is rendered against Agent for an accounting of profits
made from the purchase or sale by Agent of securities of the Company
pursuant to the provisions of
2
<PAGE>
Section 16(b) of the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any federal, state or local law;
(c) if Agent's conduct is finally adjudged to have been knowingly
fraudulent or deliberately dishonest, or to constitute willful or
intentional misconduct;
(d) if Agent's conduct is established by a final judgment as
constituting a breach of Agent's duty of loyalty to the Company or
resulting in any personal profit or advantage to which Agent was not
legally entitled;
(e) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any
excess beyond payment under such insurance, clause, bylaw or
agreement; or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Company or its
directors, officers, employees or other agents, unless (i) such
indemnification is expressly required to be made by law, or (ii) the
proceeding was authorized by the Board of Directors of the Company.
2.4 CONTRIBUTION. If the indemnification provided in Paragraphs 2.1 and
2.2 is unavailable and may not be paid to Agent for any reason other than those
set forth in Paragraph 2.3, then in respect to any threatened, pending or
completed action, suit or proceeding in which the Company is jointly liable with
Agent (or would be if joined in such action, suit or proceeding), the Company
shall contribute to the amount of expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
and paid or payable by Agent in such proportion as is appropriate to reflect (i)
the relative benefits received by the Company on the one hand and by Agent on
the other hand from the transaction from which such action, suite or proceeding
arose, and (ii) the relative fault of the Company on the one hand and of Agent
on the other hand in connection with the events that resulted in such expenses,
judgements, fines or settlement amounts, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of Agent
on the other hand shall be determined by reference to, among other things, the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent the circumstances resulting in such expenses, judgments,
fines or settlement amounts. The Company agrees that it would not be just and
equitable if contribution pursuant to this Paragraph 2.4 were determined by pro
rata allocation or any other method of allocation that does not take account of
the foregoing equitable considerations.
3
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2.5 CONTINUATION OF OBLIGATIONS.
(a) All agreements and obligations of the Company contained herein shall
continue during the period Agent is a director, officer, employee or
agent of the Company or (or is or was serving at the request of the
Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise)
and shall continue thereafter so long as Agent shall be subject to
any possible claim or threatened, pending or completed action, suit
or proceeding, whether civil, criminal or investigative, by reason
of the fact that Agent was serving in any capacity referred to
herein.
(b) If Agent is deceased and is entitled to indemnification under any
provision of this Agreement, the Company shall indemnify Agent's
estate and her or his spouse, heirs, administrators and executors
against, and the Company shall, and does hereby agree to, assume any
and all expenses (including attorneys' fees), penalties and fines
actually and reasonably incurred by or for Agent or her or his
estate, in connection with the investigation, defense, settlement or
appeal of any such action, suit or proceeding. Further, when
requested in writing by the spouse of Agent, and/or the heirs,
executors or administrators of Agent's estate, the Company shall
provide appropriate evidence of the Company's agreement set out
herein, to indemnify Agent against and to itself assume such costs,
liabilities and expenses.
2.6 NOTIFICATION AND DEFENSE OF CLAIM. Not later than 30 days after
receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent must, if a claim in respect thereof is to be made against the
Company under this Agreement, notify the Company of the commencement thereof.
Agent's omission so to notify the Company will relieve the Company from any
liability that it may have to her or him under this Agreement. However, such
omission will not relieve the Company from any obligation it may have to Agent
other than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent
notifies the Company of the commencement thereof:
(a) The Company may participate therein at its own expense;
(b) Except as otherwise provided below, to the extent that it may wish,
the Company, jointly with any other indemnifying party similarly
notified, may assume the defense thereof, with counsel reasonably
satisfactory to Agent. After notice from the Company to Agent of the
Company's election to assume the defense as provided above, the
Company will not be liable to Agent under this Agreement for any
legal or other expenses subsequently incurred by Agent in connection
with the defense thereof, other than reasonable costs of
investigation or as otherwise provided below. Agent may employ
counsel in such action, suit or proceeding, but the fees and
expenses of such counsel incurred after notice from the Company of
its assumption
4
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of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the
Company, (ii) Agent shall have reasonably concluded that there may
be a conflict of interest between the Company and Agent in
conducting the defense of such action or (iii) the Company shall not
in fact have employed counsel to assume the defense of such action,
in each of which cases the fees and expenses of counsel shall be at
the expense of the Company. The Company may not assume the defense
of any action, suit or proceeding brought by or on behalf of the
Company or as to which Agent shall have made the conclusion provided
for in (ii) above; and
(c) The Company shall not be required to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company may not settle any
action or claim in any manner that would impose any penalty or
limitation on Agent without her or his written consent. Neither the
Company nor Agent will unreasonably withhold its consent to any
proposed settlement.
2.7 ADVANCEMENT AND REPAYMENT OF EXPENSES.
(a) If Agent employs her or his own counsel pursuant to Paragraph
2.6(b)(i) through (iii) above, the Company shall advance to Agent
any and all reasonable expenses (including legal fees and expenses)
incurred in investigating or defending any threatened or pending
action, suit or proceeding, whether civil, criminal, administrative
or investigative, within ten (10) days after receiving from Agent
copies of invoices for such expenses and prior to any final
disposition of any such action, suit or proceeding.
(b) Agent agrees that she or he will reimburse the Company for all
reasonable expenses paid by the Company in defending any civil or
criminal action, suit or proceeding against Agent if and only to the
extent it shall be ultimately determined that Agent is not entitled,
under the provisions of the GCL, the Bylaws, this Agreement or
otherwise, to be indemnified by the Company for such expenses.
5
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2.8 ENFORCEMENT.
(a) Any right to indemnification or advances granted by this Agreement
to Agent shall be enforceable by or on behalf of Agent in any court
of competent jurisdiction if (i) the claim for indemnification or
advances is denied, in whole or in part, or (ii) no disposition of
such claim is made within ninety (90) days of request therefor.
Agent, in such enforcement action, if successful in whole or in
part, shall be entitled to be paid also the expense of prosecuting
her or his claim. It shall be a defense to any action for which a
claim for indemnification is made under this Agreement (other than
an action brought to enforce a claim for expenses pursuant to
Section 2.7, provided that the required undertaking has been
tendered to the Company) that Agent is not entitled to
indemnification because of the limitations set forth in Section 2.3.
Neither the failure of the Company (including its Board of Directors
or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of
Agent is proper in the circumstances, nor an actual determination by
the Company (including its Board of Directors or its stockholders)
that such indemnification is improper shall be a defense to the
action or create a presumption at Agent is not entitled to
indemnification under this Agreement or otherwise.
(b) The Company expressly confirms and agrees that it has entered into
this Agreement and assumed the obligations imposed on the Company
hereby to induce Agent to serve as a director, officer, employee or
other agent of the Company or, at the request of the Company, other
corporations or enterprises, and acknowledges that she or he is
relying upon this Agreement in serving in such capacity.
(c) If Agent is required to bring any action to enforce rights or to
collect moneys due under this Agreement and is successful in such
action, the Company shall reimburse Agent for all of her or his
reasonable fees and expenses in bringing and pursuing such action.
2.9 SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Agent, who shall execute all documents required and shall do all
acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
2.10 NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Company's Certificate of
Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in her or his official capacity and as to action in
another capacity while holding office.
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ARTICLE 3. MISCELLANEOUS PROVISIONS
3.1 SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
of this Agreement is held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of any other provisions.
3.2 BINDING EFFECT. This Agreement shall be binding upon Agent and upon
the Company, its successors and assigns, and shall inure to the benefit of
Agent, her or his heirs, personal representatives and assigns and to the benefit
of the Company, its successors and assigns. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or
assetsCompany,expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
if no such succession had taken place.
3.3 AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
3.4 GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
3.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
together constitute a single instrument.
3.6 HEADINGS. The headings of paragraphs in this Agreement are for
convenience only and shall not be deemed to constitute part of this Agreement or
affect the construction thereof.
3.7 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) if to Agent, at the address indicated on the signature page
hereof; and
(b) if to the Company, to:
Tanox, Inc.
10301 Stella Link
Houston, Texas 77025
Attn: President
Facsimile: (713) 664-8914;
7
<PAGE>
or to such other address as may have been furnished to Agent by the Company as
provided in this paragraph.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EXHIBIT 10.2
TANOX BIOSYSTEMS, INC.
1987 STOCK OPTION PLAN
I. PURPOSE OF THE PLAN
The Tanox Biosystems, Inc. 1987 Stock Option Plan (the "Plan") is intended
to provide a means whereby certain employees of Tanox Biosystems, Inc., a Texas
corporation (the "Company"), and its subsidiaries, if any, may develop a sense
of proprietorship and personal involvement in the development and financial
success of the Company, and to encourage them to remain with and devote their
best efforts to the business of the Company, thereby advancing the interests of
the Company and its shareholders. Accordingly, the Company may grant to certain
employees the option ("Option") to purchase shares of the $0.01 par value common
stock of the Company ("Stock"), in accordance with the terms and conditions of
the Plan. Options granted under the Plan may be either incentive stock options
("Incentive Stock Options") within the meaning of section 422A(b) of the
Internal Revenue Code of 1986, as amended (the "Code") or options which do not
constitute Incentive Stock Options.
II. ADMINISTRATION
The Plan shall be administered by a Committee (the "Committee") of one or
more persons appointed by the Board of Directors of the Company (the "Board")
Members of the Committee shall be eligible to participate in the Plan or in any
other stock, stock option or stock appreciation rights plan of the Company or
any of its affiliates ("Company Stock Plan"). The Committee shall have sole
authority to select the employees who are to be granted Options from among those
eligible under the Plan and to establish the number of shares which may be
issued under each Option. The Committee is authorized to interpret the Plan and
may from time to time adopt such rules and regulations, not inconsistent with
the provisions of the Plan, as it may deem advisable to carry out the Plan.
Without intending to limit its authority, the Committee is specifically
authorized to adopt such limitations and requirements in connection with the
exercise of Options granted under the Plan and have such information prepared
for distribution to persons receiving such Options as may be necessary or
appropriate to qualify the exercise of such Options
EXHIBIT "B"
<PAGE>
and issuance of the Stock pursuant thereto for exemption from registration under
applicable federal and state securities laws or, if desired, to register such
stock under such securities laws. All decisions made by the Committee in
selecting the employees to whom options shall be granted, in establishing the
number of shares which may be issued under each Option, and in construing the
provisions of the Plan shall be final. If a Committee is not appointed by the
Board, the Board shall act as the Committee for purposes of the Plan.
III. OPTION AGREEMENTS
Each Option shall be evidenced by an option agreement ("Option Agreement")
and shall contain such terms and conditions, and may be exercisable for such
periods, as may be approved by the Committee. The terms and conditions of the
respective Option Agreements need not be identical. Also, an Option Agreement
may provide for the payment of the option price, in whole or in part, by the
delivery of a number of shares of Stock (plus cash if necessary) having a fair
market value equal to such option price; provided, that the shares of such Stock
delivered have been held for a sufficient period to meet criteria for "maturity"
established by the Committee acting upon advice of the independent certified
public accountants of the Company. For all purposes under the Plan, the fair
market value of a share of Stock on a particular date shall be determined by the
Committee in such manner as it deems appropriate. If the Stock is publicly
traded at the time a determination of its fair market value is required to be
made, fair market value of a share of Stock on a particular date shall be the
average between the closing bid and ask price of the Stock on the most recent
date the Stock was publicly traded. The Option and the rights granted under the
Option shall not be transferable other than by will or the laws of descent and
distribution, and shall be exercisable only by the optionee during the
optionee's lifetime or at optionee's death only by the optionee's guardian
or legal representative; subject, however, to any restrictions on transfer of,
or any options of the Company or other shareholders to reacquire, any shares
purchased by the optionee or the optionee's guardian or legal representative
under the terms of any buy-sell or other agreement which the Company may require
the optionee or the optionee's guardian or legal representative to execute prior
to exercise of the option rights hereunder.
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<PAGE>
IV. ELIGIBILITY OF OPTIONEE
Options may be granted only to individuals who are key employees,
officers, or directors of the Company or any subsidiary corporation, if any, (as
defined in section 425 of the Code) of the Company at the time the Option is
granted. Options may be granted to the same employee on more than one occasion.
Optionee shall not be required to exercise Options granted hereunder on more
than one occasion in the order that they were granted and may exercise Options
in such order as Optionee may determine. The aggregate fair market value
(determined on the basis of the fair market value of the Stock at the time of
the grant of the Incentive Stock Option) of Stock with respect to which such
Incentive Stock Options are first exercisable by an optionee during any calendar
year (under the Plan and any other incentive stock option plans of the Company
and any parent and subsidiary corporations) shall not exceed $100,000; however,
the value of Stock for which options may be granted to an optionee in any year
may exceed $100,000. Further, no Incentive Stock Option shall be granted to an
individual if, at the time the Option is granted, such individual owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its parent or any subsidiary corporation, within the
meaning of section 422A(b)(6) of the Code, unless (i) at the time such Option is
granted the option price is at least 110% of the fair market value of the Stock
subject to the Option and (ii) such Option by its terms is not exercisable after
the expiration of five years from the date of grant.
V. SHARES SUBJECT TO THE PLAN
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 2,700,000 (as amend and adjusted respectively,
by resolution of the Board of Directors effective as of April 24, 1989, June 30,
1990, and March 31, 1997) shares of Stock. Such shares may consist of authorized
but unissued shares of Stock or previously issued shares of Stock reacquired by
the Company. Any of such shares which remain unissued and which are not subject
to outstanding Options at the termination of the Plan shall cease to be subject
to the Plan, but, until termination of the Plan, the Company shall at all times
make available a sufficient number of shares to meet the requirements of the
Plan. Should any Option expire or terminate prior to its exercise in full, the
shares previously subject to such Option may again be subject to an Option
granted under the Plan. The aggregate number of shares which may be issued under
the Plan shall be subject to adjustment as provided in
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<PAGE>
Paragraph VIII hereof. Exercise of an Option in any manner, shall result in a
decrease in the number of shares of Stock which may thereafter be available,
both for purposes of the Plan and for sale to any one employee, by the number of
shares as to which the Option is exercised. Separate stock certificates shall be
issued by the Company for those shares acquired pursuant to the exercise of an
Incentive Stock Option and for those shares acquired pursuant to the exercise of
any Option which does not constitute an Incentive Stock Option.
VI. OPTION PRICE
The purchase price of Stock issued under each Option shall be determined
by the Committee, but, in the case of an Incentive Stock Option, such purchase
price shall not be less than the fair market value of Stock subject to the
Option on the date the Option is granted.
VII. TERM OF PLAN
The Plan shall be effective upon the date of its adoption by the Board of
Directors, provided the Plan is subsequently approved by the shareholders of the
Company within 12 months thereafter. Except with respect to Options then
outstanding, if not sooner terminated under the provisions of Paragraph IX
hereof, the Plan shall terminate upon and no further Options shall be granted
after the expiration of ten years from the date of its adoption by the Board of
Directors.
VIII. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board of Directors or the
shareholders of the Company to make or authorize (i) any adjustment,
recapitalization, reorganization, or other change in the Company's capital
structure or its business, (ii) any merger or consolidation of the Company,
(iii) any issue of debt or equity securities with priority to or affecting Stock
or the rights thereof, (iv) the dissolution or liquidation of the Company or any
sale or transfer of all or any part of its assets or business, or (v) any other
corporate act or proceeding. The Committee shall be authorized to increase the
number of shares
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<PAGE>
which may be issued under this Plan, as set forth in Paragraph V, if necessary
to permit any adjustment in the number of shares under this Paragraph VIII, so
long as sufficient authorized, unissued and otherwise unencumbered shares are
available to permit such increase.
(b) The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option previously granted, the Company shall effect a subdivision or
consolidation of shares of Stock or the payment of a stock dividend on Stock
without receipt of consideration by the Company, then the number of shares of
Stock with respect to which such Option may thereafter be exercised (i), in the
event of an increase in the number of outstanding shares, shall be
proportionately increased and the purchase price per share shall be
proportionately reduced and (ii), in the event of a reduction in the number of
outstanding shares, shall be proportionately reduced and the purchase price per
share shall be proportionately increased.
(c) If the Company recapitalizes or otherwise changes its capital
structure, thereafter, upon any exercise of an Option previously granted, the
optionee shall be entitled to purchase under such Option, in lieu of the number
of shares of Stock as to which such Option shall then be exercisable, the number
and class of shares of stock and securities to which the optionee would have
been entitled pursuant to the terms of the recapitalization if, immediately
prior to such recapitalization, the optionee had been the holder of record of
the number of shares of Stock as to which such Option is then exercisable.
If (i) the Company shall not be the surviving entity in any merger or
consolidation (or survives only as a subsidiary of another entity), (ii) the
Company is to sell all or substantially all of its assets to any other person or
entity (other than a wholly-owned subsidiary), (iii) any person or entity
(including a "group" as contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934) acquires or gains ownership or control of (including,
without limitation, power to vote) more than 50% of the outstanding shares of
Stock, (iv) the Company is to be dissolved and liquidated, or (v) as a result of
or in connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board (each such
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<PAGE>
event is referred to herein as a "Corporate Change"), then the Committee, acting
in its sole discretion without the consent or approval of any optionee, shall
effect one or more of the following alternatives (subject to the limitation set
forth in Paragraph IV as to the maximum amount of Stock as to which Incentive
Stock Options may first become exercisable in any calendar year), which may vary
among individual optionees:
(1) acceleration of the time at which Options then outstanding may
be exercised so that such Options may be exercised in full for a limited
period of time on or before a specified date (before or after such
Corporate Change) fixed by the Committee, after which specified date all
unexercised Options and all rights of optionees thereunder shall
terminate;
(2) require the mandatory surrender to the Company by selected
optionees of each outstanding Option held by such optionees (irrespective
of whether such Options are then exercisable under the provisions of the
Plan) as of a date, before or after such Corporate Change, specified by
the Committee, and in such event the Committee shall cancel such Options
as soon as reasonably possible and pay to each optionee an amount of cash
equal to the excess of the fair market value of the aggregate shares
subject to such Option over the aggregate option price of such shares;
(3) make such adjustments to Options then outstanding as the
Committee deems appropriate to reflect such Corporate Change; provided,
however, that the Committee in its sole discretion, may determine that no
adjustment is necessary to Options then outstanding; or
(4) provide that, upon any subsequent exercise of an Option
theretofore granted, the optionee shall be entitled to purchase under such
Option, in lieu of the number of shares of Stock as to which such Option
shall then be exercisable, the number and class of shares of stock and
securities to which the optionee would have been entitled pursuant to the
terms of the agreement of merger, consolidation or sale of assets and
dissolution if, immediately prior to such merger, consolidation or sale of
assets and dissolution, the optionee had been the holder of record of the
number of shares of Stock as to which such Option is then exercisable.
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<PAGE>
Such actions shall be taken and be effective as of a date selected by the
Committee within (a) ten days after the approval by the shareholders of the
Company of any such merger, consolidation, sale of assets or dissolution or (b)
thirty days of any such change of control, as provided in (i) through (v) above.
The Committee for purposes of the Corporate Changes described in (iii) and (v)
above shall be the Committee as constituted prior to the occurrence of such
Corporate Change.
(d) Any adjustment provided for in Subparagraphs (b) and (c) above shall
be subject to any required shareholder action.
(e) Except as otherwise provided in this Plan, the issuance by the
Company of shares of Stock, or any class of securities convertible into shares
of stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities and, in any case, whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Stock subject to Options previously granted or the purchase
price per share.
IX. AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors in its discretion may terminate the Plan at any
time with respect to any shares for which Options have not been granted prior to
such termination. The Board of Directors shall have the right to alter or amend
the Plan or any part of the Plan from time to time; provided, however, that no
change in any Option granted before such alteration or amendment may be made
which would impair the rights of the optionee without the consent of such
optionee; and provided, further, that the Board of Directors may not make any
alteration or amendment which would (i) materially increase the benefits
accruing to participants under the Plan, (ii) increase the aggregate number of
shares which may be issued pursuant to the provisions of the Plan, (iii) change
the class of employees eligible to receive Options under the Plan, or (iv)
extend the term of the Plan without the approval of the shareholders of the
Company.
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EXHIBIT 10.3
TANOX BIOSYSTEMS, INC.
1992 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
I. Purpose of the Plan
The 1992 Non-Employee Directors Stock Option Plan (the "Plan") is intended
to provide ownership of the capital stock of Tanox Biosystems, Inc., a Texas
Corporation (the "Company"), to non-employee members of the Company's Board of
Directors ("Board") in order to attract and retain highly qualified individuals
to serve as directors of the Company; to provide competitive remuneration for
Board service; and to strengthen the commonality of interest between directors
and shareholders of the Company. Accordingly, the Company may grant to certain
non-employee members of the Board options ("Options") to purchase shares of the
common stock, $.01 par value, of the company ("Stock") in accordance with the
terms and conditions of the Plan. Options granted under the Plan shall not be
incentive stock options within the meaning of section 422 (a) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Plan is intended to conform
to the provisions of Rule 16b-3 ("Rule 16b-3") of the Securities Exchange Act of
1934 (the "1934 Act") as presently in effect.
II. Administration
The Plan shall be administered by a Committee (the "Committee") consisting
of two or more members of the Board who are employees of the Company. Members of
the Committee and employee members of the Board shall not be eligible to
participate in the Plan. The Committee shall have sole authority to select the
non-employee members of the Board who are to be granted Options from among those
eligible under the Plan and to establish the number of shares which may be
issued under each of the Options. The Committee is authorized to interpret the
Plan and may from time to time adopt such rules and regulations, not
inconsistent with the provisions of the Plan, as it may deem advisable to carry
out the Plan. Without intending to limit its authority, the Committee is
specifically authorized to adopt such limitations and requirements in connection
with the exercise of
<PAGE>
Options granted under the Plan and have such information prepared for
distribution to persons receiving such Options as may be necessary or
appropriate to qualify the exercise of such Options and issuance of the stock
Pursuant thereto for exemption from registration under applicable federal and
state securities laws or, if desired, to register such stock under such
securities laws. All decisions made by the Committee in selecting the
non-employee members of the Board to whom Options shall be granted, in
establishing the number of shares which may be issued under each Option, and in
construing the provisions of the Plan shall be final.
III. Option Agreements
Each Option shall be evidenced by an option agreement ("Option Agreement")
and shall contain such terms and conditions, and may be exercisable for such
periods, as may be approved by the Committee. Unless otherwise provided by the
Committee on the grant of an Option, an Option shall become exercisable annually
as to one-third of the number of shares of Stock covered by such Option. The
terms and conditions of the respective Option Agreements need not be identical.
For all purposes under the Plan, the fair market value of a share of Stock on a
particular date shall be determined by the Committee in such a manner as it
deems appropriate. If, however, the stock is publicly traded at the time a
determination of its fair market value is required to be made, fair market value
of a share of Stock on a particular date shall be the average of (i) the closing
bid and ask price of the Stock on the most recent date the Stock was publicly
traded or, (ii) if the Stock is publicly traded on a securities exchange, the
high and low quoted selling price of the Stock on the most recent date the Stock
was publicly traded. The Option and the rights granted under the Option shall
not be transferable other than by will or the laws of descent and distribution,
and shall be exercisable only by the optionee during the optionee's lifetime or
at the optionee's death only by the optionee's guardian or legal representative;
subject, however, to any restrictions on transfer of, or any options of the
Company or other shareholders to reacquire, any shares purchased by the optionee
or the optionee's guardian or legal representative under the terms of any
buy-sell or other agreement which the Company may require the optionee or
EXHIBIT A
<PAGE>
the optionee's guardian or legal representative to execute prior to exercise of
the option rights hereunder.
Page 3
<PAGE>
IV. Eligibility of Optionee
Options may be granted only to individuals who are non-employee members of
the Board at the time the Option is granted. Options may be granted to the same
person on more than one occasion. An optionee shall not be required to exercise
Options granted hereunder in the order that they were granted and may exercise
Options in such order as the optionee may determine.
V. Shares Subject to the Plan
The aggregate number of shares which may be issued under Options granted
under the Plan shall not exceed 100,000 shares of stock. Such shares may consist
of authorized but unissued shares of Stock or previously issued shares of Stock
reacquired by the Company. Any of such shares which remain unissued and which
are not subject to outstanding Options at the termination of the Plan shall
cease to be subject to the Plan, but, until termination of the Plan, the Company
shall at all times make available a sufficient number of shares to meet the
requirements of the Plan. If any Option should expire or terminate prior to its
exercise in full, the shares previously subject to such Option may again be
subject to an Option granted under the Plan. The aggregate number of shares
which may be issued under the Plan shall be subject to adjustment as provided in
Paragraph VIII hereof. Exercise of an Option in any manner, shall result in a
decrease in the number of shares of Stock which may thereafter be available,
both for purposes of the Plan and for sale to anyone director, by the number of
shares as to which the Option is exercised.
VI. Method of Exercise
(a) An option granted under the Plan shall be deemed exercised when the
person entitled to exercise the Option (i) delivers written notice to the
President of the Company of the decision to exercise, (ii) concurrently tenders
to the Company full payment for the Shares to be purchased pursuant to the
exercise, and (iii) complies with such other reasonable requirements as the
Committee may establish. Payment for Shares with respect to which an
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<PAGE>
Option is exercised may be in cash, or by certified check, or wholly or
partially in the form of unrestricted shares of Common Stock, as the Committee
may determine; provided that such Common Stock has been held by the optionee for
more than six months and has a fair market value equal to the exercise price.
The Common Stock covered by any Option or portion thereof, as to which the right
to exercise shall have been so surrendered, shall not again be available for the
purposes of the Plan.
(b) If the optionee ceases to be a director for any reason other than a
Corporate Change (as defined below), voluntary resignation, death or disability,
all Options held by the optionee shall lapse at the earlier of the end of the
exercise period for such Options or 60 days after the last day that the optionee
serves as a director; provided, however, the Option may be exercised only for
the number of shares of Stock for which it could have been exercised on such
cessation of service, subject to any provision to the contrary contained in the
Option Agreement.
(c) In the case of death of the optionee, the beneficiaries designated by
the optionee shall have 180 days from the optionee's demise or to the end of the
exercise period, whichever is earlier, to exercise the Option; provided,
however, the Option may be exercised only for the number of shares of Stock for
which it could have been exercised at the time the optionee died, subject to any
provision to the contrary contained in the Option Agreement.
(d) If the optionee ceases to serve as a director due to total and
permanent disability (within the meaning of Section 22(e)(3) of the Code) the
Option shall lapse at the earlier of the end of the exercise period or 180 days
after the date of such cessation of service; provided, however, the Option may
be exercised only for the number of shares of Stock for which it could have been
exercised at the time the optionee became disabled, subject to any provision to
the contrary contained in the Option Agreement.
(e) If the optionee voluntarily resigns as a director, all Options shall
lapse upon such
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resignation.
Page 6
<PAGE>
VII. Term of Plan
The Plan shall be effective upon the date of its adoption by the
shareholders of the Company and no Options shall be exercisable unless and until
the shareholders of the Company approve the Plan. In addition, no Option shall
be exercisable until the information required by Rule 16b-3(b)(2) with respect
to the Plan is disseminated in accordance with the provisions of such Rule on or
prior to the date of the first annual meeting of shareholders held after the
first registration of an equity security of the Company under Section 12 of the
1934 Act. Except with respect to Options then outstanding, if not sooner
terminated under the provisions of Paragraph IX hereof, the Plan shall terminate
upon, and no further Options shall be granted after, the expiration of ten years
from the date of its adoption by the Board of Directors.
VIII. Recapitalization or Reorganization
(a) The existence of the Plan and the Options granted hereunder shall not
affect in any way the right or power of the Board of Directors or the
shareholders of the Company to make or authorize (i) any adjustment,
recapitalization, reorganization, or other change in the Company's capital
structure or its business, (ii) any merger or consolidation of the Company,
(iii) any issue or debt or equity securities with priority to or affecting Stock
or the rights thereof, (iv) the dissolution or liquidation of the Company or any
sale or transfer of all or any part of its assets or business, or (v) any other
corporate as or proceeding. The Committee shall be authorized to increase the
number of shares which may be issued under the Plan, as set forth in Paragraph
V, if necessary to permit any adjustment in the number of shares under this
Paragraph VIII, as long as sufficient authorized, unissued or otherwise
unencumbered shares are available to permit such increase.
(b) The shares with respect to which Options may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Option previously granted, the Company shall effect a subdivision or
consolidation of shares of Stock
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<PAGE>
or the payment of a stock dividend on Stock without receipt of consideration by
the Company, then the number of shares of Stock with respect to which such
Option may thereafter be exercised (i), in the event of an increase in the
number of outstanding shares, shall be proportionately increased and the
purchase price per share shall be proportionately reduced and (ii), in the event
of a reduction in the number of outstanding shares, shall be proportionately
reduced and the purchase price per share shall be proportionately increased.
(c) If the Company recapitalizes or otherwise changes its capital
structure, thereafter, upon any exercise of an Option previously granted, the
optionee shall be entitled to purchase under such Option, in lieu of the number
of shares of Stock as to which such Option shall then be exercisable, the number
and class of shares of stock and securities to which the optionee would have
been entitled pursuant to the terms of the recapitalization if, immediately
prior to such recapitalization, the optionee had been the holder of record of
the number of shares of Stock as to which such Option is then exercisable.
If (i) the Company shall not be the surviving entity in any merger or
consolidation (or survives only as a subsidiary of another entity), (ii) the
Company is to sell all or substantially all of its assets to any other person or
entity (other than a wholly-owned subsidiary), (iii) any person or entity
(including a "group" as contemplated by Section 13(d)(3) of the Securities
Exchange Act of 1934) acquires or gains ownership or control of (including,
without limitation, power to vote) more than 50% of the outstanding shares of
Stock, (iv) the Company is to be dissolved and liquidated, or (v) as a result of
or in connection with a contested election of directors, the persons who were
directors of the Company before such election shall cease to constitute a
majority of the Board (each such event is referred to herein as a "Corporate
Change"), then the Committee, acting in its sole discretion without the consent
or approval of any optionee, shall effect one or more of the following
alternatives (only to the extent permitted by Rule 16b-3), which may vary among
individual optionee:
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<PAGE>
(1) acceleration of the time at which Options then outstanding may be
exercised so that such Options may be exercised in full for a limited period of
time on or before a specified date (before or after such Corporate Change) fixed
by the Committee, after which specified date all unexercised Options and all
rights of optionee thereunder shall terminate;
(2) require the mandatory surrender to the Company by selected optionee of
each outstanding Option held by such optionee (irrespective of whether such
Options are then exercisable under the provisions of the Plan) as of a date,
before or after such Corporate Change, specified by the Committee, and in such
event the Committee shall cancel such Options as soon as reasonably possible and
pay to each optionee an amount of cash equal to the excess of the fair market
value of the aggregate shares subject to such Option over the aggregate option
price of such shares;
(3) make such adjustments to Options then outstanding as the Committee
deems appropriate to reflect such Corporate Change; provided, however, that the
Committee in its sole discretion, may determine that no adjustment is necessary
to Options then outstanding; or
(4) provide that, upon any subsequent exercise of an Option theretofore
granted, the optionee shall be entitled to purchase under such Option, in lieu
of the number of shares of Stock as to which such Option shall then be
exercisable, the number and class of shares of stock and securities to which the
optionee would have been entitled pursuant to the terms of the agreement of
merger, consolidation or sale of assets and dissolution if, immediately prior to
such merger, consolidation or sale of assets and dissolution, the optionee had
been the holder of record of the number of shares of Stock as to which such
Option is then exercisable.
Page 9
<PAGE>
Such actions shall be taken and be effective as of a date selected by the
Committee within (a) ten days after the approval by the shareholders of the
Company of any such merger, consolidation, sale of assets or dissolution or (b)
thirty days of any such change of control, as provided in (i) through (v) above.
The Committee for purposes of the Corporate Changes described in (iii) and (v)
above shall be the Committee as constituted prior to the occurrence of such
Corporate Change.
(d) Any adjustment provided for in Subparagraphs (b) and (c) above shall be
subject to any required shareholder action.
(e) Except as otherwise provided in this Plan, the issuance by the Company
of shares of Stock, or any class of securities convertible into shares of stock
of any class, for cash, property, labor, or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities and, in any case, whether or not for fair value, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Options previously granted or the purchase price per
share.
(f) Notwithstanding anything herein to the contrary, Options shall always
be granted and exercised in a manner conforming to the provisions of Rule 16b-3,
or any replacement rule adopted pursuant to the 1934 Act, as the same now exists
or may, from time to time, be amended.
IX. Amendment or Termination of the Plan
The Board of Directors in its discretion may terminate the Plan at any time
with respect to any shares for which Options have not been granted prior to such
termination. The Board of Directors shall have the right to alter or amend the
Plan or any part of the Plan from time to time; provided, however, that no
change in any Option granted before such alteration or amendment may be made
which would impair the rights of the optionee
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<PAGE>
without the consent of such optionee; and provided, further, that, the Board of
Directors may not make any alteration or amendment which would (i) materially
increase the benefits accruing to participants under the Plan, (ii) increase the
aggregate number of shares which may be issued pursuant to the provisions of the
Plan, (iii) expand or otherwise change the class of persons eligible to receive
Options under the Plan, or (iv) extend the term of the Plan. In addition, the
provisions of the Plan may not be amended more frequently than permitted by Rule
16b-3.
X. Miscellaneous Matters
(a) Nothing in the Plan shall be deemed to create any obligation on the
part of the Board to nominate any director for reelection by the Company's
shareholders, nor confer upon any director the right to remain a member of the
Board for any period of time, or at any particular rate of compensation.
(b) The Plan shall be governed by and construed in accordance with the laws
of the State of Texas.
Page 11
TANOX, INC.
By:________________________________ _____________________________
Nancy T. Chang, President Agent
and Chief Executive Officer
Address:
_____________________________
_____________________________
_____________________________
8
EXHIBIT 10.4
TANOX, INC.
1997 STOCK PLAN
SECTION 1. Purpose.
The purpose of the 1997 Stock Plan (the "Plan") is to secure for TANOX,
INC., (the "Company") and any parent or subsidiaries of the Company
(collectively the "Related Company" or "Related Companies") the benefits arising
from capital stock ownership by those employees, directors, officers and
consultants of the Company and any Related Companies who will be responsible for
the Company's future growth and continued success.
The Plan will provide a means whereby (a) employees of the Company and any
Related Companies may purchase stock in the Company pursuant to options which
qualify as "incentive stock options" ("Incentive Stock Options") under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), (b) directors
(including non-employee directors), employees, advisors and consultants of the
Company and any Related Companies may purchase stock in the Company pursuant to
options granted hereunder which do not qualify as Incentive Stock Options
("Non-Qualified Option" or "Non-Qualified Options"); (c) directors (including
non-employee directors), employees, advisors and consultants of the Company and
any Related Companies may be awarded stock in the Company ("Stock Awards"); (d)
directors (including non-employee directors), employees, advisors and
consultants of the Company and any Related Companies may receive stock
appreciation rights ("SARs"); (e) directors (including non-employee directors),
employees, advisors and consultants of the Company and any Related Companies may
make direct purchases of stock in the Company ("Stock Purchases"); and (f)
directors (including non-employee directors), employees, advisors and
consultants of the Company and any Related Companies may receive performance
units ("Performance Units"). Both Incentive Stock Options and Non-Qualified
Options are referred to hereafter individually as an "Option" and collectively
as "Options." With respect to Incentive Stock Options, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation" as those
terms are defined in Section 424 of the Code. With respect to all other Plan
Benefits, the terms (i) "parent" includes any entity in an unbroken chain of
entities ending with the Company if, at the time of grant, each of the entities
other than the Company owns 50 percent or more of the outstanding equity of one
of the other entities in such chain and (ii) "subsidiary" includes any entity in
an unbroken chain of entities beginning with the Company if, at the time of
grant, each of the entities other than the last entity in such chain owns 50
percent or more of the outstanding equity in one of the other entities in such
chain. Options, Stock Awards, SARs, Stock Purchases and Performance Units are
referred to hereafter individually as a "Plan Benefit" and collectively as "Plan
Benefits." Directors (including non-employee directors), employees, advisors and
consultants of the Company and any Related Companies are referred to herein as
"Participants."
<PAGE>
SECTION 2. Administration.
2.1 Board Of Directors And The Committee. The Plan will be administered by
the Board of Directors of the Company, whose construction and interpretation of
the terms and provisions hereof shall be final and conclusive. Any director to
whom a Plan Benefit is awarded shall be ineligible to vote upon his or her Plan
Benefit, but Plan Benefits may be granted any such director by a vote of the
remainder of the directors, except as limited below. The Board of Directors may
in its sole discretion grant Options, issue shares upon exercise of such
Options, grant Stock Awards, grant SARs and approve Stock Purchases, all as
provided in the Plan. The Board of Directors shall have authority, subject to
the express provisions of the Plan, to construe the Plan and its related
agreements, to prescribe, amend and rescind rules and regulations relating to
the Plan, to determine the terms and provisions of the respective Option, Stock
Award, SAR and Stock Purchase agreements, which need not be identical, and to
make all other determinations in the judgment of the Board of Directors
necessary or desirable for the administration of the Plan. The Board of
Directors may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any related agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. No director shall be liable for any
action or determination made in good faith. The Board of Directors may delegate
any or all of its powers under the Plan to a Compensation Committee or other
Committee (the "Committee") appointed by the Board of Directors consisting of at
least two members of the Board of Directors. If the Company has a class of stock
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), then members of the Committee shall at all times
be: (i) "outside directors" as such term is defined in Treas. Reg.
1.162-27(e)(3) (or any successor regulation); and (ii) "non-employee directors"
within the meaning of Rule 16b-3 (or any successor rule) under the Exchange
Act, as such terms are interpreted from time to time. If the Committee is so
appointed, all references to the Board of Directors herein shall mean and relate
to such Committee, unless the context otherwise requires.
2.2 Compliance With Section 162(M) of the Code. section 162(m) of the code,
added by the Omnibus Budget Reconciliation Act of 1993, generally limits the tax
deductibility to publicly held companies of compensation in excess of $1,000,000
paid to certain "covered employees" ("Covered Employees"). If the Company is
subject to Section 162(m) of the Code, it is the Company's intention to preserve
the deductibility of such compensation to the extent it is reasonably
practicable and to the extent it is consistent with the Company's compensation
objectives. For purposes of this Plan, Covered Employees of the Company shall be
those employees of the Company described in Section 162(m)(3) of the Code.
SECTION 3. Eligibility.
3.1 Incentive Stock Options. Participants who are employees shall be
eligible to receive Incentive Stock Options pursuant to the Plan; provided that
no person shall be granted any Incentive Stock Option under the Plan who, at the
time such Option is
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<PAGE>
granted, owns, directly or indirectly, Stock (as defined in Section 4)
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its Related Companies, unless the requirements of
Section 6.6(b) hereof are satisfied. In determining whether this 10% threshold
has been reached, the stock attribution rules of Section 424(d) of the Code
shall apply. Directors who are not regular employees are not eligible to receive
Incentive Stock Options.
3.2 Non-qualified Options, Stock Awards, SARs, Stock Purchase Performance
Units. Non-Qualified Options, Stock Awards, SARs, Performance Units and
authorizations to make Stock Purchases may be granted to any Participant.
3.3 Generally. The Board of Directors may take into consideration a
Participant's individual circumstances in determining whether to grant an
Incentive Stock Option, a Non-Qualified Option, a Stock Award, an SAR or a
Performance Unit or to approve a Stock Purchase. Granting of any Option, Stock
Award, SAR or Performance Unit or approval of any Stock Purchase for any
individual shall neither entitle that individual to, nor disqualify that
individual from, participation in any other grant of Plan Benefits.
SECTION 4. Stock Subject to Plan.
Subject to adjustment as provided in Sections 11 and 12 hereof, the stock
to be offered under the Plan shall consist of shares of the Company's Common
Stock, $.01 par value, and the maximum number of shares of stock which will be
reserved for issuance, and in respect of which Plan Benefits may be granted
pursuant to the provisions of the Plan, shall not exceed in the aggregate
5,000,000 shares ("Common Stock" or "Stock"). Such shares may be authorized and
unissued shares or may be treasury shares. If an Option or SAR granted hereunder
shall expire or terminate for any reason without having been exercised in full,
or if the Company shall reacquire any unvested shares issued pursuant to Stock
Awards or Stock Purchases, the unpurchased shares subject thereto and any
unvested shares so reacquired shall again be available for subsequent grants of
Plan Benefits under the Plan. Stock issued pursuant to the Plan may be subject
to such restrictions on transfer, repurchase rights or other restrictions as
shall be determined by the Board of Directors.
SECTION 5. Granting of Options, Stock Awards, Sars and Performance Units
and Approvals of Stock Purchases.
Options, Stock Awards, SARs and Performance Units may be granted and Stock
Purchases may be approved under the Plan at any time during the 10-year period
beginning November l, 1997 and ending October 31, 2007. The date of grant of an
Option, Stock Award, SAR or Performance Unit or approval of a Stock Purchase
under the Plan will be the date specified by the Board of Directors at the time
the Board of Directors grants such Option, Stock Award, SAR or Performance Unit
or approves such Stock Purchase; provided, however, that such date shall not be
prior to the date on which the Board of Directors takes such action. The Board
of Directors shall have the right, with the consent of a Participant, to convert
an Incentive Stock Option granted under the Plan to a
3
<PAGE>
Non-Qualified Option pursuant to Section 6.7. Plan Benefits may be granted alone
or in addition to other grants under the Plan.
SECTION 6. Special Provisions Applicable to Options and SARs.
6.1 Purchase Price and Shares Subject to Options and SARs.
(a) The purchase price per share of stock deliverable upon the
exercise of an Option shall be determined by the Board of Directors,
PROVIDED, HOWEVER, that (i) in the case of an Incentive Stock Option, the
exercise price shall not be less than 100% of the fair market value of such
stock on the day the option is granted (except as modified in Section
6.6(b) hereof), and (ii) in the case of a Non-Qualified Option, the
exercise price shall not be less than 50% of the fair market value of such
stock on the day such Option is granted.
(b) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of
the Company in an amount equal to the exercise price of such Options, (ii)
shares of Common Stock of the Company owned by the Participant having a
fair market value equal in amount to the exercise price of the Options
being exercised, or (iii) any combination of (i) and (ii). The fair market
value of any shares of the Company's Common Stock which may be delivered
upon exercise of an Option shall be determined by the Board of Directors.
The Board of Directors may also permit Participants, either on a selective
or aggregate basis, to simultaneously exercise Options and sell the shares
of Common Stock thereby acquired, pursuant to a brokerage or similar
arrangement, approved in advance by the Board of Directors, and to use the
proceeds from such sale as payment of the purchase price of such shares.
(c) If, at the time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as
of the last business day for which the prices or quotes discussed in this
sentence are available prior to the date such Option is granted (the
"Determination Date") and shall mean (i) the average (on the Determination
Date) of the high and low prices of the Common Stock on the principal
national securities exchange on which the Common Stock is traded, if such
Common Stock is then traded on a national securities exchange; (ii) the
last reported sale price (on the Determination Date) of the Common Stock on
the NASDAQ Stock Market if the Common Stock is not then traded on a
national securities exchange; or (iii) the closing bid price (or average of
bid prices) last quoted (on the Determination Date) by an established
quotation service for over-the-counter securities, if the Common Stock is
not reported on the NASDAQ Stock Market. However, if the Common Stock is
not publicly traded at the time an Option is granted under the Plan, "fair
market value" shall be deemed to be the fair value of the Common Stock as
determined by the Board of Directors after taking into consideration all
factors which it deems appropriate, including,
4
<PAGE>
without limitation, recent sale and offer prices of the Common Stock in
private transactions negotiated at arm's length.
6.2 Duration of Options and SARs. Subject to Section 6.6(b) hereof, each
Option and SAR and all rights thereunder shall be expressed to expire on such
date as the Board of Directors may determine, but in no event later than ten
years (for Non-Qualified Stock Options and SARs granted in connection therewith,
ten years and one day) from the day on which the Option or SAR is granted and
shall be subject to earlier termination as provided herein.
6.3 Exercise of Options and Sars.
(a) Subject to Sections 6.5 and 6.6(b)(ii) hereof, each Option and SAR
granted under the Plan shall be exercisable at such time or times and
during such period as shall be set forth in the instrument evidencing such
Option or SAR. To the extent that an Option or SAR is not exercised by a
Participant when it becomes initially exercisable, it shall not expire but
shall be carried forward and shall be exercisable, on a cumulative basis,
until the expiration of the exercise period. No partial exercise may be for
less than ten (10) full shares of Common Stock (or its equivalent).
(b) The Board of Directors shall have the right to accelerate the date
of exercise of any installments of any Option or SAR; provided that the
Board of Directors shall not accelerate the exercise date of any
installment of any Option granted to a Participant as an Incentive Stock
Option (and not previously converted into a Non-Qualified Option pursuant
to Section 6.7) if such acceleration would violate the annual vesting
limitation contained in Section 422(d)(1) of the Code, which provides
generally that the aggregate fair market value (determined at the time the
Option is granted) of the stock with respect to which Incentive Stock
Options granted to any Participant are exercisable for the first time by
such Participant during any calendar year (under all plans of the Company
and any Related Companies) shall not exceed $100,000.
6.4 Nontransferability of Options and SARs. No Option or SAR granted
under the Plan shall be assignable or transferable by the Participant, either
voluntarily or by operation of law, except (i) by will or the laws of descent
and distribution, (ii) with respect to Non-Qualified Options and SARs, pursuant
to a qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act ("ERISA") or the rules promulgated
thereunder, (iii) if the Participant's non-qualified stock option agreement
granting such options (the "Non-Qualified Stock Option Agreement") or the
Participant's SAR agreement granting such SARs (the "SAR Agreement") provides
otherwise, or (iv) with respect to Incentive Stock Options, if the Board of
Directors is advised by counsel that such transfer or assignment is or shall be
permitted under applicable law or regulation without disqualifying such Options
under Section 422 of the Code. Unless otherwise provided by the Non-Qualified
Stock Option Agreement or the SAR Agreement, during the life of the Participant,
the Option or SAR shall be exercisable
5
<PAGE>
only by him or her. If any Participant should attempt to dispose of or encumber
his or her Options or SARs, other than in accordance with the applicable terms
of a Non-Qualified Stock Option Agreement or SAR Agreement, his or her interest
in such Options or SARs shall terminate.
6.5 Effect of Termination of Employment or Death.
(a) If a Participant ceases to be employed by the Company or a Related
Company for any reason, including retirement but other than death, any
Option or SAR granted to such Participant under the Plan shall immediately
terminate; PROVIDED, HOWEVER, that any portion of such Option or SAR which
was otherwise exercisable on the date of termination of the Participant's
employment may be exercised within the three-month period following the
date on which the Participant ceased to be so employed, but in no event
after the expiration of the exercise period. Any such exercise may be made
only to the extent of the number of shares subject to the Option or SAR
which were purchasable on the date of such termination of employment. If
the Participant dies during such three-month period, the Option or SAR
shall be exercisable by the Participant's personal representatives, heirs
or legatees to the same extent and during the same period that the
Participant could have exercised the Option or SAR on the date of his or
her death. The aforementioned three-month period may be extended at the
discretion of the Board of Directors by written agreement, recognizing that
such extension may cause reclassification of an ISO as a Non-Qualified
Option.
(b) If the Participant dies while an employee of the Company or any
Related Company, any Option or SAR granted to such Participant under the
Plan shall be exercisable by the Participant's personal representatives,
heirs or legatees, for the purchase of that number of shares and to the
same extent that the Participant could have exercised the Option or SAR on
the date of his or her death. The Option or SAR or any unexercised portion
thereof shall terminate unless so exercised prior to the earlier of the
expiration of one year from the date of such death or the expiration of the
exercise period. The aforementioned one year period may be extended at the
discretion of the Board of Directors by written agreement.
6.6 Designation of Incentive Stock Options; Limitations. Options granted
under the Plan which are intended to be Incentive Stock Options qualifying under
Section 422 of the Code shall be designated as Incentive Stock Options and shall
be subject to the following additional terms and conditions:
(a) DOLLAR LIMITATION. The aggregate fair market value (determined at
the time the option is granted) of the Common Stock for which Incentive
Stock Options are exercisable for the first time during any calendar year
by any person under the Plan (and all other incentive stock option plans of
the Company and any Related Companies) shall not exceed $100,000. In the
event that Section 422(d)(1) of the Code is amended to alter the limitation
set forth therein so that following such amendment such limitation shall
differ from the limitation set forth in this Section
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<PAGE>
6.6(a), the limitation of this Section 6.6(a) shall be automatically
adjusted accordingly.
(b) 10% SHAREHOLDER. If any employee to whom an Incentive Stock Option
is to be granted pursuant to the provisions of the Plan is on the date of
grant the owner of stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Related
Companies, then the following special provisions shall be applicable to the
Incentive Stock Option granted to such individual:
(i) The option price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the fair
market value of one share of Common Stock on the date of grant; and
(ii) The option exercise period shall not exceed five years from
the date of grant.
In determining whether the 10% threshold has been reached, the stock
attribution rules of Section 424(d) of the Code shall apply.
(c) Except as modified by the preceding provisions of this Section
6.6, all of the provisions of the Plan shall be applicable to Incentive
Stock Options granted hereunder.
6.7 Conversion of Incentive Stock Options Into Non-qualified Options;
Termination of Incentive Stock Options. The Board of Directors, at the written
request of any Participant, may in its discretion take such actions as may be
necessary to convert such Participant's Incentive Stock Options (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such Incentive Stock Options, regardless of whether the
Participant is an employee of the Company or a Related Company at the time of
such conversion. Such actions may include, but not be limited to, extending the
exercise period or reducing the exercise price of the appropriate installments
of such Options. At the time of such conversion, the Board of Directors (with
the consent of the Participant) may impose such conditions on the exercise of
the resulting Non-Qualified Options as the Board of Directors in its discretion
may determine, provided that such conditions shall not be inconsistent with the
Plan. Nothing in the Plan shall be deemed to give any Participant the right to
have such Participant's Incentive Stock Options converted into Non-Qualified
Options, and no such conversion shall occur until and unless the Board of
Directors takes appropriate action. The Board of Directors, with the consent of
the Participant, may also terminate any portion of any Incentive Stock Option
that has not been exercised at the time of such termination.
6.8 Stock Appreciation Rights. An SAR is the right to receive, without
payment, an amount equal to the excess, if any, of the fair market value of a
share of Common Stock on the date of exercise over the grant price, which amount
will be
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multiplied by the number of shares with respect to which the SARs shall have
been exercised. The grant of SARs under the Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the express terms of the Plan, as the Board of
Directors shall deem desirable:
(a) GRANT. SARs may be granted in tandem with, in addition to or
completely independent of any Plan Benefit.
(b) GRANT PRICE. The grant price of an SAR may be the fair market
value of a share of Common Stock on the date of grant or such other price
as the Board of Directors may determine.
(c) EXERCISE. An SAR may be exercised by a Participant in accordance
with procedures established by the Board of Directors or as otherwise
provided in any agreement evidencing any SARs. The Board of Directors may
provide that an SAR shall be automatically exercised on one or more
specified dates.
(d) FORM OF PAYMENT. Payment upon exercise of an SAR may be made in
cash, in shares of Common Stock or any combination thereof, as the Board of
Directors shall determine.
(e) FAIR MARKET VALUE. Fair market value shall be determined in
accordance with Section 6.1(c) with the "Determination Date" being
determined by reference to the date of grant or the date of exercise of an
SAR, as applicable.
6.9 Rights as a Shareholder. The holder of an Option or SAR shall have no
rights as a shareholder with respect to any shares covered by the Option or SAR
until the date of issue of a stock certificate to him or her for such shares.
Except as otherwise expressly provided in the Plan, no adjustment shall be made
for dividends or other rights for which the record date is prior to the date
such stock certificate is issued.
6.10 Special Provisions Applicable to Non-qualified Options and SARs
Granted to Covered Employees. If the Company is subject to Section 162(m) of the
Code, in order for the full value of Non-Qualified Options or SARs granted to
Covered Employees to be deductible by the Company for federal income tax
purposes, the Company may intend for such Non-Qualified Options or SARs to be
treated as "qualified performance-based compensation" as described in Treas.
Reg. 1.162-27(e) (or any successor regulation). In such case, Non-Qualified
Options or SARs granted to Covered Employees shall be subject to the following
additional requirements:
(a) such options and rights shall be granted only by the Board of
Directors; and
(b) the exercise price of such Options and the grant price of such
SARs granted shall in no event be less than the fair market value of the
Common Stock as of the date of grant of such Options or SARs.
8
<PAGE>
SECTION 7. Special Provisions Applicable to Stock Awards
7.1 Grants of Stock Awards. The Board of Directors may grant a Participant
a Stock Award subject to such terms and conditions as the Board of Directors
deems appropriate, including, without limitation, restrictions on the pledging,
sale, assignment, transfer or other disposition of such shares and the
requirement that the Participant forfeit all or a portion of such shares back to
the Company upon termination of employment.
7.2 Conditions. Approvals of Stock Awards may be subject to the following
conditions:
(a) Each Participant receiving a Stock Award shall enter into an
agreement (a "Stock Restriction Agreement") with the Company, if required
by the Board of Directors, in a form specified by the Board of Directors
agreeing to such restrictions on and terms and conditions of the Stock
Award as the Board of Directors deems appropriate. The Board may in its
sole discretion provide that such restrictions, terms or conditions
terminate, lapse or accelerate without regard to the terms of any Stock
Restriction Agreement.
(b) Shares issued and transferred to a Participant pursuant to a Stock
Award may, if required by the Board of Directors, be deposited with the
Treasurer or other officer of the Company designated by the Board of
Directors to be held until the lapse of the restrictions upon such shares,
and each Participant shall execute and deliver to the Company stock powers
enabling the Company to exercise its rights hereunder.
(c) Certificates for shares issued pursuant to a Stock Award shall, if
the Company shall deem it advisable, bear a legend to the effect that they
are issued subject to specified restrictions.
(d) Certificates representing the shares issued pursuant to a Stock
Award shall be registered in the name of the Participant and shall be owned
by such Participant. Such Participant shall be the holder of record of such
shares for all purposes, including voting and receipt of dividends paid
with respect to such shares.
7.3 Nontransferability. Shares issued pursuant to a Stock Award may not be
sold, assigned, transferred, alienated, commuted, anticipated, or otherwise
disposed of (except, subject to the provisions of such Participant's Stock
Restriction Agreement, by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I of ERISA or the rules promulgated thereunder), or pledged or hypothecated as
collateral for a loan or as security for the performance of any obligation, or
be otherwise encumbered, and are not subject to attachment, garnishment,
execution or other legal or equitable process, prior to the lapse of
restrictions on such shares, and any attempt at action in contravention of this
Section shall be null and void. If
9
<PAGE>
any Participant should attempt to dispose of or encumber his or her shares
issued pursuant to a Stock Award prior to the lapse of the restrictions imposed
on such shares, his or her interest in such shares shall terminate.
7.4 Effect of Termination of Employment or Death On Stock Awards. If, prior
to the lapse of restrictions applicable to Stock Awards, the Participant ceases
to be an employee of the Company or the Related Companies for any reason, Stock
Awards to such Participant, as to which restrictions have not lapsed, shall be
forfeited to the Company, effective on the date of the Participant's termination
of employment. The Board of Directors (i) shall have the sole power to decide in
each case to what extent leaves of absence shall be deemed a termination of
employment and (ii) may in its sole discretion provide for complete or partial
exceptions to the requirements of this Section 7.4 as it deems appropriate.
SECTION 8. Special Provisions Applicable to Stock Purchases.
All approvals of Stock Purchases which provide that the Company has a right
to repurchase the shares subject to such Stock Purchase (the "Restricted
Shares") shall be subject to the terms and conditions set forth in the related
agreement (the "Stock Purchase Restriction Agreement") approved by the Board of
Directors, and shall be subject to the other terms and conditions of this
Section 8.
8.1 Conditions. All approvals of Stock Purchases shall be subject to the
following conditions:
(a) Prior to the issuance and transfer of Restricted Shares, the
Participant shall (i) pay to the Company the purchase price determined by
the Board of Directors (the "Purchase Price") of the Restricted Shares in
cash or in such other manner as shall be approved by the Board of Directors
and (ii) enter into an agreement (a "Stock Restriction Agreement") with the
Company, if required by the Board of Directors, in a form specified by the
Board of Directors agreeing to the terms and conditions of the Stock
Purchase. The Board may in its sole discretion provide that such
restrictions, terms or conditions terminate, lapse or accelerate without
regard to the terms of any Stock Restriction Agreement.
(b) Restricted Shares issued and transferred to a Participant may, if
required by the Board of Directors, be deposited with the Treasurer or
other officer of the Company designated by the Board of Directors to be
held until the lapse of the restrictions upon such Restricted Shares, and
each Participant shall execute and deliver to the Company stock powers
enabling the Company to exercise its rights hereunder.
(c) Certificates for Restricted Shares shall, if the Company shall
deem it advisable, bear a legend to the effect that they are issued subject
to specified restrictions.
10
<PAGE>
(d) Certificates representing the Restricted Shares shall be
registered in the name of the Participant and shall be owned by such
Participant. Such Participant shall be the holder of record of such
Restricted Shares for all purposes, including voting and receipt of
dividends paid with respect to such Restricted Shares.
8.2 Nontransferability. A Participant's Restricted Shares may not be sold,
assigned, transferred, alienated, commuted, anticipated, or otherwise disposed
of (except, subject to the provisions of such Participant's Stock Restriction
Agreement by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title I of ERISA or
the rules promulgated thereunder), or pledged or hypothecated as collateral for
a loan or as security for the performance of any obligation, or be otherwise
encumbered, and are not subject to attachment, garnishment, execution or other
legal or equitable process, prior to the lapse of restrictions on such
Restricted Shares, and any attempt at action in contravention of this Section
shall be null and void. If any Participant should attempt to dispose of or
encumber his or her Restricted Shares prior to the lapse of the restrictions
imposed on such Restricted Shares, his or her interest in the Restricted Shares
awarded to him or her shall terminate.
SECTION 9. Performance Units.
9.1 General Requirements. The Board of Directors may grant performance
units ("Performance Units") to Participants. Each Performance Unit shall
represent the right of the Participant to receive an amount based on the value
of the Performance Unit, if performance goals established by the Board of
Directors are met. A Performance Unit shall be based on the fair market value of
a share of Company Stock or on such other measurement base as the Board of
Directors deems appropriate. The Board of Directors shall determine the number
of Performance Units to be granted and the requirements applicable to such
Units.
9.2 Performance Period and Performance Goals. When Performance Units are
granted, the Board of Directors shall establish the performance period during
which performance shall be measured (the "Performance Period"), performance
goals applicable to the Units ("Performance Goals") and such other conditions of
the Grant as it deems appropriate. Performance Goals may relate to the financial
performance of the Company or its operating units, the performance of Company
Stock, individual performance, or such other criteria as the Board of Directors
deems appropriate.
9.3 Payment With Respect to Performance Units. At the end of each
Performance Period, the Board of Directors shall determine to what extent the
Performance Goals and other conditions of the Performance Units are met and the
amount, if any, to be paid with respect to the Performance Units. Payments with
respect to Performance Units shall be made in cash, in Company Stock, or in a
combination of the two, as determined by the Board of Directors.
11
<PAGE>
9.4 Requirement of Employment. If the Participant ceases to be employed by
the Company (as defined in Section 5(e)) during a Performance Period, or if
other conditions established by the Board of Directors are not met, the
Participant's Performance Units shall be forfeited. The Board of Directors may,
however, provide for complete or partial exceptions to this requirement as it
deems appropriate.
SECTION 10. Requirements of Law.
10.1 Violations of Law. No shares shall be issued and delivered upon
exercise of any Option or the making of any Stock Award or Stock Purchase or the
payment of any SAR unless and until, in the opinion of counsel for the Company,
any applicable registration requirements of the Securities Act of 1933, as
amended, any applicable listing requirements of any national securities exchange
on which stock of the same class is then listed, and any other requirements of
law or of any regulatory bodies having jurisdiction over such issuance and
delivery shall have been fully complied with. Each Participant may, by accepting
Plan Benefits, be required to represent and agree in writing, for himself or
herself and for his or her transferees by will or the laws of descent and
distribution, that the stock acquired by him, her or them is being acquired for
investment. The requirement for any such representation may be waived at any
time by the Board of Directors.
10.2 Compliance With Rule 16B-3. If the Company has a class of stock
registered pursuant to Section 12 of the Exchange Act, the intent of this Plan
is to qualify for the exemption provided by Rule 16b-3 under the Exchange Act.
To the extent any provision of the Plan does not comply with the requirements of
Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and
deemed advisable by the Board of Directors and shall not affect the validity of
the Plan. In the event Rule 16b-3 is revised or replaced, the Board of Directors
may exercise discretion to modify this Plan in any respect necessary to satisfy
the requirements of the revised exemption or its replacement.
SECTION II. Recapitalization.
In the event that dividends are payable in Common Stock of the Company (or
other securities are distributed with respect to the Common Stock) or in the
event there are splits, sub-divisions, combinations, reclassifications,
exchanges of shares of Common Stock of the Company, through merger,
consolidation, sale of all or substantially all the property of the Company,
recapitalization or reorganization, (i) the number of shares available under the
Plan shall be increased or decreased proportionately, as the case may be and
(ii) the number of shares deliverable upon the exercise thereafter of any Option
previously granted and the price for each share shall be increased or decreased
proportionately, as the case may be, but without change in the aggregate
purchase price. The number of shares to which granted SARs relate shall be
increased or decreased proportionately, as the case may be, and the grant price
of such SARs shall be decreased or increased proportionately, as the case may
be.
SECTION 12. Reorganization.
12
<PAGE>
In case the Company is merged or consolidated with another corporation and
the Company is not the surviving corporation, or, in case the property or stock
of the Company is acquired by any other corporation, or in case of a
reorganization or liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the obligations
of the Company hereunder, shall, as to outstanding Plan Benefits, either (i)
make appropriate provision for the protection of any such outstanding Plan
Benefits by the substitution on an equitable basis of appropriate stock of the
Company or of the merged, consolidated or otherwise reorganized corporation
which will be issuable in respect of the shares of Common Stock of the Company,
provided only that the excess of the aggregate fair market value of the shares
subject to the Plan Benefits immediately after such substitution over the
purchase price thereof is not more than the excess of the aggregate fair market
value of the shares subject to such Plan Benefits immediately before such
substitution over the purchase price thereof, (ii) upon written notice to the
Participants, provide that all unexercised Plan Benefits must be exercised
within a specified number of days of the date of such notice or such Plan
Benefits will be terminated, or (iii) upon written notice to the Participants,
provide that the Company or the merged, consolidated or otherwise reorganized
corporation shall have the right, upon the effective date of any such merger,
consolidation, sale of assets or reorganization, to purchase all Plan Benefits
held by each Participant and unexercised as of that date at an amount equal to
the aggregate fair market value on such date of the shares subject to the Plan
Benefits held by such Participant over the aggregate purchase price therefor,
such amount to be paid in cash or, if stock of the merged, consolidated or
otherwise reorganized corporation is issuable in respect of the shares of the
Common Stock of the Company, then, in the discretion of the Board of Directors,
in stock of such merged, consolidated or otherwise reorganized corporation equal
in fair market value to the aforesaid amount. In any such case the Board of
Directors shall, in good faith, determine fair market value and may, in its
discretion, (i) advance the lapse of any waiting or installment periods and
exercise dates, (ii) accelerate the vesting of any outstanding Options and SARs,
(iii) advance the lapse of any restrictions and conditions on any outstanding
Stock Awards or Stock Purchases and/or (iv) make payment in settlement of any
outstanding Performance Units, in an amount determined by the Board of
Directors, based on the Participant's target payment for the Performance Period
and the portion of the Performance Period that precedes such event.
SECTION 13. No Special Employment Rights.
Nothing contained in the Plan or in any Plan Benefit documentation shall
confer upon any Participant receiving a grant of any Plan Benefit any right with
respect to the continuation of his or her employment by the Company (or any
Related Company) or interfere in any way with the right of the Company (or any
Related Company), subject to the terms of any separate employment agreement to
the contrary, at any time to terminate such employment or to increase or
decrease the compensation of the Participant from the rate in existence at the
time of the grant of any Plan Benefit. Whether an authorized leave of absence,
or absence in military or government service, shall constitute termination of
employment shall be determined by the Board of Directors.
13
<PAGE>
SECTION 14. Amendment of the Plan.
The Board of Directors may at any time and from time to time modify or
amend the Plan in any respect. The termination or any modification or amendment
of the Plan shall not, without the consent of a recipient of any Plan Benefit,
affect his or her rights under any Plan Benefit previously granted. With the
consent of the affected Participant, the Board of Directors may amend
outstanding agreements relating to any Plan Benefit, in a manner not
inconsistent with the Plan. The Board of Directors hereby reserves the right to
amend or modify the terms and provisions of the Plan and of any outstanding
Options to the extent necessary to qualify any or all Options under the Plan for
such favorable federal income tax treatment (including deferral of taxation upon
exercise) as may be afforded incentive stock options under Section 422 of the
Code, provided, however, that the consent of an optionee is required if such
amendment or modification would cause unfavorable income tax treatment for such
optionee.
SECTION 15. Withholding.
The Company's obligation to deliver shares of stock upon the exercise of
any Option or the granting of a Stock Award or to make payment upon any exercise
of any SAR or making of a Stock Purchase shall be subject to the satisfaction by
the Participant of all applicable federal, state and local income and employment
tax withholding requirements.
SECTION 16. Effective Date and Duration of the Plan.
16.1 Effective Date. The Plan shall become effective on November 1, 1997,
but no Incentive Stock Option granted under the Plan shall become exercisable
unless and until the Plan shall have been approved by the Company's
shareholders. If such shareholder approval is not obtained within 12 months
after the date of the Board's adoption of the Plan, then any Incentive Stock
Options previously granted under the Plan shall terminate and no further
Incentive Stock Options shall be granted. Subject to such limitation, Options
may be granted under the Plan at any time after the effective date and before
the date fixed herein for termination of the Plan.
16.2 Duration. Unless sooner terminated in accordance with Section 12
hereof, the Plan shall terminate upon the earlier of (i) October 31, 2007, or
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to any Stock Awards or Stock Purchases or the exercise
or cancellation of Options and SARs granted hereunder. If the date of
termination is determined under (i) above, then Plan Benefits outstanding on
such date shall continue to have force and effect in accordance with the
provisions of the instruments evidencing such Plan Benefits.
SECTION 17. Governing Law.
The Plan and all actions taken thereunder shall be governed by the laws of
the State of Texas.
14
EXHIBIT 10.5
L E A S E A G R E E M E N T
This Lease Agreement ("Lease"), is made and entered into by and between
MAIN LINK BUSINESS PARK ASSOCIATES ("LANDLORD"),
A TEXAS PARTNERSHIP,
AND
TANOX BIOSYSTEMS, INC. ("TENANT"),
A TEXAS CORPORATION,
for 4,832 square feet in MAIN LINK BUSINESS PARK BUILDING "A". In
consideration of the payment of the rent, and in consideration of the other
covenants and conditions in this Lease, Landlord and Tenant agree as follows:
1. PREMISES. Landlord leases to Tenant, and Tenant accepts from Landlord the
Premises in Harris County, Texas, described on the attached Exhibit "A"
made a part hereof, together with all improvements situated or to be
situated thereon and all rights privileges, easements and appurtenances
related to the property ("Premises"). Landlord represents that it has the
authority to enter this Lease, and upon Tenant's performance of its
obligations, Tenant shall have quiet and peaceable possession of the
Premises. Tenant accepts this Lease subject and subordinate to any mortgage
or lien of Landlord now or at any time hereafter upon the Premises or
improvements, and agrees to execute any releases or other documents which
may be required by any mortgagee for the purpose of subordinating this
Lease to any such mortgage or lien. Except as access may be reasonably
limited as provided in the next sentence, Landlord and its agents shall
have the right to enter and inspect the Premises during business hours for
the purpose of determining the condition of the Premises, and to make any
repairs. During the last six (6) months of the term of this Lease, Landlord
and its agents shall have the right to enter and show the Premises, to
inspect the same prior to Tenant vacating the Premises, subject to Tenant's
right to restrict access to any areas which contain proprietary research or
manufacturing facilities, and to erect a sign indicating the Premises are
available for lease.
2. TERM. The Tenant shall have and hold the Premises for a term beginning on
the Commencement Date and ending ONE HUNDRED TWENTY (120) months
thereafter. The "Commencement Date" shall be the date when the
improvements are completed to Tenant's reasonable satisfaction in
accordance with the plans and specifications described in the attached
Exhibit "B". Landlord represents and agrees that Landlord will complete
the improvements in full compliance with the plans and specifications
contained in the attached Exhibit B, provided to Landlord by Tenant's
architect, on or before 75 days following the date on which Landlord
obtains all permits. Barring acts of God, strikes or changes in the
build-out scope made by Tenant, Landlord agrees to pay Tenant (or Tenant
shall have the right to offset same against any rent due hereunder) the sum
of $200 per day for each day the Commencement Date is delated beyond such
date. If there is any dispute as to completion or repair performed by
Landlord, the agreement of the same by Tenant's architect and Landlord's
general contractor shall be conclusive. At the termination of this Lease,
Tenant will deliver possession of the Premises to Landlord. Only upon the
written consent of the Landlord, may Tenant hold over after the termination
of this Lease. In the event of any hold over by Tenant, the same shall be
under the terms and conditions of this Lease. Any hold over period may be
terminated by Landlord upon ten (10) days advance written notice or by
Tenant upon thirty (30) days advance written notice.
3. RENT. Tenant agrees to pay to Landlord before the first day of each
calendar month rent for the Premises. In advance, without demand FOUR
THOUSAND SEVEN HUNDRED EIGHTY-ONE DOLLARS ($4,781.00) per month during
<PAGE>
years one (1) through five (5) and FOUR THOUSAND SEVEN HUNDRED EIGHTY-ONE
DOLLARS ($4,781.00) per month during years six (6) through ten (10 of this
Lease. The first monthly installment shall be due and payable the eleventh
(11th) month after the Commencement Date of this Lease. The Tenant may, at
his election, make equal monthly payments beginning on the Commencement
Date for years one (1) through five (5) at an effective rate of THREE
THOUSAND NINE HUNDRED EIGHTY-FOUR DOLLARS ($3,984.00) per month. The rent
shall be prorated for any fraction of a month included within the term of
this Lease.
The Tenant further agrees to pay when due, all other amounts specified
herein as additional rent. At the termination of this Lease, if Landlord
has consented to a hold over by Tenant, the rental for such hold over
period shall be equal to one and one-half (1 1/2) of the rent in effect on
their termination date computed on a daily basis. To secure the payment of
the rent, in addition to any statutory lien, Tenant grants to Landlord a
continuing security interest upon all property of Tenant situated in or
upon the Premises; provided, that Landlord agrees to subordinate all liens
which Landlord may have to any security interest of a commercial lender, or
which such lender may request, upon request of Tenant to permit it to
borrow and grant as security for such borrowing any furniture, fixtures,
inventory and equipment contained in the Premises. Until all rent due
hereunder is fully paid, Tenant shall not remove any property from the
Premises without the consent of Landlord. Tenant agrees to execute any
financing statements or other instruments requested by Landlord to perfect
the security interest granted.
4. SECURITY DEPOSIT. Upon execution hereof, Tenant shall deposit with
Landlord an irrevocable Letter of Credit in a form agreeable to Tenant and
Landlord, for ONE HUNDRED THIRTY-FIVE THOUSAND DOLLARS ($135,000), as
Security Deposit. The term of the Letter of Credit shall be for one (1)
year, to be renewed annually by Tenant to Landlord, for five (5) years,
from the "Commencement Date," and shall be drawn on a financial
institution acceptable to the Landlord. Landlord will reimburse to Tenant
fifty percent (50%) of the reasonable financial fee for the Letter of
Credit, subject to a maximum participation by Landlord of one percent (1%)
of the Letter of Credit value.
Depending upon Tenant's election regarding rent payments, beginning at the
Commencement Date for a period of five (5) years, the Irrevocable Letter of
Credit may be reduced in value annually, at the Commencement Date
Anniversary, to the following values:
$3,984 OPTION $4,781 OPTION
-------------- --------------
End Year 1: 108,000.00 135,000.00
End Year 2: 81,000.00 108,000.00
End Year 3: 54,000.00 81,000.00
End Year 4: 27,000.00 54,000.00
End Year 5: 0.00 0.00
Landlord shall hold the Security Deposit without any obligation for
interest thereon, to secure Tenant's performance under this Lease. In the
event of any default, Landlord may use the Security Deposit to pay any sums
owing by Tenant to Landlord, including past due rent.
5. MAINTENANCE. Landlord shall maintain the roof, foundation, and structural
soundness of the exterior concrete walls related to the Premises. This
maintenance shall not include windows, any glass surface, doors, office
entrys or other special installations of Tenant. After written notice from
Tenant, Landlord shall have a reasonable opportunity to repair or cure any
defect, and Landlord's liability for the same shall be limited to the cost
of such repair or curing.
Landlord shall maintain all landscaping, lawn irrigation, paving, parking
areas, driveways, alleys, and exterior lighting. Tenant agrees to reimburse
Landlord for such maintenance and service at the rate of $10.00 per 1,000
square feet of lease space, in the amount of forty-eight dollars thirty two
cents ($48.32) per month as additional rent. After the first year of this
Lease, should Landlord's reasonable cost hereof exceed its cost for the
first full year, then Tenant agrees to pay to Landlord Tenant's prorata
portion of the amount of such excess as additional rent.
<PAGE>
Tenant shall be responsible for any damage caused by its default or
negligence, including that of its employees, agents, guests or invitees.
Tenant shall maintain in good condition all other parts of the Premises
including but not limited to windows, all glass areas, doors, office entry,
special installations, interior finishes, floors, floor coverings, heating
and air conditioning systems, plumbing and pest control. Should Tenant fail
to perform such work, and Tenant shall pay as additional rent such costs
and expenses for said maintenance. Tenant bears all responsibility and
costs associated with the maintenance of the auxiliary generator and
maintenance and testing of the sampling well, as requested by the City of
Houston.
If the improvements upon the premises should be totally destroyed by any
casualty, or if they should be so damaged that rebuilding or repairs cannot
in Landlord's estimation be completed within the lesser of 120 days or 90
days after release of both regulatory agencies and insurance companies for
rebuilding to commence, after the date Landlord is notified by Tenant of
such damage, at Tenant's election upon written notice to Landlord, this
Lease shall terminate effective upon the date of such casualty or damage.
If the improvements situated upon the Premises are damaged by a peril
covered by insurance hereinafter provided, and subject to a mortgagee's
right to insurance proceeds as hereinafter provided, to the extent
rebuilding or repairs can, in Landlord's estimation, be completed within
the lesser of 120 days or 90 days after release of both regulatory agencies
and insurance companies for rebuilding to commence, after Tenant's notice,
Landlord shall rebuild and repair such improvements to substantially the
condition to which they existed prior to such casualty. Landlord shall not
be responsible for any improvements placed in or upon the Premises by
Tenant. During such repair, this Lease shall not terminate, but if the
Premises cannot be used for the purpose intended, the rent payable during
the period of rebuilding or repairs shall be reduced or abated to such
extent as may be fair and reasonable under all circumstances. Should
Landlord fail to complete the rebuilding and repairs within the lesser of
120 days or 90 days after release of both regulatory agencies and insurance
companies for rebuilding to commence, after Tenant's notice, Tenant may
terminate this Lease upon written notice to Landlord, effective upon the
date of such casualty or damage. Landlord shall notify Tenant within 14
days following its receipt of notice of such damage of the estimated time
of completion of repairs. Landlord represents and agrees that it will not
advise Tenant that repairs or rebuilding can be completed within such
period unless it is reasonably certain in the exercise of its best judgment
that same can be accomplished.
6. TAXES. Landlord agrees to pay all ad valorem, real estate, and personal
property taxes up to a maximum amount of the greater of $.50 per square
foot per year, assessed against the property and improvements located
thereon or the actual cost of same per square foot for 1987. Any excess per
square foot per year above the maximum amount shall be paid by Tenant to
Landlord upon demand, as additional rental. Should Landlord be required to
pay a levy upon the rents received for the Premises, then such levy shall
be considered a tax hereunder. Tenant shall be solely responsible for any
taxes or other charges levied upon its property.
7. UTILITIES. Landlord shall provide metered water and electrical service
connections to the Premises. Landlord shall provide telephone service
connections in a common room for the entire building. Landlord shall not be
liable for any interruption or failure of utility services to the Premises.
Tenant shall pay for all utilities and services used on or from the
Premises, and shall furnish all electric lightbulbs and tubes. Tenant shall
pay its proportionate amount of charges as reasonably determined by
Landlord for any jointly metered services.
8. ALTERATIONS. Tenant shall make no alternations or additions to the
Premises without the prior written consent of Landlord. Prior to vacating
the Premises upon termination of this Lease, Tenant shall, unless otherwise
requested by Landlord, remove all alterations, additions and improvements
erected by Tenant and restore the Premises to its original
<PAGE>
condition. At the completion of the Lease Term (10 years), TANOX
BIOSYSTEMS, INC. shall have the right to remove all cabinets in the Lease
Space, including stainless steel sinks, emergency power generator and other
special furniture, fixtures and equipment installed by or for Tenant, with
the provision that adjacent and surrounding improvements are not disturbed.
9. LIABILITY. Tenant shall repair and pay for any damage caused by the
negligence of Tenant, its employees, agents, guests or invitees. Landlord
shall not be liable to Tenant or its employees, agents, guests, invitees,
visitors or any other person whomsoever, for any injury to person or damage
to property on or about the Premises, resulting from or caused in part or
in whole by the negligence or misconduct of Tenant, its agents, employees
or of any other person entering upon the Premises. Unless injury to person
or damage to property is caused by the negligence of Landlord or the
failure of Landlord to repair the Premises as above provided, neither shall
Landlord be liable for injury or damage caused by the improvements becoming
out of repair or caused by leakage of gas, oil, water, steam or electricity
emanating from the Premises, or due to any cause whatsover. Tenant
covenants and agrees to indemnify and hold harmless the property, the
Landlord and its agents and employees from any loss, liability, claims,
suits, costs, expenses and attorneys fees arising out of any damage or
injury caused by the negligence of the Tenant, its agents and employees,
guests or invitees.
10. INSURANCE. Landlord agrees to maintain standard fire and extended coverage
insurance for the improvements on the premises in any amount not less than
eighty percent (80%) of the replacement costs thereof. Such insurance shall
be under the sole control and benefit of Landlord.
Should any improvements on the Premises sustain any casualty damage, and
should any mortgagee holding to a lien on the Premises require that the
insurance proceeds received be applied to its indebtedness, then Landlord
shall have the right to terminate this Lease upon ninety (90) days written
notice to Tenant. After the first (1st) year of this Lease, should
Landlord's costs of maintaining insurance herein exceed $.10 per square
foot per year, then Tenant agrees to pay to Landlord, as additional rent,
Tenant's pro rata portion of the amount of such excess each year. Landlord
represents that insurance costs for the first year will be equal to or less
than $.10 per square foot per year.
Tenant shall maintain during the term of this Lease, a policy of insurance,
insuring both Landlord and Tenant against all claims related to the
Premises, or its condition, and Tenant's operations, and use of the
Premises. The limits of such policy shall be not less than Three Hundred
Thousand and No/100 Dollars ($300,000.00) per occurrence for injury to
persons, and Fifty Thousand and No/100 Dollars ($50,000.00) per occurence
for property damage, destruction and loss of use thereof. Landlord shall
have the right, as reasonable, to approve all such policies, the carriers
thereof, and require that no cancellation may be had without thirty (30)
days prior written notice to Landlord.
Landlord and Tenant each release the other from any loss or damage to
property caused by any insured peril, by way of subrogation even if caused
by the negligence of the other party. This waiver of subrogation rights
shall be included by both parties in all policies of insurance, and the
costs therefore shall be paid by the insured party.
II. DEFAULT. Tenant shall be deemed to be in default under this Lease should
it:
(a) fail to pay any installment of rent or any other amount due to
Landlord for a period of fifteen (15) days after written notice
thereof is received and at any time after the third such notice is
given during the Lease term hereof, failure to pay such amounts for a
period of five (5) days from the due date thereof;
(b) abandon or vacate any substantial portion of the Premises;
<PAGE>
(c) become insolvent, make a transfer in fraud of creditors, make an
assignment for the benefit of creditors, petition for or become adjudged
bankrupt;
(d) have a receiver or trustee appointed for all or substantially all of
its assets;
(e) except for the payment of rent or any other amounts required, fail to
comply with any term or provision of this Lease for a period of thirty (30)
days after written notice thereof is received.
12. REMEDIES. Upon default by Tenant, Landlord shall have the option to:
(a) terminate this Lease, whereon Tenant agrees to pay Landlord all loss
and damage it may suffer by reason of such termination;
(b) enter the Premises and relet the same receiving the rent therefore,
whereon Tenant agrees to pay Landlord any deficiency that may arise by
reason of such reletting; and
(c) exercise any other remedy available to it at law.
Should Tenant refuse to deliver possession of the Premises, Landlord may
expel or remove Tenant or any other person, by force if necessary, without
being liable for prosecution or damages therefore. Should Landlord relet
the Premises at a rental rate in excess of that being paid by Tenant under
this Lease, Tenant specifically waives any claim to such excess rental.
Exercise of any of the above remedies shall not constitute a forfeiture or
waiver of any rent due to landlord. No waiver by Landlord of any violation
or breach of this Lease, Landlord's acceptance of any rent or payments
after an event of default, nor the failure of Landlord to enforce its
remedies hereunder, shall be deemed or construed to constitute a waiver of
any violations, breach or event of default nor of Landlord's right to
enforce any remedies with respect to a subsequent default. Should a party
be required to employ an attorney to enforce its rights hereunder, the
losing party agrees to pay all reasonable attorneys fees incurred therefor.
13. MISCELLANEOUS
(a) Landlord agrees that all space remaining vacant in the building will
be first leased in such manner as to place other tenants in the
building as far to the west side of the building as there is space
available, so that no such leases result in any vacant space between
any subsequent tenant in the building and the exterior wall located on
the west side of the building, other than as a result of non-renewal
of leased space. Tenant shall have a preferential right at any time,
from time to time, during the first five (5) years of this Lease, to
lease any and all remaining space in the building which is then
unleased. Such right will terminate as to such part of the remaining
space that Landlord intends to lease to another bona fide tenant if
Tenant fails to exercise its preferential right to all remaining
space, including such part to be leased, within thirty (30) days
following notice from Landlord; provided, that if such space to be
leased is not so leased within ninety (90) days following expiration
of Tenant's preferential right as to such space, Tenant shall again
have a preferential right to such space. In addition, Tenant shall
have the option at any time or times during the first twelve (12)
months of this Lease to lease up to an additional 8,000 square feet of
space adjacent to the Premises. If the Tenant exercises this option
for a minimum of 4,000 square feet adjacent to the Premises during the
twelve (12) month period,
<PAGE>
Landlord will extend the option for the balance of the option space
for an additional six (6) month period. Notice of the exercise of
Tenant's option must be given by Tenant prior to the expiration of
twelve (12) months from the Commencement Date of this Lease followed
by a signed Lease Agreement within thirty (30) days. Any space leased
by Tenant pursuant to its preferential right or option hereunder shall
be on terms agreeable to both parties. The lease term for any such
space shall expire concurrently with the term of this Lease unless
otherwise agreed by Landlord and Tenant.
The rental rate shall be calculated as follows. However, the total
rental rate resulting from the combined Base Rate and amortized
Build-out rate shall not be less than 50 per square foot per month on
a five (5) year Lease Agreement.
BASE RATE:
Years 1986-1990 22.3/sq. ft./month
Years 1991-1996: 38.6/sq. ft./month PLUS the annual
adjustment in the CPI for Houston SMSA,
not to exceed five percent (5%) per year,
based on previous 12 months.
BUILD-OUT RATE:
Cost of build-out to be financed by Landlord at prime + one and
one-half percent (1 1/2$) amortized over the term of the lease on such
space. Tenant shall have the right to select a contractor of its
choice to build-out any such additional space subject to review and
approval of plans, specifications and workmanship by Landlord.
(b) Tenant acknowledges the following provision of Main Link Business Park
Restrictive Covenants regarding use restrictions:
"No use shall be permitted which (1) is offensive by reason of odor,
fumes, dust, smoke, noise or pollution, (2) is hazardous by reason of
excessive danger of fire or explosion, (3) otherwise constitutes a
nuisance, (4) is dangerous or unsafe, (5) is calculated to injure the
reputation of the Building Site or any neighboring property, or (6) is
in violation of city, county, state or Federal laws."
Landlord acknowledges that Tenant's use of the Premises will be to conduct
biomedical and chemical research and manufacturing. Landlord further
acknowledges that Tenant's use will involve use of bio hazardous and
radioactive substances. Subject to Tenant's compliance with existing and
future industrial standards and governmental regulations concerning this
use, Landlord agrees that Tenant's use of the Premises will not violate
Main Link Business Park Restrictive Covenants. If the Restrictive Covenants
are interpreted during the term of this Lease to exclude the Tenants
acknowledged use and require relocation, Landlord will pay for the Tenant's
reasonable relocation costs.
14. GENERAL PROVISIONS.
(a) SIGNS. Signage to be provided by Landlord in accordance with Exhibit
C. No other signage of any type, located inside or outside of any
lease space which may be visible from any portion of the project, may
be displayed or erected by tenant without the prior written consent of
Landlord.
(b) MULTIPLE OCCUPANCY. The Premises constitute a portion of a multiple
occupancy building, and Landlord shall have the right to coordinate
all repairs, maintenance, assessment of excess insurance premiums,
assessment of excess taxes, assessment of common unmetered utilities
and other like costs.
<PAGE>
Tenant agrees to pay its proportionate share of such costs, based upon
its floor space in the Premises related to the total floor space in
the building. If it can be established that any particular tenant of
the building is responsible for any action which causes increased
costs to the building as a whole, then Tenant, if responsible, or such
other responsible party, shall pay the entire costs thereof upon
demand as additional rent.
(c) ASSIGNMENT AND SUBLETTING. This Lease may not be assigned or sublet in
any manner without prior written consent of Landlord, which consent
shall not be unreasonably withheld. Unless otherwise agreed by Tenant,
assignee or sublessee shall be fully liable for the performance of all
terms and provisions of this Lease, and all rents due hereunder, under
a permitted assignment or sublease.
(d) CONDEMNATION. If all or a substantial part of the Premises is taken by
condemnation or deed in lieu thereof, and the Premises are no longer
suitable for the use intended, this Lease shall terminate. Subject to
Tenant's agreement, if only a portion of the Premises are taken, this
Lease shall not terminate, but the rent due shall be reduced to such
an extent as may be fair and reasonable under all circumstances from
the date of such taking.
(e) INTEREST AND LATE CHARGES. Except for the base rent, any other charges
and additional rental required or provided in this Lease shall be paid
by Tenant within ten (10) days after demand or invoice therefor. After
such date, the unpaid amount shall bear interest at the rate of twelve
percent (12%) per annum from the date due until paid. Upon the failure
of Tenant to pay any installment of the base rent when due, the Tenant
shall pay to Landlord a late charge in amount equal to five percent
(5%) of such installment. Such interest and late charges provided
herefore shall be an addition to Landlord's other rights and remedies.
(f) LIENS. Tenant shall have no authority to create, nor shall it allow to
be created, any lien or encumbrance to be placed upon the Premises by
any person. Tenant agrees to pay any sums due for such, and to hold
Landlord harmless from any cost or expense arising out of any such
claim or lien asserted against the Premises.
(g) NOTICES. All payments, notices and other correspondence between the
parties shall be deemed delivered when received, but in no event,
later than 7 days after being deposited in the United States Mail,
Postage Prepaid, Certified Return Receipt Requested, to the parties at
the respective addresses below:
Landlord: MAIN LINK BUSINESS PARK ASSOCIATES
8989 NORTH LOOP EAST
HOUSTON, TEXAS 77029
Tenant: TANOX BIOSYSTEMS, INC.
10301 STELLA LINK, SUITE 110
HOUSTON, TEXAS 77041
Either party may change such address by an instrument in writing
delivered to the other party.
(h) MISCELLANEOUS. This Lease shall inure to the benefit of and be binding
upon the parties, their respective heirs, legal representatives,
successors and assigns. Tenant and Landlord agree to
<PAGE>
execute and deliver upon request by the other any estoppel
certificates or other similar documents related to the effectiveness
of this Lease. This Lease may not be changed or amended except by an
instrument in writing executed by both parties, and any determination
of any part of this Lease being invalid shall not effect the validity
and enforcement of the remainder of the Lease. Any of the terms and
provisions of this Lease which are not fully performed upon
termination of this Lease, shall specifically survive the same and be
enforceable in accordance with the terms hereof. If any provision,
term or condition herein is deemed by a court of law as being
unenforceable, such decree shall not affect the enforceability of the
remaining provisions of this agreement. This Lease is governed by the
laws of the State of Texas and shall be enforceable in Harris County,
Texas.
Executed in multiple counterparts, each of which shall have the force and effect
of an original this is the 4th day of December, 1986.
Landlord:
MAIN LINK BUSINESS PARK ASSOCIATES
By: MICHAEL E. DAMSCHRODER ATTEST: ????????
Printed Name & Title: Michael Damschroder Vice President
For: ALTA MAIN LINK INVESTMENTS, INC. (MANAGING PARTNER)
Tenant:
TANOX BIOSYSTEMS, INC.
By: NANCY T. CHANG ATTEST: ?????????
Printed Name & Title: Nancy T. Chang President
7
<PAGE>
ADDENDUM TO THE LEASE AGREEMENT
BY AND BETWEEN
MAIN LINK BUSINESS PARK ASSOCIATES
AND
TANOX BIOSYSTEMS, INC.
DATED DECEMBER 4, 1986
The above referenced Lease Agreement is hereby amended with the following
addition:
Tenant agrees to pay to Landlord the sum of $4,834.00 expended for improvements
to the Lease Premises above and beyond the scope of work as defined in Exhibit
"B" of the Lease Agreement. Tenant agrees that the $4,834.00 is to be financed
by Landlord and that Tenant is to make monthly payments in the amount of $107.53
to Landlord in advance and without demand beginning the first day of the
calendar month following the Commencement Date as defined in Section 2, of the
Lease Agreement and ending sixty (60) months thereafter. Tenant has the option
at any time during this period to remit the principle balance of the financed
amount in full.
Except for the foregoing change, all of the covenants, terms and conditions of
the prior Lease Agreement will remain the same. This addendum and the Lease
Agreement of December 4, 1986 constitute the entire understanding between the
parties with regard to leasing space at 10301 Stella Link, Houston, Harris
County, Texas.
MAIN LINK BUSINESS PARK ASSOCIATES
By: /s/ MICHAEL E. DAMSCHRODER ATTEST /s/ GWEN HARDEN
Printed Name and Title MICHAEL E. DAMSCHRODER, Vice President
Tenant:
TANOX BIOSYSTEMS, INC.
By: /s/ NANCY T. CHANG ATTEST /s/ ????? CHANG
Printed Name and Title NANCY T. CHANG, President
<PAGE>
ADDENDUM II TO THE LEASE AGREEMENT
BY AND BETWEEN
MAIN LINK BUSINESS PARK ASSOCIATES
AND
TANOX BIOSYSTEMS, INC.
DATED DECEMBER 4, 1986.
The Lease Agreement as defined above is hereby amended this 24th day of December
1987 as follows, with all obligations under this Addendum to become effective
upon the Commencement Date for this expansion space, except as otherwise
specified below. The Commencement Date shall be the date of occupancy of the
expansion space by the Tenant or June 1, 1988, whichever occurs earlier.
1. EXPANSION: 8,013 square feet as specified on Exhibit "A" to this
Addendum.
2. IMPROVEMENTS: Build-out of improvements to the expansion space shall be
funded and administered by the Tenant with the approval of the Landlord as
to plans, specifications, construction agreements, workmanship and
completeness. The scope of improvements are Build-out
drawings/specifications as defined in Exhibit "B". The Landlord will fund
a standard improvement allowance of $160,260 ($20.00 per square foot). This
allowance shall be paid to the Tenant on a monthly basis during build-out in
proportion to the overall completion of the space, with 10% retainage
($16,026) held until 45 days after the improvements are completed to the
satisfaction of the Tenant and Landlord.
Prior to the initiation of build-out construction work on the premises, and
from time to time upon Landlord's request, Tenant must provide the Landlord
with suitable documentation confirming the availability of additional funds
(approximately $600,000) to complete the specified improvements.
While the Tenant is referred to as "Owner" in its separate agreements with
various construction engineers and contractors for this build-out, this
agreement specifically recognizes and clarifies that Main Link Business Park
Associates is the owner of all real property associated with this leasehold.
<PAGE>
Addendum II
TANOX
Page 2
Tenant shall provide to Landlord on a monthly basis during the expansion
space build-out signed releases of lien from all parties providing labor
and/or material for these improvements, using the form of Exhibit "C".
Tenant further agrees to fully indemnify the Landlord and its property
against any liens or other claims arising from the expansion space
build-out. Tenant shall carry and provide copies to Landlord of acceptable
Builder's Risk Insurance coverage and shall require its contractors to
supply acceptable certificates of proof of liability and workman's
compensation insurance.
3. EXPANSION RENT: The rent for the expansion space, payable in accordance
with the terms of the Lease Agreement, shall be $4,599.50 per month, through
December 31, 1990, and $5,905.62 per month (plus CPI adjustment; see Section
13, Paragraph (a)) from January 1, 1991 through March 31, 1997, such rent to
begin as of the Commencement Date.
4. SECURITY DEPOSIT: In addition to the current Letter of Credit obligations
defined in Paragraph 4 of the Lease Agreement, an Irrevocable Letter of
Credit in a form agreeable to both Tenant and Landlord for $20,000 or a
$15,000 cash security deposit shall be provided to the Landlord within 30
days of the execution of this Addendum to ensure that the additional
premises are returned to the original condition per the terms of this
agreement. This deposit will be returned to the Tenant within 30 days after
the expiration of the Lease Term, providing there are no claims against it.
Furthermore, Tenant does hereby grant to Landlord a contractual lien in
those certain furniture, fixtures and equipment identified to be removable
in Item (6), Page 3 of this Addendum II for a period of 5 years, to secure
the standard build-out allowance ($160,260) funded hereunder by the
Landlord.
Upon written request by Tenant and a bona fide commercial lender, Landlord
agrees to subordinate its building landlord's lien on the property of
Tenant, subject to Landlord's reasonable approval of the form and content of
the subordination agreement presented.
<PAGE>
Addendum II
TANOX
Page 3
5. SECTION 5 -- MAINTENANCE:
A. Sentence to be added after the first sentence in Paragraph 2: "Landlord
will provide window washing services for the exterior of the entire
building two (2) times per year as scheduled by Landlord."
B. Second sentence in Paragraph 2 is amended to read: "Tenant agrees to
reimburse Landlord for such maintenance and service at the rate of
$10.00 per 1,000 square feet, in the amount of one hundred twenty-eight
dollars and forty-five cents ($128.45) per month as additional rent."
This represents a CAM increase of $80.13 for the expansion space.
6. SECTION 8 -- ALTERATIONS:
The third sentence is replaced for the expansion space in this Addendum to
read: "At the completion of the Lease Term, TANOX BIOSYSTEMS, INC. shall
have the right, and be required at the Landlord's request, to remove all lab
cabinets/fume hoods, revolving darkroom door, automatic bi-fold door, mark
board, cold room/freezer, darkroom sink, fire extinguishers, and
miscellaneous special laboratory fixtures installed by or for Tenant, with
the provision that adjacent and surrounding improvements are not disturbed
or are satisfactorily restored.
7. SECTION 11 (E) SHALL BE AMENDED TO READ:
(e) except for the payment of rent or any other amounts required, fail to
comply with any term or provision of this Lease for a period of thirty (30)
days after written notice thereof is received. However, if such term or
condition reasonably requires more than thirty (30) days in order to fully
comply therewith, there shall not be deemed an event of default unless
Tenant either fails or refuses to commence in good faith such compliance
within the thirty day time period, or, having so commenced, Tenant fails or
refuses to diligently thereafter complete such compliance as determined by
Landlord.
8. SECTION 13 (B) SHALL BE AMENDED TO READ:
(b) Tenant acknowledges the following provisions of Main Link Business Park
Restrictive Covenants regarding use restrictions:
"No use shall be permitted which (1) is offensive by reason of odor, fumes,
dust, smoke, noise or pollution as determined by Landlord, (2) ...."
<PAGE>
Addendum II
TANOX
Page 4
9. Paragraph 13 (a) shall be deleted and in its place shall be inserted the
following:
(a) All space remaining vacant in the building will be first leased in such
manner as to place other tenants in the building as far to the west
side of the building as there is space available, so that no such
leases result in any vacant space between any subsequent tenant in the
building and the exterior wall located on the west side of the
building, other than as a result of non-renewal of leased space. Tenant
shall have a preferential right at any time, from time to time, during
the first five (5) years of this Lease, to lease any and all remaining
space in the building which is then unleased. Such right will terminate
as to such part of the remaining space that Landlord intends to lease
to another bona fide tenant if Tenant fails to exercise its
preferential right to all remaining space, including such part to be
leased, within thirty (30) days following notice from Landlord;
provided, that if such space to be leased is not so leased within
ninety (90) days following expiration of Tenant's preferential right as
to such space, Tenant shall again have a preferential right to such
space. Space leased by Tenant pursuant to its preferential right shall
be upon the terms and conditions contained in the Lease Agreement and
this Addendum, unless otherwise agreeable to both parties. The lease
term for any such space shall expire concurrently with the term of this
Lease unless otherwise agreed by Landlord and Tenant.
The rental rate shall be calculated as follows. However, the total
rental rate resulting from the combined base Rate and amortized
Build-out rate shall not be less than $.50 per square foot per month on
a five (5) year Lease Agreement.
BASE RATE:
Years 1987 -- 1990: $.223/SF/MO
Years 1991 -- 1996: $.386/SF/Mo plus the annual
adjustment in the CPI for Houston
SMSA, not to exceed five percent (5%)
per year, based on previous twelve
(12) months.
<PAGE>
Addendum II
TANOX
Page 5
BUILD OUT RATE:
Cost of build-out to be financed by Landlord at Prime + one and one-half
percent (1 & 1/2%) amortized over the term of the lease on such space.
Tenant shall have the right to select a contractor of its choice to
build out any such additional space subject to review and approval of
plans, specifications and workmanship by Landlord.
Except for the foregoing changes, all of the covenants, terms and conditions of
the prior Lease Agreement remain the same.
This Addendum II, and the Lease Agreement dated December 4, 1986, and the
original Addendum to the Lease Agreement constitute the entire understanding
between the parties with regard to leasing space at 10301 Stella Link, Suite
110, Houston, Harris County, Texas. Default under any of the aforesaid
agreements will constitute default under all of the agreements.
Landlord:
MAIN LINK BUSINESS PARK ASSOCIATES
By: /s/ MICHAEL E. DAMSCHRODER ATTEST: /s/ ?????
Michael E. Damschroder -- Vice President
For: AMEGA INVESTMENTS, INC. (MANAGING PARTNER)
(SUCCESSOR TO ALTA MAIN LINK INVESTMENTS, INC.)
Tenant:
TANOX BIOSYSTEMS, INC.
By: /s/ NANCY T. CHANG ATTEST: /s/ ?????
Nancy T. Chang -- President
<PAGE>
DESCRIPTION OF LEASE PREMISES -- EXHIBIT "A"
Description
Lease Premises are located in Building # 10301 Stella Link which is part of Main
Link Business Park situated on a tract containing 4.1684 acres out of that
certain 22,2444 acre (984, 966 square feet), more or less, tract of land located
in Harris County, Texas, conveyed from Marvin H. McMurry, Jr. et al, to Main
Link Business Center Associates in deed dated June 6, 1982, and recorded under
Clerk's File No. H471470 of the Harris County Deed Records, to which deed and
the record thereof reference is here made for all purposes.
TANOX -- PHASE I
(Approx. 4832 SF)
LEASE ADDENDUM
PREMISES
(Approx. 8013 SF)
VACANT
________________________________Fischer & Porter________________________________
McDERMED
STELLA LINK
<PAGE>
EXHIBIT "B"
TANOX BIOSYSTEMS, INC.
NEW EXPANSION / PHASE II
BUILD-OUT DRAWINGS/SPECIFICATIONS
DRAWINGS
SHEET NUMBER REVISION NUMBER DATED
- ------------- --------------------------------- ---------
A.01 1 12-21-87
A.02 1 12-21-87
A.03 0 11-09-87
A.04 1 12-21-87
A.05 0 11-09-87
A.06 0 11-09-87
A.07 1 12-21-87
A.08 0 11-09-87
A.09 0 11-09-87
M-1 2 12-21-87
M-2 1 12-21-87
M-3 0 11-10-87
M-4 1 11-17-87
M-5 2 12-21-87
M-6 1 12-21-87
M-7 0 11-10-87
M-8 0 11-10-87
E-1 2 12-21-87
E-2 2 12-21-87
E-3 1 12-21-87
E-4 1 11-17-87
E-5 1 11-17-87
E-6 1 11-17-87
E-7 1 11-17-87
E-8 1 12-21-87
E-9 1 12-21-87
P-1 1 12-21-87
P-2 1 12-21-87
P-3 1 12-21-87
SPECIFICATIONS 11-09-87
Project Manual
by HCH Architects
<PAGE>
EXHIBIT "C"
LIEN WAIVER
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
The undersigned has contracted with/has been employed by TANOX BIOSYSTEMS, INC.
to furnish LABOR AND/OR MATERIALS for the Project known as TANOX BIOSYSTEMS,
INC. NEW EXPANSION/PHASE II, and for certain improvements to real property
located in Harris County, Texas, and owned by Main Link Business Park
Associates, which improvements are described as follows:
Leasehold improvements to Building # 10301 Stella Link which is part of
Main Link Business Park situated on a tract containing 4.1684 acres out of
that certain 22.2444 acre (984,966 square feet), more or less, tract of
land located in Harris County, Texas, conveyed from Marvin H. McMurry, Jr.
et al, to Main Link Business Center Associates in deed dated June 6, 1982,
and recorded under Clerk's File No. H471470 of the Harris County Deed
Records, to which deed and the record thereof reference is here made for
all purposes.
For and in consideration of the sum of $ _______________________________________
_________________ DOLLARS, and other good and valuable consideration, the
receipt whereof is hereby acknowledged and confessed, the undersigned does
hereby waive and release any and all mechanic's lien or materialman's lien and
claim or right to lien on said above described real property and improvements on
account of labor or materials, or both, furnished by the undersigned pursuant to
the above mentioned contract with TANOX BIOSYSTEMS, INC. for said real property
and improvements up to and including ______________, 19__ only, but not for any
furnished subsequent to said date, and also waives and releases any
constitutional lien that the undersigned may have.
It is hereby warranted by the undersigned, who recognizes that TANOX BIOSYSTEMS,
INC. is relying on such warranty to its potential detriment, that all the
undersigned's subcontractors, materialmen and/or laborers have been paid all
sums due to any of them for work done or materials furnished in connection with
the job represented by this Lien Waiver, through the date mentioned above, and
that no valid claim or right exists in favor of any such subcontractor,
materialman or laborer.
______________________________________
BY: ________________________________________________ TITLE: __________________
SUBSCRIBED AND SWORN TO BEFORE ME BY __________________________________________,
on this the ___ day of ___________, 19__, to certify which witness my hand and
seal of office.
(Notary Seal) ______________________________________
Notary Public in and for the State of
Texas
My commission expires: _____________________________________________
<PAGE>
ADDENDUM III TO THE LEASE AGREEMENT
BY AND BETWEEN
MAIN LINK BUSINESS PARK ASSOCIATES
AND
TANOX BIOSYSTEMS, INC.
DATED DECEMBER 4, 1986
This Lease Agreement as defined above is hereby amended this 12th day of
September, 1991 as follows, with all obligations under this addendum to become
effective upon the Commencement Date for this expansion space, except as
otherwise specified below. Landlord and Tenant acknowledge that, except as
changed by this Addendum III, the terms of the Lease Agreement dated December 4,
1986, and Addendum I & II, are applicable to this expansion space. The
Commencement Date shall be the date of occupancy of the expansion space by the
Tenant or September 1, 1991, whichever occurs earlier.
1. EXPANSION: 6569 square feet as specified on Exhibit "A" to this addendum.
2. IMPROVEMENTS: Build-out of improvements to the expansion space, as
described in Exhibit "B", shall be funded and administered by the Tenant
with the joint approval of the Landlord as to plans, specifications,
construction agreements, workmanship and completeness. The Landlord will
fund a standard improvement allowance of $131,380.00. This allowance shall
be paid to the Tenant in five (5) equal monthly payments beginning January
1992.
Prior to the initiation of the Phase III-A build-out construction work on
the premises, and from time to time upon Landlord's request, Tenant must
provide the Landlord with suitable documentation confirming the availability
of additional funds to complete the specified improvements.
While the Tenant is referred to as "Owner" in its separate agreements with
various construction engineers and contractors for this build-out, this
agreement specifically recognizes and clarifies that Main Link Business Park
Associates is the owner of all real property and buildings associated with
this leasehold.
Tenant shall provide to Landlord on a monthly basis during the expansion
space build-out signed releases of lien from all parties providing labor
and/or material for these improvements, using the Exhibit "C". Tenant
further agrees to fully indemnify Landlord and its property against any
liens or other claims arising from the expansion space build-out. Tenant
shall carry and provide copies to Landlord of acceptable Builder's Risk
Insurance coverage and shall require its contractors to supply acceptable
certificates of proof of liability and worker's compensation insurance.
<PAGE>
3. EXPANSION RENT: The rent for the expansion space, payable in accordance
with the terms of the Lease Agreement, shall be $1,559.51 per month, through
May 31, 1992. From June 1, 1992 through December 31, 1992, the rent shall be
$5,816.88 per month or $0.8633 per square foot plus the adjustment in the
CPI for Houston SMSA for the period from July 1991 to June 1992. The rental
rate for all subsequent years (thru March 31, 1997) will be the adjusted
base rate plus the annual adjustment in the CPI for Houston SMSA, not to
exceed five percent (5%) per year, based on the previous 12 months.
4. SECURITY: In addition to the current Letter of Credit obligations defined
in Paragraph 4 of the Lease Agreement, an Irrevocable Letter of Credit in a
form agreeable to both Tenant and Landlord for $131,380.00 or a $131,380.00
cash security deposit shall be provided to the Landlord January 1, 1992.
The Letter of Credit will be reduced monthly by the full amount of Phase III
generated rent. The cost of the Letter of Credit to be paid by the Landlord.
<PAGE>
5. SECTION 5 -- MAINTENANCE:
A. Sentence to be added after the first sentence in Paragraph 2: "Landlord
will provide window washing services for the exterior of the entire
building two (2) times per year as scheduled by Landlord."
B. Second sentence in Paragraph 2 is amended to read: "Tenant agrees to
reimburse Landlord for such maintenance and service at the rate of
$10.00 per 1,000 square feet, in the amount of one hundred ninety-four
dollars and fourteen cents ($194.14) per month as additional rent."
This represents a CAM increase of $65.69 for Addendum III in addition
to the $80.13 for Addendum II and $48.32 for the original space.
6. SECTION 8 -- ALTERATIONS:
The third sentence is replaced for the expansion space in this addendum to
read: "At the completion of the Lease Term, TANOX BIOSYSTEMS, INC. shall
have the right, and be required at the Landlord's request, to remove all lab
cabinets/fume hoods, revolving darkroom door, automatic bi-fold door, mark
board, cold room/freezer, darkroom sink, fire extinguishers, and
miscellaneous special laboratory and production fixtures installed by or for
Tenant, with the provision that adjacent and surrounding improvements are
not disturbed or are satisfactorily restored.
<PAGE>
OPTION TO EXTEND LEASE TERM:
Tenant shall have the option to extend the Lease Agreement, including Addendum I
and II and this Addendum III, for an additional term of five (5) years, from
March 31, 1997 to March 31, 2002. Tenant may exercise such option to extend the
lease term as follows:
If Tenant notifies Landlord prior to June 1, 1993, Tenant shall have
the right to extend the lease on the existing terms and conditions,
subject to determination of the rental rate as follows.
The rate will be the sum of the effective rates in effect May 31,
1997, for the Original Lease and Addendum II and III with a reduction
of $5,816.88 MONTHLY. The rate for all subsequent years will be the
current effective base rate plus the annual adjustment in the CPI for
Houston SMSA, not to exceed five percent (5%) per year, based on the
previous 12 months.
If Tenant exercises its option hereunder, the twenty-thousand
($20,000.00) dollar security deposit secured by the Irrevocable Letter
of Credit from Texas Commerce Bank (G-111 419) dated February 8, 1988,
shall be extended from the expiration of June 30, 1997, to June 30,
2002.
If Tenant does not exercise the above option by June 1, 1993, Tenant must notify
the Landlord ninety (90) days prior to the original termination date of the
lease to have the right to extend the lease on the existing terms and
conditions, subject to determination of the rental rate as agreed by the fair
market value as follows:
The fair market value shall be as mutually agreed by Landlord and
Tenant within fifteen (15) days after Tenant exercises its option to
renew. If the parties are unable to agree upon the fair market value
of the Premises, Landlord and Tenant shall each appoint an appraiser
who is knowledgeable in commercial property values in the area in
which the Premises are located and the two appraisers shall, then
within ten (10) days after their selection, agree upon the fair market
value of the Premises.
<PAGE>
If they are unable to agree, they shall appoint a third appraiser with
the same qualifications and the three appraisers shall then, within
fifteen (15) days thereafter, prepare appraisals of the Premises. The
average of the three appraisals shall be used as the fair market value
of the Premises for the Second Option Period; provided, however, that
if any appraiser's estimate is either (a) less than ninety percent
(90%) of the average figure, or (b) more than one hundred ten percent
(110%) of such average then the fair market value of the Premises will
be the average of the remaining figures which are between ninety
percent (90%) and one hundred and ten percent (110%) inclusive of the
average figure even if only one estimate remains. If all figures fall
outside of the range between ninety percent (90%) and one hundred ten
percent (110%), then the middle figure of the three appraisals shall
be the fair market value even if the middle figure is the same as the
higher or lower figure. Landlord and Tenant shall each bear the cost
of its appraiser and shall share equally the cost of the third. After
the Renewal Term rent for any Renewal Term has been determined in
accordance with the provisions set forth herein, Landlord shall
promptly give Tenant written notice of the annual renewal rent for the
Renewal Term and Tenant shall thereafter have fifteen (15) days to
decide whether the reaffirm or cancel its exercise of the option to
renew by written notice of the Landlord.
If Tenant exercises its option hereunder, the twenty-thousand ($20,000.00)
dollar security deposit secured by the Irrevocable Letter of Credit from Texas
Commerce Bank (G-111 419) dated February 8, 1988, shall be extended from the
expiration of June 30, 1997, to June 30, 2002.
This Addendum III, and the Lease Agreement dated December 4, 1986, and Addendum
I and II to the Lease Agreement constitute the entire understanding between the
parties with regard to leasing space at 10301 Stella Link, Suite 110, Houston,
Harris County, Texas. Default under any of the aforesaid agreements will
constitute default under all of the agreements.
<PAGE>
Except for the foregoing changes, all of the covenants, terms and conditions of
the prior Lease Agreement, and Addendum I and II remain the same.
Landlord:
MAIN LINK BUSINESS PARK ASSOCIATES
By: /s/ JAMES E. STUBBS ATTEST: /s/ RHONDA SHAW
James E. Stubbs
Assistant Vice President
For: AMEGA INVESTMENTS, INC. (MANAGING PARTNER)
(SUCCESSOR TO ALTA MAIN LINK INVESTMENTS, INC.)
Tenant:
TANOX BIOSYSTEMS, INC.
By: /s/ NANCY T. CHANG ATTEST: ??????????
Nancy T. Chang -- President
<PAGE>
DESCRIPTION OF LEASE PREMISES -- EXHIBIT "A"
Description
Lease Premises are located in Building # 10301 Stella Link which is part of Main
Link Business Park situated on a tract containing 4.1684 acres out of that
certain 22.2444 acre (984,966 square feet), more or less, tract, land located in
Harris County Texas, conveyed from Marvin H. McMurry, Jr. et al, to Main Link
Business Center Associates in deed dated June 6, 1982, and recorded under
Clerk's File No. H471470 of the Harris County Deed Records, to which deed and
the record thereof reference is here made for all purposes.
TANOX - PHASE I
(Approx. 4032 SF)
LEASE ADDENDUM
PREMISES
(Approx. 8013 SF)
LEASE ADDENDUM III
APPROX. 6569 SF
Fischer & Porter
McDERMED
STELLA LINK
<PAGE>
EXHIBIT "B"
PHASE III EXPANSION
Build-out of improvements to the Phase III expansion is intended to provide for
additional production capabilities, general administrative areas, storage space,
or other research and development-related activities. Because Tenant intends to
produce certain pharmaceutical products for human use, a part of the planned
build-out must be undertaken with due consideration of applicable Food and Drug
Administration requirements, including current Good Manufacturing Practices.
Build out is planned to occur in the following stages:
Phase III-A: In the Phase III-A build-out, tenant
will construct additional
administrative space and storage.
Tenant will make certain
modifications to the existing
administrative and laboratory areas
necessary to optimize its usage of
the total leased premises.
Phase III-B: In the Phase III-B build-out, tenant
will construct additional space to
provide for tenant's expanded
production and/or research and
development-related requirements.
<PAGE>
EXHIBIT "C"
LIEN WAIVER
THE STATE OF TEXAS
COUNTY OF HARRIS
The undersigned has contracted with/has been employed by TANOX BIOSYSTEMS, INC.
to furnish LABOR AND/OR MATERIALS for the Project known as TANOX BIOSYSTEMS,
INC. NEW EXPANSION/PHASE III, and for certain improvements to real property
located in Harris County, Texas, and owned by Main Link Business Park
Associates, which improvements are described as follows:
Leasehold improvements to Building # 10301 Stella Link which is part of
Main Link Business Park situated on a tract containing 4.1684 acres out of
that certain 22.2444 acre (984,966 square feet), more or less, tract of
land located in Harris County, Texas, conveyed from Marvin H. McMurry, Jr.
et al, to Main Link Business Center Associates in deed dated June 6, 1982,
and recorded under Clerk's File No. H471470 of the Harris County Deed
Records, to which deed and the record thereof reference is here made for
all purposes.
For and in consideration of the sum of $ _______________________________________
_________________ DOLLARS, and other good and valuable consideration, the
receipt whereof is hereby acknowledged and confessed, the undersigned does
hereby waive and release any and all mechanic's lien or materialman's lien and
claim or right to lien on said above described real property and improvements on
account of labor or materials, or both, furnished by the undersigned pursuant to
the above mentioned contract with TANOX BIOSYSTEMS, INC. for said real property
and improvements up to and including ______________, 19_ only, but not for any
furnished subsequent to said date, and also waives and releases any
constitutional lien that the undersigned may have.
It is hereby warranted by the undersigned, who recognizes that TANOX BIOSYSTEMS,
INC. is relying on such warranty to its potential detriment, that all the
undersigned's subcontractors, materialmen and/or laborers have been paid all
sums due to any of them for work done or materials furnished in connection with
the job represented by this Lien Waiver, through the date mentioned above, and
that no valid claim or right exists in favor of any such subcontractor,
materialman or laborer.
________________________________________________
BY: ________________________________________________ TITLE: __________________
SUBSCRIBED AND SWORN TO BEFORE ME BY __________________________________________,
on this the ___ day of ___________, 19__, to certify which witness my hand and
seal of office.
(Notary Seal) ______________________________________
Notary Public in and for the State of
My commission expires: ______________ Texas
<PAGE>
ADDENDUM IV TO THE LEASE AGREEMENT
BY AND BETWEEN
MAIN LINK BUSINESS PARK ASSOCIATES
AND
TANOX BIOSYSTEMS, INC.
DATED DECEMBER 4, 1986
The Lease Agreement as defined above is hereby amended this 13th day of August,
1992 as follows, with all obligations under this Addendum to become effective
June 1, 1992, except as otherwise specified below. Landlord and Tenant
acknowledge that, except as changed by this Addendum IV, all the terms of the
Lease Agreement dated December 4, 1986, and Addendum I, II & III, are applicable
to this expansion space. Landlord and Tenant agree due to the delay in
construction of Phase III-B, Addendum III shall be amended until the
commencement of construction as follows:
2. IMPROVEMENTS: The last sentence in the first paragraph shall be amended to
read:
This allowance shall be paid to the Tenant in five (5) five equal monthly
payments beginning (5) months prior to the scheduled completion of
improvements as described in Exhibit "B", Phase III-B.
The first sentence in the second paragraph shall be amended to read:
Prior to the initiation of the Phase III-B build-out construction work on
the premises, and from time to time upon Landlord's request, Tenant must
provide the Landlord with suitable documentation confirming the availability
of additional funds to complete the specified improvements.
3. EXPANSION RENT: The second sentence is hereby amended to read:
From June 1, 1992 through December 31, 1992 the rent shall be $2,787.68 per
month or $0,42437 per square foot plus the adjustment in the CPI for Houston
SMSA for the period from July 1991 to June 1992. The rental rate for all
subsequent years (thru March 31, 1997) will be the adjusted base rate plus
the annual adjustment in the CPI for Houston SMSA not to exceed five percent
(5%) per year based on the previous 12 months. The rent for the expansion
space shall be adjusted when the $131,380.00 build-out allowance is funded
and shall be calculated as follows:
Present value: $131,380.00
Rate: Prime interest rate, at the beginning date of funding plus 1 1/2%.
Term: Balance of lease term or agreed extended term.
<PAGE>
Tanox - Addendum IV
August 6, 1992
Page Two
4. SECURITY: The first sentence is hereby amended to read:
In addition to the current Letter of Credit obligations defined in Paragraph
4 of the Lease Agreement, an Irrevocable Letter of Credit in a form
agreeable to both Tenant and Landlord for $131,380.00 or a $131,380.00 cash
security deposit shall be provided to the Landlord prior to the funding of
the improvement allowance up to $131,380.00.
OPTION TO EXTEND LEASE: The first sentence in the first paragraph is hereby
amended to read:
Tenant shall have the option to extend the Lease Agreement, including
Addendum I, II, III and this Addendum IV, for an additional term of five (5)
years, from March 31, 1997 to March 31, 2002.
The first sentence in the second paragraph is hereby amended to read:
The rate will be the sum of the effective rates in effect May 31, 1997, for
the Original Lease and Addendum II, III, and IV with a reduction of
$2,849.42 monthly.
This Addendum IV, and the Lease Agreement dated December 4, 1986, and Addendum
I, II and III to the Lease Agreement constitute the entire understanding between
the parties with regard to leasing space at 10301 Stella Link, Suite 110,
Houston, Harris County, Texas. Default under any of the aforesaid agreements
will constitute default under all of the agreements.
Except for the foregoing changes, all of the covenants, terms and conditions of
the prior Lease Agreement, and Addendum I, II and III remain the same.
Landlord: MAIN LINK BUSINESS PARK ASSOCIATES
By: /s/ JAMES E. STUBBS Attest: ????????
James E. Stubbs
Assistant Vice President
For: AMEGA INVESTMENTS, INC. (MANAGING PARTNER)
(SUCCESSOR TO ALTA MAIN LINK INVESTMENTS, INC.)
Tenant: TANOX BIOSYSTEMS, INC.
By: /s/ NANCY T. CHANG Attest: John ???????
Nancy T. Chang -- President
<PAGE>
ADDENDUM V TO THE LEASE AGREEMENT
BY AND BETWEEN
MAIN LINK BUSINESS PARK ASSOCIATES
AND
TANOX BIOSYSTEMS, INC.
DATED DECEMBER 4, 1986
The Lease Agreement as defined above is hereby amended this 29th day of
December, 1993 as follows, with all obligations under this Addendum to become
effective upon the Commencement Date for this expansion space, except as
otherwise specified below. Landlord and Tenant acknowledge that, except as
changed by this Addendum V, the terms of the Lease Agreement dated December 4,
1986, and Addendums I, II, III and IV are applicable to this expansion space.
The Commencement Date shall be January 1, 1994.
1. EXPANSION: 7,342 square feet as specified on Exhibit "A" to this
Addendum.
2. IMPROVEMENTS AND CONDITION OF PREMISES:
Landlord shall provide the Premises its existing "as-is" condition, and
shall at its sole cost and expense, connect the Expansion Space to the
Existing Premises, subject to all applicable building codes and ordinances.
(Method of connection is to be selected by tenant: (a) overhead rolling fire
door, or (b) 3070 personnel door with lock.) In addition, Landlord warrants
and represents that the Expansion Space is free of any hazardous waste.
Landlord shall provide Tenant with a Tenant Improvement allowance of
$2.00/SF or $14,684 for expenses associated with repainting and recarpeting
or other flooring. The funding of the $14,684 will be paid against invoices
from contractors for the work as described above, the funding shall be any
time during the twelve (12) months following the commencement date of
January 1, 1994. Tenant to have access to the Expansion Space on or before
December 15, 1993 to start work on improvements.
Tenant shall have the right to construct leasehold improvements without any
supervisory fees owing to the Landlord. However, the Landlord is to approve
any modification prior to the work being done, at any time during the term
of the lease. Such approval shall not be unreasonably withheld or delayed by
Landlord.
<PAGE>
Addendum V
Tenant
Page 2
While the Tenant is referred to as "Owner" in its separate agreements with
various construction engineers and contractors for this build-out, this
agreement specifically recognizes and clarifies that Main Link Business Park
Associates is the owner of all real property and buildings associated with
this leasehold.
Tenant shall provide to Landlord signed releases of lien from all parties
providing labor and/or material for these improvements, using the Exhibit
"C". Tenant further agrees to fully indemnify Landlord and its property
against any liens or other claims arising from the expansion space
build-out. Tenant shall carry and provide copies to Landlord of acceptable
Builder's Risk Insurance coverage and shall require its contractors to
supply acceptable certificates of proof of liability and worker's
compensation insurance.
The Landlord would consent, if so requested by Tenant, to a reasonable
third-party financing lien waiver agreement (as it did in November 1989) for
any future construction which is to be funded by Tenant or any Tenant
affiliate.
3. EXPANSION RENT AND TERM: The term shall be 39 months with a commencement
date of January 1, 1994 and termination date of March 31, 1997. The rent for
the expansion space, payable in accordance with the terms of the Lease
Agreement, shall be $1,835.50 per month through May 31, 1994. From June 1,
1994 through March 31, 1997, the rent shall be $3,671.00 per month, or $0.50
per square foot and shall not be subject to C.P.I. escalation.
4. PARTIAL LEASE CANCELLATION: Tenant shall have the option to terminate the
Expansion Space containing 7,342 SF upon providing Landlord no less than six
(6) months prior written notice. In addition, Tenant shall pay to Landlord,
the unamortized leasehold improvement allowance, calculated using the
straight line method, with no interest factor.
In the event, however, Tenant should construct any improvements other than
those associated with standard office or warehouse configuration, the
cancellation option shall be considered void and of no further force and
effect.
<PAGE>
Addendum V
Tenant
Page 3
5. SECTION 5 -- MAINTENANCE:
Second sentence in Paragraph 2 is amended to read:
"Tenant agrees to reimburse Landlord for such maintenance and service at
the rate of $10.00 per 1,000 square feet, in the amount of two hundred
sixty-seven dollars and fifty-six cents ($267.56) per month as additional
rent." This represents a CAM increase of $73.42 for Addendum V, in addition
to the $65.69 for Addendum IV, $80.13 for Addendum II and $48.32 for the
original space.
6. SECTION 6 -- TAXES: For expansion space of 7,342 square feet, change first
sentence to read: "Landlord agrees to pay all ad valorem real estate and
personal property taxes up to a maximum amount of the taxes for the base
year 1994, assessed against the property and improvements located thereon."
7. SECTION 10 -- INSURANCE: For expansion space of 7,342 square feet, omit
last two sentences of second paragraph.
After the first (1st) year of this expansion, should Landlord's costs of
maintaining insurance herein exceed the base year of 1994 costs, then Tenant
agrees to pay to Landlord, as additional rent, Tenant's pro rata portion of
the amount of such excess each year. Such expense shall not be subject to
C.P.I. escalation.
8. SECTION 13 -- MISCELLANEOUS:
(a) RIGHT OF FIRST REFUSAL. Tenant shall have a continuing Right of First
Refusal on all or a portion of the remainder of the Building that becomes
vacant. In the event Landlord receives a bona fide offer to lease any
portion of the First Refusal Space which Landlord intends to accept,
Landlord shall deliver notice to tenant, accompanied by a written summary of
the economic terms of such offer. Tenant shall have ten (10) business days
to deliver written acceptance of such offer to Landlord. If the term of such
offer is longer than the remaining term of the Lease, Tenant shall only be
obligated to lease such First Refusal Space for the remaining term. If the
term of such offer is less than the remaining term of the Lease, Tenant
shall have the option to lease such First Refusal Space for either the term
of such offer or for a term that shall expire concurrently with the
expiration of the Lease. In the event Tenant elects to lease
<PAGE>
Addendum V
Tenant
Page 4
such space and to adjust the term to expire concurrently with the expiration
of the term hereof, and in the event the term of such offer is for a period
that is twenty-five percent (25%) or more shorter or longer than the
remaining term of the Lease, the Base Rental Rate provided for in such offer
shall be adjusted based upon the Fair Market Value (as defined below) for
such First Refusal Space for such adjusted period, as of the date of
Tenant's election to lease such space. The First Refusal Space shall be
leased in "as-is" condition, and the Fair Market Value shall be determined
accordingly."
(b) No change.
<PAGE>
Addendum V
Tenant
Page 4(a)
(c) RENEWAL OPTION. The first five (5) paragraphs and the first sentence
of Paragraph 6 on Page 3 of Addendum III shall be deleted in their entirety,
and the following shall be added:
Tenant shall have the right to extend the term of the Lease subject to all
of the same terms, covenants and conditions for one (1) additional period of
five (5) years, commencing on the day after the last day of the original
term. Tenant at its option shall have the right to renew the entire Premises
or a portion of the Premises excluding the Expansion Space of 7,342 SF. The
rental rate for the renewal term shall be the prevailing Fair Market Value
(as defined below) at the time for the notice, but in no event shall such
rate be less than $0.55 per SF, per month, nor greater than $1.00 per SF,
per month, including operating expenses as defined in the Lease, for
calendar year 1994.
The Fair Market Value ("FMV") shall mean the average of the annual rental
rates being charged for space of comparable size and condition in comparable
buildings in Houston Texas, taking into consideration use, location within
the applicable building, definition of rentable area, the time the
applicable rate first became effective, term, building standard leasehold
improvements provided or to be provided, quality, age and location of the
applicable building, and rental concessions.
In order to exercise such renewal option, Tenant shall advise Landlord in
writing of its desire to renew, no less than nine (9) months prior to the
end of the original term. Within fifteen (15) days thereafter, Landlord
shall advise Tenant in writing of its estimation of the FMV applicable
during the renewal term. Within thirty (30) days after Tenant has received
such rental information from Landlord, Tenant shall give Landlord written
notice of its agreement or disagreement with Landlord's estimation of FMV.
In the event Tenant and Landlord are able to reach a written agreement
regarding FMV within such thirty (30) day period, Tenant shall thereafter
have fifteen (15) days to notify Landlord in writing of the exercise of the
Renewal option.
In the event Landlord and Tenant are unable to agree on the FMV within such
thirty (30) day period, the FMV shall be determined in accordance with the
appraisal process set forth in Addendum III to the Lease Agreement,
beginning with the second sentence of the last paragraph of Page 3 and
continuing to, but not including, the last sentence of the first paragraph
on Page 4. After the FMV has been determined in accordance with such
appraisal procedures. Landlord shall advise Tenant in writing of the rental
rate for the renewal term as determined by such appraisal, subject, if
applicable, to the limitations set forth above. Tenant shall thereafter have
fifteen days to notify Landlord in writing of the exercise of the Renewal
option.
Failure of Tenant to give the appropriate written notice within the
specified periods of time, as provided above, shall cause the Renewal option
to be void and of no further effect.
<PAGE>
Addendum V
Tenant
Page 5
(d) SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT.
If there is currently a mortgage on the property, or should there be a
mortgage placed on the property in the future, Landlord shall obtain an
executed Subordination, Non-Disturbance and Attornment Agreement from the
mortgagee, using a form reasonably satisfactory to Tenant.
This Addendum V, and the Lease Agreement dated December 4, 1986, and Addendum I,
II, III and IV to the Lease Agreement constitute the entire understanding
between the parties with regard to leasing space at 10301 Stella Link, Suite
110, Houston, Harris County, Texas. Default under any of the aforesaid
agreements will constitute default under all of the agreements.
Except for the foregoing changes, all of the covenants, terms and conditions of
the prior Lease Agreement, and Addendum I, II, III and IV remain the same.
Landlord:
MAIN LINK BUSINESS PARK ASSOCIATES
By: /s/ JAMES E. STUBBS Attest: ONA L. ?????
James E. Stubbs
Assistant Vice President
For: AMEGA INVESTMENTS, INC. (MANAGING PARTNER)
(SUCCESSOR TO ALTA MAIN LINK INVESTMENT, INC.)
Tenant:
TANOX BIOSYSTEMS, INC.
By: /s/ NANCY T. CHANG Attest: JOHN ??????
Nancy T. Chang
President
<PAGE>
DESCRIPTION OF LEASE PREMISES -- EXHIBIT "A"
Description
Lease Premises are located in Building # 10301 Stella Link which is part of Main
Link Business Park situated on a tract containing 4.1684 acres out of that
certain 22.2444 acre (984,966 square feet), more or less, tract of land located
in Harris County, Texas, conveyed from Marvin H. McMurry, Jr. et al, to Main
Link Business Center Associates in deed dated June 6, 1982, and recorded under
Clerk's File No. H471470 of the Harris County Deed Records, to which deed and
the record thereof reference is here made for all purposes.
TANOX -- PHASE I
(Approx. 4832 SF)
LEASE ADDENDUM
PREMISES
(Approx. 8013 SF)
LEASE ADDENDUM III
(Approx. 6589 SF)
LEASE ADDENDUM V
(Approx. 7342 SF)
FISCHER & PORTER
McDERMED
<PAGE>
ADDENDUM VI TO THE LEASE AGREEMENT
BY AND BETWEEN
MAIN LINK BUSINESS PARK ASSOCIATES
AND
TANOX BIOSYSTEMS, INC.
DATED DECEMBER 4, 1986
The Lease Agreement as defined above is hereby amended this 4th day of January,
1995 as follows, with all obligations under this Addendum to become effective on
the date hereof, except as otherwise specified below. Landlord and Tenant
acknowledge that, except as changed by this Addendum VI, the terms of the Lease
Agreement dated December 4, 1986, and Addendums I, II, III, IV and V shall
remain in full force and effect.
SECTION 2 -- IMPROVEMENTS AND CONDITION OF PREMISES:
The second sentence in Paragraph 2 of Addendum V, shall be amended by
deleting "twelve (12)" and inserting "eighteen (18)".
SECTION 13 -- MISCELLANEOUS: RENEWAL OPTION:
In addition to the expansion option contained in Addendum V, Paragraph
8(c), Tenant shall have the right to extend the term of the Lease, for
the Premises then in effect, for one (1) additional period of five
years (the "Second Renewal Term"), commencing on the day after the
last day of the first renewal term, subject to all of the terms of
such Paragraph 8(c) except as otherwise provided for herein. The
rental for the Second Renewal Term shall be the prevailing Fair Market
Value (as defined in Addendum V) at the time of the notice, but in no
event shall such rate be less than $0.625 per SF, per month, including
operating expenses as defined in the Lease, for calendar year 1994.
This Addendum VI, and the Lease Agreement dated December 4, 1986, and Addendums
I, II, III, IV and V to the Lease Agreement Constitute the entire understanding
between the parties with regard to leasing space at 10301 Stella Link, Suite
110, Houston, Harris County, Texas. Default under any of the aforesaid
agreements will constitute default under all of the agreements.
Page 1
<PAGE>
Except for the foregoing changes, all of the covenants, terms and conditions of
the prior Lease Agreement, and Addendum I, II, III, IV and V remain the same.
MAIN LINK BUSINESS PARK ASSOCIATES (Landlord)
By: /s/ JAMES E. STUBBS ATTEST /s/ VANICE M. JONES
James E. Stubbs
Assistant Vice President
For: AMEGA INVESTMENTS, INC. (MANAGING PARTNER)
(SUCCESSOR TO ALTA MAIN LINK INVESTMENTS, INC.)
TANOX BIOSYSTEMS, INC.
By: /s/ NANCY T. CHANG ATTEST /s/ ????????????????
Nancy T. Chang
President
Page 2
<PAGE>
ADDENDUM VII TO THE LEASE AGREEMENT
BY AND BETWEEN
MAIN LINK BUSINESS PARK ASSOCIATES
AND
TANOX BIOSYSTEMS, INC.
DATED DECEMBER 4, 1986
The Lease Agreement as defined above is hereby amended this 1st day of June,
1995 as follows, with all obligations under this Addendum to become effective on
the date hereof, except as otherwise specified below. Landlord and Tenant
acknowledge that, except as changed by this Addendum VII, the terms of the Lease
Agreement dated December 4, 1986, and Addenda I, II, III, IV, V and VI shall
remain in full force and effect.
1. SECTION 1 -- PREMISES: The original Lease Premises of 4,832 square feet,
expanded by 8,013 square feet in Addendum II to the Lease Agreement, and an
additional 6,569 square feet in Addendum III to the Lease Agreement, and an
additional 7,342 square feet in Addendum V to the Lease Agreement, shall be
further expanded by 9,023 square feet ("Expansion"), as shown on the
attached Exhibit "A". The entire Lease Premises as of the date of this
Addendum VII to Lease Agreement shall be 35,779 square feet.
2. SECTION 2 -- EXPANSION TERM: The Commencement Date for the 9,023 square
foot Expansion shall be June 1, 1995 and shall terminate twenty-two (22)
months following such date on March 31, 1997.
3. SECTION 3 -- EXPANSION RENT: The monthly rent for the 9,023 square foot
Expansion, payable in accordance with the terms of the Lease Agreement,
shall be $4,962.65 through March 31, 1997, or $0.55 per square foot. Such
rent shall not be subject to C.P.I. escalation.
4. SECTION 5 -- MAINTENANCE: The second sentence in Paragraph 2 shall be
amended to read "Tenant agrees to reimburse Landlord for such maintenance
and service at the rate of $10.00 per 1,000 square feet, in the amount of
three hundred fifty-seven dollars and seventy-nine cents ($357.79) per month
as additional rent." This represents a CAM increase of $90.23 for Addendum
VII, in addition to the $73.42 for Addendum V, $65.69 for Addendum IV,
$80.13 for Addendum II and $48.32 for original space.
<PAGE>
ADDENDUM VII
TANOX BIOSYSTEMS, INC.
5. SECTION 6 -- TAXES: The following shall be added to the end of the
first sentence in the paragraph: "however, for the Expansion space of
9,023 square feet, Landlord agrees to pay all ad valorem real estate
and personal property taxes up to a maximum amount of the taxes for
the Base Year 1994, assessed against the property and improvements
located thereon."
6. SECTION 10 -- INSURANCE: The following shall be added to the end of
the second sentence in Paragraph 2: "however, for the Expansion space
of 9,023 square feet, should, after the first year of this Expansion,
Landlord's cost of maintaining insurance herein exceed the Base Year
1995 costs, then Tenant agrees to pay to Landlord, as additional rent,
Tenant's pro rata share of the amount of such excess each year. Such
expenses shall not be subject to CPI escalation."
7. SECTION 13 -- MISCELLANEOUS: The expansion option contained in
Addendum V, and amended in Addendum VI, shall be further amended as
follows:
The second sentence of the second paragraph of Addendum V, Section (c)
shall be amended to read "Tenant, at its option, shall have the right
to extend the Lease on (i) approximately 35,779 square feet (the
entire "Premises") or (ii) approximately 26,756 square feet
(excluding the 9,023 square foot Expansion) or (iii) approximately
19,414 square feet (excluding the Expansion Space of 7,342 square feet
set forth in Addendum V and the 9,023 square foot Expansion).
8. SECTION 13 -- MISCELLANEOUS: Paragraph (e) shall be added as follows:
(e) Telecommunications: Landlord shall allow Tenant to install, at
its sole cost and expense, computer and telecommunications cabling
which shall link Tenant's existing systems to the 9,023 square foot
Expansion, along the service entrance wall or above the canopy of the
office entrance of the lease space currently occupied by Formcraft,
Inc.
9. SECTION 14(A) -- GENERAL PROVISIONS; SIGNS: The phase "except as set
forth in Section 14(c) herein," shall be added to the end of the
second sentence of Section 14(a).
10. SECTION 14(C) -- GENERAL PROVISIONS: SUBLEASE AND ASSIGNMENT: Section
14(c) shall be amended by inserting the following at the end of the
paragraph:
Page 2
<PAGE>
ADDENDUM VII
TANOX BIOSYSTEMS, INC.
"In the event Tenant should elect to sublease all or a portion of the
9,023 square foot Expansion, Landlord shall allow Tenant to place a
sign advertising such sublease space in the same location as
Landlord's current advertisement for available space."
"In the event Tenant secures a sublessee ("Proposed New Tenant")
for the entire 9,023 square foot Expansion during the twelve (12)
months following the commencement of the Expansion, Landlord, upon
request, will agree to: (a) accept the Proposed New Tenant on a direct
lease agreement, provided the financial conditions and use of the
premises are acceptable to the Main Link Business Park directors; (b)
a rental rate of $0.55 per square foot on an "as-is" basis,
including a 1994 Base Year for Taxes and a 1995 Base Year for
Insurance; (c) a term of five (5) years; (d) Common Area Maintenance
and Common Metered Utilities as provided for in the Tanox lease; and
(e) standard terms and conditions as provided for in the Texas
Association of Realtors Commercial Lease."
II. SECTION 2 -- IMPROVEMENTS AND CONDITIONS OF PREMISES (ADDENDUM V AND
VI): The second sentence in Paragraph 2 of Addendum V, as amended in
Addendum VI, shall be further amended by deleting the words "during
the eighteen (18) months following the commencement date of January 1,
1994" and replacing with "prior to December 31, 1995." The
following sentence shall be added after the second sentence in
Paragraph 2 of Addendum V, as amended in Addendum VI: Tenant may, at
its option, apply the unused improvement allowance provided for in
Addendum V to the Lease Agreement, towards improvements to the 9,023
square foot Expansion." In addition, the following shall be added to
the end of the preceding sentence: "(a) Improvements to the 9,023
square foot Expansion are for the benefit of the Tenant and not the
Proposed New Tenant; and (b) If Tenant exercises the cancellation
provisions as provided for in Addendum V (7,342 square feet), the
improvement allowance may not be transferred to the 9,023 square foot
Expansion, and if such allowance has been transferred prior to the
date of such cancellation, the unamortized amount of such allowance
shall be payable as if it had been spent on improvements to the
Addendum V space (7,342 square feet)."
This Addendum VII, and and the Lease Agreement dated December 4, 1986, and
Addenda I, II, III, IV, V and VI to the Lease Agreement constitute the entire
understanding between the parties with regard to leasing space at 10301 Stella
Link, Suite 110, Houston, Harris County, Texas. Default under any of the
aforesaid agreements will constitute default under all of the agreements.
Page 3
<PAGE>
Addendum VII
Tanox Biosystems, Inc.
Except for the foregoing changes, all of the covenants, terms and conditions of
the prior Lease Agreement, and Addendum I, II, III, IV, V and VI remain the
same.
MAIN LINK BUSINESS PARK ASSOCIATES (Landlord)
By: /s/ JAMES E. STUBBS Attest: VANICE M. JONES
James E. Stubbs
Assistant Vice President
For: AMEGA INVESTMENTS, INC. (MANAGING PARTNER)
(SUCCESSOR TO ALTA MAIN LINK INVESTMENT, INC.)
TANOX BIOSYSTEMS, INC.
By: /s/ NANCY T. CHANG Attest: JOHN ??????
Nancy T. Chang
President
Page 4
<PAGE>
ADDENDUM VIII TO THE LEASE AGREEMENT
(REPLACES ADDENDUM VII)
BY AND BETWEEN
MAIN LINK BUSINESS PARK ASSOCIATES
AND
TANOX BIOSYSTEMS, INC.
DATED DECEMBER 4, 1986
The Lease Agreement as defined above is hereby amended this 7th day of December,
1995 as follows, with all obligations under this Addendum to become effective on
the date hereof, except as otherwise specified below. Landlord and Tenant
acknowledge that, except as changed by this Addendum VIII, the terms of the
Lease Agreement dated December 4, 1986, and Addenda I, II, III, IV, V and VI
shall remain in full force and effect.
1. SECTION 1 -- PREMISES: The original Lease Premises of 4,832 square feet,
expanded by 8,013 square feet in Addendum II to the Lease Agreement, and an
additional 6,569 square feet in Addendum III to the Lease Agreement, and an
additional 7,342 square feet in Addendum V to the Lease Agreement, shall be
further expanded by 8,868 square feet ("Expansion"), as shown on the
attached Exhibit "A". The entire Lease Premises as of the date of this
Addendum VIII to Lease Agreement shall be 35,624 square feet.
2. SECTION 2 -- EXPANSION TERM: The Commencement Date for the 8,868 square
foot Expansion shall be June 1, 1995 and shall terminate twenty-two (22)
months following such date on March 31, 1997.
3. SECTION 3 -- EXPANSION RENT: The monthly rent for the 8,868 square foot
Expansion, payable in accordance with the terms of the Lease Agreement,
shall be $4,877.40 through March 31, 1997, or $0.55 per square foot. Such
rent shall not be subject to C.P.I. escalation.
4. SECTION 5 -- MAINTENANCE: The second sentence in Paragraph 2 shall be
amended to read "Tenant agrees to reimburse Landlord for such maintenance
and service at the rate of $10.00 per 1,000 square feet, in the amount of
three hundred fifty-six dollars and twenty-four cents ($356.24) per month
as additional rent." This represents a CAM increase of $88.68 per Addendum
VIII, in addition to the $73.42 for Addendum V, $65.69 for Addendum IV,
$80.13 for Addendum II and $48.32 for the original space.
<PAGE>
Addendum VIII
Tanox Biosystems, Inc.
Page 2
5. SECTION 6 -- TAXES: The following shall be added to the end of the first
sentence in the paragraph: "however, for the Expansion space of 8,868
square feet, Landlord agrees to pay all ad valorem real estate and personal
property taxes up to a maximum amount of the taxes for the Base Year 1994,
assessed against the property and improvements located thereon."
6. SECTION 10 -- INSURANCE: The following shall be added to the end of the
second sentence in Paragraph 2: "however, for the Expansion space of 8,868
square feet, should, after the first year of this Expansion, Landlord's
cost of maintaining insurance herein exceed the Base Year 1995 costs, then
Tenant agrees to pay to Landlord, as additional rent, Tenant's pro rata
share of the amount of such excess each year. Such expenses shall not be
subject to the C.P.I. escalation."
7. SECTION 13 -- MISCELLANEOUS: The expansion option contained in Addendum V,
and amended in Addendum VI, shall be further amended as follows:
The second sentence of the second paragraph of Addendum V, Section (c)
shall be amended to read "Tenant, at its option, shall have the right to
extend the Lease on (i) approximately 35,624 square feet (the entire
"Premises") or (ii) approximately 26,756 square feet (excluding the 8,868
square foot Expansion) or (iii) approximately 19,414 square feet (excluding
the Expansion Space of 7,342 square feet set forth in Addendum V and the
8,868 square foot Expansion).
8. SECTION 13 -- MISCELLANEOUS: shall be added as follows:
(e) Telecommunications: Landlord shall allow Tenant to install, at its
sole cost and expense, computer and telecommunications cabling which shall
link Tenant's existing systems to 8,868 square foot Expansion, along the
service entrance wall or above the canopy of the office entrance of the
lease space currently occupied by Formcraft, Inc.
9. SECTION 14(A) -- GENERAL PROVISION; SIGNS: The phrase "except as set
forth in Section 14(c) herein" shall be added to the end of the second
sentence of Section 14(a).
10. SECTION 14(C) -- GENERAL PROVISIONS; SUBLEASE ASSIGNMENT. Section 14(c)
shall be amended by inserting the following at the end of the paragraph.
<PAGE>
Addendum VIII
Tanox Biosystems, Inc.
Page 3
"In the event Tenant should elect to sublease all or a portion of the
8,868 square foot Expansion, Landlord shall allow Tenant to place a sign
advertising such sublease space in the same location as Landlord's current
advertisement for available space."
"In the event Tenant secures a sublessee ("Proposed New Tenant") for the
entire 8,868 square foot Expansion during the twelve (12) months following
the commencement of the Expansion, Landlord, upon request, will agree to:
(a) accept the Proposed New Tenant on a direct lease agreement, provided
the financial conditions and use of the premises are acceptable to the Main
Link Business Park directors; (b) a rental rate of $0.55 per square foot on
an "as-is" basis, including a 1994 Base Year for Taxes and a 1995 Base
year for Insurance; (c) a term of five (5) years; (d) Common Area
Maintenance and Common Metered Utilities as provided for in the Tanox
lease; and (e) standard terms and conditions as provided for in the Texas
Association of Realtors Commercial Lease."
II. SECTION 2 -- IMPROVEMENTS AND CONDITIONS OF PREMISES (ADDENDUM V AND
VI): The second sentence in Paragraph 2 of Addendum V, as amended in
Addendum VI, shall be further amended by deleting the words "during the
eighteen (18) months following the commencement date of January 1, 1994"
and replacing with "prior to December 31, 1995". The following sentence
shall be added after the second sentence in Paragraph 2 of Addendum V, as
amended in Addendum VI: "Tenant may, at its option, apply the unused
improvement allowance provided for in Addendum V to the Lease Agreement
towards improvements to the 8,868 square foot Expansion." In addition, the
following shall be added to the end of the preceding sentence: "(a)
Improvements to the 8,868 square foot Expansion are for the benefit of the
Tenant and not the Proposed New Tenant; and (b) If Tenant exercises the
cancellation provisions as provided for in Addendum V (7,342 square feet),
the improvement allowance may not be transferred to the 8,868 square foot
Expansion, and if such allowance has been transferred prior to the date of
such cancellation, the unamortized amount of such allowance shall be
payable as if it had been spent on improvements to the Addendum V space
(7,342 square feet)".
This Addendum VIII, and the Lease Agreement dated December 4, 1986, and Addenda
I, II, III, IV, V and VI to the Lease Agreement constitute the entire
understanding between the parties with regard to leasing space at 10301 Stella
Link, Suite 110, Houston, Harris County, Texas. Default under any of the
aforesaid agreements will constitute default under all of the agreements.
<PAGE>
Addendum VIII
Tanox Biosystems, Inc.
Page 4
Except for the foregoing changes, all of the covenants, terms and conditions of
the prior Lease Agreement, and Addendum I, II, III, IV, V and VI remain the
same.
MAIN LINK BUSINESS PARK ASSOCIATES (Landlord)
By: /s/ JAMES E. STUBBS Attest: VANICE JONES
James E. Stubbs
Assistant Vice President
For: AMEGA CORPORATION (MANAGING PARTNER)
(SUCCESSOR TO ALTA MAIN LINK INVESTMENTS, INC.)
TANOX BIOSYSTEMS, INC. (Tenant)
By: /s/ NANCY T. CHANG Attest: John ??????
Nancy T. Chang
President
<PAGE>
ADDENDUM IX TO THE LEASE AGREEMENT
BY AND BETWEEN
MAIN LINK BUSINESS PARK ASSOCIATES
AND
TANOX BIOSYSTEMS, INC.
DATED DECEMBER 4, 1986
The Lease Agreement as defined above is hereby amended this 3rd day of February,
1997 as follows, with all obligations under this Addendum to become effective on
the date hereof, except as otherwise specified below. Landlord and Tenant
acknowledge that, except as changed by this Addendum IX, the terms of the Lease
Agreement dated December 4, 1986, and Addenda II, III, IV, V and VI and VIII
shall remain in full force and effect.
1. SECTION 1 -- PREMISES: The original Lease Premises of 4,832 square feet,
expanded by 8,013 square feet in Addendum II to the Lease Agreement, and an
additional 6,569 square feet in Addendum III to the Lease Agreement, and an
additional 7,342 square feet in Addendum V to the Lease Agreement, and an
additional 8,868 square feet in Addendum VIII to the Lease Agreement -- all
as shown on attached Exhibit "A". The Lease Premises as of the date of
this Addendum IX to Lease Agreement shall be 35,624 square feet.
2. SECTION 2: The Commencement Date for the 35,624 square feet shall be April
1, 1997 and shall terminate sixty (60) months following such date on March
31, 2002.
3. SECTION 3 -- RENT: The monthly rent for the 35,624 square feet, payable in
accordance with the terms of the Lease Agreement, shall be $20,187.00
through March 31, 2002, for a total lease contract amount of $1,211,220.00.
Such rent shall not be subject to C.P.I. escalation.
4. SECTION 5 -- MAINTENANCE: The second sentence in Paragraph 2 shall be
amended to read "Tenant agrees to reimburse Landlord for such maintenance
and service at the rate of $10.00 per 1,000 square feet, in the amount of
three hundred fifty six dollars and twenty-four cents ($356.24) per month as
additional rent." This represents a CAM increase of $88.68 for Addendum
VIII, in addition to the $73.42 for Addendum V, $65.69 for Addendum IV,
$80.13 for Addendum II and $48.32 for the original space.
5. SECTION 6 -- TAXES: The following shall replace the first sentence in the
paragraph: "Landlord agrees to pay all ad valorem, real estate and personal
property taxes up to a maximum amount of the taxes for the Base Year 1995,
assessed against the property and improvements located thereon."
6. SECTION 10 -- INSURANCE: The following shall replace the second and third
sentence in Paragraph 2 and apply to the total premises of 35,624 square
feet: "Should the Landlord's cost of maintaining insurance herein exceed
the Base Year 1996 costs, then Tenant agrees to pay the Landlord, as
additional rent, Tenant's pro rata share of the amount of such excess each
year."
<PAGE>
Addendum IX
Tanox Biosystems, Inc.
Page 2
This Addendum IX, and the Lease Agreement dated December 4, 1986, and Addenda
II, III, IV, V, VI and VIII to the Lease Agreement constitute the entire
understanding between the parties with regard to leasing space at 10301 Stella
Link, Suite 110, Houston, Harris County, Texas. Default under any of the
aforesaid agreements will constitute default under all of the agreements.
Except for the foregoing changes, all of the covenants, terms and conditions of
the prior Lease Agreement, and Addendum II, III, IV, V, VI and VII remain the
same.
MAIN LINK BUSINESS PARK ASSOCIATES (Landlord)
By: /s/ JAMES E. STUBBS Attest: KELLI MOSLEY
James E. Stubbs
Vice President
For: AMEGA CORPORATION (MANAGING PARTNER)
(SUCCESSOR TO ALTA MAIN LINK INVESTMENTS, INC.)
TANOX BIOSYSTEMS, INC. (Tenant)
By: /s/ NANCY T. CHANG Attest: JOHN ??????
Nancy T. Chang
President
<PAGE>
DESCRIPTION OF LEASE PREMISES -- EXHIBIT A
Description
Lease Premises are located in Building # 10301 Stella Link which is part of Main
Link Business Park situated on a tract containing 4.1684 acres out of that
certain 22,2444 acre (984,966 square feet), more or less, tract land
located in Harris County, Texas, conveyed from Marvin H. McMurry, Jr. et al, to
Main Link Business Center Associates in deed dated June 6, 1982, and recorded
under Clerk's File No. H471470 of the Harris County Deed Records, to which deed
and the record thereof reference is here made for all purposes.
Lease Premises
Approx. 4832 Total S.F.
Fisher & Porter
(Approx. 15,530 S.F.)
McDERMED
STELLA LINK
<PAGE>
EXHIBIT "B"
Based on Tanox Biosystem Inc. proposed office and laboratory layout drawing
dated 12/03/86, Landlord will complete the 4,832 sq. ft. (4,002 sq. ft. air
conditioned and 830 sq. ft. non-air conditioned space) as requested and as
additionally specified below.
The engineering will be by Amega's subcontractors complete with engineers seal
on the electrical and air conditioning systems. The M.E.P. drawings and
specifications will be given to the tenants for approval prior to starting of
work.
I. ELECTRICAL (ADDITIONS/CLARIFICATIONS)
400 AMP SERVICE
EMERGENCY POWER
75 KVA diesel powered, automatic electrical generator will supply power to
designated areas in the event of loss of power to the building from HL&P.
Unit will be skid-mounted adjacent to the building on the north side, and
will contain fuel capacity for 24 hours (maximum) of use.
ITEMS TO BE ON EMERGENCY GENERATOR (*Added Items 11/20/86):
ROOM P-2
o One (1) 2 x 4 lay-in light with wall switch
Two (2) T.C. hoods (110v)
One (1) incubator (110v)
PREP LAB
o One (1) 2 x 4 lay-in light with wall switch
LAB #2
o Two (2) 220v outlets
o One (1) F.H. 48 (2-J boxes)
o One (1) 2 x 4 lay-in with wall switch
LAB #1
o Two (2) 220v outlets
o One (1) 2 x 4 lay-in light with wall switch
EQUIPMENT ROOM
o Three (3) 220v outlets
o One (1) 110v outlet
o Two (2) plug mold with plugs at 18 3/4 O.C.
o One (1) 2 x 4 lay-in light with wall switch
<PAGE>
CONFERENCE ROOM
o One (1) 2 x 4 lay-in light with wall switch
MAIN HALL
o Two (2) 2 x 4 lay-in lights with 3-way wall switch
T.C. ROOM
o One (1) 2 x 4 lay-in light with wall switch
o One (1) 220V outlet
o Two (2) T.C. Hood (One 78 and One 54)
COLD ROOM
Two (2) "J" boxes which operate package cooler room unit
ADDITIONAL ELECTRICAL OUTLETS/REQUIREMENTS:
EQUIPMENT ROOM
Add one (1) 220V outlet for equipment
MAIN HALL
Two (2) Hubbill #2310-20A-125V-2P-3W twist lock single receptacle.
Two (2) electrical outlets for flying bug killers in main hall way
(equip. by Owner)
Glass Wash Area ("J" Box Requirements)
One (1) dryer - 208, 30, 30 AMP disconnect
One (1) washer - 208, 30 - 100 AMP disconnect
One (1) auto clevis 208, 30 - 60 AMP disconnect
Omit one (1) J Box in original proposal
T.C. ROOM
Add three (3) ultraviolet lights surface mounted
P-2 LAB
Add Two (2) 2 1/4 ultraviolet lights surface mounted
COLD ROOM
Add One (1) 110V waterproof outlet
PANTRY
Add one (1) 110V outlet for a microwave oven
<PAGE>
CONFERENCE ROOM
Add four (4) incandescent lights with a dimmer
ADDITIONAL STORAGE
Add three (3) 8 1/4-2 light fixtures for temporary lighting
ANIMAL HOLDING
Four (4) 110 volt waterproof outlets
Two (2) 2 x 4 surface mounted light fixtures
LOADING DOCK/STORAGE
Delete rooms in their entirety which will offset the added requirements
at the animal room.
II. AIR CONDITIONING SYSTEM
The units are to be roof top mounted with duct-returned air from a
centrally filtered ceiling grill.
The A/C system has been designed per the following heat loads:
2.5 watts lighting load
3.0 watts misc. load (equip)
.1 "U" value for roof and wall
150 sq.ft. per person
1.13 "U" valve for exterior glass walls with a .59 shading coefficient
Note: The restrooms are to be air conditioned by a exhaust fan and a
undercut door.
Special air-conditioning consideration has been provided for the T.C. room
as a separate zone also the P-2 and Prep-Lab as a separate zone. The
proposed air-conditioning systems will be as follows:
1. Air handlers above the ceiling modified to allow for the
additional static pressure due to the HEPA filters
2. Compressors to be mounted on the roof
3. HEPA filters rated at .12 micron are to be installed at each air
outlet into the room
4. The "zones" can be controlled by the operator to maintain a
positive pressure by setting the fan to continuous run.
ANIMAL HOLDING ROOM
Provide one (1) air conditioned air inlet and one (1) fan with exhaust
duct thru the roof, both to be connect to owners animal container.
<PAGE>
III. PLUMBING
All laboratory drains are to be routed through an acid dilution tank
complete with a City of Houston approved sampling well. The cost of
testing and maintenance of the system is to be the responsibility of the
lessee.
One (1) 10 gal hot water heater for restrooms and pantry.
One (1) 30 gal hot water heater for five (5) stainless steel lab sinks.
Provide for additional water outlets and in line value with outlets for
Owners connection and installation of three (3) "Metafor" water systems
(outlet and pipings to be polypropylene).
Three (3) stainless steel cabinet tops are to have a self draining top
complete with a four inch splash.
ADD
Central floor drain in glass wash room and animal holding room.
One (1) janitors sink at animal room with hot and cold water.
One (1) exterior hose bibb near waste storage room.
IV. FLOORING
One (1) janitors sink at animal room with hot and cold water.
Allowance of $14.00 per yard installed carpet in the offices, reception
area and conference room.
One (1) exterior hose bibb near waste storage room.
Ceramic tile floor and 4 1/4 wainscote for men's and women's restrooms.
Sealed concrete (epoxy finish) for the glass wash, waste storage, and
small animal room.
V.C.T. - all rooms not specified above to have 12 3/4 x 12 3/4 x 1/8 3/4
vinyl tile.
IV. CABINETS & SHELVES
All cabinets as shown are to be 3/4 3/4 oak plywood custom-built, finished
(sealer and three coats lacquer), and installed. Countertops, other than
specified plastic laminated, to be 3/4 3/4 CORIAN.
<PAGE>
Twenty-three (23) lin.ft. of the open wall shelves are to have sliding
glass doors.
VI. NON-AIR CONDITIONED
The additional 830 sq.ft. will be partitioned off for Tanox Biosystem
Inc's use as a storage area.
<PAGE>
TANOX BIOSYSTEM, INC.
LEGEND: FOR DRWG. EXHIBIT "B" PAGE 4 OF 4 12/02/86 REV. 2
<TABLE>
<S> <C> <C>
STAINLESS STEEL SINK & COUNTER TOP
SS48 * 48x30, 60x30,
8x30 W/SINK SIZE SHOWN ON PLAN
SS60 W/4 3/4 S.S. SPLASH,
CABINET UNIT BELOW. (USE #304 16 GA.
SS84 S.S.)
036 * DRAWER 36 3/4 WIDE (SIZE VARIOUS)
C36 * CABINET 36 3/4 WIDE (SIZE VARIOUS)
KS24 * KNEE SPACE 24 3/4 WIDE (SIZE VARIOUS)
SIDE-DOWN SPACE 42 3/4 WIDE/P.L.
SD42 * COUNTER TOP
FD12 * FILE DRAWER 12 3/4 WIDE
36H,3CH * INDICATE HEIGHT OF BENCH & COUNTER
* TELEPHONE OUTLET
PG * PEGBOARD 30 3/4x36 3/4
PLUG MOLD, PLUG @ 18 3/4 D.C., 40 3/4
* A.F.F. ON WALL
* 208V, 30A, 42 3/4 AFF
PROVIDE 2 1/4-0 3/4 FLUOR STRIP LIGHT
IN WOOD POCKET.
UNDERSIDE OF BOOKSHELF @ SIDE-DOWN
SPACE
W/RECEPTABLE ON FIXTURE (SURFACE
* MOUNTED)
G * GAS PEDESTAL FIXTURE W/3-COCKS
* EMERGENCY EYE WASH
* EMERGENCY SHOWER
110V DUPLEX @ 12 3/4 AFF UNLESS
* OTHERWISE NOTED
- --G * GAS LINE ROUGH-IN @ 12 3/4 AFF
* CUP SINK
ROUGH-IN JUN. BOX IN PLENUM SPACE FOR
J * EQUIP
</TABLE>
<PAGE>
EXHIBIT "C"
SIGNAGE
Alta Properties will provide one sign on the storefront fascia which will be
designed and approved by Alta and which will read "TANOX BIOSYSTEM, INC."
Illumination of sign to be by general site lighting only, controlled by timer.
<PAGE>
EXHIBIT "C"
LIEN WAIVER
THE STATE OF TEXAS
COUNTY OF HARRIS
The undersigned has contracted with/has been employed by TANOX BIOSYSTEMS, INC.
to furnish LABOR AND/OR MATERIALS for the Project known as TANOX BIOSYSTEMS,
INC. NEW EXPANSION/PHASE II, and for certain improvements to real property
located in Harris County, Texas, and owned by Main Link Business Park
Associates, which improvements are described as follows:
Leasehold improvements to Building # 10301 Stella Link which is part of
Main Link Business Park situated on a tract containing 4.1684 acres out of
that certain 22.2444 acre (984,966 square feet), more or less, tract of
land located in Harris County, Texas, conveyed from Marvin H. McMurry, Jr.
et al, to Main Link Business Center Associates in deed dated June 6, 1982,
and recorded under Clerk's File No. H471470 of the Harris County Deed
Records, to which deed and the record thereof reference is here made for
all purposes.
For and in consideration of the sum of $ _______________________________________
_________________ DOLLARS, and other good and valuable consideration, the
receipt whereof is hereby acknowledged and confessed, the undersigned does
hereby waive and release any and all mechanic's lien or materialman's lien and
claim or right to lien on said above described real property and improvements on
account of labor or materials, or both, furnished by the undersigned pursuant to
the above mentioned contract with TANOX BIOSYSTEMS, INC. for said real property
and improvements up to and including ______________, 19_ only, but not for any
furnished subsequent to said date, and also waives and releases any
constitutional lien that the undersigned may have.
It is hereby warranted by the undersigned, who recognizes that TANOX BIOSYSTEMS,
INC. is relying on such warranty to its potential detriment, that all the
undersigned's subcontractors, materialmen and/or laborers have been paid all
sums due to any of them for work done or materials furnished in connection with
the job represented by this Lien Waiver, through the date mentioned above, and
that no valid claim or right exists in favor of any such subcontractor,
materialman or laborer.
______________________________________
BY: ________________________________________________ TITLE: __________________
SUBSCRIBED AND SWORN TO BEFORE ME BY __________________________________________,
on this the ___ day of ___________, 19__, to certify which witness my hand and
seal of office.
(Notary Seal) ______________________________________
Notary Public in and for the State of
Texas
My commission expires: _____________________________________________
EXHIBIT 10.6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made as of the 14th day of July, 1987, by
and between TANOX BIOSYSTEMS, INC., a Texas corporation (the "company") , TSE
WEN CHANG, NANCY T. CHANG and ALAFI CAPITAL COMPANY, a California limited
partnership ("Alafi Capital"), SHIREEN ALAFI, JOSEPH HESKEL, TRUSTEE FOR
CHRISTOPHER ALAFI (collectively, "Alafi"), and INVITRON CORPORATION, a Delaware
corporation ("Invitron"), (collectively, Alafi Capital, Alafi, and Invitron are
referred to as the "Investors" or sometimes singly as "Investor").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms and conditions
of this Agreement, Investors hereby severally agree to purchase, and the Company
hereby sells and issues to Investors an aggregate of 387,733 shares of the
Company's Common Stock (the "Stock") for the aggregate purchase price of
$4,000,000 paid in cash. Shares purchased severally by and sold to each of
Investors hereby are as indicated on Schedule 1.1.
1.2 SALE OF ADDITIONAL COMMON STOCK. The Company shall have the right for a
period of sixty (60) days from the date hereof to offer up to 193,867 shares of
the Company's Common Stock (the "Additional Stock") for sale to other
prospective investors (the "Prospective Investors") at a price per share of not
less than $10.32 and on terms which, in all material respects (considered in the
aggregate), will not be more favorable to such
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Prospective Investors than the terms hereof, unless the consent of Moshe Alafi,
as the representative of Investors, is first obtained to any such more favorable
terms. At the end of such sixty (60) day period, if the Company has not
consummated the sale of the Additional Stock to one or more of the Prospective
Investors, sale of such shares of the Common Stock of the Company shall
thereafter be subject to the rights of the Investors under Section 9.
1.3 CLOSING. The purchase and sale of the Stock has taken place at the
offices of Anderson, Harrell & Timby, P.C., 3400 MCorp Plaza, 333 Clay Street,
Houston, Texas 77002, at 9:00 A.M., July 9, 1987, or at such other time and date
as the Company and Moshe Alafi may agree, (which time and event are designated
the "Closing"). At the Closing, the Company has delivered and each of Investors
has received a certificate representing the Stock acquired by such Investor. The
Company has received from Investors a wire transfer of funds or official bank
check or checks in the aggregate amount of the purchase price. In addition, each
party has made the additional deliveries identified in Sections 5 and 6.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in
schedules attached hereto or otherwise disclosed in documentation delivered to
or reviewed by Investors in connection herewith, the Company, Tse Wen Chang and
Nancy T. Chang hereby represent and warrant to each Investor the matters set
forth below. Except where further qualified or the context otherwise requires,
reference in this Section 2 to the "knowledge" of the Company or matters "known
to the Company" shall mean matters actually known to the Board of Directors or
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officers of the Company. The following representations and warranties as made by
the Changs shall be deemed qualified to the extent of the actual knowledge of
each of them after due inquiry.
2.1 ORGANIZATION GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas and has all requisite corporate power and authority to
carry on its business as now conducted. The Company is not qualified to transact
business in any other jurisdiction and its failure so to qualify will not have a
material adverse effect on its business or properties.
2.2 CAPITALIZATION. Excluding the sales and purchases referenced in this
Agreement, the authorized capital of the Company consists of 10,000,000 shares
of common stock ("Common Stock"), of which 1,163,200 shares are issued and
outstanding and are owned of record by the persons indicated on Schedu1e 2.2 and
1,000,000 shares of preferred stock, of which no shares are issued and
outstanding. Except for (i) the Common Stock issued or to be issued under this
Agreement or to the Prospective Investors, (ii) the rights provided in or
excluded from application of Section 9 hereof, and (iii) the stock options
granted or which may be granted under the Tanox Biosystems, Inc. 1987 Stock
Option Plan, a true and correct copy of which has been delivered to the
Investors (the "Stock Option Plan"), and shares reserved for issuance
thereunder, the Company does not have any equity securities outstanding, nor are
there outstanding any options, warrants, rights, or securities convertible into
or exercisable for equity securities to be issued by the Company nor any
agreements to issue any such securities or rights.
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2.3 SUBSIDIARIES. The Company does not own or control, directly or
indirectly, any interest in any other corporation, association, or other
business entity; provided, that this representation is not intended to apply to
any interest which may arise out of or result from license or other contractual
arrangements between the Company and any other business entity.
2.4 AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement, the performance of all obligations of the
Company hereunder and the authorization, issuance (or reservation for issuance)
and delivery of the Stock being sold hereunder have been taken and this
Agreement constitutes a valid and binding obligation of the Company enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy and similar laws or generally applicable principles of equity.
2.5 VALID ISSUANCE OF STOCK.
(a) The Stock purchased by Investors hereunder, as issued, sold and
delivered in accordance with the terms hereof for the consideration expressed
herein, is, or will be, duly and validly issued, fully paid and nonassessable
and, based in part upon the representations of the Investors in this Agreement
and to the Company's knowledge, is, or will be, issued in compliance with all
applicable federal and state securities laws, as the case may be; and
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(b) All of the outstanding shares of Common Stock of the Company were
duly and validly authorized and issued, or the issuance thereof duly and validly
ratified, and are fully paid and nonassessable.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of the
Company is required in connection with the consummation of the transactions
contemplated by this Agreement, except for (a) filings which may be required
under the Securities Act of 1933, as amended, and rules and regulations
promulgated thereunder (collectively, the "Act"), and (b) the filing pursuant to
Section 25102(f) and the rules thereunder of the California Securities Law of
1968, as amended ("CSL"), or filings which may be required I under the Texas
Securities Act, as amended ("TSA").
2.7 LITIGATION. There is no action, suit, proceeding or investigation
pending or currently threatened against the Company which questions the validity
of this Agreement or the right of the Company to enter into it, or to consummate
the transactions contemplated hereby, or which might result, either individually
or in the aggregate, in any material adverse changes in the assets, condition,
affairs or prospects of the Company, financially or otherwise, nor is the
Company aware of any basis for any of the foregoing. The Company is not a party
or subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality.
2.8 PROPRIETARY AGREEMENT. All of the Company's employees have executed a
confidentiality agreement in the form attached hereto as Exhibit 2.8. The
Company, after reasonable
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investigation, is not aware that any of its employees is in violation thereof.
2.9 PATENTS AND TRADEMARKS. Subject to royalty and other obligations
contained in those agreements referenced on Schedule 2.9, the Company has
sufficient right, title and ownership of all patents, trademarks, service marks,
trade names, copyrights, licenses, information and proprietary rights, or
adequate licenses, rights or purchase options with respect to the foregoing,
necessary for its business as now conducted. Except as indicated by Schedule
2.9, the Company is not aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would conflict with his obligation to use his best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. To the Company's knowledge,
neither the execution nor delivery of this Agreement, nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed will result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. Except for those
inventions described on Schedule 2.9, the Company does not believe it is or will
be necessary to utilize any inventions or ideas of any of its employees (or
people it currently intends to hire) made prior to their employment by the
Company.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation or
default of any provision of its Articles of Incorporation or Bylaws or any
instrument or contract to which
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it is a party or by which it is bound or, to its knowledge, of any provision of
any federal or state judgment, writ, decree, order, statute, rule or
governmental regulation applicable to the Company. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument or contract or an event which
results in the creation of any lien, charge or encumbrance upon any assets of
the Company.
2.11 AGREEMENTS; ACTION.
(a) Except as explicitly contemplated hereby or identified on Schedule
2.11, there are no agreements, understandings or proposed transactions between
the Company and any of its officers, directors, affiliates, or any affiliate
thereof; and
(b) Except as may be identified on Schedule 2.11, the Company has not
entered into any written agreement which provides for payments in excess of
$25,000 thereunder by the Company or any non-cancellable agreements providing
for payments in the aggregate of more than $150,000.
2.12 DISCLOSURE. The Company has fully provided Investors with all the
information which Investors have requested for deciding whether to purchase the
Stock and all information concerning the Company which it believes is material
to enable such Investors to make such decision. Neither this Agreement nor any
other statements or certificates made or delivered in
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connection herewith contains any untrue statemant of a material fact or omits to
state a material fact necessary to make the statements herein or therein not
misleading; provided, that the foregoing does not include statements and
information contained in the preliminary draft of the Company's business plan
which has been reviewed by Investors and statements relating to potential
products, product applications, markets, sales projections or other forward
looking statements (as defined in or contemplated by Reg. 230.175 of the Act),
except that the Company and the Changs represent and warrant that the business
plan was prepared in good faith.
2.13 REGISTRATION RIGHTS. Except as provided in Section 7 of this
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggy-back rights, to any person or entity.
2.14 CORPORATE DOCUMENTS. The Articles of Incorporation and Bylaws of the
Company are in the form last provided to the Investors.
2.15 PROPERTIES. Except for (i) liens or encumbrances disclosed on Schedule
2.15, (ii) any lien for taxes or special assessments either not yet delinquent
or being contested in good faith by appropriate proceedings, (iii) mechanics',
materialmen's, carriers', workmen's, employees' or similar liens arising in the
ordinary course of business that do not impair in any material respect the
value, restrict the usefulness of the property, or are being contested in good
faith by appropriate proceedings, and (iv) encumbrances represented by license
or other agreements identified on schedules attached hereto or delivered to
Investors prior to Closing, the tangible and
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intangible property currently owned by the Company is free and clear of any
liens, security interests, claims, charges, options or other encumbrances. The
Company after due inquiry knows of no violation of any law, regulation or
ordinance (including without limitation laws, regulations or ordinances relating
to zoning, environmental, city planning or similar matters) relating to its
properties (owned or leased) or its business which could have a material,
adverse effect on the financial condition or operations of the business of the
Company. The Company has not received notice of any developments affecting any
of such tangible properties nor, to its knowledge, are any such developments
threatened, which might curtail the present or future use of such tangible
property for the purpose for which it was acquired or the purpose for which it
is used which could have an adverse effect on the Company. All leases under
which the Company leases any real or personal property are in good standing,
valid and effective in accordance with their respective terms.
2.16 INSURANCE. To its knowledge, the Company is not in default with
respect to any provisions of any fire, liability, title or other form of
insurance held by it and has not failed to give any notice or present any claim
thereunder in due and timely fashion. Such policies are in amounts and upon
terms which are normal for the industry, are reasonable in light of the
Company's size and business and provide insurance for business risks normally
insured against. Such policies or binders evidencing same have been made
available for review by Investors prior to the Closing.
2.17 TAXES. All tax returns required to be filed with respect to the
operations or assets of the Company have been correctly prepared and timely
filed or extended, and all taxes
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required to be paid in respect of the periods covered by such returns have been
paid and/or adequate reserves for the payment of all income, franchise,
property, sales, employment or other taxes payable in respect of the period
subsequent to the last of said periods have been established. No tax obligation
of the Company will arise in connection with the consummation of the
transactions contemplated hereby. The Company is not delinquent in the payment
of any assessment or governmental charge or duty the delinquency of which could
have an adverse effect on the business or operations of the Company. No
deficiencies for any tax, assessment or governmental charge or duty have been
claimed, proposed or assessed. The Company's federal income tax returns have
never been audited by federal or state authorities and, to the best of the
Company's knowledge, no such audit is currently planned.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Investors understand
that the Stock and Additional Stock (under this Section 3, the term "Stock"
includes the Additional Stock to the extent same is intended to be acquired or
is acquired) has not been registered under the Act and applicable state laws and
that it is being offered and sold pursuant to an exemption from registration
contained in the Act and applicable state laws based in part on the
representations and warranties of Investors contained herein. Each of Investors
hereby severally represents and warrants to the Company the matters set forth
below with respect to itself.
3.1 AUTHORIZATION. All action, corporate or otherwise, necessary for the
authorization, execution and delivery of this Agreement and performance of
Investors' obligations hereunder have been taken and this Agreement
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constitutes the valid and binding obligation, of each of the, Investors,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy and similar laws or generally applicable principles of
equity.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. It is acquiring the Stock for its
own account and not for the benefit; of any other person (except for the
respective beneficial interests of the Alafi Capital limited partners and the
owners of Invitron) for investment purposes and not for sale or with a view
to distribution of all or any part of such Stock.
3.3 APPLICABLE EXEMPTIONS. It understands that the Stock has not been
registered under the Act by reason of its issuance in a transaction exempt from
the registration and prospectus delivery requirements of the Act pursuant to
Section 4(2) thereof, that the Company has no present intention of registering
the Stock, that the Stock must be held by Investor indefinitely, and that
Investor must therefore bear the economic risk of such investment indefinitely,
unless a subsequent disposition thereof is registered under the Act or is exempt
from registration. Investor further understands that the Stock has not been
registered under the CSL or TSA, or other applicable state laws by reason of its
issuance in a transaction exempt from the registration requirements of such
laws, which exemptions depend upon, among other things, the bona fide nature of
Investor's investment intent expressed herein and Investors' wealth and
sophistication in making similar investments.
3.4 ACCESS. During the negotiation of the transactions contemplated herein,
Investor and its representatives have been afforded full and free access to
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corporate books, financial statements, records, contracts, documents and other
information concerning the Company and to its offices and facilities, have been
afforded an opportunity to ask such questions of the Company's officers,
employees, agents, accountants and representatives concerning the Company's
business, operations, financial condition, assets, liabilities and other
relevant matters as they have deemed necessary or desirable, and have been given
all such information as has been requested, in order to evaluate the merits and
risks of the prospective investment contemplated herein. The foregoing, however,
does not limit or modify the representations or warranties of the Company
contained in Section 2 of this Agreement, except to the extent that any such
documents delivered to Investors reasonably disclose on the face thereof any
conflicts with such representations and warranties.
3.5 DUE DILIQENCE. Investor and its representatives have been solely
responsible for Investor's own "due diligence" investigation of the Company and
its management and business, for Investor's own analysis of the merits and risks
of this invesuent, and for its own analysis of the fairness and desirability of
the terms of the invesuent. In taking any action or performing any role
relative to the arranging of the proposed investment, Investor has acted solely
in its own interest, and neither Investor (nor any of Investor's agents or
employees) have acted as an agent of the Company.
3.6 CONSENTS. No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of Investor is
required in connection with the valid execution and delivery of this Agreement,
except for
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filings required under applicable securities and other governmental laws which
will be made and will be effective within the period required by law.
3.7 ACCREDITED STATUS. Investor (other than Invitron) is an "accredited
investor" as that term is defined in Regulation D promulgated under the Act
and an "excluded purchaser" under Regulation 260.102.13 promulgated under the
CSL.
3.8 INVESTMENT EXPERIENCE. Investor is an investor in securities of
companies, and/or is familiar with the risks of investment in companies, in
the development stage and acknowledges that it is able to fend for itself, can
bear for an indefinite period of time the economic risk of its investment,
including a complete loss of its investment, and has such knowledge, experience
and sophistication in financial and business matters that it is capable of
assessing the risks and merits of this investment. Investor also represents that
it has not been organized for the purpose of acquiring the Stock.
3.9 RESTRICTED SECURITIES. Investor understands that the shares of Stock it
is purchasing are characterized as "restricted securities" under the federal
securities laws in as much as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Act only in certain limited circumstances. In this connection, Investor
represents that it is familiar with SEC Rule 144, as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
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3.10 FURTHER LIMITATIONS ON DISPOSITION. Without in any way limiting the
representations set forth above, Investor understands and further agrees that it
cannot and will not make any disposition of all or any portion of the Stock
unless and until:
(a) There is then in effect a registration statement under the Act covering
such proposed disposition and such disposition is made in accordance with such
registration statement; or
(b) Investor has notified the Company of the proposed disposition and has
furnished the Company with a detailed statement of the circumstances surrounding
the proposed disposition, including why such disposition will not require
registration of such shares under the Act, and, if reasonably requested by the
Company, Investor has furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not require
registration of such shares under the Act, CSL, TSA, or any applicable state
laws. It is agreed that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144 except in unusual circumstances
(including circumstances where applicable state laws do not plainly except such
transaction) or for transactions made in reliance on Rule 144 (k).
3.11 LEGENDS. It is understood that the certificates evidencing the Stock
may bear one or all of the following legends:
(a) "These securities have not been registered under the Securities
Act of 1933 or any state securities laws.
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These securities have been acquired for investment and may not be sold, offered
for sale, pledged, hypothecated or otherwise disposed of in the absence of a
registration statement in effect with respect to the securities under such Act
and applicable state laws or an opinion of counsel satisfactory to the Company
that such registration is not required or unless sold pursuant to Rule l44 of
such Act; and
(b) Any legend required by the laws of the State of Texas or the State of
California or required under that certain Voting Agreement dated effective of
even date herewith among the Investors and the Changs.
4. CALIFORNIA NOTICE. THE SALE OF THE SECURITIES THAT IS THE SUBJECT OF
THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF
THE STATE OF CALIFORNIA, AND IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION REQUIREMENT THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR
RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS IN THE
OPINION OF COUNSEL FOR THE COMPANY SUCH QUALIFICATION IS NOT REQUIRED.
5. DELIVERIES REQUIRED BY INVESTORS AT CLOSING. In satisfaction of
Investors' conditions to Closing, Company has delivered and Investors have
received the following:
(a) Investors have received from Anderson, Harrell & Timby, P.C.,
counsel for the Company, an opinion, dated as of the Closing, in form and
substance satisfactory to the Investors and substantially in the form of that
attached hereto as Exhibit 5(a); and
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(b) Investors have received stock certificates representing the shares
of Stock and such other documents and agreements as they require in connection
with the Closing.
6. DELIVERIES REQUIRED BY COMPANY AT CLOSING. In satisfaction of
Company's conditions to Closing, Investors have delivered and Company has
received the following:
(a) Company has received from Investors (by way of wire transfer of
funds or official bank check) the aggregate purchase price of the Stock being
purchased by Investors;
(b) Company has received from Brobeck, Phleger & Harrison, counsel for
the Investors, an opinion, dated as of the Closing, in form and substance
satisfactory to the Company and substantialy in the form of that attached
hereto as Exhibit 6(b); and
(c) Company has received, or Investors have executed and delivered to
certain shareholders of the Company, such other documents and agreements as it
requires in connection with the Closing, including, without limitation,
confidentiality agreements and a voting agreement.
7. REGISTRATION RIGHTS. The Company covenants and agrees to provide certain
registration rights in accordance with the terms and conditions of this
Section 7.
7.1 DEFINITIONS. For purposes of this Section 7:
(a) The term "register," "registered," and "registration" refer
to a registration effected by preparing and
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filing a registration statement or similar document in compliance with the Act
and the declaration or ordering of effectiveness of such registration statement
or document;
(b) The term "Registrable Securities" means any Common Stock of
the Company, including Common Stock issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, such Common Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 7 are not assignable;
(c) The term "Holder" means any Investor, any Prospective
Investor and any other person (spouses being considered one person for purposes
hereof) provided such other person owns or has the right to acquire Registrable
Securities amounting to at least fifteen percent (15%) of the outstanding Common
Stock of the Company at any time the provisions of this Section 7 may become
exercisable or be exercised and any assignee thereof in accordance with
paragraph 7.11 hereof; and
(d) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the Securities and Exchange Commission ("SEC") which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
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7.2 DEMAND REQISTRATION.
(a) If the Company shall receive at any time after six (6) months
after the effective date of the first registration statement for a public
offering of securities and prior to the time the Company is eligible to utilize
Form S-3 for the sale of Registrable Securities, a written request from the
Holders of at least fifteen percent (15%) of the Registrable Securities then
outstanding that the Company file a registration statement under the Act
covering the registration of Registrable Securities then outstanding having a
market value of not less than $3,000,000, then the Company, within ten (10) days
after the receipt thereof, shall give written notice of such request to all
Holders and, subject to the limitations of subparagraph 7.2(b), shall effect the
registration under the Act of all Registrable Securities which the Holders
request to be registered as soon as reasonably possible after the mailing of
such notice by the Company, but in any event within the time required pursuant
to subparagraph 7.2(d).
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to this section 7.2 and the Company
shall include such information in the written notice referred to in subparagraph
7.2(a). In such event, the right of any Holder to include his Registrable
Securities in such registration shall be conditioned upon participation in such
underwriting and the inclusion of his securities therein to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company) enter
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into an underwriting agreement in customary for with the underwriter or
underwriters selected for such Underwriting by a majority in interest of the
Initiating Holders and reasonably agreeable to the Company (the Company being
permitted to consider in connection therewith the underwriters' agreement to a
registration using incorporation of documents filed with the SEC, to the extent
permitted by applicable laws, rules and regulations, and the relative cost of
using such underwriters). Notwithstanding any other provision of this Section
7.2, if the underwriter advises the Initiating Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Initiating Holders shall so advise all Holders of Registrable Securities
which would otherwise be underwritten pursuant hereto, and the number of shares
of securities that may be included in the underwriting shall be allocated among
all Holders of Registrable Securities in proportion (as nearly as practicable)
to the amount of Registrable Securities originally requested to be included by
each in response to the written notice referred to in subparagraph 7.2(a).
(c) The Company is obligated to effect only one (1) such
registration pursuant to this Section 7.2.
(d) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 7.2, a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be detrimental
to the Company and its shareholders for such registration statement to be filed
and it is therefore reasonable to defer the filing of such registration
statement, the Company shall have the
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right to defer such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating Holders; provided,
however, that the Company may not utilize this right more than once in any
twelve (12) month period. The Company shall be entitled to limit any such
registration hereunder to the same extent as permitted under subparagraph
7.10(b), subpart (6).
7.3 COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes to register for its own issuance or for shareholders other than
the Holders any of its stock or other securities under the Act in connection
with the public offering of such securities solely for cash, the Company, each
such time, shall promptly give each Holder written notice of such registration;
provided, that such notice shall not be required, and Holders shall have no
rights hereunder, in connection with a registration relating solely to the sale
of securities to employees of the Company pursuant to any employee stock option
or stock purchase plans or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Paragraph 12.6, the Company,
subject to the provisions of Paragraph 7.6, shall cause to be registered under
the Act all of the Registrable Securities that each has requested to be
registered. The Company shall be obligated to effect only two (2) such
registrations pursuant to this Paragraph 7.3.
7.4 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 7 that
the selling Holders shall furnish
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to the Company such information regarding themselves, the Registrable Securities
held by them, and the intended method of disposition of such securities as shall
be required to effect the registration of the Registrable Securities.
7.5 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Paragraph 7.2 or 7.3 (which right may be assigned as provided in
Paragraph 7.11), including (without limitation) all registration, filing, and
qualification fees, printers' and accountinq fees relating or apportionable
thereto: provided, however, that the selling Holders shall pay the fees and
disbursements of any counsel, experts or other professionals selected by them
and: provided, further, that the fees and expenses of complying with blue sky
laws shall be borne by the selling Holders if and to the extent that the
appropriate administrative official of such state requires that such Holders
(rather than the Company) pay such fees and expenses.
7.6 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares being issued by the Company, the Company
shall not be required under Paragraph 7.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it, and then
only in such quantity as will not, in the opinion of the underwriters,
jeopardize the success of the offering by the Company. If the total amount of
Registrable Securities that all Holders thereof request to be included in such
offering exceeds the amount of such securities that the underwriters reasonably
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believe compatible with the success of the offering or, in the initial public
offering of the Company, exceeds twenty percent (20%) of the total number of
shares proposed to be registered, then the Company shall be required to include
in the offering only that number of such securities which the underwriters
believe will not jeopardize the success of the offering or, in the initial
public offering, only that number of such securities not exceeding such twenty
percent (20%) and the Holders shall be entitled to include their respective
Registrable Securities in the offering pro rata to their ownership of same.
7.7 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 7.
7.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 7:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions
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or violations (collectively a "Violation") : (i) any untrue statement or alleged
untrue statement of material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will reimburse each such Holder, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subparagraph 7.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability, or action to the extent
that it arises out of or is based upon a Violation which occurs in reliance upon
and in conformity with written information furnished expressly for use in
connection with such registration by any such Holder, underwriter or controlling
person;
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter (within the
meaning of
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the Act) for the Company or such other Holders, any person who controls such
underwriter, and any other Holder selling securities in such registration
statement or any of its directors or officers or any person who controls such
Holder, against any losses, claims, damages, or liabilities (joint or several)
to which the Company or any such director, officer, controlling person, or
underwriter or controlling person, or other such Holder or director, officer or
controlling person may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer; controlling person, underwriter or
controlling person, other Holder, officer, director, or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subparagraph 7.8(b) shall not apply to amounts paid in settlement for
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; and
(c) Promptly after receipt by an indemnified party under this
Paragraph 7.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Paragraph 7.8,
notify the indemnifying party in writing of the commencement thereof and the
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indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, if prejudical to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Paragraph 7.8, but the omission so to notify the indemnifying party will not
relieve it of any liability that it may have to any indemnified party otherwise
than under this Paragraph 7.8.
7.9 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to use its best
efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company;
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(b) Take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is reasonable to enable the
Holders to utilize, except for the requisite financial, listing or quotation
requirements, Form S-3 for the sale of their Registrable Securities when same
becomes available, such action to be initiated as soon as reasonably practicable
after the end of the fiscal year in which the first registration statement filed
by the Company for the offering of its securities to the general public is
declared effective;
(c) File with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) Furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith (i) upon request, a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) upon availability, a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) upon request, such other
information as may be reasonably requested in availing any Holder of any rule or
regulation of the SEC which permits the selling of any such securities without
registration or pursuant to such form.
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The Company's obligations under this Paragraph 7.9 shall terminate at such time
as the Company may no longer be required to file reports or other documents
under the 1934 Act and will terminate as to each Holder covered hereby at such
time as such Holder shall be entitled to sell its shares under the provisions of
Rule 144(k).
7.10 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders holding an aggregate of at least fifteen percent (15%) of the
outstanding shares of Common Stock of the Company a written request or requests
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to all or a part of the Registrable Securities owned
by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance to all other Holders; and
(b) as soon as reasonably practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within 15 days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this
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Paragraph 7.10: (1) within 180 days of the effective date of any public offering
of securities by the Company; (2) if the Company is not qualified as a
registrant entitled to use Form S-3; (3) if the Holders, together with the
holders of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public of less than $3,000,000; (4) if the
Company shall furnish to the Holders a certificate siqned by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be detrimental to the Company and its shareholders for
such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than 120 days after receipt of the request of
the Holder or Holders under this Paragraph 7.1.0; provided, however, that the
Company shall not utilize this right more than once in any twelve (12) month
period: (5) if the Company has, within the twelve (12) month period preceding
the date for such request, already effected any registration in which each of
the Holders was entitled to register at least twenty percent (20%) of the
Registrable Securities then held by such Holder, whether pursuant to this
Paragraph 7.1.0 or otherwise; (6) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance, or with respect to which such registration, qualification or
compliance is unduly burdensome: or (7) if the Company has effected at least
three (3) of such registrations pursuant to this Paragraph 7.10 for one or more
of the Holders.
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Subject to the foregoing, the Company will use its best efforts to
file a registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as reasonably practicable after
receipt of the request or requests of the Holders. All expenses incurred in
connection with a registration requested pursuant to this Paragraph 7.1O,
including (without limitation) all registration, filing, qualification,
printers' and accounting fees and the fees and disbursements of counsel for
the selling Holder or Holders and counsel for the Company shall be borne pro
rata by the Holder or Holders participating in the Form S-3 Registration.
Registrations effected pursuant to this Paragraph 7.10 shall not be counted as
registrations effected pursuant to Paragraph 7.2 and registrations effected
pursuant to Paragraph 7.2 shall not be counted as registrations effected
pursuant to this Paragraph 7.1O.
7.11 ASSIGNMENT OF REGISTRATION RIQHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 7 may be
assigned by a Holder (after identification of such Holder under this Section 7
or with respect to registrations pursuant to Paragraph 7.10) to a transferee or
assignee of such securities provided (a) such assignment complies with, and such
transferee or assignee agrees in writing to comply with and be bound by all of
the terms and provisions of this Agreement, (b) the Company is, within a
reasonable time prior to such transfer, furnished with written notice of the
name and address of such transferee or assignee which notice identifies the
securities with respect to which such registration rights are being assigned and
(c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
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7.12 "MARKET STAND-OFF" AGREEMENT. Investors hereby agree that they
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose (other) than to donees who agree to be similarly bound) of any
Registrable Securities for such period of time (not to exceed 180 days)
following the effective date of a registration statement of the Company filed
under the Act as the Company or underwriters may specify; provided, however,
that all officers and directors of the Company and all other persons with
registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of each Investor (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of any such period specified.
8. COVENANTS OF THE COMPANY.
8.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to
each Investor:
(a) as soon as practicable, but in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company commencing
December 31, 1987, a copy of its audited report, an income statement for such
fiscal year, a balance sheet of the Company as of the end of such year, and a
schedule as to the sources and applications of funds for such year, such
year-end financial reports to be in reasonable detail,
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prepared in accordance with generally accepted accounting principles ("gaap")
examined by and accompanied by a certificate or opinion of a nationally
recognized firm of independent certified public accountants;
(b) commencing June 30, 1987, within sixty (60) days after the
end of each of the first three (3) quarters of each fiscal year of the Company,
an unaudited profit or loss statement for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter;
(c) as and to the extent specifically and reasonably requested
from time to time, such further financial statements, reports, information and
plans regarding the Company as the Company may prepare or have prepared for its
use; and
(d) the financial statements called for in subparagraphs (b) and
(c) of this Paragraph 8.1 shall be accompanied by an instrument executed by the
Chief Financial Officer, Chief Executive Officer or Chief Operating Officer of
the Company and certifying that such financials were prepared in accordance with
gaap consistently applied, subject to normal year end adjustments with prior
practice for earlier periods and that such fairly present the financial
condition of the Company and its results of operation for the period specified.
8.2 TERMINATION OF COMPANY'S COVENANTS. The covenants set forth in
Paragraph 8.1 shall terminate as to Investors and be of no further force or
effect when the Company consummates an underwritten public offering of its
securities or when the Company first becomes subject to the periodic reporting
requirements of section 15(d) of the 1934 Act, whichever event shall first
occur.
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9. INVESTOR'S RIGHT OF FIRST REFUSAL. Subject to the terms and conditions
specified in this Section 9, the Company hereby grants to Investors a right of
first refusal with respect to future sales by the Company of its Common Stock
(but not including the Additional Stock for a period of sixty (60) days from the
date hereof). Investors shall be entitled to apportion the right of first
refusal hereby granted among themselves in such proportions as they deem
appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for, any of its Common Stock (the "Shares"),
the Company shall first make an offering of such Shares to Investors in
accordance with the following provisions:
(a) The Company shall deliver a notice ("Notice") to Investors
stating (i) its bona fide intention to offer or issue such Shares, (ii) the
number of such Shares to be offered, and (iii) the price, if any, for which it
proposes to offer such Shares;
(b) Within twenty (20) calendar days after receipt of the
Notice, Investors may elect to purchase or obtain, at the price and on the
terms specified in the Notice, up to that portion of such Shares which equals
the proportion that the number of shares of Common Stock issued and held by such
Investors bear to the total number of shares of Common Stock issued and held by
all shareholders of the Company (*no Investor shall be entitled to
acquire a greater percentage of the Shares than such Investor's ownership
percentage in the Company's Common Stock at such time); provided, however, that
if written notice of
*Subject to the right to apportion
as provided above.
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Investors election, specifying the number of Shares to be purchased by each, is
not received by the Company within such twenty-day period, Investors shall be
deemed to have waived their riqht to acquire any of such Shares;
(c) If all such Shares which Investors are entitled to acquire
are not elected to be obtained as provided in subparagraph 9(b) hereof, the
Company may, during the l8O-day period following the expiration of the period
provided in subparagraph 9(b) hereof, offer the remaining unsubscibed Shares to
any person or persons at a price not less than, and upon terms no more favorable
to such person or persons than, those specified in the Notice; if the Company
does not enter into an agreement for the sale of the Shares within such period,
or if such agreement is not consummated with 60 days of the execution thereof,
the right provided hereunder shall be deemed to be revived and such Shares shall
not be offered unless first reoffered to Investors in accordance herewith; and
(d) The right of first refusal in this Section 9 shall (i) terminate as to
any Investor and not be applicable to any offer or issue of the Shares to such
Investor which may be initiated by the Company after the offering and/or sale of
Shares pursuant to this Section 9 if such Investor fails in any offer under this
Section 9 to exercise * its rights to the greatest extent permitted, (ii)
terminate as to all Investors after consummation of an underwritten offering
described in (iv) below, (iii) not be applicable to shares of Common Stock
issued pursuant to any stock option or stock purchase plan to employees or
consultants of the Company provided, such plan is approved by the Company's
Board of Directors and the shares issued or issuable pursuant thereto do not
exceed twenty percent (20%) of
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the outstanding equity securities of the Company at any time outstanding, (iv)
not be applicable to a bona fide, firmly underwritten public offering of shares
of Common Stock registered under the Act, (v) not be applicable to the issuance
of Shares in a transaction in which the Company is, in fact and irrespective of
the form of the transaction, acquiring directly or indirectly some or all of the
assets, business or equity interests of another corporation or entity, and (vi)
terminate either as of the effective date of a registration of shares of Common
Stock under the Act in which the total value of the shares registered is at
least seven million dollars ($7,000,000.00) and the price per share of the
Common Stock to be sold is based upon a total valuation of the Company of at
least thirty million dollars ($30,000,000.00) or at such time as the total value
of the Company, based upon the public trading price (whether quoted
over-the-counter or otherwise) of such shares, is at least thirty million
dollars ($30,000,000.00) .
10. COVENANTS OF INVESTORS.
10.1 CONFIDENTIALITY. The information provided to Investors shall be
used by the Investors or any permitted assignee of the Investors solely in
furtherance of their interests as an investor in the Company and shall be
subject to confidentiality agreements executed by Investors and any such
assignees in the form of same attached hereto as Exhibit 10.1, and executed and
delivered by the Investors to the Company at the Closing. In addition to the
obligations of confidence set forth in any such agreements, and except for the
use of any information regarding the Company contained in the public filings of
the Company under the Act or the 1934 Act or information previously reviewed by
the Company pursuant to its rights hereunder,
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Investors agree to permit the Company to review information regarding the
Company and Investors' investment in the Company which Investors may release to
the general public or publish in any manner, including its publication in any
governmental or other filings available to the public and, as reasonable,
Investors agree to consent in good faith with Company regarding any concerns
which the company's representatives may have regarding publication of such
information. Notwithstanding anything to the contrary contained in this Section
10.1, the obligation of Invitron to consu1t with the Company prior to any
publication or filing with any governmental agency shall not be applicable if
such consultation would not be reasonably practicable under time constraints to
which Invitron may then be subject.
10.2 LIMITATIONS ON DISPOSITION. Each of Investors agrees that it
shal1 comply fully with the limitations on disposition set forth in Paragraph
3.10 above.
10.3 TERMINATION OF INVESTORS' COVENANTS. The covenants set forth
in Paragraphs 10.1 and 10.2 shall survive the closing, but the restrictions on
the disclosure of confidential information sha11 be coterminous with the
provisions of the confidentiality agreements pertaining thereto.
II. MISCELLANEOUS.
II.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
closing for a period of six (6) months (except for those covenants contained in
Sections
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7, 8, 9, and 10 which shall continue for such period as agreed thereunder and,
in no way, shall be affected by any investigation of the subject matter thereof
made by or on behalf of the Investors.
II.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties; provided that this Agreement may not be
transferred or assigned by Investors without the prior written consent of the
Company, which consent will not be unreasonably withheld. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective permitted successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
II.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the internal laws of the State of Texas.
1l.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
II.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
II.6 NOTICES. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery, by personal or private
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service with appropriate record of delivery, to the party to be notified or upon
deposit with the United States Post Office, by first class mail, postage prepaid
and addressed to the party to be notified at the address indicated for such
party below, or at such other address as such party may designate by ten (1O)
days, advance written notice to the other parties :
THE COMPANY Tanox Biosystems, Inc..
OR THE CHANGS: 10301 Stella Link
Houston, Texas 77025
Attn: Nancy T. Chang, President
ALAFI CAPITAL: Alafi Capital Company
Post Office Box 7338
Berkeley, California 94707
Attn: Moshe Alafi, General Partner
ALAFI: c/o Moshe Alafi
6 Commodore Drive, Apt. 234C
Emeryville, California 94608
INVITRON: Invitron Corporation
4649 LeBourget Drive
St. Louis, Missouri 63134
Attn: Charles V. Benton, President
Notice shall be deemed effectively received (i) five (5) business days after
deposit properly addressed, with the United States Post Office, if sent first
class mail, postage prepaid, (ii) as of the date delivery is acknowledged by
appropriate record, if sent by express mail (public or private service), telex,
telegram or facsimile mail or other similar communication, or (iii) when
receipt is otherwise indicated by the receiving party to the noticing party by
correspondence, telex or other reasonable communication.
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II.7 FINDERS' FEE. Each party represents that it neither is nor will
be obligated for any finders' fee or commission in connection with this
transaction. Each Investor agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finders' fee (and the costs and expenses of defending against such liability or
asserted liability) for which the Investors or any of their officers, partners,
employees, or representatives are responsible.
Each party agrees to indemnify and hold harmless the other party from
any liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which such party is responsible.
II.8 EXPENSES. Each party shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement.
II.9 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provisions shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision or provisions were so excluded and shall be enforceable in
accordance with its terms.
II.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TANOX BIOSYSTEMS, INC .
By: /s/ NANCY T. CHANG
Nancy T. Chang, President
ALAFI CAPITAL COMPANY
By: /s/ MOSHE ALAFI
Moshe Alafi, General Partner
/s/ SHIREEN ALAFI
Shireen Alafi
Joseph Heskel, Trustee for
Christopher Alafi
INVITRON CORPORATION
By: /s/ CHARLES V. BENTON
Charles V. Benton, President
/s/ NANCY T. CHANG
Nancy T. Chang
/s/ TSE WEN CHANG
Tse Wen Chang
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
TANOX BIOSYSTEMS, INC.
By: /s/ NANCY T. CHANGE
Nancy T. Chang, President
ALAFI CAPITAL COMPANY
By: /s/ MOSHE ALAFI
Moshe Alafi, General Partner
/s/ SHIREEN ALAFI
Shireen Alafi
Joseph Heskel, Trustee for
Christopher Alafi
INVITRON CORPORATION
By: /s/ CHARLES V. BENTON
Charles V. Benton, President
/s/ NANCY T. CHANG
Nancy T. Chang
/s/ TSE WEN CHANG
Tse Wen Chang
-39-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TANOX BIOSYSTEMS, INC.
By: /s/ NANCY T. CHANG
Nancy T. Chang, President
ALAFI CAPITAL COMPANY
By:
Moshe Alafi, General Partner
Shireen Alafi
/s/ JOSEPH HESKEL
Joseph Heskel, Trustee for
Christopher Alafi
INVITRON CORPORATION
By: /s/ CHARLES V. BENTON
Charles V. Benton, President
/s/ Nancy T. Chang
Nancy T. Chang
/s/ TSE WEN CHANG
Tse Wen Chang
-39-
<PAGE>
SCHEDULE 1.1
INVESTOR NO. OF SHARES PURCHASE PRICE
- -------- ------------- --------------
Alafi Capital Company ........................ 121,167 $1,250,004.49
Shireen Alafi ................................ 24,234 250,007.10
Joseph Heskel, Trustee for Christopher Alafi . 48,466 499,993.56
Invitron Corporation ......................... 193,866 1,999,994.85
<PAGE>
SCHEDULE 2 .2
NUMBER
SHAREHOLDER OF SHARES
- ----------- ---------
Nancy T. Chang .......................................... 520,000
Tse-Wen Chang ........................................... 450,000
William & Cecily Sun .................................... 153,200
Baylor College of Medicine .............................. 30,000
Joseph L. Melnick ....................................... 10,000
---------
TOTAL ................................................... 1,163,200
<PAGE>
EXHIBIT 2.8
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into with TANOX BIOSYSTEMS, INC., (referred to as
"Tanox"), by the undersigned employee or prospective employee (referred to as
"Employee").
INTRODUCTION.
Tanox is engaged in certain research, development and manufacturing
activities. Tanox also develops and manufactures equipment used in connection
with such activities.
Employee desires to obtain or continue his (pronouns should be construed as
masculine, feminine or neuter as the context requires) employment with Tanox
and, while employed, his activities may include invention, research,
development, manufacturing, marketing and/or sale of products within the scope
of the Tanox business. This Agreement is intended to cover all of Employee's
activities as they may exist from time to time and certain of the provisions may
not apply at all times to all Employees of Tanox. Because of his position and
activities, Employee will have access to confidential and proprietary
information, trade secrets and other intellectual property of Tanox. This
Agreement will also cover Employee's activities as an employee of any subsidiary
or affiliate of Tanox should any exist from time to time.
In consideration of the Employee's employment by Tanox or continued
employment and the compensation or increase in compensation to be paid,
Employee agrees as follows:
1. FULL TIME RESPONSIBILITY TO TANOX. If Employee has been hired as a
full-time employee, Employee agrees that he will devote all his working time and
creative energies to the business of Tanox. Employee will perform those duties
and responsibilities assigned to him from time to time.
2. AVOIDANCE OF CONFLICTS. Employee agrees to limit his outside activities
to personal investments and activities which do not conflict with his duties
with Tanox. Employee agrees that he will not be involved in or with, directly or
indirectly, any other business enterprise which interferes with his independent
exercise of judgement in the Company's best interest. Employee will advise Tanox
immediately of any significant financial interest held by himself or any member
of his family in a company which does business with Tanox or is a competitor.
Employee will not become involved in any significant outside business interest
without obtaining written approval of Tanox.
1
<PAGE>
3. CURRENT RELATIONSHIPS WITH OTHER BUSINESSES. Except as listed below,
Employee is not involved as an employee, director, officer or partner of, or
consultant to, any other business or institution (write none, if appropriate) :
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
4. INVENTIONS, PATENTS, AND OTHER INTELLECTUAL PROPERTY. Employee agrees to
inform Tanox promptly and fully of all inventions, ideas, trade secrets,
formulas, techniques, discoveries, or improvements (whether or not patentable
and whether or not reduced to writing or to practice) which he may make during
the term of his employment and for a period of one (1) year thereafter (provided
it is reasonably related to the Tanox business), whether conceived solely or
jointly by him during or outside of Tanox's normal working hours. Disclosure of
inventions and other Intellectual Property (as such term is defined below)
should be made on forms such as the attached Invention Disclosure form. Tanox
will own all right, title and interest to all Intellectual Property which is:
(1) within the scope of Tanox's past, current, or reasonably anticipated
business, which includes those areas of activities stated at the beginning of
this Agreement (all such Tanox activities and business are referred to
collectively as the "Business") ; and/or (2) related to work done for Tanox
unless a specific agreement with a client or customer provides otherwise.
Employee hereby assigns and agrees to assign to Tanox his entire right, title
and interest in all such Intellectual Property. Employee agrees to protect
Tanox's right to patent his discoveries and inventions by keeping written
records, which are witnessed and dated, concerning dates of invention, and
Employee agrees not to publish information concerning his discoveries and
inventions without prior approval from Tanox. Intellectual Property, as defined
in this Agreement, includes (but is not limited to) those matters of which
Employee has agreed above to inform Tanox and all other information of a
scientific, technical, or business nature such as know-how, manufacturing
processes, chemical processes, product designs, writings and other works of
authorship, theses, books, computer programs, lectures, illustrations,
photographs, sales, profits and other financial figures, marketing plans,
business methods, customer lists, and the like, which is reasonably related to
the Business, including that of Tanox's affiliates or subsidiaries, if any.
5. BIOLOGICAL MATERIALS. Because of the importance of biological materials
developed by Tanox to the success of its business, Employee specifically
acknowledges that all biological
2
<PAGE>
materials created, discovered, or isolated by Employee within the scope of his
employment are a part of the Intellectual Property and are the property of
Tanox. Biological materials include (but are not limited to) cells, cell lines
or multicellular organisms, Microorganisms, transfected or transformed cells or
cell lines, fused cells or cell lines (e.g. hybridoma cells) products of such
cells or cell lines (e.g. natural or recombinant proteins such as enzymes,
hormones, biological regulatory factors, antigens and immunoglobulins), nucleic
acid vectors and recombinant DNA plasmids and clones harboring genes or DNA for
biological products. Employee agrees that during his employment by Tanox and
thereafter, he will not take for his own use or transfer or release or cause to
be transferred or released to any other person or entity, any of the biological
materials. Employee may do so only with the authority and permission of Tanox.
6. COPYRIGHTS. Employee agrees that any copyrightable material generated by
him while employed by Tanox shall be presumed a "work made for hire" and shall
vest in Tanox as the "AUTHOR" thereof. However, if any of the material is not
properly considered a "work made for hire," Employee agrees, if requested by
Tanox, to take out copyrights on Tanox's time and under direction of Tanox's
attorneys and to assign such copyrights to Tanox or its clients or customers.
Employee further agrees that rights to all royalties resulting from such
copyrights will be the property of Tanox or its clients. Regardless of the
above, it is understood, however, that copyrights in material resulting from
professional activities of a general nature not relating to the Business or
resulting from a specific assignment from Tanox or its clients or customers are
Employee's own property. Employee agrees, however, to submit all such material
to Tanox for review prior to public release so that Tanox may insure that the
Employee's obligations of confidentiality are being met.
7. PATENT FILINGS. If requested to do so by Tanox, Employee agrees to do
whatever is necessary, on Tanox's time and under direction of Tanox's attorneys,
to obtain patents in any country and to assign to Tanox all patents and patent
applications, whether U.S. or foreign, relating to them, before or after
leaving Tanox's employment. It is understood that the cost of making such
assignments and procuring patents shall be paid by Tanox or Tanox's clients or
customers. Employee further agrees that rights to all royalties resulting from
such patents will be the property of Tanox or its clients or customers.
8. CURRENT INVENTIONS. Except as set forth on the Invention Disclosure form
attached, Employee agrees that he does not have an interest in any inventions,
discoveries, improvements abstracts, articles, papers or other Intellectual
Property which is not already patented or copyrighted, which were made or
conceived of prior to employment with Tanox.
3
<PAGE>
9. NON-DISCLOSURE OF CONFIDENTIAL MATTERS. Employee acknowledges that he
may have access to confidential information, concerning Tanox and its
subsidiaries and affiliates, if any, and concerning its clients and customers,
which may include (but not be limited to) the Intellectual Property, books and
records relating to operations, finance, accounting, sales, personnel and
management; policies and matters relating particularly to operations such as
customer names, addresses and price lists, customer service requirements, costs
of providing service and equipment, operating and maintenance costs and pricing
matters. The Employee also recognizes that a portion of the Business is
dependent upon a large number of trade secrets, including secret techniques,
methods, processes, data and the like. The protection of these trade secrets
and confidential information against unauthorized disclosure or use is of
critical importance to Tanox, and the Employee therefore agrees that he will not
at any time, either while employed by Tanox or afterwards, make any independent
use of, or disclose to any other person or organization, except as authorized by
Tanox, any of the trade secrets or confidential information of Tanox. Employee
acknowledges that confidential matters and trade secrets include information not
generally known by or available to the public about or belonging to Tanox and
also includes proprietary information belonging to other companies to whom Tanox
may have an obligation to maintain information in confidence. Employee agrees
that authorization for public disclosure may only be obtained through Tanox's
written consent.
Employee, in addition, agrees not to disclose to Tanox, or induce Tanox to
use, any trade secrets or confidential information of any of the Employee's
previous employers. Employee represents that he is free to disclose all
information he may now possess and bring with him, except as noted below:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
10. COMPETITIVE ACTIVITIES.
(a) SCIENTIFIC/TECHNICAL. If employee has been or is employed by Tanox
in a scientific, technical or other non-sales capacity, as an independent
covenant, Employee further agrees to refrain, both during his employment and
upon termination of his employment for any reason, for three (3) years after his
termination, from becoming involved in any way in any business competitive
with the Business, whether as an employee, consultant, partner, proprietor or
in any other capacity, except as a shareholder owning less than five percent
(5%) of the shares of a
4
<PAGE>
corporation whose shares are publicly traded on a stock exchange or in the
over-the-counter market or unless permission of Tanox is obtained. Employee
understands that, because of the nature of his employment activities for Tanox,
geographical limitation as to any activities by him after termination which
would directly compete with the Business must include Tanox's reasonable market
area to be effective and to protect its interests. Therefore, the foregoing
restriction on competitive activities shall apply to the United States of
America, such geographical restriction being agreed by Employee to be
reasonable.
(b) SALES/MARKETING. If Employee has been or is employed by Tanox in
whole or in part in a sales capacity, as an independent covenant, Employee
further agrees, in the event of the termination of his employment with Tanox for
any reason, to refrain, for two (2) years thereafter, from contacting and/or
soliciting, directly or indirectly, on behalf of himself or for others, for any
purpose competitive with the Business, (a) any accounts, contracts, references
or referrals of companies or persons which are potential customers or clients
of, or investors in, Tanox, or (b) any accounts, contracts, references or refer-
rals of companies, persons or other potential customers, clients or investors
who have contacted Tanox regarding its Business.
(c) INJUNCTION. If the provisions of this Paragraph 10 are violated,
in whole or in part, Tanox shall be entitled, upon application to any court of
proper jurisdiction, to restrain and enjoin the Employee from such violation
without limiting any other remedies Tanox may have at law or in equity. Further,
in the event that the provisions of Paragraph 10 should ever be determined to
exceed the time, geographic or occupational limitations permitted by the
applicable laws, the Employee and Tanox agree that such provisions shall be and
are reformed to the maximum time, geographic or occupational limitations
permitted by the applicable laws.
II. IMPROPER PAYMENTS. Employee represents and agrees that he will make no
payments of any kind which violate any policy of Tanox or any applicable statute
or rule, regulation or order of any government or municipality, foreign or
domestic. Employee will be responsible for any liabilities, obligations, claims,
penalties, fines or losses resulting from any unauthorized or unlawful acts of
Employee or from any violations by Employee of any such policies, laws or
regulations, whether willful or not. The provisions of this Paragraph 11 will
continue after termination of this Agreement.
12. EMPLOYEE POLICIES. Employee agrees that he will read and gain an
understanding of all policies and procedures which may be contained from time to
time in any employee policy and procedures manual and/or safety handbook
applicable to Tanox. Employee understands that such policies and procedures,
including
5
<PAGE>
any revisions or supplements to same from time to time, are, or will be,
applicable to the Employee in the performance of his duties and job performance
for Tanox and he agrees to strictly observe all of such policies and procedures.
13. TERMINATION. Upon the termination of his employment for any reason,
Employee will promptly turn over to Tanox all manuals, handbooks, programs,
models, prototypes, notes, memorandums, notebooks, drawings, records, documents,
and the like, and all copies of same, in his possession or under his control,
whether prepared by Employee or others, relating to Intellectual Property and/or
the Business. Employee acknowledges that all such items are the sole property of
Tanox.
14. BINDING EFFECT. Employee agrees that this Agreement shall be binding
upon him irrespective of the duration of his employment by Tanox, the reasons
for the cessation of his employment, or the amount of his wages and/or salary.
Employee acknowledges that his wages and/or salary shall be established from
time to time by Tanox. Modification or variation of this Agreement must be
accomplished by a subsequent written agreement signed by Tanox to be valid.
Tanox may assign this Agreement in its entirety to a successor corporation
carrying on all or a substantial part of the business of Tanox.
15. SEVERABILITY. Should any provision or any part of any provisions of
this Agreement be held to be void or unenforceable, the validity of the
remaining parts or provisions shall not be affected by such holding.
EXECUTED this ___ day of ______, 198__, to be effective upon employment.
-------------------------------
Employee's Name (Type or Print)
-------------------------------
Employee's Signature
Acknowledged and agreed:
TANOX BIOSYSTEMS, INC.
By:
Its:
6
<PAGE>
TANOX BIOSYSTEMS, IRC.
Invention Disclosure
INVENTOR(S)
Name _______________________________ Name _______________________________
Name _______________________________ Name _______________________________
DESCRIPTIVE TITLE OF INVENTION:
______________________________________________________________________________
______________________________________________________________________________
DESCRIPTION OF INVENTION:
Please provide a concise description of your invention, including an explanation
of the nature, purpose and operation of the invention; a summary of results
achieved; features believed to be novel; further experimental work planned; and
any additional information which you believe might be helpful in deciding
whether a patent application should be filed. ADDITIONAL SHEETS CAN BE USED, but
each must be attached to this form and EACH MUST BE SIGNED AND WITNESSED:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
7
<PAGE>
CONCEPTION
Date of which you conceived (thought of) the invention.
______________________________________________________________________________
NOTE PRINTED PUBLICATIONS, ABSTRACTS, ORAL PRESENTATIONS OR OTHER DIVULGATIONS
MAY RESULT IN IMMEDIATE LOSS OF RIGHTS TO OBTAIN PATENT PROTECTION.
PLEASE ATTACH A COPY OF ANY PAPER, ABSTRACT OR OTHER PRINTED PUBLICATION,
INCLUDING A ROUGH DRAFT IF PUBLICATION IS NOT YET IN FINAL FORM.
A SALE OR OFFER TO SELL MAY RESULT IN IMMEDIATE LOSS OF RIGHTS TO OBTAIN
PATENT PROTECTION.
PUBLICATION INFORMATION
Please list any papers, abstracts, etc. describing the invention which have been
published or submitted for publication. Include the title, journal and date or
estimated date of publication.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Please indicate whether an oral presentation (including slide or poster
presentation) of the invention or a sale or offer to sell the invention has been
or will be made and, to whom.
______________________________________________________________________________
__________________________________________________________Date________________
FINANCIAL SUPPORT
Please designate all sources of funding for the invention other
than Tanox Biosystems:________________________________________________________
______________________________________________________________________________
COMMERCIAL POTENTIAL OF THIS INVENTION
Please provide your assessment of the commercial uses of the invention:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
INVENTOR(S) SIGNATURE (S) READ, UNDERSTOOD AND WITNESSED
__________________________ ____ _________________________ ____
Date Date
__________________________ ____ _________________________ ____
Date Date
__________________________ ____ _________________________ ____
Date Date
8
<PAGE>
SCHEDULE 2.9
AGREEMENT BETWEEN TANOX AND EFFECTIVE DATE
- --------------------------- -----------------
Tse-Wen Chang January 1, 1987
Baylor College of Medicine January 1, 1987
Baylor College of Medicine February 25, 1987
<PAGE>
SCHEDULE 2.11
AGREEMENT BETWEEN TANOX AND TYPE OF AGREEMENT AMOUNT
- --------------------------- ----------------- -------
Tse-Wen Chang, Ph.D. R & D Consulting $12,000
Joseph IN Melnick, Ph.D. Scientific Advisor 10,000
shares
Main Link Business Park Assoc. Building lease $490,380
Sorin Biomedica, S.p.A. Peptide Manufacture $60,000
<PAGE>
SCHEDULE 2.l5
Lien dated June 4, 1987 in the amount of $25,079 for HVAC
sub-contracting threatened but not FILED. Said lien
affidavit INCORRECTLY identifies Tanox as property
owner.
<PAGE>
July ___, 1987
Alafi Capita1 Company
Attn: Mr. Moshe Alafi
Ms. Shireen Alafi
Mr. Joseph Heskel, Trustee
Post Office Box 7338
Berkley, California 94707
Invitron Corporation
Attn: Mr. Charles V. Benton, President
4649 LeBourget Drive
St. Louis, Missouri 63134
Re: Purchase of 387,733 shares of Common Stock from Tanox Biosystems, Inc.
Gentlemen:
We have acted as counsel to Tanox Biosystems, Inc., a Texas corporation
(the "Company"), and to Tse Wen Chang and Nancy T. Chang (the "Changs") in
connection with the sale by the Company of 387,733 shares of common stock, $0.01
par value per share, in the aggregate (the "Stock"), to Alafi Capital Company,
Shireen Alafi, Mr. Joseph Heskel, Trustee for Christopher Alafi, and Invitron
Corporation (collectively, the "Purchasers"). This opinion is being provided to
you pursuant to the provisions of that certain Stock Purchase Agreement dated
effective July 9, 1987 (the "Agreement") between the Company and Purchasers.
Unless otherwise required by the context thereof or separately defined herein,
all capitalized terms used in this letter have the meanings set forth in the
Agreement.
Before rendering the opinions set forth below, we examined certain
certificates of public officials, Restated Articles of Incorporation and Bylaws
of the Company, the Agreement, that certain Voting Agreement dated effective
July 9, 1987 (the
<PAGE>
Alafi Capital Company
Invitron Corporation
July __, 1987
Page 2
- ----------------------------------
"Voting Agreement") and such corporate and other available documents as we
believed to be necessary for purposes of this opinion. In rendering this
opinion, we have assumed the genuineness of all signatures, the authenticity of
all documents submitted to us as originals, and the conformity to original
documents of all documents submitted to us as certified or photostatic copies.
We have also assumed that such documents have been duly executed and delivered
by all parties thereto other than the Company and the Changs and that there
exists no facts arising out of or resulting from actions of such other parties
which would impair in any manner the validity, binding effect, or enforceability
of such documents against such other parties, as the case may be.
In connection with rendering this opinion, we call your attention to the
fact that our firm represents the Company only in connection with specific
requests of the Company from time to time and that there may exist matters of a
legal nature involving the Company with respect to which we have no knowledge.
Nothing in this opinion is intended either to imply knowledge of matters or
documents or the contents thereof of which we have no actual knowledge or to
imply what we have made any independent factual investigations of such matters.
We have discussed with representatives of the Company certain factual
matters relative to our opinion. With respect to the accuracy of any factual
matters relative to this opinion, we have relied upon such discussions, upon the
representations of the Company contained in the Agreement, and upon certain
certificates of government officials. We have also relied upon discussions with
representatives of the Company to assess materiality with respect to any matters
covered by our opinion which are so qualified. This opinion is further qualified
by any exceptions, exclusions or other matters contained in the Agreement, the
Voting Agreement, or set forth on exhibits or schedules attached to or
incorporated as a part of the Agreement.
We are licensed to practice only in the State of Texas and we have limited
our opinion solely to the laws of the State of Texas and the federal laws of the
United States. We express no opinions with regard to any matter which is covered
by the laws of any other state or jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that:
<PAGE>
Alafi Capital Company
Invitron Corporation
July __, 1987
Page 3
- ----------------------------------
1. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Texas and has the corporate power
and authority to carry on its business as now conducted. The Company is not
qualified to transact business in any other jurisdiction as a foreign
corporation. We do not know of any activities of the Company which, with
reasonable certainty, would give rise to an obligation of the Company to qualify
in any other jurisdiction.
2. The authorized capital of the Company as established by the Restated
Articles of Incorporation, filed with the Secretary of State on
_________________, 1987, consists of ten million (10,000,000) shares of Common
Stock and one million (1,000,000) shares of Preferred Stock. To our knowledge,
there were outstanding immediately prior to the sale of the Stock to Purchasers,
one million one hundred sixty-three thousand two hundred (1,163,200) shares of
common stock. Two hundred thousand (200,000) shares have been reserved for
issuance by the Company pursuant to the Tanox Biosystems, Inc. 1987 Stock Option
Plan.
3. To our knowledge, the Company does not own, of record or beneficially,
an equity interest in any other entity.
4. The Agreement has been duly executed by the Company and the Changs and
constitutes a valid and binding obligation of the Company and the Changs,
enforceable against each of the Company and the Changs in accordance with the
terms thereof, except to the extent that enforcement thereof may be limited by
applicable bankruptcy, insolvency, moratorium, and similar laws affecting
creditors' rights generally, by the exercise of judicial discretion under
generally applicable principles of equity or by the exercise of regulatory or
judicial discretion under applicable securities laws.
5. The Stock to be sold by the Company to Purchasers in accordance with the
Agreement has been duly authorized, and when delivered against payment for such
Stock, will be validly issued, fully paid and nonassessable. We do not know of
any matters relative to the status or actions of the Company in connection
<PAGE>
Alafi Capital Company
Invitron Corporation
July __, 1987
Page 4
- ----------------------------------
with the sale and issuance of the Stock pursuant to the Agreement which would
eliminate the availability of exemptions from the registration or other
qualification requirements of applicable state and federal securities laws,
respectively, upon which the Company may rely.
6. To our knowledge, no consent, approval, order or authorization, or
registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authorition the part of the Company is
legally required for the valid execution, delivery, and performance of the
Agreement by the Company, except for such filings as may be required under
applicable securities laws to claim the benefit of certain available exemptions
from registration or other required qualification of securities.
7. To our knowledge, there is no action, suit, proceeding, or investigation
pending, or currently threatened, against the Company which questions the
validity of the Agreement or the right of the Company to consummate the sale of
the Stock to Purchasers, or which might result, either individually or in the
aggregate, in any material adverse change in the properties, financial condition
or operations of the Company, and the Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
governmental agency or instrumentality.
8. The sale of the Stock pursuant to the Agreement does not violate and is
not in conflict with any of the provisions of the Restated Articles of
Incorporation or Bylaws, and, to our knowledge, does not result in a default
under or violation of any agreement or instrument to which the Company is a
party or by which the Company is bound, which breach or default would have a
material adverse effect on the properties, financial condition, or operations of
the Company.
9. The Voting Agreement has been duly executed and delivered by the Changs
and constitutes a valid and binding obligation of the Changs. Under Article
2.30B of the Texas Business Corporation Act, upon deposit of a counterpart of a
voting agreement with the corporation at its principal office and endorsement
<PAGE>
Alafi Capital Company
Invitron Corporation
July __, 1987
Page 5
- ----------------------------------
upon the certificate representing shares subject to such voting agreement
of a statement that the shares represented by the certificate are subject
to the provisions of a voting agreement, a counterpart of which has been
deposited with the corporation at its principal office, such voting
agreement shall be specifically enforceable in accordance with the
principles of equity.
The opinions expressed herein and the statements herein made are solely
for the benefit of the addressees and may not be relied upon any other person
without our prior written consent.
ANDERSON, HARRELL & TIMBY, P.C.
By:____________________________
David Anderson
<PAGE>
EXHIBIT 6(B)
July __, 1987
Tanox Biosystems, Inc.
10301 Stella Link
Houston, Texas 77025
Re: Stock Purchase Agreement with Invitron Corporation, Alafi Capital
Company, Shireen Alafi and Joseph Heskel, as Trustee for
Christopher Alafi
Gentlemen:
We have acted as counsel for Invitron Corporation, Alafi Capital Company
("ACC") , Shireen Alafi and Joseph Heskel, as Trustee for Christopher Alafi
(collectively the "Investors") in connection with the issuance and sale by you
of an aggregate of 387,733 shares of common stock, $0.01 par value per share
(the "Stock") pursuant to a Stock Purchase Agreement dated as of July __, 1987
among the Investors, Tse Wen Chang, Nancy T. Chang and Tanox Biosystems, Inc.
(the "Agreement") .
As used in this opinion, the capitalized terms shall have the same meaning
as ascribed to them in the Agreement unless the context otherwise requires. In
connection with this opinion we have reviewed the Agreement, the Voting
Agreement, the partnership agreement, as amended, of
<PAGE>
Tanox Biosystems, Inc.
July __,1987 2.
ACC, and limited partnership certificate of ACC, the trust agreement for
Chistopher Alafi, the Certificate of Incorporation and Bylaws of Invitron
Corporation and such other available documents as we believed necessary for this
opinion. In rendering this opinion, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity to original documents submitted to us as certified or photo-
static copies. We have also assumed that such documents have been duly executed
and delivered by all parties thereto other than the Investors and that there
exist no facts arising out of or resulting from actions of such other parties
which would impair in any manner the validity, binding effect, or enforceability
of such documents against such other parties, as the case may be.
While we are general counsel to ACC, there may exist matters of a legal
nature involving ACC with respect to which we may have no knowledge. We are not
general counsel to Invitron Corporation and represent it only in connection with
specific matters referred to us. Nothing contained herein is intended either to
imply knowledge of matters or documents or the contents thereof of which we have
no actual knowledge or to imply that we have made any independent factual
investigation of such matters.
<PAGE>
Tanox Biosystems, Inc.
July __,1987 3.
The opinions expressed herein are limited to the 1aws of the State of
California and the federal laws of the United States. No opinion is expressed as
to the law of any other jurisdiction.
Based upon and subject to the foregoing, in accordance with the provisions
of Section 6(b) of the Agreement, we hereby advise you of our opinion that:
(a) ACC is a limited partnership duly organized, validly existing and in
good standing under the laws of the State of California.
(b) Invitron Corporation is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware.
(c) The Agreement has been duly executed by each of the Investors and
constitutes a legal and valid binding obligation of each of them enforceable
against each in accordance with the terms thereof, except as rights to
indemnity may be limited by applicable laws and subject to laws of bankruptcy,
insolvency and other laws of general application affecting rights and remedies
of creditors, and further subject to general principles of equity (regardless
of whether such enforcement is considered in a proceeding in equity or at
law).
<PAGE>
Tanox Biosystems, Inc.
July __,1987 4.
(d) We are not aware of any matters relative to the status or action of
the Investors, or any of them, in connection with the purchase and receipt of
the Stock pursuant to the Agreement which would eliminate the availability
of exemptions from the registration or other qualification requirements of the
Securities Act of 1933, as amended, or the California Corporate Securities Law
of 1968, as amended, respectively, upon which the Company may rely.
(e) To our knowledge, no consent, approval, order or authorization, or
registration, qualification, designation, declaration or filing with, any
federal, state, or local governmental authority on the part of the Investors, or
any of them, is legally required for the valid execution, delivery, and
performance of the Agreement by each of the the Investors, except for such
filings as may be required under applicable securities laws to claim the benefit
of certain available exemptions from registration or other required
qualification of securities.
(f) The purchase of the Stock pursuant to the Agreement does not violate
and is not in conflict with any of the provisions, as applicable, of the
Certificate of Incorporation or Bylaws of Invitron Corporation, the part-
nership agreement of ACC, declaration of trust or other
<PAGE>
Tanox Biosystems, Inc.
July __,1987 5.
document or instrument by which the respective business affairs of each of the
Investors is governed and, to our knowledge, does not result in a default under
or violation of any agreement or instrument to which any of the Investors are a
party or by which they are bound, which breach or default would have a material
adverse effect on the properties, financial condition, or operations of the
Company.
(g) The Voting Agreement has been duly executed and delivered by each of
the Investors and constitutes a valid and binding obligation of each of the
Investors. The execution, delivery and performance thereof do not and will not
violate any of the provisions, as applicable, of the Certificate of
Incorporation or Bylaws of Invitron Corporation, the partnership agreement of
ACC, declaration of trust or other document or instrument by which the
respective business affairs of each of the Investors is governed.
Very truly yours,
BROBECK, PHLEGER & HARRISON
By
Robert E. Metz
REM:tdn
<PAGE>
EXHIBIT 10.1
NON-DISCLOSURE AND SECRECY AGREEMENT
THIS AGREEMENT (hereinafter referred to as the "Agreement") is made this
the __ day of __, 1987, by and between TANOX BIOSYSTEMS, INC., a Texas
corporation (referred to as the "Company"), and __________________________
(referred to as "Prospect"), affiliates of Prospect, and officials, agents,
representatives, and employees of Prospect and such affiliates (the foregoing,
collectively with Prospect, are referred to as the "Prospect Parties").
R E C I T A L S:
A. The Company has certain know-how and rights to make, use and sell a
patented process relating to the determination of antigenic substances by
antibody-coated spots on a matrix (the "Patented Process") and, in addition
thereto, has developed and in the future may acquire or develop certain other
know-how, secret methods, procedures, and technology, ("Proprietary Technology")
including, without limitation, know-how related to use of the Patented Process
and know-how and trade secrets relating to, among other things, immunity against
HTLV retro-viruses and medical diagnosis, prophylaxis and therapy against
Acquired Immune Deficiency Syndrome ("AIDS") , which Proprietary Technology will
be identified as such to the Prospect Parties at the time of any disclosure of
same. The Prospect Parties desire to review the Patented Process and Proprietary
Technology to assess the significance and value of same in connection with
considering possible investment in the Company or such technology, in whole or
in part, and, upon such investment, may continue to have certain access to such
Proprietary Technology.
B. During the course of such discussions and thereafter if an investment is
made, the Company may disclose to the Prospect Parties or permit them to review
both the Patented Process and Proprietary Technology and certain other
information concerning the business of the Company which the Company desires to
protect and preserve in confidence, including, without limitation, names of
customers and suppliers, technical data, records, documents, specifications,
operating and marketing techniques, business procedures and methods, financial
reports and related proprietary information of the Company (all of which is
referred to as the
<PAGE>
"Confidential Information"), which Confidential Information will be identified
as such to the Prospect Parties at the time of any disclosure of same.
C. Notwithstanding anything to the contrary contained in Recitals A or B
above, no information supplied by the Company shall be deemed or considered to
be Proprietary Technology or Confidential Information unless (i) if supplied in
written form, the same is conspicuously identified as being proprietary or
confidential, or (ii) if disclosed or supplied orally, the same is confirmed in
written summary form within thirty (30) days of the oral disclosure and
conspicuously identified as being proprietary or confidential.
Accordingly, in consideration of the foregoing, and of the agreement of the
Company to pursue such discussions, and subject to the acknowledgment hereby of
the Prospect that such information is provided to them in reliance upon the
relationship of confidence created hereby, the parties agree as follows:
1. OBLIGATIONS OF CONFIDENCE
1.l The Prospect agrees, represents and covenants that the Prospect
Parties:
(a) Will not disclose such Proprietary Technology or Confidential
Information to others;
(b) Will not use it, directly or indirectly, for their own account or
benefit;
(c) will not make, disclose or distribute, directly or indirectly,
documents or copies of documents containing disclosures of such Proprietary
Technology or Confidential Information, except to persons constituting the
Prospect Parties;
(d) As to any confidential documents which may be reviewed or
delivered as a part of the meetings between the Company and the Prospect
Parties, will treat them confidentially and mark them, if necessary, prior to
distribution to other of the Prospect Parties, as proprietary, confidential
documents not to be reproduced or otherwise used without the written consent of
the Company;
-2-
<PAGE>
EXHIBIT 10.7.1
<PAGE>
[TANOX BIOSYSTEMS, INC. LETTERHEAD]
October 27, 1989
Shireen Alafi and
Christopher Alafi
c/o Moshe Alafi
P. O. Box 7338
Berkeley, California 94707
Dear Shireen and Christopher:
As you know, we are currently seeking additional financing for the Company.
Transactions currently being discussed include additional offerings of Tanox
common stock and the equipment loan transaction now pending with Phoenix Venture
Incorporated.
Under the terms of the Stock Purchase Agreement dated July 14, 1987, among
you, the Company and certain other shareholders, you retained certain rights
with respect to subsequent offers of common stock and certain registration
rights covering the shares which you acquired. To facilitate completion of the
additional financing ttansactions contemplated, we would like to obtain your
agreement to the following:
1. That you do not intend to exercise your right of first refusal with
respect to future sales by the Company of its common stock and that your rights
under Section 9 are agreed to be terminated and not be applicable to any
financing transactions, including offers or sales of common stock, convertible
securities, or options to acquire such securities, following this date; and
2. That the Company can enter into an agreement with any holder or
prospective holder of securities of the Company that will allow such holder to
include such securities in any registration of securities in which you would be
entitled to participate under the provisions of Section 7, if the inclusion of
such holder's securities would not reduce your registration rights on other than
a prorata basis (based on the number of shares owned); and that such holders
would be subject to any applicable limitations or obligations on a prorata
basis, including the requirements of Section 7.6 "Underwriting Requirements"
which permit the underwriters in any offering involving an underwriting of
shares to limit, in accordance with such section, the number of shares which may
be included by selling shareholders.
<PAGE>
If you are willing to agree to the above please sign and date the enclosed
duplicate origina1 of this 1etter and return it to us your earliest convenience.
Yours truly,
/s/ NANCY T. CHANG
Nancy T. Chang
President
ACKNOWLEDGED AND AGREED:
/s/ SHIREEN ALAFI
Shireen Alafi
DATE: _________, 1989
/s/ CHRISTOPHER ALAFI
Christopher Alafi
DATE: _________, 1989
<PAGE>
EXHIBIT 10.7.2
<PAGE>
[TANOX BIOSYSTEMS, INC. LETTERHEAD]
October 27, 1989
Alafi Capital Company
Ann: Moshe Alafi, General Partner
P.O. Box 7338
Berkeley, California 94707
Dear Moshe:
As you know, we are currently seeking additional financing for the Company.
Transactions currently being discussed include additional offerings of Tanox
common stock and the equipment loan transaction now pending with Phoenix Venture
Incorporated.
Under the terms of the Stock Purchase Agreement dated July 14, 1987, among
you, the Company and certain other shareholders, you retained certain rights
with respect to subsequent offers of common stock and certain registration
rights covering the shares which you acquired. To facilitate completion of the
additional financing transactions contemplated, we would like to obtain your
agreement to the following:
1. That you do not intend to exercise your right of first refusal with
respect to future sales by the Company of its common stock and that your rights
under Section 9 are agreed to be terminated and not be applicable to any
financing transactions, including offers or sales of common stock, convertible
securities, or options to acquire such securities, following this date; and
2. That the Company can enter into an agreement with any holder or
prospective holder of securities of the Company that will allow such holder to
include such securities in any registration of securities in which you would be
entitled to participate under the provisions of Section 7, if the inclusion of
such holder's securities would not reduce your registration rights on other than
a pro rata basis (based on the number of shares owned); and that such holders
would be subject to any applicable limitations or obligations on a pro rata
basis, including the requirements of Section 7.6 "Underwriting Requirements"
which permit the underwriters in any offering involving an underwriting of
shares to limit, in accordance with such section, the number of shares which may
be included by selling shareholders.
<PAGE>
If you are willing to agree to the above, please sign and date the enlcosed
duplicate origina1 of this 1etter and return it to us your earliest
convenience.
Yours truly,
/s/ NANCY T. CHANG
Nancy T. Chang
President
ACKNOWLEDGED AND AGREED:
Alafi Capital Company
/s/ MOSHE ALAFI
By: Moshe Alafi, General Partner
Date: _____________, 1989.
<PAGE>
EXHIBIT 10.7.3
<PAGE>
[INVITRON CORPORATION LETTERHEAD]
November 13, 1989
Nancy T. Chang, Ph.D.
President
Tanox Biosystems, Inc.
10301 Stella Link
Houston, TX 77025
Dear Nancy:
This letter is being sent to you at your request to permit you to complete the
equipment loan transaction now pending with Phoenix Venture Incorporated
("Phoenix Transaction").
Under the terms of the Stock Purchase Agreement dated July 14, 1987 (the "SPA"),
among Invitron, Tanox Biosystems, Inc. ("the Company") and certain other
shareholders, Invitron retained certain rights with respect to subsequent offers
of common stock and certain registration rights covering the shares which
Invitron acquired. To facilitate completion of the Phoenix Transaction, Invitron
agrees to the following:
1. Invitron waives any rights that it may have under its right of first
refusal with respect to the Phoenix Transaction and agrees that such transaction
may be completed without violation of such rights; provided, that Invitron
reserves its right of first refusal under Section 9 of the SPA with respect to
future sales of securities by the Company, and Tanox agrees to extend such
right.
2. Tanox can enter into an agreement with any holder or prospective holder
of securities of Tanox that will allow such holder to include such securities
in any registration of securities in which Invitron would be entitled to
participate under the provisions of Section 7, if the inclusion of such holder's
securities will not reduce Invitron's registration rights on other than a
prorata basis (based on the number of shares owned); and that such holders will
be subject to any applicable limitations or obligations on a pro rata basis,
including requirements of Section 7.6 "Underwriting Requirements" which permit
the underwriters in any offering involving an underwriting of shares to limit,
in accordance with such section, the number of shares which may be included by
selling shareholders.
Please let us know if we can be of any further assistance in connection with the
completion of the Phoenix Transaction.
Sincerely,
/s/ JOHN T. W. HAWKINS
John T. W. Hawkins
Senior Vice President, Finance
Chief Financial Officer
<PAGE>
EXHIBIT 10.7.4
<PAGE>
[TANOX BIOSYSTEMS, INC. LETTERHEAD]
August 10, 1990 Via Federal Express
Dr. H. F. Mohr
Head of Pharma Licensing
CIBA-GEIGY Limited
CH4002 Basle, Switzerland
Re: Acquisition of Tanox's Shares from Invitron
Dear Dr. Mohr:
This letter is intended to reflect the conclusions we have reached in our
telephone conversation today as a follow-up to the correspondence from Dr. Nancy
Chang to you on August 9 and your response of today.
With respect to Ciba Geigy's anti-dilution rights, we agreed that purchase
transactions, such as the Invitron transaction, will not influence at all the
rights and obligations under our Stock Purchase Agreement (the "Agreement"),
including those relating to anti-dilution under Section 6.04. Specifically,
Ciba-Geigy will continue to have anti-dilution rights as they currently exist
(at 7.3% ownership interest) or at the increased levels that result from
additional purchases of Tanox Common Stock under the Agreement, notwithstanding
any purchases of Tanox stock outside the Agreement. Tanox also will continue to
provide Ciba-Geigy with notice of all applicable stock transactions as required
under the Agreement so that Ciba-Geigy can exercise its anti-dilution rights, if
desired. However, Ciba-Geigy also will have the right to timely advise Tanox
that it desires to apply shares acquired from Invitron, as necessary, toward
maintaining its anti-dilution rights at the level then applicable under the
Agreement to avoid a reduction of such rights.
Functionally, this means that after the closing of your transaction with
Invitron, Tanox will still be obligated to give Ciba-Geigy the opportunity to
purchase 7.3% of the shares being offered in the pending private placement
transaction. Ciba-Geigy then will make a decision of whether or not it desires
to acquire such shares.
Also, as we have discussed, our consent to Ciba-Geigy's purchase of Tanox
Common Stock owned by Invitron Corporation is based on our understanding as
follows: (i) that such stock will be acquired subject to the provisions of that
certain Voting Agreement among Invitron, Tanox, and other parties thereto, dated
July 14, 1987 and (ii) that the only rights outstanding under that certain
Stock Purchase Agreement among Invitron, Tanox, and other parties thereto, dated
July 14, 1987, are the registration rights contained in Section 7, as
supplemented by paragraph 2 of the Invitron letter dated November 13, 1989,
included with
<PAGE>
Dr. H. F. Mohr
August 10, 1990
Page Two
this letter (the rights of first refusal referenced in paragraph one were
subsequently terminated as a result of Invitron's failure to exercise them in
connection with Ciba-Geigy's purchase of Tanox stock), and rights under Section
8 to receive certain financial information (which rights Ciba-Geigy already has
under our Agreement).
If this letter correctly reflects our mutual understandings and agreements,
please execute the duplicate original of this letter to confirm same.
To permit your transaction with Invitron to proceed without delay, we also
are sending a copy of this letter via fax and will accept evidence of execution
of this letter via fax, pending your return of one duplicate original.
Please let me know if you have any questions or additional comments.
Yours truly,
/s/ DAVID ANDERSON
David Anderson
Executive Vice President
Acknowledged and Agreed:
CIBA-GEIGY Limited
By: /s/ H. F. MOHR
Name: H. F. Mohr
Title: Head of Pharma Licensing
By:: /s/ M. CLAUSEN
Name: M. Clausen
Title: Head of Licensing Office
DA:nk
cc: Dr. Nancy T. Chang
EXHIBIT 10.10
CONFIDENTIAL
TERM SHEET FOR SECURED LOAN
BORROWER Tanox Biosystems, Inc.
10301 Stella Link
Houston, Texas 77025
USA
("Tanox")
LENDER CIBA-GEIGY Limited
Klybeckstrasse 141,
4002 Easel,
Switzerland
("Ciba")
CREDIT
U.S. $10,000,000 term loan ("the Loan"). No increase in the Loan may occur
except on a subsequent decision of Ciba if additional funding is determined by
both parties to be necessary to satisfy their mutual objectives.
EFFECTIVE DATE
The arrangements set out herein shall become effective at the time this Term
Sheet is signed by both parties, subject as set forth in "Statement of Intent"
below.
STATEMENT OF INTENT
This Term Sheet is intended to establish the basic terms of the above mentioned
facility ("the Credit"), but should not be construed as including all the
conditions and terms to which the Credit will be subject. Such terms will be
contained in the definitive agreement(s) to be negotiated, executed and
delivered in form and substance satisfactory to both parties and their legal
counsel ("the Definitive Agreement(s)"). This Term Sheet will be binding on the
parties with respect to the terms set forth herein and the parties agree to
negotiate the Definitive Agreement(s) in good faith within the context of the
terms and conditions outlined in this Term Sheet. The parties acknowledge that
the Credit is intended as a loan arrangement between two joint development
partners which will further the development of their shared product opportunity.
This Term Sheet supersedes all previous conversations and negotiations between
Tanox and Ciba regarding this matter.
LOAN
Ciba will advance to Tanox the total amount of the Loan in installments as
hereinafter provided to enable Tanox to construct at its site in Houston, Texas,
a plant for the scale up and optimization of a commercial production process for
anti-IgE monoclonal antibodies and the production of such anti-IgE monoclonal
antibodies in quantities sufficient for the conduct by Ciba of Phase III
clinical trials and initial launch of the anti-IgE product ("the Anti-IgE
Product") currently under development by Ciba and Tanox pursuant to the
Development and Licensing Agreement between the parties dated
<PAGE>
2 CONFIDENTIAL
the 11th May, 1990 ("the Anti-Allergy Agreement"). The current status of, and
details relating to, the Plant to be constructed and the principal equipment to
be installed therein ("the Plant") as already discussed by the parties are set
out in Schedule I hereto. A more definitive schedule relating to the Plant,
including, if any, alterations and/or additions agreed by the parties since the
date of such discussions will be included as a part of the Definitive
Agreement(s). Tanox agrees to use the Loan solely to construct, validate and
start-up the Plant, including without limitation, designing the Plant,
or having it designed, and purchasing equipment therefor. Tanox will use
commercially reasonable efforts in having the plant constructed in accordance
with specifications and a timetable to be mutually agreed by the parties and to
be set out in the Definitive Agreement(s). Ciba will cooperate in such efforts
and will provide such timely advice, consultation and decisions regarding the
design, construction, validation and start-up activities contemplated as may
reasonably be requested by Tanox, or required under this Term Sheet or the
Definitive Agreement(s). Any such costs incurred following completion of
detailed engineering design which result from changes or modifications to the
Plant specifically to improve its production capability or efficiency for CGP
56901 or other joint development products, if agreed by the parties, will be
subject to reimbursement under procedures set forth in the Anti-A1lergy
Agreement and any other agreements covering such other development products, as
the case may be.
WARRANTY
In the Definitive Agreement(s) Tanox will make various representations and
warranties customary in transactions comparable to the Credit, including,
without limiting the generality of the foregoing, the following, and hereby
warrants:
(a) that it will not construct the Plant without first receiving or obtaining
in good time all necessary permits of the appropriate authorities and/or
its landlord for the construction of the Plant on the proposed construction
site and Tanox is not aware of any reason why such permits would not be
issued; and
(b) that none of its assets is, or will at the time of the Definitive
Agreement(s) be, subject to any charge or lien in favour of a third party
which would rank senior in priority to the collateral security hereby
proposed to be granted, except for statutory liens covering construction
materials and services which will be eliminated on payment of bona fide
charges.
INSTALLMENTS
- - The Loan will be made by Ciba in installments as follows:
- - $3,000,000 within 7 days after the execution of this Term Sheet ("the
Initial Date");
- - $4,000,000 within 14 days of the decision by both parties to proceed with
development of the Anti-IgE Product based on the results of Phase IIa
trials of the Anti-IgE Product which decision shall be taken within a
reasonable time after the results of such trials are known, such period to
be set forth in the Definitive Agreements(s);
- - $2,000,000 within 14 days of start of validation of the Plant;
- - $1,000,000 when the Plant has been completely constructed and the process
fully demonstrated and validated for the above purpose ("the Commencement
Date").
<PAGE>
3 CONFIDENTIAL
If for any reason funding by Ciba is not continued following the initial
$3,000,000 installment, Ciba agrees that it will forgive payment of one-half of
such installment and Tanox shall remain obligated for repayment of the
remaining one-half under the terms of this Term Sheet and the Definitive
Agreement(s), including such provisions relating to termination which will be
incorporated into the, Definitive Agreement(s) as provided below under "Loan
Repayment". Tanox shall have the right to retain, to the extent possible, all
drawings, equipment, materials, etc. which may have been funded by such
installment; provided that Tanox will make available to Ciba for its use copies
of any available drawings. Should Tanox dispose of such assets within 3 years,
Tanox agrees to pay to Ciba one-half of any proceeds received, as well as any
part of the $3,000,000 which has not been paid out or committed under contract
by Tanox at the time funding is discontinued.
LOAN REPAYMENT
The principal and all accrued interest are due in full on the earlier of the
eighth anniversary of the advance of the final installment of US $1,000,000 or
December 31,2005, or earlier on the happening of an Event of Default as defined
below. The Definitive Agreement(s) will include provisions, to be negotiated in
good faith, which provide for the ways and means of easing the repayment
terms/interest payments etc. to meet Tanox's needs at the relevant time, if Ciba
should terminate the Anti-Allergy Agreement for any reason other than the
default of Tanox under that Agreement or the Definitive Agreement(s). These
measures will take into account the possibility of Tanox's using the Plant for
the manufacture of other antibodies for Ciba, as well as ability to use the
remainder of the Plant's capacity for other projects, none of which can be
forecast at this moment in time.
Tanox may repay the whole or any part of the Loan without penalty at any time
prior to the due date of repayment on not less than 10 days prior written
notice to Ciba; provided, that the amount of any partial repayment shall not be
less than $100,000 and; provided, further, that any prepayment of principal
shall be accompanied by a payment of the accrued unpaid interest on such
principal balance prepaid. If Tanox elects to repay the Loan in full, it shall
at the same time pay all outstanding interest. No part of the Loan following
repayment thereof may be re-borrowed. All prepayments shall be applied fIrst to
accrued unpaid interest, and then to principal.
COLLATERAL SECURITY
As security for the total amount of the Loan, Tanox will grant Ciba a fIrst
priority perfected security interest on the Plant until such time as Ciba
makes a decision regarding the joint venture as permitted in "Conversion
Option" below. In the event of agreement to form a joint venture to own and
operate the Plant, half the loan would be converted to Ciba's contribution to
the joint venture and such assets would continue as security for the remainder
of the Loan. Additionally, if no joint venture is formed, then should it be
necessary for Ciba to enforce its security interests, Ciba will have a first
priority perfected security interest on the remainder of Tanox's tangible assets
(including, without limitation, cash and marketable securities) and such
intangible assets as set forth below in "Intellectual Property" to the extent of
the difference between the amount realized by reasonable disposal of the Plant
and one-half of the total outstanding Loan amount.
4 CONFIDENTIAL
<PAGE>
90 day Libor plus 2 per cent (but not to exceed 10% per year), reset quarterly
on the first day of each calendar quarter using the previous business day's rate
as published in the "Money Rates" section of the Wall Street Journal
Southwest Edition, such interest not subject to compounding.
INTEREST ACCRUAL
Interest shall accrue daily as from the Initial Date on the amount of the Loan
outstanding for the time being, using a 365/366 day year (as appropriate) as the
basis for calculation. Ciba shall forgive interest on the Loan due at the end of
each quarter between the Initial Date and the Commencement Date if Tanox, in the
reasonable and fair judgment of Ciba, has fu1f1l1ed its obligations in relation
to the construction of the Plant. To the extent applicable, if interest would
otherwise be due hereunder, Ciba shall forgive interest on one-ha1f of the total
amount of the Loan until such time as Ciba notifies Tanox of its decision not to
proceed with a joint venture.
INTEREST PAYMENT
Interest shall be due and payable on the first day of each calendar quarter.
Unless the Loan is repaid or repayable earlier, either voluntarily by Tanox or
due to the occurence of an Event of Default, the first payment in respect of
interest as from the Commencement Date shall fall due on the third anniversary
of the Commencement Date. Tanox may defer until the third anniversary of the
Commencement Date the payment of interest due at the end of any quarter between
the Commencement Date and such third anniversary.
PAYMENTS
Any payments falling due on a date which is not a normal working day for both of
the fInancial institutions (to be defined in the DefInitive Agreement(s)) used
by Tanox and Ciba in performing their payment obligations shall instead be due
on the next day which is a regular working day for both such institutions.
CONVERSION OPTION
At any time following the decision to proceed with Phase III clinical trials of
the Anti-IgE Product pursuant to the Anti-Allergy Agreement, or following
receipt from Tanox of notice of its intention to repay the whole or any part of
the Loan as provided for in the paragraph headed "Loan Repayment" above, Ciba
shall have an option to call for the establishment between the parties of a
joint venture to own and operate the Plant, the detailed terms of the joint
venture to be negotiated in good faith at the relevant time but to accord
with the outline of terms annexed hereto as Schedule 2. In such event, Ciba
shall forgive interest accrued on one-half of the total amount of the Loan and
that one-half of the Loan shall be regarded as Ciba's contribution to the joint
venture, the balance, Tanox's contribution, being repayable and bearing interest
according to the terms of the Loan.
<PAGE>
5 CONFIDENTIAL
EVENTS OF DEFAULT
The following shall be Events of Default:
(a) if Tanox fails to pay any moneys due to Ciba beyond the tenth day after
receipt of notice that payment is due;
(b) if Tanox commits any act of bankruptcy, or it or a creditor files a
petition for reorganization or liquidation under the Bankruptcy Code;
(c) if Tanox enters into a compromise with its creditors, including, but not
limited to, making an assignment or attempted assignment of the whole or a
substantial portion of its assets for the benefit of its creditors; or
(d) if Tanox makes any significant departure from the design of the Plant
without Ciba's agreement or uses the Loan proceeds otherwise than for the
construction of the Plant in accordance with the objectives of the Loan as
outlined in the Term Sheet.
CONSEQUENCES OF DEFAULT
On the occurrence of an Event of Default the balance of the Loan outstanding at
that time together with all accrued, unpaid interest from the Commencement Date
shall be immediately due and payable. On non-repayment of the Loan and interest
by Tanox within 30 days following the happening of an Event of Default, Ciba
shall be entitled to enforce the security interests granted by Tanox, including
taking over the Plant, Intellectual property (as defined below), ELAs/PLAs etc.
INTELLECTUAL PROPERTY
All Tanox's know-how and patents involved in the design, construction and
operation of the Plant, as well as a first priority security interest on future
revenues which Tanox or any permitted assignee would be entitled to receive
from the exercise of its rights under the Anti-Allergy Agreement ("the
Intellectual Property") shall be security for the Loan. Tanox shall not grant a
license of such know-how and patents to a third party without the consent of
Ciba pending Ciba's decision regarding the joint venture. If a joint venture is
formed, then such know-how and patents shall be subject to the terms of the
joint venture.
USE OF PLANT
Should Tanox use the Plant for the manufacture of products other than the
Anti-IgE Product, it will give priority to the manufacture of the requirements
of the parties for the Anti-IgE Product.
TRANSFER OF CONTROL
If partnership or control of Tanox is about to pass out of the hands of the
present shareholders, except as the result of the normal dilutive effects of
capital fund raising appropriate for the continuation of its business, Tanox
will advise Ciba of such event prior to its occurrence and Ciba will have the
right to require a modification or repayment of the Loan if Ciba, in its
reasonable and fair judgement, determines that the person/persons or legal
entity is/are unacceptable to Ciba.
PUBLICITY
Each party will keep confidential all information relating to the terms hereof
and of the Loan, and to the conclusion or intended conclusion of the financial
arrangements and other transactions hereby contemplated, provided however that
reference to such terms, the loan arrangements and other
<PAGE>
6 CONFIDENTIAL
transactions required by law or regulation sha11 not be regarded as a breach of
this confidentiality obligation.
APPLICABLE LAW
The terms of the Loan, the Definitive Agreement(s) and any other instruments
executed in connection therewith shall be governed by and interpreted in
accordance with the laws of the State of New York.
ASSIGNMENTS
The Loan and the Definitive Agreement(s) evidencing the same and any other
rights or duties of Ciba and Tanox may be assigned and delegated to affiliates
of Ciba and Tanox without the consent of the other in the event of a decision to
form the joint venture, provided, that the collateral security hereby granted to
Ciba is not thereby prejudiced, or by Ciba alone if Ciba should enforce the
security for the Loan. In any other case, neither party sha11 assign its rights
or obligations hereunder without the written consent of the other party.
As WITNESS the signatures of the representatives of the parties hereto
Tanox Biosystems, Inc.
By: D. ANDERSON
Name: D. Anderson
Title: Exe. V.P.
Date: 12/9/94
CIBA-GEIGY Limited
By: M. SUNDMAN
Name: M. Sundman
Title: Head of Business Development
Date: 13th December, 1994
By: R.E. WALKER
Name: R.E. Walker
Title: Division Counsel
Date: 13th December, 1994
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SCHEDULE 1
ATTACHMENTS
(1) The projected pilot/1aunch facility schedule
(2) The preliminary pilot/launch facility floor plan
(3) The pilot/launch facility major equipment list
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(1) THE PROJECTED PILOT/LAUNCH FACILITY SCHEDULE
1994 1995 1996 1997
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BIOREACTOR DELIVERY INSTALLATION
|________________________|_____|
DESIGN BID/AWARD
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CONSTRUCTION
|____________________|
VALIDATION
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START-UP PRODUCTION
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GRAPHIC OF THE PRELIMINARY PILOT/LAUNCH FACILITY FLOOR PLAN
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(3) THE PILOT/LAUNCH FACILITY MAJOR EQUIPMENT LIST
3.1 Fermentation Area:
a. One 20 liter skid-mounted bioreactor systems
b. One 225 liter bioreactor system
c. One 1500 liter bioreactor system
d. Three medium supplement cans
3.2 Inoculum Preparation Lab:
a. One CO2 incubator
b. One laminar flow hood
c. One lab centrifuge
d. One liquid nitrogen canister
3.3 Intermediate Purification:
a. One 1500 liter harvest tank
b. One 500 liter permeate tank
c. One cell removal transmembrane filtration skid
3.4 purification:
a. One protein A column
b. One HIC column
c. One anion exchange column
d. One tangential flow filtration system
e. One column processing skid
f. One laminar flow hood, horizontal, class 100
g. Two product tanks, lOO liter, with agitator and filter
h. One product tank, 300 liter, with agitator and filter
3.5 Wash/Sterilization:
a. One autoclave, 2' x 3', double door
b. One glassware washer
c. One sink
d. One CIP system
3.6 Solution Preparation:
a. One 1200 liter medium preparation tank with agitator and.
filter
b. One medium transfer/filtration skid
c. One 300 liter medium tank with agitator and filter
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d. One 300 liter buffer tank with agitator and filter
e. One buffer transfer/filtration skid
f. Two 700 liter buffer tanks with agitators and filters
g. Two 150 liter buffer tanks with agitators and filters
h. Two lOO liter buffer tanks with agitators and filters
i. One laminar flow hood
j. One WFI point-of-use cooler
k. One CIP system
3.7 Utility Room:
a. One USP purified water system, 60 LPM peak demand
b. One WFI still, 105 GPH
c. One WFI storage tank, 4000 liter
d. One clean steam generator, 730 lb/HG
e. One boiler, 2500 lb/HR
f. One chiller, 90 tons
g. One decontamination autoclave, 2' x.2', single door
h. Two neutralization tanks, 4000 liter
3.8 Miscellaneous:
a. One cold room, 110 sq. ft.
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SCHEDULE 2
PROPOSED JOINT VENTURE AGREEMENT BETWEEN TANOX BIOSYSTEMS, INC. ("TANOX")
AND CIBA-GEIGY LIMITED ("CG") OR AFFILIATES THEREOF COVERING A PILOT PLANT
FOR THE MANUFACTURE OF THERAPEUTIC MONOCLONAL ANTIBODIES.
This Schedule 2 is intended as an outline of the basic structure of a joint
venture and should not be construed as including all the conditions and terms of
such joint venture. It is a statement of intent only, is not intended as a
binding agreement, and is subject to the negotiation of definitive agreements
setting forth the terms and provisions hereof. Any such definitive agreements
would be subject to approval of (i) the applicable regulatory authorities, (ii)
the managements of Tanox and CG, and (iii) any other parties to such definitive
agreements.
1. BACKGROUND
Tanox and CG are engaged in a project aimed at the development of anti-IgE
monoclonal antibodies (i.e., CGP 51901 and CGP 56901) to treat IgE-mediated
reactions such as allergies, under the agreement between the partners dated
May 11, 1990 (the " Allergy Project"). Neither party has as yet the
manufacturing facilities which can provide antibody products in amounts
sufficient for large scale clinical trails or for commercialization. The
parties therefore intend to plan jointly and make available the necessary
manufacturing facilities in a location close to Tanox's present site.
While the parties now contemplate the eventual construction or acquisition of
a commercial manufacturing facility, such a decision will be reserved for a
later date. The scope of the proposed joint venture ("JV") is the
construction and operation of a pilot plant manufacturing facility ("Pilot
Facility").
2. STATEMENT OF OBJECTIVES:
The Joint Venture ("JV") will establish a Pilot Facility for animal cell
culture derived products, in particular CGP 56901. Specific objectives of the
JV wi11 be the:
- Production of clinical materials for pivotal trials, with top initial
priority given to the manufacture of product for the Anti-Allergy
Project.
- Scale-up and optimisation of the commercial production process.
- Development of technology, know-how, expertise and resources for later
integration into large scale commercial facility applications.
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- Initial launch of small volume products.
3. PRINCIPLES OF FORMATION
3.1 NAME
The name for the JV wi11 be agreed by the parties, but will include
the names Ciba and Tanox mentioned clearly for regulatory and
marketing purposes.
3.2 LEGAL ENTITY
The parties contemp1ate formation of a legal entity which will be
taxed as a partnership. It may be in the form of a general
partnership, limited partnership or limited liability company as the
parties may agree to be in their best interests.
3.3 LOCATION
Location of the Pilot Facility will be Houston, Texas within
facilities subleased to the JV by Tanox on commercially reasonable
terms.
3.4 CAPITAL STRUCTURE
Both parties shall contribute equally to the JV the initial and all
future capital contributions. The parties intend to enter into
separate agreements whereby CG would finance a portion of Tanox's 50%
commitment at terms to be agreed between the parties. An estimate of
costs prior to the start of operations and a planned schedule of
investment outlays is provided as Attachment 1. (NB THE ORIGINAL IS
OUT OR DATE AND REQUIRES REVISION.)
3.5 OWNERSHIP OR ELA/PLA
Ownership of the Establishment License Application and the Product
License Application will be by the JV as an independent entity.
3.6 ALLOCATION OF PROFITS AND LOSSES
Both parties will share in start-up and operating expenses and share
profits and losses according to a formula to be agreed taking into
account the relative financial and management contributions each of
the parties will agree to make to the JV.
4. PRINCIPLES OF OPERATION
4.1 MANAGEMENT STRUCTURE/STAFFING:
4.1.1 MANAGEMENT COMMITTEE - 2 members from each partner
- approves annual budget and operation plans
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- approves all contracts (including manufacturing and
supply contracts) having individually a value or cost in
excess of $50,000 with each partner or third party
- approves the compounds to be manufactured by the JV
- provides conflict resolution
- approves appointment and dismissal of senior personnel
- approves transfer pricing
- decides on such other matters as shall be agreed by the
partners.
4.1.2 OPERATIONS COMMITTEE - up to 3 members for each partner, plus
the plant manager and other JV employees, as agreed.
- submits budgets and operational plans of the JV annually
- submits contracts with each partner and with third
parties
- reviews technologies used, in order to assure a "state of
the art" situation
- monitors progress of the build-up of the JV against plan
- proposes compounds to be manufactured by the JV
- supervises staffing and plant management
The Chairmanship of the Operations and Management Committees
will rotate annually between the partners. Meetings of the
Management Committee will take place two times per year, or
for specific requirements. The Operations Committee will meet
as often as required.
4.1.3 It is envisaged that the JV will be initially staffed by
employees of either partner. and that there will be JV
employees once the pilot plant becomes operational. Management
and staff of the JV may continue to be employees of either
partner.
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4.2 POLICIES AND PROCEDURES
The Management and Operations Committees prior to the start of the
Pilot Facility operations will establish policies and procedures
covering operations of the Joint Venture with particular emphasis on
policies intended to assure compliance by the Joint Venture with all
regulatory, safety, and environmental requirements, and to assure
establishment of quality assurance and control procedures necessary
to ensure the highest product quality commercially reasonable.
The Management and Operations Committees will also establish
estimates of running costs of the facility and procedures for proper
allocation of costs of the facility. subject to the guidelines set
forth in the JV agreement
5. SCOPE OF ACTIVITIES
5.1 CONSTRUCTION ACTIVITIES
To the extent that the plant has not already been completed, the JV
will be responsible for the planning and construction of the Pilot
Facility. The Pilot Facility should be validated and ready to be used
for the production of material for pivotal trials in the Allergy
Project in the second quarter of 199*. This plant is planned to have
an initial capacity of **** (about * active substance / per annum),
with possible expansion capabilities.
5.2 PRODUCTION ACTIVITIES
The Pilot Facility will manufacture for the projects of both partners
as outlined in paragraph 2 (Statement of Objectives). Priority will
be given to collaborative anti-IgE monoclonal antibody product under
CGI/Tanox joint development. Preference will always be given to
such joint projects in situations of short capacity. When capacity
is available, the JV will also manufacture other cell culture derived
products generated by CG and other cell culture derived products
generated by Tanox. If there is spare capacity available, the JV will
also accept all toll manufacturing for third parries.
6. TRANSFER PRICING
The JV will set the transfer prices of compounds to the partners so that the
profit will reasonably compensate for the risk of the investment in the JV.
Establishment of transfer prices for the respective products manufactured by
the JV will be based on the following guidelines:
- For Allergy Project products transfer prices would not be less than
total manufacturing cost plus 20%.
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- For Allergy Project products, if the JV can successfully reduce
transfer prices by achieving cost reductions prior to or following
product launch, the JV would be entitled to share in such benefits by
an appropriate increase in its profit percentage.
- For products manufactured for other projects of the partners,
guidelines to be agreed would apply.
- For allocation of costs not directly chargeable to product
manufacturing such as overhead, the operating capacity required for
the Allergy -Project will be assumed to be......%
- For other activities undertaken by the JV, including toll
manufacturing for third parties, the JV would establish prices based
on market conditions and achievement of its operating objectives.
7. OWNERSHIP OR KNOW-HOW AND TECHNOLOGIES:
In principle, know-how and technology developed by JV employees will be owned
by the JV, whereby the partners and their affiliates will have a free
license to use such know-how and technology for their own purposes. Know-how
developed by employees of each partner in the context of JV activities will
flow freely between the two partners, and may be used by them and their
affiliates. Technology (represented by patents) developed by employees of
either partner will be owned by such partner and will flow freely to the JV
for JV purposes. If either partner should desire to use such technology in
the context of its own manufacturing operations separate from the JV, the
partner holding such technology will negotiate in good faith a license for
such technology on reasonable terms. Use by third parties, if any, will be
negotiated by the JV or the partner owning such technology at arm's length.
8. DURATION OF THE JV:
The JV will exist as long as the parties agree to continue in the venture or
until one party buys out the other.
9. CONFLICT RESOLUTIONS:
Problems that cannot be resolved or agreed upon by the Management Committee
of the JV shall go to Top Management of Tanox and CG's Pharma Division (For
Tanox Dr. N. Chang, and for CG Mr. P.E. Douaze or another member of CG's
Pharma Division Management). If the Management Committee so chooses, opinion
of outside experts may be solicited in order to resolve such problems in a
procedure
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to be agreed mutually prior to finalisation of the JV documentation. Should an
agreement using such procedures not be possible, then either party will have
the right to submit the matter to arbitration.
10. TERMINATION:
The following principles shall apply:
10.1 in the event of change of control of one of the partners, the other
partner will have the possibility to buy out the other partner at a
"fair market value" in a procedure to be mutually agreed.
10.2 In the event of breach or bankruptcy of one partner, the other partner
should have the possibility to buy-out at the lesser of "fair market
value" less a certain percentage (penalty), or the cash input at time
value.
10.3 If either partner wishes to leave the JV. it must offer its share
first to the other party, at a price equal to such partner's capital
contribution plus interest at a rate to be agreed. If the other partner
does not accept this offer within three months of receipt of the
offer, then the partner which made the offer may sell its share to
another interested party within a period of one year at a price not
less than that at which it offered its share to the other partner. The
remaining partner has the right to approve the choice of purchaser;
such approval not be unreasonably withheld.
10.4 The JV can be terminated any time by mutual agreement of the partners.
EXHIBIT 10.12
STOCK PURCHASE AGREEMENT
Agreement entered into as of March 12, 1998, by and among Tanox Biosystems,
Inc., a Texas corporation having its principal office in Houston, Texas
("Tanox"), and the holders of shares of the capital stock of PanGenetics B.V.
(the "Company") affixing their signatures hereto and listed on Annex I hereto
(collectively, the "Sellers"). Tanox and the Sellers are sometimes referred to
singularly as a "Party" or collectively as the "Parties."
BACKGROUND
The Sellers own all of the outstanding capital stock of the Company, a
private limited liability company organized under the laws of The Netherlands
having its principal office in Amsterdam, The Netherlands.
Subject to the suspensive conditions and contingencies contained herein and
as more particularly described hereinafter, this Agreement sets out the terms
and conditions of a transaction in which Tanox is purchasing from the Sellers,
and the Sellers are selling to Tanox, all of the outstanding capital stock of
the Company in return for cash and shares of the common capital stock of Tanox,
.01 USD par value.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. Where used in this Agreement, the following words
and terms shall have the respective definitions (and such definitions shall be
equally applicable to the singular and plural forms, and all grammatical
variations, of such terms):
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses, resulting from or
arising out of a breach of this Agreement, including any of the representations,
warranties, covenants and other obligations contained herein.
"Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
a specified Person.
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"Confidential Information" shall have the meaning ascribed to it in that
certain Confidentiality Agreement between Tanox and the Company effective
December 12, 1997.
"Employee Benefit Plan" means any pension or other retirement plan or
arrangement or material fringe benefit plan or program.
"GAAP" means generally accepted accounting principles as in effect in The
Netherlands from time to time.
"Intellectual Property" means (i) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, divisions, revisions,
extensions, and reexaminations thereof, (ii) all trademarks, service marks,
trade dress, logos, trade names, and corporate names, including all goodwill
associated therewith, and. all applications, registrations, and renewals in
connection therewith, (iii) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (iv) all mask
works and all applications, registrations, and renewals in connection therewith,
(v) all trade secrets and all other proprietary or confidential, technical,
scientific, financial or business information (including ideas, inventions,
research and development data, protocols and results, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, and business and marketing plans and
proposals), (vi) all computer software (including data and related
documentation), (vii) all other proprietary information or rights, and (viii)
all copies and tangible embodiments thereof (in whatever form or medium).
"Liability" means any liability (whether or not known, asserted,
contingent, accrued, liquidated, or due), including any liability for Taxes,
which is not included in the Financial Statements [as defined in Section
IV(E)]or otherwise disclosed in the Disclosure Schedule (as defined in Article
IV) attached hereto.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"R&D Programs" means any and all research and development activities
currently being pursued by the Company or in which the Company has an interest
of any kind, whether or not such activities or interest relate to the
Intellectual Property of the Company or of a third party.
"Security Interests" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest.
"Taxes" means any state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium, windfall
profits, environmental, customs duties, capital stock, profits, withholding,
social security (or similar), real property, personal property, sales, use,
transfer, registration, value added,
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estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
SECTION 1.2 OTHER DEFINITIONS. The terms used in this Agreement which are
defined in (a) the preface of this Agreement, (b) the recitals of this Agreement
and (c) the further Sections of this Agreement shall have the respective
definitions therein ascribed to them.
ARTICLE II
PURCHASE AND SALE OF COMPANY SHARES
SECTION II.1 PURCHASE AND SALE
(A) Basic Transaction. On and subject to the terms and conditions of
this Agreement, Tanox hereby purchases from the Sellers (including those
Sellers which acquired their shares by exercise of options as of the date
hereof), and the Sellers hereby sell and shall transfer to Tanox, such
number of their shares of capital stock of the Company (the "Company
Shares") as is set forth in Annex 2, for an aggregate consideration of up
to 278,629 shares of the common stock of Tanox ("Tanox Stock") and up to
613,870 USD cash (collectively, the "Consideration"). The total amount of
the Consideration shall be payable in three installments as follows: .
(a) In accordance with the closing procedure specified in Section II.3
below, Tanox will deliver to Sellers, in the aggregate, 92,878 shares of
Tanox Stock and 204,620 USD cash contemporaneously with the execution of
this Agreement;
(b) Subject to the Contingencies, Tanox will deliver to Sellers, in
the aggregate, 92,877 shares of Tanox Stock and 204,624 USD cash 18 months
following the date of this Agreement ("Closing Date"); and
(c) Subject to the Contingencies, Tanox will deliver to Sellers, in
the aggregate, 92,874 shares of Tanox Stock and 204,626 USD cash 36 months
following the Closing Date.
If for any reason Tanox should fail to complete both the second and third
installments as required above, except to the extent same may not be
required due to the Contingencies, Tanox shall be required to reassign,
transfer and deliver to Sellers two-thirds of the Company Shares. If only
the third installment is not made when due, except to the extent same may
not be required due to the Contingencies, Tanox shall be obligated to
reassign, transfer and deliver to Sellers a sufficient number of the
Company Shares to reduce Tanox's ownership in the Company to 49 %.
Additionally, any technology rights received
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by Tanox at Closing shall be reassigned by Tanox to the Company, subject to
Tanox's right or joint right of ownership, respectively, in any technology
and/or products invented or jointly invented by Tanox and the Company
and/or Sellers (or anyone of them). Until such time as Tanox has completed
delivery of the Total Consideration, as required under this Agreement, the
Company, except with consent of M. de Boer as the authorized representative
of Sellers, shall not sell, transfer or assign any of its technology or
products listed in the Disclosure Schedule except in accordance with the
requirements of any obligations existing as of the Closing Date. The
signature of M. de Boer on any such sale, transfer or assignment documents
shall be conclusive evidence of such consent. Notwithstanding the
foregoing, the Company shall be entitled to enter into license or
collaboration transactions with third parties without Sellers consent and
with Tanox, with the consent of M. de Boer as provided above.
(B) Suspensive Condition. On and subject to the terms and conditions
of this Agreement, Tanox shall be obligated to purchase, and M. de Boer
shall be obligated to sell, all of those Company Shares owned by M. de Boer
and not included with the Basic Transaction in Section II.1 (A) above (the
"Suspended Shares") at such time as the securities of Tanox are registered
in an initial public offering under the Securities Act of 1933, as amended,
or comparable registration procedures in a foreign jurisdiction or
otherwise become publicly tradable, whether directly or indirectly by
merger (collectively an "IPO Transaction"). Additionally, M. de Boer shall
have the right in his sole discretion to require the purchase of all his
Suspended Shares by Tanox in accordance with this Section II.1 (B) (the
"Put Option") at any time within five (5) years following the Closing Date;
provided, however, that if such Put Option has not been executed within
five (5) years following the Closing Date, M. de Boer shall be obligated to
sell the Suspended Shares to Tanox at such time in accordance with the
terms and conditions applicable to the exercise of such Put Option set
forth herein.
If an IPO Transaction or Put Option occurs prior to 18 months following the
Closing Date, all of the Suspended Shares shall be acquired by Tanox for
the total consideration in USD cash and Tanox Stock set forth below
("Suspended Consideration"), such Suspended Consideration to be paid at the
times indicated, subject to the Contingencies (as defined below):
Suspended Consideration
-----------------------------
Cash Tanox Shares
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When acquired ......................... 128,710 58,420
At 18 months after .................... 128,710 58,420
Closing Date
At 36 months after .................... 128,710 58,420
Closing Date
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If an IPO Transaction or Put Option occurs after 18 months following the
Closing Date, all of the Suspended Shares shall be acquired by Tanox for
the Suspended Consideration set forth below J such Suspended Consideration
to be paid the times indicated I subject to the Contingencies:
Suspended Consideration
-----------------------------
Cash Tanox Shares
------- ------------------
When acquired ......................... 257,420 116,840
At 36 months after .................... 128,710 58,420
Closing Date
If the IPO Transaction or Put Option occurs after 36 months following the
Closing Date then all of the Suspended Consideration shall be due and
payable at the time of closing of the purchase of the Suspended Shares.
The closing of the purchase of the Suspended Shares shall occur within
thirty days following the closing of the IPO Transaction or receipt of
written notice from M. de Boer of the exercise of the Put Option. At
closing, all Suspended Shares shall be transferred and delivered to Tanox
and Tanox shall deliver the Suspended Consideration then due.
Tanox and M. de Boer shall cooperate in good faith and execute all
documents and take all actions necessary to accomplish a sale and purchase
of the Suspended Shares as required hereunder. The transaction contemplated
by this Section II.1 (8) shall be effected if and when Tanox may receive
written notice from M. de Boer that he desires to effect a Put Option or
upon the occurrence of an IPO Transaction.
Sellers, including M. de Boer, acknowledge that the total amount of the
Consideration and Suspended Consideration to be paid by Tanox under Section
II.1 (A) and this section II.1 (8), respectively, is contingent on certain
facts and circumstances regarding the Company's R&D Programs and key
employees, as set forth in Section II.4 below (collectively, the
"Contingencies").
SECTION II.2 ALLOCATION OF THE CONSIDERATION. Tanox shall allocate the
Tanox Stock and cash portions of the Consideration to the Sellers pro rata to
their respective interests in the Company Shares. The allocation of the
Consideration in accordance with the foregoing is set forth in Annex 2. The
Parties agree that delivery of the Consideration to Sellers as specified in
Annex 2 (or as otherwise agreed in Section II.4(A) below) shall satisfy all
obligations of Tanox to pay the Consideration and that Tanox shall not have or
incur any liability to any Seller as a result of such agreed allocation.
Further, for the sole purpose of providing M. de Boer with additional cash to
satisfy any liability for taxes, Tanox has agreed that it will accelerate
payment of the cash portion of the Consideration to be delivered at 18 and 36
months and also the Suspended Consideration if the Put Option or IPO Transaction
has occurred, upon receipt of notice of such request of M. de Boer, accompanied
by satisfactory evidence of the amount of the Taxes then due; provided, that the
amount accelerated hereunder will not exceed the amount of any such
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liability for Taxes less the aggregate amount of the cash portion of the
Consideration paid at Closing. Tanox shall make any accelerated payment of cash
due hereunder within 10 days prior to the date payment of any such Taxes is due.
SECTION II.3 THE CLOSING. The Parties' acknowledge that closing of the
transactions contemplated by this Agreement (the "Closing") and deliveries
required in connection with the Closing have taken place in the following manner
at the offices of Sellers' attorneys before a notary ("Notary") with legal
authority to acknowledge and register the transfer of the notorial deeds of
transfer:
(a) Sellers and Tanox have furnished evidence that all actions
r6quired prior to Closing have been completed and any required
certificates, instruments, and documents have been executed and delivered,
including a Voting Agreement in the form of Exhibit A as provided in
Section III.1 (I);
(b) Sellers have transferred to Tanox the required Company Shares,
free and clear of all liens, claims, restrictions, encumbrances, or other
impediments to the complete, fu)1 and unfettered transfer of ownership
thereof, by means of the execution and delivery of a notarial deed of
transfer in accordance with the draft of such deed attached as Exhibit B;
(c) Tanox has delivered to the Sellers the Consideration specified in
Section II.1 (A) (a) above by delivering a stock certificate to each of the
Sellers in the number of shares of Tanox Stock stated beside Sellers' name
at the Closing Date on Annex 2 and by wire transfer of the aggregate cash
to be paid to Sellers on the Closing Date into the account of the Notary
for disbursement to Sellers in accordance with Annex 2; and
(d) As soon as possible following Closing, shareholders resolutions
will be executed to authorize amendment of the articles of association of
the Company to read in full as set forth in Exhibit C (subject to a change
of the name of the Company in the manner determined by Tanox), and to
increase the managing board to include Nancy T. Chang, as chair person, and
David Thomas.
At Closing, Sellers, in their position as shareholders of the Company, together
with M. de Boer, in his position as managing director, and Tanox, as. purchasing
shareholder, expressly agree and consent to appointment of David Anderson as a
member, with M. de Boer, of the managing board of the Company and to the
requirement that the signatures of at least two managing directors, acting
jointly, shall be required to obligate the Company. David Anderson, as a newly
appointed managing director, also agrees with the requirement of two signatures.
The additional Consideration anticipated in accordance with Section II.1 (A) (b)
and (c) above and the Suspended Consideration as provided in Section II.1 (B)
above, both of which are subject to the Contingencies and shall be reduced by
any amount accelerated under Section II.2 above, shall be delivered at 18 months
and 36 months, respectively, (or as otherwise required) in the manner reasonably
requested by the respective Sellers.
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SECTION II.4 CONTINGENCIES. In the event that certain Contingencies (set
forth below) occur, the aggregate maximum amount of the Consideration and
Suspended Consideration to be delivered to Sellers and M. de Boer, respectively,
in Section II.1 above shall be reduced by the specific amount directly related
to each such Contingency as agreed below.
(A) Key Services. Included as Sellers are a key employee and a key
consultant of the Company. The Parties agree that Dr. M. de Boer and Dr.
J.W. Larrick (as described and agreed to in their respective employment and
consultant agreements, which are intended to be executed simultaneously
with this Agreement) will continue with the Company as employee and
consultant, respectively, for a minimum of 36 months following the
execution of those agreements. The loss of services of Dr. M. de Boer and
Dr. J.W. Larrick or their failure to continue, in good faith, to provide
the Company with the full benefit (as specified in their respective
employment and consulting agreements with the Company) of their scientific
capabilities in connection with the pursuit of the R&D Programs and the
origination of new research ideas will have a material adverse effect on
the Company. Therefore, the loss of services of either or both Dr. M. de
Boer or Dr. J. W. Larrick at any time before the end of the 36 month period
shall cause the termination, without further liability or obligation of any
kind, of Tanox's obligations to deliver the portion of the Consideration
and Suspended Consideration (collectively, the "Total Consideration") set
forth below for the person whose services have been lost to the Company, or
for both of them, if the services of both have been lost to the Company.
Total Consideration Reduced
Services Lost Cash / Tanox Stock
------------- ---------------------------
Prior to 18 months
Dr. M. de Boer .............................. 271,720 126,667
Dr. J.W. Larrick ............................ 271,720 126,667
Between 18 and 36 months
Dr. M. de Boer .............................. 135,860 63,333
Dr. J.W. Larrick ............................ 135,860 63,333
Such reduction of the Total Consideration shall be deducted from the
Consideration due Sellers under Section II.1 (A)(C) above and the Suspended
Consideration due M. de Boer under Section II.1 (B) above pro rata to their
respective amounts due.
Notwithstanding the above, if, during the 36 month period following the
Closing Date, either the Company or Tanox decides that either Dr. M. de
Boer or Dr. J. W. Larrick, or both of them, are no longer needed by either
the Company or Tanox and requests their termination (for other than breach
of their respective employment and consulting agreements for an important
or urgent cause as
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defined in the Dutch Civil Code), all remaining Consideration and Suspended
Consideration otherwise due will continue to be due and will be delivered
as provided in Section II.1 in accordance with Annex 2.
(B) Upither B. V. The Company and the Faculty of Veterinary Medicine
of Utrecht University ("FVM-UU") are parties to a shareholders' agreement
and letter of intent which provide certain rights to the Company to license
technology, including patents and biological materials, owned in whole or
in part by FVM-UU, relating to HSP vaccines and MT hsp 60 peptides
(collectively; "HSP Products") and novel autoantigens ("Other Products").
The Company and FVM-UU are currently pursuing negotiations to finalize an
agreement(s) to clearly establish the objectives of Upither B. V. and the
rights of the Company to technologies, biological materials and patents
necessary to permit the Company to develop and commercialize HSP Products
and Other Products alone or in collaboration with other third parties,
including Yamanouchi. The Company has represented that such negotiations
can be concluded on a basis at least as. favorable to the Company as
contemplated by the shareholders' agreement dated as of June 6, 1996,
and/or letter of intent dated as of June 17, 1997, which agreements are
identified more -particularly on the Disclosure Schedule and that certain
letter of intent, a copy of which is attached to this Agreement as Exhibit
D, which is intended to supersede the shareholder's agreement and prior
letter of intent. Failure of the Company to be able to secure rights to the
HSP Products and Other Products within six (6) months following Closing at
least in the manner and to the extent contemplated by foregoing agreements
(providing that sufficient funds are available as required to conclude the
contemplated transactions with FVM-UU) shall result in a termination of
Tanox's obligation to deliver the third installment of the Consideration
due Sellers under Section II.1 (A)(c) above and one-third of (i) the sum of
the Consideration paid to M. de Boer at Closing plus (ii) the total
Suspended Consideration due M. de Boer under Section II.1 (B) above. If the
rights to be secured as contemplated in the preceding sentence are secured
in part but not in full, the Parties shall agree on an appropriate
reduction of the Total Consideration that is less than the reduction
contemplated by the preceding sentence.
(C) Origination of Additional Projects. An objective of the Company
following Closing is to originate at least three (3) additional projects
("New Projects") which may be pursued by either the Company and/or Tanox
(excluding any projects or ideas identified on the summary description of
the Company's "Project priorities 1998" dated January 1998 and provided to
Tanox prior to the Closing). New Projects which are originated shall be
projects of evident scientific merit based on review and recommendation for
further research and development by both (i) an internal scientific review
committee which includes representatives of both Tanox and the Sellers and
(ii) the independent scientific advisors to Tanox which are members of
Tanox's Scientific Advisory Board or similar scientific consultants.
Failure of the Company to originate at least three New Projects prior to
delivery of the Consideration due Sellers under Section II.1 (A)(c) above
shall result in a reduction of the Total Consideration as follows:
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No. of Projects Originated % of Total Consideration Reduced
-------------------------- --------------------------------
-0- 30%
1 20%
2 10%
Such reduction of the Total Consideration shall be deducted from the
Consideration due Sellers under Section II.1 (A)(c) above and the Suspended
Consideration due M. de Boer under Section II.1 (B) above. pro rata to
their respective amounts due.
(D) Subsidy Agreements. The Company is a party to certain subsidy
agreements pursuant to which it receives certain funding, including an
agreement with the Dutch government relating to the B7 imrnunotoxin/P8TS
project and an agreement including the European Community relating to the
Company's project to develop CD40 Products. The Company has certain
obligations under these agreements and the agreements also require certain
notices and approvals in connection with changes of ownership of the
Company. Any net negative change in aggregate subsidy received from the
current status of the subsidies the Company has received, or has received
notice of commitments to receive, which occurs during the 36 months
following the Closing Date, will be deducted from the third installment of
the Consideration due Sellers under Section II.1 (A)(c) above and the
Suspended Consideration due at such time to M. de Boer under Section II.1
(B) above. Such deduction will be allocated among the Sellers pro rata to
their respective amounts due.
(E) Adverse Consequences. If Tanox or the Company should suffer any
Adverse Consequences or incur any Liability, Tanox shall have the right to
set-off any costs and expenses incurred as a result of such Adverse
Consequences or Liability pro rata against the Total Consideration
remaining undelivered at such time as it becomes due. If such costs and
expenses exceed the outstanding cash portion of the Total Consideration,
Tanox shall have the right to reduce the Total Consideration by an agreed
number of shares of Tanox Stock equivalent in value to all of such costs
and expenses.
SECTION II.5 DISAGREEMENTS REGARDING CONTINGENCIES. If any disagreement
should arise regarding Tanox's obligation hereunder to deliver the Total
Consideration or regarding the amounts of any off-sets or reductions to the
Total Consideration required pursuant to the Contingencies, as set forth above,
the Parties first will attempt to resolve such disagreement with good faith
negotiations between senior management of Tanox and the Sellers, which shall be
represented by one or more duly authorized representatives. If such negotiations
between senior management of Tanox and the Sellers are not successfully resolved
within 60 days following the written request of Sellers to initiate such
negotiations, Sellers may require that any such disagreement be resolved by
appointment of an expert by each Party, in accordance with the customary
practice for such appointment in The Netherlands, who together shall have
authority to reach an agreed determination of whether or not or to what extent
the Total Consideration should be delivered and/or an offset to the Total
Consideration should be permitted under
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<PAGE>
the circumstances. Should the two experts fail to reach agreement within 45 days
after their appointment, then they shall jointly select a third expert within 30
days who, in consultation with each Party's expert, shall reach a decision
within 30 days following his appointment and whose opinion will be binding on
the Parties. Following resolution of any such disagreement, Tanox shall
immediately deliver any portion of the Total Consideration which may then be
due. This Section II.5 shall be applicable only to disagreements regarding the
affect of the Contingencies on the Total Consideration due under this Agreement
and shall not apply to any other disputes, breaches or defaults claimed by a
Party.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
CONCERNING THE TRANSACTION
SECTION III.1 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. The Sellers
jointly and severally represent and warrant to Tanox that the statements
contained in this Section III.1 are true, correct and complete as of the date of
this Agreement and, with respect to M. de Boer, as of the date of the closing
for any Suspended Shares.
(A) Legal Form of the Sellers. M. de Boer, L. Boon, and M.T. den
Hartog are individual residents of The Netherlands. J.S. Price, J. W.
Larrick, and R.F. Balint are individual residents of the United States.
Each of PanResources International and Andries de Nooij B. V. is duly
organized and validly existing under the laws of the jurisdiction of its
incorporation.
(B) Authorization of Transaction. Each of the Sellers has full power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of each of the Sellers, enforceable in accordance with
its terms and conditions. None of the Sellers need give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(C) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which any of the Sellers are
subject or (if applicable) any provision of its charter, bylaws, or
articles of association or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of or right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which any 1 of the Sellers is a party or by which any of the Sellers is
bound.
(D) Company Shares. At Closing, the Sellers hold of record and own
beneficially 100% of the outstanding Company Shares and any and all other
interests of any nature in and to the Company Shares, and there are no
restrictions on transfer which prohibit or are violated by this
transaction. The
10
<PAGE>
Company Shares are free and clear of all Taxes, Security Interests,
contracts, commitments, claims, or other encumbrances of any nature. The
total Company Shares set forth under "Consideration for Basic Transaction"
in Annex 2 includes all of the Company Shares owned by all Sellers except
for M. de Boer. All of the Company Shares owned by M. de Boer are included
in the aggregate under "Consideration for Basic Transaction" and
"Consideration Subject to Suspensive Condition" on Annex 2.
(E) Company Properties. None of the Sellers has any right, title or
interest in or to any property , asset or right owned or used by the
Company in the conduct of its business, except as has been transferred,
assigned, and conveyed to the Company and/or Tanox on or prior to the
Closing Date as a part of this transaction (which transfer includes the
individual rights of Mark de Boer to gene therapy applications for
anti-CD40 monoclonal antibodies.)
(F) Brokers' Fees. None of the Sellers has any Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement for which Tanox could
become liable or obligated.
(G) Investment. Each of the Sellers (i) understand that Tanox Stock
has not been, and will not be, registered under the Securities Act of 1933,
as amended ("Securities Act"), or under any state securities laws, and are
being offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (ii) is acquiring Tanox
Stock solely for its own account for investment purposes, and not with a
view to the distribution thereof, (iii) is a sophisticated investor with
knowledge and experience in business and financial matters, (iv) has
received certain information concerning Tanox and has had the opportunity
to obtain additional information as desired in order to evaluate the merits
and the risks inherent in holding Tanox Stock, and (v) is able to bear the
economic risk and lack of liquidity inherent in holding Tanox Stock.
(H) No Transfer; Holding Requirements. Each Seller covenants that in
no event will such Seller sell, transfer, convey, hypothecate or otherwise
dispose of any interest in Tanox Stock (other than in conjunction with an
effective registration statement under the Securities Act or in compliance
with Rule 144 promulgated under the Securities Act) unless and until (i)
each Seller shall have notified Tanox of the proposed disposition and shall
have furnished Tanox with a statement of the circumstances surrounding the
proposed disposition, and (ii) if reasonably requested by Tanox, each
Seller shall have furnished Tanox with an opinion of counsel reasonably
satisfactory in form and substance to Tanox to the effect that (x) such
disposition will not require registration under the Securities Act and (y)
appropriate action necessary for compliance with the Securities Act and any
other applicable state, local or foreign law has been taken.
Each Seller understands that if Tanox does not register its common
stock under Section 12 or become subject to Section 15( d) of the
Securities Exchange Act of 1934, as amended ("Securities Exchange Act") or
supply information
11
<PAGE>
pursuant to Rule 15c2-11 thereunder or if a registration statement covering
the Tanox Stock (or a filing pursuant to the exemption from registration
under Regulation A of the Securities Act governing Tanox Stock) under the
Securities Act is not in effect when it desires to sell Tanox Stock, such
Seller may be required to hold Tanox Stock for an indeterminate period.
Each Seller also understands that any sale of Tanox Stock that might be
made by such Seller in reliance upon Rule 144 under the Securities Act may
in certain instances be made only in limited amounts in accordance with the
terms and conditions of that rule.
(I) Unregistered Securities; Restrictions; Legend. Each Seller
understands that the Tanox Stock has not been registered under the
Securities Act and will be issued in reliance upon an exemption from the
registration requirements thereof. Additionally, each Seller acknowledges
that the Tanox Stock is subject to a Voting Agreement executed by Sellers
on the Closing Date in the form of agreement attached hereto as Exhibit A.
Each Seller acknowledges that the certificates representing Tanox Stock
shall each bear restrictive legends-. substantially as follows:
"THESE-SECURIT1ES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT AND
APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT
TO RULE 144 OF SUCH ACT.
PREEMPTIVE RIGHTS TO ACQUIRE UNISSUED OR TREASURY SHARES OF THE
COMPANY AND CUMULATIVE VOTING OF SHARES ARE DENIED TO THE SHAREHOLDERS
BY THE ARTICLES OF INCORPORATION. A COMPLETE STATEMENT OF THE DENIAL
OF SUCH RIGHTS IS SET FORTH IN THE ARTICLES OF INCORPORATION AS FILED
IN THE OFFICE OF THE SECRETARY OF STATE AND A COPY OF SAME WILL BE
FURNISHED WITHOUT CHARGE TO THE HOLDER OF RECORD OF THIS CERTIFICATE
UPON REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS.
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING
AGREEMENT, ENTERED INTO AS OF, 1998, A COUNTERPART OF WHICH HAS BEEN
DEPOSITED WITH THE COMPANY AT ITS PRINCIPAL OFFICE."
SECTION III.2 REPRESENTATIONS AND WARRANTIES OF TANOX. Tanox represents and
warrants to the Sellers that the statements contained in this Section III.2 are
true, correct
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<PAGE>
and complete as of the date of this Agreement and as of the date of the closing
for any Suspended Shares.
(A) Organization of Tanox. Tanox is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction
of its incorporation.
(B) Authorization of Transaction. Tanox has full power and authority
to execute and deliver t is Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of Tanox, enforceable in accordance with its terms and
conditions. Tanox need not give any notice to, make any f ling with, or
obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by
this agreement.
(C) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Tanox is subject or any
provision of its charter or bylaws or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of or,
right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other
arrangement to which Tanox is a party or by which it is bound.
(D) Brokers' Fees. Tanox has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Sellers could
become liable or obligated.
(E) Investment Tanox is not acquiring the Company Shares with a view
to or for sale in connection with any distribution thereof within the
meaning of the Securities Act or wit the intention of effecting any sale or
transfer thereof in contravention of any applicable laws, rules or
regulations of The Netherlands.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
ONCERNING THE COMPANY
For the benefit and with full authority of all Sellers, and with all
Sellers agreeing to be bound thereby, M. de Boer and J.W. Larrick, jointly and
severally, represent and : warrant to Tanox that the s1atements contained in
this Article IV are true, correct and complete as of the date of this Agreement
and as of the date of the Closing for any Suspended Shares, except a set forth
in the disclosure schedule arranged in paragraphs corresponding to the numbered
Sections contained in this Article IV and attached hereto (the "Disclosure
Schedule").
(A) Organization, Qualification, and Corporate Power. The Company is a
13
<PAGE>
private limited liability company duly organized and validly existing under
the laws of the jurisdiction of its incorporation. The Company has full
corporate power and authority and all licenses, permits, and authorizations
necessary to carry on the businesses in which it is engaged and in which it
presently proposes to engage and to own and use the properties owned and
used by it. M. de Boer is the managing director of the Company and there
are no other directors and officers of the Company, except for J.W. Larrick
(President of the Company) and J.S. Price who occupy informal positions as
a board of directors or business advisors to the Company. The Sellers have
delivered to Tanox correct and complete copies of the articles of
association of the Company (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors), and the register
of shareholders of the Company are correct and complete (following
inclusion in the minute books of a resolution ratifying issuance of Company
Shares to Andries de Nooij B.V. and inclusion in the register of
Shareholders the names of the Sellers which have exercised options
immediately preceding this transaction). The Company is not in default
under or in violation of any provision of its articles of association.
(B) Capitalization. At Closing, the entire authorized capital stock of
the Company consists of 2,000,000 Company Shares, of which 466, 164 Company
Shares are issued and outstanding. All of the issued and outstanding
Company Shares are now duly authorized, validly issued, fully paid, and are
held of record and beneficially by the Sellers. Following the exercise of
options concurrently with this transaction, there remain no outstanding or
authorized options, warrants, subscription rights, or other contracts or
commitments that could require the Company to issue, sell, or otherwise
cause to become outstanding any of its capital stock. There are no other
agreements or understandings with respect to the voting of the capital
stock of the Company.
(C) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Company is subject
or any provision of the articles of association of the Company or (ii)
except as set forth on the Disclosure Schedule relating to certain grant or
subsidiary funding, conflict with, result in a breach of, constitute a
default under, result in the acceleration of or right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which the
Company is a party or by which it is bound. The Company need not give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties
to consummate the transactions contemplated by this Agreement, although
notices are required in connection with agreements relating to certain of
the R&D Programs as disclosed on the Disclosure Schedule.
(D) Brokers' Fees. The Company has no Liability or obligation to pay
any
14
<PAGE>
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(E) Financial Statements. Attached hereto as Exhibit E are the most
current financial statements (collectively the "Financial Statements") for
the Company. The Financial Statements (including the notes thereto) have
been prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby, present fairly the financial
condition of the Company as of such dates and the results of operations of
the Company for such periods, are correct and complete, and are consistent
with the books and records of the Company (which books and records are
correct and complete); provided, however, that they may be subject to
normal year-end adjustments (which will not be material individually or in
the aggregate).
(F) Title to Assets; Business. The Company owns the furniture,
equipment and other properties used in its business free and clear of any
Security Interests or other encumbrances and is not in default under any
leases covering its facilities, all as shown on its Financial Statements.
Sellers have fairly described the R&D Programs and their current status to
Tanox and the Contingencies accurately reflect the material issues
associated with such R&D Programs.
(G) Subsidiaries. The Company has no Subsidiaries. The Company owns a
one-third interest in Upither B.V., a company formed jointly with FVM-UU
(which owns a two-thirds interest).
(H) Events Subsequent to Financial Statements. Except as set forth on
the Disclosure Schedule, since the date of the Financial Statements there
has not been any material adverse change in the business, financial
condition, operations, results of operations, or future prospects of the
Company.
(I) Undisclosed Liabilities. The Company has no Liabilities or
possible Liabilities which are known, except for (i) Liabilities set forth
on the face of the Financial Statements or which may have arisen in the
ordinary course of business since the date of the Financial Statements,
(ii) Liabilities which could result from or relate to the Contingencies and
(iii) Liabilities which may arise under the material contracts and
agreements disclosed in Section IV(N) below.
(J) Legal Compliance. The Company has complied with all applicable
laws to which it is subject, and no actions, proceedings or investigations
of any nature have been commenced against the Company alleging any failure
so to comply.
(K) Tax Matters. The Company has filed all Tax Returns that it is
required to file (and no extension of time to file is in effect) and all
Taxes owed have been paid. All such Tax Returns are correct and complete in
all respects and there is no reason for any claims or disputes to be
asserted by any taxing authority. The Company has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party. The Sellers have delivered to
15
<PAGE>
Tanox correct and complete copies of all Tax Returns, and any documents or
correspondence relating thereto. There will be no liability for Taxes
incurred by Tanox as a result of this transaction except for a 1% capital
tax owed by the Company as a result of the exercise by certain Sellers of
their respective options as of the date of this Agreement. The Tax Returns
delivered to Tanox disclose the following information with respect to the
Company as of their respective dates: (i) the basis of the Company in its
assets and (ii) the amount of any net operating loss, net capital loss,
unused investment or other credit, or unused foreign taxes.
(L) Real Property. The Company owns no real property. The Sellers have
delivered to Tanox correct and complete copies of all leases and subleases
for all real property leased or subleased to the Company. With respect to
each lease and sublease delivered to Tanox, there are no disputes or oral
agreements among, or defaults of any party to, such leases or subleases.
All facilities leased or subleased thereunder have received all approvals
of governmental authorities (including licenses and permits) required in
connection with the operation thereof and have been operated and maintained
in accordance with applicable laws, rules, and regulations.
(M) Intellectual Property.
(a) As disclosed to Tanox in writing prior to the Closing Date, the
Company owns or has the right to use pursuant to license, sublicense,
agreement, or permission all Intellectual Property necessary to pursue the
R&D Programs as presently conducted and as presently proposed to be
conducted. Each item of Intellectual Property owned or used by the Company
immediately prior to the Closing will be owned or available for use by the
Company on identical terms and conditions immediately subsequent to the
Closing. The Company has taken reasonable actions to maintain and protect
each item of Intellectual Property that it owns or uses.
(b) As disclosed to Tanox prior to the Closing Date, Sellers are aware
of certain material Intellectual Property rights of third parties which
could adversely affect the Company's ability to pursue the R&D Programs and
commercialize any resulting products or technologies. None of the Sellers
of the Company has ever received any complaint, claim, demand, or notice
alleging any opposition, interference, infringement, misappropriation, or
violation (including any claim that the Company must license or refrain
from using any Intellectual Property rights of any third party), except as
disclosed in writing to Tanox prior to the Closing Date or included in the
Contingencies. The Sellers are not aware that any third party has
interfered with, infringed Upon, misappropriated, or otherwise come into
conflict with any Intellectual Property rights of the Company.
(c) The Disclosure Schedule identifies each patent and each pending
patent application which has been issued or which the Company has submitted
with respect to any of its Intellectual Property, and identifies under
Section IV (N) each license, collaboration agreement, or other consent
which the Company has granted to or received from any third party with
respect to Intellectual Property (excluding any confidentiality and
material transfer agreements made available to Tanox for review prior to
the Closing Date). The Sellers have delivered to Tanox
16
<PAGE>
correct and complete copies of all such patents, registrations,
applications, licenses, agreements, and permissions (as amended to date)
and has made available to Tanox correct and complete copies of all other
written documentation evidencing ownership and prosecution (if applicable)
of each such item. The Disclosure Schedule also identifies each trade name
or unregistered trademark used by the Company in connection with its
businesses. Sellers have disclosed in writing to Tanox prior to the Closing
Date all material facts and circumstances of which they are aware which
would adversely affect either the Intellectual Property of the Company or
its R&D Programs.
(N) Contracts. Except as disclosed in this Agreement or listed on the
Disclosure Schedule, there are no other material contracts and agreements
to which the Company is a party, excluding employment, confidentiality and
material transfer agreements entered into the normal course of the
Company's business, which have been provided to Tanox for review and which
Sellers represent and warrant will have no material adverse effect on the
R&D Programs or Intellectual Property of the Company. With respect to all
agreements of the Company, except as may be contemplated by the
Contingencies, Sellers are aware of no breach or default by any p-arty, and
no event has occurred which with notice or lapse of time would constitute a
breach or default, or permit termination, modification, or acceleration,
under the agreements, and no party has repudiated any provision of any of
the agreements except for such of the foregoing circumstances which have
been disclosed in writing to Tanox.
(O) Notes and Accounts Receivable. All notes and accounts receivable
of the Company are reflected properly on the Financial Statements and on
its books and records, are valid receivables subject to no material setoffs
or counterclaims, are current and collectible, and will be collected in
accordance with their terms at their recorded amounts.
(P) Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
(Q) Insurance. The Disclosure Schedule sets forth the following
information with respect to each insurance policy (including policies
providing property, casualty , liability , and workers' compensation
coverage) to which the Company has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past two
years:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policy holder, and the
name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage was on
a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(e) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
17
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With respect to each such insurance policy: (i) the policy is in full force
and effect; and will continue on identical terms until renewal is required
according to its terms; and (ii) neither the Company (whether or not known
to the other party) nor any other party to the policy is in breach or
default under the policy.
(R) Litigation. There is no litigation or existing or potential claims
or disputes of which Sellers are aware, except as may have been disclosed
in the Contingencies, whether with a governmental or administrative agency
or other third party. The Company has fulfilled or can timely fulfill all
of its contractual obligations under research and other contracts with
third parties, except as otherwise stated on the Disclosure Schedule.
(S) Research Product Liability. The Company has no Liability (and
Sellers are not aware of any reason for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand
against the Company or Sellers giving rise to any Liability) arisil:1g out
of any injury to individuals or property as a result of any research
conducted for third parties or the ownership, possession, or use of any
product manufactured, sold, leased, or delivered by the Company.
(T) Employees. The Sellers are not aware that any key employee has any
plans to terminate employment with the Company. The Company is not a party,
to or bound by any collective bargaining agreement, nor has the Company
experienced any collective bargaining disputes of any nature. The Company
has not committed any unfair labor practice. None of the Sellers is aware
of any organizational effort presently being made or threatened by or on
behalf of any labor union with respect to employees of the Company.
(U) Employee Benefits. The Disclosure Schedule lists each Employee
Benefit Plan that the Company maintains or to which the Company
contributes. Each such Employee Benefit Plan complies with and has been
maintained in all respects in accordance with the applicable requirements
of any applicable law or regulation and all required contributions have
been made. The Sellers have delivered to Tanox correct and complete copies
of the plan documents, including all agreements or documents related to the
plan, summary plan descriptions and the most recent correspondence and
reports received from or filed with applicable governmental authorities.
(V) Guaranties. The Company is not a guarantor or otherwise liable for
any Liability or obligation (including indebtedness) of any other Person,
including the Sellers.
(W) Environment, Health, and Safety. The Company has complied with any
and all applicable environmental, health, and safety laws, rules and
regulations relating to its business or covering its employees.
(X) Certain Business Relationships with the Company. Except for
agreements evidencing employment and consulting relationships with the i
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<PAGE>
Company which have been provided to Tanox prior to the Closing Date and any
other arrangements or relationships disclosed in the Disclosure Schedule,
none of the Sellers has been involved in any business arrangement or
relationship with the Company within the past 12 months, and none of the
Sellers or any of their Affiliates owns any asset, tangible or intangible,
which is used in the business of the Company.
(Y) Disclosure. The representations and warranties contained in this
Article IV do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Article IV not misleading.
ARTICLE V
PRE-CLOSING ACTIVITIES
Prior to the execution of this Agreement, the Parties have completed the
following necessary activities and/or operated in accordance with the following
from the date of the Financial Statements.
(A) Notices; Consents; Etc. The Sellers and/or the Company, as
appropriate, have given any notices to third parties, and obtained any
third-party consents, authorizations or approvals that are necessary or
reasonably requested by Tanox in connection with this transaction and any
matters specifically referenced in this Agreement, including any from
governmental agencies. Without limiting the generality of the foregoing,
each of the Parties have filed (and the Sellers will cause the Company to
file) any reports or other filings that it may be required or advisable to
file with any applicable governmental authority regarding the transactions
contemplated by this Agreement.
(B) Business Activities. The Sellers have not permitted the Company to
engage in any practice, take any action, or enter into any transaction
outside the normal activities required to maintain and preserve the R&D
Programs and other business of the Company.
(C) Closing Preparations. The Sellers have accomplished all actions
necessary to assure that the representations and warranties are true and
correct and all activities necessary to the Closing are completed,
including, without limitation, the exercise by certain Sellers of options
for depository receipts issued by the Foundation Trust Office PanGenetics
8. V. ("FTO-PG") and subsequent dissolution of FTO-PG and delivery to such
Sellers, respectively, of the Company Shares due them upon such
dissolution.
(D) Resignations. Tanox has received the resignations, effective as of
the Closing, of Sellers from all positions they hold with the Company other
than those as employees under their respective employment agreements or as
otherwise required by Tanox to be continued, as specified in this Agreement
or in writing prior to the Closing.
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<PAGE>
ARTICLE VI
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing.
(A) General. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each
of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor
under Section VII.2 below). The Sellers acknowledge and agree that from and
after the Closing Tanox will be entitled to possession of all documents,
books, records (including Tax records), agreements, and financial data of
any sort relating to the Company.
(B) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection
with (i) any transaction contemplated under this Agreement or (ii) any
fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or
prior to the Closing Date involving the Company, each of the Parties will
cooperate with it and its counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense,
all at the sole cost and expense of the contesting or defending Party
(unless the contesting or defending Party is entitled to indemnification
therefor under Section VII.2 below).
(C) Transition. Except as agreed by Tanox, the Sellers will not take
any action that is designed or intended to have the effect of discouraging
any lessor, licensor, customer, vendor, supplier, or other business
associate of the Company from maintaining the same business relationships
with the Company after the Closing as it maintained with the Company prior
to the Closing.
(D) Confidentiality. The Sellers will treat and hold as such all of
the Confidential Information, refrain from using any of the Confidential
Information except in connection with their continuing duties as employees,
consultants and/or collaborators to Tanox and/or the Company, and deliver
promptly to Tanox or the Company or destroy, at the request and option of
Tanox or the Company, all tangible embodiments (and all copies) of the
Confidential Information which are in its possession. In the event that the
Sellers are requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena,
civil investigative demand, or similar process) to disclose any
Confidential Information, the Sellers will notify Tanox or the Company
promptly of the request or requirement so that Tanox may seek an
appropriate protective order and/or take reasonable and lawful actions to
avoid or minimize the degree of
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<PAGE>
such disclosure or waive compliance with the provisions of this Section
VI.4. The foregoing provisions shall not apply to any Confidential
Information which was generally available to the public at the time of
disclosure.
(E) Covenant Not to Compete. For a period of five years from and after
the Closing Date, the Sellers will not develop any products or initiate any
scientific, technical or drug development programs directly competitive
with any of the Company's active projects; provided, however, that
ownership of less than 1% of the outstanding stock of any publicly traded
corporation shall riot be deemed to engage solely by reason thereof in any
of its businesses. If the final judgment of a court of competent
jurisdiction declares that any term or provision of this Section VI.(E) is
invalid or unenforceable, the Parties agree that the court making the
determination of validity , or unenforceability shall have the power to
reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term
or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as
so modified after the expiration of the time within which the judgment may
be appealed.
ARTICLE VII
REMEDIES FOR BREACHES OF THIS AGREEMENT
SECTION VII.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Closing hereunder and continue in full force and effect thereafter
until the expiration of 36 months following the Closing Date. Except as
otherwise provided in Article VI and this Article VII the terms and conditions
of this Agreement will expire four (4) years following the date hereof .
SECTION VII.2 INDEMNIFICATION. In the event a Party breaches (or in the
event any third party alleges facts that, if found to be true, confirm that a
Party has breached) any of its representations, warranties, covenants, and other
obligations contained herein, then the breaching Party agrees to indemnify the
other Party from and against any Adverse Consequences the other Party may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the other Party may suffer after the end of any applicable
survival period but not including the Contingencies except to the extent any
Adverse Consequences resulting from the Contingencies exceed the Consideration
not yet delivered to Sellers, but in no case is it intended that such
indemnification exceed the total value of the Consideration) resulting from,
arising out of, relating to, in the nature of, or caused by the breach.
SECTION VII. 3 OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory I equitable, or common law remedy any Party may have for breach of
representation, warranty, or covenant. The Sellers jointly and severally agree
that they will not make any claim for indemnification against the Company by
reason of the fact that they were a stockholder, director, officer,
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employee, or agent of the Company or were serving at the request of the Company
as a partner, trustee, director, officer, employee, or agent of another entity
with respect to any action, suit, proceeding, complaint, claim, or demand
brought by Tanox against the Sellers.
ARTICLE VIII
MISCELLANEOUS
SECTION VIII.1 RESCISSION. On or before 90 days from the Closing Date
Tanox shall notify the Sellers pursuant to the provisions of Section VIII.7 of
any Adverse Consequences exceeding 500,000 USD that Tanox will experience as a
result of the Contingencies or from a breach of this Agreement by Sellers
occuring on or before 90 days from the Closing Date. If such Adverse
Consequences are not resolved to the mutual satisfaction of the Parties, Tanox
may elect to rescind this Agreement or recoup such Adverse Consequences as set
forth in Section II.4. In the event of rescission, Tanox shall give two business
days' notice to the Sellers. Upon the expiration of "such notice period, the
following shall occur, as applicable: (i) Tanox shall endorse and tender to the
Sellers stock certificates representing all Company Shares delivered, (ii) the
Sellers shall pay to Tanox the cash portion of the Total Consideration paid to
Sellers at the Closing, plus interest thereon which Tanox lost from the Closing
Date through the date of payment, (iii) Tanox Stock shall be canceled, and all
certificates returned by Sellers to Tanox, and (iv) the Parties shall use all
reasonable efforts and shall execute and deliver such other documentation as may
be necessary to effectuate the rescission of this Agreement and the transactions
contemplated thereby.
SECTION VIII.2 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Except for an
agreed press release which will be issued following the Closing Date, the
Sellers shall not issue any press release or make any public announcement
relating to the subject matter of this Agreement without the prior written
approval of Tanox.
SECTION VIII.3 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
SECTION VIII.4 ENTIRE AGREEMENT. This Agreement (including the agreements
and documents referred to herein) constitutes the entire agreement among the
Parties and supersedes any prior understandings, agreements, or representations
by or among the Parties, written or oral, to the extent they related in any way
to the subject matter hereof .
SECTION VIII.5 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors and
assigns.
SECTION VIII.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
SECTION VIII.7 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or
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<PAGE>
other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by, registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
IF TO THE SELLERS:
Jim Larrick AND Mark deBoer
2462 Wyandotte Street 1105 BE Amsterdam
Mountain View, CA 94043 The Netherlands
Fax: 415-694-7717 Fax: 011-31-20-4332317
IF TO TANOX:
Nancy Chang, President and CEO
Tanox Biosystems, Inc.
10301 Stella Link
Houston, Texas 77035
Fax: 713-664-8914
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary, mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the person or address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
SECTION VIII.9 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Texas without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Texas or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Texas. The courts in
Houston, Harris County, Texas shall have personal jurisdiction over the parties
hereto. If service of process cannot otherwise be effected, it is agreed that
the Secretary of State for the State of Texas shall be an agent of each of the
parties hereto to receive service of process.
SECTION VIII.10 AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
Tanox and the Sellers. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any, prior or subsequent default, misrepresentation, or
.breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
SECTION VIII.11 SEVERABILITY. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability, of the offending term or provision in
any other situation or in any other jurisdiction.
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SECTION VIII.12 EXPENSES. Each of the Parties and the Company will bear its
own costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby. The
Sellers agree that the Company has not borne or will not bear any of the
Sellers' costs and expenses (including any of their legal fees and expenses) in
connection with this Agreement or any of the transactions contemplated hereby.
SECTION VIII.13 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance.
SECTION VIII.14 INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
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<PAGE>
IN WITNESS WHEREOF. the Parties hereto have executed this Agreement as of
the date first above written.
SELLERS:
PanResources International N.V. TANOX BIOSYSTEMS, INC.
By:/s/ HERMAN J. BEHR By:__________________________
Name: HB Management N.V. Name:________________________
Title: Managing Director Title:_______________________
Andries de Nooij B.V. Managing Board of PanGenetics B.V
By:__________________________ _____________________________
M. de Boer, Ph.D.
Name:________________________ _____________________________
David Anderson
Title:_______________________
_____________________________
M. de Boer, Ph.D.
/s/ J.W. LARRICK
J.W. Larrick, M.D., Ph.D.
/s/ J.S. PRICE
J.S. Price, Ph.D.
/s/ R.F. BALINT
R.F. Balint, Ph.D.
_____________________________
M. T. den Hartog. Ph.D.
_____________________________
L Boon, Ph.D.
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<PAGE>
ANNEX I
LIST OF SELLERS AND SHARES PURCHASED
NAME SHARES % OWNERSHIP
- ---- ------- -----------
PanResources International N. V ...................... 200,000 42.904
Andries de Nooij B.V ................................. 21,164 4.540
M. de Boer ........................................... 10,000 2.145
J.W. Larrick ......................................... 20,000 4.290
J.S. Price ........................................... 10,000 2.145
R.F. Balint .......................................... 10,000 2.145
M. T den Hartog ...................................... 7,500 1.609
L. Boon .............................................. 7,500 1.609
------- -----------
Total ................................................ 286,164 6.387
<PAGE>
ANNEX 2
CONSIDERATION FOR BASIC TRANSACTION
NAME CASH* TANOX SHARES
---- ------- ------------
CLOSING DATE
PanResources International N.V 143011 51174
Andries de Nooij B. V 15134 20607
M. de Boer 7150 3246
J.W. Larrick 14301 6491
J.S. Price 7150 3246
R.F. Balint 7150 3246
M.T. den Hartog 5362 2434
L. Boon 5362 2434
204,620 92,878
18 MONTHS
PanResources International N.V 143011 71780
Andries de-Nooij B.V 15133
M. de Boer 7151 3246
J.W. Larrick 14301 6491
J.S. Price 7151 3246
R.F. Balint 7151 3246
M.T. den Hartog 5363 2434
L. Boon 5363 2434
204,624 92,877
36 MONTHS
PanResources International N.V 143011 71780
Andries de Nooij B.V 15133
M. de Boer 7151 3245
J.W. Larrick 14301 6491
J.S. Price 7151 3245
R.F. Balint 7151 3245
M.T. den Hartog 5364 2434
L. Boon 5364 2434
204,676 92,874
CONSIDERATION SUBJECT TO SUSPENSIVE CONDITION
NAME CASH* TANOX SHARES
---- ------- ------------
M.deBoer 386130 175260
*USD
<PAGE>
EXHIBIT A
Form of Voting Agreement
<PAGE>
VOTING AGREEMENT
This Voting Agreement ("Agreement") is entered into as of March ___, 1998
by and among PanResources International, Ltd.J Andries de Nooij B.V., M. de
Boer, J.W. Larrick, J.S. Price, R.F. Balint, M.T. den Hartog, and L. Boon
(hereinafter referred to as the "Share Recipients") and Nancy T. Chang
(collectively, Nancy T. Chang and the Share Recipients are referred to as
"Shareholders").
RECITALS:
Share Recipients have entered into an agreement ("Stock Purchase
Agreement") with Tanox Biosystems, Inc. (the "Company"), under which the Company
has acquired all of Share Recipients' shares of capital stock in PanGenetics, B.
V. for the consideration agreed in the Stock Purchase Agreement, which
consideration includes certain shares of the common stock of the Company.
Nancy T. Chang (sometimes referred to hereinafter as "Dr. Chang") is a
substantial shareholder of the Company and is also the Chairman of the Board of
the Company. Dr. Chang also is a party to certain other voting agreements and is
the trustee under certain voting trust agreements. It is the objective of the
Shareholders to vote their shares together to make more effective the Share
Recipients' participation in the election of directors of the Company and to
secure continuity and stability of policy and management of the Company by
uniting the Shareholders' voting power pursuant to their ownership of the common
stock of the Company.
All shares of common stock of the Company owned or held, legally or
beneficially, directly or indirectly, of record or otherwise, by the
Shareholders shall be collectively referred to herein as the "Stock". Any
additional shares of common stock or other voting securities of the Company
which may be owned, held or acquired in any manner, legally or beneficially,
directly or indirectly, of record or otherwise, by the Shareholders at any time
during the term of this Agreement, whether issued incident to the terms of the
Stock Purchase Agreement or through any stock split, reverse stock split stock,
dividend, increase in capitalization, recapitalization, merger, consolidation or
other reorganization or like transaction and received with respect to Stock then
subject to this Agreement, shall be included within the term "Stock" as used
herein and shall be subject to the terms of this Agreement.
In consideration of the premises, the mutual covenants and agreements
contained in this Agreement, and other good and valid consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. JOINT ACTION. During the term of this Agreement, all of the shares of
Stock subject to this Agreement shall be voted as a unit together with the
shares held by Nancy T. Chang for the election of Nancy T. Chang, or a
replacement designated by her, and such other persons as,may be nominated by the
Board of Directors or a
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nominating committee, as provided in the Bylaws of the Company, as directors of
the Company. Such persons are referred to herein singularly as a "Designated
Director" and collectively as the "Designated Directors" to reflect their status
as directors, if elected. The Share Recipients have each executed an irrevocable
proxy, incorporated herewith and attached hereto for execution as Attachment 1,
for purposes of implementing this Agreement and have appointed Nancy T. Chang
and/or a substitute identified therein as their attorney and agent to vote their
shares in accordance with this Agreement in all elections of directors so long
as this Agreement remains in effect.
2. DEATH. INCAPACITY. RESIGNATION OR REMOVAL OF DESIGNATED-DIRECTOR. In the
event of the death, incapacity, resignation or removal of any Designated
Director other than Dr. Chang, the vacancy on the Board of Directors created by
such event shall be filled by the Board of Directors in accordance with the
Company's Bylaws. In the event of the death, incapacity, or resignation of a
Designated Director of Dr. Chang, she shall be entitled to nominate a
replacement for her Designated Director and to fill any such vacancy at a
special meeting of the shareholders of the Company, called in accordance with
the Company's Bylaws.
3. ACCESS TO AGREEMENT. A copy of this Agreement and of every amendment or
supplement hereto shall be filed at the principal office of the Company in
Houston, Texas, and shall be open to inspection by any holder of Stock, in
person or by agent or attorney, daily during business hours, to the same extent
as such holder would be entitled to examine the books and records of the
Company. 4. Stock Certificates. During the term of this Agreement, each
certificate representing ownership of the Stock, and each certificate which may
be issued and delivered by the Company upon transfer of such certificate, shall
contain a legend in substantially the following form:
"THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING
AGREEMENT, ENTERED INTO AS OF MARCH I 1998, A COUNTERPART OF WHICH HAS
BEEN DEPOSITED WITH THE COMPANY AT ITS PRINCIPAL OFFICE."
The Company shall place the above legend on the Stock of the Share
Recipients' certificates prior to the issuance of such certificates. The Share
Recipients, for so long as this Agreement remains in effect, hereby constitute
and appoint the Company, and its duly authorized representative, as such Share
Recipients' attorney and agent, with authority to place the legend required
above on certificates issued or to be issued to the Share Recipients or to any
transferee of the Stock while this Agreement remains in effect, and to take such
other actions as may be required by the Company under the terms Of this
Agreement. The Company shall not be required to take any action unless and until
requested and authorized to do so in writing by each and all of the
Shareholders, if the Share Recipients shall notify the Company of its
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<PAGE>
objection to any actions otherwise to be taken by the Company pursuant hereto.
The Shareholders agree that they will indemnify and hold harmless the
Company and its directors, officers and other representatives (but only to the
extent they are acting in such capacity) from any claims, damages, expenses
(including attorney's fees) and other liabilities of any nature which may arise
out of or result from actions taken in good faith as authorized hereunder or
which may result from any such actions, including all costs and expenses
incurred by the Company in any proceeding which it may institute pursuant
hereto. The Company shall have the right, if desired, to institute appropriate
proceedings in any court of competent jurisdiction to determine the rights of
the Share Recipients hereunder.
6. TERM. This Agreement shall commence and be effective as of the date
specified on the signature page of this Agreement, and shall terminate on the
expiration of ten (10) years from such date; but this Agreement shall sooner
terminate upon (i) the written agreement of all of the Shareholders owning Stock
then subject to this Agreement; or (ii) the closing date on which any securities
of the Company are registered by the Company in an initial public offering under
the Securities Act of 1933, as amended ("IPO Transaction"). Upon the termination
of this Agreement, the Company shall be authorized to remove the legend required
above from the Stock.
7. NOTICES. Any notice required or permitted to be given under this
Agreement shall be given in writing and shall be deemed effectively given upon
delivery , by personal or private service with appropriate record of delivery,
to the party to be notified, upon deposit with the United States Post Office, by
first class mail, postage prepaid and addressed to the party to be notified at
the address indicated for such party below or upon delivery by fax transmittal
to the fax number for such party below, or at such other address or fax number
as a party, including the Share Recipients, may designate by ten (10) days'
advance written notice to the other party.
Nancy T. Chang:
c/o Tanox Biosystems, Inc.
10301 Stella Link
Houston, Texas 77025
Fax No: 713-664-8914
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<PAGE>
Share Recipients:
Jim Larrick and Mark de Boer
2462 Wyandotte Street 1105 BE Amsterdam
Mountain View, CA 94043 The Netherlands
Fax: 650-694-7717 Fax: 011-31-20-434-2317
Notice shall be deemed effectively received (i) five (5) business days after
deposit properly addressed, with the United States Post Office, if sent first
class mail, postage prepaid, (ii) as of the date delivery is acknowledged by
appropriate record, if sent by express mail (public or private service),
telegram or fax or other similar communication, or (iii) when receipt is
otherwise indicated by the receiving party to the noticing party by
correspondence, fax or other reasonable communication.
8. INCONSISTENCIES. The provisions of this Agreement shall control in the
event that there is an inconsistency between this agreement and any other
instrument or document by which all the parties hereto are bound.
9. SUCCESSORS. This Agreement and any power of attorney granted by Share
Recipients hereunder, shall be binding upon and inure to the benefit of the
heirs, executors, administrators, successors and assigns of the Shareholders.
Reference to "Share Recipients" or "Shareholders" hereunder shall include any
such successor upon the effectiveness of such transfer. If any Share Recipient
transfers or assigns the Stock, he shall notify the Company and the other
Shareholders of such transfer at least thirty (30) days prior to the date
thereof. The Company shall have the right to require any personal
representative, transferee, successor, or assignee of the Share Recipients to
acknowledge and agree in writing that any such shares of the Stock transferred
are subject to all of the terms and conditions of this Agreement prior to
issuing a share certificate(s) to any such personal representative, transferee,
successor, or assignee.
10. ENFORCEABILITY. The Share Recipients agree that this Agreement shall be
specifically enforceable in a court of competent jurisdiction, which remedy
shall be in addition to any other remedies that may be available at law or in
equity.
II. APPLICABLE LAW. The laws of the State of Texas will govern the
interpretation, validity and effect of this Agreement without regard to the
place of execution or the place of performance thereof, and the courts in
Houston, Harris County, Texas shall have personal jurisdiction over the parties
hereto. If service of process cannot otherwise be effected, it is agreed that
the Secretary of State for the State of Texas shall be an agent of each of the
parties hereto to receive service of process.
12. SEVERABILITY. If a court of competent jurisdiction shall adjudge to be
invalid any clause, sentence, subparagraph or section of this Agreement, such
judgment or decree shall not affect, impair, invalidate or nullify the remainder
of this Agreement, but
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<PAGE>
the effect thereof shall be confined to the clause, sentence, subparagraph,
paragraph or section so adjudged to be invalid.
13. AMENDMENT OF AGREEMENT. This Agreement may be changed, modified or
amended by a written instrument signed by all of the Shareholders.
14. PARAGRAPH HEADINGS. The paragraph heading in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15. NUMBERS AND GENDER. When required by the context, each number (singular
or plural) shall include all numbers and each gender shall include all genders.
16. COUNTERPARTS. This Agreement is being executed in multiple
counterparts, all of which taken together shall constitute one and the same
instrument.
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<PAGE>
IN WITNESS WHEREOF, the Shareholders have executed this Agreement as of the
date set forth above.
_______________________________ Share Recipients:
Nancy T. Chang
PanResources International Ltd.
By:____________________________
Name:__________________________
Title:_________________________
Andries de Nooij B.V.
By:____________________________
Name:__________________________
Title:_________________________
_______________________________
J.W. Larrick, M.D., Ph.D.
_______________________________
J.S. Price, Ph.D.
_______________________________
R.F. Balint, Ph.D.
_______________________________
M.T. den Hartog, Ph.D.
_______________________________
L. Boon, Ph.D.
6
<PAGE>
Deposit of a counterpart of this Agreement with the Company is hereby
acknowledged this ___day of March, 1998.
TANOX BIOSYSTEMS, INC.
By:_________________
John Blickenstaff,
Vice President and Secretary
7
<PAGE>
ATTACHMENT 1 -TO BE EXECUTED
WITH VOTING AGREEMENT
TANOX BIOSYSTEMS, INC.
Irrevocable Proxy
Effective as of the date of that certain Voting Agreement to which this
irrevocable proxy is attached, the undersigned hereby irrevocably appoints Nancy
T. Chang and any substitute or substitutes which she may designate, to be the
attorney-in-fact and proxy of the undersigned at all meetings of the
shareholders of Tanox Biosystems, Inc. or any adjournment thereof. Nancy T.
Chang and any substitute or substitutes which she may designate, are hereby
empowered to vote at such meetings all shares of common stock of Tanox
Biosystems, Inc. held by the undersigned, or any transferee thereof, which are
subject at the time of such vote to the Voting Agreement, for the election of
Designated Directors as determined under the Voting Agreement.
This proxy will not be voted on any other matters to come before the meetings of
the shareholders. This proxy is coupled with the interests of the above-named
proxy in the shares owned by the undersigned that are covered by the Voting
Agreement and is irrevocable so long as the shares for which such proxy is given
are subject to the Voting Agreement. This proxy shall terminate upon termination
of the Voting Agreement.
(Name of Stock Recipient)
PanResources International Ltd.
__________________________
By:____________________________ M. de Boer, Ph.D.
Name:__________________________ __________________________
J.W. Larrick, M.D., Ph.D.
Title:_________________________
__________________________
Andries de Nooij B.V. J.S. Price, Ph.D.
By:____________________________ __________________________
R.F. Balint, Ph.D.
Name:__________________________
__________________________
Title:_________________________ M.T. den Hartog, Ph.D.
__________________________
L. Boon, Ph.D.
<PAGE>
EXHIBIT B
Form of Notarial Deed of Transfer
<PAGE>
DEED OF TRANSFER OF SHARES
PANGENETICS B.V.
Today, the tenth of March nineteen hundred and ninety-eight, appear before me,
Jan Bouwen de Snaijer, civil law notary, practising in Amsterdam:
1. Martijn Adriaan Cysouw, candidate civil law notary, residing in 1076 BK
Amsterdam, Stadionkade 83, born in Sas van Gent on the sixth of November
nineteen hundred and sixty-three, unmarried, identified on the basis of
passport Kingdom of the Netherlands, number N248667l7, acting in this
matter as proxy of:
a. PANRESOURCES INTERNATIONAL N.V., a company established under the
laws of the Curacao with registered office at Curacao, new Haven
Office Center, Emancipatie Boulevard 31, and as such representing
this company, hereinafter referred to as: "PanResources";
b. JAMES WILLIAM LARRICK, scientist, residing in CA 94062 Woodside,
United States of America, Star Route Box 48, born in Denver
(Colorado) on the fourth of January nineteen hundred and fifty;
married, hereinafter referred to as: "Larrick";
c. the closed company with limited liability: ANDRIES DE NOOIJ B.V.,
with statutory seat in Amsterdam and offices in 1017 ED Amsterdam,
Keizersgracht 810 B, and as such representing this company,
hereinafter referred to as: "De Nooij";
d. JEFFREY STUART PRICE, scientist, residing in 859 Balra frive, El l
Cerrito, CA 94530, United States of America, born in Michigan on
<PAGE>
2
the second of October nineteen hundred and forty-two, unmarried,
hereinafter referred to as: "Price";
e. LOUIS BOON, project manager, residing in 1069 NJ Amsterdam,
Sandinostraat 9, born in Amsterdam on the fifteenth of April
nineteen hundred and sixty-three, married, hereinafter referred to
as: "Boon";
f. MARCEL THEODORUS DEN HARTOG, scientist, residing in 1411 WN
Monnickendam, Jan Persijn 134, born in Amsterdam on the
twenty-third of February nineteen hundred and sixty-five,
unmarried, hereinafter referred to as: "Den Hartog";
g. ROBERT FREDERICK BALINT, scientist, residing in 4003 Scripps
Avenue, Palo Alto, CA 94306, United States of America, born in New
Jersey on the twenty-seventh of July nineteen hundred and
forty-seven, married, hereinafter referred to as: "Balint";
h. the Foundation: STICHTING ADMINISTRATIEKANTOOR PANGENETICS, with
statutory seat in Amsterdam and offices in 1105 BE
Amsterdam-Zuidoost, Paasheuvelweg 15, and as such representing
this company, hereinafter referred to as: "StAk";
i. TANOX BIOSYSTEMS, INC., a company established under the laws of
the State Texas, United States of America, with registered office
in Houston, Texas, United States of America, TX77025, 10301 Stella
Link, and as such representing this company, hereinafter referred
to as: "Transferee";
2. MARK DE BOER, managing director, residing in 1261 BT Blaricum, Naarderweg
20, born in Ajax (Canada) on the twenty-eighth of January nineteen
hundred and sixty, married, identified on the basis of passport European
Union, Kingdom of the Netherlands number N30538225, acting in this
matter:
a. in private, hereinafter referred to as: "De Boer";
b. as managing director of the closed company with limited liability:
<PAGE>
3
PANGENETICS B.V., with statutory seat in Heemskerk and offices in
1105 BE Amsterdam-Zuidoost, Paasheuvelweg 15., and as such, after
having been designated therefor by the general meeting of
shareholders, representing this company., hereinafter referred to
as: "the Company"
PanResources, Larrick, De Nooij, Price, Boon, Den Hartog, Balint en De
Boer together hereinafter referred to as: "Transferors";
THE APPEARERS, acting in their aforementioned capacities, CONSIDER THAT:
i. PanResources is holder of the shares, mentioned in article 1.1, these
shares hereinafter referred to as: "the PanResources Shares";
ii. Larrick is holder of the shares, mentioned in article 1.2, these shares
hereinafter referred to as: "the Larrick Shares";
iii. De Boer is holder of the shares, mentioned in article 1.3, these shares
hereinafter referred to as: "the De Boer Shares";
iv. De Nooij is holder of the shares, mentioned in article 1.4, these shares
hereinafter referred to as: "the De Nooij Shares";
v. Price is holder of the shares, mentioned in article 1.5, these shares
hereinafter referred to as: "the Price Shares";
vi. Boon is holder of the shares, mentioned in article 1.6, these shares
hereinafter referred to as: "the Boon Shares";
vii. Den Hartog is holder of the shares, mentioned in article 1.7, these
shares hereinafter referred to as: "the Den Hartog Shares";
viii. Balint is holder of the shares, mentioned in article 1.8, these shares
hereinafter referred to as: "the Balint Shares";
ix. the PanResources Shares, the Larrick Shares, the De Boer Shares, the De
Nooij Shares, the Price Shares, the Boon Shares, the Den Hartog Shares
and the Balint Shares together, hereinafter referred to as: "the Shares";
x. according to a purchase and sale agreement dated the tenth of March
nineteen hundred and ninety-eight Transferors sold the Shares to
Transferee, who purchased the Shares from Transferors, this agreement
hereinafter
<PAGE>
4
referred to as: "the Agreement";
xi. pursuant to the Agreement, Transferors are obliged to transfer the Shares
to Transferee,
and subsequently DECLARE the following:
TRANSFER OF THE SHARES
ARTICLE 1.
1.1 Pursuant to the Agreement PanResources transfers to Transferee, who
accepts from PanResources, two hundred thousand (200,000) shares in the
share capital of the Company, numbered 180,001 up to and including
380,000, each having a nominal value often Netherlands cents (NLG 0.10),
which shares are registered in name of PanResources
1.2 Pursuant to the Agreement Larrick transfers to Transferee, who accepts
from Larrick, twenty thousand (20,000) shares in the share capital of the
Company, numbered 380,001 up to and including 400,000, each having a
nominal value of ten Netherlands cents (NLG 0.10), which shares are
registered in name of Larrick
1.3 Pursuant to the Agreement De Boer transfers to Transferee, who accepts
from De Boer one hundred ninety thousand (190,000) shares in the share
capital of the Company, numbered 1 up to and including 180,000 and
421,165 up to and including 431,164, each having a nominal value of ten
Netherlands cents (NLG 0.10), which shares are registered in name of De
Boer
1.4 Pursuant to the Agreement De Nooij transfers to Transferee, who accepts
from De Nooij twenty-one thousand one hundred sixty-four (21,164) shares
in the share capital of the Company, numbered 400,001 up to and including
421,164, each having a nominal value often Netherlands cents (NLG 0.10),
which shares are registered in name of De Nooij
1.5 Pursuant to the Agreement Price transfers to Transferee, who accepts from
Price ten thousand ( 10,000) shares in the share capital of the Company,
numbered 456,165 up to and including 466,164, which shares are registered
<PAGE>
5
in name of Price
1.6 Pursuant to the Agreement Boon transfers to Transferee, who accepts from
Boon seven thousand five hundred (7,500) shares in the share capital of
the Company, numbered 431,165 up to and including 438,664, which shares
are registered in name of Boon
1.7 Pursuant to the Agreement Den Hartog transfers to Transferee, who accepts
from Den Hartog seven thousand five hundred (7,500) shares in the share
capital of the Company, numbered 438,665 up to and including 446,164,
which shares are registered in name of Den Hartog
1.8 Pursuant to the Agreement Balint transfers to Transferee, who accepts
from Balint ten thousand (10,000) shares in the share capital of the
Company, numbered 446,165 up to and including 456,164, which shares are
registered in name of Balint
ACQUISITION OF SHARES BY TRANSFERORS
ARTICLE 2.
2.1 PanResources - at that time named PanResources International Limited, of
which company the seat was transferred to Cura9ao under the name
PanResources International N.V., approved tl1rough resolution of the
Ministry of Justice dated the ninth of March nineteen hundred and ninety-
eight -acquired the PanResources Shares as a result of purchase, sale and
transfer by notarial deed executed on the eighth of January nineteen
hundred and ninety-seven by J.B. de Snaijer, civil law notary, practising
in Amsterdam, in which deed (i) full discharge for the payment of the
purchase price is granted and (ii) the right to dissolve the agreement
according to the provisions of article 6:265 of the Netherlands Civil
Code is waived
2.2 Larrick acquired the Larrick Shares as a result of issue of the Larrick
Shares by the Company and subscription thereto by Larrick at the
incorporation of the Company by deed executed on the nineteenth of May
nineteen hundred and ninety-five by J. Karstens, civil law notary,
practising in Leiden
2.3 De Boer acquired the De Boer Shares as follows:
<PAGE>
6
a. one hundred eighty thousand ( 180,000) shares, numbered 1 up to
and including 180,000 as a result of issue of these shares by the
Company and subscription thereto by De Boer at the incorporation
of the Company by deed executed on the nineteenth of May nineteen
hundred and ninety-five by J. Karstens, aforementioned;
b. ten thousand (10,000) shares, numbered 421,165 up to and including
421,164 as a result of transfer by way of decertification by
notarial deed executed on the tenth of March nineteen hundred and
ninety- eight by J.B. de Snaijer, civil law notary, practising in
Amsterdam, in which deed (i) full discharge for custody of these
shares is granted and (ii) the right to dissolve the agreement
according to the provisions of article 6:265 of the Netherlands
Civil Code is waived.
2.4 De Nooij acquired the De Nooij Shares as a result of issue of the De
Nooij Shares by the Company and subscription thereto by De Nooij on the
twenty- seventh of August nineteen hundred and ninety-six pursuant to a
resolution of the general meeting of shareholders of the Company ,
evidenced by deed of issue executed on the twenty-seventh of August
nineteen hundred and ninety-six by J.B. de Snaijer, aforementioned
2.5 Price acquired the Price Shares as a result of transfer by way of
decertification ("levering ten titel van beeindiging beheer") by notarial
deed executed on the tenth of March nineteen hundred and ninety-eight by
J.B. de Snaijer, civil law notary, practising in Amsterdam, in which deed
(i) full discharge for custody of the Price Shares is granted and (ii)
the right to dissolve the agreement according to the provisions of
article 6:265 of the Netherlands Civil Code is waived
2.6 Boon acquired the Boon Shares as a result of transfer by way of
decertification ("levering ten titel van beeindiging beheer") by notarial
deed executed on the tenth of March nineteen hundred and ninety-eight by
J.B. de Snaijer, civil law notary , practising in Amsterdam, in which
deed (i) full discharge for custody of the Boon Shares is granted and
(ii) the right to
<PAGE>
7
dissolve the agreement according to the provisions of article 6:265 of
the Netherlands Civil Code is waived
2.7 Den Hartog acquired the Den Hartog Shares as a result of transfer by way
of decertification ("levering ten titel van beeindiging beheer") by
notarial deed executed on the tenth of March nineteen hundred and
ninety-eight by J.B. de Snaijer, civil law notary, practising in
Amsterdam, in which deed (i) full discharge for custody of the Den Hartog
Shares is granted and (ii) the right to dissolve the agreement according
to the provisions of article 6:265 of the Netherlands Civil Code is
waived
2.8 Balint acquired the Balint Shares as a result of- transfer by way of
decertification ("levering ten titel van beeindiging beheer") by notarial
deed executed on the tenth of March nineteen hundred and ninety-eight by
J.B. de Snaijer, civil law notary, practising in Amsterdam, in which deed
(i) full discharge for custody of the Balint Shares is granted and (ii)
the right to dissolve the agreement according to the provisions of
article 6:265 of the Netherlands Civil Code is waived
PURCHASE PRICE.
ARTICLE 3.
3.1 The purchase price of the Shares as well as the manner of payment thereof
have been inserted in the Agreement"
3.2 A part of the purchase price being an amount of two hundred sixty-six
thousand six hundred sixty-seven United States dollars (US$ 266,667) was
paid to Transferors. Transferors grant full discharge to Transferee for
payment of the amount mentioned in the preceding sentence.
REPRESENTATION TRANSFERORS
ARTICLE 4.
Without prejudice to the representations mentioned in the Agreement, each of
Transferors represents to Transferee to which he transferred the shares that:
a. he is fully authorised to sell and transfer the shares;
b. no option rights or other rights of third parties to demand transfer of
the
<PAGE>
8
shares exist;
c. none of the shares is subject to a right of pledge or any other right; no
one may demand that such right shall be vested;
d. none of the shares is subject to seizure (in Dutch: "beslag");
e. all shares have been paid up in full.
RESTRICTIONS ON THE TRANSFER OF SHARES
ARTICLE 5
Pursuant to the provisions of article 12 paragrapll16 of the articles of
association of the Company Transferors herewith declare that the restrictions on
the transfer of shares as laid down in the articles of association of the
Company do not apply to the present transfers of the Shares.
ACKNOWLEDGEMENT
ARTICLE 6.
The Company acknowledges the transfers of the Shares according to this deed
COSTS.
ARTICLE 7.
The costs of this deed shall be borne by the Company.
ARTICLE 2:204C NETHERLANDS CIVIL CODE.
ARTICLE 8
The provisions of article 2:204c of the Netherlands Civil Code do not apply to
the Agreement, as Transferee is not a Netherlands company
GOVERNING LAW.
ARTICLE 9.
This agreement shall be governed by the laws of the Netherlands
To this deed has been attached a copy of the Agreement.
The proxies to the appearers sub 1a, 1b, 1c and 1i are evidenced by four non
notarial instruments, which are attached to this deed, The proxies to the
appearer sub 1d, 1e, 1f, 1g and 1h are evidenced by five non notarial
instruments, which are attached to four deeds of issue of (certified depositary
receipts for) shares, executed today, before me, notary. The existence of the
proxies is sufficiently evidenced to
<PAGE>
9
me, notary
This deed is executed in Amsterdam on the date shown at the head hereof.
After the substance of this deed has been stated to the appearers, they
unanimously declared to have noted its contents and not to insist on it being
read out in full Immediately after those parts of the deed that the law requires
to be read out have been read out, this deed is signed by the appearers, who are
known to me, notary, and by me, notary
<PAGE>
EXHIBIT C
Articles of Association
<PAGE>
** B.V.
--------------------
C O N T E N T S
---------------
Article 1 Name. Corporate Seat.
Article 2 Objects.
Article 3 Share capital and shares.
Article 4 Issue of shares.
Article 5 Payment for shares.
Article 6 Repurchase and disposal of shares.
Article 7 Shareholders register.
Article 8 Notices of meetings and notifications.
Article 9 Transfer of shares.
Article 10 Restrictions on the transfer of shares.
Article 11 Management.
Article 12 Resolutions of the managing board.
Article 13 Representation. Authorised signatories.
Article 14 General meetings.
Article l5 Voting rights of shareholders.
Article 16 Financial year. Annual accounts.
Article 17 Auditor.
Article 18 Profit and loss.
Article 19 Distribution of profits.
Article 20 Liquidation.
Article 21 Transitional provision.
<PAGE>
version
dated 3-3II/10-3-1998
emj/sh/wdh
F:\ONDWERK\EN\EN98\51445743.Z
on this day, the ** day of ** nineteen hundred and ninety-eight appears before
me, Francois Diederik Rosendaal, notaris (civil law notary) in Rotterdam:
**
The person appearing declares that on ** nineteen hundred and ninety-eight the
general meeting of shareholders of Pan Genetics B.V., a private company with
limited liability, which corporate seat in Heemskerk, The Netherlands, and
address at: 1105 BE Amsterdam Zuidoost, The Netherlands, Paasheuvelweg 15,
resolved to amend the articles of association of this company and to authorise
the person appearing to execute this deed.
Pursuant to those resolutions the person appearing declares that she amends the
company's articles of association such that these shall read in full as follows
ARTICLES OF ASSOCIATION:
NAME. CORPORATE SEAT.
ARTICLE 1:
The name of the company is: ** B.V.
Its corporate seat is in Heemskerk (The Netherlands).
OBJECTS.
ARTICLE 2.
The objects of the company are:
a. to develop and manufacture medicines and patents on medicines and other
pharmaceutical products, as well as to buy and sell, and to import and
export of these
<PAGE>
2
products;
b. to co-operate, to take an interest in, to take over and/or to conduct the
management of and to finance other enterprises, to lend, to provide
security included mortgages and guarantees; and
b. to perform all activities which are incidental to or which i may be
conductive to any of the foregoing.
SHARE CAPITAL AND SHARES.
ARTICLE 3.
3.1. The authorised share capital of the company amounts to two hundred
thousand Dutch guilders (NLG 200,000). It is divided into two million
shares of ten cents {NLG 0.10) each.
3.2. The shares shall be in registered form and shall consecutively be
numbered from 1 onwards.
3.3. No share certificates shall be issued.
3.4. The company may make loans in respect of a subscription for or
acquisition of shares in its share capital up to an amount not exceeding
the amount of its distributable reserves. A resolution by the managing
board to make a loan as referred to in the preceding sentence shall be
subject to the approval of the general meeting of shareholders,
hereinafter also to be referred to as: the general meeting.
The company shall maintain a non-distributable reserve for an amount
equal to the outstanding amount of the loans as referred to in this
paragraph.
ISSUE OF SHARES.
ARTICLE 4.
4.1. Shares shall be issued pursuant to a resolution of the general meeting;
the general meeting shall determine the price and further terms and
conditions of the issue.
4.2. Shares shall never be issued at a price below par.
<PAGE>
3
4.3. Shares shall be issued by notarial deed, in accordance with the
provisions set out in section 2:196 of the civil Code.
4.4. Shareholders have no pre-emption rights upon issue of shares or upon a
grant of rights to subscribe for shares.
4.5. The company is not authorised to cooperate in the issue of depositary
receipts for shares.
PAYMENT FOR SHARES.
ARTICLE 5.
5.1. Shares shall only be issued against payment in full.
5.2. Payment must be made in cash, providing no alternative contribution has
been agreed.
5.3. Payment in cash may be made in a foreign currency, subject to the
company's consent.
REPURCHASE AND DISPOSAL OF SHARES.
ARTICLE 6.
6.1. Subject to authorisation by the general meeting, the managing board may
cause the company to acquire such number of fully paid up shares in its
own share capital for a consideration that the aggregate par value of the
shares in its share capital to be acquired and already held by the
company and its subsidiary companies does not exceed half the issued
share capital and without prejudice to the other provisions of the law in
respect thereof.
6.2. Article 4, paragraph 1, shall equally apply to the disposal 0(pound)
shares acquired in its share capital by the company. A resolution to
dispose of such shares shall be deemed to include the approval as
referred to in section 2=195, subsection 3 of the Civil Code.
SHAREHOLDERS REGISTER.
ARTICLE 7.
<PAGE>
4
7.1. The managing board shall maintain a shareholders register in accordance
with the requirements set for that purpose by law.
7.2. The managing board shall make the register available at the office of the
company for inspection by the shareholders
NOTICES OF MEETINGS AND NOTIFICATIONS.
ARTICLE 8.
8.1. Notices of meetings and notifications to shareholders shall be sent by
registered or regular letter to the addresses stated in the shareholders
register.
8.2. Notifications to the managing board 5hall be sent by registered or
regular letter to the office of the company or to the addresses of all
managing directors.
TRANSFER OF SHARES.
ARTICLE 9.
Any transfer of shares shall be effected by notarial deed, in accordance with
the provisions set out in section 2:196 of the civil Code.
RESTRICTIONS ON THE TRANSFER OF SHARES.
ARTICLE 10.
10.1. A transfer of shares in the company -not including a transfer by the
company of shares which it has acquired in its own share capital may only
be effected with due observance of paragraphs 2 to 7 inclusive of this
article.
10.2. A shareholder who wishes to transfer one or more shares shall require the
approval of the general meeting.
10.3. The transfer must be effected within three months after the approval has
been granted or is deemed to have been granted.
10.4. The approval shall be deemed to have been granted if the general meeting,
simultaneously with the
<PAGE>
5
refusal to grant its approval, does not provide the requesting shareholder with
the names of one or more prospective purchasers who are prepared to purchase all
the shares referred to in the request for approval. against payment in cash, at
the purchase price determined in accordance with paragraph 5; the company itself
may only be designated as prospective purchaser with the approval of the
requesting shareholder. The approval shall likewise be deemed granted if the
general meeting has not made a decision in respect of the request for approval
within six weeks of its receipt.
10.5. The requesting shareholder and the prospective purchasers accepted by him
shall determine the purchase price referred to in paragraph 4 by mutual
agreement.
Failing agreement, the purchase price shall be determined by an
independent expert, to be designated by mutual agreement between the
managing board and the requesting shareholder.
10.6. Should the managing board and the requesting shareholder fail to reach
agreement on the designation of the independent expert, such designation
shall be made by the President of the Chamber of Commerce and Industry.
within the district in which the company has its corporate seat.
10.7. Once the purchase price of the shares has been determined by the
independent expert. the requesting shareholder shall be free, for a
period of One month after such determination of the purchase price, to
decide whether he will transfer his shares to the designated prospective
purchasers.
MANAGEMENT:
<PAGE>
6
ARTICLE II.
II.1 The company shall be managed by a managing board, consisting of one or
more managing directors. The general meeting shall determine the number
of managing directors. A legal entity may be appointed as a managing
director.
II.2. Managing directors shall be appointed by the general meeting. The general
meeting may at any time suspend and dismiss managing directors.
II.3. The general meeting shall determine the terms and conditions of
employment of the managing directors
II.4. In the event that one.-or more managing directors is prevented from
acting or is failing, the remaining managing directors or the only
remaining managing director shall temporarily be in charge of the
management.
In the event that all managing directors are or the only managing
director is prevented from acting or are / is failing, the person
designated or to be designated for that purpose by the general meeting
shall temporarily be in charge of the management. Failing one or more
managing directors the person referred to in the preceding sentence shall
take the necessary measures as soon as possible in order to have a
definitive arrangement made.
RESOLUTIONS BY THE MANAGING BOARD.
ARTICLE 12.
12.1. With due observance of these articles of association, the managing board
may adopt rules governing its internal proceedings. Furthermore, the
managing directors may divide their duties among themselves, whether or
not by rule.
12.2. The managing board shall meet whenever a managing director so requires.
The managing board shall adopt its resolutions by an absolute majority of
<PAGE>
7
votes cast.
In a tie vote, the general meeting shall decide.
12.3. The managing board may also adopt resolutions without holding a meeting,
provided such resolutions are adopted in writing, by cable. by telex or
by telefax and all managing directors have expressed themselves in favour
of the proposal concerned.
12.4. The managing board shall adhere to the instructions of the general
meeting in respect of the general financial, social, economic and
personnel policies to be pursued by the company.
12.5 The general meeting may adopt resolutions pursuant to which clearly
specified resolutions of the managing board require its approval.
REPRESENTATION. AUTHORISED SIQNATORIES.
ARTICLE 13.
13.1 The managing board is authorised to represent the company. In the event
that more than one managing director is in office, the company may also
be represented by two managing directors acting jointly.
13.2. If a managing director, acting in his personal capacity, enters into an
agreement with the company or conducts any litigation against the
company. the company may, with due observance of the provisions of the
first paragraph, be represented in that matter either by the managing
board or the other managing directors, unless the general meeting
designates a person for that purpose or the law provides for the
designation in a different manner. Such person may also be the managing
director in respect of whom there is a conflict of interest. If a
managing director has a conflict of interest with the company other than
as referred to in the penultimate sentence, he shall, as in the case of
<PAGE>
8
the managing board or the other managing directors. have the power to
represent the company, with due observance of the provisions of the first
paragraph.
13.3. The managing board may grant to one or more persons, whether or not
employed by the company, the power to represent the company
("procuratie") or grant in a different manner the power to represent the
company on a continuing basis. The managing board may also grant such
titles as it may determine to persons, as referred to in the preceding
sentence, as well as to other persons, but only if such persons are
employed by the company.
GENERAL MEETINGS.
ARTICLE 14.
14.1. The annual general meeting shall be held within six months after the end
of the financial year.
14.2. The agenda for this meeting shall in any case include the adoption of the
annual accounts and the allocation of profits, unless the period for
preparation of the annual accounts has been extended.
At such general meeting the person referred to in article 11, paragraph
4, shall be designated and, furthermore, all items which have been put on
the agenda in accordance with paragraphs 5 and 6 of this article shall be
discussed.
14.3. A general meeting shall be convened whenever the managing board or a
shareholder considers appropriate.
14.4. General meetings shall be held in the municipality where the company has
its corporate seat. Resolutions adopted at a general meeting held
elsewhere shall be valid only if the entire issued share capital is
represented.
<PAGE>
9
14.5. Shareholders shall be given notice of the general meeting by the managing
board, by a managing director or by a shareholder. The notice shall
specify the items to be discussed.
14.6. Notice shall be given not later than on the fifteenth day prior to the
date of the meeting. If the notice period was shorter or if no notice was
sent, no valid resolutions may be adopted unless the resolution is
adopted by unanimous vote at a meeting at which the entire issued share
capital is represented.
The provision of the preceding sentence shall equally apply to matters
which have not been mentioned in the notice of meeting or in a
supplementary notice sent with due observance of the notice period.
14.7. The general meeting shall appoint its chairman. The chairman shall
designate the secretary.
14.8. Minutes shall be kept of the business transacted at a meeting.
VOTING RIGHTS OF SHAREHOLDERS.
ARTICLE 15.
15.1. Each share confers the right to-cast one vote. The voting rights attached
to shares may not be conferred on holders of a right of usufruct and
holders of a right of pledge on such shares.
15.2. Shareholders may be represented at a meeting by a proxy authorised in
writing.
15.3. Resolutions shall be adopted by an absolute majority of votes cast.
15.4. Shareholders may adopt any resolutions which they could adopt at a
meeting, without holding a meeting, provided that the managing directors
have been able to advice regarding such resolution. Such a resolution
shall only be valid if all shareholders entitled to vote have cast their
votes
<PAGE>
10
in writing, by cable, by telex or by telefax in favour of the proposal
concerned.
Those who have adopted a resolution without holding a meeting shall forthwith
notify the managing board of the resolution so adopted.
FINANCIAL YEAR. ANNUAL ACCOUNTS.
ARTICLE 16.
16.1. The financial year shall coincide with the calendar year.
16.2. Annually, within five months after 'the end of each financial year
subject to an extension of such period not exceeding six months by the
general meeting on the basis of special circumstances - the managing
board shall prepare annual accounts and .shall make these available at
the office of the company for inspection by the shareholders. The annual
accounts shall be accompanied by the auditors certificate, referred to in
article 17, if the assignment referred to in that article has been given,
by the annual report, unless section 2:403 of the Civil Code is
applicable to the company, and by the additional information referred to
in section 2:392. subsection 1 of the Civil Code. insofar as the
provisions of that subsection apply to the company.
The annual accounts shall be signed by all managing directors. If the
signature of one or more of them is lacking, this shall be disclosed,
stating the reasons thereof.
16.3. Adoption of the annual accounts by the general meeting shall constitute a
discharge of the managing board for its management during the financial
year concerned, unless a proviso is made by the general meeting and
without prejudice to the provisions of the law.
AUDITOR.
<PAGE>
11
ARTICLE 17.
The company may give an assignment to an auditor, as referred to in section
2:393 of the Civil Code, to audit the annual accounts prepared by the managing
board in accordance with subsection 3 of such section provided that the company
shall give such assignment if the law so requires.
If the law does not require that the assignment mentioned in the preceding
sentence be given the company may also give the assignment to audit the annual
accounts prepared by the managing board to another expert i such expert shall
hereinafter also be referred to as: auditor.
The general meeting shall be authorised to give the assignment referred to
above. If the general meeting fails to do so, then the managing board shall be
so authorised. The assignment given to the auditor may be revoked at any time by
the general meeting and by the managing board if it has given such assignment.
The auditor shall report on his audit to the managing board and shall issue a
certificate containing its results.
PROFIT AND LOSS.
ARTICLE 18.
18.1. Distribution of profits pursuant to this article shall be made following
the adoption of the annual accounts which show that such distribution is
allowed.
18.2. The profits shall be at the free disposal of the general meeting.
18.3. The company may only make distributions to shareholders and other persons
entitled to distributable profits to the extent that its equity exceeds
the total amount of its issued share capital and the reserves to be
maintained pursuant to the law.
18.4. A loss may only be applied against reserves maintained pursuant to the
law to the extent
<PAGE>
12
permitted by law.
18.5. When determining the division of the amount to be distributed among
shareholders, shares which are held by the company shall not be counted.
DISTRIBUTION OF PROFITS.
ARTICLE 19.
19.1. Dividends shall be due and payable four weeks after they have been
declared, unless the general meeting determines another date on the
proposal of the managing board .
19.2. The general meeting may resolve that dividends shall be distributed in
whole or in part in a form other than cash.
19.3. Without prejudice to article 19, paragraph 3, the general meeting may
resolve to distribute all or any part of the reserves.
19.4. Without prejudice to article l8, paragraph 3, an interim dividend shall
be distributed out of the profits made in the current financial year, if
the general meeting so determines on the proposal of the managing board.
LIQUIDATION.
ARTICLE 20.
20.1. If the company is dissolved pursuant to a resolution of the general
meeting, it shall be liquidated by the managing board, if and to the
extent that the general meeting shall not resolve otherwise.
20.2. After the legal entity has ceased to exist, the books and records of the
company shall remain in the custody of the person designated for that
purpose by the liquidators for a period of ten years.
Finally the person appearing declares that at the time of execution of this deed
the issued share capital of the company amounts to forty thousand Dutch guilders
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13
(NLG 40,000).
The required ministerial declaration of no-objection was granted on ** nineteen
hundred and ninety-eight, number B.V. 522.7.23. The certificate of which section
2:203a of the Civil Code, prescribes that it shall be attached to this deed and
the ministerial declaration of no-objec:tion. are attached to this deed.
In witness whereof the original of this deed, which shall be retained by me, is
executed in Rotterdam, on the date first given in the head of this deed.
Having conveyed the substance of this deed to the person appearing she has
declared that she has taken cognizance of the contents of the deed and does not
require it to be read out to her in full.
Immediately after the reading of those parts of the deed which the law
prescribes to be read out, this deed is signed by the person appearing, who is
known to me, notaris, and by myself, notaris.
<PAGE>
EXHIBIT D
Letter of Intent
<PAGE>
LETTER OF INTENT
PanGenetics B. V. ("PanGenetics"), a company organized and existing under the
laws of The Netherlands and having its principal place of business at
Paasheuvelweg 15, 1105 BE, Amsterdam, The Netherlands, Upither B.V. ("Upither")
a company organized and existing under the laws of The Netherlands and having
its principal place of business at Yalelaan 1, Utrecht, The Netherlands and the
Faculty of Veterinary Medicine of the Utrecht University ("DGK-UU"), having its
principal offices at Yalelaan 1, Utrecht, The Netherlands, intend to negotiate a
Collaboration, Option and License Agreement that includes the terms and
conditions outlined in this letter.
WHEREAS, PanGenetics holds one-third (1/3) of the outstanding shares of Upither;
WHEREAS, DGK-UU holds two-thirds (2/3) of the outstanding shares of Upither;
WHEREAS, Upither has proprietary technology, patent applications and research
programs in the field of immunotherapy of autoimmune diseases;
WHEREAS, PanGenetics has preclinical development programs and expertise in the
organization of clinical trials in the field of immunotherapy of auto immune
diseases;
WHEREAS, PanGenetics, Upither and DGK-UU ("the Parties") wish to provide for a
collaboration for the preclinical and clinical development for some of Upither's
proprietary technology in the field of immunotherapy of autoimmune diseases
("the Field");
NOW, THEREFORE, the Parties intend to negotiate a Collaboration, Option and
License Agreement that will give PanGenetics the responsibility for the
preclinical and clinical development for some of Upither's proprietary
technology in the Field and therefore agree as outlined below:
1. During a period of six (6) months starting May 15, 1997, the Parties will
define and negotiate a binding Collaboration, Option and License Agreement
including detailed terminology and the terms outlined in this letter of
intent.
2. PanGenetics and DGK-UU will grant to Upither a world-wide, royalty free
license with the right to sublicense to make, use and sell products based
on or developed with the proprietary technology listed in Exhibit 1
attached hereto. Under these License Agreements Upither will be responsible
for all costs associated with the filing and prosecution of all patents and
patents applications covering the licensed proprietary technology. 1
page 1
<PAGE>
3. PanGenetics will obtain from Upither an exclusive Option to world-wide,
licenses with the right to sublicense to make, us and sell products based
on or developed with the Upither Proprietary Rights listed in Exhibit 1
attached hereto. In return for the exclusive Option, PanGenetics will
compensate Upither in the following way:
PanGenetics will pay to Upither DFL 500,000 per year for an initial
period of four (4) years. Upither will use this funding to pay for a
Research Program at the department of prof. dr. w. van Eden at DG -VU.
The aim of this Research Program will be to study the molecular and
cellular mechanisms underlying the pathophysiology of autoimmune
diseases. Of the research funding, twenty-five percent (25%) may be
spent on general supportive measurements s h as equipment and
technical support for routine laboratory activities in the laboratory
of prof dr. W. van Eden. Any intellectual property resulting from the
Research Program, whether patentable or not, will be owned by Upither.
Upither shall provide PanGenetics the rig t of first refusal to all
right and title to such inventions. At the end of the third year of
the initial period of four (4) years, the Parties may negotiate the
terms and conditions under which the Research Program can be extended
for an additional period.
4. In the event that PanGenetics exercises its Option granted under this
Agreement, the Parties will negotiate the terms of a binding License
Agreement for the Upither Proprietary Rights subject of the Option
exercise.
5. Upither and PanGenetics agree t execute a binding Agreement under which
PanGenetics will obtain an exclusive world-wide license with the right to
sublicense to make, use and sell products based on or developed with the
Upither Proprietary Rights as defined in patent application PCT/EP95100l08
listed in Exhibit 1 attached hereto. For, and in consideration of the
License to the Upither Proprietary Rights as defined in patent application
PCT/EP95100l08 granted to PanGenetics, PanGenetics will pay a royalty of 3%
of net sales to Upither for Product(s) sold by PanGenetics or its
sublicensees to unrelated third parties. In addition, PanGenetics will pay
the following milestone payments to Upither: DFL 250,000 upon initiation of
phase I or phase I/II clinical testing; DFL 500,000 upon initiation of
phase II clinical testing; DFL 750,000 upon initiation of phase III
clinical testing and; DFL 1,000,000 upon first product sales.
6. PanGenetics grants to Upither the right of first refusal to provide R&D
activities related to the Licensed Products of the present agreement to
PanGenetics when clinical testing of such products has commenced.
7. PanGenetics will to the extent practical collaborate with Upither, the
laboratory of prof dr. w. van Eden and their associated clinical research
groups on the preclinical and clinical testing of lead products under the
present a agreement. In the event that PanGenetics determines that it is in
the best interest of the project(s) to collaborate with other research or
clinical groups, consultation will be made first with Upither.
8. In the event that PanGenetics can not fulfill its financial commitments
under this agreement, all rights granted hereunder will revert to Upither.
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<PAGE>
9. Upither and the group of prof. dr. w. van Eden at DGK-UU may publish or
present the findings of the research involving the Research Program,
provided that at least thirty (30) days before submission for publication
or presentation to any third party a copy of the publication or
presentation is delivered to PanGenetics. At PanGenetics' request Upither
and the group of prof. dr. w. van Eden at DGK-UU shall delay revealing any
patentable subject matter in the disclosure in order to permit the filing
of patent applications.
10. Agreed and accepted:
UPITHER B.V. PANGENETICS B. V.
Signed by:/s/ IR. DR 