-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UFWn5jjcvAbQ6scekF7JR72V3Fn6ukrqq6d0vXk2KHykRP5y06v6VoCWTRKO4CNA MJmubgatk/jja17bFMAqPA== 0000899243-96-001095.txt : 19960816 0000899243-96-001095.hdr.sgml : 19960816 ACCESSION NUMBER: 0000899243-96-001095 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEXAS BIOTECHNOLOGY CORP /DE/ CENTRAL INDEX KEY: 0000887023 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 133532643 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20117 FILM NUMBER: 96613944 BUSINESS ADDRESS: STREET 1: DOCTORS CENTER STREET 2: 7000 FANNIN STE 1920 CITY: HOUSTON STATE: TX ZIP: 77030 BUSINESS PHONE: 7137968822 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED JUNE 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-12574 TEXAS BIOTECHNOLOGY CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3532643 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 7000 Fannin, Suite 1920, Houston, Texas 77030 - -------------------------------------------------------------------------------- (Address of principal executive office) (Zip code) (713) 796-8822 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Class Outstanding at July 31, 1996 ----- ---------------------------- Common Stock, $0.005 par value 24,185,266 TEXAS BIOTECHNOLOGY CORPORATION TABLE OF CONTENTS -----------------
PAGE NO. -------- PART I. FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 1 Consolidated Statements of Operations for the three months ended June 30, 1996 and 1995, the six months ended June 30, 1996 and 1995, and the period from August 2, 1989 (date of incorporation) through June 30, 1996 2 Consolidated Statements of Cash Flows the six months ended June 30, 1996 and 1995, and the period from August 2, 1989 (date of incorporation) through June 30, 1996 3 Notes to Consolidated Financial Statements 4 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13 PART II. OTHER INFORMATION ITEM 1: Legal Proceedings 17 ITEM 2: Changes in Securities 17 ITEM 3: Defaults Upon Senior Securities 17 ITEM 4: Submission of Matters to a Vote of Security Holders 18 ITEM 5: Other Information 18 ITEM 6: Exhibits and Reports on Form 8-K 19 SIGNATURES 20 INDEX TO EXHIBITS 21
PART I FINANCIAL INFORMATION - ---------------------------- ITEM 1. FINANCIAL STATEMENTS - ----------------------------- TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, ASSETS 1996 1995 ------ ------------------ ------------------ (UNAUDITED) Current assets: Cash and cash equivalents $ 1,631,407 5,724,264 Short term investments 15,432,539 8,195,307 Short term note receivable 122,500 122,500 Prepaids 496,063 554,208 Other current assets 783,275 547,391 --------------- -------------- Total current assets 18,465,784 15,143,670 Equipment, furniture and fixtures, and leasehold improvements 7,596,310 7,529,415 Less: Accumulated depreciation and amortization (4,116,198) (3,746,586) --------------- -------------- Net property 3,480,112 3,782,829 --------------- -------------- Total assets $ 21,945,896 18,926,499 =============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable and accrued expenses $ 2,747,063 2,566,264 Deferred revenue 250,000 650,110 --------------- -------------- Total current liabilities 2,997,063 3,216,374 Commitments and contengencies --- --- Stockholders' equity: Preferred stock, par value $.005 per share. At June 30, 1996 and December 31, 1995, 5,000,000 shares authorized; none outstanding --- --- Common stock, par value $.005 per share. At June 30, 1996, 75,000,000 shares authorized; 24,180,062 shares issued and outstanding. At December 31, 1995, 40,000,000 shares authorized; 17,439,365 shares issued and outstanding (notes 2 and 5) 120,900 87,198 Additional paid-in capital 73,055,102 59,540,730 Deferred compensation expense (note 3) (3,250) (46,177) Deficit accumulated during the development stage (54,223,919) (43,871,626) --------------- -------------- Total stockholder's equity 18,948,833 15,710,125 --------------- -------------- Total liabilities and stockholders' equity $ 21,945,896 18,926,499 =============== ==============
See accompanying notes to consolidated financial statements Page 1 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
AUGUST 2, 1989 (DATE OF INCORPORATION) THREE MONTHS ENDED SIX MONTHS ENDED TO JUNE 30, JUNE 30, JUNE 30, 1996 1995 1996 1995 1996 ------------ ------------ ----------- ---------- ------------- Revenues: Research agreements $ 1,280,000 1,150,110 3,195,110 2,300,220 14,233,796 Products and services 2,500 101,893 3,939 172,201 400,580 Grant revenue 974 63,259 1,727 176,548 668,951 ----------- ---------- ---------- ---------- ---------- Total revenues 1,283,474 1,315,262 3,200,776 2,648,969 15,303,327 ----------- ---------- ---------- ---------- ---------- Expenses incurred in the development stage: Research and development 6,023,929 3,965,457 11,504,545 6,807,852 45,092,200 Charge for purchase of in-process research and development --- 1,973,883 --- 1,973,883 9,465,610 General and administrative 1,012,145 1,480,902 2,124,637 2,704,746 17,529,271 Restructuring and impairment of intangible assets (note 9) --- --- 421,165 --- 1,064,915 ----------- ---------- ---------- ---------- ---------- Total expenses 7,036,074 7,420,242 14,050,347 11,486,481 73,151,996 ----------- ---------- ---------- ---------- ---------- Operating loss 5,752,600 6,104,980 10,849,571 8,837,512 57,848,669 ----------- ---------- ---------- ---------- ---------- Other income (expense): Interest income 251,390 323,312 497,278 675,207 3,716,397 Interest expense --- (969) --- (969) (91,647) ----------- ---------- ---------- ---------- ---------- Net loss $ 5,501,210 5,782,637 10,352,293 8,163,274 54,223,919 =========== ========== ========== ========== ========== Net loss per share $ 0.23 0.36 0.46 0.51 5.69 =========== ========== ========== ========== ========== Weighted average common shares used to compute net loss per share 24,064,064 16,054,832 22,479,819 16,047,182 9,530,469 =========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements Page 2 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
AUGUST 2, 1989 (DATE OF SIX MONTHS ENDED INCORPORATION) JUNE 30, TO JUNE 30, 1996 1995 1996 -------------- ------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (10,352,293) (8,163,274) (54,223,919) Adjustments to reconcile net loss to net cash used in operating activities: Write-off of deferred offering costs related to delayed offering --- --- 324,938 Depreciation and amortization 369,612 387,267 4,222,451 Interest expense converted on notes payable to stockholders --- --- 87,755 Expenses paid with stock --- --- 24,500 Non cash acquisition costs expensed --- 1,973,883 9,465,610 Deferred compensation expense 42,927 47,530 283,908 Impairment of intangible assets --- --- 643,750 Change in operating assets and liabilities, net of effect of acquisition: (Increase) decrease in prepaids 58,144 --- (318,404) (Increase) decrease in receivables 7,291 87,500 (82,995) (Increase) decrease in other current assets (243,175) (48,688) (898,458) Decrease in inventories --- --- 61,245 Increase (decrease) in current liabilities 180,799 28,494 2,680,947 (Decrease) in deferred revenue (400,110) (1,061,294) (1,422,122) ------------- ----------- ----------- Net cash used in operating activities (10,336,805) (6,748,582) (39,150,794) ------------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment and leasehold improvements (66,895) (155,016) (7,287,850) Purchase of short term investments (17,548,480) (16,050,408) (69,469,701) Redemption of short term investments 10,311,249 17,850,800 54,037,161 Acquisition of subsidiary, net of cash acquired --- --- (167,331) -------------- ---------- ----------- Net cash used in investing activities (7,304,126) 1,645,376 (22,887,721) ------------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from notes payable to stockholders and related trusts --- --- 1,852,500 Proceeds from sale of common stock and option and warrant exercises, net 13,548,074 --- 62,146,110 Repurchase of common stock --- --- (3,750) Cost of delayed offering --- --- (324,938) ------------- ----------- ----------- Net cash provided by financing activities 13,548,074 --- 63,669,922 ------------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (4,092,857) (5,103,206) 1,631,407 Cash and cash equivalents at beginning of period 5,724,264 7,199,942 --- ------------- ----------- ----------- Cash and cash equivalents at end of period $ 1,631,407 2,096,736 1,631,407 ============= =========== =========== Supplemental schedule of noncash financing activities $ --- 1,973,883 11,405,865 ============= =========== ===========
See accompanying notes to consolidated financial statements Page 3 TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 (1) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (a) Organization Texas Biotechnology Corporation (the "Company" or "TBC"), a biopharmaceutical company, applies innovative drug discovery techniques and its specialized knowledge of the role of vascular cell biology in cardiovascular disease to the design and development of novel pharmaceutical compounds. The Company was incorporated in the state of Delaware in 1989. During the period from August 2, 1989, (date of incorporation) through March 1990, the Company was largely inactive. Since that time, the Company has been engaged principally in research and drug discovery programs and clinical development of a drug compound. On July 25, 1994, the Company acquired all of the outstanding common stock of ImmunoPharmaceutics, Inc. ("IPI"), a San Diego, California based company, in exchange for common stock of the Company. TBC decided to consolidate the IPI operation into TBC in the first half of 1996. (See note 9) The Company is presently working on a number of long-term development projects which involve experimental and unproven technology, which may require many years and substantial expenditures to complete, and which may be unsuccessful. To date, other than monoclonal antibody compounds and services produced and sold by IPI, the Company has not developed or sold any products, and no assurance can be given that the Company will be able to develop, manufacture or market any products in the future. In addition, no assurance exists that future revenues will be significant, that any sales will be profitable, or that the Company will have sufficient funds available to complete its research and development programs or market any products which it may develop. Accordingly, the Company is considered to be in the development stage as it has not to date derived significant revenues from its planned principle operations. (b) Basis of Consolidation The Company's consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, IPI. All material intercompany transactions have been eliminated. The Company's consolidated financial statements include the activity related to IPI since August 1, 1994. (c) Cash, Cash Equivalents and Short Term Investments Cash equivalents are considered to be those securities or instruments with original maturities, when purchased, of three months or less. At June 30, 1996, approximately $1,285,500 was invested in Corporate Commercial Paper and the remainder was in demand and money market accounts. Short term investments are those investments which have an original maturity of less than one year and greater than three months. At June 30, 1996, the Company's short term investments consisted of approximately $1,997,000 in Government Agency Discount Notes, $998,000 in U.S. Treasury Bills and $12,438,000 in Corporate Commercial Paper. Cash equivalents and short term investments are stated at cost, which approximates market value. Interest income is accrued as earned. On January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115 (Statement 115), Accounting for Certain Investments in Debt and Equity Securities. Statement 115 Page 4 provides for the use of the amortized cost method for investments in debt securities when management has the positive intent and ability to hold such securities to maturity. In connection with the adoption of Statement 115, the Company classified all short term investments as held to maturity. (d) Equipment and Leasehold Improvements Equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation of furniture and equipment is provided on the straight-line method over the estimated useful lives of the respective assets (3 to 10 years). Amortization of leasehold improvements is provided on the straight-line method over the remaining minimum lease term. (e) Intangible Assets Intangible assets are amortized on a straight line basis over ten years. (f) Research and Development Costs All research and development costs are expensed as incurred and include salaries of research and development employees. For the three months ended June 30, 1996 and 1995, salaries and benefits totaled approximately $1,554,000 and $1,740,000, respectively, of which approximately $1,246,000 and $1,456,000, respectively, was charged to research and development. For the six months ended June 30, 1996 and 1995, salaries and benefits totaled approximately $3,482,000 and $3,426,000, respectively, of which approximately $2,709,000 and $2,725,000, respectively, was charged to research and development. Payments related to the acquisition of in-process research and development are expensed. (g) Net Loss Per Share Net loss per share is calculated using the weighted average shares of common stock outstanding during the period. For the three months ended June 30, 1996 and 1995, the weighted average common shares used to compute net loss per share totaled 24,064,064 and 16,054,832 respectively. For the six months ended June 30, 1996 and 1995, and the period from August 2, 1989 (date of incorporation) through June 30, 1996, the weighted average common shares used to compute net loss per share totaled 22,479,819, 16,047,182 and 9,530,469 respectively. Stock options and stock warrants are considered common stock equivalents, however are not included in the loss per share computations as their effect is anti- dilutive. Shares held in escrow through June 30, 1995, pending satisfaction of certain future conditions, and shares related to contingent stock issue rights related to the IPI acquisition have been excluded from the net loss per share calculation until such shares were released or issued. (h) Reclassifications Certain reclassifications have been made to prior period financial statements to conform with the June 30, 1996 presentation with no effect on net loss reported. (i) Revenue Recognition Revenue from grants is recognized as earned under the terms of the related grant agreements. Revenue from service contracts is recognized as the services are performed and/or as milestones are achieved. Revenue from products and services is recognized when the products are shipped or the services are performed. Amounts received in advance of services to be performed under contracts are recorded as deferred revenue. Page 5 (j) Patent Application Costs Costs incurred in filing for patents are expensed as incurred. (k) Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. (l) Interim Financial Information The Consolidated Balance Sheet as of June 30, 1996, and the related Consolidated Statements of Operations for the three and six month periods ended June 30, 1996 and 1995, and the period from August 2, 1989 (date of incorporation) through June 30, 1996, and Consolidated Statements of Cash Flows for the six month periods ended June 30, 1996 and 1995, and the period from August 2, 1989 (date of incorporation) through June 30, 1996, are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company's Annual Consolidated Financial Statements and Notes which should be read in conjunction with these consolidated financial statements and notes. (m) Accounting Pronouncements In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (Statement 121). The Company has adopted the statement effective December 31, 1995. Statement 121 requires that long-lived assets and certain identifiable intangible assets to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, Statement 121 requires that certain long-lived assets and certain identifiable intangible assets to be disposed of be reported at the lower of carrying amount or fair value less costs to sell. The Company believes the goodwill associated with IPI, $643,750, is impaired due to the decision to cease operations at IPI and the sale of the QED business unit and has recorded a charge to expense. (See note 9) In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" (Statement 123). Statement 123 establishes financial accounting and reporting standards for stock-based employee compensation plans using a fair value based methodology as an alternative to intrinsic value based methodology. In addition, Statement 123 establishes the fair value as the measurement basis for transactions in which an entity issues its equity instruments to acquire goods or services from non-employees. The accounting and reporting requirements of Statement 123 are effective beginning January 1, 1996. The Company intends to continue using the intrinsic value method. (2) CAPITAL STOCK In February, 1996, the Company completed a private placement of common stock. The Company issued 6,550,990 shares of Common Stock at $2 1/8 per share with proceeds of approximately $13.0 million, net of selling commissions and expenses of approximately $900,000. In accordance with the terms of the offering, the Company filed, pursuant to Rule 415 of the Securities Act, a Shelf Registration Statement as to the shares of Common Stock sold to the purchasers in the private placement which became effective on June 4, 1996. Page 6 In connection with the private placement, the co-exclusive agent, Harris, Webb & Garrison received a $634,630 selling commission, 49,775 warrants with an exercise price of $3.05 per share and no registration rights, and 497,749 warrants with an exercise price of $3.66 per share with the underlying common stock being registered, under certain circumstances, on a "piggyback" basis in the event of a public offering of common stock by the Company. The co-exclusive agent, Aurora Capital Corp., received a $124,653 selling commission, 25,587 warrants with an exercise price of $3.36 per share, and 149,002 warrants with an exercise price of $4.58 per share. The common stock underlying Aurora's warrants will be registered with the Common Stock issued in the private placement. The co- exclusive agents assigned some of these warrants to others. In May 1996, the Board of Directors proposed, and stockholders approved, an amendment to the Company's Certificate of Incorporation to increase the authorized number of shares of the Company's common stock from 40 million shares to 75 million shares. (3) STOCK OPTIONS The Company has in effect the following stock option plans: The Amended and Restated 1990 Incentive Stock Option Plan ("1990 Plan") allows for the issuance of incentive and non-qualified options to employees, directors, officers, non-employee independent contractors and non-employee directors, pursuant to which 230,590 shares of common stock are reserved for issuance out of authorized but unissued shares of the Company. The Amended and Restated 1992 Incentive Stock Option Plan ("1992 Plan") allows for the issuance of incentive and non-qualified options to employees, directors, officers, non-employee independent contractors and non-employee directors, pursuant to which 1,620,929 shares of common stock are reserved for issuance out of authorized but unissued shares of the Company. The Stock Option Plan for Non-Employee Directors ("Director Plan") allows for the issuance of non-qualified options to non-employee directors, pursuant to which 71,429 shares of common stock are reserved for issuance out of authorized but unissued shares of the Company to be issued to non- employee members of the Board of Directors of the Company based on a formula. The 1995 Stock Option Plan ("1995 Plan") allows for the issuance of incentive and non-qualified options, shares of restricted stock and stock bonuses to employees, officers, and non-employee independent contractors, pursuant to which 1,000,000 shares of common stock are reserved for issuance out of authorized but unissued shares of the Company. The Amended and Restated 1995 Non-Employee Director Stock Option Plan ("1995 Director Plan") allows for the issuance of non-qualified options to non- employee directors, pursuant to which 200,000 shares of common stock are reserved for issuance out of authorized but unissued shares of the Company to be issued to non-employee members of the Board of Directors of the Company based on a formula. In June 1996, the 1995 Director Plan was amended with respect to the election date requirement for a director to request stock in lieu of cash payment of director fees. Page 7 A summary of stock options as of June 30, 1996, follows:
Exercise Price Available Stock Option Plans Per Share Outstanding Exercised Exercisable for Grant - ------------------- ---------------- ----------- --------- ----------- --------- 1990 Plan $3.50 166,798 55,125 158,464 63,792 1992 Plan $1.41 - $5.36 1,503,394 79,071 620,665 117,535 Director Plan $2.40 - $4.54 42,576 --- 26,656 28,853 1995 Plan $1.31 - $4.53 564,500 --- 37,500 435,500 1995 Director Plan $1.38 - $5.19 82,806 --- 27,606 117,194 ----------- --------- ----------- --------- TOTALS 2,360,074 134,196 870,891 762,874 =========== ========= =========== =========
The Company has recorded deferred compensation for the difference between the grant price and the deemed fair value for financial statement presentation purposes related to certain options granted in the period subsequent to May 27, 1993 and prior to the initial public offering. Such amount totaled $287,158, of which $42,927 has been charged to expense in 1996. The unamortized deferred compensation expense of $3,250 at June 30, 1996 will be amortized over the remaining vesting periods of the options. (4) INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" effective January 1, 1993. As of June 30, 1996, the Company had a net deferred tax asset of approximately $18,989,000, primarily composed of the tax benefit associated with net operating loss carry forwards, start-up and other capitalized costs. A valuation allowance for the full amount of the deferred tax asset has been established as realization of the benefit is uncertain. (5) COMMON STOCK RESERVED The Company has reserved common stock for issuance as of June 30, 1996 as follows:
Stock option plans 3,122,948 Agreement with Genentech, Inc. 285,715 Warrants issuable under the Genentech Agreement 142,858 Warrants outstanding 5,378,191 Underwriters purchase options and related warrants 710,000 IPI acquisition (contingent shares) 1,000,000 ---------- Total shares reserved 10,639,712 ==========
(6) CLINICAL RESEARCH AGREEMENTS On February 10, 1995, the Company entered into an agreement with Coromed, Inc., a contract research organization, to coordinate the clinical evaluation of NOVASTAN(R) as an adjunct to Streptokinase in acute myocardial infarction. Coromed is responsible for managing all aspects of the clinical trial and making all financial remuneration to testing sites. The term of the agreement is 19 months, subject to extension upon the mutual written agreement of both parties. The parties have agreed to a total budget of approximately $3,196,000. Of this amount, $106,000 was paid upon execution of a letter of intent and approximately $450,000 was paid upon execution of the agreement. Subsequent payments will be made monthly on a per Page 8 patient basis, to a maximum total of approximately $2,490,000. Three additional payments of $50,000 each will be made upon completion of specified tasks by Coromed. If the clinical trial is completed in less than 19 months, the Company will pay Coromed a bonus calculated as a percentage of personnel costs as set forth in the budget, to a maximum bonus amount of approximately $327,000. In addition, the Company has engaged Coromed to provide various services related to other ongoing NOVASTAN(R) trials being conducted by the Company. On May 1, 1996, the Company amended the above agreement with Coromed, Inc. The term of the contract was extended to 24 months with an additional cost of $1,200,000. The bonus payment, if any, is now based on the completion in less than 24 months. (7) RESEARCH AGREEMENTS On October 11, 1994, the Company signed a collaborative agreement with Synthelabo, a French pharmaceutical group, to develop and market compounds for vascular proliferation disease derived from the Company's FGF and antisense programs. Upon consummation of the transaction, Synthelabo purchased 1,428,571 shares of common stock for $3.50 per share for a total of $5 million and paid a non-refundable licensing fee of $3 million. In addition, Synthelabo has committed to pay $3 million annually in research payments (payable in quarterly installments of $750,000) for three years. Synthelabo has agreed, upon the achievement of certain milestones, to further payments of up to $3 million per year for up to $18 million in total. Synthelabo has the right to terminate the agreement any time on or after October 15, 1996, for any reason and either party has the right to terminate the contract for breach of any material obligation. If Synthelabo exercises this termination right, the license granted to Synthelabo shall terminate and TBC will pay Synthelabo a royalty on net sales of any products sold in a certain territory for a period of time. In addition, Synthelabo may, at its option, require that the technology be transferred to and the development program be conducted by a joint venture owned by TBC and Synthelabo should "net worth" as defined in the agreement be less than $5 million as of the end of any calendar quarter during the term of the agreement. The first quarterly research payment of $750,000 was received on October 31, 1994, of which $500,000 was recognized in 1994. As of June 30, 1996, $250,000 is included in current deferred revenue. Synthelabo will pay royalties to TBC, based on the net sales, in those geographic areas covered in the agreement. In exchange for the above consideration, Synthelabo will receive an exclusive license to manufacture, use, and sell any products generated from the research in Europe, the Middle East, Africa and the countries of the former Soviet Union. One of the programs, which involves antisense, is being jointly reviewed and may result in a redirection of the research into another area During 1995, the Company and Synthelabo mutually agreed to exchange certain clinical data. In January 1996, the Company signed two agreements with Synthelabo with respect to the supply of information related to certain clinical studies. Synthelabo paid TBC $500,000 upon execution of the agreement. In addition, over the term of the agreements as certain milestones are met, Synthelabo has committed to pay TBC additional payments that total $2,400,000. These payments are dependent on rate of enrollment in certain clinical studies, the completion of certain clinical studies and date of completion of certain clinical studies. Synthelabo is the licensee for NOVASTAN(R) in certain territories other than those which were sublicensed to TBC. (8) LICENSE AGREEMENT In May 1993, TBC entered into an agreement with Genentech to sublicense Genentech's rights and technology relating to NOVASTAN(R) (argatroban) originally licensed to Genentech by Mitsubishi Chemical Corporation ("Mitsubishi"), and to license Genentech's own proprietary technology developed with respect to NOVASTAN(R) (the "Genentech Agreement"). Under the license and sublicense, the Company has an exclusive license to use and sell NOVASTAN(R) in the United States and Canada for specified human cardiovascular indications, not including cerebral thromboembolism (stroke). The Company is required to pay Genentech and Mitsubishi specified royalties on net sales of NOVASTAN(R) by the Company and its Page 9 sublicensees after its commercial introduction in the United States and Canada. Genentech has the right to terminate the agreement or to cause the license to become non-exclusive if the Company fails to exercise due diligence in performing its obligations under the agreement for a period of 60 days after receiving written notice from Genentech or fails to maintain a minimum consolidated tangible net worth of $5.0 million. The Genentech Agreement, as amended, provides that Mitsubishi may terminate Genentech's license with Mitsubishi (which results in the termination of the Genentech Agreement as well) if TBC does not file an NDA for Novastan with the FDA no later than June 30, 1997, subject to certain additional goals being met by TBC. As of December 31, 1995, TBC had not met certain of those goals. However, Mitsubishi has agreed to withhold its rights to terminate the license with Genentech if the NDA is filed by June 30, 1997, and if TBC accomplishes the following milestones: (i) on or before December 31, 1996, TBC shall have met certain enrollment guidelines for certain Novastan clinical trials; (ii) on or before March 31, 1997, TBC shall complete, report and analyze certain other Novastan clinical trials; (iii) on or before September 30, 1997, TBC shall have agreed to proceed with the Phase III trial in AMI, and (iv) TBC shall comply with certain reporting and information meeting requirements. If these milestones are not met, Mitsubishi will retain the rights to terminate the Genentech license; provided, that if such termination results from TBC's violation of the milestone described in (iii) above, TBC will receive a license from Mitsubishi in the field of HIT/HITTS on the same terms, as presently included in the Genentech Agreement. Either party may terminate the Genentech Agreement on 60 days notice if the other party defaults in its material obligations under the agreement, declares bankruptcy or is insolvent, or if a substantial portion of its property is subject to attachment. The Genentech Agreement is also subject to the continuation of Genentech's license agreement with Mitsubishi, which is only terminable if Genentech defaults in its material obligations under the agreement, declares bankruptcy or is insolvent, or if a substantial portion of its property is subject to attachment. Unless terminated sooner pursuant to the above described termination provisions, the Genentech Agreement is expected to expire in June 2007. Under the Genentech Agreement, TBC has access to an improved formulation patent granted in 1993 which expires in 2010 and a use patent which expires in 2009. Mitsubishi further agreed to supply the Company with its requirements of NOVASTAN(R) throughout the term of the Genentech Agreement for TBC's clinical testing and commercial sales of NOVASTAN(R) in the United States and Canada. In the event Mitsubishi should discontinue the manufacture of NOVASTAN(R), Mitsubishi, Genentech and TBC have agreed to discuss in good faith the means by which, and the party to whom, NOVASTAN(R) production technology will be transferred. The transferee may be a person or entity other than Genentech or TBC. At present, Mitsubishi is the only manufacturer of NOVASTAN(R). Should Mitsubishi terminate or default in its supply commitment, there can be no assurance that alternate sources of bulk NOVASTAN(R) will be available to the Company at reasonable cost, if at all. If such alternate sources of supply are unavailable or uneconomic, the Company's results of operations would be materially and adversely affected. In exchange for the license to Genentech's NOVASTAN(R) technology, TBC issued Genentech 285,714 shares of Common Stock and agreed to issue (i) an additional 214,286 shares of Common Stock to Genentech within 10 days after the filing of the first New Drug Application ("NDA") with the FDA for NOVASTAN(R), and (ii) an additional 71,429 shares of Common Stock to Genentech within 10 days after the FDA's first approval of an NDA for NOVASTAN(R). The Company has also agreed to grant Genentech a warrant to purchase an additional 142,858 shares of Common Stock at an exercise price of $14.00 per share, subject to adjustment, within ten days of the filing of the first NDA for NOVASTAN(R) with the FDA. If the Company is unable to issue any of the additional shares of Common Stock or the warrant to Genentech due to circumstances beyond the Company's control, the Company has agreed to pay Genentech, in lieu thereof, an amount equal to the value of the securities plus interest from May 27, 1993 at the prime rate plus one percent, compounded annually. The value of the Common Stock is deemed to be $7.00 per share, which represents the cash consideration the Company will be obligated to pay to Genentech as liquidated damages, and the value of the warrants is to be determined by appraisal, based on the warrants' market value. The Company will not be required to make any cash payment if both of the filing and approval of the NDA do not occur. TBC has also granted Genentech demand and piggyback registration rights with regard to shares of Common Stock issued to Genentech. Page 10 Due to the additional research and development required to commercialize the technologies associated with the Sublicense and License Agreement, the Company expensed the value associated with the 285,714 shares issued to Genentech, charging $1,000,000 to purchase of in-process research and development expense in the year ended December 31, 1993. In connection with the Genentech Agreement, a consultant involved in negotiations related to the Agreement will receive a royalty on net sales of licensed products. (9) CONSOLIDATION OF IMMUNOPHARMACEUTICS, INC. The Company decided to consolidate the IPI operation into TBC's in the first half of 1996. The overall financial impact on the Company's performance will be positive in 1996 due to expected reduction in general and administrative expenses and the elimination of some research and development positions associated with IPI. The Company believes the goodwill associated with IPI, $643,750, is impaired due to the decision to cease operations at IPI and the sale of the QED business unit and has charged it to expense in the year ended December 31, 1995. The restructuring costs associated with the consolidation of the IPI operation were approximately $421,000 and have been expensed in the three months ended March 31, 1996. This cost included waste disposal, future lease commitments, severance pay and related taxes. (10) COMMITMENTS AND CONTINGENCIES a) Employment Agreements Since inception, the Company has entered into employment agreements with certain officers and key employees. One of the officers, Dr. Maggio, resigned his position as CEO of IPI effective March 31, 1996. As of June 30, 1996, remaining commitments total approximately $276,000 in 1996 and $232,000 in 1997. These amounts include payments due to one former employee pursuant to his severance agreement. The employment agreements of various officers and key employees provide for salary continuation for up to twelve months from date of termination upon dismissal by the Company, which would approximate $465,000 currently. In addition to salary, the Company has agreed to reimburse certain officers and other employees for costs of relocation and temporary travel and living expenses. In addition, the Company has signed agreements with five of its officers to provide certain benefits in the event of a "change of control" as defined in the agreement and the occurrence of certain other events. The agreements provide for a lump-sum payment in cash equal to eighteen (18) months to three (3) years of annual base salary and annual bonus if any. The base salary portion of the agreements would aggregate approximately $1.9 million at current rate of compensation. In addition, the agreements provide for gross-up for certain taxes on the lump-sum payment, continuation of certain insurance and other benefits for periods of eighteen (18) months to three (3) years and reimbursement of certain legal expenses in conjunction with the agreements. These provisions are intended to replace compensation continuation provisions of any other agreement in effect for an officer if the specified event occurs. b) Legal Proceedings On November 21, 1994, a class action shareholders' suit was filed in the United States District Court for the Southern District of Texas, Houston Division seeking damages in the amount of $16 million. Plaintiffs are two individuals who purchased shares of the Company on December 16, 1993 following the Company's initial public offering. In their complaint, plaintiffs have sued the Company, and certain members of the board of directors and certain officers alleging violations of Sections 11, 12 and 15 of the Securities Act of 1933, as amended (the "Act"). Plaintiffs have also named David Blech, D. Blech & Co., Incorporated and Isaac Blech as defendants. On January 23, 1995, the Company and Page 11 the members of the board of directors filed a motion to dismiss the plaintiffs' complaint pursuant to Rule 9(b) and Rule 12b(6) of the Federal Rules of Civil Procedure. In addition, defendant John Pietruski, Chairman of the Board of Directors, filed a motion to dismiss the plaintiffs' complaint pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. On February 7, 1995, the plaintiffs filed a motion for class certification. The Court denied the motion by the Company and by John Pietruski. On March 28, 1995, a second class action shareholders' suit was filed in the United States District Court for the Southern District of New York seeking unspecified damages. Plaintiffs are eight individuals who purchased shares in various companies for which D. Blech & Co. acted as an underwriter (or co-underwriter) or marketmaker. In their complaint, the plaintiffs have sued the Company alleging violations of Section 10(b) of the Securities Exchange Act of 1934, as Amended (the "Exchange Act") and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission (the "Commission"). Plaintiffs have named a number of defendants, including David Blech and D. Blech & Co., four individuals, two brokerage firms, one investment management company and ten other companies for which D. Blech & Co. acted as underwriter or marketmaker. On August 14, 1995, the Judicial Panel on The Multi-District Litigation ordered that the action filed in the United States District Court for the Southern District of Texas, Houston Division be transferred to the United States District Court for the Southern District of New York for coordinated or consolidated pretrial proceedings with the action pending there. In light of the transfer and consolidation of the Texas case with similar cases against other companies for which Blech acted as underwriter, the Company requested that the Court in New York reconsider the Texas Court's denial of its motion to dismiss as a part of the Court's consideration of similar motions to dismiss filed by those companies. All of these motions were presented to the Court on February 6, 1996. On June 6, 1996, the New York District Court entered two memorandum opinions in the consolidated cases. In one of its opinions, the Court dismissed all of the Exchange Act and common law fraud claims filed against the Company and its officers and directors, but afforded those plaintiffs the right to attempt to preserve those claims by repleading them. The Court ordered that those claims be repleaded no later than July 26, 1996. Plaintiffs did not replead those claims by the deadline, resulting in the dismissal of all claims against the Company in that litigation. In its opinion in the second case, i.e., the case filed on November 21, 1994, the Court granted the Company and its officers and directors' motion for reconsideration, but together with all other similar pending motions, denied the requested relief. Pursuant to the court's order, the Company therefore filed an answer in that case. Given the early stage of that case, which is the only remaining litigation against the Company, the Company is unable to evaluate its potential outcome at this time. The Company disputes these claims and intends to contest them vigorously. Page 12 ITEM 2. ------- TEXAS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY (A DEVELOPMENT STAGE ENTERPRISE) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995 OVERVIEW -------- The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in the forward-looking statements as a result of certain factors including those set forth under "Risk Factors" and elsewhere in the Prospectus. Since its formation in 1989, the Company has primarily devoted its resources to fund research, drug discovery and development. The Company has been unprofitable to date and expects to incur substantial losses for the next several years as the Company invests in product research and development, preclinical and clinical testing and regulatory compliance. The Company has sustained net losses of approximately $54.2 million from inception to June 30, 1996. The Company has primarily financed its operations to date through private placements of Common Stock and debt, which have raised an aggregate of $34.3 million in net proceeds and an initial public offering ("IPO") in December 1993, which raised an aggregate of $24.2 million in net proceeds including the over-allotment. On July 25, 1994, the Company acquired all of the outstanding stock of ImmunoPharmaceutics, Inc. ("IPI") in exchange for Common Stock of the Company. IPI's results of operations have been included in the consolidated results of operations beginning August 1, 1994. During September 1993, IPI entered into an agreement to provide research and development services, over a period of 30 months, to EISAI Co., LTD ("EISAI"). The agreement, which expired in March 1996, guaranteed contract research funding and allowed for additional amounts to be received upon the attainment of certain milestones. On August 10, 1995, IPI received a $2.0 million milestone payment from EISAI. The Company decided to consolidate the IPI operation into TBC's in the first half of 1996. The overall financial impact on the Company's performance will be positive in 1996 due to expected reduction in general and administrative expenses and the elimination of some research and development positions associated with IPI. The Company believes the goodwill associated with IPI, $643,750, was impaired due to the decision to cease operations at IPI and the sale of IPI's QED business unit and charged it to expense in the year ended December 1995. Restructuring costs, $421,165, associated with the consolidation of the IPI operation were recorded in the quarter ended March 31, 1996. The Company signed a collaborative agreement with Synthelabo, the pharmaceutical division of L'Oreal on October 11, 1994 (the "Synthelabo Agreement"). Upon consummation of the transaction, Synthelabo purchased 1,428,571 shares of Common Stock for a total of $5 million and paid the Company a nonrefundable licensing fee of $3 million. In addition, Synthelabo has committed to pay $3 million annually in research payments (payable in quarterly installments) through July 31, 1997. In 1996, TBC has signed two agreements with Synthelabo to provide to them copies of certain clinical data for Novastan. TBC received $500,000 at the execution of one of these agreements. Over the life of the agreements TBC may receive as much as $2.9 million, including the $500,000 received, from Synthelabo. The Company's operating results have fluctuated significantly during each quarter, and the Company anticipates that such fluctuations, largely attributable to varying research and development commitments and expenditures, will continue for the next several years. Page 13 RESULTS OF OPERATIONS --------------------- THREE MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 Revenues decreased from $1,315,262 in the three month period ended June 30, 1995 to $1,283,474 in the same period of 1996, a decrease of 2%. Revenues were composed of earned revenues under research agreements, sales of products and services, and grant income. Revenue decreased due to the elimination of the QED operation on October 1995 and the expiration of several grants. Total operating expenses decreased 5% from $7,420,242 in the three month period ended June 30, 1995 to $7,066,074 in the same period of 1996. Excluding a one time charge for purchase of in-process research and development in the second quarter of 1995, total operating expenses would have increased 30% from $5,446,359 in the three month period ended June 30, 1995 to $7,066,074 in the same period of 1996. Research and development expenses increased 52% from $3,965,457 in the three month period ended June 30, 1995 to $6,023,929 in the same period of 1996. This increase was primarily attributable to continued increases in research and development activity related to the clinical trials on the compound NOVASTAN/R/ (argatroban). General and administrative expenses decreased 30% from $1,480,902 in the three month period ended June 30, 1995 to $1,042,145 in the same period of 1996. The decrease was primarily attributable to the elimination of the QED operation in October 1995. The Company had 101 employees at June 30, 1995, including 34 employees at IPI, and 80 employees at June 30, 1996, including 2 employees at IPI. Other income and expenses was composed entirely of investment income on invested funds and interest expense. Investment income decreased from $322,343 in the three month period ended June 30, 1995 to $251,390 in the same period of 1996, a decrease of 22%. The decrease is due to lower interest rates from 1995 to 1996 and a lower investment balance throughout 1996. The Company incurred a net loss of $5,782,637 for the three month period ended June 30, 1995, compared with a net loss of $5,531,210 for the same period of 1996. SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995 Revenues increased from $2,648,969 in the six month period ended June 30, 1995 to $3,200,776 in the same period of 1996, an increase of 21%. Revenues were composed of earned revenues under research agreements, sales of products and services, and grant income. Revenue from research agreements increased due to a payment from Synthelabo of $500,000 which was related to the signing of an agreement to supply them with certain clinical data. Total operating expenses increased 23% from $11,468,481 in the six month period ended June 30, 1995 to $14,080,347 in the same period of 1996. Research and development expenses increased 69% from $6,807,852 in the six month period ended June 30, 1995 to $11,504,545 in the same period of 1996. General and administrative expenses decreased 20% from $2,704,746 in the six month period ended June 30, 1995 to $2,154,637 in the same period of 1996. See comments under the preceding three month period comparison for explanation of the changes. Other income and expenses was composed entirely of investment income on invested funds and interest expense. Investment income decreased from $674,238 in the six month period ended June 30, 1995 to $497,278 in the same period of 1996, a decrease of 26%. See comments under the preceding three month period comparison for explanation of the decrease. The Company incurred a net loss of $8,163,274 for the six month period ended June 30, 1995, compared with a net loss of $10,382,293 for the same period of 1996. Page 14 LIQUIDITY AND CAPITAL RESOURCES ------------------------------- The Company has financed its research and development activities to date principally through (i) private sales of Common Stock and an initial public offering of a unit security, (ii) issuance of Common Stock in conjunction with assumption of liabilities and assets to acquire IPI and the Novastan(R) license, (iii) revenues from research agreements and sales of products and services and (iv) investment income, net of interest expense. During the first six months of 1996, the Company utilized $10,336,805 net cash in operating activities and $13,548,074 was provided by financing activities. The use of cash in operations was caused by the Company's net loss of $10,352,293. Financing activities produced approximately $13,000,000 in net proceeds for the Company resulting from the 1996 private placement and the remaining was from exercise of stock options and warrants. The Company expects to incur substantial research and development expenditures as it designs and develops biopharmaceutical products for the prevention and treatment of cardiovascular diseases. The Company anticipates that operating expenses will continue to increase during 1996 and subsequent years. These costs to develop Novastan(R) have increased and will continue to increase during 1996 due to the continuation of clinical trials and will continue to be significant through the FDA approval process. These costs will include, among other things, hiring personnel to direct and carry out all operations related to the clinical trials, paying for hospital and procedural costs, services of a contract research organization, and purchasing and formulating large quantities of the compound to be used in such trials. In addition, the Company anticipates that the administrative costs associated with this effort will be significant. The amounts and timing of expenditures will depend on the progress of ongoing research and clinical development and product launch costs. At June 30, 1996, the Company had cash, cash equivalents and short-term investments of approximately $17.0 million. The Company anticipates that its existing capital resources and its other revenue sources should be sufficient to fund its cash requirements into the second quarter of 1997. The Company's existing capital resources may not be sufficient to fund the Company's operations through commercialization of its first product. Moreover, the Genentech Agreement and Synthelabo Agreement require the Company to maintain a tangible net worth of at least $5.0 million during the term of these agreements. For failure to maintain at least $5.0 million of net worth, Synthelabo may require that the technology be transferred to, and the development program be conducted by, a joint venture owned by TBC and Synthelabo. As of June 30, 1996, the Company's tangible net worth significantly exceeded $5.0 million. The Genentech Agreement and Synthelabo Agreement are also terminable for other reasons. Termination of either of these agreements will have a material adverse effect on the Company. The Company will need to raise substantial funds for future operations and is actively seeking such funding through collaborative arrangements, public or private financing, including equity financing, and other arrangements. The Company expects that additional expenditures will be required if additional product candidates enter clinical trials which may require additional expenditures for laboratory space, scientific and administrative personnel, and services of contract research organizations. There can be no assurance that the Company will be able to obtain additional financings on acceptable terms or in time to fund any necessary or desirable expenditures. In the event such financing are not obtained, the Company's drug discovery or development and programs may be delayed, scaled back or eliminated; or it may be required to obtain funds through arrangements with collaborative partners or others that may require the Company to relinquish rights to certain of its technologies, product candidates or products that the Company would not otherwise relinquish. TBC's ability to raise additional funding is contingent upon a number of factors which include (i) ongoing cost of research and development activities, (ii) cost of clinical development of product candidates, (iii) attainment of research and clinical goals of product candidates, (iv) timely approval of TBC's product candidates by appropriate governmental and regulatory agencies, (v) effect of any current or future competitive products, (vi) ability to manufacture and market products commercially, (vii) retention of key personnel and (viii) obtaining and timing of sufficient financing through capital raising or collaborative agreements to fund operations. PENDING LITIGATION As of July 31, 1996, one class action shareholder lawsuit remains pending against the Company, and includes certain directors and officers as defendants. The Company disputes all claims set forth in this lawsuit and intends to contest it vigorously. However, the Company is unable to evaluate the potential outcome at this time. Page 15 HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS The Company's research and development activities involve the controlled use of hazardous and radioactive materials. The Company is subject to federal, state, and local laws and regulations governing the use, manufacture, storage, handling and disposal of such materials and certain waste products. Management believes that the Company is in compliance with all such laws, regulations and standards currently in effect and that the cost of compliance with such laws, regulation, and standards will not have a material adverse effect on the Company. The Company does not expect to incur any capital expenditures for environmental control in the foreseeable future. IMPACT OF INFLATION AND CHANGING PRICES The pharmaceutical research industry is labor intensive, and wages and related expenses increase in inflationary periods. The lease of space and related building services for the Houston facility contains a clause that escalates rent and related services each year based on the increase in building operating costs and the increase in the Houston Consumer Price Index, respectively. To date, inflation has not had a significant impact on operations. ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (Statement 121). The Company has adopted the statement effective December 31, 1995. Statement 121 requires that long- lived assets and certain identifiable intangible assets to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In addition, Statement 121 requires that certain long-lived assets and certain identifiable intangible assets to be disposed of be reported at the lower of carrying amount or fair value less costs to sell. The Company believes the goodwill associated with IPI, $643,750, was impaired due to the decision to cease operations at IPI and the sale of the QED business unit and has recorded a charge to expense. In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" (Statement 123). Statement 123 establishes financial accounting and reporting standards for stock-based employee compensation plans using a fair value based methodology as an alternative to intrinsic value based methodology. In addition, Statement 123 established the fair value as the measurement basis for transactions in which an entity issues its equity instruments to acquire goods or services from non-employees. The accounting and reporting requirements of Statement 123 were effective beginning January 1, 1996. The adaptation of Statement 123 is not expected to have a material impact on TBC's 1996 financial position or results of operations as the Company intends to continue using the intrinsic value method. Page 16 PART II OTHER INFORMATION - ------------------------- ITEM 1. LEGAL PROCEEDINGS - -------------------------- On November 21, 1994, a class action shareholders' suit was filed in the United States District Court for the Southern District of Texas, Houston Division seeking damages in the amount of $16 million. Plaintiffs are two individuals who purchased shares of the Company on December 16, 1993 following the Company's initial public offering. In their complaint, plaintiffs have sued the Company, and certain members of the board of directors and certain officers alleging violations of Sections 11, 12 and 15 of the Securities Act of 1933, as amended (the "Act"). Plaintiffs have also named David Blech, D. Blech & Co., Incorporated and Isaac Blech as defendants. On January 23, 1995, the Company and the members of the board of directors filed a motion to dismiss the plaintiffs' complaint pursuant to Rule 9(b) and Rule 12b(6) of the Federal Rules of Civil Procedure. In addition, defendant John Pietruski, Chairman of the Board of Directors, filed a motion to dismiss the plaintiffs' complaint pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure. On February 7, 1995, the plaintiffs filed a motion for class certification. The Court denied the motion by the Company and by John Pietruski. On March 28, 1995, a second class action shareholders' suit was filed in the United States District Court for the Southern District of New York seeking unspecified damages. Plaintiffs are eight individuals who purchased shares in various companies for which D. Blech & Co. acted as an underwriter (or co- underwriter) or marketmaker. In their complaint, the plaintiffs have sued the Company alleging violations of Section 10(b) of the Securities Exchange Act of 1934, as Amended (the "Exchange Act") and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission (the "Commission"). Plaintiffs have named a number of defendants, including David Blech and D. Blech & Co., four individuals, two brokerage firms, one investment management company and ten other companies for which D. Blech & Co. acted as underwriter or marketmaker. On August 14, 1995, the Judicial Panel on The Multi-District Litigation ordered that the action filed in the United States District Court for the Southern District of Texas, Houston Division be transferred to the United States District Court for the Southern District of New York for coordinated or consolidated pretrial proceedings with the action pending there. In light of the transfer and consolidation of the Texas case with similar cases against other companies for which Blech acted as underwriter, the Company requested that the Court in New York reconsider the Texas Court's denial of its motion to dismiss as a part of the Court's consideration of similar motions to dismiss filed by those companies. All of these motions were presented to the Court on February 6, 1996. On June 6, 1996, the New York District Court entered two memorandum opinions in the consolidated cases. In one of its opinions, the Court dismissed all of the Exchange Act and common law fraud claims filed against the Company and its officers and directors, but afforded those plaintiffs the right to attempt to preserve those claims by repleading them. The Court ordered that those claims be repleaded no later than July 26, 1996. Plaintiffs did not replead those claims by the deadline, resulting in the dismissal of all claims against the Company in that litigation. In its opinion in the second case, i.e., the case filed on November 21, 1994, the Court granted the Company and its officers and directors' motion for reconsideration, but together with all other similar pending motions, denied the requested relief. Pursuant to the court's order, the Company therefore filed an answer in that case. Given the early stage of that case, which is the only remaining litigation against the Company, the Company is unable to evaluate its potential outcome at this time. The Company disputes these claims and intends to contest them vigorously. ITEM 2. CHANGES IN SECURITIES - ------------------------------ None ITEM 3. DEFAULTS UPON SENIOR SECURITIES - ---------------------------------------- None Page 17 ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------- On May 3, 1996, an annual meeting of the stockholders of the Company was held. The holders of 16,447,395 shares of Common Stock were present in person or represented by proxy at the meeting. At the meeting, the stockholders took the following actions: (a) Election of Directors The stockholders elected the following persons to serve as directors of the company until the next annual meeting of stockholders, or until their successors are duly elected and qualified:
NUMBER OF NUMBER OF NAME VOTES FOR VOTES ABSTAINING -------------------- ---------------- ---------------- PATRICK OWEN BURNS 16,381,565 65,830 ---------- ------ FRANK CARLUCCI 16,362,552 84,843 ---------- ------ ROBERT J. CRUIKSHANK 16,366,980 80,415 ---------- ------ RICHARD A.F. DIXON 16,395,850 51,545 ---------- ------ DAVID B. MCWILLIAMS 16,395,850 51,545 ---------- ------ JOHN M. PIETRUSKI 16,366,980 80,415 ---------- ------ JAMES A. THOMSON 16,381,565 65,830 ---------- ------ JAMES T. WILLERSON 16,395,850 51,545 ---------- ------
(b) Approval of the Amendment to the Certificate of Incorporation The stockholders approved the proposal to amend the Company's Certificate of Incorporation to increase the authorized number of shares of the Company's common stock from 40 million shares to 75 million shares. Votes were cast as follows:
NUMBER OF NUMBER OF NUMBER OF NUMBER OF VOTES FOR VOTES AGAINST VOTES ABSTAINING BROKER NON-VOTES ---------- ------------- ---------------- ---------------- 15,863,798 245,522 66,591 271,484 ---------- ------------- ---------------- ----------------
ITEM 5. OTHER INFORMATION - -------------------------- The lead compound in the Company's vascular inflammation program, TBC 1269, an antagonist of selectin, is currently in preclinical studies and is expected to enter Phase I clinical trials in Europe in 1996 followed by the filing of a U.S. investigational new drug application ("IND") in early 1997. Page 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- EXHIBIT NO. DESCRIPTION ----------- ----------- 3.6 Certificate of Amendment of Certificate of Incorporation 10.51 (1)* Letter Agreement regarding Argatroban Studies Information dated December 14, 1995, between the Company and Synthelabo Recherche 10.52 (1) Amendment B to Clinical Trial Research Agreement dated February 10, 1995 between Texas Biotechnology Corporation and Coromed Inc. 10.53 Letter of Understanding between Texas Biotechnology Corporation and Mitsubishi Chemical Corporation dated July 10, 1996 10.54 Form of Indemnification Agreement between Texas Biotechnology Corporation and its officers and directors dated May 3, 1996 10.55 Amended and Restated 1995 Non-Employee Director Stock Option Plan (as amended by the Board of Directors on June 30, 1996) 27.1 Financial Data Schedule - ----------- * The Company has omitted certain portions of this agreement in reliance on Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. (1) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for the quarter ended March 31, 1996 and incorporated herein by reference. REPORTS ON FORM 8-K -------------------- None Page 19 TEXAS BIOTECHNOLOGY CORPORATION JUNE 30, 1996 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on the 13th day of August, 1996. TEXAS BIOTECHNOLOGY CORPORATION BY: /s/ David B. McWilliams --------------------------------- DAVID B. MCWILLIAMS PRESIDENT AND CHIEF EXECUTIVE OFFICER BY: /s/ Stephen L. Mueller --------------------------------- STEPHEN L. MUELLER VICE PRESIDENT OF ADMINISTRATION SECRETARY AND TREASURER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) Page 20 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT ----------- ---------------------- 3.6 Certificate of Amendment of Certificate of Incorporation 10.51 (1)* Letter Agreement regarding Argatroban Studies Information dated December 14, 1995, between the Company and Synthelabo Recherche 10.52 (1) Amendment B to Clinical Trial Research Agreement dated February 10, 1995 between Texas Biotechnology Corporation and Coromed Inc. 10.53 Letter of Understanding between Texas Biotechnology Corporation and Mitsubishi Chemical Corporation dated July 10, 1996 10.54 Form of Indemnification Agreement between Texas Biotechnology Corporation and its officers and directors dated May 3, 1996 10.55 Amended and Restated 1995 Non-Employee Director Stock Option Plan (as amended by the Board of Directors on June 30, 1996) 27.1 Financial Data Schedule
- ----------- * The Company has omitted certain portions of this agreement in reliance on Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. (1) Filed as an exhibit to the Company's Form 10-Q (File No. 1-12574) for the quarter ended March 31, 1996 and incorporated herein by reference. Page 21 EX-3.6 2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORP. EXHIBIT 3.6 PAGE 1 STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE ________________________________ I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "TEXAS BIOTECHNOLOGY CORPORATION", FILED IN THIS OFFICE ON THE EIGHTH DAY OF MAY, A.D. 1996, AT 9 O'CLOCK A.M. A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING. [SEAL] /s/ Edward J. Freel __________________________________ Edward J. Freel, Secretary of State [SEAL] 2203958 8100 AUTHENTICATION: 7954110 960134172 DATE: 05-21-96 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 05/08/1996 960134172-2203958 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF TEXAS BIOTECHNOLOGY CORPORATION Texas Biotechnology Corporation, a Delaware corporation (the "Corporation"), does hereby certify: ARTICLE ONE That resolutions, which set forth a proposed amendment to the Corporation's Certificate of Incorporation, as amended (the "Certificate"), declared the amendment advisable and in the best interest of the Corporation and called for the approval and adoption of the amendment by the Corporation's stockholders at the annual meeting of the stockholders, were discussed and duly adopted by the members of the Corporation's Board of Directors at their regular meeting held on March 5, 1996, pursuant to Section 141 of the General Corporation Law of Delaware. The resolutions setting forth the proposed amendment to this Certificate of Incorporation set forth below increase the number of shares of the Corporation's common stock, par value $.005 per share (the "Common Stock") authorized for issuance from 40 Million shares to 75 Million shares. The resolution is as follows: FURTHER RESOLVED, that it is advisable and in the best interest of the Corporation to amend the Certificate by deleting the first paragraph of Article Fourth thereof in its entirety and inserting the first paragraph of the amendment as set forth below in lieu thereof and that the amendment as set forth below be and hereby is approved, adopted, ratified and confirmed: "FOURTH: The total shares of all classes of stock which the Corporation shall have the authority to issue is Seventy Five Million (75,000,000) shares of Common Stock (hereinafter called "Common Stock") of a par value of one-half of one cent ($.005) per share and Five Million (5,000,000) shares of Preferred Stock (hereinafter called "Preferred Stock") of a par value of one- half of one cent ($.005) per share." ARTICLE TWO That thereafter, pursuant to a duly adopted resolution of the Board of Directors, the Corporation submitted the amendment to the Corporation's stockholders at the annual stockholders' meeting and that the holders of a majority of the shares of issued and outstanding Common Stock voted in favor of the foregoing amendment. ARTICLE THREE That the foregoing amendment was duly adopted by the stockholders of the Corporation on May 3, 1996 in accordance with the provisions of Section 242 of the Delaware General Corporation Law. ARTICLE FOUR That the capital of the Corporation shall not be reduced by reason of the foregoing amendment. IN WITNESS WHEREOF, the undersigned, being duly elected officers of the Corporation, hereby declare and certify that the facts herein stated are true and accordingly execute this instrument as of the 3 day of May, 1996. TEXAS BIOTECHNOLOGY CORPORATION /s/ David B. McWilliams ___________________________________ By: David B. McWilliams, President ATTEST: /s/ Stephen L. Mueller ______________________________ Stephen L. Mueller Vice President of Administration Secretary and Treasurer EX-10.53 3 LETTER AGREEMENT EXHIBIT 10.53 UNDERSTANDING Mitsubishi Chemical Corporation (hereinafter referred to as "Mitsubishi"), Genentech, Inc. (hereinafter referred to as "Genentech") and Texas Biotechnology Corporation (hereinafter referred to as "TBC") entered into the Extension Agreement dated June 30, 1995 relating to the development and commercialization of Argatroban for specified human pharmaceuticals indications (hereinafter referred to as "Extension Agreement"). In connection with the Extension Agreement, Mitsubishi hereby agrees as follows: 1. Notwithstanding the provisions of Section 2(c) (i) of the Extension Agreement, Mitsubishi shall withhold its right to terminate Genentech's rights under the Genentech/MCC Agreement (as defined in the Extension Agreement) due to TBC's failure to meet milestones set forth in Section 2(a) or (b) of the Extension Agreement if the NDA is filed by TBC with the FDA regarding the HIT/HITTS indication for NOVASTAN/R/ by June 30, 1997, and if TBC accomplishes any of the following additional milestones without any cure period; (i) On or before December 31, 1996, TBC will have enrolled and treated with study drug 300 subjects in clinical trial ARG-911 and 30 patients in clinical trial for ARG-310; (ii) On or before March 31, 1997, TBC will complete, analyze and report on the clinical trials ARG-23D (total 900 subjects) and ARG-231 (total 120 subjects); (iii) On or before September 30, 1997, TBC will have determined a go decision for proceeding to Phase III clinical trials in AMI; and (iv) TBC shall provide to MCC monthly reports and shall arrange bi-monthly meetings with the MCC regarding the progress and status of all of its NOVASTAN/R/ clinical trials, and shall provide such other information related thereto as MCC may reasonably request. If said NDA is filed by June 30, 1997, and the above milestones are met, Mitsubishi will waive all rights of termination relating to TBC's failure to meet some of the milestones set forth in Section 2(a) or (b) of the Extension Agreement. If the Genentech's rights under the Genentech/MCC Agreement is terminated only due to TBC's failure to meet the milestone set forth in paragraph 1(iii) above, Mitsubishi shall grant directly to TBC a license of MKC Know-How and MKC Patent Rights (as defined in the Genentech/MCC Agreement) in the field of treatment of HIT/HITTS on substantially the same (for TBC) terms and conditions as those set forth in the Genentech/MCC Agreement. As of 10th day of July, 1996 Mitsubishi Chemical Corporation By: /s/ Akihisa Ohno ______________________________________ Akihisa Ohno General Manager International Operations Dept. EX-10.54 4 FORM OF INDEMNIFICATION AGREEMENT EXHIBIT 10.54 AGREEMENT --------- This Agreement, made and entered into this ________ day of ____________________ ("Agreement"), is by and between Texas Biotechnology Corporation, a Delaware corporation ("Company"), and ____________________ ("Indemnitee"): WHEREAS, highly competent persons are becoming more reluctant to serve publicly-held corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks or claims and actions against them arising out of their service to, and activities on behalf of, the corporation; and WHEREAS, the current impracticability of obtaining adequate insurance and the uncertainties relating to indemnification have increased the difficulty of attracting and retaining such persons; WHEREAS, the Board of Directors of the Company (the "Board") has determined that the inability to attract and retain such persons is detrimental to the best interests of the Company's stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future; and WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; and NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows: Section 1. Services by Indemnitee. Indemnitee agrees to serve as ______________ of the Company. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in any such position. Section 2. Indemnification - General. The Company shall indemnify, and advance Expenses (as hereinafter defined), to Indemnitee as provided in this Agreement and to the fullest extent permitted by applicable law in effect on the date hereof and to such greater extent as applicable law may thereafter from time to time permit. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other Sections of this Agreement. Section 3. Proceedings Other Than Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 3 if, by reason of his Corporate Status (as hereinafter defined) or by reason of anything done or not done by Indemnitee in any such capacity, he is, or is threatened to be made, a party to any threatened, pending, or completed Proceeding (as hereinafter defined), other than a Proceeding by or in the right of the Company. Pursuant to this Section 3, Indemnitee shall be indemnified to the full extent of the law against Expenses, judgments, penalties, fines and amounts paid in settlement (including all interest, assessments, and other charges paid or payable in connection with or in respect of such expenses, judgments, fines, penalties or amounts paid in settlement) actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal Proceeding, had no reasonable cause to believe his conduct was unlawful. Section 4. Proceedings by or in the Right of the Company. Indemnitee shall be entitled to the rights of indemnification provided in this Section 4 if, by reason of his Corporate Status, he is, or is threatened to be made, a party to any threatened, pending or completed Proceeding brought by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section, Indemnitee shall be indemnified to the full extent of the law against Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Notwithstanding the foregoing, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been adjudged to be liable to the Company if applicable law prohibits such indemnification; provided, however, that, if applicable law so permits, indemnification against Expenses shall nevertheless be made by the Company in such event if and only to the extent that the Court of Chancery of the State of Delaware, or the court in which such Proceeding shall have been brought or is pending, shall determine. Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a party to and is successful, on the merits or otherwise, in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. 2 Section 6. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith. Section 7. Advancement of Expenses. The Company shall advance all reasonable Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding within two days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses; provided, however, that Indemnitee shall not be required to reimburse Company for any advancement of Expenses until a final judicial determination is made (as to which all rights of appeal have been exhausted or lapsed). Section 8. Procedure for Determination of Entitlement to Indemnification. (a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification. (b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 8(a) hereof, a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case: (i) if a Change in Control (as hereinafter defined) shall have occurred, by Independent Counsel (as hereinafter defined) (unless Indemnitee shall request that such determination be made by the Board of Directors or the stockholders, in which case by the person or persons or in the manner provided for in clauses (ii) or (iii) of this Section 8(b)) in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee; (ii) if a Change of Control shall not have occurred, (A) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as hereinafter defined), or (B) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee or (C) if so directed by the Board of Directors, by the stockholders of the Company; or (iii) as provided in Section 9(b) of this Agreement; and, if it is so determined that Indemnitee is entitled to Indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including 3 providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys, fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. (c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) hereof, the Independent Counsel shall be selected as provided in this Section 8(c). If a Change of Control shall not have occurred, the Independent Counsel shall be selected by the Board of Directors, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change of Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within 7 days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 17 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. If such written objection is made, the Independent Counsel so selected may not serve as Independent Counsel unless and until a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 8(a) hereof, no Independent Counsel shall have been selected without objection, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom an objection is so resolved or the person so appointed shall act as Independent Counsel under Section 8(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 8(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 8(c), regardless of the manner in which such Independent Counsel was selected or appointed. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 10(a)(iii) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing). 4 Section 9. Presumptions and Effect of Certain Proceedings. (a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 8(a) of this Agreement, and the Company shall have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. (b) If the person, persons or entity empowered or selected under Section 8 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within 60 days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional 30 days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 9(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 8(b) of this Agreement and if (A) within 15 days after receipt by the Company of the request for such determination the Board of Directors has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within 75 days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within 15 days after such receipt for the purpose of making such determination, such meeting is held for such purpose within 60 days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) of this Agreement. (c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful. Section 10. Remedies of Indemnitee. (a) In the event that (i) a determination is made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, or (ii) 5 advancement of Expenses is not timely made pursuant to Section 7 of this Agreement, or (iii) the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 8(b) of this Agreement and such determination shall not have been made and delivered in a written opinion within 90 days after receipt by the Company of the request for indemnification, or (iv) payment of indemnification is not made pursuant to Section 6 of this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Sections 8 or 9 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of his entitlement to such indemnification or advancement of Expenses, and Company hereby consents to service of process and to appear in any such proceeding. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 10(a); provided, however, that the foregoing clause shall not apply in respect of a proceeding brought by an Indemnitee to enforce his rights under Section 5 of the Agreement. (b) In the event that a determination shall have been made pursuant to Section 8 of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 10 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. If a Change of Control shall have occurred, in any judicial proceeding or arbitration commenced pursuant to this Section 10 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be. (c) If a determination shall have been made or deemed to have been made pursuant to Section 8 or 9 of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 10, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law. (d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 10 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. (e) In the event that Indemnitee, pursuant to this Section 10, seeks a judicial adjudication of or an award in arbitration to enforce his rights under, or to recover damages for 6 breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company against, any and all expenses (of the types described in the definition of Expenses in Section 17 of this Agreement) actually and reasonably incurred by him in such judicial adjudication or arbitration, but only if he prevails therein. If it shall be determined in said judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated. Section 11. Non-Exclusivity; Insurance; Subrogation; No Duplicate Payments. (a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-Laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or any provision hereof shall be effective as to any Indemnitee with respect to any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. (b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, agents or fiduciaries of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. (c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. (d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. Section 12. Binding Effect; Survival of Rights. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties and their respective successors, assigns (including any direct or indirect successors by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), spouses, heirs, executors, administrators, and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by 7 written agreement in form and substance satisfactory to the Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer or director of the Company or of any other enterprise at the Company's request. Section 13. Limitations Period. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company or any affiliate of the Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern. Section 14. Severability. If any provision of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Section 15. Exception to Right of Indemnification or Advancement of Expenses. Notwithstanding any other provision of this Agreement, Indemnitee shall not be entitled to indemnification or advancement of Expenses under this Agreement with respect to any Proceeding, or any claim therein, brought or made by him against the Company or the Individual Indemnitors, unless the Company has joined in or consented to the initiation of such Proceeding. Section 16. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. Section 17. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. Section 18. Definitions. For purposes of this Agreement: 8 (a) "Change in Control" means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if after the Effective Date (i) any "person" (as such term is used in Section 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets or other reorganization, or a proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. (b) "Corporate Status" describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company. (c) "Disinterested Director" means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee. (d) "Effective Date" means the date of this Agreement. (e) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses paid or incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or being or preparing to be a witness in a Proceeding, including on appeal. (f) "Independent Counsel" means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any 9 person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. (g) "Proceeding" includes any action, suit, arbitration, alternate dispute resolution mechanism, administrative hearing, inquiry or investigation, whether civil, criminal, administrative or other (whether instituted by the Company or any other party), or any inquiry or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit, or proceeding, whether civil, criminal, administrative, investigative, or other; Notwithstanding the foregoing, the term "Proceeding" shall not include any action, suit, arbitration, alternate dispute resolution mechanism, administrative hearing, or any inquiry or investigation initiated by an Indemnitee pursuant to Section 10 of this Agreement to enforce his rights under this Agreement. Section 19. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provision of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. Section 20. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder. Section 21. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (a) If to Indemnitee, to: ____________________________________________ ____________________________________________ ____________________________________________ (b) If to the Company, to: Texas Biotechnology Corporation 7000 Fannin, Suite 1920 Houston, Texas 77030 10 or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be. Section 22. Governing Law. The parties agree that this Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. Section 23. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. TEXAS BIOTECHNOLOGY CORPORATION By: ---------------------------------- Indemnitee ------------------------------------- 11 EX-10.55 5 AMENDED 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION EXHIBIT 10.55 TEXAS BIOTECHNOLOGY CORPORATION AMENDED AND RESTATED 1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN (AS AMENDED BY THE BOARD OF DIRECTORS ON JUNE 30, 1996) 1. PURPOSE. This 1995 Non-Employee Director Stock Option Plan (this "Plan") of Texas Biotechnology Corporation, a Delaware corporation (the "Company"), is adopted, subject to stockholder approval, for the benefit of the directors of the Company who, during the time of their service, are not employees of the Company or any of its subsidiaries ("Non-Employee Directors"), and is intended to advance the interests of the Company by providing the Non-Employee Directors with additional incentives to serve the Company by increasing their proprietary interest in the success of the Company. 2. ADMINISTRATION. This Plan shall be administered by a committee appointed by the Board of Directors of the Company (the "Committee"), which shall consist of not less than one member of the Board of Directors. For the purposes of this Plan, a majority of the members of the Committee shall constitute a quorum for the transaction of business, and the vote of a majority of those members present at any meeting shall decide any question brought before that meeting. No member of the Committee shall be liable for any act or omission of any other member of the Committee or for any act or omission on his own part, including (without limitation) the exercise of any power or discretion given to him under this Plan, except those resulting from his own gross negligence or willful misconduct. All questions of interpretation and application of this Plan, or as to non-qualified options granted hereunder (the "Options"), shall be subject to the determination, which shall be final and binding, of a majority of the whole Committee. Notwithstanding the above, the selection of Non-Employee Directors to whom Options are to be granted, the number of shares subject to any Option, the exercise price of any Option and the term of any Option shall be as hereinafter provided and the Committee shall have no discretion as to such matters. 3. OPTION SHARES The stock subject to the Options and other provisions of this Plan shall be shares of the Company's Common Stock, par value $.005 per share (the "Common Stock"). The total amount of the Common Stock with respect to which Options may be granted shall not exceed 200,000 shares in the aggregate; provided, that the class and aggregate number of shares which may be subject to the Options granted hereunder shall be subject to adjustment in accordance with the provisions of Section 11 of this Plan. Such shares may be treasury shares or authorized but unissued shares. 1 If any outstanding Option for any reason shall expire or terminate by reason of the death of the optionee or the fact that the optionee ceases to be a director, the surrender of any such Option, or any other cause, the shares of Common Stock allocable to the unexercised portion of such Option may again be subject to an Option under this Plan. 4. GRANT OF OPTIONS. (a) Directors Elected after the Effective Date of this Plan Upon their First Election. Subject to the provisions of Section 18 hereof, for so long as this Plan is in effect and shares are available for the grant of Options hereunder, each person who shall be elected a Non-Employee Director after the Effective Date of this Plan, excluding current Non-Employee Directors on the Effective Date of this Plan, shall be granted, on the date of his or her first election, a non-qualified Option to purchase a number of shares of Common Stock having an aggregate fair market value (as defined in Subsection 4(c) below) on the date of grant of $20,000 at a per share Option Price equal to the fair market value of a share of Common Stock on such date (such number of shares being subject to the adjustments provided in Section 11 of this Plan); provided, however, that no Options shall be granted under this Subsection 4(a) for so long as a sufficient number of shares of Common Stock remain available under the Company's existing Stock Option Plan for Non-Employee Directors to permit the grant of options pursuant to the terms of such plan. This Subsection 4(a) shall only apply to a Director the first time he or she is elected Director of the Company and in no event shall this Plan (whether by its sole operation or in operation with any other plans) entitle a Director to receive, upon his initial election to the Board, options to purchase a number of shares of Common Stock in excess of a number of shares of Common Stock having an aggregate fair market value on the date of grant of $20,000. Persons elected to be Directors for a second or any subsequent term shall be granted options in accordance with Subsection 4(b) below. (b) Directors Elected after the Effective Date of this Plan Upon their Second or any Subsequent Election. Subject to the provisions of Section 18 hereof, for so long as this Plan is in effect and shares are available for the grant of Options hereunder, each person who shall be elected a Non-Employee Director for his or her second (or any subsequent) term after their initial election to the Board of Directors, including current Non-Employee Directors on the Effective Date of this Plan, shall be granted, on the date of each such election, a non- qualified Option to purchase a number of shares of Common Stock having an aggregate fair market value on the date of grant of $15,000 at a per share Option Price equal to the fair market value of a share of Common Stock on such date (such number of shares being subject to the adjustments provided in Section 11 of this Plan); provided, however, that no Options shall be granted under this Subsection 4(b) for so long as a sufficient number of shares of Common Stock remain available under the Company's existing Stock Option Plan for Non-Employee Directors to permit the grant of options pursuant to the terms of such plan. This Subsection 4(b) shall only apply to a Director on his or her second (or any subsequent) election to the Company's Board of Directors after their initial election to the Board of Directors and in no event shall this Plan (whether by its sole operation or in operation with any other plans) entitle a Director to receive, upon any subsequent 2 election to the Board, options to purchase a number of shares of Common Stock in excess of a number of shares of Common Stock having an aggregate fair market value on the date of grant of $15,000. (c) Fair Market Value. For purposes of this Section 4, the "fair market value" of a share of Common Stock on any date shall be (i) the closing sales price on the immediately preceding business day of a share of Common Stock as reported on the principal securities exchange on which shares of Common Stock are then listed or admitted to trading or (ii) if not so reported, the average of the closing bid and asked prices for a share of Common Stock on the immediately preceding business day as quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or (iii) if not quoted on NASDAQ, the average of the closing bid and asked prices for a share of Common Stock as quoted by the National Quotation Bureau's "Pink Sheets" or the National Association of Securities Dealers' OTC Bulletin Board System. If the price of a share of Common Stock shall not be so reported, the fair market value of a share of Common Stock shall be determined by the Committee in its absolute discretion. 5. VESTING AND TERM OF OPTIONS. Each Option granted shall vest in accordance with the following schedule: Subject to the provisions of Section 8 hereof, Options exercisable for one-third (1/3) of the shares granted at the time of any grant shall vest immediately and then an additional one third (1/3) shall vest at the end of the first full calendar year and then the remaining one third (1/3) shall vest at the end of the subsequent full calendar year after the date of such grant, provided that the grantee shall remain a director of the Company at such time. Any unvested Options held by any optionee who subsequently ceases to be a director of the Company for any reason, shall thereupon be immediately null and void and the shares of Common Stock underlying such Options shall again be subject to the grant of an Option in accordance with Section 3 of this Plan. Each Option granted under this Plan shall expire on the tenth anniversary of the date on which the Option was granted. 6. EXERCISE OF OPTIONS. An optionee may exercise his Option by delivering to the Company a written notice stating (a) that such optionee wishes to exercise such Option on the date such notice is so delivered, (b) the number of shares of Common Stock with respect to which such Option is to be exercised and (c) the address to which the certificate representing such shares of stock should be mailed (the "Option Notice"). To be effective, the Option Notice shall be accompanied by payment of the Option Price for each of such shares of Common Stock. Payment for shares of Common Stock purchased upon the exercise of an Option (the "Option Payment") shall be made on the effective date of such exercise in cash, by certified check, bank cashier's check or wire transfer. 3 As promptly as practicable after the receipt by the Company of the Option Notice and the Option Payment, a certificate representing the number of shares of stock with respect to which such Option has been so exercised registered in the name of such optionee, shall be delivered to such optionee, provided that delivery shall be considered to have been made when such certificate shall have been mailed, postage prepaid, to optionee at the address specified for that purpose in the Option Notice. 7. TRANSFERABILITY OF OPTIONS. Options shall not be transferable by the optionee otherwise than by will or under the laws of descent and distribution or pursuant to a qualified domestic relations order as defined in the Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement Income Security Act, or the rules thereunder. Notwithstanding anything herein to the contrary, should Rule 16b-3(a)(2) promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act") be amended to permit Option transfers not permitted at the time of the adoption of this Plan (a) without requiring action by stockholders and (b) without limiting the benefits to the optionee of Rule 16b-3 under the 1934 Act, then in that case, such transfers as are specifically permitted under Rule 16b- 3(a)(2) shall be permitted under the Plan without further action, to the fullest extent permissible under Rule 16b-3(a)(2). 8. TERMINATION. Except as may be otherwise expressly provided in this Plan, each Option, to the extent not previously exercised, shall terminate on the earliest of the following: (a) On the last day of the three-month period commencing on the date on which the optionee ceases to be a member of the Company's Board of Directors, for any reason other than the death of the optionee, during which period the optionee shall be entitled to exercise all Options held by the optionee on the date on which the optionee ceased to be a member of the Company's Board of Directors which could have been exercised on such date; (b) On the last day of the six-month period commencing on the date of the optionee's death while serving as a member of the Company's Board of Directors, during which period the executor or administrator of the optionee's estate or the person or persons to whom the optionee's Option shall have been transferred by will or the laws of descent or distribution, shall be entitled to exercise all Options to the extent otherwise exercisable hereunder on the date of his death; or (c) Ten years after the date of grant of such Option. 4 9. REQUIREMENTS OF LAW. The Company shall not be required to sell or issue any shares under any Option if the issuance of such shares shall constitute a violation by the optionee or the Company of any provisions of any law or regulation of any governmental authority. Each Option granted under this Plan shall be subject to the requirement that, if at any time the Board of Directors of the Company or the Committee shall determine that (i) the listing, registration or qualification of the shares subject thereto upon any securities exchange, NASDAQ or under any state or federal law of the United States or of any other country or governmental subdivision thereof, (ii) the consent or approval of any governmental regulatory body, or (iii) the making of investment or other representations, are necessary or desirable in connection with the issue or purchase of shares subject thereto, no such Option may be exercised in whole or in part unless such listing, registration, qualification, consent, approval or representation shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. Any determination in this connection by the Committee or the Board of Directors shall be final, binding and conclusive. If the shares issuable on exercise of an Option are not registered under the Securities Act of 1933, the Company may imprint on the certificate for such shares the following legend or any other legend which counsel for the Company considers necessary or advisable to comply with the Securities Act of 1933: THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON SUCH REGISTRATION OR UPON RECEIPT BY THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION, IN FORM AND SUBSTANCE SATISFACTORY TO THE CORPORATION, THAT REGISTRATION IS NOT REQUIRED FOR SUCH SALE OR TRANSFER. The Company may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act of 1933 (as now in effect or as hereinafter amended) and, if any shares are so registered, the Company may remove any legend on certificates representing such shares. The Company shall not be obligated to take any other affirmative action to cause the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. 10. NO RIGHTS AS STOCKHOLDER. Optionee shall have no rights as a stockholder with respect to shares covered by his or her Options until the date of issuance of a stock certificate for such shares; and, except as otherwise provided in Section 11 hereof, no adjustment for dividends, or otherwise, shall be made if the record date therefor is prior to the date of issuance of such certificate. 5 11. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE. The existence of outstanding Options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise. If the Company shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend or other increase or reduction of the number of shares of the Common Stock outstanding, without receiving consideration therefor in money, services or property, then (a) the number, class and per share price of shares of stock subject to outstanding Options hereunder shall be appropriately adjusted in such a manner as to entitle an optionee to receive upon exercise of an Option, for the same aggregate cash consideration, the same total number and class or classes of shares as he would have received had he exercised his Option in full immediately prior to the event requiring the adjustment; and (b) the number and class of shares then reserved for issuance under this Plan and the number of shares to be subject to the grants to be made pursuant to Section 4(a) and Section 4(b) shall be adjusted by substituting for the total number and class of shares of stock then reserved or subject to grant the number and class or classes of shares of stock that would have been received by the owner of an equal number of outstanding shares of Common Stock as the result of the event requiring the adjustment, disregarding any fractional shares. If the Company merges or consolidates with another corporation, whether or not the Company is a surviving corporation, or if the Company is liquidated or sells or otherwise disposes of substantially all its assets while unexercised Options remain outstanding under this Plan, after the effective date of such merger, consolidation, liquidation, sale or other disposition, as the case may be, each holder of an outstanding Option shall be entitled, upon exercise of such Option, to receive, in lieu of shares of Common Stock, the number and class or classes of shares of such stock or other securities or property to which such holder would have been entitled if, immediately prior to such merger, consolidation, liquidation, sale or other disposition, such holder had been the holder of record of a number of shares of Common Stock equal to the number of shares as to which such Option may be exercised. Except as otherwise expressly provided in this Plan, the issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock then subject to outstanding Options. 6 12. CHANGE IN CONTROL All Options will be immediately exercisable, whether vested or unvested, upon a Change in Control. "Change in Control" shall mean the occurrence of any of the following events: (i) any person becomes the beneficial owner (as defined in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities, provided that the Board of Directors in office immediately prior to the event triggering a Change in Control may, in its sole discretion, determine that a Change in Control has not occurred; provided further, that the acquisition of additional voting securities by any person who is the beneficial owner, directly or indirectly of 20% or more of the combined voting power of the Company's then outstanding securities, shall not constitute a Change in Control for the purposes of this Plan; or (ii) the Board of Directors determines, in its sole and absolute discretion, that there has been a Change in Control of the Company." 13. AMENDMENT OR TERMINATION OF PLAN. The Board of Directors may modify, revise or terminate this Plan at any time and from time to time; provided, however, that without the further approval of the holders of at least a majority of the outstanding shares of voting stock, or if the provisions of the corporate charter, bylaws or applicable state law prescribe a greater degree of stockholder approval for this action, without the degree of stockholder approval thus required, the Board of Directors may not (a) materially increase the benefits accruing to participants under this Plan; (b) increase the number of shares of Common Stock that may be issued under this Plan; or (c) modify the requirements as to eligibility for participation in this Plan, unless, in each such case, the Board of Directors of the Company shall have obtained an opinion of legal counsel to the effect that stockholder approval of the amendment is not required (x) by law, (y) by the rules and regulations of, or any agreement with, the National Association of Securities Dealers, Inc. or (z) to make available to the optionee with respect to any Option granted under this Plan the benefits of Rule 16b-3 under the 1934 Act, or any similar or successor rule. In addition, this Plan may not be amended more than once every six months with respect to the plan provisions referred to in Rule 16b-3(c)(2)(ii)(A) under the 1934 Act other than to comport with changes in the Internal Revenue Code of 1986, as amended, the Employee Retirement Income Security Act of 1974, as amended, or the rules and regulations thereunder. All Options granted under this Plan shall be subject to the terms and provisions of this Plan and any amendment, modification or revision of this Plan shall be deemed to amend, modify or revise all Options outstanding under this Plan at the time of such amendment, modification or revision. If this Plan is terminated by action of the Board of Directors, all outstanding Options may be terminated. 7 14. WRITTEN AGREEMENT. Each Option granted hereunder shall be embodied in a written option agreement, which shall be subject to the terms and conditions prescribed above, and shall be signed by the optionee and by the appropriate officer of the Company for and in the name and on behalf of the Company. Such an option agreement shall contain such other provisions as the Committee in its discretion shall deem advisable. 15. INDEMNIFICATION OF COMMITTEE AND BOARD OF DIRECTORS. The Company shall, to the fullest extent permitted by law, indemnify, defend and hold harmless any person who at any time is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative or investigative) in any way relating to or arising out of this Plan or any Option or Options granted hereunder by reason of the fact that such person is or was at any time a director of the Company or a member of the Committee against judgments, fines, penalties, settlements and reasonable expenses (including attorneys' fees) actually incurred by such person in connection with such action, suit or proceeding. This right of indemnification shall inure to the benefit of the heirs, executors and administrators of each such person and is in addition to all other rights to which such person may be entitled by virtue of the bylaws of the Company or as a matter of law, contract or otherwise. 16. SECTION 16 MATTERS With respect to persons subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. Moreover, in the event the Plan does not include a provision required by Rule 16b-3 to be stated therein, such provision (other than one relating to eligibility requirements, or the price and amount of awards) shall be deemed automatically to be incorporated by reference into the Plan insofar as participants subject to Section 16 are concerned. 17. CONVERSION OF CASH FEE AWARDS. At the direction of the Board, the Company may pay cash fees to Non-Employee Directors from time to time for attendance at meetings of the Board or Committees thereof (the "Cash Fee Awards"). Each Non-Employee Director annually may elect to have his Cash Fee Awards paid to him in shares of Common Stock, such number of shares to be determined by dividing the amount of each Cash Fee Award by the fair market value (as defined in Subsection 4(c)) of a shares of Common Stock on the last day of the calendar month in which the Cash Fee Award is awarded. Each such election (i) must be made in a writing delivered to the Company's principal executive offices at 7000 Fannin Street, Suite 1920, Houston, Texas 77030 no later than June 30 of each year, (ii) shall become 8 effective on the next January 1 following the Company's receipt thereof, and (iii) shall be valid during the one-year period beginning on such January 1 through the next December 31. If a Non-Employee Director does not so deliver a written election to the Company by June 30 of any given year, his Cash Fee Awards shall be, continue to be, or resume to be paid in cash, as the case may be, upon expiration of the period covered by an existing effective election, if any. 18. EFFECTIVE DATE OF PLAN. This Plan shall become effective, subject to stockholder approval, on April 5, 1995, the date it was adopted by the Board of Directors. This Plan, and all Options granted under this Plan prior to stockholder approval, shall be void and of no further force and effect unless this Plan shall have been approved by the requisite vote of the stockholders of the Company on or before April 5, 1996. No Option shall be granted pursuant to this Plan on or after April 5, 2005. 9 EX-27.1 6 ARTICLE 5 - FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1,631,407 15,432,539 122,500 0 0 18,465,784 7,596,310 4,116,198 21,945,896 2,997,063 0 0 0 120,900 18,827,933 21,945,896 0 1,283,474 0 7,036,074 0 0 0 (5,501,210) 0 (5,501,210) 0 0 0 (5,501,210) (.23) 0
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