<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR QUARTER ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 1-12574
TEXAS BIOTECHNOLOGY CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3532643
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7000 Fannin, Suite 1920, Houston, Texas 77030
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip code)
(713) 796-8822
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at July 31, 1996
----- ----------------------------
Common Stock, $0.005 par value 24,185,266
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TEXAS BIOTECHNOLOGY CORPORATION
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 1
Consolidated Statements of Operations for the three months ended
June 30, 1996 and 1995, the six months ended June 30, 1996 and 1995,
and the period from August 2, 1989 (date of incorporation)
through June 30, 1996 2
Consolidated Statements of Cash Flows the six months ended
June 30, 1996 and 1995, and the period from August 2, 1989
(date of incorporation) through June 30, 1996 3
Notes to Consolidated Financial Statements 4
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings 17
ITEM 2: Changes in Securities 17
ITEM 3: Defaults Upon Senior Securities 17
ITEM 4: Submission of Matters to a Vote of Security Holders 18
ITEM 5: Other Information 18
ITEM 6: Exhibits and Reports on Form 8-K 19
SIGNATURES 20
INDEX TO EXHIBITS 21
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION
- ----------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
------ ------------------ ------------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,631,407 5,724,264
Short term investments 15,432,539 8,195,307
Short term note receivable 122,500 122,500
Prepaids 496,063 554,208
Other current assets 783,275 547,391
--------------- --------------
Total current assets 18,465,784 15,143,670
Equipment, furniture and fixtures, and leasehold improvements 7,596,310 7,529,415
Less: Accumulated depreciation and amortization (4,116,198) (3,746,586)
--------------- --------------
Net property 3,480,112 3,782,829
--------------- --------------
Total assets $ 21,945,896 18,926,499
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 2,747,063 2,566,264
Deferred revenue 250,000 650,110
--------------- --------------
Total current liabilities 2,997,063 3,216,374
Commitments and contengencies --- ---
Stockholders' equity:
Preferred stock, par value $.005 per share. At June 30, 1996 and
December 31, 1995, 5,000,000 shares authorized; none outstanding --- ---
Common stock, par value $.005 per share. At June 30, 1996,
75,000,000 shares authorized; 24,180,062 shares issued and
outstanding. At December 31, 1995, 40,000,000 shares authorized;
17,439,365 shares issued and outstanding (notes 2 and 5) 120,900 87,198
Additional paid-in capital 73,055,102 59,540,730
Deferred compensation expense (note 3) (3,250) (46,177)
Deficit accumulated during the development stage (54,223,919) (43,871,626)
--------------- --------------
Total stockholder's equity 18,948,833 15,710,125
--------------- --------------
Total liabilities and stockholders' equity $ 21,945,896 18,926,499
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements
Page 1
<PAGE>
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 2, 1989
(DATE OF
INCORPORATION)
THREE MONTHS ENDED SIX MONTHS ENDED TO
JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995 1996
------------ ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Research agreements $ 1,280,000 1,150,110 3,195,110 2,300,220 14,233,796
Products and services 2,500 101,893 3,939 172,201 400,580
Grant revenue 974 63,259 1,727 176,548 668,951
----------- ---------- ---------- ---------- ----------
Total revenues 1,283,474 1,315,262 3,200,776 2,648,969 15,303,327
----------- ---------- ---------- ---------- ----------
Expenses incurred in the development stage:
Research and development 6,023,929 3,965,457 11,504,545 6,807,852 45,092,200
Charge for purchase of in-process
research and development --- 1,973,883 --- 1,973,883 9,465,610
General and administrative 1,012,145 1,480,902 2,124,637 2,704,746 17,529,271
Restructuring and impairment of
intangible assets (note 9) --- --- 421,165 --- 1,064,915
----------- ---------- ---------- ---------- ----------
Total expenses 7,036,074 7,420,242 14,050,347 11,486,481 73,151,996
----------- ---------- ---------- ---------- ----------
Operating loss 5,752,600 6,104,980 10,849,571 8,837,512 57,848,669
----------- ---------- ---------- ---------- ----------
Other income (expense):
Interest income 251,390 323,312 497,278 675,207 3,716,397
Interest expense --- (969) --- (969) (91,647)
----------- ---------- ---------- ---------- ----------
Net loss $ 5,501,210 5,782,637 10,352,293 8,163,274 54,223,919
=========== ========== ========== ========== ==========
Net loss per share $ 0.23 0.36 0.46 0.51 5.69
=========== ========== ========== ========== ==========
Weighted average common shares used to
compute net loss per share 24,064,064 16,054,832 22,479,819 16,047,182 9,530,469
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
Page 2
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TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 2, 1989
(DATE OF
SIX MONTHS ENDED INCORPORATION)
JUNE 30, TO
JUNE 30,
1996 1995 1996
-------------- ------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,352,293) (8,163,274) (54,223,919)
Adjustments to reconcile net loss to net cash
used in operating activities:
Write-off of deferred offering costs related
to delayed offering --- --- 324,938
Depreciation and amortization 369,612 387,267 4,222,451
Interest expense converted on notes payable
to stockholders --- --- 87,755
Expenses paid with stock --- --- 24,500
Non cash acquisition costs expensed --- 1,973,883 9,465,610
Deferred compensation expense 42,927 47,530 283,908
Impairment of intangible assets --- --- 643,750
Change in operating assets and liabilities, net of
effect of acquisition:
(Increase) decrease in prepaids 58,144 --- (318,404)
(Increase) decrease in receivables 7,291 87,500 (82,995)
(Increase) decrease in other current assets (243,175) (48,688) (898,458)
Decrease in inventories --- --- 61,245
Increase (decrease) in current liabilities 180,799 28,494 2,680,947
(Decrease) in deferred revenue (400,110) (1,061,294) (1,422,122)
------------- ----------- -----------
Net cash used in operating activities (10,336,805) (6,748,582) (39,150,794)
------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (66,895) (155,016) (7,287,850)
Purchase of short term investments (17,548,480) (16,050,408) (69,469,701)
Redemption of short term investments 10,311,249 17,850,800 54,037,161
Acquisition of subsidiary, net of cash acquired --- --- (167,331)
-------------- ---------- -----------
Net cash used in investing activities (7,304,126) 1,645,376 (22,887,721)
------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to stockholders and
related trusts --- --- 1,852,500
Proceeds from sale of common stock and option and warrant
exercises, net 13,548,074 --- 62,146,110
Repurchase of common stock --- --- (3,750)
Cost of delayed offering --- --- (324,938)
------------- ----------- -----------
Net cash provided by financing activities 13,548,074 --- 63,669,922
------------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (4,092,857) (5,103,206) 1,631,407
Cash and cash equivalents at beginning of period 5,724,264 7,199,942 ---
------------- ----------- -----------
Cash and cash equivalents at end of period $ 1,631,407 2,096,736 1,631,407
============= =========== ===========
Supplemental schedule of noncash financing activities $ --- 1,973,883 11,405,865
============= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
Page 3
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TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995
(1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(a) Organization
Texas Biotechnology Corporation (the "Company" or "TBC"), a
biopharmaceutical company, applies innovative drug discovery techniques
and its specialized knowledge of the role of vascular cell biology in
cardiovascular disease to the design and development of novel
pharmaceutical compounds. The Company was incorporated in the state of
Delaware in 1989.
During the period from August 2, 1989, (date of incorporation) through
March 1990, the Company was largely inactive. Since that time, the
Company has been engaged principally in research and drug discovery
programs and clinical development of a drug compound. On July 25, 1994,
the Company acquired all of the outstanding common stock of
ImmunoPharmaceutics, Inc. ("IPI"), a San Diego, California based company,
in exchange for common stock of the Company. TBC decided to consolidate
the IPI operation into TBC in the first half of 1996. (See note 9)
The Company is presently working on a number of long-term development
projects which involve experimental and unproven technology, which may
require many years and substantial expenditures to complete, and which
may be unsuccessful. To date, other than monoclonal antibody compounds
and services produced and sold by IPI, the Company has not developed or
sold any products, and no assurance can be given that the Company will be
able to develop, manufacture or market any products in the future. In
addition, no assurance exists that future revenues will be significant,
that any sales will be profitable, or that the Company will have
sufficient funds available to complete its research and development
programs or market any products which it may develop. Accordingly, the
Company is considered to be in the development stage as it has not to
date derived significant revenues from its planned principle operations.
(b) Basis of Consolidation
The Company's consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary, IPI. All material
intercompany transactions have been eliminated. The Company's
consolidated financial statements include the activity related to IPI
since August 1, 1994.
(c) Cash, Cash Equivalents and Short Term Investments
Cash equivalents are considered to be those securities or instruments
with original maturities, when purchased, of three months or less. At
June 30, 1996, approximately $1,285,500 was invested in Corporate
Commercial Paper and the remainder was in demand and money market
accounts. Short term investments are those investments which have an
original maturity of less than one year and greater than three months.
At June 30, 1996, the Company's short term investments consisted of
approximately $1,997,000 in Government Agency Discount Notes, $998,000 in
U.S. Treasury Bills and $12,438,000 in Corporate Commercial Paper. Cash
equivalents and short term investments are stated at cost, which
approximates market value. Interest income is accrued as earned.
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115 (Statement 115), Accounting for Certain Investments in
Debt and Equity Securities. Statement 115
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provides for the use of the amortized cost method for investments in debt
securities when management has the positive intent and ability to hold
such securities to maturity. In connection with the adoption of Statement
115, the Company classified all short term investments as held to
maturity.
(d) Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost less accumulated
depreciation and amortization. Depreciation of furniture and equipment is
provided on the straight-line method over the estimated useful lives of
the respective assets (3 to 10 years). Amortization of leasehold
improvements is provided on the straight-line method over the remaining
minimum lease term.
(e) Intangible Assets
Intangible assets are amortized on a straight line basis over ten years.
(f) Research and Development Costs
All research and development costs are expensed as incurred and include
salaries of research and development employees. For the three months
ended June 30, 1996 and 1995, salaries and benefits totaled approximately
$1,554,000 and $1,740,000, respectively, of which approximately
$1,246,000 and $1,456,000, respectively, was charged to research and
development. For the six months ended June 30, 1996 and 1995, salaries
and benefits totaled approximately $3,482,000 and $3,426,000,
respectively, of which approximately $2,709,000 and $2,725,000,
respectively, was charged to research and development. Payments related
to the acquisition of in-process research and development are expensed.
(g) Net Loss Per Share
Net loss per share is calculated using the weighted average shares of
common stock outstanding during the period. For the three months ended
June 30, 1996 and 1995, the weighted average common shares used to
compute net loss per share totaled 24,064,064 and 16,054,832
respectively. For the six months ended June 30, 1996 and 1995, and the
period from August 2, 1989 (date of incorporation) through June 30, 1996,
the weighted average common shares used to compute net loss per share
totaled 22,479,819, 16,047,182 and 9,530,469 respectively. Stock options
and stock warrants are considered common stock equivalents, however are
not included in the loss per share computations as their effect is anti-
dilutive. Shares held in escrow through June 30, 1995, pending
satisfaction of certain future conditions, and shares related to
contingent stock issue rights related to the IPI acquisition have been
excluded from the net loss per share calculation until such shares were
released or issued.
(h) Reclassifications
Certain reclassifications have been made to prior period financial
statements to conform with the June 30, 1996 presentation with no effect
on net loss reported.
(i) Revenue Recognition
Revenue from grants is recognized as earned under the terms of the
related grant agreements. Revenue from service contracts is recognized
as the services are performed and/or as milestones are achieved. Revenue
from products and services is recognized when the products are shipped or
the services are performed. Amounts received in advance of services to
be performed under contracts are recorded as deferred revenue.
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<PAGE>
(j) Patent Application Costs
Costs incurred in filing for patents are expensed as incurred.
(k) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual
results could differ from these estimates.
(l) Interim Financial Information
The Consolidated Balance Sheet as of June 30, 1996, and the related
Consolidated Statements of Operations for the three and six month periods
ended June 30, 1996 and 1995, and the period from August 2, 1989 (date of
incorporation) through June 30, 1996, and Consolidated Statements of Cash
Flows for the six month periods ended June 30, 1996 and 1995, and the
period from August 2, 1989 (date of incorporation) through June 30, 1996,
are unaudited. In the opinion of management, all adjustments necessary
for a fair presentation of such financial statements have been included.
Such adjustments consisted of normal recurring items. Interim results
are not necessarily indicative of results for a full year. The
consolidated financial statements and notes are presented as permitted by
Form 10-Q and do not contain certain information included in the
Company's Annual Consolidated Financial Statements and Notes which should
be read in conjunction with these consolidated financial statements and
notes.
(m) Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (Statement 121). The Company has
adopted the statement effective December 31, 1995. Statement 121
requires that long-lived assets and certain identifiable intangible
assets to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In addition, Statement 121
requires that certain long-lived assets and certain identifiable
intangible assets to be disposed of be reported at the lower of carrying
amount or fair value less costs to sell. The Company believes the
goodwill associated with IPI, $643,750, is impaired due to the decision
to cease operations at IPI and the sale of the QED business unit and has
recorded a charge to expense. (See note 9)
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, "Accounting for Stock-Based Compensation" (Statement
123). Statement 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans using a fair value
based methodology as an alternative to intrinsic value based methodology.
In addition, Statement 123 establishes the fair value as the measurement
basis for transactions in which an entity issues its equity instruments
to acquire goods or services from non-employees. The accounting and
reporting requirements of Statement 123 are effective beginning January
1, 1996. The Company intends to continue using the intrinsic value
method.
(2) CAPITAL STOCK
In February, 1996, the Company completed a private placement of common
stock. The Company issued 6,550,990 shares of Common Stock at $2 1/8 per
share with proceeds of approximately $13.0 million, net of selling
commissions and expenses of approximately $900,000. In accordance with the
terms of the offering, the Company filed, pursuant to Rule 415 of the
Securities Act, a Shelf Registration Statement as to the shares of Common
Stock sold to the purchasers in the private placement which became effective
on June 4, 1996.
Page 6
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In connection with the private placement, the co-exclusive
agent, Harris, Webb & Garrison received a $634,630 selling commission,
49,775 warrants with an exercise price of $3.05 per share and no
registration rights, and 497,749 warrants with an exercise price of $3.66
per share with the underlying common stock being registered, under certain
circumstances, on a "piggyback" basis in the event of a public offering of
common stock by the Company. The co-exclusive agent, Aurora Capital Corp.,
received a $124,653 selling commission, 25,587 warrants with an exercise
price of $3.36 per share, and 149,002 warrants with an exercise price of
$4.58 per share. The common stock underlying Aurora's warrants will be
registered with the Common Stock issued in the private placement. The co-
exclusive agents assigned some of these warrants to others.
In May 1996, the Board of Directors proposed, and stockholders approved, an
amendment to the Company's Certificate of Incorporation to increase the
authorized number of shares of the Company's common stock from 40 million
shares to 75 million shares.
(3) STOCK OPTIONS
The Company has in effect the following stock option plans:
The Amended and Restated 1990 Incentive Stock Option Plan ("1990 Plan")
allows for the issuance of incentive and non-qualified options to employees,
directors, officers, non-employee independent contractors and non-employee
directors, pursuant to which 230,590 shares of common stock are reserved for
issuance out of authorized but unissued shares of the Company.
The Amended and Restated 1992 Incentive Stock Option Plan ("1992 Plan")
allows for the issuance of incentive and non-qualified options to employees,
directors, officers, non-employee independent contractors and non-employee
directors, pursuant to which 1,620,929 shares of common stock are reserved
for issuance out of authorized but unissued shares of the Company.
The Stock Option Plan for Non-Employee Directors ("Director Plan") allows
for the issuance of non-qualified options to non-employee directors,
pursuant to which 71,429 shares of common stock are reserved for issuance
out of authorized but unissued shares of the Company to be issued to non-
employee members of the Board of Directors of the Company based on a
formula.
The 1995 Stock Option Plan ("1995 Plan") allows for the issuance of
incentive and non-qualified options, shares of restricted stock and stock
bonuses to employees, officers, and non-employee independent contractors,
pursuant to which 1,000,000 shares of common stock are reserved for issuance
out of authorized but unissued shares of the Company.
The Amended and Restated 1995 Non-Employee Director Stock Option Plan ("1995
Director Plan") allows for the issuance of non-qualified options to non-
employee directors, pursuant to which 200,000 shares of common stock are
reserved for issuance out of authorized but unissued shares of the Company
to be issued to non-employee members of the Board of Directors of the
Company based on a formula. In June 1996, the 1995 Director Plan was amended
with respect to the election date requirement for a director to request
stock in lieu of cash payment of director fees.
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A summary of stock options as of June 30, 1996, follows:
<TABLE>
<CAPTION>
Exercise Price Available
Stock Option Plans Per Share Outstanding Exercised Exercisable for Grant
- ------------------- ---------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1990 Plan $3.50 166,798 55,125 158,464 63,792
1992 Plan $1.41 - $5.36 1,503,394 79,071 620,665 117,535
Director Plan $2.40 - $4.54 42,576 --- 26,656 28,853
1995 Plan $1.31 - $4.53 564,500 --- 37,500 435,500
1995 Director Plan $1.38 - $5.19 82,806 --- 27,606 117,194
----------- --------- ----------- ---------
TOTALS 2,360,074 134,196 870,891 762,874
=========== ========= =========== =========
</TABLE>
The Company has recorded deferred compensation for the difference between
the grant price and the deemed fair value for financial statement
presentation purposes related to certain options granted in the period
subsequent to May 27, 1993 and prior to the initial public offering. Such
amount totaled $287,158, of which $42,927 has been charged to expense in
1996. The unamortized deferred compensation expense of $3,250 at June 30,
1996 will be amortized over the remaining vesting periods of the options.
(4) INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" effective January 1, 1993. As of June 30,
1996, the Company had a net deferred tax asset of approximately
$18,989,000, primarily composed of the tax benefit associated with net
operating loss carry forwards, start-up and other capitalized costs. A
valuation allowance for the full amount of the deferred tax asset has been
established as realization of the benefit is uncertain.
(5) COMMON STOCK RESERVED
The Company has reserved common stock for issuance as of June 30, 1996 as
follows:
<TABLE>
<CAPTION>
<S> <C>
Stock option plans 3,122,948
Agreement with Genentech, Inc. 285,715
Warrants issuable under the Genentech Agreement 142,858
Warrants outstanding 5,378,191
Underwriters purchase options and related warrants 710,000
IPI acquisition (contingent shares) 1,000,000
----------
Total shares reserved 10,639,712
==========
</TABLE>
(6) CLINICAL RESEARCH AGREEMENTS
On February 10, 1995, the Company entered into an agreement with Coromed,
Inc., a contract research organization, to coordinate the clinical
evaluation of NOVASTAN(R) as an adjunct to Streptokinase in acute
myocardial infarction. Coromed is responsible for managing all aspects of
the clinical trial and making all financial remuneration to testing sites.
The term of the agreement is 19 months, subject to extension upon the
mutual written agreement of both parties. The parties have agreed to a
total budget of approximately $3,196,000. Of this amount, $106,000 was paid
upon execution of a letter of intent and approximately $450,000 was paid
upon execution of the agreement. Subsequent payments will be made monthly
on a per
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patient basis, to a maximum total of approximately $2,490,000. Three
additional payments of $50,000 each will be made upon completion of
specified tasks by Coromed. If the clinical trial is completed in less than
19 months, the Company will pay Coromed a bonus calculated as a percentage
of personnel costs as set forth in the budget, to a maximum bonus amount of
approximately $327,000. In addition, the Company has engaged Coromed to
provide various services related to other ongoing NOVASTAN(R) trials being
conducted by the Company.
On May 1, 1996, the Company amended the above agreement with Coromed, Inc.
The term of the contract was extended to 24 months with an additional cost
of $1,200,000. The bonus payment, if any, is now based on the completion in
less than 24 months.
(7) RESEARCH AGREEMENTS
On October 11, 1994, the Company signed a collaborative agreement with
Synthelabo, a French pharmaceutical group, to develop and market compounds
for vascular proliferation disease derived from the Company's FGF and
antisense programs. Upon consummation of the transaction, Synthelabo
purchased 1,428,571 shares of common stock for $3.50 per share for a total
of $5 million and paid a non-refundable licensing fee of $3 million. In
addition, Synthelabo has committed to pay $3 million annually in research
payments (payable in quarterly installments of $750,000) for three years.
Synthelabo has agreed, upon the achievement of certain milestones, to
further payments of up to $3 million per year for up to $18 million in
total. Synthelabo has the right to terminate the agreement any time on or
after October 15, 1996, for any reason and either party has the right to
terminate the contract for breach of any material obligation. If Synthelabo
exercises this termination right, the license granted to Synthelabo shall
terminate and TBC will pay Synthelabo a royalty on net sales of any
products sold in a certain territory for a period of time. In addition,
Synthelabo may, at its option, require that the technology be transferred
to and the development program be conducted by a joint venture owned by TBC
and Synthelabo should "net worth" as defined in the agreement be less than
$5 million as of the end of any calendar quarter during the term of the
agreement. The first quarterly research payment of $750,000 was received on
October 31, 1994, of which $500,000 was recognized in 1994. As of June 30,
1996, $250,000 is included in current deferred revenue. Synthelabo will pay
royalties to TBC, based on the net sales, in those geographic areas covered
in the agreement. In exchange for the above consideration, Synthelabo will
receive an exclusive license to manufacture, use, and sell any products
generated from the research in Europe, the Middle East, Africa and the
countries of the former Soviet Union. One of the programs, which involves
antisense, is being jointly reviewed and may result in a redirection of the
research into another area
During 1995, the Company and Synthelabo mutually agreed to exchange certain
clinical data. In January 1996, the Company signed two agreements with
Synthelabo with respect to the supply of information related to certain
clinical studies. Synthelabo paid TBC $500,000 upon execution of the
agreement. In addition, over the term of the agreements as certain
milestones are met, Synthelabo has committed to pay TBC additional payments
that total $2,400,000. These payments are dependent on rate of enrollment
in certain clinical studies, the completion of certain clinical studies and
date of completion of certain clinical studies. Synthelabo is the licensee
for NOVASTAN(R) in certain territories other than those which were
sublicensed to TBC.
(8) LICENSE AGREEMENT
In May 1993, TBC entered into an agreement with Genentech to sublicense
Genentech's rights and technology relating to NOVASTAN(R) (argatroban)
originally licensed to Genentech by Mitsubishi Chemical Corporation
("Mitsubishi"), and to license Genentech's own proprietary technology
developed with respect to NOVASTAN(R) (the "Genentech Agreement"). Under
the license and sublicense, the Company has an exclusive license to use and
sell NOVASTAN(R) in the United States and Canada for specified human
cardiovascular indications, not including cerebral thromboembolism
(stroke). The Company is required to pay Genentech and Mitsubishi specified
royalties on net sales of NOVASTAN(R) by the Company and its
Page 9
<PAGE>
sublicensees after its commercial introduction in the United States and
Canada. Genentech has the right to terminate the agreement or to cause the
license to become non-exclusive if the Company fails to exercise due
diligence in performing its obligations under the agreement for a period of
60 days after receiving written notice from Genentech or fails to maintain
a minimum consolidated tangible net worth of $5.0 million. The Genentech
Agreement, as amended, provides that Mitsubishi may terminate Genentech's
license with Mitsubishi (which results in the termination of the Genentech
Agreement as well) if TBC does not file an NDA for Novastan with the FDA no
later than June 30, 1997, subject to certain additional goals being met by
TBC. As of December 31, 1995, TBC had not met certain of those goals.
However, Mitsubishi has agreed to withhold its rights to terminate the
license with Genentech if the NDA is filed by June 30, 1997, and if TBC
accomplishes the following milestones: (i) on or before December 31, 1996,
TBC shall have met certain enrollment guidelines for certain Novastan
clinical trials; (ii) on or before March 31, 1997, TBC shall complete,
report and analyze certain other Novastan clinical trials; (iii) on or
before September 30, 1997, TBC shall have agreed to proceed with the Phase
III trial in AMI, and (iv) TBC shall comply with certain reporting and
information meeting requirements. If these milestones are not met,
Mitsubishi will retain the rights to terminate the Genentech license;
provided, that if such termination results from TBC's violation of the
milestone described in (iii) above, TBC will receive a license from
Mitsubishi in the field of HIT/HITTS on the same terms, as presently
included in the Genentech Agreement. Either party may terminate the
Genentech Agreement on 60 days notice if the other party defaults in its
material obligations under the agreement, declares bankruptcy or is
insolvent, or if a substantial portion of its property is subject to
attachment. The Genentech Agreement is also subject to the continuation of
Genentech's license agreement with Mitsubishi, which is only terminable if
Genentech defaults in its material obligations under the agreement,
declares bankruptcy or is insolvent, or if a substantial portion of its
property is subject to attachment. Unless terminated sooner pursuant to the
above described termination provisions, the Genentech Agreement is expected
to expire in June 2007. Under the Genentech Agreement, TBC has access to an
improved formulation patent granted in 1993 which expires in 2010 and a use
patent which expires in 2009.
Mitsubishi further agreed to supply the Company with its requirements of
NOVASTAN(R) throughout the term of the Genentech Agreement for TBC's
clinical testing and commercial sales of NOVASTAN(R) in the United States
and Canada. In the event Mitsubishi should discontinue the manufacture of
NOVASTAN(R), Mitsubishi, Genentech and TBC have agreed to discuss in good
faith the means by which, and the party to whom, NOVASTAN(R) production
technology will be transferred. The transferee may be a person or entity
other than Genentech or TBC. At present, Mitsubishi is the only
manufacturer of NOVASTAN(R). Should Mitsubishi terminate or default in its
supply commitment, there can be no assurance that alternate sources of bulk
NOVASTAN(R) will be available to the Company at reasonable cost, if at all.
If such alternate sources of supply are unavailable or uneconomic, the
Company's results of operations would be materially and adversely affected.
In exchange for the license to Genentech's NOVASTAN(R) technology, TBC
issued Genentech 285,714 shares of Common Stock and agreed to issue (i) an
additional 214,286 shares of Common Stock to Genentech within 10 days after
the filing of the first New Drug Application ("NDA") with the FDA for
NOVASTAN(R), and (ii) an additional 71,429 shares of Common Stock to
Genentech within 10 days after the FDA's first approval of an NDA for
NOVASTAN(R). The Company has also agreed to grant Genentech a warrant to
purchase an additional 142,858 shares of Common Stock at an exercise price
of $14.00 per share, subject to adjustment, within ten days of the filing
of the first NDA for NOVASTAN(R) with the FDA. If the Company is unable to
issue any of the additional shares of Common Stock or the warrant to
Genentech due to circumstances beyond the Company's control, the Company
has agreed to pay Genentech, in lieu thereof, an amount equal to the value
of the securities plus interest from May 27, 1993 at the prime rate plus
one percent, compounded annually. The value of the Common Stock is deemed
to be $7.00 per share, which represents the cash consideration the Company
will be obligated to pay to Genentech as liquidated damages, and the value
of the warrants is to be determined by appraisal, based on the warrants'
market value. The Company will not be required to make any cash payment if
both of the filing and approval of the NDA do not occur. TBC has also
granted Genentech demand and piggyback registration rights with regard to
shares of Common Stock issued to Genentech.
Page 10
<PAGE>
Due to the additional research and development required to commercialize
the technologies associated with the Sublicense and License Agreement, the
Company expensed the value associated with the 285,714 shares issued to
Genentech, charging $1,000,000 to purchase of in-process research and
development expense in the year ended December 31, 1993.
In connection with the Genentech Agreement, a consultant involved in
negotiations related to the Agreement will receive a royalty on net sales
of licensed products.
(9) CONSOLIDATION OF IMMUNOPHARMACEUTICS, INC.
The Company decided to consolidate the IPI operation into TBC's in the
first half of 1996. The overall financial impact on the Company's
performance will be positive in 1996 due to expected reduction in general
and administrative expenses and the elimination of some research and
development positions associated with IPI. The Company believes the
goodwill associated with IPI, $643,750, is impaired due to the decision to
cease operations at IPI and the sale of the QED business unit and has
charged it to expense in the year ended December 31, 1995. The
restructuring costs associated with the consolidation of the IPI operation
were approximately $421,000 and have been expensed in the three months
ended March 31, 1996. This cost included waste disposal, future lease
commitments, severance pay and related taxes.
(10) COMMITMENTS AND CONTINGENCIES
a) Employment Agreements
Since inception, the Company has entered into employment agreements with
certain officers and key employees. One of the officers, Dr. Maggio,
resigned his position as CEO of IPI effective March 31, 1996. As of June
30, 1996, remaining commitments total approximately $276,000 in 1996 and
$232,000 in 1997. These amounts include payments due to one former
employee pursuant to his severance agreement. The employment agreements
of various officers and key employees provide for salary continuation for
up to twelve months from date of termination upon dismissal by the
Company, which would approximate $465,000 currently. In addition to
salary, the Company has agreed to reimburse certain officers and other
employees for costs of relocation and temporary travel and living
expenses.
In addition, the Company has signed agreements with five of its officers
to provide certain benefits in the event of a "change of control" as
defined in the agreement and the occurrence of certain other events. The
agreements provide for a lump-sum payment in cash equal to eighteen (18)
months to three (3) years of annual base salary and annual bonus if any.
The base salary portion of the agreements would aggregate approximately
$1.9 million at current rate of compensation. In addition, the agreements
provide for gross-up for certain taxes on the lump-sum payment,
continuation of certain insurance and other benefits for periods of
eighteen (18) months to three (3) years and reimbursement of certain
legal expenses in conjunction with the agreements. These provisions are
intended to replace compensation continuation provisions of any other
agreement in effect for an officer if the specified event occurs.
b) Legal Proceedings
On November 21, 1994, a class action shareholders' suit was filed in the
United States District Court for the Southern District of Texas, Houston
Division seeking damages in the amount of $16 million. Plaintiffs are two
individuals who purchased shares of the Company on December 16, 1993
following the Company's initial public offering. In their complaint,
plaintiffs have sued the Company, and certain members of the board of
directors and certain officers alleging violations of Sections 11, 12 and
15 of the Securities Act of 1933, as amended (the "Act"). Plaintiffs have
also named David Blech, D. Blech & Co., Incorporated and Isaac Blech as
defendants. On January 23, 1995, the Company and
Page 11
<PAGE>
the members of the board of directors filed a motion to dismiss the
plaintiffs' complaint pursuant to Rule 9(b) and Rule 12b(6) of the
Federal Rules of Civil Procedure. In addition, defendant John Pietruski,
Chairman of the Board of Directors, filed a motion to dismiss the
plaintiffs' complaint pursuant to Rule 12(b)(2) of the Federal Rules of
Civil Procedure. On February 7, 1995, the plaintiffs filed a motion for
class certification. The Court denied the motion by the Company and by
John Pietruski.
On March 28, 1995, a second class action shareholders' suit was filed in
the United States District Court for the Southern District of New York
seeking unspecified damages. Plaintiffs are eight individuals who
purchased shares in various companies for which D. Blech & Co. acted as
an underwriter (or co-underwriter) or marketmaker. In their complaint,
the plaintiffs have sued the Company alleging violations of Section 10(b)
of the Securities Exchange Act of 1934, as Amended (the "Exchange Act")
and Rule 10b-5 promulgated thereunder by the Securities and Exchange
Commission (the "Commission"). Plaintiffs have named a number of
defendants, including David Blech and D. Blech & Co., four individuals,
two brokerage firms, one investment management company and ten other
companies for which D. Blech & Co. acted as underwriter or marketmaker.
On August 14, 1995, the Judicial Panel on The Multi-District Litigation
ordered that the action filed in the United States District Court for the
Southern District of Texas, Houston Division be transferred to the United
States District Court for the Southern District of New York for
coordinated or consolidated pretrial proceedings with the action pending
there. In light of the transfer and consolidation of the Texas case with
similar cases against other companies for which Blech acted as
underwriter, the Company requested that the Court in New York reconsider
the Texas Court's denial of its motion to dismiss as a part of the
Court's consideration of similar motions to dismiss filed by those
companies. All of these motions were presented to the Court on February
6, 1996. On June 6, 1996, the New York District Court entered two
memorandum opinions in the consolidated cases. In one of its opinions,
the Court dismissed all of the Exchange Act and common law fraud claims
filed against the Company and its officers and directors, but afforded
those plaintiffs the right to attempt to preserve those claims by
repleading them. The Court ordered that those claims be repleaded no
later than July 26, 1996. Plaintiffs did not replead those claims by the
deadline, resulting in the dismissal of all claims against the Company in
that litigation. In its opinion in the second case, i.e., the case filed
on November 21, 1994, the Court granted the Company and its officers and
directors' motion for reconsideration, but together with all other
similar pending motions, denied the requested relief. Pursuant to the
court's order, the Company therefore filed an answer in that case. Given
the early stage of that case, which is the only remaining litigation
against the Company, the Company is unable to evaluate its potential
outcome at this time. The Company disputes these claims and intends to
contest them vigorously.
Page 12
<PAGE>
ITEM 2.
-------
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE ENTERPRISE)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995
OVERVIEW
--------
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in the forward-looking statements as a result of certain
factors including those set forth under "Risk Factors" and elsewhere in the
Prospectus.
Since its formation in 1989, the Company has primarily devoted its resources
to fund research, drug discovery and development. The Company has been
unprofitable to date and expects to incur substantial losses for the next
several years as the Company invests in product research and development,
preclinical and clinical testing and regulatory compliance. The Company has
sustained net losses of approximately $54.2 million from inception to June
30, 1996. The Company has primarily financed its operations to date through
private placements of Common Stock and debt, which have raised an aggregate
of $34.3 million in net proceeds and an initial public offering ("IPO") in
December 1993, which raised an aggregate of $24.2 million in net proceeds
including the over-allotment.
On July 25, 1994, the Company acquired all of the outstanding stock of
ImmunoPharmaceutics, Inc. ("IPI") in exchange for Common Stock of the
Company. IPI's results of operations have been included in the consolidated
results of operations beginning August 1, 1994. During September 1993, IPI
entered into an agreement to provide research and development services, over
a period of 30 months, to EISAI Co., LTD ("EISAI"). The agreement, which
expired in March 1996, guaranteed contract research funding and allowed for
additional amounts to be received upon the attainment of certain milestones.
On August 10, 1995, IPI received a $2.0 million milestone payment from EISAI.
The Company decided to consolidate the IPI operation into TBC's in the first
half of 1996. The overall financial impact on the Company's performance will
be positive in 1996 due to expected reduction in general and administrative
expenses and the elimination of some research and development positions
associated with IPI. The Company believes the goodwill associated with IPI,
$643,750, was impaired due to the decision to cease operations at IPI and the
sale of IPI's QED business unit and charged it to expense in the year ended
December 1995. Restructuring costs, $421,165, associated with the
consolidation of the IPI operation were recorded in the quarter ended March
31, 1996.
The Company signed a collaborative agreement with Synthelabo, the
pharmaceutical division of L'Oreal on October 11, 1994 (the "Synthelabo
Agreement"). Upon consummation of the transaction, Synthelabo purchased
1,428,571 shares of Common Stock for a total of $5 million and paid the
Company a nonrefundable licensing fee of $3 million. In addition, Synthelabo
has committed to pay $3 million annually in research payments (payable in
quarterly installments) through July 31, 1997. In 1996, TBC has signed two
agreements with Synthelabo to provide to them copies of certain clinical data
for Novastan. TBC received $500,000 at the execution of one of these
agreements. Over the life of the agreements TBC may receive as much as $2.9
million, including the $500,000 received, from Synthelabo.
The Company's operating results have fluctuated significantly during each
quarter, and the Company anticipates that such fluctuations, largely
attributable to varying research and development commitments and
expenditures, will continue for the next several years.
Page 13
<PAGE>
RESULTS OF OPERATIONS
---------------------
THREE MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
Revenues decreased from $1,315,262 in the three month period ended June 30,
1995 to $1,283,474 in the same period of 1996, a decrease of 2%. Revenues
were composed of earned revenues under research agreements, sales of products
and services, and grant income. Revenue decreased due to the elimination of
the QED operation on October 1995 and the expiration of several grants.
Total operating expenses decreased 5% from $7,420,242 in the three month
period ended June 30, 1995 to $7,066,074 in the same period of 1996.
Excluding a one time charge for purchase of in-process research and
development in the second quarter of 1995, total operating expenses would
have increased 30% from $5,446,359 in the three month period ended June 30,
1995 to $7,066,074 in the same period of 1996. Research and development
expenses increased 52% from $3,965,457 in the three month period ended June
30, 1995 to $6,023,929 in the same period of 1996. This increase was
primarily attributable to continued increases in research and development
activity related to the clinical trials on the compound NOVASTAN/R/
(argatroban). General and administrative expenses decreased 30% from
$1,480,902 in the three month period ended June 30, 1995 to $1,042,145 in the
same period of 1996. The decrease was primarily attributable to the
elimination of the QED operation in October 1995. The Company had 101
employees at June 30, 1995, including 34 employees at IPI, and 80 employees
at June 30, 1996, including 2 employees at IPI.
Other income and expenses was composed entirely of investment income on
invested funds and interest expense. Investment income decreased from
$322,343 in the three month period ended June 30, 1995 to $251,390 in the
same period of 1996, a decrease of 22%. The decrease is due to lower
interest rates from 1995 to 1996 and a lower investment balance throughout
1996.
The Company incurred a net loss of $5,782,637 for the three month period
ended June 30, 1995, compared with a net loss of $5,531,210 for the same
period of 1996.
SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
Revenues increased from $2,648,969 in the six month period ended June 30,
1995 to $3,200,776 in the same period of 1996, an increase of 21%. Revenues
were composed of earned revenues under research agreements, sales of products
and services, and grant income. Revenue from research agreements increased
due to a payment from Synthelabo of $500,000 which was related to the signing
of an agreement to supply them with certain clinical data.
Total operating expenses increased 23% from $11,468,481 in the six month
period ended June 30, 1995 to $14,080,347 in the same period of 1996.
Research and development expenses increased 69% from $6,807,852 in the six
month period ended June 30, 1995 to $11,504,545 in the same period of 1996.
General and administrative expenses decreased 20% from $2,704,746 in the six
month period ended June 30, 1995 to $2,154,637 in the same period of 1996.
See comments under the preceding three month period comparison for
explanation of the changes.
Other income and expenses was composed entirely of investment income on
invested funds and interest expense. Investment income decreased from
$674,238 in the six month period ended June 30, 1995 to $497,278 in the same
period of 1996, a decrease of 26%. See comments under the preceding three
month period comparison for explanation of the decrease.
The Company incurred a net loss of $8,163,274 for the six month period ended
June 30, 1995, compared with a net loss of $10,382,293 for the same period of
1996.
Page 14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has financed its research and development activities to date
principally through (i) private sales of Common Stock and an initial public
offering of a unit security, (ii) issuance of Common Stock in conjunction
with assumption of liabilities and assets to acquire IPI and the Novastan(R)
license, (iii) revenues from research agreements and sales of products and
services and (iv) investment income, net of interest expense. During the
first six months of 1996, the Company utilized $10,336,805 net cash in
operating activities and $13,548,074 was provided by financing activities.
The use of cash in operations was caused by the Company's net loss of
$10,352,293. Financing activities produced approximately $13,000,000 in net
proceeds for the Company resulting from the 1996 private placement and the
remaining was from exercise of stock options and warrants.
The Company expects to incur substantial research and development
expenditures as it designs and develops biopharmaceutical products for the
prevention and treatment of cardiovascular diseases. The Company anticipates
that operating expenses will continue to increase during 1996 and subsequent
years. These costs to develop Novastan(R) have increased and will continue to
increase during 1996 due to the continuation of clinical trials and will
continue to be significant through the FDA approval process. These costs will
include, among other things, hiring personnel to direct and carry out all
operations related to the clinical trials, paying for hospital and procedural
costs, services of a contract research organization, and purchasing and
formulating large quantities of the compound to be used in such trials. In
addition, the Company anticipates that the administrative costs associated
with this effort will be significant. The amounts and timing of expenditures
will depend on the progress of ongoing research and clinical development and
product launch costs.
At June 30, 1996, the Company had cash, cash equivalents and short-term
investments of approximately $17.0 million. The Company anticipates that its
existing capital resources and its other revenue sources should be sufficient
to fund its cash requirements into the second quarter of 1997. The Company's
existing capital resources may not be sufficient to fund the Company's
operations through commercialization of its first product. Moreover, the
Genentech Agreement and Synthelabo Agreement require the Company to maintain
a tangible net worth of at least $5.0 million during the term of these
agreements. For failure to maintain at least $5.0 million of net worth,
Synthelabo may require that the technology be transferred to, and the
development program be conducted by, a joint venture owned by TBC and
Synthelabo. As of June 30, 1996, the Company's tangible net worth
significantly exceeded $5.0 million. The Genentech Agreement and Synthelabo
Agreement are also terminable for other reasons. Termination of either of
these agreements will have a material adverse effect on the Company.
The Company will need to raise substantial funds for future operations and is
actively seeking such funding through collaborative arrangements, public or
private financing, including equity financing, and other arrangements. The
Company expects that additional expenditures will be required if additional
product candidates enter clinical trials which may require additional
expenditures for laboratory space, scientific and administrative personnel,
and services of contract research organizations. There can be no assurance
that the Company will be able to obtain additional financings on acceptable
terms or in time to fund any necessary or desirable expenditures. In the
event such financing are not obtained, the Company's drug discovery or
development and programs may be delayed, scaled back or eliminated; or it
may be required to obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to
certain of its technologies, product candidates or products that the Company
would not otherwise relinquish. TBC's ability to raise additional funding is
contingent upon a number of factors which include (i) ongoing cost of
research and development activities, (ii) cost of clinical development of
product candidates, (iii) attainment of research and clinical goals of
product candidates, (iv) timely approval of TBC's product candidates by
appropriate governmental and regulatory agencies, (v) effect of any current
or future competitive products, (vi) ability to manufacture and market
products commercially, (vii) retention of key personnel and (viii) obtaining
and timing of sufficient financing through capital raising or collaborative
agreements to fund operations.
PENDING LITIGATION
As of July 31, 1996, one class action shareholder lawsuit remains pending
against the Company, and includes certain directors and officers as
defendants. The Company disputes all claims set forth in this lawsuit and
intends to contest it vigorously. However, the Company is unable to
evaluate the potential outcome at this time.
Page 15
<PAGE>
HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS
The Company's research and development activities involve the controlled use
of hazardous and radioactive materials. The Company is subject to federal,
state, and local laws and regulations governing the use, manufacture,
storage, handling and disposal of such materials and certain waste products.
Management believes that the Company is in compliance with all such laws,
regulations and standards currently in effect and that the cost of compliance
with such laws, regulation, and standards will not have a material adverse
effect on the Company. The Company does not expect to incur any capital
expenditures for environmental control in the foreseeable future.
IMPACT OF INFLATION AND CHANGING PRICES
The pharmaceutical research industry is labor intensive, and wages and
related expenses increase in inflationary periods. The lease of space and
related building services for the Houston facility contains a clause that
escalates rent and related services each year based on the increase in
building operating costs and the increase in the Houston Consumer Price
Index, respectively. To date, inflation has not had a significant impact on
operations.
ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (Statement 121). The Company has adopted the
statement effective December 31, 1995. Statement 121 requires that long-
lived assets and certain identifiable intangible assets to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In addition, Statement 121 requires that certain long-lived
assets and certain identifiable intangible assets to be disposed of be
reported at the lower of carrying amount or fair value less costs to sell.
The Company believes the goodwill associated with IPI, $643,750, was impaired
due to the decision to cease operations at IPI and the sale of the QED
business unit and has recorded a charge to expense.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" (Statement 123).
Statement 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans using a fair value based methodology
as an alternative to intrinsic value based methodology. In addition,
Statement 123 established the fair value as the measurement basis for
transactions in which an entity issues its equity instruments to acquire
goods or services from non-employees. The accounting and reporting
requirements of Statement 123 were effective beginning January 1, 1996. The
adaptation of Statement 123 is not expected to have a material impact on
TBC's 1996 financial position or results of operations as the Company intends
to continue using the intrinsic value method.
Page 16
<PAGE>
PART II OTHER INFORMATION
- -------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
On November 21, 1994, a class action shareholders' suit was filed in the
United States District Court for the Southern District of Texas, Houston
Division seeking damages in the amount of $16 million. Plaintiffs are two
individuals who purchased shares of the Company on December 16, 1993
following the Company's initial public offering. In their complaint,
plaintiffs have sued the Company, and certain members of the board of
directors and certain officers alleging violations of Sections 11, 12 and 15
of the Securities Act of 1933, as amended (the "Act"). Plaintiffs have also
named David Blech, D. Blech & Co., Incorporated and Isaac Blech as
defendants. On January 23, 1995, the Company and the members of the board of
directors filed a motion to dismiss the plaintiffs' complaint pursuant to
Rule 9(b) and Rule 12b(6) of the Federal Rules of Civil Procedure. In
addition, defendant John Pietruski, Chairman of the Board of Directors, filed
a motion to dismiss the plaintiffs' complaint pursuant to Rule 12(b)(2) of
the Federal Rules of Civil Procedure. On February 7, 1995, the plaintiffs
filed a motion for class certification. The Court denied the motion by the
Company and by John Pietruski.
On March 28, 1995, a second class action shareholders' suit was filed in the
United States District Court for the Southern District of New York seeking
unspecified damages. Plaintiffs are eight individuals who purchased shares
in various companies for which D. Blech & Co. acted as an underwriter (or co-
underwriter) or marketmaker. In their complaint, the plaintiffs have sued the
Company alleging violations of Section 10(b) of the Securities Exchange Act
of 1934, as Amended (the "Exchange Act") and Rule 10b-5 promulgated
thereunder by the Securities and Exchange Commission (the "Commission").
Plaintiffs have named a number of defendants, including David Blech and D.
Blech & Co., four individuals, two brokerage firms, one investment management
company and ten other companies for which D. Blech & Co. acted as underwriter
or marketmaker.
On August 14, 1995, the Judicial Panel on The Multi-District Litigation
ordered that the action filed in the United States District Court for the
Southern District of Texas, Houston Division be transferred to the United
States District Court for the Southern District of New York for coordinated
or consolidated pretrial proceedings with the action pending there. In
light of the transfer and consolidation of the Texas case with similar cases
against other companies for which Blech acted as underwriter, the Company
requested that the Court in New York reconsider the Texas Court's denial of
its motion to dismiss as a part of the Court's consideration of similar
motions to dismiss filed by those companies. All of these motions were
presented to the Court on February 6, 1996. On June 6, 1996, the New York
District Court entered two memorandum opinions in the consolidated cases. In
one of its opinions, the Court dismissed all of the Exchange Act and common
law fraud claims filed against the Company and its officers and directors,
but afforded those plaintiffs the right to attempt to preserve those claims
by repleading them. The Court ordered that those claims be repleaded no
later than July 26, 1996. Plaintiffs did not replead those claims by the
deadline, resulting in the dismissal of all claims against the Company in
that litigation. In its opinion in the second case, i.e., the case filed on
November 21, 1994, the Court granted the Company and its officers and
directors' motion for reconsideration, but together with all other similar
pending motions, denied the requested relief. Pursuant to the court's order,
the Company therefore filed an answer in that case. Given the early stage of
that case, which is the only remaining litigation against the Company, the
Company is unable to evaluate its potential outcome at this time. The Company
disputes these claims and intends to contest them vigorously.
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
None
Page 17
<PAGE>
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
On May 3, 1996, an annual meeting of the stockholders of the Company was
held. The holders of 16,447,395 shares of Common Stock were present in
person or represented by proxy at the meeting. At the meeting, the
stockholders took the following actions:
(a) Election of Directors
The stockholders elected the following persons to serve as
directors of the company until the next annual meeting of stockholders,
or until their successors are duly elected and qualified:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NAME VOTES FOR VOTES ABSTAINING
-------------------- ---------------- ----------------
<S> <C> <C>
PATRICK OWEN BURNS 16,381,565 65,830
---------- ------
FRANK CARLUCCI 16,362,552 84,843
---------- ------
ROBERT J. CRUIKSHANK 16,366,980 80,415
---------- ------
RICHARD A.F. DIXON 16,395,850 51,545
---------- ------
DAVID B. MCWILLIAMS 16,395,850 51,545
---------- ------
JOHN M. PIETRUSKI 16,366,980 80,415
---------- ------
JAMES A. THOMSON 16,381,565 65,830
---------- ------
JAMES T. WILLERSON 16,395,850 51,545
---------- ------
</TABLE>
(b) Approval of the Amendment to the Certificate of Incorporation
The stockholders approved the proposal to amend the Company's
Certificate of Incorporation to increase the authorized number of shares
of the Company's common stock from 40 million shares to 75 million
shares. Votes were cast as follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
VOTES FOR VOTES AGAINST VOTES ABSTAINING BROKER NON-VOTES
---------- ------------- ---------------- ----------------
<S> <C> <C> <C>
15,863,798 245,522 66,591 271,484
---------- ------------- ---------------- ----------------
</TABLE>
ITEM 5. OTHER INFORMATION
- --------------------------
The lead compound in the Company's vascular inflammation program, TBC 1269,
an antagonist of selectin, is currently in preclinical studies and is
expected to enter Phase I clinical trials in Europe in 1996 followed by the
filing of a U.S. investigational new drug application ("IND") in early 1997.
Page 18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
EXHIBIT NO. DESCRIPTION
----------- -----------
3.6 Certificate of Amendment of Certificate of Incorporation
10.51 (1)* Letter Agreement regarding Argatroban Studies Information
dated December 14, 1995, between the Company and Synthelabo
Recherche
10.52 (1) Amendment B to Clinical Trial Research Agreement dated
February 10, 1995 between Texas Biotechnology Corporation
and Coromed Inc.
10.53 Letter of Understanding between Texas Biotechnology Corporation
and Mitsubishi Chemical Corporation dated July 10, 1996
10.54 Form of Indemnification Agreement between Texas Biotechnology
Corporation and its officers and directors dated May 3, 1996
10.55 Amended and Restated 1995 Non-Employee Director Stock Option
Plan (as amended by the Board of Directors on June 30, 1996)
27.1 Financial Data Schedule
- -----------
* The Company has omitted certain portions of this agreement in reliance on
Rule 24b-2 under the Securities and Exchange Act of 1934, as amended.
(1) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for the
quarter ended March 31, 1996 and incorporated herein by reference.
REPORTS ON FORM 8-K
--------------------
None
Page 19
<PAGE>
TEXAS BIOTECHNOLOGY CORPORATION
JUNE 30, 1996
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 13th day of August, 1996.
TEXAS BIOTECHNOLOGY CORPORATION
BY: /s/ David B. McWilliams
---------------------------------
DAVID B. MCWILLIAMS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BY: /s/ Stephen L. Mueller
---------------------------------
STEPHEN L. MUELLER
VICE PRESIDENT OF ADMINISTRATION
SECRETARY AND TREASURER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
Page 20
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
3.6 Certificate of Amendment of Certificate of Incorporation
10.51 (1)* Letter Agreement regarding Argatroban Studies Information
dated December 14, 1995, between the Company and Synthelabo
Recherche
10.52 (1) Amendment B to Clinical Trial Research Agreement dated
February 10, 1995 between Texas Biotechnology Corporation
and Coromed Inc.
10.53 Letter of Understanding between Texas Biotechnology Corporation
and Mitsubishi Chemical Corporation dated July 10, 1996
10.54 Form of Indemnification Agreement between Texas Biotechnology
Corporation and its officers and directors dated May 3, 1996
10.55 Amended and Restated 1995 Non-Employee Director Stock Option
Plan (as amended by the Board of Directors on June 30, 1996)
27.1 Financial Data Schedule
</TABLE>
- -----------
* The Company has omitted certain portions of this agreement in reliance on
Rule 24b-2 under the Securities and Exchange Act of 1934, as amended.
(1) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for the
quarter ended March 31, 1996 and incorporated herein by reference.
Page 21
<PAGE>
EXHIBIT 3.6
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT
OF "TEXAS BIOTECHNOLOGY CORPORATION", FILED IN THIS OFFICE ON THE EIGHTH DAY
OF MAY, A.D. 1996, AT 9 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL]
/s/ Edward J. Freel
__________________________________
Edward J. Freel, Secretary of State
[SEAL]
2203958 8100 AUTHENTICATION: 7954110
960134172 DATE: 05-21-96
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/08/1996
960134172-2203958
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TEXAS BIOTECHNOLOGY CORPORATION
Texas Biotechnology Corporation, a Delaware corporation (the
"Corporation"), does hereby certify:
ARTICLE ONE
That resolutions, which set forth a proposed amendment to the
Corporation's Certificate of Incorporation, as amended (the "Certificate"),
declared the amendment advisable and in the best interest of the Corporation and
called for the approval and adoption of the amendment by the Corporation's
stockholders at the annual meeting of the stockholders, were discussed and duly
adopted by the members of the Corporation's Board of Directors at their regular
meeting held on March 5, 1996, pursuant to Section 141 of the General
Corporation Law of Delaware. The resolutions setting forth the proposed
amendment to this Certificate of Incorporation set forth below increase the
number of shares of the Corporation's common stock, par value $.005 per share
(the "Common Stock") authorized for issuance from 40 Million shares to 75
Million shares. The resolution is as follows:
FURTHER RESOLVED, that it is advisable and in the best interest
of the Corporation to amend the Certificate by deleting the first
paragraph of Article Fourth thereof in its entirety and inserting the
first paragraph of the amendment as set forth below in lieu thereof and
that the amendment as set forth below be and hereby is approved,
adopted, ratified and confirmed:
"FOURTH: The total shares of all classes of stock which the
Corporation shall have the authority to issue is Seventy Five
Million (75,000,000) shares of Common Stock (hereinafter called
"Common Stock") of a par value of one-half of one cent ($.005)
per share and Five Million (5,000,000) shares of Preferred Stock
(hereinafter called "Preferred Stock") of a par value of one-
half of one cent ($.005) per share."
ARTICLE TWO
That thereafter, pursuant to a duly adopted resolution of the Board of
Directors, the Corporation submitted the amendment to the Corporation's
stockholders at the annual stockholders' meeting and that the holders of a
majority of the shares of issued and outstanding Common Stock voted in favor of
the foregoing amendment.
<PAGE>
ARTICLE THREE
That the foregoing amendment was duly adopted by the stockholders of the
Corporation on May 3, 1996 in accordance with the provisions of Section 242 of
the Delaware General Corporation Law.
ARTICLE FOUR
That the capital of the Corporation shall not be reduced by reason of
the foregoing amendment.
IN WITNESS WHEREOF, the undersigned, being duly elected officers of the
Corporation, hereby declare and certify that the facts herein stated are true
and accordingly execute this instrument as of the 3 day of May, 1996.
TEXAS BIOTECHNOLOGY CORPORATION
/s/ David B. McWilliams
___________________________________
By: David B. McWilliams, President
ATTEST:
/s/ Stephen L. Mueller
______________________________
Stephen L. Mueller
Vice President of Administration
Secretary and Treasurer
<PAGE>
EXHIBIT 10.53
UNDERSTANDING
Mitsubishi Chemical Corporation (hereinafter referred to as "Mitsubishi"),
Genentech, Inc. (hereinafter referred to as "Genentech") and Texas Biotechnology
Corporation (hereinafter referred to as "TBC") entered into the Extension
Agreement dated June 30, 1995 relating to the development and commercialization
of Argatroban for specified human pharmaceuticals indications (hereinafter
referred to as "Extension Agreement").
In connection with the Extension Agreement, Mitsubishi hereby agrees as follows:
1. Notwithstanding the provisions of Section 2(c) (i) of the Extension
Agreement, Mitsubishi shall withhold its right to terminate Genentech's
rights under the Genentech/MCC Agreement (as defined in the Extension
Agreement) due to TBC's failure to meet milestones set forth in Section 2(a)
or (b) of the Extension Agreement if the NDA is filed by TBC with the FDA
regarding the HIT/HITTS indication for NOVASTAN/R/ by June 30, 1997, and if
TBC accomplishes any of the following additional milestones without any cure
period;
(i) On or before December 31, 1996, TBC will have enrolled and treated with
study drug 300 subjects in clinical trial ARG-911 and 30 patients in
clinical trial for ARG-310;
(ii) On or before March 31, 1997, TBC will complete, analyze and report on
the clinical trials ARG-23D (total 900 subjects) and ARG-231 (total 120
subjects);
(iii) On or before September 30, 1997, TBC will have determined a go decision
for proceeding to Phase III clinical trials in AMI; and
(iv) TBC shall provide to MCC monthly reports and shall arrange bi-monthly
meetings with the MCC regarding the progress and status of all of its
NOVASTAN/R/ clinical trials, and shall provide such other information
related thereto as MCC may reasonably request.
If said NDA is filed by June 30, 1997, and the above milestones are met,
Mitsubishi will waive all rights of termination relating to TBC's failure to
meet some of the milestones set forth in Section 2(a) or (b) of the Extension
Agreement.
If the Genentech's rights under the Genentech/MCC Agreement is terminated only
due to TBC's failure to meet the milestone set forth in paragraph 1(iii) above,
Mitsubishi shall grant directly to TBC a license of MKC Know-How and MKC Patent
Rights (as defined in the Genentech/MCC Agreement) in the field of treatment of
HIT/HITTS on substantially the same (for TBC) terms and conditions as those set
forth in the Genentech/MCC Agreement.
As of 10th day of July, 1996
Mitsubishi Chemical Corporation
By: /s/ Akihisa Ohno
______________________________________
Akihisa Ohno
General Manager
International Operations Dept.
<PAGE>
EXHIBIT 10.54
AGREEMENT
---------
This Agreement, made and entered into this ________ day of
____________________ ("Agreement"), is by and between Texas Biotechnology
Corporation, a Delaware corporation ("Company"), and ____________________
("Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to serve
publicly-held corporations as directors or in other capacities unless they are
provided with adequate protection through insurance or adequate indemnification
against inordinate risks or claims and actions against them arising out of their
service to, and activities on behalf of, the corporation; and
WHEREAS, the current impracticability of obtaining adequate insurance and
the uncertainties relating to indemnification have increased the difficulty of
attracting and retaining such persons;
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that the inability to attract and retain such persons is detrimental to the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified;
WHEREAS, Indemnitee is willing to serve, continue to serve and to take on
additional service for or on behalf of the Company on the condition that he be
so indemnified; and
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to serve as
______________ of the Company. Indemnitee may at any time and for any reason
resign from such position (subject to any other contractual obligation or any
obligation imposed by operation of law), in which event the Company shall have
no obligation under this Agreement to continue Indemnitee in any such position.
Section 2. Indemnification - General. The Company shall indemnify, and
advance Expenses (as hereinafter defined), to Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may thereafter from
time to time permit. The rights of Indemnitee provided under
<PAGE>
the preceding sentence shall include, but shall not be limited to, the rights
set forth in the other Sections of this Agreement.
Section 3. Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 3 if, by reason of his Corporate Status (as hereinafter defined)
or by reason of anything done or not done by Indemnitee in any such capacity, he
is, or is threatened to be made, a party to any threatened, pending, or
completed Proceeding (as hereinafter defined), other than a Proceeding by or in
the right of the Company. Pursuant to this Section 3, Indemnitee shall be
indemnified to the full extent of the law against Expenses, judgments,
penalties, fines and amounts paid in settlement (including all interest,
assessments, and other charges paid or payable in connection with or in respect
of such expenses, judgments, fines, penalties or amounts paid in settlement)
actually and reasonably incurred by him or on his behalf in connection with such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal Proceeding, had no reasonable
cause to believe his conduct was unlawful.
Section 4. Proceedings by or in the Right of the Company. Indemnitee shall
be entitled to the rights of indemnification provided in this Section 4 if, by
reason of his Corporate Status, he is, or is threatened to be made, a party to
any threatened, pending or completed Proceeding brought by or in the right of
the Company to procure a judgment in its favor. Pursuant to this Section,
Indemnitee shall be indemnified to the full extent of the law against Expenses
actually and reasonably incurred by him or on his behalf in connection with such
Proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company. Notwithstanding the
foregoing, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that, if applicable law so permits,
indemnification against Expenses shall nevertheless be made by the Company in
such event if and only to the extent that the Court of Chancery of the State of
Delaware, or the court in which such Proceeding shall have been brought or is
pending, shall determine.
Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Company
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this Section and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
2
<PAGE>
Section 6. Indemnification for Expenses of a Witness. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding, he shall be indemnified
against all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith.
Section 7. Advancement of Expenses. The Company shall advance all
reasonable Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within two days after the receipt by the Company of a statement
or statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses; provided, however, that Indemnitee shall not be required to reimburse
Company for any advancement of Expenses until a final judicial determination is
made (as to which all rights of appeal have been exhausted or lapsed).
Section 8. Procedure for Determination of Entitlement to Indemnification.
(a) To obtain indemnification under this Agreement, Indemnitee
shall submit to the Company a written request, including therein or therewith
such documentation and information as is reasonably available to Indemnitee and
is reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board of Directors in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant
to the first sentence of Section 8(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) (unless
Indemnitee shall request that such determination be made by the Board of
Directors or the stockholders, in which case by the person or persons or in the
manner provided for in clauses (ii) or (iii) of this Section 8(b)) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the
Board of Directors by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors
consisting of Disinterested Directors is not obtainable or, even if obtainable,
such quorum of Disinterested Directors so directs, by Independent Counsel in a
written opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee or (C) if so directed by the Board of Directors, by the stockholders
of the Company; or (iii) as provided in Section 9(b) of this Agreement; and, if
it is so determined that Indemnitee is entitled to Indemnification, payment to
Indemnitee shall be made within ten (10) days after such determination.
Indemnitee shall cooperate with the person, persons or entity making such
determination with respect to Indemnitee's entitlement to indemnification,
including
3
<PAGE>
providing to such person, persons or entity upon reasonable advance request any
documentation or information which is not privileged or otherwise protected from
disclosure and which is reasonably available to Indemnitee and reasonably
necessary to such determination. Any costs or expenses (including attorneys,
fees and disbursements) incurred by Indemnitee in so cooperating with the
person, persons or entity making such determination shall be borne by the
Company (irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) In the event the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 8(b) hereof, the
Independent Counsel shall be selected as provided in this Section 8(c). If a
Change of Control shall not have occurred, the Independent Counsel shall be
selected by the Board of Directors, and the Company shall give written notice to
Indemnitee advising him of the identity of the Independent Counsel so selected.
If a Change of Control shall have occurred, the Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board of Directors, in which event the preceding sentence shall
apply), and Indemnitee shall give written notice to the Company advising it of
the identity of the Independent Counsel so selected. In either event, Indemnitee
or the Company, as the case may be, may, within 7 days after such written notice
of selection shall have been given, deliver to the Company or to Indemnitee, as
the case may be, a written objection to such selection. Such objection may be
asserted only on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" as defined in Section 17 of this
Agreement, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, the Independent
Counsel so selected may not serve as Independent Counsel unless and until a
court has determined that such objection is without merit. If, within 20 days
after submission by Indemnitee of a written request for indemnification pursuant
to Section 8(a) hereof, no Independent Counsel shall have been selected without
objection, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for
resolution of any objection which shall have been made by the Company or
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the Court or by such
other person as the Court shall designate, and the person with respect to whom
an objection is so resolved or the person so appointed shall act as Independent
Counsel under Section 8(b) hereof. The Company shall pay any and all reasonable
fees and expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 8(b) hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
8(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
4
<PAGE>
Section 9. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 8(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under Section
8 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within 60 days after receipt
by the Company of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 9(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
stockholders pursuant to Section 8(b) of this Agreement and if (A) within 15
days after receipt by the Company of the request for such determination the
Board of Directors has resolved to submit such determination to the stockholders
for their consideration at an annual meeting thereof to be held within 75 days
after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within 15 days after such receipt for the
purpose of making such determination, such meeting is held for such purpose
within 60 days after having been so called and such determination is made
thereat, or (ii) if the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 8(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company or, with respect to any criminal Proceeding,
that Indemnitee had reasonable cause to believe that his conduct was unlawful.
Section 10. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 8
of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement, or (ii)
5
<PAGE>
advancement of Expenses is not timely made pursuant to Section 7 of this
Agreement, or (iii) the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 8(b) of this Agreement and such
determination shall not have been made and delivered in a written opinion within
90 days after receipt by the Company of the request for indemnification, or (iv)
payment of indemnification is not made pursuant to Section 6 of this Agreement
within ten (10) days after receipt by the Company of a written request therefor,
or (v) payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Sections 8 or 9 of
this Agreement, Indemnitee shall be entitled to an adjudication in an
appropriate court of the State of Delaware, or in any other court of competent
jurisdiction, of his entitlement to such indemnification or advancement of
Expenses, and Company hereby consents to service of process and to appear in any
such proceeding. Alternatively, Indemnitee, at his option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association. Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 10(a); provided, however, that the foregoing clause
shall not apply in respect of a proceeding brought by an Indemnitee to enforce
his rights under Section 5 of the Agreement.
(b) In the event that a determination shall have been made pursuant
to Section 8 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 10 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section 10 the
Company shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been
made pursuant to Section 8 or 9 of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 10, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 10 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section 10,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for
6
<PAGE>
breach of, this Agreement, Indemnitee shall be entitled to recover from the
Company, and shall be indemnified by the Company against, any and all expenses
(of the types described in the definition of Expenses in Section 17 of this
Agreement) actually and reasonably incurred by him in such judicial adjudication
or arbitration, but only if he prevails therein. If it shall be determined in
said judicial adjudication or arbitration that Indemnitee is entitled to receive
part but not all of the indemnification or advancement of expenses sought, the
expenses incurred by Indemnitee in connection with such judicial adjudication or
arbitration shall be appropriately prorated.
Section 11. Non-Exclusivity; Insurance; Subrogation; No Duplicate
Payments.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or any provision hereof shall be
effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal.
(b) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 12. Binding Effect; Survival of Rights. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties and
their respective successors, assigns (including any direct or indirect
successors by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company), spouses, heirs,
executors, administrators, and personal and legal representatives. The Company
shall require and cause any successor (whether direct or indirect by purchase,
merger, consolidation or otherwise) to all, substantially all or a substantial
part, of the business and/or assets of the Company, by
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written agreement in form and substance satisfactory to the Indemnitee,
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. This Agreement shall continue in effect regardless
of whether Indemnitee continues to serve as an officer or director of the
Company or of any other enterprise at the Company's request.
Section 13. Limitations Period. No legal action shall be brought and no
cause of action shall be asserted by or in the right of the Company or any
affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs,
executors or personal or legal representatives after the expiration of two years
from the date of accrual of such cause of action, and any claim or cause of
action of the Company or its affiliate shall be extinguished and deemed released
unless asserted by the timely filing of a legal action within such two year
period; provided, however, that if any shorter period of limitations is
otherwise applicable to any such cause of action such shorter period shall
govern.
Section 14. Severability. If any provision of this Agreement shall be held
to be invalid, illegal or unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, each portion of any Section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
Section 15. Exception to Right of Indemnification or Advancement of
Expenses. Notwithstanding any other provision of this Agreement, Indemnitee
shall not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding, or any claim therein, brought or made
by him against the Company or the Individual Indemnitors, unless the Company has
joined in or consented to the initiation of such Proceeding.
Section 16. Identical Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
Section 17. Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
Section 18. Definitions. For purposes of this Agreement:
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(a) "Change in Control" means a change in control of the Company
occurring after the Effective Date of a nature that would be required to be
reported in response to item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the Effective Date (i) any "person" (as such term is used in Section 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board of Directors in office immediately prior to such person
attaining such percentage interest; (ii) the Company is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter; or (iii) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
(b) "Corporate Status" describes the status of a person who is or
was a director, officer, employee, agent or fiduciary of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the request of the
Company.
(c) "Disinterested Director" means a director of the Company who is
not and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(d) "Effective Date" means the date of this Agreement.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses paid or
incurred in connection with prosecuting, defending, preparing to prosecute or
defend, investigating, or being or preparing to be a witness in a Proceeding,
including on appeal.
(f) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party, or (ii) any other
party to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any
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person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(g) "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, administrative hearing, inquiry or investigation,
whether civil, criminal, administrative or other (whether instituted by the
Company or any other party), or any inquiry or investigation that Indemnitee in
good faith believes might lead to the institution of any such action, suit, or
proceeding, whether civil, criminal, administrative, investigative, or other;
Notwithstanding the foregoing, the term "Proceeding" shall not include any
action, suit, arbitration, alternate dispute resolution mechanism,
administrative hearing, or any inquiry or investigation initiated by an
Indemnitee pursuant to Section 10 of this Agreement to enforce his rights under
this Agreement.
Section 19. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provision of this Agreement shall
be deemed or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
Section 20. Notice by Indemnitee. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
Section 21. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
____________________________________________
____________________________________________
____________________________________________
(b) If to the Company, to:
Texas Biotechnology Corporation
7000 Fannin, Suite 1920
Houston, Texas 77030
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or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
Section 22. Governing Law. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
Section 23. Miscellaneous. Use of the masculine pronoun shall be deemed to
include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
TEXAS BIOTECHNOLOGY CORPORATION
By:
----------------------------------
Indemnitee
-------------------------------------
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EXHIBIT 10.55
TEXAS BIOTECHNOLOGY CORPORATION
AMENDED AND RESTATED 1995 NON-EMPLOYEE
DIRECTOR STOCK OPTION PLAN
(AS AMENDED BY THE BOARD OF DIRECTORS ON JUNE 30, 1996)
1. PURPOSE.
This 1995 Non-Employee Director Stock Option Plan (this "Plan") of Texas
Biotechnology Corporation, a Delaware corporation (the "Company"), is adopted,
subject to stockholder approval, for the benefit of the directors of the Company
who, during the time of their service, are not employees of the Company or any
of its subsidiaries ("Non-Employee Directors"), and is intended to advance the
interests of the Company by providing the Non-Employee Directors with additional
incentives to serve the Company by increasing their proprietary interest in the
success of the Company.
2. ADMINISTRATION.
This Plan shall be administered by a committee appointed by the Board of
Directors of the Company (the "Committee"), which shall consist of not less than
one member of the Board of Directors. For the purposes of this Plan, a majority
of the members of the Committee shall constitute a quorum for the transaction of
business, and the vote of a majority of those members present at any meeting
shall decide any question brought before that meeting. No member of the
Committee shall be liable for any act or omission of any other member of the
Committee or for any act or omission on his own part, including (without
limitation) the exercise of any power or discretion given to him under this
Plan, except those resulting from his own gross negligence or willful
misconduct. All questions of interpretation and application of this Plan, or as
to non-qualified options granted hereunder (the "Options"), shall be subject to
the determination, which shall be final and binding, of a majority of the whole
Committee. Notwithstanding the above, the selection of Non-Employee Directors
to whom Options are to be granted, the number of shares subject to any Option,
the exercise price of any Option and the term of any Option shall be as
hereinafter provided and the Committee shall have no discretion as to such
matters.
3. OPTION SHARES
The stock subject to the Options and other provisions of this Plan shall be
shares of the Company's Common Stock, par value $.005 per share (the "Common
Stock"). The total amount of the Common Stock with respect to which Options may
be granted shall not exceed 200,000 shares in the aggregate; provided, that the
class and aggregate number of shares which may be subject to the Options granted
hereunder shall be subject to adjustment in accordance with the provisions of
Section 11 of this Plan. Such shares may be treasury shares or authorized but
unissued shares.
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If any outstanding Option for any reason shall expire or terminate by
reason of the death of the optionee or the fact that the optionee ceases to be a
director, the surrender of any such Option, or any other cause, the shares of
Common Stock allocable to the unexercised portion of such Option may again be
subject to an Option under this Plan.
4. GRANT OF OPTIONS.
(a) Directors Elected after the Effective Date of this Plan Upon their First
Election. Subject to the provisions of Section 18 hereof, for so long as this
Plan is in effect and shares are available for the grant of Options hereunder,
each person who shall be elected a Non-Employee Director after the Effective
Date of this Plan, excluding current Non-Employee Directors on the Effective
Date of this Plan, shall be granted, on the date of his or her first election, a
non-qualified Option to purchase a number of shares of Common Stock having an
aggregate fair market value (as defined in Subsection 4(c) below) on the date of
grant of $20,000 at a per share Option Price equal to the fair market value of a
share of Common Stock on such date (such number of shares being subject to the
adjustments provided in Section 11 of this Plan); provided, however, that no
Options shall be granted under this Subsection 4(a) for so long as a sufficient
number of shares of Common Stock remain available under the Company's existing
Stock Option Plan for Non-Employee Directors to permit the grant of options
pursuant to the terms of such plan. This Subsection 4(a) shall only apply to a
Director the first time he or she is elected Director of the Company and in no
event shall this Plan (whether by its sole operation or in operation with any
other plans) entitle a Director to receive, upon his initial election to the
Board, options to purchase a number of shares of Common Stock in excess of a
number of shares of Common Stock having an aggregate fair market value on the
date of grant of $20,000. Persons elected to be Directors for a second or any
subsequent term shall be granted options in accordance with Subsection 4(b)
below.
(b) Directors Elected after the Effective Date of this Plan Upon their Second
or any Subsequent Election. Subject to the provisions of Section 18 hereof, for
so long as this Plan is in effect and shares are available for the grant of
Options hereunder, each person who shall be elected a Non-Employee Director for
his or her second (or any subsequent) term after their initial election to the
Board of Directors, including current Non-Employee Directors on the Effective
Date of this Plan, shall be granted, on the date of each such election, a non-
qualified Option to purchase a number of shares of Common Stock having an
aggregate fair market value on the date of grant of $15,000 at a per share
Option Price equal to the fair market value of a share of Common Stock on such
date (such number of shares being subject to the adjustments provided in Section
11 of this Plan); provided, however, that no Options shall be granted under this
Subsection 4(b) for so long as a sufficient number of shares of Common Stock
remain available under the Company's existing Stock Option Plan for Non-Employee
Directors to permit the grant of options pursuant to the terms of such plan.
This Subsection 4(b) shall only apply to a Director on his or her second (or any
subsequent) election to the Company's Board of Directors after their initial
election to the Board of Directors and in no event shall this Plan (whether by
its sole operation or in operation with any other plans) entitle a Director to
receive, upon any subsequent
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election to the Board, options to purchase a number of shares of Common Stock in
excess of a number of shares of Common Stock having an aggregate fair market
value on the date of grant of $15,000.
(c) Fair Market Value. For purposes of this Section 4, the "fair market
value" of a share of Common Stock on any date shall be (i) the closing sales
price on the immediately preceding business day of a share of Common Stock as
reported on the principal securities exchange on which shares of Common Stock
are then listed or admitted to trading or (ii) if not so reported, the average
of the closing bid and asked prices for a share of Common Stock on the
immediately preceding business day as quoted on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") or (iii) if not quoted
on NASDAQ, the average of the closing bid and asked prices for a share of Common
Stock as quoted by the National Quotation Bureau's "Pink Sheets" or the National
Association of Securities Dealers' OTC Bulletin Board System. If the price of a
share of Common Stock shall not be so reported, the fair market value of a share
of Common Stock shall be determined by the Committee in its absolute discretion.
5. VESTING AND TERM OF OPTIONS.
Each Option granted shall vest in accordance with the following schedule:
Subject to the provisions of Section 8 hereof, Options exercisable
for one-third (1/3) of the shares granted at the time of any grant shall
vest immediately and then an additional one third (1/3) shall vest at the
end of the first full calendar year and then the remaining one third (1/3)
shall vest at the end of the subsequent full calendar year after the date
of such grant, provided that the grantee shall remain a director of the
Company at such time. Any unvested Options held by any optionee who
subsequently ceases to be a director of the Company for any reason, shall
thereupon be immediately null and void and the shares of Common Stock
underlying such Options shall again be subject to the grant of an Option in
accordance with Section 3 of this Plan. Each Option granted under this Plan
shall expire on the tenth anniversary of the date on which the Option was
granted.
6. EXERCISE OF OPTIONS.
An optionee may exercise his Option by delivering to the Company a written
notice stating (a) that such optionee wishes to exercise such Option on the date
such notice is so delivered, (b) the number of shares of Common Stock with
respect to which such Option is to be exercised and (c) the address to which the
certificate representing such shares of stock should be mailed (the "Option
Notice"). To be effective, the Option Notice shall be accompanied by payment of
the Option Price for each of such shares of Common Stock. Payment for shares of
Common Stock purchased upon the exercise of an Option (the "Option Payment")
shall be made on the effective date of such exercise in cash, by certified
check, bank cashier's check or wire transfer.
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As promptly as practicable after the receipt by the Company of the Option
Notice and the Option Payment, a certificate representing the number of shares
of stock with respect to which such Option has been so exercised registered in
the name of such optionee, shall be delivered to such optionee, provided that
delivery shall be considered to have been made when such certificate shall have
been mailed, postage prepaid, to optionee at the address specified for that
purpose in the Option Notice.
7. TRANSFERABILITY OF OPTIONS.
Options shall not be transferable by the optionee otherwise than by will or
under the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined in the Internal Revenue Code of 1986, as amended, or
Title I of the Employee Retirement Income Security Act, or the rules thereunder.
Notwithstanding anything herein to the contrary, should Rule 16b-3(a)(2)
promulgated under the Securities Exchange Act of 1934, as amended (the "1934
Act") be amended to permit Option transfers not permitted at the time of the
adoption of this Plan (a) without requiring action by stockholders and (b)
without limiting the benefits to the optionee of Rule 16b-3 under the 1934 Act,
then in that case, such transfers as are specifically permitted under Rule 16b-
3(a)(2) shall be permitted under the Plan without further action, to the fullest
extent permissible under Rule 16b-3(a)(2).
8. TERMINATION.
Except as may be otherwise expressly provided in this Plan, each Option, to
the extent not previously exercised, shall terminate on the earliest of the
following:
(a) On the last day of the three-month period commencing on the date
on which the optionee ceases to be a member of the Company's Board of
Directors, for any reason other than the death of the optionee, during
which period the optionee shall be entitled to exercise all Options held by
the optionee on the date on which the optionee ceased to be a member of the
Company's Board of Directors which could have been exercised on such date;
(b) On the last day of the six-month period commencing on the date
of the optionee's death while serving as a member of the Company's Board of
Directors, during which period the executor or administrator of the
optionee's estate or the person or persons to whom the optionee's Option
shall have been transferred by will or the laws of descent or distribution,
shall be entitled to exercise all Options to the extent otherwise
exercisable hereunder on the date of his death; or
(c) Ten years after the date of grant of such Option.
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9. REQUIREMENTS OF LAW.
The Company shall not be required to sell or issue any shares under any Option
if the issuance of such shares shall constitute a violation by the optionee or
the Company of any provisions of any law or regulation of any governmental
authority. Each Option granted under this Plan shall be subject to the
requirement that, if at any time the Board of Directors of the Company or the
Committee shall determine that (i) the listing, registration or qualification of
the shares subject thereto upon any securities exchange, NASDAQ or under any
state or federal law of the United States or of any other country or
governmental subdivision thereof, (ii) the consent or approval of any
governmental regulatory body, or (iii) the making of investment or other
representations, are necessary or desirable in connection with the issue or
purchase of shares subject thereto, no such Option may be exercised in whole or
in part unless such listing, registration, qualification, consent, approval or
representation shall have been effected or obtained free of any conditions not
acceptable to the Board of Directors. Any determination in this connection by
the Committee or the Board of Directors shall be final, binding and conclusive.
If the shares issuable on exercise of an Option are not registered under the
Securities Act of 1933, the Company may imprint on the certificate for such
shares the following legend or any other legend which counsel for the Company
considers necessary or advisable to comply with the Securities Act of 1933:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES LAWS OF
ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON SUCH REGISTRATION
OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY TO
THE CORPORATION, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION,
THAT REGISTRATION IS NOT REQUIRED FOR SUCH SALE OR TRANSFER.
The Company may, but shall in no event be obligated to, register any securities
covered hereby pursuant to the Securities Act of 1933 (as now in effect or as
hereinafter amended) and, if any shares are so registered, the Company may
remove any legend on certificates representing such shares. The Company shall
not be obligated to take any other affirmative action to cause the exercise of
an Option or the issuance of shares pursuant thereto to comply with any law or
regulation of any governmental authority.
10. NO RIGHTS AS STOCKHOLDER.
Optionee shall have no rights as a stockholder with respect to shares covered
by his or her Options until the date of issuance of a stock certificate for such
shares; and, except as otherwise provided in Section 11 hereof, no adjustment
for dividends, or otherwise, shall be made if the record date therefor is prior
to the date of issuance of such certificate.
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11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
The existence of outstanding Options shall not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise.
If the Company shall effect a subdivision or consolidation of shares or other
capital readjustment, the payment of a stock dividend or other increase or
reduction of the number of shares of the Common Stock outstanding, without
receiving consideration therefor in money, services or property, then (a) the
number, class and per share price of shares of stock subject to outstanding
Options hereunder shall be appropriately adjusted in such a manner as to entitle
an optionee to receive upon exercise of an Option, for the same aggregate cash
consideration, the same total number and class or classes of shares as he would
have received had he exercised his Option in full immediately prior to the event
requiring the adjustment; and (b) the number and class of shares then reserved
for issuance under this Plan and the number of shares to be subject to the
grants to be made pursuant to Section 4(a) and Section 4(b) shall be adjusted by
substituting for the total number and class of shares of stock then reserved or
subject to grant the number and class or classes of shares of stock that would
have been received by the owner of an equal number of outstanding shares of
Common Stock as the result of the event requiring the adjustment, disregarding
any fractional shares.
If the Company merges or consolidates with another corporation, whether or not
the Company is a surviving corporation, or if the Company is liquidated or sells
or otherwise disposes of substantially all its assets while unexercised Options
remain outstanding under this Plan, after the effective date of such merger,
consolidation, liquidation, sale or other disposition, as the case may be, each
holder of an outstanding Option shall be entitled, upon exercise of such Option,
to receive, in lieu of shares of Common Stock, the number and class or classes
of shares of such stock or other securities or property to which such holder
would have been entitled if, immediately prior to such merger, consolidation,
liquidation, sale or other disposition, such holder had been the holder of
record of a number of shares of Common Stock equal to the number of shares as to
which such Option may be exercised.
Except as otherwise expressly provided in this Plan, the issue by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, for cash or property, or for labor or services either upon direct
sale or 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, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock then
subject to outstanding Options.
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12. CHANGE IN CONTROL
All Options will be immediately exercisable, whether vested or unvested, upon
a Change in Control. "Change in Control" shall mean the occurrence of any of the
following events:
(i) any person becomes the beneficial owner (as defined in Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended), directly or
indirectly, of securities of the Company representing 20% or more of the
combined voting power of the Company's then outstanding securities, provided
that the Board of Directors in office immediately prior to the event triggering
a Change in Control may, in its sole discretion, determine that a Change in
Control has not occurred; provided further, that the acquisition of additional
voting securities by any person who is the beneficial owner, directly or
indirectly of 20% or more of the combined voting power of the Company's then
outstanding securities, shall not constitute a Change in Control for the
purposes of this Plan; or
(ii) the Board of Directors determines, in its sole and absolute discretion,
that there has been a Change in Control of the Company."
13. AMENDMENT OR TERMINATION OF PLAN.
The Board of Directors may modify, revise or terminate this Plan at any time
and from time to time; provided, however, that without the further approval of
the holders of at least a majority of the outstanding shares of voting stock, or
if the provisions of the corporate charter, bylaws or applicable state law
prescribe a greater degree of stockholder approval for this action, without the
degree of stockholder approval thus required, the Board of Directors may not (a)
materially increase the benefits accruing to participants under this Plan; (b)
increase the number of shares of Common Stock that may be issued under this
Plan; or (c) modify the requirements as to eligibility for participation in this
Plan, unless, in each such case, the Board of Directors of the Company shall
have obtained an opinion of legal counsel to the effect that stockholder
approval of the amendment is not required (x) by law, (y) by the rules and
regulations of, or any agreement with, the National Association of Securities
Dealers, Inc. or (z) to make available to the optionee with respect to any
Option granted under this Plan the benefits of Rule 16b-3 under the 1934 Act, or
any similar or successor rule. In addition, this Plan may not be amended more
than once every six months with respect to the plan provisions referred to in
Rule 16b-3(c)(2)(ii)(A) under the 1934 Act other than to comport with changes in
the Internal Revenue Code of 1986, as amended, the Employee Retirement Income
Security Act of 1974, as amended, or the rules and regulations thereunder. All
Options granted under this Plan shall be subject to the terms and provisions of
this Plan and any amendment, modification or revision of this Plan shall be
deemed to amend, modify or revise all Options outstanding under this Plan at the
time of such amendment, modification or revision. If this Plan is terminated by
action of the Board of Directors, all outstanding Options may be terminated.
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14. WRITTEN AGREEMENT.
Each Option granted hereunder shall be embodied in a written option agreement,
which shall be subject to the terms and conditions prescribed above, and shall
be signed by the optionee and by the appropriate officer of the Company for and
in the name and on behalf of the Company. Such an option agreement shall
contain such other provisions as the Committee in its discretion shall deem
advisable.
15. INDEMNIFICATION OF COMMITTEE AND BOARD OF DIRECTORS.
The Company shall, to the fullest extent permitted by law, indemnify, defend
and hold harmless any person who at any time is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) in any way relating
to or arising out of this Plan or any Option or Options granted hereunder by
reason of the fact that such person is or was at any time a director of the
Company or a member of the Committee against judgments, fines, penalties,
settlements and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit or proceeding. This
right of indemnification shall inure to the benefit of the heirs, executors and
administrators of each such person and is in addition to all other rights to
which such person may be entitled by virtue of the bylaws of the Company or as a
matter of law, contract or otherwise.
16. SECTION 16 MATTERS
With respect to persons subject to Section 16 of the Exchange Act,
transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Committee fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Committee. Moreover, in the event the Plan does not include a
provision required by Rule 16b-3 to be stated therein, such provision (other
than one relating to eligibility requirements, or the price and amount of
awards) shall be deemed automatically to be incorporated by reference into the
Plan insofar as participants subject to Section 16 are concerned.
17. CONVERSION OF CASH FEE AWARDS.
At the direction of the Board, the Company may pay cash fees to Non-Employee
Directors from time to time for attendance at meetings of the Board or
Committees thereof (the "Cash Fee Awards"). Each Non-Employee Director annually
may elect to have his Cash Fee Awards paid to him in shares of Common Stock,
such number of shares to be determined by dividing the amount of each Cash Fee
Award by the fair market value (as defined in Subsection 4(c)) of a shares of
Common Stock on the last day of the calendar month in which the Cash Fee Award
is awarded. Each such election (i) must be made in a writing delivered to the
Company's principal executive offices at 7000 Fannin Street, Suite 1920,
Houston, Texas 77030 no later than June 30 of each year, (ii) shall become
8
<PAGE>
effective on the next January 1 following the Company's receipt thereof, and
(iii) shall be valid during the one-year period beginning on such January 1
through the next December 31. If a Non-Employee Director does not so deliver a
written election to the Company by June 30 of any given year, his Cash Fee
Awards shall be, continue to be, or resume to be paid in cash, as the case may
be, upon expiration of the period covered by an existing effective election, if
any.
18. EFFECTIVE DATE OF PLAN.
This Plan shall become effective, subject to stockholder approval, on April 5,
1995, the date it was adopted by the Board of Directors. This Plan, and all
Options granted under this Plan prior to stockholder approval, shall be void and
of no further force and effect unless this Plan shall have been approved by the
requisite vote of the stockholders of the Company on or before April 5, 1996.
No Option shall be granted pursuant to this Plan on or after April 5, 2005.
9
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<PAGE>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,631,407
<SECURITIES> 15,432,539
<RECEIVABLES> 122,500
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0
0
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