<PAGE> 1
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 MARCH 31, 1999
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 April 30, 1999
----- -----------------------------
Common Stock, $0.005 par value 34,197,798
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TEXAS BIOTECHNOLOGY CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 1
Consolidated Statements of Operations for the three months ended
March 31, 1999 and 1998 2
Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 3
Notes to Consolidated Financial Statements 4
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES 13
ABOUT MARKET RISK
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings 14
ITEM 2: Changes in Securities 14
ITEM 3: Defaults Upon Senior Securities 14
ITEM 4: Submission of Matters to a Vote of Security Holders 14
ITEM 5: Other Information 14
ITEM 6: Exhibits and Reports on Form 8-K 14
SIGNATURES 15
INDEX TO EXHIBITS 16
</TABLE>
<PAGE> 3
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,180,106 4,176,911
Short term investments 6,588,432 20,407,146
Other current receivables 961,884 1,426,959
Prepaids 1,671,318 963,590
Other current assets 10,400 10,400
------------- -----------
Total current assets 23,412,140 26,985,006
Long term investments 6,052,123 5,791,945
Equipment and leasehold improvements, at cost less
accumulated depreciation and amortization 3,231,595 3,269,438
Other assets 59,591 59,591
------------- -----------
Total assets $ 32,755,449 36,105,980
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,167,054 1,209,853
Accrued expenses 1,815,905 1,659,907
------------- -----------
Total current liabilities 2,982,959 2,869,760
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, par value $.005 per share. At March 31, 1999,
5,000,000 shares authorized; none outstanding. At December 31,
1998, 5,000,000 shares authorized; none outstanding -- --
Common stock, par value $.005 per share. At March 31, 1999,
75,000,000 shares authorized; 34,194,864 shares issued and
outstanding. At December 31, 1998, 75,000,000 shares
authorized; 34,128,017 shares issued and outstanding 170,974 170,640
Additional paid-in capital 117,782,252 117,667,479
Accumulated deficit (88,180,736) (84,601,899)
------------- -----------
Total stockholders' equity 29,772,490 33,236,220
------------- -----------
Total liabilities and stockholders' equity $ 32,755,449 36,105,980
============= ===========
</TABLE>
See accompanying notes to consolidated financial statements Page 1
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TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1999 1998
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Revenues:
Research agreements $ 534,925 621,600
----------- -----------
Total revenues 534,925 621,600
----------- -----------
Expenses:
Research and development 3,158,640 3,410,384
General and administrative 1,339,441 1,214,309
----------- -----------
Total expenses 4,498,081 4,624,693
----------- -----------
Operating loss 3,963,156 4,003,093
Investment income 384,319 580,549
----------- -----------
Net loss 3,578,837 3,422,544
Preferred dividend requirement -- 1,690
Net loss applicable to common shares $ 3,578,837 3,424,234
Net loss per common share, basic and diluted: $ 0.10 0.10
=========== ===========
Weighted average common shares used to
compute net loss per common share, basic
and diluted: 34,168,310 33,653,337
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements Page 2
<PAGE> 5
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1999 1998
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,578,837) (3,422,544)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 208,510 200,470
Expenses paid with stock 5,883 3,592
Loss on disposition of fixed assets -- 7,895
Decrease in preferred dividend payable not included in net loss -- 11,913
Change in operating assets and liabilities
(Increase) in prepaids (707,728) (303,049)
Decrease in receivables 465,075 378,403
(Increase) in other current assets -- (2,500)
Increase (decrease) in current liabilities 113,199 (19,276)
------------ ------------
Net cash used in operating activities (3,493,898) (3,145,096)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (170,667) (368,903)
Proceeds from disposition of fixed assets -- 3,000
Purchase of long-term investments (3,000,000) --
Maturity of long-term investments 2,700,000 --
Purchase of short-term investments (1,941,780) (15,840,434)
Maturity of short-term investments 15,501,801 19,272,605
Decrease in interest receivable included in short-term and long-term investments 298,515 7,227
------------ ------------
Net cash provided by investing activities 13,387,869 3,073,495
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock and exercises of
options and warrants, net 109,224 288,224
------------ ------------
Net increase in cash and cash equivalents 10,003,195 216,623
Cash and cash equivalents at beginning of period 4,176,911 14,323,572
------------ ------------
Cash and cash equivalents at end of period $ 14,180,106 14,540,195
============ ============
Supplemental disclosure of noncash financing activities:
Expenses paid with stock $ 5,883 3,592
============ ============
</TABLE>
See accompanying notes to consolidated financial statements Page 3
<PAGE> 6
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998
(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 vascular diseases to the design and development of
novel pharmaceutical compounds. Since its formation in 1989, the
Company has been engaged principally in research and drug
discovery programs and clinical development of certain drug
compounds. On July 25, 1994, the Company acquired all of the
outstanding Common Stock of ImmunoPharmaceutics, Inc. ("IPI") (now
discontinued), a San Diego, California based company, in exchange
for Common Stock of the Company. TBC consolidated the IPI
operation into TBC in the first half of 1996.
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 small amounts of 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.
(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, Short-Term Investments and Long-Term
Investments
Cash equivalents are considered to be those securities or
instruments with original maturities, when purchased, of three
months or less. At March 31, 1999, approximately $363,000 was
invested 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 March 31,
1999, the Company's short-term investments consisted of
approximately $1,512,000 in Government Agency Discount Bonds and
$5,076,000 in Corporate Commercial Paper. Long-term investments
consist of approximately $6,052,000 in Government Agency bonds
with an original maturity of one year or more. Cash equivalents,
short-term and long-term investments are stated at cost plus
accrued interest, which approximates market value. Interest income
is accrued as earned. The Company classifies all short-term
investments and long-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.
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(e) Research and Development Costs
All research and development costs are expensed as incurred and
include salaries of research and development employees, certain
rent and related building services, research supplies and
services, clinical trial expenses and other associated costs. With
respect to research and development, salaries and benefits for the
three months ended March 31, 1999 and 1998, totaled approximately
$1,665,000 and $1,673,000, respectively, of which approximately
$1,279,000 and $1,237,000, respectively, was charged to research
and development. Payments related to the acquisition of in-process
research and development are expensed as incurred.
(f) Net Loss Per Common Share
Basic net loss per common share is calculated by dividing the net
loss applicable to common shares after preferred dividend
requirements by the weighted average number of common shares
outstanding during the period. For the three months ended March
31, 1999 and 1998, there were no common dilutive shares used in
the calculation of weighted average common shares outstanding. For
the three months ended March 31, 1999 and 1998, the weighted
average common shares used to compute basic net loss per common
share totaled 34,168,310 and 33,653,337, respectively.
(g) Reclassifications
Certain reclassifications have been made to prior period financial
statements to conform with the March 31, 1999 presentation with no
effect on net loss previously reported.
(h) Revenue Recognition
Revenue from service contracts is recognized as the services are
performed and/or as milestones are achieved. Milestone payments
related to contractual agreements are recognized as the milestones
are achieved. Revenue from products and services is recognized
when the products are shipped or the services are performed.
Revenue from licensing fees is recorded when the license is
granted. Revenue from grants is recognized as earned under the
terms of the related grant agreements. Amounts received in advance
of services to be performed under contracts are recorded as
deferred revenue.
(i) Patent Application Costs
Costs incurred in filing for patents are expensed as incurred.
(j) 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 consolidated financial statements in conformity with
generally accepted accounting principles.
Actual results could differ from these estimates.
(k) Interim Financial Information
The Consolidated Balance Sheet as of March 31, 1999, and the
related Consolidated Statement of Operations for the three month
periods ended March 31, 1999 and 1998 and Consolidated Statements
of Cash Flows for the three month periods ended March 31, 1999 and
1998 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.
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(2) STOCK OPTIONS AND WARRANTS
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans.
A summary of stock options as of March 31, 1999, follows:
<TABLE>
<CAPTION>
Exercise Price Exercised/ Available
Stock Option Plans Per Share Authorized Outstanding Other Exercisable for Grant
- ------------------ -------------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1990 Plan $1.38 - $5.59 285,715 171,048 68,461 163,634 46,206
1992 Plan $1.41 - $5.36 1,700,000 1,215,357 341,326 1,031,807 143,317
Director Plan $3.50 - $4.54 71,429 34,242 37,187 34,242 --
1995 Plan $1.31 - $8.13 2,000,000 1,901,052 21,851 1,108,068 77,097
1995 Director Plan $1.38 - $5.69 300,000 166,505 10,909 119,005 122,586
--------- --------- --------- --------- -------
TOTALS 4,357,144 3,488,204 479,734 2,456,756 389,206
========= ========= ========= ========= =======
</TABLE>
At the 1999 Annual Stockholders Meeting held on May 4, 1999, the 1999
Stock Incentive Plan (the "1999 Plan") was approved. This plan allows for
the issuance of incentive and non-qualified options, shares of restricted
stock and stock bonuses to directors, employees, officers and
non-employee independent contractors, pursuant to which 1,000,000 shares
of Common Stock are to be reserved for issuance out of the authorized but
unissued shares of the Company.
(3) INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
At March 31, 1999 the net deferred tax asset, representing primarily net
operating loss carryforwards, totaled approximately $30,795,000. The
Company has established a valuation allowance for the full amount of
these deferred tax assets, as management believes that it is not more
likely than not that the Company will recover these assets. The Company
did not incur any tax expense in any year due to operating losses.
At March 31, 1999 the Company had net operating loss carryforwards of
approximately $56,597,000 for federal income tax return purposes.
Utilization of the Company's net operating loss carryforwards is subject
to certain limitations due to specific stock ownership changes which have
occurred or may occur. To the extent not utilized, the carryforwards will
expire during the years beginning 2002 through 2019.
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(4) EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
March 31,1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Laboratory and office equipment $ 5,589,516 $ 5,418,849
Leasehold improvements 3,701,772 3,701,772
----------- -----------
9,291,288 9,120,621
Less accumulated depreciation and amortization (6,059,693) (5,851,183)
----------- -----------
$ 3,231,595 $ 3,269,438
=========== ===========
</TABLE>
(5) COMMON STOCK RESERVED
The Company has reserved Common Stock for issuance as of March 31, 1999
as follows:
<TABLE>
<S> <C>
Stock option plans 3,877,410
Common Stock issuable under licensing agreement 71,429
Publicly traded warrants outstanding 3,995,394
Other warrants outstanding 660,578
---------
Total shares reserved 8,604,811
</TABLE>
At the 1999 Annual Stockholders Meeting held on May 4, 1999, the 1999
Stock Incentive Plan (the "1999 Plan") was approved. This plan allows for
the issuance of incentive and non-qualified options, shares of restricted
stock and stock bonuses to directors, employees, officers and
non-employee independent contractors, pursuant to which 1,000,000 shares
of Common Stock are to be reserved for issuance out of the authorized but
unissued shares of the Company.
(6) REGULATORY FILING
During August, 1997, the Company filed a new drug application ("NDA")
with the United States Food and Drug Administration (the "FDA") for its
lead product candidate, NOVASTAN(R), for use as an anticoagulant in
patients with heparin induced thrombocytopenia ("HIT") and heparin
induced thrombocytopenia with thrombosis syndrome ("HITTS"). During
September, 1997, the FDA granted priority review status to the new drug
application for NOVASTAN(R). During October, 1997, the Company was
notified by the FDA that the filed NDA for NOVASTAN(R) was accepted. The
FDA extended the priority review period by 90 days during January, 1998.
On May 11, 1998, the Company announced that it had received a
non-approvable letter from the FDA for NOVASTAN(R). Based on consultation
with representatives from the FDA, TBC has focused on the collection and
analysis of a new more comparable historical control group as the basis
for demonstrating the safety and efficacy NOVASTAN(R). The Company
amended its NDA with the FDA for NOVASTAN(R) as an anticoagulant for use
in patients with HIT syndrome on March 19, 1999 and expects a response
from the FDA to the amendment within approximately six months of filing.
While the Company believes the amendment includes consistent, positive
results and supports the use of NOVASTAN(R) in its proposed indication,
there can be no assurances as to the timing or outcome of the FDA
decision.
(7) COMMITMENTS AND CONTINGENCIES
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 ("IPO"). In their
complaint, plaintiffs have sued the Company, 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. A subsequently filed
class action arising out of the IPO was dismissed in June 1996, leaving
the first class action as the only pending litigation arising out of the
IPO.
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In May, 1999, the Company reached an agreement in principle to settle the
pending class action. The agreement in principle achieved with
plaintiff's counsel provides for dismissal of all claims against the
Company and the officers and directors named as defendants. The
settlement amount is $800,000, of which approximately $187,500 will be
paid by the Company and $612,500 will be paid by the Company's insurer.
The agreement to settle is subject to negotiation and execution of a
detailed stipulation of settlement between the parties, submission of the
stipulation of settlement to the court, provision of notice to class
members of the settlement terms, a fairness hearing, and final approval
of the settlement by the court. Discussions are ongoing with plaintiffs
as to the schedule for completing these steps; however, it is expected
that final dismissal will take place no sooner than 90 days. The Company
cannot predict exactly when final dismissal can be obtained.
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ITEM 2.
TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998
OVERVIEW
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risks and
uncertainties.
Since its inception in 1989, the Company has primarily devoted its resources to
fund drug discovery research 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 $88.0 million from inception to March 31, 1999. The Company has
primarily financed its operations to date through certain private placements of
Common Stock and shareholder loans, which have raised an aggregate of $21.3
million in net proceeds, the IPO which raised an aggregate of $24.2 million in
net proceeds including the over-allotment sold in January 1994, a private
placement of Common Stock on February 13, 1996, which raised $13.0 million in
net proceeds, a private placement of 5% Preferred Stock on March 14, 1997, which
raised approximately $6.0 million in net proceeds, and a secondary public
offering which closed during October 1997 and raised approximately $26.7 million
in net proceeds.
On July 25, 1994, the Company acquired all of the outstanding stock of IPI in
exchange for 1,599,958 shares of Common Stock, 999,956 shares of escrowed Common
Stock which were released upon satisfaction of certain research milestones, and
contingent stock issue rights to acquire 1,400,000 shares of which 399,961
shares were issued upon satisfaction of certain research milestones. IPI's
financial results have been included in the Company's financial statements
beginning August 1, 1994. In March 1996, IPI's remaining operations in
California were consolidated with the Company's Houston operations.
The Company signed a collaborative agreement with Synthelabo S.A. ("Synthelabo")
on October 11, 1994. Upon consummation of the transaction, Synthelabo purchased
1,428,571 shares of Common Stock for a total of $5.0 million and paid a
licensing fee of $3.0 million. In addition, Synthelabo paid $3.0 million
annually in research payments for two years and paid $750,000 for the third
year. During 1996, TBC signed agreements with Synthelabo to provide copies of
certain NOVASTAN(R) clinical data. Over the life of the agreements TBC may
receive as much as $2.92 million, of which $2.88 million has been received as of
March 31, 1999.
During October 1996, the Company executed a research and Common Stock purchase
agreement with LG Chemical, Ltd. ("LG Chemical"). LG Chemical purchased
1,250,000 shares of Common Stock for $5.0 million and committed to pay up to
$10.7 million over a five year period to develop two compounds in clinical
development. Of this amount, $4.1 million has been paid and $1.0 million will be
paid on each of June 30 and December 31, of 1999 and 2000, and $1.3 million will
be paid on June 30 and December 31, 2001.
In August 1997, the Company entered into a Product Development, License and
CoPromotion Agreement (the "SmithKline Agreement") whereby SmithKline Beecham,
PLC ("SmithKline") was granted exclusive rights to work with TBC in the
development and commercialization of NOVASTAN(R) in the U.S. and Canada for
specified indications. Upon execution of the agreement, SmithKline paid an $8.5
million license fee and during October 1997, paid a $5 million milestone payment
to TBC and has committed to pay up to a total of $15.0 million in additional
milestone payments based on the clinical development and FDA approval of
NOVASTAN(R) for the indications of HIT, HITTS and acute myocardial infarction
("AMI"). Future milestone payments for the AMI indication are subject to
SmithKline's agreement to market NOVASTAN(R) for such indication. In connection
with the SmithKline Agreement, SmithKline purchased 176,922 shares
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of Common Stock for $1.0 million and an additional 400,000 shares of Common
Stock for $2.0 million in conjunction with the Company's public offering which
closed during October, 1997. At this time, SmithKline has no plans to conduct
development work for the acute myocardial infarction ("AMI") and stroke
indications. TBC is evaluating the feasibility of development of NOVASTAN(R) for
stroke and possibly AMI.
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.
RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
Revenues decreased from $621,600 in the three month period ended March 31, 1998
to $534,925 in the same period of 1999, a decrease of 14%. Revenues were
composed of earned revenues under research and development agreements. Revenue
from research agreements decreased primarily due to a decrease in reimbursable
expenses related to the SmithKline Agreement.
Total operating expenses decreased 3% from $4,624,693 in the three month period
ended March 31, 1998 to $4,498,081 in the same period of 1999 due primarily to
the decrease in research and development expenses. Research and development
expenses decreased 7% from $3,410,384 in the three month period ended March 31,
1998 to $3,158,639 in the same period of 1999. This decrease was primarily
attributable to reduced clinical trial expenses related to the completion of
several phase I and II studies involving mainly endothelin and selectin
antagonist compounds. This was partially offset by higher preclinical study
costs for these same compounds and expenses related to the NDA amendment for
NOVASTAN(R). General and administrative expenses increased 10% from $1,214,309
in the three month period ended March 31, 1998 to $1,339,441 in the same period
of 1999 due primarily to approximately $200,000 accrued for settlement of a
lawsuit offset by decreased compensation, personnel recruiting costs and market
research expenses partially offset by the addition of an investor relations
department. The Company had 82 employees at March 31, 1999 and 81 employees at
March 31, 1998.
The 34% decrease in investment income, from $580,549 in the three month period
ended March 31, 1998 to $384,319 in the same period of 1999, is attributed
primarily to lower investment balances and a trend toward lower interest rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its research and development activities to date
principally through (i) public offerings and private placements of its equity
securities, (ii) issuances of Common Stock in conjunction with acquisitions and
research and collaboration agreements and exercise of stock options and
warrants, (iii) license fees and milestone and research payments received in
conjunction with research and collaborative agreements, and (iv) investment
income, net of interest expense. During the first three months of 1999, the
Company utilized net cash of $3,493,898 in operating activities. The use of cash
in operations was caused primarily by the Company's net loss. Investing and
financing activities primarily reflect the purchases and redemptions of
short-term and long-term investments during the first three months of 1999. In
addition, $109,224 was provided by exercise of warrants and stock options during
the first three months of 1999. At March 31, 1999, the Company had cash, cash
equivalents, short-term investments and long-term investments of $26,820,661.
The Company expects to incur substantial research and development expenditures
as it designs and develops small molecule drugs for vascular diseases. The
Company anticipates that operating expenses may increase during 1999 and
subsequent years. The Company began to incur costs to develop NOVASTAN(R) during
the third quarter of 1993. These costs will continue during 1999 due to expenses
associated with the amendment of the new drug application with the FDA for
NOVASTAN(R) and costs associated with additional clinical and regulatory work
being completed for NOVASTAN(R). The Company also began incurring clinical trial
costs in 1997 for the compounds TBC11251 and TBC1269 and is continuing its
clinical trials for these compounds during 1999. In 1999, the Company expects to
begin to incur costs for clinical trials related to additional compounds. These
costs include, among other things, hiring personnel to direct and
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carry out all operations related to the clinical trials, 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 the Company's ongoing research, clinical development
and commercialization efforts.
The Company anticipates that its existing capital resources, research payments
from LG Chemical and its other revenue sources should be sufficient to fund its
cash requirements through the second quarter of the year 2000. This date is
contingent upon various factors, including the rates of patient enrollment and
spending associated with the development and commercialization of NOVASTAN(R),
the level of research, development and clinical trial expenditures for TBC11251,
TBC1269 and other compounds, results of clinical trials, the costs and timing of
regulatory approvals (including NOVASTAN(R)), the success of sales and marketing
efforts for NOVASTAN(R), if approved by the FDA, the exercise of the Company's
publicly traded warrants, if any, which expire on September 30, 1999 and are
presently not "in the money", and the timing and terms of future corporate
collaborations, if any, entered into by the Company. If the Company does not
receive timely FDA approval for NOVASTAN(R), or such approval is significantly
delayed or if NOVASTAN(R) cannot be successfully marketed after FDA approval,
the Company will need to re-examine the use of its existing capital resources.
No assurances can be given that the Company will be able to continue its
research and development programs at currently anticipated levels. Moreover,
TBC's agreement with Synthelabo requires the Company to maintain a "net worth",
as defined in the agreement, of at least $5.0 million during the term of the
agreement. If the Company fails to maintain at least $5.0 million of "net
worth", Synthelabo may require that the technology, as defined in the agreement,
be transferred to, and the development program be conducted by, a joint venture
owned by TBC and Synthelabo.
The Company anticipates that it may need to raise substantial funds for future
operations through collaborative arrangements, public or private issuance of
debt and equity, or other arrangements. These financings could result in the
issuance of equity securities which dilute the existing holders of the Company's
Common Stock. The Company expects that as additional product candidates enter
clinical trials, the Company may incur increased 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 such additional financings or establish corporate collaborations on
acceptable terms or in time to fund its research and development programs. It is
likely that the Company's ability to raise additional funds will be adversely
affected by unfavorable results of its clinical trials and the failure to obtain
regulatory approvals for its product candidates, including NOVASTAN(R). In the
event such financing is not obtained, the Company's drug discovery or
development programs may be delayed, scaled back or eliminated. The Company may
also be required in this event 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 it
would not otherwise relinquish.
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 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 material 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 the operations of the Company.
Page 11
<PAGE> 14
YEAR 2000 ISSUE
The Year 2000 ("Y2K") issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
equipment, software and other devices with imbedded technology that are
time-sensitive, such as computer systems, related software, research equipment,
alarm systems and telephone systems may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, temporary inability to process data, and may materially impact the
Company's financial condition.
The Company has undertaken various initiatives intended to ensure that it is
prepared for the Y2K issue. The Company is in the process of assessing its state
of readiness. Presently, the Company has reviewed its scientific equipment,
computer systems and related software to identify systems which may exhibit Y2K
issues. This review was performed by internal teams from various disciplines
within the Company. These teams evaluated the Company's equipment, computer
systems and software for Y2K issues and is currently performing testing to
insure proper operation after January 1, 2000. If necessary, specific
remediation plans will be developed for non-compliant items after testing is
completed. As a part of this review the Company will determine the known risks
related to the consequences of a failure to correct any Y2K deficiencies. The
Company has initiated formal communications with material third parties to
determine the extent to which the Company may be vulnerable to those third
parties' failure to remediate their Y2K problems. The Company and its licensee,
SmithKline are dependent upon Mitsubishi Chemical Corporation for supply of bulk
NOVASTAN(R) for clinical trial material and for its inventory needs should the
FDA approve the compound for marketing. The Company has received communication
from Mitsubishi Chemical Corporation which states that it has undertaken to
become Y2K compliant. Any Y2K issues which would result in significant
interruptions of delivery schedules could have a material effect on the
Company's operations. However, the Company is presently not aware of any Y2K
issues that have been encountered by any third party, which could materially
affect the Company's operations.
The Company has developed a contingency plan to address potential Y2K issues.
This contingency plan addresses problems that the Company may encounter after
January 1, 2000 and will be updated to include issues identified during the
course of its remediation efforts and reasonably foreseeable problems that may
arise as a result of Y2K, including, but not limited to computer hardware and
software and research equipment. The contingency plan will be continually
refined as additional information becomes available. However, it is unlikely
that any contingency plan can fully address all events that may arise.
The Company estimates that the costs associated with the Y2K issue will not be
material, and as such will not have a significant impact on the Company's
financial position or operating results. The Company's current estimate of Y2K
remediation costs is approximately $50,000 which may be revised should other
remediation costs be discovered in the review of Y2K issues. However, the
failure to discover or correct a material Y2K problem could result in an
interruption in the Company's normal business activities or operations. Such
failure could materially and adversely affect the Company's results of
operation, liquidity and financial condition.
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This Report includes "forward looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included in this Report are forward looking
statements. Such forward looking statements include, without limitation,
statements under (a) "Business" regarding Texas Biotechnology Corporation's
expectations for future drug discovery and development and related expenditures
and (b) "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources" regarding TBC's estimate of
sufficiency of existing capital resources and its ability to raise additional
capital to fund cash requirements for future operations. Although TBC believes
that the expectations reflected in such forward looking statements are
reasonable, it can give no assurance that such expectations reflected in such
forward looking statements will prove to have been correct. The ability to
achieve TBC's expectations 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
Page 12
<PAGE> 15
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) capital market
conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
Page 13
<PAGE> 16
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 ("IPO"). In their complaint, plaintiffs have sued the
Company, 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.
A subsequently filed class action arising out of the IPO was dismissed in June
1996, leaving the first class action as the only pending litigation arising out
of the IPO.
In May, 1999, the Company reached an agreement in principle to settle the
pending class action. The agreement in principle achieved with plaintiff's
counsel provides for dismissal of all claims against the Company and the
officers and directors named as defendants. The settlement amount is $800,000,
of which approximately $187,500 will be paid by the Company and $612,500 will be
paid by the Company's insurer.
The agreement to settle is subject to negotiation and execution of a detailed
stipulation of settlement between the parties, submission of the stipulation of
settlement to the court, provision of notice to class members of the settlement
terms, a fairness hearing, and final approval of the settlement by the court.
Discussions are ongoing with plaintiffs as to the schedule for completing these
steps; however, it is expected that final dismissal will take place no sooner
than 90 days. The Company cannot predict exactly when final dismissal can be
obtained.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
27.1 Financial Data Schedule
10.68 Employment Agreement with Pamela M. Murphy and Texas
Biotechnology Corporation dated February 26, 1998.
10.69 Employee Agreement between Pamela M. Murphy and
Texas Biotechnology Corporation dated March 2, 1999.
10.70 Fourth Amendment dated January 1, 1999 to Consulting
Agreement with John M. Pietruski dated January 1, 1992.
10.71 Texas Biotechnology Corporation 1999 Stock Incentive
Plan.
</TABLE>
- ----------------
Page 14
<PAGE> 17
TEXAS BIOTECHNOLOGY CORPORATION
MARCH 31, 1999
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 May, 1999.
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, Finance and Administration
Secretary and Treasurer
(Principal Financial and Accounting Officer)
Page 15
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
27.1 Financial Data Schedule
10.68 Employment Agreement with Pamela M. Murphy and Texas
Biotechnology Corporation dated February 26, 1998.
10.69 Employee Agreement between Pamela M. Murphy and
Texas Biotechnology Corporation dated March 2, 1999.
10.70 Fourth Amendment dated January 1, 1999 to Consulting
Agreement with John M. Pietruski dated January 1, 1992.
10.71 Texas Biotechnology Corporation 1999 Stock Incentive
Plan.
</TABLE>
- ----------------
Page 16
<PAGE> 1
EXHIBIT 10.68
[TEXAS BIOTECHNOLOGY LETTERHEAD]
February 20, 1998
Ms. Pamela M. Murphy
3918 Southwestern
Houston, TX 77005
Dear Pam:
I am pleased to offer you the position of Vice President, Corporate
Communications and Investor Relations for Texas Biotechnology Corporation on
the following terms and conditions:
1) REPORTING RELATIONSHIP: This position will report directly to the
President and Chief Executive Officer.
2) SALARY: You will be paid a salary at an annual rate of $125,000,
payable bimonthly. Your performance and salary will be reviewed in
accordance with the Company's salary administration program.
3) ANNUAL STOCK OPTIONS: You will be eligible to participate in the
Company's Stock Option Bonus Program which is dependent upon the
discretion of management and achievement of corporate and individual
goals. The amount of your annual bonus is targeted at 35,000 shares.
4) STOCK OPTIONS: Subject to approval by the Company's Board of
Directors, you will be granted options under the Company's 1995
Amended and Restated Stock Option Plan to purchase 35,000 shares of
the Company's Common Stock at a price per share equal to the fair
market value of such Common Stock on the "Award Date", which shall be
the date of the Board's approval. Your right to exercise these options
will vest according to the following schedule, provided you continue
as a Company employee until the indicated time after the Award Date:
33 1/3% after 1 year; 66 2/3% after 2 years and 100% after 3 years.
The plans are subject to change from time to time at the Company's
discretion.
<PAGE> 2
5) BENEFITS: You will be eligible to participate in the Company's
comprehensive benefits package including:
o Medical
o Dental
o Life Insurance
o Disability
o 401(k) Savings Plan
o Vacation
o Holiday
These benefits are subject to change from time to time at the
Company's discretion. You may direct any questions regarding these
benefit programs to Stephen Mueller or Debbie Hedgepath.
6) VACATION: During any calendar year of your Company employment you will
be entitled to 4 weeks of company paid vacation during that year.
Vacation shall be prorated for any calendar year in which you were a
Company employee for less than the full year.
7) ACCEPTANCE OF EMPLOYMENT: In order to accept this offer of employment
with Texas Biotechnology Corporation and to accept the conditions of
the offer as described in this letter, please complete and sign a
copy of this letter and the Company's Disclosures and Confidential
Agreements Letter and deliver them to me in advance of your start
date.
8) NATURE OF EMPLOYMENT: Your employment with Texas Biotechnology
Corporation is on an at-will basis which means that either you or the
Company may terminate the employment relationship at any time with or
without cause. If, however, your employment is terminated for any
reason other than for cause, the Company will pay you three (3)
month's salary provided you have been with the Company for at least
six (6) months. After completing one year of employment, the severance
will be increased to six (6) month's salary.
<PAGE> 3
Pam, we are very pleased about the possibility of your joining Texas
Biotechnology. Please call me to set up a mutually agreed start date.
If at all possible, I would like you to attend the Board of Directors
dinner on March 2, 1998 and the Board of Directors meeting on March 3,
1998 even if your eventual start date is later.
Sincerely Yours,
/s/ DAVID B. MCWILLIAMS
-------------------------------------
David B. McWilliams
President and Chief Executive Officer
AGREED TO AND ACCEPTED THIS 26 DAY OF FEBRUARY, 1998
/s/ PAMELA M. MURPHY
---------------------
Pamela M. Murphy
<PAGE> 1
EXHIBIT 10.69
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT, dated as of March 2, 1999 is made and entered
into by and between Texas Biotechnology Corporation, a Delaware corporation with
its principal office at 7000 Fannin, Suite 1920, Houston, Texas (the "Company"),
and Pamela M. Murphy ("Executive").
R E C I T A L S
A. Company desires to enter into an agreement with Executive whereby
severance benefits will be paid to Executive on a change in control of the
Company and consequent actual or constructive termination of Executive's
employment.
B. This Agreement sets forth the severance benefits which the Company
agrees that it will pay to the Executive if Executive's employment with the
Company terminates under one of the circumstances described herein following a
Change in Control of the Company.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. Term of Agreement. This Agreement shall be effective immediately on the
date hereof and shall continue in effect through December 31, 1999; provided,
however, that commencing on January 1, 2000 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless not later than September 30 of the preceding year, the Company shall have
given notice that it does not wish to extend this Agreement; provided, further,
that notwithstanding any such notice by the Company not to extend this Agreement
shall automatically be extended for 24 months beyond the term provided herein if
a Change in Control, as defined in Section 3 of this Agreement has occurred
during the term of this Agreement.
2. Effect on Employment Rights. This Agreement is not part of any
employment agreement that the Company and Executive may have entered. Nothing in
this Agreement shall confer upon Executive any right to continue in the employ
of the Company or interfere with or restrict in any way the rights of the
Company, which are hereby expressly reserved, to terminate for any reason, with
or without cause.
Executive agrees that, subject to the terms and conditions of this
Agreement, in the event of a potential change in control of the Company (as
defined below), Executive will remain in the employ of the Company during the
pendency of any such potential change in control and for a period of one year
after the occurrence of an actual Change in Control. For this purpose, a
"potential change in control of the Company" shall be deemed to have occurred if
(a) the Company enters into an agreement, the consummation of which would result
in the occurrence of a Change of Control, (b) any person (including the Company)
publicly announces an intention to take or consider taking action which if
consummated would constitute a Change in Control or (c) the Board of Directors
of the Company (the "Board") adopts a resolution to the effect that a potential
change in control of the Company has occurred.
1
<PAGE> 2
3. Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred if any of the
events set forth in any one of the following paragraphs shall occur:
(a) any "person" (as defined in section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and as such term
is modified in sections 13(d) and 14(d) of the Exchange Act),
excluding the Company or any of its subsidiaries, a trustee or any
fiduciary holding securities under an employee benefit plan of the
Company of any of its subsidiaries, an underwriter temporarily holding
securities pursuant to an offering of such securities or a corporation
owned, directly or indirectly, by stockholders of the Company in
substantially the same proportions as their ownership of the Company,
is or becomes the "beneficial owner" (as defined in Rule l3d-3 under
the Exchange Act), directly or indirectly, of securities of the
Company representing 30% or more of the combined voting power of the
Company's then outstanding securities; or
(b) during any period of not more than two consecutive years,
individuals who at the beginning of such period constitute the Board
and any new director (other than a director designated by a Person who
has entered into an agreement with the Company to effect a transaction
described in clause (a), (c) or (d) of this paragraph) whose election
by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity), in
combination with the ownership of any trustee or other fiduciary
holder of securities under an employee benefit plan of the Company, at
least 50% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation, or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no person acquires more than 50% of the combined voting power
of the Company's then outstanding securities; or,
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
Notwithstanding the foregoing, no Change in Control shall be deemed to
have occurred if there is consummated any transaction or series of
integrated transactions immediately following which, in the judgment
of the Compensation Committee of the Board, the holder of the
Company's Common Stock immediately prior to such transaction or series
of transactions continue to have the same proportionate ownership in
an entity which owns all or substantially all of the assets of the
Company immediately prior to such transaction or series of
transactions.
4. Termination of Employment. Following a Change in Control. Executive
shall be entitled to the benefits provided in Section 5 hereof upon the
subsequent termination of
2
<PAGE> 3
Executive's employment by the Company within two years after a Change in
Control which occurs during the term of this Agreement, provided such
termination is (a) by the Company other than for cause, as defined below,
or (b) by Executive for Good Reason, as defined below. Executive shall not
be entitled to the benefits of Section 5, any other provision hereof to the
contrary notwithstanding, if Executive's employment terminates: (i)
pursuant to Executive retiring at age 65, (ii) by reason of Executive's
total and permanent disability, or (iii) by reason or Executive's death. As
used herein, "total and permanent disability" means a condition which
prevents Executive from performing to a significant degree the essential
duties of his or her position and is expected to be of long-term duration
or result in death. A determination of total and permanent disability must
be based on competent medical evidence.
(a) Cause.
(i) Definition. Termination by the Company of Executive's
employment for Cause shall mean termination upon Executive's willful
engaging in misconduct which is demonstrably and materially injurious
to the Company and its subsidiaries taken as a whole. No act, or
failure to act, on Executive's part shall be considered "willful"
unless done, or omitted to be done, by Executive not in good faith and
without reasonable belief that Executive's action or omission was in
the best interest of the Company or its subsidiaries. Notwithstanding
the foregoing, Executive shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote
of not less than three quarters of the entire membership of the Board
at a meeting of the Board called and held for the purpose of making a
determination of whether Cause for termination exists (after
reasonable notice to Executive and an opportunity for Executive to be
heard before the Board), finding that in the good faith opinion of the
Board Executive was guilty of misconduct as set forth above in this
subsection 4(a)(i) and specifying the particulars thereof in detail.
(ii) Remedy by Executive. If the Company gives Executive a Notice
of Termination which states that the basis for terminating Executive's
employment is Cause, Executive shall have ten days after receipt of
such Notice to remedy the facts and circumstances which provided
Cause. The Board (or any duly authorized Committee thereof) shall make
a good faith reasonable determination immediately after such ten-day
period whether such facts and circumstances have been remedied and
shall communicate such determination in writing to Executive. If the
Board determines that an adequate remedy has not occurred, then the
initial Notice of Termination shall remain in effect.
(b) Good Reason. After a Change in Control, Executive may
terminate employment with the Company at any time during the term of
this Agreement if Executive has made a good faith reasonable
determination that Good Reason exists for this termination.
(i) Definition. for purposes of this Agreement, "Good
Reason" shall mean any of the following actions, if taken without
the express consent of the Executive:
A. any material change by the Company in Executive's
functions, duties, or responsibilities which change would cause
Executive's position with the Company to become of less dignity,
responsibility, importance, or scope from the position and
attributes that applied to Executive immediately prior to the
Change in Control;
3
<PAGE> 4
B. any significant reduction in Executive's base salary,
other than a reduction effected as part of an across-the-board
reduction affecting all executive employees of the Company;
C. any material failure by the Company to comply with any of
the provisions of this Agreement (or of any employment agreement
between the parties);
D. the Company's requiring Executive to be based at any
office or location more than 45 miles from the home at which the
Executive resides on the date immediately preceding the Change in
Control, except for travel reasonably required in the performance
of Executive's responsibilities and commensurate with the amount
of travel required of Executive prior to the Change in Control;
or
E. any failure by the Company to obtain the express
assumption of this Agreement by any successor or assign of the
Company.
Executive's right to terminate employment for Good Reason
pursuant to this subsection 4(b)(I) shall not be affected by
Executive's incapacity due to physical or mental illness.
(ii) Remedy by Company. If Executive gives the Company a
Notice of Termination which states that the basis for Executive's
termination of employment is Good Reason, the Company shall have
ten days after receipt of such Notice to remedy the facts and
circumstances which provided Good Reason. Executive shall make a
good faith reasonable determination immediately after such
ten-day period whether such facts and circumstances have been
remedied and shall communicate such determination in writing to
the Company. If Executive determines that adequate remedy has not
occurred, then the initial Notice of Termination shall remain in
effect.
(iii) Determination by Executive Presumed Correct. Any
determination by Executive pursuant to this Section 4(b) that
Good Reason exists for Executive's termination of employment and
that adequate remedy has not occurred shall be presumed correct
and shall govern unless the party contesting the determination
shows by a clear preponderance of the evidence that it was not a
good faith reasonable determination.
(iv) Severance Payment Made Notwithstanding Dispute.
Notwithstanding any dispute concerning whether Good Reason exists
for termination of employment or whether adequate remedy has
occurred, the Company shall immediately pay to Executive, as
specified in Section 5, any amounts otherwise due under this
Agreement. Executive may be required to repay such amounts to the
Company if any such dispute is finally determined adversely to
Executive.
(c) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive hereunder shall be
communicated by a Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination
provisions in this Agreement relied upon and which sets forth (i) in
reasonable detail the facts and
4
<PAGE> 5
circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated and (ii) the
date of Executive's termination of employment, which shall be no
earlier than 10 days after such Notice is received by the other party.
Any purported termination of the Executive's employment by the Company
which is not effected pursuant to a Notice of Termination satisfying
the requirements of this Agreement shall not be effective. In the case
of a termination for Cause, the Notice of Termination shall also
satisfy the requirements set forth in Section 4(a)(i).
5. Severance Payment Upon Termination of Employment. If Executive's
employment with the Company is terminated during the term of this Agreement
and after a Change in Control (a) by the Company other than for Cause, or
(b) by Executive for Good Reason, then Executive shall be entitled to the
following:
(a) Lump-Sum Severance Payment. In lieu of any further salary payments
to the Executive for periods subsequent to the Date of Termination,
the Company shall pay to the Executive a lump sum severance payment,
in cash, equal to one and one half (1.5) (or, if less, the number of
years, including fractions, from the Date of Termination until the
Executive would have reached age sixty-five (65)) times the sum of (a)
the Executive's Annual Base Salary in effect on date of termination
and (b) the Executive's most recent Annual Bonus. If the most recent
Annual Bonus was a stock option or a stock grant, the value of the
bonus will be deemed to be the number of option shares times the
closing price of the Company's Common Stock for the 20 trading days
prior to Termination.
(b) Continued Benefits. For a eighteen (18) month period (or, if less,
the number of months from the Date of Termination until the Executive
would have reached age sixty-five (65)) after the Date of Termination,
the Company shall provide the Executive with life insurance, health,
disability and other welfare benefits ("Welfare Benefits")
substantially similar in all respects to those which the Executive is
receiving immediately prior to the Notice of Termination (without
giving effect to any reduction in such benefits subsequent to the
Potential Change in Control preceding the Change in Control or the
Change in Control which reduction constitutes or may constitute Good
Reason). Benefits otherwise receivable by an Executive pursuant to
this Section shall be reduced to the extent substantially similar
benefits are actually received by or made available to the Executive
by any other employer during the same time period for which such
benefits would be provided pursuant to this Section at a cost to the
Executive that is commensurate with the cost incurred by the Executive
immediately prior to the Executive's Date of Termination (without
giving effect to any increase in costs paid by the Executive after the
Potential Change in Control preceding the Change in Control or the
Change in Control which constitutes or may constitute Good Reason);
provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover
the Executive or a family member or dependent with respect to a
preexisting condition which was covered under the applicable Company
medical plan, or (ii) does not cover the Executive or a family member
or dependent for a designated waiting period, the Executive's coverage
under the applicable Company medical plan shall continue (but shall be
limited in the event of noncoverage due to a preexisting condition, to
such preexisting condition) until the earlier of the end of the
applicable period of noncoverage under the new employer's plan or the
third anniversary of the Executive's Date of Termination. The
Executive agrees to report to the Company any coverage and benefits
actually received by the Executive or made available to the Executive
from such other employer(s). The Executive shall be entitled to elect
to change his level of coverage and/or his choice of
5
<PAGE> 6
coverage options (such as Executive only or family medical coverage)
with respect to the Welfare Benefits to be provided by the Company to
the Executive to the same extent that actively employed senior
executives of the Company are permitted to make such changes,
provided, however, that in the event of any such changes the Executive
shall pay the amount of any cost increase that would actually be paid
by an actively employed executive of the Company by reason of making
the same change in his level of coverage or coverage options.
(c) Gross-Up Payment. In the event that the Executive becomes
entitled to the Severance Benefits or any other benefits or payments
under this Agreement (other than pursuant to this Section) by reason
of the accelerated vesting of stock options thereunder (together, the
"Total Benefits"), and in the event that any of the Total Benefits
will be subject to the Excise Tax, the Company shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the
net amount retained by the Executive, after deduction of any Excise
Tax on the Total Benefits and any federal, state and local income tax,
Excise Tax and FICA and Medicare withholding taxes upon the payment
provided for by this Section, shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits
will be subject to the Excise Tax and the amount of such Excise Tax,
(i) any other payments or benefits received or to be received by the
Executive in connection with a Change in Control or the Executive's
termination of employment (whether pursuant to the terms of this
Agreement or any other agreement, plan or arrangement with the
Company, any Person whose actions result in a Change in Control or any
Person affiliated with the Company or such Person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel ("Tax Counsel") selected by the
Company's independent auditors and acceptable to the Executive, such
other payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the
Base Amount, or are otherwise not subject to the Excise Tax, (ii) the
amount of the Total Benefits which shall be treated as subject to the
Excise Tax shall be equal to the lesser of (A) the total amount of the
Total Benefits reduced by the amount of such Total Benefits that in
the opinion of Tax Counsel are not parachute payments, or (B) the
amount of excess parachute payments within the meaning of Section
280G(b)(1) (after applying clause (i), above), and (iii) the value of
any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with
the principles of sections 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made and state and local income taxes at
the highest marginal rate of taxation in the state and locality of the
Executive's residence on the Date of Termination, net of the reduction
in federal income taxes which could be obtained from deduction of such
state and local taxes (calculated by assuming that any reduction under
Section 68 of the Code in the amount of itemized deductions allowable
to the Executive applies first to reduce the amount of such state and
local income taxes that would otherwise be deductible by the
Executive).
6
<PAGE> 7
In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of
termination of the Executive's employment, the Executive shall repay
to the Company, at the time that the amount of such reduction in
Excise Tax is finally determined, the portion of the Gross-Up Payment
attributable to such reduction (plus that portion of the Gross-Up
Payment attributable to the Excise Tax, federal, state and local
income taxes and FICA and Medicare withholding taxes imposed on the
portion of the Gross-Up Payment being repaid by the Executive to the
extent that such repayment results in a reduction in Excise Tax, FICA
and Medicare withholding taxes and/or federal, state or local income
taxes) plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of the Executive's employment
(including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment, determined as previously
described, to the Executive in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect
to such excess) at the time that the amount of such excess is finally
determined.
(D) Timing of Payments. The payments provided for in Sections
5(a) and 5(c) shall be made not later than the fifth (5th) day
following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before
such day, the Company shall pay to the Executive on such day an
estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in Section 1274(b)(2)(B)
of the Code from the fifth (5th) day following the Date of Termination
to the payment of such remainder) as soon as the amount thereof can be
determined but in no event later than the thirtieth (30th) day after
the Date of Termination. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive,
payable on the fifth (5th) business day after demand by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B)
of the Code from the fifth (5th) day following the Date of Termination
to the repayment of such excess).
6(D) Reimbursement of Legal Costs. The Company shall pay to the
Executive all legal fees and expenses incurred by the Executive as a
result of a termination which entities the Executive to any payments
under this Agreement including all such fees and expenses, if any,
incurred in contesting or disputing any Notice of Intent to Terminate
under Section 4(a) hereof or in seeking to obtain or enforce any
right or benefit provided by this Agreement or in connection with any
tax audit or proceeding to the extent attributable to the application
of Section 4999 of the Code to any payment or benefit provide
hereunder. Such payments shall be made within five (5) business days
after delivery of the Executive's respective written requests for
payment accompanied by such evidence of fees and expenses incurred as
the Company reasonably may require.
7. Damages. Executive shall not be required to mitigate damages with
respect to the amount of any payment provided under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided under this Agreement be reduced by retirement benefits, deferred
compensation or any compensation earned by Executive as a result of
employment by another employer.
7
<PAGE> 8
8. Successor to Company. The Company shall require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to Executive,
expressly, absolutely and unconditionally 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 it if no such succession or assignment had
taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor or assign to its business and/or
assets as aforesaid which executes and delivers the agreement provided for
in this section or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.
9. Heirs of Executive. This Agreement shall inure to the benefit of
and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributes, devisees and
legatees. If Executive should die while any amounts are still payable to
Executive hereunder, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to Executive's
devisee, legatee, or other designee or, if there be so such designee, to
Executive's estate.
10. Arbitration. Any dispute, controversy or claim arising under or in
connection with this Agreement, or the breach hereof, shall be settled
exclusively by arbitration in accordance with the Rules of the American
Arbitration Association then in effect. Judgment upon the award rendered by
the arbitrator(s) may be entered in any court of competent jurisdiction.
Any arbitration held pursuant to this section in connection with
Executive's termination of employment shall take place in Houston, Texas at
the earliest possible date. If any proceeding is necessary to enforce or
interpret the terms of this Agreement, or to recover damages for breach
thereof, the prevailing party shall be entitled to reasonable attorneys
fees and necessary costs and disbursements, not to exceed in the aggregate
one percent (1%) of the net worth of the other party, in addition to any
other relief to which he or it may be entitled.
11. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered by messenger or in person,
or when mailed by United States registered mail, return receipt requested,
postage prepaid, as follows:
If to the Company: Texas Biotechnology Corporation
7000 Fannin, Suite 1920
Houston, Texas 77030
Attention: President
If to the Executive: Pamela M. Murphy
c/o Texas Biotechnology Corporation
7000 Fannin, Suite 1920
Houston, Texas 77030
or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
8
<PAGE> 9
12. General Provisions.
(a) Executive's rights and obligations under this Agreement shall
not be transferable by assignment or otherwise, nor shall Executive's
rights be subject to encumbrance or subject to the claims of the Company's
creditors. Nothing in this Agreement shall prevent the consolidation of the
Company with, or its merger into, any other corporation, or the sale by the
Company of all or substantially all of its properties or assets; and this
Agreement shall inure to the benefit of, be binding upon and be enforceable
by, any successor surviving or resulting corporation, or other entity to
which such assets shall be transferred. This Agreement shall not be
terminated by the voluntary or involuntary dissolution of the Company.
(b) This Agreement and any Employment Agreement with Executive
plus terms of any stock option plans or grants constitutes the entire
agreement between the parties hereto in respect to the rights and
obligations of the parties following a Change in Control. This Agreement
supersedes and replaces all prior oral and written agreements,
understandings, commitments, and practices between the parties (whether or
not fully performed by Executive prior to the date hereof), which shall be
of no further force or effect.
(c) The provisions of this Agreement shall be regarded as
divisible, and if any of said provisions or any part thereof are declared
invalid or unenforceable by a court of competent jurisdiction, the validity
and enforceability of the remainder of such provisions or parts thereof and
the applicability thereof shall not be affected thereby.
(d) This Agreement may not be amended or modified except by a
written instrument executed by the Company and Executive.
(e) This Agreement and the rights and obligations hereunder shall
be governed by and construed in accordance with the laws of the State of
Texas.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
TEXAS BIOTECHNOLOGY CORPORATION
A Delaware Corporation
By /s/ DAVID B. MCWILLIAMS
-------------------------------
Attest: David B. McWilliams
President and CEO
By /s/ STEPHEN L. MUELLER
------------------------------------
By the authority of the Compensation
Committee of the Board of Directors of
Texas Biotechnology Corporation on
March 23, 1999. /s/ PAMELA M. MURPHY
------------------------------
Executive
9
<PAGE> 1
EXHIBIT 10.70
FOURTH AMENDMENT TO CONSULTING AGREEMENT
This FOURTH AMENDMENT TO CONSULTING AGREEMENT (the "Amendment") is made as
of the 1st day of January 1999 (the "Effective Date"), by and between JOHN M.
PIETRUSKI, an individual residing at 27 Paddock Lane, Colts Neck, New Jersey
07722 ("Consultant"), and TEXAS BIOTECHNOLOGY CORPORATION, a Delaware
corporation located at 7000 Fannin Street, Suite 1920, Houston, Texas 77030 (the
"Corporation").
WHEREAS, the Corporation and Consultant have entered into that certain
Consulting Agreement dated January 1, 1992 (the "Agreement"), as set forth in
Exhibit "A" attached hereto and incorporated herein by reference; and
WHEREAS, pursuant to the Agreement, the Corporation has retained Consultant
to provide consulting services to the Corporation with respect to corporate
governance, business development and other such matters; and
WHEREAS, the Corporation and Consultant desire to amend the Agreement as
herein set forth.
NOW, THEREFORE, for and in consideration of the foregoing and of the mutual
covenants contained herein, the parties hereto agree as follows:
1. Definitions. If not otherwise defined herein, all capitalized terms used
herein shall have their respective meaning assigned to them in the Agreement.
2. Amendment to Section 2. Effective as of the date hereof, Section 2 of
the Agreement is hereby amended by deleting paragraph (a) in its entirety and
substituting the following in lieu thereof:
"(a) Consultant's retention under this agreement shall commence on the
date hereof (the "Commencement Date") and shall end on the earliest of: (i)
the death or disability (as defined herein) of Consultant, (ii) the
termination of Consultant's retention by the Corporation for cause (as
defined herein); or (iii) two years after the Effective Date. After the
expiration of such two-year period, this Agreement may be renewed for
additional periods on all the remaining terms and conditions set forth
herein upon mutual agreement of Consultant and the Corporation."
3. The terms and provisions set forth in this Amendment shall modify and
supersede all inconsistent terms and provisions set forth in the Agreement and
except as expressly modified and superseded by this Amendment, the terms and
provisions of the Agreement are ratified and confirmed and shall continue in
full force and effect. Corporation and Consultant agree that the Agreement as
amended shall continue to be legal, valid, binding and enforceable in accordance
with its terms.
<PAGE> 2
4. Except as expressly modified or amended hereby, the terms and provisions
of the Agreement shall remain in force and effect in accordance with the terms
hereof, provided, however, that from and after the date hereof any reference to
the Agreement shall be deemed and construed as meaning the Agreement as amended
and modified hereby.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first written above.
CONSULTANT:
/s/ JOHN M. PIETRUSKI
-------------------------------------
John M. Pietruski
CORPORATION:
TEXAS BIOTECHNOLOGY CORPORATION
/s/ DAVID B. MCWILLIAMS
-------------------------------------
David B. McWilliams
President and Chief Executive Officer
<PAGE> 3
EXHIBIT "A"
(CONSULTING AGREEMENT)
See Exhibit 10.6(1) of the Company's 1998 Form 10-K.
<PAGE> 1
EXHIBIT 10.71
TEXAS BIOTECHNOLOGY CORPORATION
1999 STOCK INCENTIVE PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 1. General Provisions Relating To Plan Governance, Coverage And Benefits.......................1
1.1 Purpose.............................................................................1
1.2 Definitions.........................................................................1
(a) Authorized Officer.........................................................1
(b) Board......................................................................2
(c) Cause......................................................................2
(d) Change in Control..........................................................2
(e) Code.......................................................................2
(f) Committee..................................................................2
(g) Common Stock...............................................................3
(h) Company....................................................................3
(i) Consultant.................................................................3
(j) Covered Employee...........................................................3
(k) Disability.................................................................3
(l) Employee...................................................................3
(m) Employment.................................................................3
(n) Exchange Act...............................................................4
(o) Fair Market Value..........................................................4
(p) Grantee....................................................................5
(q) Immediate Family...........................................................5
(r) Incentive Agreement........................................................5
(s) Incentive Award............................................................5
(t) Incentive Stock Option.....................................................5
(u) Insider....................................................................5
(v) Nonstatutory Stock Option..................................................5
(w) Option Price...............................................................5
(x) Other Stock-Based Award....................................................5
(y) Outside Director...........................................................5
(z) Parent.....................................................................5
(aa) Performance-Based Exception................................................6
(bb) Performance Period.........................................................6
(cc) Plan.......................................................................6
(dd) Publicly Held Corporation..................................................6
(ee) Restricted Stock...........................................................6
(ff) Restricted Stock Award.....................................................6
(gg) Restriction Period.........................................................6
(hh) Retirement.................................................................6
(ii) Share......................................................................6
</TABLE>
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<TABLE>
<S> <C>
(jj) Share Pool.................................................................6
(kk) Stock Option or Option.....................................................6
(ll) Subsidiary.................................................................7
1.3 Plan Administration.................................................................7
(a) Authority of the Committee.................................................7
(b) Meetings...................................................................7
(c) Decisions Binding..........................................................7
(d) Modification of Outstanding Incentive Awards...............................8
(e) Delegation of Authority....................................................8
(f) Expenses of Committee......................................................8
(g) Surrender of Previous Incentive Awards.....................................8
(h) Indemnification............................................................8
1.4 Shares of Common Stock Available for Incentive Awards...............................9
1.5 Share Pool Adjustments for Awards and Payouts......................................10
1.6 Common Stock Available. ..........................................................10
1.7 Participation......................................................................10
(a) Eligibility...............................................................10
(b) Incentive Stock Option Eligibility........................................11
1.8 Types of Incentive Awards..........................................................11
SECTION 2. STOCK OPTIONS...............................................................................11
2.1 Grant of Stock Options.............................................................11
2.2 Stock Option Terms.................................................................11
(a) Written Agreement.........................................................11
(b) Number of Shares..........................................................12
(c) Exercise Price............................................................12
(d) Term......................................................................12
(e) Exercise..................................................................12
(f) $100,000 Annual Limit on Incentive Stock Options..........................12
2.3 Stock Option Exercises.............................................................13
(a) Method of Exercise and Payment............................................13
(b) Restrictions on Share Transferability.....................................14
(c) Notification of Disqualifying Disposition of Shares from Incentive
Stock Options.............................................................14
(d) Proceeds of Option Exercise...............................................14
2.4 Reload Options.....................................................................14
SECTION 3. RESTRICTED STOCK............................................................................15
3.1 Award of Restricted Stock..........................................................15
(a) Grant.....................................................................15
(b) Immediate Transfer Without Immediate Delivery of
Restricted Stock..........................................................15
3.2 Restrictions.......................................................................16
</TABLE>
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<TABLE>
<S> <C>
(a) Forfeiture of Restricted Stock............................................16
(b) Issuance of Certificates..................................................16
(c) Removal of Restrictions...................................................16
3.3 Delivery of Shares of Common Stock.................................................17
SECTION 4. OTHER STOCK-BASED AWARDS....................................................................17
4.1 Grant of Other Stock-Based Awards..................................................17
4.2 Other Stock-Based Award Terms......................................................17
(a) Written Agreement.........................................................17
(b) Purchase Price............................................................17
(c) Performance Criteria and Other Terms......................................18
(d) Payment...................................................................18
(e) Dividends.................................................................18
SECTION 5. PROVISIONS RELATING TO PLAN PARTICIPATION...................................................18
5.1 Plan Conditions....................................................................18
(a) Incentive Agreement.......................................................18
(b) No Right to Employment....................................................19
(c) Securities Requirements...................................................19
5.2 Transferability and Exercisability.................................................19
5.3 Rights as a Stockholder............................................................20
(a) No Stockholder Rights.....................................................20
(b) Representation of Ownership...............................................21
5.4 Listing and Registration of Shares of Common Stock.................................21
5.5 Change in Stock and Adjustments....................................................21
(a) Changes in Law or Circumstances...........................................21
(b) Exercise of Corporate Powers..............................................21
(c) Recapitalization of the Company...........................................22
(d) Reorganization of the Company.............................................22
(e) Issue of Common Stock by the Company......................................22
(f) Acquisition of the Company................................................23
(g) Assumption under the Plan of Outstanding Stock Options....................23
(h) Assumption of Incentive Awards by a Successor.............................24
5.6 Termination of Employment, Death, Disability and Retirement........................24
(a) Termination of Employment.................................................24
(b) Termination of Employment for Cause.......................................25
(c) Retirement................................................................25
(d) Disability or Death.......................................................25
(e) Continuation..............................................................26
5.7 Change in Control..................................................................26
5.8 Exchange of Incentive Awards.......................................................28
5.9 Financing..........................................................................28
</TABLE>
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<TABLE>
<S> <C>
SECTION 6. GENERAL.....................................................................................28
6.1 Effective Date and Grant Period....................................................28
6.2 Funding and Liability of Company...................................................29
6.3 Withholding Taxes..................................................................29
(a) Tax Withholding...........................................................29
(b) Share Withholding.........................................................29
(c) Incentive Stock Options...................................................29
(d) Loans.....................................................................30
6.4 No Guarantee of Tax Consequences...................................................30
6.5 Designation of Beneficiary by Participant..........................................30
6.6 Deferrals..........................................................................30
6.7 Amendment and Termination..........................................................30
6.8 Requirements of Law................................................................31
6.9 Rule 16b-3 Securities Law Compliance...............................................31
6.10 Compliance with Code Section 162(m)................................................31
6.11 Successors.........................................................................32
6.12 Miscellaneous Provisions...........................................................32
6.13 Severability.......................................................................32
6.14 Gender, Tense and Headings.........................................................32
6.15 Governing Law......................................................................33
</TABLE>
A-v
<PAGE> 6
TEXAS BIOTECHNOLOGY CORPORATION
1999 STOCK INCENTIVE PLAN
SECTION 1.
GENERAL PROVISIONS RELATING TO
PLAN GOVERNANCE, COVERAGE AND BENEFITS
1.1 PURPOSE
The purpose of the Plan is to foster and promote the long-term
financial success of Texas Biotechnology Corporation (the "Company") and its
Subsidiaries and to increase stockholder value by: (a) encouraging the
commitment of selected key Employees, Consultants and Outside Directors, (b)
motivating superior performance of key Employees, Consultants and Outside
Directors by means of long-term performance related incentives, (c) encouraging
and providing key Employees, Consultants and Outside Directors with a program
for obtaining ownership interests in the Company which link and align their
personal interests to those of the Company's stockholders, (d) attracting and
retaining key Employees, Consultants and Outside Directors by providing
competitive incentive compensation opportunities, and (e) enabling key
Employees, Consultants and Outside Directors to share in the long-term growth
and success of the Company.
The Plan provides for payment of various forms of incentive
compensation and it is not intended to be a plan that is subject to the Employee
Retirement Income Security Act of 1974, as amended (ERISA). The Plan shall be
interpreted, construed and administered consistent with its status as a plan
that is not subject to ERISA.
Subject to approval by the Company's stockholders pursuant to Section
6.1, the Plan shall become effective as of March 2, 1999 (the "EFFECTIVE DATE").
The Plan shall commence on the Effective Date, and shall remain in effect,
subject to the right of the Board to amend or terminate the Plan at any time
pursuant to Section 6.7, until all Shares subject to the Plan have been
purchased or acquired according to its provisions. However, in no event may an
Incentive Award be granted under the Plan after the expiration of ten (10) years
from the Effective Date.
1.2 DEFINITIONS
The following terms shall have the meanings set forth below:
(a) AUTHORIZED OFFICER. The Chairman of the Board or the
Chief Executive Officer of the Company or any other senior officer of
the Company to whom either of them delegate the authority to execute
any Incentive Agreement for and on behalf of the Company.
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<PAGE> 7
No officer or director shall be an Authorized Officer with respect to
any Incentive Agreement for himself.
(b) BOARD. The Board of Directors of the Company.
(c) CAUSE. When used in connection with the termination of a
Grantee's Employment, shall mean the termination of the Grantee's
Employment by the Company by reason of (i) the conviction of the
Grantee by a court of competent jurisdiction as to which no further
appeal can be taken of a crime involving moral turpitude or a felony;
(ii) the proven commission by the Grantee of an act of fraud upon the
Company; (iii) the willful and proven misappropriation of any funds or
property of the Company by the Grantee; (iv) the willful, continued and
unreasonable failure by the Grantee to perform the material duties
assigned to him; (v) the knowing engagement by the Grantee in any
direct, material conflict of interest with the Company without
compliance with the Company's conflict of interest policy, if any, then
in effect; or (vi) the knowing engagement by the Grantee, without the
written approval of the Board, in any activity which competes with the
business of the Company or which would result in a material injury to
the business, reputation or goodwill of the Company.
(d) CHANGE IN CONTROL. Any of the events described in and
subject to Section 5.7.
(e) CODE. The Internal Revenue Code of 1986, as amended, and
the regulations and other authority promulgated thereunder by the
appropriate governmental authority. References herein to any provision
of the Code shall refer to any successor provision thereto.
(f) COMMITTEE. A committee appointed by the Board consisting
of not less than two directors as appointed by the Board to administer
the Plan. During such period that the Company is a Publicly Held
Corporation, the Plan shall be administered by a committee appointed by
the Board consisting of not less than two directors who fulfill the
"non-employee director" requirements of Rule 16b-3 under the Exchange
Act and the "outside director" requirements of Section 162(m) of the
Code. In either case, the Committee may be the Compensation Committee
of the Board, or any subcommittee of the Compensation Committee,
provided that the members of the Committee satisfy the requirements of
the previous provisions of this paragraph. The Board shall have the
power to fill vacancies on the Committee arising by resignation, death,
removal or otherwise. The Board, in its sole discretion, may bifurcate
the powers and duties of the Committee among one or more separate
committees, or retain all powers and duties of the Committee in a
single Committee. The members of the Committee shall serve at the
discretion of the Board.
Notwithstanding the preceding paragraph, the term "Committee"
as used in the Plan with respect to any Incentive Award for an Outside
Director shall refer to the entire Board. In the case of an Incentive
Award for an Outside Director, the Board shall have all the
A-2
<PAGE> 8
powers and responsibilities of the Committee hereunder as to such
Incentive Award, and any actions as to such Incentive Award may be
acted upon only by the Board (unless it otherwise designates in its
discretion). When the Board exercises its authority to act in the
capacity as the Committee hereunder with respect to an Incentive Award
for an Outside Director, it shall so designate with respect to any
action that it undertakes in its capacity as the Committee.
(g) COMMON STOCK. The common stock of the Company, $.005 par
value per share, and any class of common stock into which such common
shares may hereafter be converted, reclassified or recapitalized.
(h) COMPANY. Texas Biotechnology Corporation, a corporation
organized under the laws of the State of Delaware, and any successor in
interest thereto.
(i) CONSULTANT. An independent agent, consultant, attorney, an
individual who has agreed to become an Employee, or any other
individual who is not an Outside Director or employee of the Company
(or any Parent or Subsidiary) and who, in the opinion of the Committee,
is in a position to contribute materially to the growth or financial
success of the Company (or any Parent or Subsidiary).
(j) COVERED EMPLOYEE. A named executive officer who is one of
the group of covered employees, as defined in Section 162(m) of the
Code and Treasury Regulation Section 1.162-27(c) (or its successor),
during such period that the Company is a Publicly Held Corporation.
(k) DISABILITY. As determined by the Committee in its
discretion exercised in good faith, a physical or mental condition of
the Employee that would entitle him to payment of disability income
payments under the Company's long term disability insurance policy or
plan for employees, as then effective, if any; or in the event that the
Grantee is not covered, for whatever reason, under the Company's
long-term disability insurance policy or plan, "Disability" means a
permanent and total disability as defined in Section 22(e)(3) of the
Code. A determination of Disability may be made by a physician selected
or approved by the Committee and, in this respect, the Grantee shall
submit to an examination by such physician upon request.
(l) EMPLOYEE. Any employee of the Company (or any Parent or
Subsidiary) within the meaning of Section 3401(c) of the Code who, in
the opinion of the Committee, is in a position to contribute to the
growth, development and financial success of the Company (or any Parent
or Subsidiary), including, without limitation, officers who are members
of the Board.
(m) EMPLOYMENT. Employment by the Company (or any Parent or
Subsidiary), or by any corporation issuing or assuming an Incentive
Award in any transaction described
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<PAGE> 9
in Section 424(a) of the Code, or by a parent corporation or a
subsidiary corporation of such corporation issuing or assuming such
Incentive Award, as the parent-subsidiary relationship shall be
determined at the time of the corporate action described in Section
424(a) of the Code. In this regard, neither the transfer of a Grantee
from Employment by the Company to Employment by any Parent or
Subsidiary, nor the transfer of a Grantee from Employment by any Parent
or Subsidiary to Employment by the Company, shall be deemed to be a
termination of Employment of the Grantee. Moreover, the Employment of a
Grantee shall not be deemed to have been terminated because of an
approved leave of absence from active Employment on account of
temporary illness, authorized vacation or granted for reasons of
professional advancement, education, health, or government service, or
during military leave for any period (if the Grantee returns to active
Employment within 90 days after the termination of military leave), or
during any period required to be treated as a leave of absence by
virtue of any applicable statute, Company personnel policy or
agreement. Whether an authorized leave of absence shall constitute
termination of Employment hereunder shall be determined by the
Committee in its discretion.
Unless otherwise provided in the Incentive Agreement, the term
"Employment" for purposes of the Plan is also defined to include (i)
compensatory services performed by a Consultant for the Company (or any
Parent or Subsidiary) and (ii) membership on the Board by an Outside
Director.
(n) EXCHANGE ACT. The Securities Exchange Act of 1934, as
amended.
(o) FAIR MARKET VALUE. The Fair Market Value of one share of
Common Stock on the date in question is deemed to be (i) the closing
sales price on the immediately preceding business day of a share of
Common Stock as reported on the consolidated reporting system for the
securities exchange(s) on which Shares are then listed or admitted to
trading (as reported in the Wall Street Journal or other reputable
source), or (ii) if not so reported, the average of the closing bid and
asked prices for a Share 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 as quoted by
the National Quotation Bureau's "Pink Sheets" or the National
Association of Securities Dealers' OTC Bulletin Board System. If there
was no public trade of Common Stock on the date in question, Fair
Market Value shall be determined by reference to the last preceding
date on which such a trade was so reported.
If the Company is not a Publicly Held Corporation at the time
a determination of the Fair Market Value of the Common Stock is
required to be made hereunder, the determination of Fair Market Value
for purposes of the Plan shall be made by the Committee in its
discretion exercised in good faith. In this respect, the Committee may
rely on such financial data, valuations, experts, and other sources, in
its discretion, as it deems advisable under the circumstances.
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(p) GRANTEE. Any Employee, Consultant or Outside Director who
is granted an Incentive Award under the Plan.
(q) IMMEDIATE FAMILY. With respect to a Grantee, the Grantee's
spouse, children or grandchildren (including legally adopted and step
children and grandchildren)
(r) INCENTIVE AGREEMENT. The written agreement entered into
between the Company and the Grantee setting forth the terms and
conditions pursuant to which an Incentive Award is granted under the
Plan, as such agreement is further defined in Section 6.1(a).
(s) INCENTIVE AWARD. A grant of an award under the Plan to a
Grantee, including any Nonstatutory Stock Option, Incentive Stock
Option, Reload Option, Restricted Stock Award, or Other Stock-Based
Award.
(t) INCENTIVE STOCK OPTION OR ISO. A Stock Option granted by
the Committee to an Employee under Section 2 which is designated by the
Committee as an Incentive Stock Option and intended to qualify as an
Incentive Stock Option under Section 422 of the Code.
(u) INSIDER. An individual who is, on the relevant date, an
officer, director or ten percent (10%) beneficial owner of any class of
the Company's equity securities that is registered pursuant to Section
12 of the Exchange Act, all as defined under Section 16 of the Exchange
Act.
(v) NONSTATUTORY STOCK OPTION. A Stock Option granted by the
Committee to a Grantee under Section 2 that is not designated by the
Committee as an Incentive Stock Option.
(w) OPTION PRICE. The exercise price at which a Share may be
purchased by the Grantee of a Stock Option.
(x) OTHER STOCK-BASED AWARD. An award granted by the Committee
to a Grantee under Section 4.1 that is valued in whole or in part by
reference to, or is otherwise based upon, Common Stock.
(y) OUTSIDE DIRECTOR. A member of the Board who is not, at the
time of grant of an Incentive Award, an employee of the Company or any
Parent or Subsidiary.
(z) PARENT. Any corporation (whether now or hereafter
existing) which constitutes a "parent" of the Company, as defined in
Section 424(e) of the Code.
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(aa) PERFORMANCE-BASED EXCEPTION. The performance-based
exception from the tax deductibility limitations of Section 162(m) of
the Code, as prescribed in Code Section 162(m) and Treasury Regulation
Section 1.162-27(e) (or its successor), which is applicable during such
period that the Company is a Publicly Held Corporation.
(bb) PERFORMANCE PERIOD. A period of time, as may be
determined in the discretion of the Committee and set out in the
Incentive Agreement, over which performance is measured for the purpose
of determining a Grantee's right to and the payment value of an
Incentive Award.
(cc) PLAN. The Texas Biotechnology Corporation 1999 Stock
Incentive Plan as set forth herein and as it may be amended from time
to time.
(dd) PUBLICLY HELD CORPORATION. A corporation issuing any
class of common equity securities required to be registered under
Section 12 of the Exchange Act.
(ee) RESTRICTED STOCK. Shares of Common Stock issued or
transferred to a Grantee pursuant to Section 3.
(ff) RESTRICTED STOCK AWARD. An authorization by the Committee
to issue or transfer Restricted Stock to a Grantee.
(gg) RESTRICTION PERIOD. The period of time determined by the
Committee and set forth in the Incentive Agreement during which the
transfer of Restricted Stock by the Grantee is restricted.
(hh) RETIREMENT. The voluntary termination of Employment from
the Company or any Parent or Subsidiary constituting retirement for age
on any date after the Employee attains the normal retirement age of 65
years, or such other age as may be designated by the Committee in the
Employee's Incentive Agreement.
(ii) SHARE. A share of the Common Stock of the Company.
(jj) SHARE POOL. The number of shares authorized for issuance
under Section 1.4, as adjusted for awards and payouts under Section 1.5
and as adjusted for changes in corporate capitalization under Section
5.5.
(kk) STOCK OPTION OR OPTION. Pursuant to Section 2, (i) an
Incentive Stock Option granted to an Employee or (ii) a Nonstatutory
Stock Option granted to an Employee, Consultant or Outside Director,
whereunder such stock option the Grantee has the right to purchase
Shares of Common Stock. In accordance with Section 422 of the Code,
only an Employee may be granted an Incentive Stock Option.
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(ll) SUBSIDIARY. Any corporation (whether now or hereafter
existing) which constitutes a "subsidiary" of the Company, as defined
in Section 424(f) of the Code.
1.3 PLAN ADMINISTRATION
(a) AUTHORITY OF THE COMMITTEE. Except as may be limited by
law and subject to the provisions herein, the Committee shall have full
power to (i) select Grantees who shall participate in the Plan; (ii)
determine the sizes, duration and types of Incentive Awards; (iii)
determine the terms and conditions of Incentive Awards and Incentive
Agreements; (iv) determine whether any Shares subject to Incentive
Awards will be subject to any restrictions on transfer; (v) construe
and interpret the Plan and any Incentive Agreement or other agreement
entered into under the Plan; and (vi) establish, amend, or waive rules
for the Plan's administration. Further, the Committee shall make all
other determinations which may be necessary or advisable for the
administration of the Plan including, without limitation, correcting
any defect, supplying any omission or reconciling any inconsistency in
the Plan or any Incentive Agreement. The determinations of the
Committee shall be final and binding.
The Committee may grant an Incentive Award to an individual
who it expects to become an Employee within the next six months, with
such Incentive Award being subject to such individual actually becoming
an Employee within such time period, and subject to such other terms
and conditions as may be established by the Committee in its
discretion.
(b) MEETINGS. The Committee shall designate a chairman from
among its members who shall preside at all of its meetings, and shall
designate a secretary, without regard to whether that person is a
member of the Committee, who shall keep the minutes of the proceedings
and all records, documents, and data pertaining to its administration
of the Plan. Meetings shall be held at such times and places as shall
be determined by the Committee and the Committee may hold telephonic
meetings. The Committee may take any action otherwise proper under the
Plan by the affirmative vote, taken with or without a meeting, of a
majority of its members. The Committee may authorize any one or more of
their members or any officer of the Company to execute and deliver
documents on behalf of the Committee.
(c) DECISIONS BINDING. All determinations and decisions made
by the Committee shall be made in its discretion pursuant to the
provisions of the Plan, and shall be final, conclusive and binding on
all persons including the Company, its shareholders, Employees,
Grantees, and their estates and beneficiaries. The Committee's
decisions and determinations with respect to any Incentive Award need
not be uniform and may be made selectively among Incentive Awards and
Grantees, whether or not such Incentive Awards are similar or such
Grantees are similarly situated.
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(d) MODIFICATION OF OUTSTANDING INCENTIVE AWARDS. Subject to
the stockholder approval requirements of Section 6.7 if applicable, the
Committee may, in its discretion, provide for the extension of the
exercisability of an Incentive Award, accelerate the vesting or
exercisability of an Incentive Award, eliminate or make less
restrictive any restrictions contained in an Incentive Award, waive any
restriction or other provisions of an Incentive Award, or otherwise
amend or modify an Incentive Award in any manner that is either (i) not
adverse to the Grantee to whom such Incentive Award was granted or (ii)
consented to by such Grantee. With respect to an Incentive Award that
is an incentive stock option (as described in Section 422 of the Code),
no adjustment to such option shall be made to the extent constituting a
"modification" within the meaning of Section 424(h)(3) of the Code
unless otherwise agreed to by the optionee in writing.
(e) DELEGATION OF AUTHORITY. The Committee may delegate to
designated officers or other employees of the Company any of its duties
under this Plan pursuant to such conditions or limitations as the
Committee may establish from time to time; provided, however, while the
Company is a Publicly Held Corporation, the Committee may not delegate
to any person the authority to (i) grant Incentive Awards, or (ii) take
any action which would contravene the requirements of Rule 16b-3 under
the Exchange Act or the Performance-Based Exception under Section
162(m) of the Code.
(f) EXPENSES OF COMMITTEE. The Committee may employ legal
counsel, including, without limitation, independent legal counsel and
counsel regularly employed by the Company, and other agents as the
Committee may deem appropriate for the administration of the Plan. The
Committee may rely upon any opinion or computation received from any
such counsel or agent. All expenses incurred by the Committee in
interpreting and administering the Plan, including, without limitation,
meeting expenses and professional fees, shall be paid by the Company.
(g) SURRENDER OF PREVIOUS INCENTIVE AWARDS. The Committee may,
in its absolute discretion, grant Incentive Awards to Grantees on the
condition that such Grantees surrender to the Committee for
cancellation such other Incentive Awards (including, without
limitation, Incentive Awards with higher exercise prices) as the
Committee directs. Incentive Awards granted on the condition precedent
of surrender of outstanding Incentive Awards shall not count against
the limits set forth in Section 1.4 until such time as such previous
Incentive Awards are surrendered and canceled.
(h) INDEMNIFICATION. Each person who is or was a member of
the Committee, or of the Board, shall be indemnified by the Company
against and from any damage, loss, liability, cost and expense that may
be imposed upon or reasonably incurred by him in connection with or
resulting from any claim, action, suit, or proceeding to which he may
be a party or in which he may be involved by reason of any action taken
or failure to act under the Plan, EXCEPT FOR ANY SUCH ACT OR OMISSION
CONSTITUTING WILLFUL MISCONDUCT OR GROSS negligence. Such person shall
be indemnified by the Company for all amounts paid by him in settlement
thereof, with the Company's approval, or paid by him
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in settlement thereof, with the Company's approval, or paid by him in
satisfaction of any judgment in any such action, suit, or proceeding
against him, provided he shall give the Company an opportunity, at its
own expense, to handle and defend the same before he undertakes to
handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the
Company's Articles of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to indemnify them or
hold them harmless.
1.4 SHARES OF COMMON STOCK AVAILABLE FOR INCENTIVE AWARDS
Subject to adjustment under Section 5.5, there shall be available for
Incentive Awards under the Plan granted wholly or partly in Common Stock
(including rights or Stock Options that may be exercised for or settled in
Common Stock) One Million (1,000,000) Shares of Common Stock. One Million
(1,000,000) of the Shares reserved under the Plan shall be available for grants
of Incentive Stock Options. The number of Shares of Common Stock that are the
subject of Incentive Awards under this Plan, that are forfeited or terminated,
expire unexercised, are settled in cash in lieu of Common Stock or in a manner
such that all or some of the Shares covered by an Incentive Award are not issued
to a Grantee or are exchanged for Incentive Awards that do not involve Common
Stock, shall again immediately become available for Incentive Awards hereunder.
The Committee may from time to time adopt and observe such procedures concerning
the counting of Shares against the Plan maximum as it may deem appropriate. The
Board and the appropriate officers of the Company shall from time to time take
whatever actions are necessary to file any required documents with governmental
authorities, stock exchanges and transaction reporting systems to ensure that
Shares are available for issuance pursuant to Incentive Awards.
During such period that the Company is a Publicly Held Corporation,
then unless and until the Committee determines that a particular Incentive Award
granted to a Covered Employee is not intended to comply with the
Performance-Based Exception, the following rules shall apply to grants of
Incentive Awards to Covered Employees:
(a) Subject to adjustment as provided in Section 5.5, the
maximum aggregate number of Shares of Common Stock (including Stock
Options, Restricted Stock, or Other Stock-Based Awards paid out in
Shares) that may be granted or that may vest, as applicable, in any
calendar year pursuant to any Incentive Award held by any individual
Covered Employee shall be 1,000,000 Shares.
(b) The maximum aggregate cash payout (including Other
Stock-Based Awards paid out in cash) with respect to Incentive Awards
granted in any calendar year which may be made to any Covered Employee
shall be Ten Million dollars ($10,000,000).
(c) With respect to any Stock Option granted to a Covered
Employee that is canceled or repriced, the number of Shares subject to
such Stock Option shall continue to
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count against the maximum number of Shares that may be the subject of
Stock Options granted to such Covered Employee hereunder and, in this
regard, such maximum number shall be determined in accordance with
Section 162(m) of the Code.
(d) The limitations of subsections (a), (b) and (c) above
shall be construed and administered so as to comply with the
Performance-Based Exception.
1.5 SHARE POOL ADJUSTMENTS FOR AWARDS AND PAYOUTS.
The following Incentive Awards and payouts shall reduce, on a one Share
for one Share basis, the number of Shares authorized for issuance under the
Share Pool:
(a) Stock Option;
(b) Restricted Stock; and
(c) A payout of an Other Stock-Based Award in Shares.
The following transactions shall restore, on a one Share for one Share
basis, the number of Shares authorized for issuance under the Share Pool:
(a) A payout of an Other Stock-Based Award in the form of
cash;
(b) A cancellation, termination, expiration, forfeiture,
or lapse for any reason of any Shares subject to an Incentive Award;
and
(c) Payment of an Option Price with previously acquired
Shares or by withholding Shares that otherwise would be acquired on
exercise (i.e., the Share Pool shall be increased by the number of
Shares turned in or withheld as payment of the Option Price).
1.6 COMMON STOCK AVAILABLE.
The Common Stock available for issuance or transfer under the Plan
shall be made available from Shares now or hereafter (a) held in the treasury of
the Company, (b) authorized but unissued shares, or (c) shares to be purchased
or acquired by the Company. No fractional shares shall be issued under the Plan;
payment for fractional shares shall be made in cash.
1.7 PARTICIPATION
(a) ELIGIBILITY. The Committee shall from time to time
designate those Employees, Consultants and/or Outside Directors, if
any, to be granted Incentive Awards under the Plan, the type of
Incentive Awards granted, the number of Shares or Stock Options, as the
case may be, which shall be granted to each such person, and any other
terms or
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conditions relating to the Incentive Awards as it may deem appropriate
to the extent not inconsistent with the provisions of the Plan. A
Grantee who has been granted an Incentive Award may, if otherwise
eligible, be granted additional Incentive Awards at any time.
(b) INCENTIVE STOCK OPTION ELIGIBILITY. No Consultant or
Outside Director shall be eligible for the grant of any Incentive Stock
Option. In addition, no Employee shall be eligible for the grant of any
Incentive Stock Option who owns or would own immediately before the
grant of such Incentive Stock Option, directly or indirectly, stock
possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company, or any Parent or
Subsidiary. This restriction does not apply if, at the time such
Incentive Stock Option is granted, the Incentive Stock Option exercise
price is at least one hundred and ten percent (110%) of the Fair Market
Value on the date of grant and the Incentive Stock Option by its terms
is not exercisable after the expiration of five (5) years from the date
of grant. For the purpose of the immediately preceding sentence, the
attribution rules of Section 424(d) of the Code shall apply for the
purpose of determining an Employee's percentage ownership in the
Company or any Parent or Subsidiary. This paragraph shall be construed
consistent with the requirements of Section 422 of the Code.
1.8 TYPES OF INCENTIVE AWARDS
The types of Incentive Awards under the Plan are Stock Options as
described in Section 2, Restricted Stock as described in Section 3, Other
Stock-Based Awards as described in Section 4, or any combination of the
foregoing.
SECTION 2.
STOCK OPTIONS
2.1 GRANT OF STOCK OPTIONS
The Committee is authorized to grant (a) Nonstatutory Stock Options to
Employees, Consultants and/or Outside Directors and (b) Incentive Stock Options
to Employees only, in accordance with the terms and conditions of the Plan, and
with such additional terms and conditions, not inconsistent with the Plan, as
the Committee shall determine in its discretion. Successive grants may be made
to the same Grantee whether or not any Stock Option previously granted to such
person remains unexercised.
2.2 STOCK OPTION TERMS
(a) WRITTEN AGREEMENT. Each grant of an Stock Option shall be
evidenced by a written Incentive Agreement. Among its other provisions,
each Incentive Agreement shall set forth the extent to which the
Grantee shall have the right to exercise the Stock Option
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following termination of the Grantee's Employment. Such provisions
shall be determined in the discretion of the Committee, shall be
included in the Grantee's Incentive Agreement, need not be uniform
among all Stock Options issued pursuant to the Plan.
(b) NUMBER OF SHARES. Each Stock Option shall specify the
number of Shares of Common Stock to which it pertains.
(c) EXERCISE PRICE. The exercise price per Share of Common
Stock under each Stock Option shall be determined by the Committee;
provided, however, that in the case of an Incentive Stock Option, such
exercise price shall not be less than 100% of the Fair Market Value per
Share on the date the Incentive Stock Option is granted. To the extent
that the Company is a Publicly Held Corporation and the Stock Option is
intended to qualify for the Performance-Based Exception, the exercise
price shall not be less than 100% of the Fair Market Value per Share on
the date the Stock Option is granted. Each Stock Option shall specify
the method of exercise which shall be consistent with the requirements
of Section 2.3(a).
(d) TERM. In the Incentive Agreement, the Committee shall fix
the term of each Stock Option which shall be not more than ten (10)
years from the date of grant. In the event no term is fixed, such term
shall be ten (10) years from the date of grant.
(e) EXERCISE. The Committee shall determine the time or times
at which a Stock Option may be exercised in whole or in part. Each
Stock Option may specify the required period of continuous Employment
and/or the performance objectives to be achieved before the Stock
Option or portion thereof will become exercisable. Each Stock Option,
the exercise of which, or the timing of the exercise of which, is
dependent, in whole or in part, on the achievement of designated
performance objectives, may specify a minimum level of achievement in
respect of the specified performance objectives below which no Stock
Options will be exercisable and a method for determining the number of
Stock Options that will be exercisable if performance is at or above
such minimum but short of full achievement of the performance
objectives. All such terms and conditions shall be set forth in the
Incentive Agreement.
(f) $100,000 ANNUAL LIMIT ON INCENTIVE STOCK OPTIONS.
Notwithstanding any contrary provision in the Plan, to the extent that
the aggregate Fair Market Value (determined as of the time the
Incentive Stock Option is granted) of the Shares of Common Stock with
respect to which Incentive Stock Options are exercisable for the first
time by any Grantee during any single calendar year (under the Plan and
any other stock option plans of the Company and its Subsidiaries or
Parent) exceeds the sum of $100,000, such Incentive Stock Option shall
be treated as a Nonstatutory Stock Option to the extent in excess of
the $100,000 limit, and not an Incentive Stock Option, but all other
terms and provisions of such Stock Option shall remain unchanged. This
paragraph shall be applied by taking Incentive Stock Options into
account in the order in which they are granted and shall be construed
in
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accordance with Section 422(d) of the Code. In the absence of such
regulations or other authority, or if such regulations or other
authority require or permit a designation of the Options which shall
cease to constitute Incentive Stock Options, then such Incentive Stock
Options, only to the extent of such excess and in the order in which
they were granted, shall automatically be deemed to be Nonstatutory
Stock Options but all other terms and conditions of such Incentive
Stock Options, and the corresponding Incentive Agreement, shall remain
unchanged.
2.3 STOCK OPTION EXERCISES
(a) METHOD OF EXERCISE AND PAYMENT. Stock Options shall be
exercised by the delivery of a signed written notice of exercise to the
Company as of a date set by the Company in advance of the effective
date of the proposed exercise. The notice shall set forth the number of
Shares with respect to which the Option is to be exercised, accompanied
by full payment for the Shares.
The Option Price upon exercise of any Stock Option shall be
payable to the Company in full either: (i) in cash or its equivalent,
or (ii) subject to prior approval by the Committee in its discretion,
by tendering previously acquired Shares having an aggregate Fair Market
Value at the time of exercise equal to the total Option Price (provided
that the Shares which are tendered must have been held by the Grantee
for at least six (6) months prior to their tender to satisfy the Option
Price), or (iii) subject to prior approval by the Committee in its
discretion, by withholding Shares which otherwise would be acquired on
exercise having an aggregate Fair Market Value at the time of exercise
equal to the total Option Price, or (iv) subject to prior approval by
the Committee in its discretion, by a combination of (i), (ii), and
(iii) above. Any payment in Shares of Common Stock shall be effected by
the delivery of such Shares to the Secretary of the Company, duly
endorsed in blank or accompanied by stock powers duly executed in
blank, together with any other documents as the Secretary shall require
from time to time.
The Committee, in its discretion, also may allow (i) "cashless
exercise" as permitted under Federal Reserve Board's Regulation T, 12
CFR Part 220 (or its successor), and subject to applicable securities
law restrictions and tax withholdings, or (ii) by any other means which
the Committee, in its discretion, determines to be consistent with the
Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification
of exercise and full payment, the Company shall deliver to or on behalf
of the Grantee, in the name of the Grantee or other appropriate
recipient, Share certificates for the number of Shares purchased under
the Stock Option. Such delivery shall be effected for all purposes when
a stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to Grantee or other
appropriate recipient.
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(b) RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may
impose such restrictions on any Shares acquired pursuant to the
exercise of a Stock Option as it may deem advisable, including, without
limitation, restrictions under (i) any buy/sell agreement or right of
first refusal, (ii) any applicable federal securities laws, (iii) the
requirements of any stock exchange or market upon which such Shares are
then listed and/or traded, or (iv) any blue sky or state securities law
applicable to such Shares. Any certificate issued to evidence Shares
issued upon the exercise of an Incentive Award may bear such legends
and statements as the Committee shall deem advisable to assure
compliance with federal and state laws and regulations.
Any Grantee or other person exercising an Incentive Award may
be required by the Committee to give a written representation that the
Incentive Award and the Shares subject to the Incentive Award will be
acquired for investment and not with a view to public distribution;
provided, however, that the Committee, in its sole discretion, may
release any person receiving an Incentive Award from any such
representations either prior to or subsequent to the exercise of the
Incentive Award.
(c) NOTIFICATION OF DISQUALIFYING DISPOSITION OF SHARES FROM
INCENTIVE STOCK OPTIONS. Notwithstanding any other provision of the
Plan, a Grantee who disposes of Shares of Common Stock acquired upon
the exercise of an Incentive Stock Option by a sale or exchange either
(i) within two (2) years after the date of the grant of the Incentive
Stock Option under which the Shares were acquired or (ii) within one
(1) year after the transfer of such Shares to him pursuant to exercise,
shall promptly notify the Company of such disposition, the amount
realized and his adjusted basis in such Shares.
(d) PROCEEDS OF OPTION EXERCISE. The proceeds received by the
Company from the sale of Shares pursuant to Stock Options exercised
under the Plan shall be used for general corporate purposes.
2.4 RELOAD OPTIONS
At the discretion of the Committee, the Grantee may be granted under an
Incentive Agreement, replacement Stock Options under the Plan that permit the
Grantee to purchase an additional number of Shares equal to the number of
previously owned Shares surrendered by the Grantee to pay all or a portion of
the Option Price upon exercise of his Stock Options. The terms and conditions of
such replacement Stock Options shall be set forth in the Incentive Agreement.
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SECTION 3.
RESTRICTED STOCK
3.1 AWARD OF RESTRICTED STOCK
(a) GRANT. In consideration of the performance of Employment
by any Grantee who is an Employee, Consultant or Outside Director,
Shares of Restricted Stock may be awarded under the Plan by the
Committee with such restrictions during the Restriction Period as the
Committee may designate in its discretion, any of which restrictions
may differ with respect to each particular Grantee. Restricted Stock
shall be awarded for no additional consideration or such additional
consideration as the Committee may determine, which consideration may
be less than, equal to or more than the Fair Market Value of the shares
of Restricted Stock on the grant date. The terms and conditions of each
grant of Restricted Stock shall be evidenced by an Incentive Agreement.
(b) IMMEDIATE TRANSFER WITHOUT IMMEDIATE DELIVERY OF
RESTRICTED STOCK. Unless otherwise specified in the Grantee's Incentive
Agreement, each Restricted Stock Award shall constitute an immediate
transfer of the record and beneficial ownership of the Shares of
Restricted Stock to the Grantee in consideration of the performance of
services as an Employee, Consultant or Outside Director, as applicable,
entitling such Grantee to all voting and other ownership rights in such
Shares.
As specified in the Incentive Agreement, a Restricted Stock
Award may limit the Grantee's dividend rights during the Restriction
Period in which the shares of Restricted Stock are subject to a
"substantial risk of forfeiture" (within the meaning given to such term
under Code Section 83) and restrictions on transfer. In the Incentive
Agreement, the Committee may apply any restrictions to the dividends
that the Committee deems appropriate. Without limiting the generality
of the preceding sentence, if the grant or vesting of Shares of
Restricted Stock granted to a Covered Employee, if applicable, is
designed to comply with the requirements of the Performance-Based
Exception, the Committee may apply any restrictions it deems
appropriate to the payment of dividends declared with respect to such
Shares of Restricted Stock, such that the dividends and/or the Shares
of Restricted Stock maintain eligibility for the Performance-Based
Exception. In the event that any dividend constitutes a derivative
security or an equity security pursuant to the rules under Section 16
of the Exchange Act, if applicable, such dividend shall be subject to a
vesting period equal to the remaining vesting period of the Shares of
Restricted Stock with respect to which the dividend is paid.
Shares awarded pursuant to a grant of Restricted Stock may be
issued in the name of the Grantee and held, together with a stock power
endorsed in blank, by the Committee or Company (or their delegates) or
in trust or in escrow pursuant to an agreement satisfactory to the
Committee, as determined by the Committee, until such time as the
restrictions on
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transfer have expired. All such terms and conditions shall be set forth
in the particular Grantee's Incentive Agreement. The Company or
Committee (or their delegates) shall issue to the Grantee a receipt
evidencing the certificates held by it which are registered in the name
of the Grantee.
3.2 RESTRICTIONS
(a) FORFEITURE OF RESTRICTED STOCK. Restricted Stock awarded
to a Grantee may be subject to the following restrictions until the
expiration of the Restriction Period: (i) a restriction that
constitutes a "substantial risk of forfeiture" (as defined in Code
Section 83), or a restriction on transferability; (ii) unless otherwise
specified by the Committee in the Incentive Agreement, the Restricted
Stock that is subject to restrictions which are not satisfied shall be
forfeited and all rights of the Grantee to such Shares shall terminate;
and (iii) any other restrictions that the Committee determines in
advance are appropriate, including, without limitation, rights of
repurchase or first refusal in the Company or provisions subjecting the
Restricted Stock to a continuing substantial risk of forfeiture in the
hands of any transferee. Any such restrictions shall be set forth in
the particular Grantee's Incentive Agreement.
(b) ISSUANCE OF CERTIFICATES. Reasonably promptly after the
date of grant with respect to Shares of Restricted Stock, the Company
shall cause to be issued a stock certificate, registered in the name of
the Grantee to whom such Shares of Restricted Stock were granted,
evidencing such Shares; provided, however, that the Company shall not
cause to be issued such a stock certificate unless it has received a
stock power duly endorsed in blank with respect to such Shares. Each
such stock certificate shall bear the following legend or any other
legend approved by the Company:
The transferability of this certificate and the shares of
stock represented hereby are subject to the restrictions,
terms and conditions (including forfeiture and restrictions
against transfer) contained in the Texas Biotechnology
Corporation 1999 Stock Incentive Plan and an Incentive
Agreement entered into between the registered owner of such
shares and Texas Biotechnology Corporation. A copy of the Plan
and Incentive Agreement are on file in the corporate offices
of Texas Biotechnology Corporation.
Such legend shall not be removed from the certificate evidencing such
Shares of Restricted Stock until such Shares vest pursuant to the terms
of the Incentive Agreement.
(c) REMOVAL OF RESTRICTIONS. The Committee, in its discretion,
shall have the authority to remove any or all of the restrictions on
the Restricted Stock if it determines that, by reason of a change in
applicable law or another change in circumstance arising after the
grant date of the Restricted Stock, such action is appropriate.
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3.3 DELIVERY OF SHARES OF COMMON STOCK
Subject to withholding taxes under Section 6.3 and to the terms of the
Incentive Agreement, a stock certificate evidencing the Shares of Restricted
Stock with respect to which the restrictions in the Incentive Agreement have
been satisfied shall be delivered to the Grantee or other appropriate recipient
free of restrictions. Such delivery shall be effected for all purposes when the
Company shall have deposited such certificate in the United States mail,
addressed to the Grantee or other appropriate recipient.
SECTION 4.
OTHER STOCK-BASED AWARDS
4.1 GRANT OF OTHER STOCK-BASED AWARDS
Other Stock-Based Awards may be awarded by the Committee to selected
Grantees that are denominated or payable in, valued in whole or in part by
reference to, or otherwise related to, Shares of Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan and the goals of the
Company. Other types of Stock-Based Awards include, without limitation, Deferred
Stock, purchase rights, Shares of Common Stock awarded which are not subject to
any restrictions or conditions, convertible or exchangeable debentures, other
rights convertible into Shares, Incentive Awards valued by reference to the
value of securities of or the performance of a specified Subsidiary, division or
department, and settlement in cancellation of rights of any person with a vested
interest in any other plan, fund, program or arrangement that is or was
sponsored, maintained or participated in by the Company or any Parent or
Subsidiary. As is the case with other Incentive Awards, Other Stock-Based Awards
may be awarded either alone or in addition to or in tandem with any other
Incentive Awards.
4.2 OTHER STOCK-BASED AWARD TERMS
(a) WRITTEN AGREEMENT. The terms and conditions of each grant
of an Other Stock-Based Award shall be evidenced by an Incentive
Agreement.
(b) PURCHASE PRICE. Except to the extent that an Other
Stock-Based Award is granted in substitution for an outstanding
Incentive Award or is delivered upon exercise of a Stock Option, the
amount of consideration required to be received by the Company shall be
either (i) no consideration other than services actually rendered (in
the case of authorized and unissued shares) or to be rendered, or (ii)
in the case of an Other Stock-Based Award in the nature of a purchase
right, consideration (other than services rendered or to be rendered)
at least equal to 50% of the Fair Market Value of the Shares covered by
such grant on the date of grant (or such percentage higher than 50%
that is required by any applicable tax or securities law).
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(c) PERFORMANCE CRITERIA AND OTHER TERMS. In its discretion,
the Committee may specify such criteria, periods or goals for vesting
in Other Stock-Based Awards and payment thereof to the Grantee as it
shall determine; and the extent to which such criteria, periods or
goals have been met shall be determined by the Committee. All terms and
conditions of Other Stock-Based Awards shall be determined by the
Committee and set forth in the Incentive Agreement.
(d) PAYMENT. Other Stock-Based Awards may be paid in Shares of
Common Stock or other consideration related to such Shares, in a single
payment or in installments on such dates as determined by the
Committee, all as specified in the Incentive Agreement.
(e) DIVIDENDS. The Grantee of an Other Stock-Based Award shall
be entitled to receive, currently or on a deferred basis, dividends or
dividend equivalents with respect to the number of Shares covered by
the Other Stock-Based Award, as determined by the Committee and set
forth in the Incentive Agreement. The Committee may also provide in the
Incentive Agreement that such amounts (if any) shall be deemed to have
been reinvested in additional Shares of Common Stock.
SECTION 5.
PROVISIONS RELATING TO PLAN PARTICIPATION
5.1 PLAN CONDITIONS
(a) INCENTIVE AGREEMENT. Each Grantee to whom an Incentive
Award is granted shall be required to enter into an Incentive Agreement
with the Company, in such a form as is provided by the Committee. The
Incentive Agreement shall contain specific terms as determined by the
Committee, in its discretion, with respect to the Grantee's particular
Incentive Award. Such terms need not be uniform among all Grantees or
any similarly-situated Grantees. The Incentive Agreement may include,
without limitation, vesting, forfeiture and other provisions particular
to the particular Grantee's Incentive Award, as well as, for example,
provisions to the effect that the Grantee (i) shall not disclose any
confidential information acquired during Employment with the Company,
(ii) shall abide by all the terms and conditions of the Plan and such
other terms and conditions as may be imposed by the Committee, (iii)
shall not interfere with the employment or other service of any
employee, (iv) shall not compete with the Company or become involved in
a conflict of interest with the interests of the Company, (v) shall
forfeit an Incentive Award if terminated for Cause, (vi) shall not be
permitted to make an election under Section 83(b) of the Code when
applicable, and (vii) shall be subject to any other agreement between
the Grantee and the Company regarding Shares that may be acquired under
an Incentive Award including, without limitation, an agreement
restricting the transferability of Shares by Grantee. An Incentive
Agreement shall include such terms and conditions as are determined by
the
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Committee, in its discretion, to be appropriate with respect to any
individual Grantee. The Incentive Agreement shall be signed by the
Grantee to whom the Incentive Award is made and by an Authorized
Officer.
(b) NO RIGHT TO EMPLOYMENT. Nothing in the Plan or any
instrument executed pursuant to the Plan shall create any Employment
rights (including without limitation, rights to continued Employment)
in any Grantee or affect the right of the Company to terminate the
Employment of any Grantee at any time without regard to the existence
of the Plan.
(c) SECURITIES REQUIREMENTS. The Company shall be under no
obligation to effect the registration pursuant to the Securities Act of
1933 of any Shares of Common Stock to be issued hereunder or to effect
similar compliance under any state laws. Notwithstanding anything
herein to the contrary, the Company shall not be obligated to cause to
be issued or delivered any certificates evidencing Shares pursuant to
the Plan unless and until the Company is advised by its counsel that
the issuance and delivery of such certificates is in compliance with
all applicable laws, regulations of governmental authorities, and the
requirements of any securities exchange on which Shares are traded. The
Committee may require, as a condition of the issuance and delivery of
certificates evidencing Shares of Common Stock pursuant to the terms
hereof, that the recipient of such Shares make such covenants,
agreements and representations, and that such certificates bear such
legends, as the Committee, in its discretion, deems necessary or
desirable.
If the Shares issuable on exercise of an Incentive Award 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.
5.2 TRANSFERABILITY AND EXERCISABILITY
Incentive Awards granted under the Plan shall not be
transferable or assignable other than: (a) by will or the laws of
descent and distribution or (b) pursuant to a qualified domestic
relations order (as defined by Section 414(p) of the Code); provided,
however, only with respect to Incentive Awards of Nonstatutory Stock
Options, the Committee may, in its
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discretion, authorize all or a portion of the Nonstatutory Stock
Options to be granted on terms which permit transfer by the Grantee to
(i) the members of the Grantee's Immediate Family, (ii) a trust or
trusts for the exclusive benefit of such Immediate Family, or (iii) a
partnership in which such members of such Immediate Family are the only
partners, provided that (A) there may be no consideration for any such
transfer, (B) the Incentive Agreement pursuant to which such
Nonstatutory Stock Options are granted must be approved by the
Committee, and must expressly provide for transferability in a manner
consistent with this Section 5.2, and (C) subsequent transfers of
transferred Options shall be prohibited except in accordance with
clauses (a) and (b) (above) of this sentence. Following any permitted
transfer, any Incentive Award shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer,
provided that the term "Grantee" shall be deemed to refer to the
transferee. The events of termination of employment of Section 5.6
hereof and in the Incentive Agreement shall continue to be applied with
respect to the original Grantee, and the Incentive Award shall be
exercisable by the transferee only to the extent, and for the periods,
specified in the Incentive Agreement.
Except as may otherwise be permitted under the Code, in the
event of a permitted transfer of a Nonstatutory Stock Option hereunder,
the original Grantee shall remain subject to withholding taxes upon
exercise. In addition, the Company shall have no obligation to provide
any notices to a transferee including, for example, of the termination
of an Incentive Award following the original Grantee's termination of
employment.
In the event that a Grantee terminates employment with the
Company to assume a position with a governmental, charitable,
educational or other nonprofit institution, the Committee may, in its
discretion, subsequently authorize a third party, including but not
limited to a "blind" trust, to act on behalf of and for the benefit of
such Grantee regarding any outstanding Incentive Awards held by the
Grantee subsequent to such termination of employment. If so permitted
by the Committee, a Grantee may designate a beneficiary or
beneficiaries to exercise the rights of the Grantee and receive any
distribution under the Plan upon the death of the Grantee.
No transfer by will or by the laws of descent and distribution
shall be effective to bind the Company unless the Committee has been
furnished with a copy of the deceased Grantee's enforceable will or
such other evidence as the Committee deems necessary to establish the
validity of the transfer. Any attempted transfer in violation of this
Section 5.2 shall be void and ineffective.
5.3 RIGHTS AS A STOCKHOLDER
(a) NO STOCKHOLDER RIGHTS. Except as otherwise provided in
Section 3.1(b) for grants of Restricted Stock, a Grantee of an
Incentive Award (or a permitted transferee of such Grantee) shall have
no rights as a stockholder with respect to any Shares of Common Stock
until the issuance of a stock certificate for such Shares.
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(b) REPRESENTATION OF OWNERSHIP. In the case of the exercise
of an Incentive Award by a person or estate acquiring the right to
exercise such Incentive Award by reason of the death or Disability of a
Grantee, the Committee may require reasonable evidence as to the
ownership of such Incentive Award or the authority of such person and
may require such consents and releases of taxing authorities as the
Committee may deem advisable.
5.4 LISTING AND REGISTRATION OF SHARES OF COMMON STOCK
The exercise of any Incentive Award granted hereunder shall only be
effective at such time as counsel to the Company shall have determined that the
issuance and delivery of Shares of Common Stock pursuant to such exercise is in
compliance with all applicable laws, regulations of governmental authorities and
the requirements of any securities exchange on which Shares of Common Stock are
traded. The Committee may, in its discretion, defer the effectiveness of any
exercise of an Incentive Award in order to allow the issuance of Shares of
Common Stock to be made pursuant to registration or an exemption from
registration or other methods for compliance available under federal or state
securities laws. The Committee shall inform the Grantee in writing of its
decision to defer the effectiveness of the exercise of an Incentive Award.
During the period that the effectiveness of the exercise of an Incentive Award
has been deferred, the Grantee may, by written notice to the Committee, withdraw
such exercise and obtain the refund of any amount paid with respect thereto.
5.5 CHANGE IN STOCK AND ADJUSTMENTS
(a) CHANGES IN LAW OR CIRCUMSTANCES. Subject to Section 5.7
(which only applies in the event of a Change in Control), in the event
of any change in applicable laws or any change in circumstances which
results in or would result in any dilution of the rights granted under
the Plan, or which otherwise warrants equitable adjustment because it
interferes with the intended operation of the Plan, then, if the
Committee should determine, in its discretion, that such change
equitably requires an adjustment in the number or kind of shares of
stock or other securities or property theretofore subject, or which may
become subject, to issuance or transfer under the Plan or in the terms
and conditions of outstanding Incentive Awards, such adjustment shall
be made in accordance with such determination. Such adjustments may
include changes with respect to (i) the aggregate number of Shares that
may be issued under the Plan, (ii) the number of Shares subject to
Incentive Awards, and (iii) the price per Share for outstanding
Incentive Awards. Any adjustment under this paragraph of an outstanding
Incentive Stock Option shall be made only to the extent not
constituting a "modification" within the meaning of Section 424(h)(3)
of the Code unless otherwise agreed to by the Grantee in writing. The
Committee shall give notice to each applicable Grantee of such
adjustment which shall be effective and binding.
(b) EXERCISE OF CORPORATE POWERS. The existence of the Plan
or outstanding Incentive Awards hereunder shall not affect in any way
the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalization,
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reorganization 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 stocks 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.
(c) RECAPITALIZATION OF THE COMPANY. Subject to Section 5.7,
if while there are Incentive Awards outstanding, the Company shall
effect any subdivision or consolidation of Shares of Common Stock or
other capital readjustment, the payment of a stock dividend, stock
split, combination of Shares, recapitalization or other increase or
reduction in the number of Shares outstanding, without receiving
compensation therefor in money, services or property, then the number
of Shares available under the Plan and the number of Incentive Awards
which may thereafter be exercised shall (i) in the event of an increase
in the number of Shares outstanding, be proportionately increased and
the Fair Market Value of the Incentive Awards awarded shall be
proportionately reduced; and (ii) in the event of a reduction in the
number of Shares outstanding, be proportionately reduced, and the Fair
Market Value of the Incentive Awards awarded shall be proportionately
increased. The Committee shall take such action and whatever other
action it deems appropriate, in its discretion, so that the value of
each outstanding Incentive Award to the Grantee shall not be adversely
affected by a corporate event described in this subsection (c).
(d) REORGANIZATION OF THE COMPANY. Subject to Section 5.7, if
the Company is reorganized, merged or consolidated, or is a party to a
plan of exchange with another corporation, pursuant to which
reorganization, merger, consolidation or exchange, stockholders of the
Company receive any Shares of Common Stock or other securities or
property, or if the Company should distribute securities of another
corporation to its stockholders, each Grantee shall be entitled to
receive, in lieu of the number of unexercised Incentive Awards
previously awarded, the number of Stock Options, Restricted Stock
shares, or Other Stock-Based Awards, with a corresponding adjustment to
the Fair Market Value of said Incentive Awards, to which he would have
been entitled if, immediately prior to such corporate action, such
Grantee had been the holder of record of a number of Shares equal to
the number of the outstanding Incentive Awards payable in Shares that
were previously awarded to him. For this purpose, Shares of Restricted
Stock shall be treated the same as unrestricted outstanding Shares of
Common Stock. In this regard, the Committee shall take whatever other
action it deems appropriate to preserve the rights of Grantees holding
outstanding Incentive Awards.
(e) ISSUE OF COMMON STOCK BY THE COMPANY. Except as
hereinabove expressly provided in this Section 5.5 and subject to
Section 5.7, 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 any
conversion of shares or obligations of the
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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 of, or Fair Market Value of, any Incentive Awards then
outstanding under previously granted Incentive Awards; provided,
however, in such event, outstanding Shares of Restricted Stock shall be
treated the same as outstanding unrestricted Shares of Common Stock.
(f) ACQUISITION OF THE COMPANY. Subject to Section 5.7, in the
case of any sale of assets, merger, consolidation or combination of the
Company with or into another corporation other than a transaction in
which the Company is the continuing or surviving corporation and which
does not result in the outstanding Shares being converted into or
exchanged for different securities, cash or other property, or any
combination thereof (an "Acquisition"), in the discretion of the
Committee, any Grantee who holds an outstanding Incentive Award shall
have the right (subject to any limitation applicable to the particular
Incentive Award under the Plan) to receive upon exercise thereof the
Acquisition Consideration (as defined below) receivable upon the
Acquisition by a holder of the number of Shares which would have been
obtained upon exercise of the Incentive Award immediately prior to the
Acquisition. The term "Acquisition Consideration" shall mean the kind
and amount of shares of the surviving or new corporation, cash,
securities, evidence of indebtedness, other property or any combination
thereof receivable in respect of one Share upon consummation of an
Acquisition. The Committee, in its discretion, shall have the authority
to take whatever action it deems appropriate to effectuate the
provisions of this subsection (f).
(g) ASSUMPTION UNDER THE PLAN OF OUTSTANDING STOCK OPTIONS.
Notwithstanding any other provision of the Plan, the Committee, in its
discretion, may authorize the assumption and continuation under the
Plan of outstanding and unexercised stock options or other types of
stock-based incentive awards that were granted under a stock option
plan (or other type of stock incentive plan or agreement) that is or
was maintained by a corporation or other entity that was merged into,
consolidated with, or whose stock or assets were acquired by, the
Company as the surviving corporation. Any such action shall be upon
such terms and conditions as the Committee, in its discretion, may deem
appropriate, including provisions to preserve the holder's rights under
the previously granted and unexercised stock option or other
stock-based incentive award, such as, for example, retaining an
existing exercise price under an outstanding stock option. Any such
assumption and continuation of any such previously granted and
unexercised incentive award shall be treated as an outstanding
Incentive Award under the Plan and shall thus count against the number
of Shares reserved for issuance pursuant to Section 1.4. With respect
to an incentive stock option (as described in Section 422 of the Code)
subject to this subsection (g), no adjustment to such option shall be
made to the extent constituting a "modification" within the meaning of
Section 424(h)(3) of the Code unless otherwise agreed to by the
optionee in writing.
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(h) ASSUMPTION OF INCENTIVE AWARDS BY A SUCCESSOR. Subject to
Section 5.7, notwithstanding any other provision hereof, in the event
of a dissolution or liquidation of the Company, a sale of all or
substantially all of the Company's assets, a merger or consolidation
involving the Company in which the Company is not the surviving
corporation, or a merger or consolidation involving the Company in
which the Company is the surviving corporation but the holders of
Shares of Common Stock receive securities of another corporation and/or
other property, including cash, the Committee shall, in its discretion,
have the right and power to:
(i) cancel, effective immediately prior to the
occurrence of such corporate event, each outstanding Incentive
Award (whether or not then exercisable), and, in full
consideration of such cancellation, pay to the Grantee to whom
such Incentive Award was granted an amount in cash equal to
the excess of (A) the highest value, as determined by the
Committee, in its discretion, of the property (including cash)
received by the holder of a Share of Common Stock as a result
of such event over (B) the exercise price of such Incentive
Award, if any; or
(ii) (A) provide for the exchange of each Incentive
Award outstanding immediately prior to such corporate event
(whether or not then exercisable) for an award on some or all
of the property for which such Incentive Award is exchanged
and, incident thereto, make an equitable adjustment as
determined by the Committee, in its discretion, in the
exercise price of the award, if any, or the number of shares
or amount of property (including cash) subject to the
Incentive Award or (B) provide for a cash settlement payment
to the Grantee in consideration for the exchange or
cancellation of the Incentive Award hereunder.
The Committee, in its discretion, shall have the authority to take
whatever action it deems appropriate to effectuate the provisions of
this subsection (h).
5.6 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY AND RETIREMENT
(a) TERMINATION OF EMPLOYMENT. Unless otherwise expressly
provided in the Grantee's Incentive Agreement, if the Grantee's
Employment is terminated for any reason other than due to his death,
Disability, Retirement or for Cause, any non-vested portion of any
Stock Option or other applicable Incentive Award at the time of such
termination shall automatically expire and terminate and no further
vesting shall occur after the termination date. In such event, except
as otherwise expressly provided in his Incentive Agreement, the Grantee
shall be entitled to exercise his rights only with respect to the
portion of the Incentive Award that was vested as of the termination
date for a period that shall end on the earlier of (i) the expiration
date set forth in the Incentive Agreement with respect to the vested
portion of such Incentive Award or (ii) the date that occurs ninety
(90) calendar days after his termination date (not to exceed three
months in the case of an ISO). Unless otherwise expressly provided in
his Incentive Agreement, a Grantee's Employment shall not
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be deemed to have been terminated if a Grantee/Employee becomes a
Consultant or Outside Director immediately upon his termination of
employment with the Company, or if a Grantee's status otherwise changes
between or among Employee, Consultant or Outside Director without a gap
in service for the Company in any such capacity. All determinations
regarding whether and when there has been a termination of Employment
shall be made by the Committee.
(b) TERMINATION OF EMPLOYMENT FOR CAUSE. Unless otherwise
expressly provided in the Grantee's Incentive Agreement, in the event
of the termination of a Grantee's Employment for Cause, all vested and
non-vested Stock Options and other Incentive Awards granted to such
Grantee shall immediately expire, and shall not be exercisable to any
extent, as of 12:01 a.m. (CST) on the date of such termination of
Employment.
(c) RETIREMENT. Unless otherwise expressly provided in the
Grantee's Incentive Agreement, upon the Retirement of any Employee who
is a Grantee:
(i) any non-vested portion of any outstanding Option
or other Incentive Award shall immediately terminate and no
further vesting shall occur; and
(ii) any vested Option or other Incentive Award shall
expire on the earlier of (A) the expiration date set forth in
the Incentive Agreement for such Incentive Award; or (B) the
expiration of (1) six months after the date of Retirement in
the case of any Incentive Award other than an Incentive Stock
Option, or (2) three (3) months after termination of
employment in the case of an Incentive Stock Option.
(d) DISABILITY OR DEATH. Unless otherwise expressly provided
in the Grantee's Incentive Agreement, upon termination of Employment as
a result of the Grantee's Disability or death:
(i) any nonvested portion of any outstanding Option
or other applicable Incentive Award shall immediately
terminate upon termination of Employment and no further
vesting shall occur; and
(ii) any vested Incentive Award shall expire on the
earlier of either (A) the expiration date set forth in the
Incentive Agreement or (B) the one year anniversary date of
the Grantee's termination of Employment date.
In the case of any vested Incentive Stock Option held by an
Employee following termination of Employment, notwithstanding the
definition of "Disability" in Section 1.2, whether the Employee has
incurred a "Disability" for purposes of determining the length of the
Option exercise period following termination of Employment under this
paragraph (d) shall be determined by reference to Section 22(e)(3) of
the Code to the extent required by
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Section 422(c)(6) of the Code. The Committee shall determine whether a
Disability for purposes of this subsection (d) has occurred.
(e) CONTINUATION. Subject to the conditions and limitations of
the Plan and applicable law and regulation in the event that a Grantee
ceases to be an Employee, Outside Director or Consultant, as
applicable, for whatever reason, the Committee and Grantee may mutually
agree with respect to any outstanding Option or other Incentive Award
then held by the Grantee (i) for an acceleration or other adjustment in
any vesting schedule applicable to the Incentive Award, (ii) for a
continuation of the exercise period following termination for a longer
period than is otherwise provided under such Incentive Award, or (iii)
to any other change in the terms and conditions of the Incentive Award.
In the event of any such change to an outstanding Incentive Award, a
written amendment to the Grantee's Incentive Agreement shall be
required.
5.7 CHANGE IN CONTROL
Notwithstanding any contrary provision in the Plan, in the event of a
Change in Control (as defined below) the following actions shall automatically
occur as of the day immediately preceding the Change in Control date unless
expressly provided otherwise in the Grantee's Incentive Agreement:
(a) all of the Stock Options then outstanding shall become
100% vested and immediately and fully exercisable;
(b) all of the restrictions and conditions of any Restricted
Stock and any Other Stock-Based Awards then outstanding shall be deemed
satisfied, and the Restriction Period with respect thereto shall be
deemed to have expired; and
(c) all of the Other Stock-Based Awards shall become fully
vested, deemed earned in full, and promptly paid within thirty (30)
days to the affected Grantees without regard to payment schedules and
notwithstanding that the applicable performance cycle, retention cycle
or other restrictions and conditions have not been completed or
satisfied.
Notwithstanding any other provision of the Plan, unless otherwise
expressly provided in the Grantee's Incentive Agreement, the provisions of this
Section 5.7 may not be terminated, amended, or modified to adversely affect any
Incentive Award theretofore granted under the Plan without the prior written
consent of the Grantee with respect to his outstanding Incentive Awards subject,
however, to the last paragraph of this Section 5.7.
For all purposes of this Plan, a "CHANGE IN CONTROL" of the Company
shall be deemed to occur if:
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(a) There is an acquisition by a "person" as such term is
used in Sections 13(d) and 14(d) of the Exchange Act (a "PERSON") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of twenty percent (20%) or more of the total
voting power of all the Company's then outstanding securities entitled
to vote generally in the election of directors to the Board; provided,
however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change in Control: (i) any
acquisition by the Company or its Parent or Subsidiaries, (ii) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or its Parent or Subsidiaries, or (iii)
any acquisition consummated with the prior approval of the Board; or
(b) During a period of two consecutive calendar years,
individuals who at the beginning of such period constitute the Board,
and any new director(s) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at
least two-thirds of the directors then still in office, who either were
directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board; or
(c) The Company becomes a party to a merger, plan of
reorganization, consolidation or share exchange in which either (i) the
Company will not be the surviving corporation or (ii) the Company will
be the surviving corporation and any outstanding shares of the
Company's common stock will be converted into shares of any other
company (other than a reincorporation or the establishment of a holding
company involving no change of ownership of the Company) or other
securities, cash or other property (excluding payments made solely for
fractional shares); or
(d) The shareholders of the Company approve a merger, plan of
reorganization, consolidation or share exchange with any other
corporation, and immediately following such merger, plan of
reorganization, consolidation or share exchange the holders of the
voting securities of the Company outstanding immediately prior thereto
hold securities representing fifty percent (50%) or less of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger, plan of
reorganization, consolidation or share exchange; provided, however,
that notwithstanding the foregoing, no Change in Control shall be
deemed to have occurred if one-half (1/2) or more of the members of the
Board of the Company or such surviving entity immediately after such
merger, plan of reorganization, consolidation or share exchange is
comprised of persons who served as directors of the Company immediately
prior to such merger, plan of reorganization, consolidation or share
exchange or who are otherwise designees of the Company; or
(e) Upon approval by the Company's stockholders of a complete
liquidation and dissolution of the Company or the sale or other
disposition of all or substantially all of the assets of the Company
other than to a Parent or Subsidiary; or
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<PAGE> 33
(f) Any other event that a majority of the Board, in its sole
discretion, shall determine constitutes a Change in Control hereunder.
Notwithstanding the occurrence of any of the foregoing events of this
Section 5.7 which would otherwise result in a Change in Control, the Board may
determine in its discretion, if it deems it to be in the best interest of the
Company, that an event or events otherwise constituting a Change in Control
shall not be deemed a Change in Control hereunder. Such determination shall be
effective only if it is made by the Board prior to the occurrence of an event
that otherwise would be a Change in Control, or after such event if made by the
Board a majority of which is composed of directors who were members of the Board
immediately prior to the event that otherwise would be or probably would lead to
a Change in Control.
5.8 EXCHANGE OF INCENTIVE AWARDS
The Committee may, in its discretion, permit any Grantee to surrender
outstanding Incentive Awards in order to exercise or realize his rights under
other Incentive Awards or in exchange for the grant of new Incentive Awards, or
require holders of Incentive Awards to surrender outstanding Incentive Awards
(or comparable rights under other plans or arrangements) as a condition
precedent to the grant of new Incentive Awards.
5.9 FINANCING
The Company may extend and maintain, or arrange for and guarantee, the
extension and maintenance of financing to any Grantee to purchase Shares
pursuant to exercise of an Incentive Award upon such terms as are approved by
the Committee in its discretion.
SECTION 6.
GENERAL
6.1 EFFECTIVE DATE AND GRANT PERIOD
This Plan is adopted by the Board effective as of March 2, 1999 (the
"EFFECTIVE DATE") subject to the approval of the stockholders of the Company by
March 1, 2000. Incentive Awards may be granted under the Plan at any time prior
to receipt of such stockholder approval; provided, however, if the requisite
stockholder approval is not obtained within the permissible time frame, then the
Plan and any Incentive Awards granted hereunder shall automatically become null
and void and of no force or effect. Unless sooner terminated by the Board
pursuant to Section 6.7, no Incentive Award shall be granted under the Plan
after ten (10) years from the Effective Date.
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<PAGE> 34
6.2 FUNDING AND LIABILITY OF COMPANY
No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made, or otherwise
to segregate any assets. In addition, the Company shall not be required to
maintain separate bank accounts, books, records or other evidence of the
existence of a segregated or separately maintained or administered fund for
purposes of the Plan. Although bookkeeping accounts may be established with
respect to Grantees who are entitled to cash, Common Stock or rights thereto
under the Plan, any such accounts shall be used merely as a bookkeeping
convenience. The Company shall not be required to segregate any assets that may
at any time be represented by cash, Common Stock or rights thereto. The Plan
shall not be construed as providing for such segregation, nor shall the Company,
the Board or the Committee be deemed to be a trustee of any cash, Common Stock
or rights thereto. Any liability or obligation of the Company to any Grantee
with respect to an Incentive Award shall be based solely upon any contractual
obligations that may be created by this Plan and any Incentive Agreement, and no
such liability or obligation of the Company shall be deemed to be secured by any
pledge or other encumbrance on any property of the Company. Neither the Company,
the Board nor the Committee shall be required to give any security or bond for
the performance of any obligation that may be created by the Plan.
6.3 WITHHOLDING TAXES
(a) TAX WITHHOLDING. The Company shall have the power and the
right to deduct or withhold, or require a Grantee to remit to the
Company, an amount sufficient to satisfy federal, state, and local
taxes, domestic or foreign, required by law or regulation to be
withheld with respect to any taxable event arising as a result of the
Plan or an Incentive Award hereunder.
(b) SHARE WITHHOLDING. With respect to tax withholding
required upon the exercise of Stock Options, upon the lapse of
restrictions on Restricted Stock, or upon any other taxable event
arising as a result of any Incentive Awards, Grantees may elect,
subject to the approval of the Committee in its discretion, to satisfy
the withholding requirement, in whole or in part, by having the Company
withhold Shares having a Fair Market Value on the date the tax is to be
determined equal to the minimum statutory total tax which could be
imposed on the transaction. All such elections shall be made in
writing, signed by the Grantee, and shall be subject to any
restrictions or limitations that the Committee, in its discretion,
deems appropriate. Any fraction of a Share required to satisfy such
obligation shall be disregarded and the amount due shall instead be
paid in cash by the Grantee.
(c) INCENTIVE STOCK OPTIONS. With respect to Shares received
by a Grantee pursuant to the exercise of an Incentive Stock Option, if
such Grantee disposes of any such Shares within (i) two years from the
date of grant of such Option or (ii) one year after the transfer of
such shares to the Grantee, the Company shall have the right to
withhold from any
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<PAGE> 35
salary, wages or other compensation payable by the Company to the
Grantee an amount sufficient to satisfy federal, state and local tax
withholding requirements attributable to such disqualifying
disposition.
(d) LOANS. The Committee may provide for loans, on either a
short term or demand basis, from the Company to a Grantee who is an
Employee or Consultant to permit the payment of taxes required by law.
6.4 NO GUARANTEE OF TAX CONSEQUENCES
Neither the Company nor the Committee makes any commitment or guarantee
that any federal, state or local tax treatment will apply or be available to any
person participating or eligible to participate hereunder.
6.5 DESIGNATION OF BENEFICIARY BY PARTICIPANT
Each Grantee may, from time to time, name any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his death before he receives any
or all of such benefit. Each such designation shall revoke all prior
designations by the same Grantee, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Grantee in writing with
the Committee during the Grantee's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Grantee's death shall be paid to
the Grantee's estate.
6.6 DEFERRALS
The Committee may permit a Grantee to defer such Grantee's receipt of
the payment of cash or the delivery of Shares that would, otherwise be due to
such Grantee by virtue of the lapse or waiver of restrictions with respect to
Restricted Stock, or the satisfaction of any requirements or goals with respect
to Other Stock-Based Awards. If any such deferral election is permitted, the
Committee shall, in its discretion, establish rules and procedures for such
payment deferrals to the extent consistent with the Code.
6.7 AMENDMENT AND TERMINATION
The Board shall have complete power and authority to terminate or amend
the Plan at any time; provided, however, if the Company is a Publicly Held
Corporation, the Board shall not, without the approval of the stockholders of
the Company within the time period required by applicable law, (a) except as
provided in Section 5.5, increase the maximum number of Shares which may be
issued under the Plan pursuant to Section 1.4, (b) amend the requirements as to
the class of Employees eligible to purchase Common Stock under the Plan, (c) to
the extent applicable, increase the maximum limits on Incentive Awards to
Covered Employees as set for compliance with the Performance-Based Exception,
(d) extend the term of the Plan, or (e) to the extent applicable,
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<PAGE> 36
decrease the authority granted to the Committee under the Plan in contravention
of Rule 16b-3 under the Exchange Act.
No termination, amendment, or modification of the Plan shall adversely
affect in any material way any outstanding Incentive Award previously granted to
a Grantee under the Plan, without the written consent of such Grantee or other
designated holder of such Incentive Award.
In addition, to the extent that the Committee determines that (a) the
listing for qualification requirements of any national securities exchange or
quotation system on which the Company's Common Stock is then listed or quoted,
if applicable, or (b) the Code (or regulations promulgated thereunder), require
stockholder approval in order to maintain compliance with such listing
requirements or to maintain any favorable tax advantages or qualifications, then
the Plan shall not be amended in such respect without approval of the Company's
stockholders.
6.8 REQUIREMENTS OF LAW
The granting of Incentive Awards and the issuance of Shares under the
Plan shall be subject to all applicable laws, rules, and regulations, and to
such approvals by any governmental agencies or national securities exchanges as
may be required. Certificates evidencing shares of Common Stock delivered under
this Plan (to the extent that such shares are so evidenced) may be subject to
such stop transfer orders and other restrictions as the Committee may deem
advisable under the rules and regulations of the Securities and Exchange
Commission, any securities exchange or transaction reporting system upon which
the Common Stock is then listed or to which it is admitted for quotation, and
any applicable federal or state securities law, if applicable. The Committee may
cause a legend or legends to be placed upon such certificates (if any) to make
appropriate reference to such restrictions.
6.9 RULE 16B-3 SECURITIES LAW COMPLIANCE
With respect to Insiders to the extent applicable, transactions under
the Plan are intended to comply with all applicable conditions of Rule 16b-3
under the Exchange Act. Any ambiguities or inconsistencies in the construction
of an Incentive Award or the Plan shall be interpreted to give effect to such
intention. However, 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 in its discretion.
6.10 COMPLIANCE WITH CODE SECTION 162(M)
While the Company is a Publicly Held Corporation, unless otherwise
determined by the Committee with respect to any particular Incentive Award, it
is intended that the Plan shall comply fully with the applicable requirements so
that any Incentive Awards subject to Section 162(m) that are granted to Covered
Employees shall qualify for the Performance-Based Exception. If any provision of
the Plan or an Incentive Agreement would disqualify the Plan or would not
otherwise
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<PAGE> 37
permit the Plan or Incentive Award to comply with the Performance-Based
Exception as so intended, such provision shall be construed or deemed to be
amended to conform to the requirements of the Performance-Based Exception to the
extent permitted by applicable law and deemed advisable by the Committee;
provided, however, no such construction or amendment shall have any adverse
effect on the prior grant of an Incentive Award, or the economic value to a
Grantee of any outstanding Incentive Award, unless consented to in writing by
the Grantee.
6.11 SUCCESSORS
All obligations of the Company under the Plan with respect to Incentive
Awards granted hereunder shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
6.12 MISCELLANEOUS PROVISIONS
(a) No Employee, Consultant, Outside Director, or other person
shall have any claim or right to be granted an Incentive Award under
the Plan. Neither the Plan, nor any action taken hereunder, shall be
construed as giving any Employee, Consultant, or Outside Director any
right to be retained in the Employment or other service of the Company
or any Parent or Subsidiary.
(b) No Shares of Common Stock shall be issued hereunder unless
counsel for the Company is then reasonably satisfied that such issuance
will be in compliance with federal and state securities laws, if
applicable.
(c) The expenses of the Plan shall be borne by the Company.
(d) By accepting any Incentive Award, each Grantee and each
person claiming by or through him shall be deemed to have indicated his
acceptance of the Plan.
6.13 SEVERABILITY
In the event that any provision of this Plan shall be held illegal,
invalid or unenforceable for any reason, such provision shall be fully
severable, but shall not affect the remaining provisions of the Plan, and the
Plan shall be construed and enforced as if the illegal, invalid, or
unenforceable provision was not included herein.
6.14 GENDER, TENSE AND HEADINGS
Whenever the context so requires, words of the masculine gender used
herein shall include the feminine and neuter, and words used in the singular
shall include the plural. Section headings
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<PAGE> 38
as used herein are inserted solely for convenience and reference and constitute
no part of the interpretation or construction of the Plan.
6.15 GOVERNING LAW
The Plan shall be interpreted, construed and constructed in accordance
with the laws of the State of Texas without regard to its conflicts of law
provisions, except as may be superseded by applicable laws of the United States.
A-33
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