[LOGO]
DURA PHARMACEUTICALS, INC.
7475 LUSK BLVD.
SAN DIEGO, CALIFORNIA 92121
April 19, 2000
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders
of Dura Pharmaceuticals, Inc. which will be held at our offices at 7475 Lusk
Blvd., San Diego, California, on Wednesday, May 24, 2000 at 10:00 a.m.
Details of the business to be conducted at the annual meeting are given
in the attached notice of annual meeting of stockholders and proxy statement.
In order for us to have an efficient meeting, please sign, date and
return the enclosed proxy promptly in the accompanying reply envelope, or vote
by telephone or by using the Internet. If you are able to attend the annual
meeting and wish to change your proxy vote, you may do so simply by voting in
person at the annual meeting.
We look forward to seeing you at the annual meeting.
Sincerely,
/s/ CAM L. GARNER
CAM L. GARNER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, please vote as soon
as possible. You may vote by mailing your proxy card, or by telephone or by
using the Internet. Voting instructions are included with your proxy card.
If you vote by telephone or by using the Internet, you do not need to
return the proxy card.
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[LOGO]
DURA PHARMACEUTICALS, INC.
7475 LUSK BLVD.
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 24, 2000
The annual meeting of stockholders of Dura Pharmaceuticals, Inc. will
be held at our offices, 7475 Lusk Blvd., San Diego, California, on Wednesday,
May 24, 2000 at 10:00 a.m., for the following purposes:
1. To elect four directors to serve two-year terms to expire at
the annual meeting of stockholders in 2002.
2. To approve the Dura Pharmaceuticals, Inc. 2000 Employee Stock
Purchase Plan.
3. To approve an amendment to the Dura Pharmaceuticals, Inc. 1992
Stock Option Plan to increase the authorized number of shares
of common stock available for issuance under the plan.
4. To ratify the appointment of Deloitte & Touche LLP as our
independent public accountants for the fiscal year ending
December 31, 2000.
5. To transact any other business which may properly come before
the meeting or any adjournment(s) thereof.
Stockholders of record at the close of business on March 27, 2000 are
entitled to vote at the annual meeting. A list of stockholders entitled to vote
at the annual meeting will be available for inspection at our offices. Whether
or not you plan to attend the meeting in person, please sign, date and return
the enclosed proxy card in the reply envelope provided, or vote by telephone or
by using the Internet. Voting instructions are included with your proxy card. If
you attend the annual meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the annual meeting will be counted. The
prompt return of your proxy card will assist us in preparing for the annual
meeting.
By Order of the Board of Directors
/s/ JOHN R. COOK
Dated: April 19, 2000 JOHN R. COOK
VICE PRESIDENT, ASSOCIATE GENERAL COUNSEL
AND SECRETARY
DURA PHARMACEUTICALS, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 24, 2000
These proxy materials and the enclosed proxy card are being mailed in
connection with the solicitation of proxies by the Board of Directors of Dura
Pharmaceuticals, Inc., a Delaware corporation, for our annual meeting of
stockholders to be held at our offices at 10:00 a.m. on May 24, 2000 and at any
adjournment or postponement of the meeting. These proxy materials were first
mailed to our stockholders of record beginning on approximately April 19, 2000.
Stockholders may vote in person, by mail, telephone or Internet, or through the
valid appointment of a proxy. Instructions for voting are included with the
proxy card. The mailing address of our principal executive offices is 7475 Lusk
Blvd., San Diego, California 92121.
PURPOSE OF THE MEETING
The specific proposals to be considered and acted upon at the annual
meeting are summarized in the accompanying notice of annual meeting of
stockholders. Each proposal is described in more detail in this proxy statement.
VOTING RIGHTS AND SOLICITATION
Any stockholder executing a proxy has the power to revoke it at any
time before it is voted by delivering written notice of such revocation to our
secretary before the annual meeting or by properly executing and delivering a
proxy bearing a later date. Proxies may also be revoked by any stockholder
present at the annual meeting who elects to vote his or her shares in person.
The cost of soliciting proxies will be paid by us and may include reimbursement
paid to brokerage firms and others for their expense in forwarding solicitation
material. Solicitation will be made primarily through the use of the mail, but
our regular employees may, without additional remuneration, solicit proxies
personally by telephone, telegram, electronic mail or facsimile. In addition, we
have retained MacKenzie Partners, Inc. to assist in the solicitation of proxies,
and we will pay them a fee of approximately $6,500, plus expenses.
The record date for determining those stockholders who are entitled to
notice of, and to vote at, the annual meeting has been fixed as March 27, 2000.
At the close of business on the record date, we had 44,334,397 issued and
outstanding shares of common stock, $.001 par value per share and no outstanding
shares of preferred stock, $.001 par value per share. Each stockholder is
entitled to one vote on matters brought before the annual meeting for each share
of common stock held by the stockholder at the record date. Cumulative voting is
not permitted. Abstentions and broker non-votes will be counted for purposes of
determining whether a quorum is present at the annual meeting, and abstentions
will have the effect of negative votes. ChaseMellon Shareholder Services, LLC,
our transfer agent, will tabulate the votes.
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PROPOSAL 1
ELECTION OF DIRECTORS
Our Board of Directors is currently composed of eight members. Our
certificate of incorporation and bylaws divide the Board into two classes of
directors serving staggered two-year terms, with one class of directors to be
elected at each annual meeting of stockholders. All of the nominees are now
serving as directors. Unless individual stockholders specify otherwise, each
returned proxy will be voted for the election of Dr. Blair and Messrs. Cook,
Garner and Hale, who have each agreed to stand for election to hold office for a
term of two years, expiring at the annual meeting of stockholders in 2002, or
until a successor is elected and has qualified. The four candidates receiving
the highest number of affirmative votes by holders of common stock represented
and voting at the annual meeting will be elected as directors.
If, however, any of those named are unable to serve, or for good cause
decline to serve at the time of the annual meeting, the persons named in the
enclosed proxy will exercise discretionary authority to vote for substitutes.
The Board is unaware of anything that would prevent any nominee from being
elected.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR ALL OF THE NOMINEES LISTED BELOW
NOMINEES FOR ELECTION TO TERMS WHICH EXPIRE AT THE ANNUAL MEETING OF
STOCKHOLDERS IN 2002
JAMES C. BLAIR, PH.D., 60, has served as a managing member of Domain
Associates, LLC, a venture capital management company, since 1985. He is
currently a director of Amylin Pharmaceuticals, Inc., Aurora Biosciences Corp.,
Trega Biosciences, Inc., all of which are biopharmaceutical companies, and Vista
Medical Technologies, Inc., a medical device company. Dr. Blair was first
elected a Dura director in 1986 and currently serves as a member of our
Compensation, Audit, and Nominating Committees.
JOSEPH C. COOK, JR., 58, has served as Chairman and Chief Executive
Officer of Amylin Pharmaceuticals since 1998 and as chairman of Microbia, Inc.,
a private biotechnology company, also since 1998. He has served as a principal
since 1995 of Life Science Advisors, LLC, a strategic consulting company, and as
a principal since 1994 of Cambrian Associates, LLC, an operations consulting
company. Mr. Cook retired as Group Vice President, Global Manufacturing,
Engineering and Corporate Quality at Eli Lilly and Company in 1993. During his
28 years with Lilly, Mr. Cook was Vice President of Sales and Marketing, Chief
Financial Officer for Elanco Products Company, and General Manager of a
worldwide business unit of Lilly. He is currently a director of NABI, Inc., a
health care products company. Mr. Cook was first elected a Dura director in 1995
and currently serves as a member of our Audit and Nominating Committees.
CAM L. GARNER, 51, was named Dura's Chairman of the Board in 1995, has
served as our Chief Executive Officer since 1990 and as President from 1990 to
1998. He joined Dura in 1989 as Executive Vice President, President of a former
subsidiary and a Dura director. Prior to joining Dura, Mr. Garner served as
President of Syntro Corporation, a biotechnology company, from 1987 to 1989. Mr.
Garner is currently a director of Spiros Development Corporation II, Inc., or
Spiros Corp. II, a developer of pulmonary drug delivery systems, CardioDynamics
International Corporation, a manufacturer of medical devices, and Nanogen, Inc.,
a biotechnology company.
DAVID F. HALE, 50, has served as President and Chief Executive Officer
of Women First HealthCare, Inc. since 1998 and is also a director. He served as
President and Chief Executive Officer of Gensia, Inc. from 1987 until 1997 and
as Chairman from 1991 to 1997. Prior to joining Gensia, Mr. Hale was President
and Chief Executive Officer of Hybritech Incorporated, a biotechnology company
which was acquired by Lilly in 1986. Mr. Hale was first elected a Dura director
in 1986 and currently serves as a member of our Compensation Committee.
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DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING OF STOCKHOLDERS IN 2001
HERBERT J. CONRAD, 67, served as President of the Pharmaceuticals
Division and Senior Vice President of Hoffmann-LaRoche Inc. from 1982 until his
retirement in 1993. Mr. Conrad joined Roche in 1960 and held various positions,
including Senior Vice President of the Pharmaceuticals Division, Chairman of the
Board of Medi-Physics, Inc. and Vice President, Public Affairs and Planning
Division. He is a director of Sicor Inc. and Biotechnology General Corp., both
biotechnology companies, and UroCor, Inc., a urological diagnostics and
therapeutics company. Mr. Conrad was first elected as a Dura director in 1994
and currently serves as a member of our Compensation Committee.
F. RICHARD NICHOL, PH.D., 58, served as Chairman, President and Chief
Executive Officer of CoCensys, Inc., a biopharmaceutical company, from 1997
until his retirement in 1999. Prior to his role at CoCensys, Dr. Nichol was
founder and owner of Nichol Clinical Technologies Corporation, a company
specializing in clinical research and clinical data management, from 1995 until
1997. Dr. Nichol served as Chairman, President and Chief Executive Officer of
IBRD-Rostrum Global, Inc., a full service contract research organization he
co-founded, from 1975 until 1995. Dr. Nichol was first elected a Dura director
in 1999.
GORDON V. RAMSEIER, 55, has been Executive Director of The Sage Group,
a private consulting company, since 1995. The Sage Group provides consulting
services to companies in the health care field. He has served as Chairman and
Chief Executive Officer of Metacrine Sciences, Inc. since 1997. Mr. Ramseier has
operated a private consulting company since 1994 and also performed consulting
work from 1990 to 1992. Mr. Ramseier served as President and Chief Executive
Officer of Onco Therapeutics, Inc. from 1992 until 1994. From 1986 to 1990, Mr.
Ramseier served as Dura's President and Chief Executive Officer. Mr. Ramseier
was first elected a Dura director in 1986 and currently serves as a member of
our Audit Committee.
CHARLES G. SMITH, PH.D., 72, has operated a private consulting company
since 1986 and is currently a consultant for several health care companies.
Prior to his consulting work, Dr. Smith served with Revlon Health Care Group as
Vice President of Research and Development from 1975 to 1986. Dr. Smith was
first elected a Dura director in 1988.
BOARD MEETINGS AND COMMITTEES
Our Board met five times and took action by unanimous written consent
thirteen times during 1999. Each director attended at least 75% of the aggregate
of (i) the total meetings of the Board of Directors (held during the period in
which he was a director) and (ii) the total number of meetings held by all
committees of the Board on which he served (during the periods that he served).
We have a Compensation Committee currently comprised of three
non-employee directors: Dr. Blair, Mr. Conrad and Mr. Hale. Our Compensation
Committee met once and took action by unanimous written consent twice in 1999.
The Compensation Committee reviews and acts on matters relating to compensation
levels and benefit plans for our executive officers and key employees, including
salary and stock options. This Committee is also responsible for granting stock
awards, stock options, stock appreciation rights and other awards under our
existing incentive compensation plans. We also have an Audit Committee currently
comprised of three non-employee directors: Dr. Blair, Mr. Cook and Mr. Ramseier.
Our Audit Committee met twice in 1999. This Committee assists in selecting the
independent auditors, designating services they are to perform and maintaining
effective communication with those auditors. We also have a Nominating Committee
currently comprised of two non-employee directors: Dr. Blair and Mr. Cook. Our
Nominating Committee did not meet during 1999 as all matters were considered at
meetings of our full Board of Directors. This Committee recommends qualified
candidates to the Board for election as directors and will consider nominees
recommended by stockholders. Such recommendations should be submitted to our
secretary at our headquarters in San Diego, California.
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PROPOSAL 2
APPROVAL OF 2000 EMPLOYEE STOCK PURCHASE PLAN
We are asking our stockholders to approve our 2000 Employee Stock
Purchase Plan under which 500,000 shares of our common stock will initially be
reserved for issuance. The Stock Purchase Plan was adopted by our Board on
February 23, 2000 and will become effective on August 1, 2000, provided this
proposal is approved at the annual meeting.
The Stock Purchase Plan is designed to allow our eligible employees and
participating affiliates (whether now existing or subsequently established) to
purchase shares of our common stock at semi-annual intervals through their
accumulated periodic payroll deductions.
ADMINISTRATION
The Compensation Committee of our Board will administer the Stock
Purchase Plan. As plan administrator, our Compensation Committee will have full
authority to adopt administrative rules and procedures and to interpret the
provisions of the Stock Purchase Plan.
SECURITIES SUBJECT TO THE STOCK PURCHASE PLAN
The number of shares of common stock initially reserved for issuance
under the Stock Purchase Plan will be limited to 500,000 shares. The shares
issuable under the Stock Purchase Plan may be made available from our authorized
but unissued shares of common stock or from shares of common stock we
repurchase, including shares we repurchase on the open market.
In the event that any change is made to our outstanding common stock
(whether by reason of any recapitalization, stock dividend, stock split,
exchange or combination of shares or other change in corporate structure
effected without our receipt of consideration), appropriate adjustments will be
made to:
- the maximum number and class of securities issuable under the
Stock Purchase Plan,
- the maximum number and class of securities purchasable per
participant on any one semi-annual purchase date, and
- the number and class of securities and the price per share in
effect under each outstanding purchase right.
Such adjustments will be designed to preclude any dilution or enlargement of
benefits under the Stock Purchase Plan or the outstanding purchase rights
thereunder.
OFFERING PERIODS AND PURCHASE RIGHTS
Shares of common stock will be offered under the Stock Purchase Plan
through a series of successive or overlapping offering periods, each with a
maximum duration of 12 months. The initial offering period will be for a
12-month duration and will begin on August 1, 2000 and end on the last business
day in July 2001. The next offering period will commence on the first business
day in February 2001 and subsequent offering periods will commence as designated
by the plan administrator.
At the time a participant joins the offering period, he or she will be
granted a purchase right to acquire shares of common stock at semi-annual
intervals during that offering period. The purchase dates will occur on the last
business days of January and July of each year. All payroll deductions collected
from the participant for the period ending with each semi-annual purchase date
will automatically be applied to the purchase of common stock. The initial
purchase date under the Stock Purchase Plan will be January 31, 2001.
ELIGIBILITY AND PARTICIPATION
Any employee who has been employed by us for at least one month and who
regularly works more than 20 hours per week for more than five months per year
is eligible to participate in the Stock Purchase Plan. Employees of any new or
existing parent or subsidiary corporation would be included.
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An eligible employee may choose to participate in the Stock Purchase
Plan at any time on or before the start date of any offering period. However, an
eligible employee may participate in only one offering period at a time.
As of March 31, 2000, approximately 975 of our employees, including six
executive officers, were eligible to participate in the Stock Purchase Plan.
PURCHASE PRICE
The purchase price per share of common stock acquired on each
semi-annual purchase date will equal 85% of the lower of (i) the fair market
value on the start date of the offering period in which the individual is
participating or (ii) the fair market value on that purchase date.
The fair market value per share of common stock on any particular date
under the Stock Purchase Plan will be deemed to equal the closing selling price
per share on that date on The Nasdaq Stock Market. On March 31, the closing
selling price per share of common stock on The Nasdaq Stock Market was $12.31.
PAYROLL DEDUCTIONS AND STOCK PURCHASES
Each participant may authorize periodic payroll deductions in any
multiple of 1% up to a maximum of 10% of his or her total cash compensation,
including base salary plus bonus, overtime, commissions, current profit-sharing
and other cash incentive-type payments, before deductions for contributions to a
401(k) plan or a section 125 (so-called "cafeteria") plan, to be applied to the
acquisition of common stock at semi-annual intervals. Accordingly, on each
semi-annual purchase date (the last business day in January and July each year),
the accumulated payroll deductions of each participant will automatically be
applied to the purchase of whole shares of common stock at the purchase price in
effect for the participant for that purchase date.
SPECIAL LIMITATIONS
The Stock Purchase Plan imposes certain limitations upon a
participant's rights to acquire common stock, including:
- Purchase rights granted to a participant do not permit any
individual to purchase more than $25,000 worth of common stock
(valued at the time each purchase right is granted) for each
calendar year in which those purchase rights are outstanding
at any time.
- Purchase rights may not be granted to any individual if
immediately after the grant he or she would own or hold
outstanding options or other rights to purchase stock
possessing 5% or more of the total combined voting power or
value of all classes of our stock or any of our affiliates.
- No participant may purchase more than 1,500 shares of common
stock on any one purchase date.
TERMINATION OF PURCHASE RIGHTS
The participant may withdraw from the Stock Purchase Plan at any time,
and his or her accumulated payroll deductions will, at the participant's
election, either be applied to the purchase of shares on the next semi-annual
purchase date or be refunded immediately.
The participant's purchase right will immediately terminate if he or
she is no longer an employee or otherwise eligible to participate in the Stock
Purchase Plan. Any payroll deductions that the participant may have made for the
semi-annual period in which this occurs will be refunded and will not be applied
to the purchase of common stock.
STOCKHOLDER RIGHTS
No participant will have any stockholder rights with respect to the
shares covered by his or her purchase rights until the shares are actually
purchased on the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date of
purchase.
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ASSIGNABILITY
No purchase rights will be assignable or transferable by the
participant, and the purchase rights will be exercisable only by the
participant.
CHANGE IN CONTROL OR OWNERSHIP
In the event there is a merger, sale of substantially all of our assets
or sale of securities possessing more than 50% of the total combined voting
power of our outstanding securities, all outstanding purchase rights will
automatically be exercised immediately prior to the effective date of the
acquisition unless the Stock Purchase Plan is expressly assumed or continued by
the surviving entity. The purchase price per share of common stock will equal
85% of the lower of (i) the fair market value on the start date of the offering
period in which the individual is participating at the time the acquisition
occurs or (ii) the fair market value immediately prior to the acquisition.
SHARE PRO-RATION
Should the total number of shares of common stock to be purchased
pursuant to outstanding purchase rights on any particular date exceed the number
of shares then available for issuance under the Stock Purchase Plan, then the
plan administrator will make a pro-rata allocation of the available shares on a
uniform and nondiscriminatory basis. The payroll deductions of each participant,
to the extent in excess of the aggregate purchase price payable for the common
stock pro-rated to such individual, will be refunded.
AMENDMENT AND TERMINATION
The Stock Purchase Plan will terminate upon the earliest of:
- the last business day in July 2010,
- the date on which all shares available for issuance thereunder
are sold pursuant to exercised purchase rights, or
- the date on which all purchase rights are exercised in
connection with an acquisition of Dura.
Our Board of Directors may at any time alter, suspend or discontinue
the Stock Purchase Plan. However, the Board may not, without stockholder
approval:
- increase the number of shares issuable under the Stock
Purchase Plan,
- alter the purchase price formula to reduce the purchase price,
or
- modify the requirements for eligibility to participate in the
Stock Purchase Plan.
FEDERAL TAX CONSEQUENCES
The Stock Purchase Plan is intended to be an "employee stock purchase
plan" within the meaning of Section 423 of the Internal Revenue Code. Under this
type of qualified plan, a participant will recognize no taxable income, and no
deductions will be allowable to us, upon either the grant or the exercise of the
purchase rights. Taxable income will not be recognized until there is a sale or
other disposition of the shares acquired under the Stock Purchase Plan or in the
event the participant should die while still owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within two years after the start date of the offering period in which the shares
were acquired or within one year after the date on which the shares were
actually acquired, then the participant will recognize ordinary income in the
year of sale or disposition equal to the amount by which the fair market value
of the shares on the purchase date exceeded the purchase price paid for the
shares. We will be entitled to an income tax deduction for the taxable year in
which such disposition occurs equal to the amount of the excess.
If the participant sells or disposes of the purchased shares more than
two years after the start date of the offering period in which the shares were
acquired and more than one year after the date on which the shares were actually
required, then the participant will recognize ordinary income in the year of
sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the purchase
price paid for those shares or
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(ii) 15% of the fair market value of the shares on the start date of that
offering period. Any additional gain upon the disposition will be taxed as a
long-term capital gain. We will not be entitled to an income tax deduction
for this disposition.
If the participant still owns the purchased shares at the time of
death, the lesser of (i) the amount by which the fair market value of the shares
on the date of death exceeds the purchase price or (ii) 15% of the fair market
value of the shares on the start date of the offering period in which those
shares were acquired will constitute ordinary income in the year of death.
ACCOUNTING TREATMENT
Under current accounting principles applicable to employee stock
purchase plans qualified under Section 423 of the Internal Revenue Code, the
issuance of common stock under the Stock Purchase Plan will not result in a
compensation expense chargeable against our reported earnings. However, we must
disclose, in pro-forma statements to our financial statements, the impact the
purchase rights granted under the Stock Purchase Plan would have upon our
reported earnings were the value of those purchase rights treated as
compensation expense.
VOTE REQUIRED FOR APPROVAL OF THE STOCK PURCHASE PLAN
The affirmative vote of the holders of a majority of shares of common
stock represented and voting at the annual meeting is necessary to approve the
Stock Purchase Plan. The Stock Purchase Plan will become effective August 1,
2000 if approved by the stockholders at the annual meeting. If stockholder
approval is not obtained, then the Stock Purchase Plan will not be implemented.
Our Board believes that it is in our best interests to provide a
program of stock ownership to our employees to provide them with a meaningful
opportunity to acquire a substantial proprietary interest in our stock. This
will encourage our employees to remain in our employ and will more closely align
our employee and stockholder interests.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR APPROVAL OF
THE 2000 EMPLOYEE STOCK PURCHASE PLAN
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PROPOSAL 3
APPROVAL OF AMENDMENT TO OUR
1992 STOCK OPTION PLAN
GENERAL
We believe that stock options more strongly align the interests of key
employees with the interests of our stockholders. Our 1992 Stock Option Plan was
adopted to benefit Dura and our stockholders by providing a means for key
employees and non-employee directors to acquire meaningful Dura stock ownership.
The Stock Option Plan is intended to accomplish three major objectives:
- encourage the judgment, initiative and efforts of key
employees and non-employee directors toward our continuing
success,
- bring stock ownership levels of our key employees into line
with key employees of other pharmaceutical companies, and
- assist us in attracting, retaining and motivating key
employees and non-employee directors.
We are asking our stockholders to approve an amendment to our 1992
Stock Option Plan. The amendment was approved by our Board of Directors on April
5, 2000, subject to stockholder approval. The amendment will increase the number
of shares of common stock available for issuance under our Stock Option Plan by
an additional 750,000 shares. Prior to the amendment, 10,107,360 shares were
available for issuance under our Stock Option Plan. Our Board adopted the
amendment primarily to respond to the significant growth in the number of our
employees in 1999, and with the expectation that in order to achieve our
objectives, we will need to continue to attract, retain and motivate high
caliber employees. It is our Board's intention that every employee be granted
stock options to motivate our employees to build stockholder value and to align
the interests of our employees with those of our stockholders. In 1999, the
total number of our employees increased from 942 to 1,022. In 2000, we expect
the continued growth of our business will require us to add approximately 100
additional employees. Our Board also amended the Stock Option Plan in April 2000
to require that any future implementation of the cancellation/regrant provision
of the plan will be subject to stockholder approval.
SUMMARY OF STOCK OPTION PLAN
The following is a summary of all material terms and provisions of our
Stock Option Plan, assuming the amendment to add 750,000 shares is approved. The
summary, however, is not intended to be a complete description of all of the
provisions of our Stock Option Plan. Copies of the actual plan documents may be
obtained by any stockholder upon written request to our secretary at our
headquarters in San Diego, California.
PLAN STRUCTURE. Our Stock Option Plan is divided into two separate
components:
- OPTION GRANT PROGRAM. Officers, employees, non-employee Board
members and independent consultants may, at the discretion of
the plan administrator, be granted options to purchase shares
of common stock at an exercise price based on the fair market
value of the option shares on the grant date. One or more
granted options may also include stock appreciation rights
which will allow the holders to surrender those options for
payments from us based on the appreciation in the market value
of the common stock over the period the options are
outstanding.
- AUTOMATIC OPTION GRANT PROGRAM. Eligible non-employee Board
members will automatically receive option grants under the
program to purchase shares of common stock at designated
intervals over their period of Board service.
STOCK OPTION PLAN ADMINISTRATION. Our Stock Option Plan is administered
by a committee or committees appointed by our Board from among its members.
Administration of the Stock Option Plan for individuals subject to Section 16 of
the Securities Exchange Act of 1934, as amended, will comply with the applicable
requirements of Rule 16b-3. The plan administrator is generally authorized to
construe and interpret the Stock Option Plan, to establish appropriate rules and
regulations, to select our key employees, consultants and independent
contractors and those of our subsidiaries for participation, and to specify the
terms of the options granted under our Stock Option Plan. Members of the
committee may be removed by our Board. We will pay all costs of administration
of our Stock Option Plan. We intend to use the cash proceeds we receive from the
issuance of shares pursuant to the Stock Option Plan for general corporate
purposes.
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SHARE RESERVE. The maximum number of shares available for issuance over
the term of the Stock Option Plan may not exceed 10,857,360 shares of common
stock, including the 750,000-share increase for which we are seeking stockholder
approval at this annual meeting.
Should any option under the Stock Option Plan expire or terminate for
any reason prior to exercise or surrender in full (including any option
incorporated into the Stock Option Plan from our prior stock option plans), the
shares subject to the portion of the option not exercised or surrendered will be
available for subsequent option grants. Shares subject to any option surrendered
or cancelled in accordance with the option surrender or cash-out provisions of
the Stock Option Plan are not available for subsequent grants.
ADJUSTMENTS IN CAPITALIZATION. If any change is made to our common
stock issuable under the Stock Option Plan by reason of any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares or other
change affecting our outstanding common stock as a class without receipt of
consideration, then appropriate adjustments will be made to:
- the number and/or class of securities issuable under our Stock
Option Plan,
- the number and/or class of securities and price per share in
effect under each outstanding option under our Stock Option
Plan,
- the maximum number and/or class of securities for which any
one participant may be granted stock options and separately
exercisable stock appreciation rights in any fiscal year or
over the term of our Stock Option Plan,
- the number and/or class of securities for which option grants
are to be made to newly-elected or continuing non-employee
Board members under the automatic option grant program, and
- the number and/or class of securities and price per share in
effect under each outstanding option incorporated into this
Stock Option Plan from any predecessor plan.
The purpose of these adjustments will be to preclude the enlargement or dilution
of rights and benefits under the options.
ELIGIBILITY. The persons eligible to receive discretionary stock
options include all of our employees and those of our subsidiaries, non-employee
members of our Board or the board of directors of any subsidiary, and
consultants and other independent advisors who provide services to us or any of
our subsidiaries. Only non-employee members of our Board will be eligible to
receive automatic option grants. As of March 31, 2000, seven non-employee Board
members, six executive officers, and approximately 1,015 other employees are
eligible to participate in our Stock Option Plan. In addition, the seven
non-employee Board members are eligible to participate in the automatic option
grant program.
VALUATION. For purposes of establishing the option exercise price and
for other valuation purposes under our Stock Option Plan, the fair market value
per share of our common stock on any relevant date will be the closing selling
price per share on that date on The Nasdaq Stock Market. On March 31, 2000, the
closing selling price of our common stock was $12.31 per share.
PER-EMPLOYEE LIMITATION. No individual may receive options for more
than 1,500,000 shares over the lifetime of the Stock Option Plan and for more
than 400,000 shares in any fiscal year. Stockholder approval of this proposal
will constitute re-approval of these limitations.
REPURCHASE RIGHTS. As one of the terms of an option grant, the
committee may reserve for us the right, exercisable on the optionee's separation
from service, to repurchase common stock acquired by the optionee through the
exercise of an option. The committee may also provide for the automatic
termination of such a repurchase right.
GRANTS. Under the general terms of the Stock Option Plan, the committee
may grant either an incentive stock option (ISO), which satisfies the
requirements of Section 422 of the Internal Revenue Code, or a non-qualified
option (NQO), which is not intended to satisfy these requirements. The committee
may also determine the number of shares of common stock issuable under an
option, as well as the exercise date, the exercise price, and the exercise
period of an option. The duration of an option may not exceed ten years, and the
exercise price for options may not be less than the fair market value of the
common stock on the date of grant of the option. Determination of the fair
market value is set forth in the Stock Option Plan. The plan administrator may
fix the exercise price at less than 100% of the fair market value to the extent
that the optionee has made a payment to us at the time of the grant of the
option (including by means of a salary reduction agreement) equal to the amount
by which the fair market value exceeds the exercise price.
9
Upon exercise, the price of an option is generally payable in full in
cash. In the committee's discretion, the purchase price may be paid:
- in shares of our common stock previously owned by the option
holder which have been held for such period of time as may be
required in order to avoid a charge to our earnings,
- by means of a same-day sale program, pursuant to which a
designated brokerage firm immediately sells shares purchased
under the option and pays over to us, out of the sale proceeds
available on the settlement date, funds to cover the option
price plus all applicable withholding taxes, or
- by means of a promissory note.
The committee may also permit an optionee to elect to have any withholding tax
obligation paid through withholding of shares or by delivery of previously owned
shares of stock. In order to assist an optionee (other than the recipient of an
automatic grant) in the acquisition of common stock pursuant to an option, the
committee may also authorize us to extend secured or unsecured credit, in an
amount sufficient to cover the exercise price and any employment tax liability
incurred upon exercise of the option, to an optionee who is also an employee.
During the lifetime of an optionee, an ISO is exercisable only by the
optionee and is not assignable or transferable other than by will or by the laws
of descent and distribution following the optionee's death. However, an NQO may
be assigned in whole or in part during the optionee's lifetime. The terms
applicable to the assigned portion are the same as those in effect for the
option immediately prior to such assignment.
AUTOMATIC GRANTS. Each person who is newly elected or appointed as a
non-employee director will receive, on the date of such election or appointment,
an NQO for 15,000 shares of common stock. On the date of each annual
stockholders' meeting, each person who is a continuing non-employee director or
is re-elected as a non-employee director at the annual meeting, and has served
as a non-employee director for the immediately preceding 180 days, will receive
an NQO for 6,000 shares of common stock.
The exercise price of each automatic grant will equal 100% of the fair
market value of the common stock on the date of grant. The exercise price of an
automatic grant will be payable in cash or in common stock held for such period
of time as may be required to avoid a charge to our earnings or by means of a
same day sale program. The term of the automatic grant will be ten years. The
automatic grant will become fully exercisable one year after the grant date (or
immediately upon a corporate transaction as described below). Finally, the
automatic grant will be granted in tandem with a limited stock appreciation
right as described below. Options granted under the automatic grant program will
expire if not exercised within six months after the optionee ceases to serve as
a director or within twelve months after the optionee ceases to serve as a
director due to the optionee's death.
In connection with amendments to our Stock Option Plan made in February
1999 which were approved by our stockholders at our 1999 annual meeting, each
individual serving as a non-employee director on May 24, 1999 received a
one-time NQO for 15,000 shares of our common stock on that date.
Stockholder approval of this proposal will also constitute pre-approval
of each automatic grant made on or after the date of the 2000 annual meeting and
the subsequent exercise of that grant in accordance with the terms summarized
above.
ACCELERATION OF OPTIONS. In the event of any of the following corporate
transactions occur to which we are a party:
- a merger or consolidation in which we are not the surviving
entity (except for a transaction for which the principal
purpose is to change our state of incorporation),
- the sale, transfer or other disposition of all or
substantially all of our assets in our complete liquidation or
dissolution,
- a reverse merger in which we are the surviving entity but in
which the holders of securities possessing 50% or more of the
combined voting power of our outstanding securities (as
determined immediately prior to such
10
merger) transfer their
ownership of those securities to a person or persons not
otherwise part of the transferor group, or
- a tender or exchange offer made directly to our stockholders
in which any person or related group of persons (other than us
or any of our affiliates) acquires beneficial ownership of
securities possessing more than 50% of the combined voting
power of our outstanding securities,
then each outstanding option will automatically vest and become exercisable for
all of the option shares and may be exercised for any or all of such shares.
Our outstanding repurchase rights under our Stock Option Plan will also
terminate, and the shares subject to such terminated rights will become fully
vested, upon the corporate transaction. Upon the consummation of the corporate
transaction, all outstanding options under our Stock Option Plan will terminate
and cease to be exercisable, except to the extent assumed by the successor
corporation.
The acceleration of options in the event of a corporate transaction
may be seen as an anti-takeover provision and may have the effect of
discouraging a merger proposal, a takeover attempt or other efforts to gain
control of us.
TERMINATION OF SERVICE. Upon the optionee's cessation of employment or
service, the optionee will have a limited period of time in which to exercise
his or her outstanding options for any shares in which the optionee is vested
at that time. However, at any time while the options remain outstanding, the
plan administrator will have complete discretion to extend the period following
the optionee's cessation of employment or service during which his or her
outstanding options may be exercised. The plan administrator will also have
complete discretion to accelerate the exercisability or vesting of those
options in whole or in part at any time.
CANCELLATION/REGRANT PROGRAM. The plan administrator will have the
authority to effect the cancellation of outstanding options which have exercise
prices in excess of the then current market price of the common stock and to
issue replacement options with an exercise price based on the market price of
the common stock at the time of the new grant. We must obtain stockholder
approval prior to implementing any cancellation/regrant program. Automatic
grants are not subject to these cancellation and regrant provisions.
STOCK APPRECIATION RIGHTS. Our Stock Option Plan includes a stock
appreciation rights program, pursuant to which one or more optionees may,
subject to committee approval, surrender their outstanding options in return
for a payment from us in an amount equal to the excess of (i) the fair market
value (on the option surrender date) of the shares of common stock subject to
the surrendered option over (ii) the aggregate option price payable for such
shares. The payment may, at the discretion of the committee, be made either in
cash or in shares of common stock.
One or more of our officers subject to the short-swing profit
restrictions of the federal securities laws may, in the committee's discretion,
be granted limited stock appreciation rights in tandem with their outstanding
options. In addition, all automatic grants will be made in tandem with the
grant of a limited stock appreciation right. Any option with such a limited
stock appreciation right in effect for at least six months will automatically
be cancelled upon the occurrence of a hostile takeover (as described below),
and the optionee will in return be entitled to a cash distribution from us in
an amount equal to the excess of (i) the takeover price of the shares of common
stock at the time subject to the cancelled option (whether or not the option is
otherwise at the time exercisable for such shares) over (ii) the aggregate
exercise price payable for such shares.
For purposes of these option cancellation provisions, the following
definitions are in effect under the Stock Option Plan:
- A hostile takeover shall be deemed to occur upon the acquisition
by any person or related group of persons (other than by us or by
a person that directly or indirectly controls, is controlled by,
or is under common control with, us) of ownership of more than
50% of our outstanding common stock (excluding the common stock
holdings of our officers and directors who participate in our
Stock Option Plan) pursuant to a tender or exchange offer which
our Board does not recommend our stockholders accept.
- The takeover price per share shall be deemed to be equal to the
greater of (a) the fair market value per share on the date of
cancellation, or (b) the highest reported price per share paid in
effecting the hostile takeover. However, if the cancelled option
is an ISO, the takeover price shall not exceed the clause (a)
price per share.
AMENDMENT AND TERMINATION OF OUR STOCK OPTION PLAN. Our Board may
amend, suspend or discontinue our Stock Option Plan at any time. Stockholder
approval of amendments to our Stock Option Plan will be required when the
11
amendments are made conditional on such approval by our Board or when such
approval is required by law or regulation. Generally, the provisions of our
Stock Option Plan concerning automatic grants may only be amended once every
six months. Our Stock Option Plan will terminate December 8, 2002 unless sooner
terminated by our Board.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under our Stock Option Plan may be either ISOs which
satisfy the requirements of Section 422 of the Internal Revenue Code, or NQOs
which are not intended to satisfy these requirements. The federal income tax
treatment for the two types of options differ as follows:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize regular
taxable income in the year in which the purchased shares are sold or otherwise
made the subject of disposition. For federal tax purposes, dispositions are
divided into two categories: (i) qualifying and (ii) disqualifying. A
qualifying disposition occurs if the sale or other disposition is made after
the optionee has held the shares for more than two years after the option grant
date and more than one year after the exercise date. If either of these two
holding periods is not satisfied, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be taxable
as ordinary income to the optionee. Any additional gain or loss recognized upon
the disposition will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased
shares, then we will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will we be allowed a deduction
with respect to the optionee's disposition of the purchased shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee
upon the grant of an NQO. The optionee will in general recognize ordinary
income in the year in which the option is exercised equal to the excess of the
fair market value of the purchased shares on the exercise date over the
exercise price paid for those shares, and the optionee will be required to
satisfy the tax withholding requirements applicable to such income.
Special provisions of the Internal Revenue Code apply to the
acquisition of shares under an NQO if the purchased shares are subject to
repurchase by us or other substantial risk of forfeiture. These special
provisions are summarized as follows:
- If the shares acquired upon exercise of the NQO are subject to
repurchase by us at the original exercise price paid per share in
the event the optionee's service terminates prior to vesting in
the shares, then the optionee will not recognize any taxable
income at the time of exercise. The optionee will have to report
as ordinary income, as and when our repurchase right lapses, an
amount equal to the difference between the fair market value of
the shares on the date the repurchase right lapses and the option
exercise price paid for those shares.
- The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year
of exercise an amount equal to the difference between the fair
market value of the purchased shares on the date of exercise
(determined as if the shares were not subject to our repurchase
right) and the option exercise price paid for the shares. If the
Section 83(b) election is made, the optionee will not recognize
any additional income as and when our repurchase right lapses.
- We will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee in
connection with the exercise of the NQO. The deduction will in
general be allowed for the taxable year in which such ordinary
income is recognized by the optionee.
STOCK APPRECIATION RIGHTS. An optionee who is granted a stock
appreciation right will recognize ordinary income in the year of exercise equal
to the amount of the appreciation distribution. We will be entitled to an
income tax deduction equal to such distribution for the taxable year in which
the ordinary income is recognized by the optionee.
12
DEDUCTIBILITY OF EXECUTIVE COMPENSATION. We anticipate that any
compensation deemed paid by us in connection with disqualifying dispositions of
ISO shares or exercises of NQOs granted with exercise prices equal to the fair
market value of the shares on the grant date will qualify as performance-based
compensation for purposes of Internal Revenue Code Section 162(m) and will not
have to be taken into account for purposes of the $1 million limitation per
covered individual on the deductibility of the compensation paid to certain of
our executive officers.
PARACHUTE PAYMENT. If the exercisability of an option is accelerated
as a result of a change of control of Dura, all or a portion of the value of
the option at that time may be a "parachute" payment for purposes of the
Internal Revenue Code's "excess parachute" provisions. Those provisions
generally provide that if "parachute" payments exceed three times an employee's
average compensation for the five tax years preceding the change of control, we
lose our deduction and the recipient is subject to a 20% excise tax for the
amount of the "parachute" payments in excess of such average compensation.
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less
than the fair market value of the shares on the grant or issue date will result
in a direct compensation expense to our earnings. The expense would be equal to
the difference between the exercise or issue price and the fair market value of
the shares on the grant or issue date. We will accrue this expense over the
period that the option shares or issued shares are to vest. Option grants or
stock issuances with exercise or issue prices not less than the fair market
value of the shares on the grant or issue date will not result in any direct
charge to our earnings. However, the fair market value of those options is
required to be disclosed in the notes to our financial statements, and we must
also disclose, in pro-forma statements to our financial statements, the impact
those options would have upon our reported earnings were the value of those
options at the time of grant treated as compensation expense. Whether or not
granted at a discount, the number of outstanding options may be a factor in
determining our earnings per share on a fully-diluted basis.
On March 31, 1999, the Financial Accounting Standards Board issued an
exposure draft of a proposed interpretation of APB Opinion 25, "Accounting for
Stock Issued to Employees." Under the proposed interpretation, as modified on
August 11, 1999, option grants made to independent consultants (but not
non-employee Board members) after December 15, 1999 will result in a direct
charge to our reported earnings based upon the fair value of the option
measured initially as of the grant date and then subsequently on the vesting
date of each installment of the option shares. Accordingly, such charge will
include the appreciation in the value of the option shares over the period
between the grant date of the option (or, if later, the effective date of the
final interpretation) and the vesting date of each installment of the option
shares. In addition, if the proposed interpretation is adopted, any options
which are repriced after December 15, 1999 will also trigger a direct charge to
our reported earnings measured by the appreciation in the value of the
underlying shares over the period between the grant date of the option (or, if
later, the effective date of the final interpretation) and the date the option
is exercised for those shares.
Should one or more optionees be granted stock appreciation rights
which have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to be charged
against our earnings. Accordingly, at the end of each fiscal quarter, the
amount (if any) by which the fair market value of the shares of our common
stock subject to such outstanding stock appreciation rights has increased from
prior quarter-end will be accrued as compensation expense, to the extent such
fair market value is in excess of the aggregate exercise price in effect for
such rights.
OUTSTANDING OPTION GRANTS UNDER OUR STOCK OPTION PLAN
As of March 15, 2000, options covering 5,386,180 shares of our common
stock were outstanding, 1,291,803 shares remained available for future option
grants and 3,429,377 shares have been issued pursuant to the exercise of
outstanding options under our Stock Option Plan.
The following table shows, as to our Chairman and Chief Executive
Officer and each of our other four most highly compensated executive officers,
each nominee for election as a director, and as to the various indicated
groups, information with respect to stock options granted during the last
fiscal year.
13
OPTIONS GRANTED IN LAST FISCAL YEAR
Total Number Weighted
Of Options Average
Name Or Group Granted Exercise Price
------------- ------- --------------
Cam L. Garner 220,000 $13.01
Chairman and Chief Executive Officer
Robert S. Whitehead 165,000 $12.83
President and Chief Operating Officer
David S. Kabakoff 105,000 $13.15
President, Dura Technologies
Mitchell R. Woodbury 90,000 $13.17
Senior Vice President and General Counsel
Michael T. Borer 70,000 $12.76
Senior Vice President and Chief Financial Officer
All nominees for director (1) (2) 55,856 $11.88
All current non-employee directors who are not 115,856 $11.53
executive officers as a group (7 persons) (2)
All current executive officers as a group 710,000 $12.97
(6 persons)
All employees who are not 1,062,500 $12.73
executive officers as a group
- ------------------------
(1) Includes options to purchase 15,000 shares of common stock at $11.13
per share granted to each Dr. Blair and Messrs. Cook and Hale.
(2) Includes an option to purchase 10,856 shares of common stock at $13.94
per share granted to Life Science Advisors, of which Mr. Cook is a
principal, pursuant to a consulting arrangement between Dura and Life
Science Advisors. See "Director Compensation."
In accordance with provisions of our Stock Option Plan, we effected
cancellation/regrant programs in 1997 and 1998. Our Board amended the Stock
Option Plan in April 2000 to require stockholder approval prior to
implementation of any future cancellation/regrant program.
NEW BENEFITS UNDER OUR STOCK OPTION PLAN
Effective as of the date of our annual meeting, the amendment will
increase the number of shares authorized for issuance under our Stock Option
Plan by 750,000 shares to a total of 10,857,360 shares. No option for any of
the 750,000 shares will have been granted prior to the date of the annual
meeting.
VOTE REQUIRED FOR APPROVAL OF AMENDMENT TO OUR STOCK OPTION PLAN
The affirmative vote of the holders of a majority of the shares of
common stock represented and voting at the annual meeting is necessary to
approve the amendment to our Stock Option Plan. Our Stock Option Plan, as
amended, will become effective immediately upon approval by our stockholders at
the annual meeting.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR APPROVAL OF
THE AMENDMENT TO OUR STOCK OPTION PLAN
14
PROPOSAL 4
RATIFICATION OF INDEPENDENT ACCOUNTANTS
We are asking our stockholders to ratify the selection of Deloitte &
Touche LLP as our independent public accountants for the year ending December
31, 2000. In the event that our stockholders fail to ratify the appointment,
our Board of Directors will reconsider their selection. Even if the selection
is ratified, our Board has discretion to direct the appointment of a different
independent accounting firm at any time during the year if they feel that such
a change would be in the best interests of Dura and our stockholders.
A representative of Deloitte & Touche LLP is expected to be present at
the annual meeting to respond to questions and will have the opportunity to
make a statement if he or she desires to do so.
The affirmative vote of the holders of a majority of shares of common
stock represented and voting at the annual meeting will be required to ratify
the selection of Deloitte & Touche LLP.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR RATIFICATION OF
DELOITTE & TOUCHE LLP AS OUR INDEPENDENT ACCOUNTANTS
PRINCIPAL STOCKHOLDERS
The following are the only stockholders we know of to beneficially own
more than 5% of our outstanding shares of common stock as of March 15, 2000.
Except as indicated in the footnotes to this table, the entities named in the
table have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them. Percentage of ownership is
calculated under SEC Rule 13d-3(d)(1).
Number Percentage
Name and Address of Shares of Shares
of Beneficial Owner Owned Outstanding
------------------- ----- -----------
King Investment Advisors (1) 2,736,953 6.2%
1980 Post Oak Blvd., Suite 2400
Houston, TX 77056
Safeco Corporation (2) 2,668,300 6.0%
Safeco Plaza
Seattle, WA 98185
Loomis, Sayles & Company, L.P. (3) 2,480,663 5.6%
One Financial Center
Boston, MA 02111
- -----------------------
(1) Pursuant to Schedule 13G dated February 1, 2000 filed by King Investment
Advisors, an investment advisor, which reported sole voting power over
2,500,744 shares and sole dispositive power over 2,736,953 shares.
(2) Pursuant to Amendment No. 3 to Schedule 13G filed January 28, 2000 by
Safeco Common Stock Trust, Safeco Asset Management Company and Safeco
Corporation. Safeco Asset Management is a subsidiary and Safeco
Corporation is a parent holding company. Safeco Asset Management is an
investment advisor and reported shares owned beneficially by registered
investment companies for which it serves as investment advisor. Safeco
Common Stock Trust reported shared voting power as to 2,306,300 shares,
and Safeco Asset Management and Safeco Corporation reported shared voting
power as to 2,668,300 shares.
(3) Pursuant to Schedule 13G filed February 1, 2000 by Loomis, Sayles, an
investment advisor, which reported sole voting power as to 2,110,048
shares, shared voting power as to 259,708 shares, and shared dispositive
power as to 2,480,663 shares.
15
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of shares of
our common stock as of March 15, 2000 by each director and nominee, by our
Chief Executive Officer and the next four highest-paid executive officers, or
Named Executive Officers, and by our directors and executive officers as a
group. Except as noted, options shown in the table were granted pursuant to
our Stock Option Plan and represent the shares issuable upon exercise of
outstanding options, now exercisable or exercisable within 60 days of March
15, 2000. The address for each beneficial owner listed below is 7475 Lusk
Blvd., San Diego, California 92121. Except as indicated in the footnote to
this table, the persons named in the table have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned
by them, subject to community property laws, where applicable. Percentage of
ownership is calculated pursuant to SEC Rule 13d-3(d)(1).
Number
Number of Shares Percentage
of Shares Underlying of Shares
Name Owned Options/Warrants Outstanding
---- --------- ---------------- -----------
James C. Blair 14,900 264,000(1) *
Herbert J. Conrad 0 42,000 *
Joseph C. Cook, Jr. 26,999 64,856(2) *
David F. Hale 5,000 34,000 *
F. Richard Nichol 500 0 *
Gordon V. Ramseier 0 66,000 *
Charles G. Smith 1,000 62,000 *
Cam L. Garner 31,172 241,131(3) *
Robert S. Whitehead 438 101,120(4) *
David S. Kabakoff 4,031 111,544(3) *
Mitchell R. Woodbury 2,470 82,228 *
Michael T. Borer 3,888 73,205(3) *
Directors and executive officers 91,236 1,139,621 2.7%
as a group (13 persons)
- -----------------------------------
*Less than 1%
(1) Includes 240,000 shares of common stock which may be acquired upon the
exercise of warrants held by Domain Partners III, LP and DP III
Associates, LP. Dr. Blair is one of several general partners of (i) the
sole general partner of Domain Partners III, LP and (ii) the sole general
partner of DP III Associates, LP. Dr. Blair disclaims beneficial
ownership of any securities, and any proceeds thereof, that exceed his
pecuniary interest therein, and/or that are not actually distributed to
him.
(2) Includes 10,856 shares of common stock which may be acquired upon the
exercise of an option held by Life Science Advisors. As a principal of
Life Science Advisors, Mr. Cook may be deemed to be the indirect
beneficial owner of shares held by Life Science Advisors. Mr. Cook
disclaims beneficial ownership of any securities, and any proceeds
thereof, that exceed his pecuniary interest therein, and/or that are not
actually distributed to him.
(3) Includes shares of common stock which may be acquired upon the exercise
of warrants held by the respective individuals as follows: Mr. Garner,
4,563; Dr. Kabakoff, 2,665; and Mr. Borer, 2,250.
(4) Includes 72,658 shares exercisable under an option granted to Mr.
Whitehead outside of the Stock Option Plan.
16
EXECUTIVE OFFICERS
Our executive officers are:
Name Age Position Held
---- --- -------------
Cam L. Garner 51 Chairman, Chief Executive Officer and a director
Robert S. Whitehead 50 President and Chief Operating Officer
David S. Kabakoff 52 President, Dura Technologies
Michael T. Borer 41 Senior Vice President and Chief Financial Officer
Lloyd E. Flanders 59 Senior Vice President, Program Management
and Research and Development Planning
Mitchell R. Woodbury 58 Senior Vice President and General Counsel
MR. GARNER is a director. See "Election of Directors" for a discussion
of his business experience.
ROBERT S. WHITEHEAD joined Dura in 1998 as President and was named
Chief Operating Officer in 1999. Prior to joining us, Mr. Whitehead served as
Chairman and Chief Executive Officer of Trega Biosciences. He joined Trega in
1993 as President and Chief Executive Officer and was named Chairman in 1998.
From 1992 to 1993, Mr. Whitehead was Senior Vice President, Commercial
Operations, of Solvay Pharmaceuticals. He was previously with Searle
Pharmaceuticals from 1979 to 1992, during which period he held several
positions, including President and General Manager, Searle Canada.
DAVID S. KABAKOFF, PH.D., joined Dura in 1996 as Executive Vice
President and was named President, Dura Technologies in 1998. Dr. Kabakoff has
served as Chairman, Chief Executive Officer and President of Spiros Corp. II
since 1997. He served as a Dura director from 1996 to 1999. He also served as
Chief Executive Officer and President of Spiros Development Corporation from
1996 to 1997. From 1989 to 1996, he was employed by Corvas International, Inc.,
a biopharmaceutical company, and served in a number of capacities during that
time period, including Chief Executive Officer, President, Chief Operating
Officer and Chairman. From 1983 to 1989, Dr. Kabakoff was employed by Hybritech,
most recently as Senior Vice President of Research and Development-Diagnostics.
Dr. Kabakoff currently serves as a director of Spiros Corp. II.
MICHAEL T. BORER joined Dura in 1994 as Director of Finance and became
Senior Director, Finance in 1996. He served as General Manager of our Health
Script division from 1996 to 1998, when he was then named Dura's Senior Vice
President and Chief Financial Officer. From 1993 to 1994, he was Project Leader
with San Diego Gas & Electric. From 1981 to 1993, he held various positions, the
last of which was Senior Manager, with the accounting firm of Deloitte & Touche
LLP.
LLOYD E. FLANDERS, PH.D., joined Dura in 1998 as Senior Vice President,
Program Management and Research and Development Planning. Prior to joining us,
Dr. Flanders served as Senior Vice President, Preclinical Development and R&D
Administration at Ligand Pharmaceuticals Inc. from 1992 to 1998. From 1985 until
1992, he was employed by the Parke-Davis Division of Warner-Lambert Company as
Director, Research Planning and then Vice President, Drug Development. From 1971
to 1985, Dr. Flanders worked at Searle R&D in a number of capacities, including
Director of Project Management.
MITCHELL R. WOODBURY joined Dura in 1994 as Vice President, General
Counsel and Secretary. He was named a Senior Vice President in 1997 and held the
title of Secretary until 1999. Prior to joining us, Mr. Woodbury served as Vice
President, General Counsel and Secretary at Advanced Tissue Sciences, Inc., a
biomedical company from 1992 to 1994. From 1980 to 1992, Mr. Woodbury was
employed by Intermark, Inc., a publicly held operating/holding company. He
served as Vice President and Corporate Counsel from 1980 to 1991 and as Senior
Vice President and General Counsel from 1991 to 1992, and served as Corporate
Secretary from 1981 through 1992.
17
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides summary information concerning the
compensation earned by the Named Executive Officers for services rendered to us
in all capacities for the fiscal years ended December 31, 1999, 1998 and 1997.
Mr. Whitehead joined Dura in 1998.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
------------------------------------------- ----------------------------
Total
Number Net Number
of of Options
Other Securities Held After All
Name and Annual Underlying Cancellations/ Other
Principal Position Year Salary Bonus Compensation Options/SARs Regrants Compensation
- ------------------ ---- ------ ----- ------------ ------------ -------------- ------------
Cam L. Garner 1999 $460,000 $520,000 $ -- 220,000 n/a $ 74,630
Chairman and 1998 $408,846 $230,000 $ -- 220,980 220,980 $ 52,676
Chief Executive Officer 1997 $395,000 $475,000 $ -- 275,000 0 $ 31,540
Robert S. Whitehead 1999 $295,000 $180,000 $ -- 165,000 n/a $ 7,196
President and 1998 $140,000 $ 50,000 $ -- 442,308 192,308 $ 10
Chief Operating Officer
David S. Kabakoff 1999 $295,000 $160,000 $ -- 105,000 n/a $ 15,146
President, 1998 $271,923 $ 70,000 $ -- 223,077 223,077 $ 12,026
Dura Technologies 1997 $265,000 (1) $ -- 60,000 0 $ 10,406
Mitchell R. Woodbury 1999 $200,000 $135,000 $ -- 90,000 n/a $ 32,269
Senior Vice President 1998 $175,192 $ 65,000 $ -- 57,692 57,692 $ 22,786
and General Counsel 1997 $170,000 $135,000 $ -- 65,000 0 $ 14,006
Michael T. Borer 1999 $180,000 $125,000 $ -- 70,000 n/a $ 107,504
Senior Vice President and 1998 $175,000 $ 45,000 $ -- 68,858 58,858 $ 36,057
Chief Financial Officer 1997 $125,000 $ 80,000 $ -- 40,000 0 $ 28,287
- ----------------------------
(1) Dr. Kabakoff received a $150,000 bonus in November 1997 from Spiros
Corp., a separate company. We exercised our purchase option to acquire
all of the callable common stock of Spiros Corp. in December 1997.
Bonus amounts shown in the table include amounts deferred under our
401(k) Profit Sharing Plan pursuant to Section 401(k) of the Internal Revenue
Code and our Deferred Compensation Plan. Perquisites and other personal benefits
paid to the Named Executive Officers are less than the minimum reporting
threshold of $50,000 or 10% of the total annual salary plus bonus for the Named
Executive Officer, and such amounts paid, if any, are represented in the table
by "$ --".
Except as noted, "Total Number of Securities Underlying Options/SARs"
shown in the table includes all options granted under the Stock Option Plan in
1997 and 1998 without giving effect to our cancellation/regrant programs in 1997
and 1998. Each cancellation/regrant program required the surrender and
cancellation of the underlying option in exchange for the regranted option. In
addition, the 1998 cancellation/regrant program required a reduction in the
number of new options granted by a ratio of 1.3 options forfeited for each 1 new
option granted. The column entitled "Net Number of Options Held After
Cancellations/Regrants" reflects the ACTUAL number of options granted to each
individual or group in 1997 and 1998 after cancellation of the underlying option
which is no longer outstanding and after giving effect to the reduction in new
options received which was required by the 1998 program. Mr. Whitehead received
an option in 1998 granted outside of the Stock Option Plan which was cancelled
and regranted under the 1998 program.
Options which were cancelled and regranted pursuant to the April 1997
program were as follows: Mr. Garner, 150,000 shares; Mr. Whitehead, n/a; Dr.
Kabakoff, 20,000 shares; Mr. Woodbury, 30,000 shares; and Mr. Borer, 8,718
shares. Options which were cancelled and regranted pursuant to the November 1998
program were as follows: Mr. Garner, 287,275 cancelled, 220,980 granted; Mr.
Whitehead, 250,000 cancelled, 192,308 granted; Dr. Kabakoff, 290,000 cancelled,
223,077 granted; Mr. Woodbury, 75,000 cancelled, 57,692 granted; and Mr. Borer,
57,016 cancelled, 43,858 granted.
18
Options originally granted in 1995, 1996 and 1997 were among those which were
cancelled and regranted in the 1998 program. Other than the cancelled and
regranted options, there were no additional options granted in 1998 to the
Named Executive Officers, with the exception of an option for 25,000 shares
granted to Mr. Borer.
Our board amended the Stock Option Plan in April 2000 to require
stockholder approval prior to implementation of any future cancellation/regrant
program.
"All Other Compensation" in the above table includes:
- contributions we made pursuant to the 401(k) Plan which were
earned by the participants for the 1999, 1998 and 1997 fiscal
years, respectively, and which were used to purchase shares of
our common stock as follows: Mr. Garner $6,720, $5,400 and
$6,650; Mr. Whitehead $6,720, n/a and n/a; Dr. Kabakoff $6,720,
$5,400 and $6,650; Mr. Woodbury $6,720, $5,400 and $6,650; and
Mr. Borer $6,720, $5,400 and $6,650;
- above-market interest earned by the participants on their
Deferred Compensation Plan account for the 1999, 1998 and 1997
fiscal years, respectively, as follows: Mr. Garner $67,910,
$47,277 and $24,890; Mr. Whitehead $477, $10 and n/a; Dr.
Kabakoff $8,427, $6,626 and $3,756; Mr. Woodbury $25,550,
$17,386 and $7,356; and Mr. Borer $18,928, $12,637 and $6,637;
and
- for Mr. Borer, in 1999 (i) $69,356 for reimbursement of moving
and realtor expenses in connection with his relocation from
Denver, Colorado, to San Diego, California, and (ii) $12,500
debt forgiveness in connection with his forgivable relocation
loan; in 1998 (i) $3,020 for reimbursement of moving expenses
and (ii) $15,000 debt forgiveness; in 1997, $15,000 debt
forgiveness. See "Certain Relationships and Related
Transactions" for a discussion of the forgivable relocation
loans extended to Mr. Borer and the debt forgiveness provisions
thereof.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under our Stock Option Plan to the Named Executive Officers. No stock
appreciation rights were granted under the Stock Option Plan to the Named
Executive Officers in fiscal year ended December 31, 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
------------------------------------------------------------------------------------------- Potential Realizable
Percent of Value at Assumed
Number Total Annual Rates of Stock
Securities Options/SARs Price Appreciation for
Underlying Granted to Exercise or Option Term
Options/SARs Employees in Base Price Expiration --------------------------------
Name Granted Fiscal Year Per Share Date 5% 10%
---------------------- --------------- --------------- -------------- -------------- --------------------------------
Cam L. Garner 70,000 3.98% $14.63 1-4-09 $ 643,829 $1,631,593
150,000 8.54% $12.25 12-9-09 $1,155,593 $2,928,501
Robert W. Whitehead 40,000 2.28% $14.63 1-4-09 $ 367,902 $ 932,338
40,000 2.28% $12.25 11-2-09 $ 308,158 $ 780,933
85,000 4.84% $12.25 12-9-09 $ 654,836 $1,659,483
David S. Kabakoff 40,000 2.28% $14.63 1-4-09 $ 367,902 $ 932,338
65,000 3.70% $12.25 12-9-09 $ 500,756 $1,269,017
Mitchell R. Woodbury 35,000 1.99% $14.63 1-4-09 $ 321,914 $ 815,796
55,000 3.13% $12.25 12-9-09 $ 423,717 $1,073,783
Michael T. Borer 15,000 .85% $14.63 1-4-09 $ 137,963 $ 349,626
55,000 3.13% $12.25 12-9-09 $ 423,717 $1,073,783
19
Each option becomes exercisable ratably over a four-year period and
has a term of ten years from the date of grant. Options which expire 1-4-09
were granted 1-4-99, options which expire 11-2-09 were granted 11-2-99, and
options which expire 12-9-09 were granted 12-9-99. The exercise price per
share of options granted represented the fair market value of the underlying
shares of common stock on the date the option was granted. The exercise price
may be paid in cash or in shares of common stock valued at fair market value
on the exercise date or a combination of cash or shares or any other form of
consideration approved by our Board. The Stock Option Plan provides for
acceleration of outstanding options in the event of certain corporate
transactions, including a merger, sale, or change of control. The plan
administrator has the authority to reprice outstanding options, subject to
stockholder approval, through the cancellation of those options and the grant
of replacement options with an exercise price equal to the fair market value
of the option shares on the regrant date. The plan administrator has sole
discretion to grant limited stock appreciation rights in tandem with certain
options under the plan, and automatic grants to directors include a limited
stock appreciate right. The stock appreciation right allows the holder to
surrender the option to us in the event of a hostile takeover. The amount
payable per share under the exercised stock appreciation right would be equal
to the excess of (i) the greater of (a) the fair market value per share on
the date of cancellation or (b) the tender offer price paid per share of our
common stock, over (ii) the option exercise price per share.
There is no assurance provided to any executive officer or any other
holder of our securities that the actual stock price appreciation over the
ten-year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the common stock does in fact
appreciate over the option term, no value will be realized from the option
grants made to the executive officers.
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Executive Officers, concerning unexercised options held as of the end of the
fiscal year. No options were exercised by the Named Executive Officers during
the last fiscal year. Value is calculated as market price of our common stock
at fiscal year end less exercise price. The market price of our common stock
at December 31, 1999 was $13.94.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
Options/SARs at Options/SARs at
December 31, 1999 December 31, 1999
------------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Cam L. Garner 164,649 358,353 $641,250 $822,124
Robert S. Whitehead 67,667 289,641 $203,995 $704,540
David S. Kabakoff 74,533 253,544 $232,619 $686,281
Mitchell R. Woodbury 68,262 121,750 $233,811 $240,963
Michael T. Borer 58,093 106,765 $237,956 $205,101
20
DIRECTOR COMPENSATION
In May 1999, our Board of Directors adopted compensation program for
our non-employee directors. They receive an annual cash retainer of $12,000,
payable in quarterly installments, and $500 for attendance at each Board or
Committee meeting, subject to a maximum of $1,000 for Committee meeting fees
per year. In addition, directors are reimbursed for their out-of-pocket
expenses incurred in attending Board or Committee meetings. Directors fees
qualify for deferral under our Board of Directors Deferred Compensation Plan
which was effective January 1, 2000. Annual retainer and meeting fees can be
deferred as cash, earning interest at the rate of prime plus one point,
compounded quarterly, or as deferred stock units. To calculate the number of
deferred stock units to which a director is entitled, the cash value of the
deferred Board compensation is divided by the closing market stock price on
the date payment is due, and the resulting units are converted into the same
number of shares of our common stock on the designated distribution date.
Deferral elections remain in effect for one calendar year.
In addition, each non-employee director is entitled to receive
options under the automatic grant provision of the Stock Option Plan in
connection with his or her service on the Board of Directors. Each
newly-appointed or elected non-employee directors receives a non-qualified
option for 15,000 shares of common stock on the date of his or her
appointment or election. On the date of each annual meeting, each person who
is a continuing non-employee director or is re-elected at an annual meeting,
and has served as a non-employee director for the immediately preceding 180
days, receives a non-qualified stock option for 6,000 shares of common stock.
The exercise price for each option is the fair market value of the common
stock on the date of grant. Each option is fully exercisable one year after
the grant date and has a term of 10 years. Automatic grant options are
granted in tandem with limited stock appreciation rights which become
effective in the event of a hostile takeover, as described in the Stock
Option Plan.
We entered into a Consulting Agreement with Mr. Conrad in April 1995
pursuant to which Mr. Conrad provided certain consulting services to us
related to marketing and licensing strategies. Mr. Conrad received
compensation of $12,000 during 1999, plus reimbursement of out-of-pocket
expenses. The agreement has now expired.
In May 1995, we engaged Life Science Advisors, LLC, of which Mr. Cook
is a principal, to provide certain strategic consulting services on a
periodic and limited basis. During 1999, we paid Life Science Advisors
consulting fees of $4,275, plus reimbursement of out-of-pocket expenses. In
addition, we granted Life Science Advisors an option to purchase 10,856
shares of common stock at $13.94 per share. The option is fully vested and
has a term of one year expiring September 30, 2000.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
EMPLOYMENT AGREEMENTS. In May 1990, we entered into an employment
agreement with Mr. Garner pursuant to which he was employed as our President
and Chief Executive Officer. He currently serves as Chairman and CEO. The
current employment term ends May 31, 2000 and will automatically renew for
successive one-year periods, unless either Mr. Garner or we elect otherwise.
The agreement allows for termination of employment upon Mr. Garner's death or
disability and for cause or without cause upon 60 days' written notice.
During the employment term, Mr. Garner will receive an annual base salary
(currently $485,000) subject to increase by our Board of Directors annually,
with a minimum increase of at least 5%. In the event we terminate his
employment without cause, we are obligated to pay Mr. Garner six months' base
salary. Mr. Garner is entitled to nine months' base salary if there has been
a change of control and he is terminated without cause, or following any of
these events unless Mr. Garner otherwise agrees in writing:
- a change in his position that materially reduces Mr. Garner's level of
responsibility,
- a 10% or more reduction of Mr. Garner's compensation, or
- a change in Mr. Garner's place of employment to more than 20 miles
from our current facility in San Diego, California.
We entered into employment agreements with Dr. Kabakoff in May 1996 and
Mr. Whitehead in July 1998 upon substantially the same terms and conditions as
described above for Mr. Garner. Dr. Kabakoff's current employment term expires
April 30, 2000 and Mr. Whitehead's expires July 1, 2000. Each agreement
automatically renews for successive one-year terms. Dr. Kabakoff's current
annual base salary is $310,000 and Mr. Whitehead's is $325,000. Salaries are
subject to annual review and increase at the sole discretion of our Board.
21
EXECUTIVE CHANGE OF CONTROL SEVERANCE AGREEMENTS. In January 2000, we
entered into Executive Change of Control Severance Agreements with each of
our Named Executive Officers whereby certain compensation and other benefits
would be paid to them in the event of a change of control and thereafter the
officer's employment is terminated because of a qualifying termination. Our
Board has determined that it is in our best interests to encourage the
retention and continued service of our management team, and the agreements
are intended to do so. A qualifying termination occurs if the officer's
employment is terminated either by us for any reason other than for cause, or
by the officer for good reason, in each case within two years following the
occurrence of a change of control or successive change of control that occurs
during the period of coverage. A change of control will have occurred if
there is a change in the majority of the composition of our Board, 30% or
more of our outstanding voting power is acquired or beneficially owned by any
person or group, there is a reorganization, merger, consolidation or other
corporate transaction or sale or other disposition of all or substantially
all of our assets, or our stockholders approve Dura's complete liquidation or
dissolution. The period of coverage is 10 years from the date of the
agreement, unless extended by our Board or unless we have entered into a
definitive agreement to consummate a transaction that would constitute a
change of control, in which case the period of coverage would continue until
the transaction is consummated or abandoned.
In the event of a qualified termination or termination for good
reason, the agreements provide that the officers will receive benefits as set
forth in the agreement and summarized as follows. Our CEO will receive a
lump-sum payment of two times base salary plus average bonus, and our
Presidents and Senior Vice Presidents will receive one and one-half times
base salary plus average bonus. Welfare benefits, including life, disability,
accident and health insurance will be continued for 24 months for our CEO and
18 months for our Presidents and Senior Vice Presidents. Each officer will
receive accelerated vested of all unvested stock options, and contractual
restrictions and repurchase rights will lapse on any shares of restricted
stock held by the officer. If any compensation payable to the officer under
the agreement would subject the officer to an excise tax under Section 4999
of the Internal Revenue Code, the officer is entitled to receive a lump sum
cash payment, subject to mandatory tax withholding, which, when added to the
compensation payable under the agreement, provides the officer with the same
after-tax compensation that he or she would have received if the compensation
had not constituted a parachute payment. Officers will receive one year of
outplacement counseling provided by us.
ACCELERATION OF STOCK OPTIONS. Options granted pursuant to our Stock
Option Plan to our Named Executive Officers may, under certain circumstances,
be accelerated and become immediately exercisable in the event of certain
corporate transactions, changes of control and changes in the composition of
our Board. In addition, in the event of certain changes of control, certain
options granted to Named Executive Officers may be, to the extent exercisable
and outstanding for at least six months, automatically cancelled in return
for a payment to the optionee equal to the difference between the market
price of the optioned shares (or the highest tender price, if applicable),
less the exercise price.
We granted Mr. Whitehead a non-qualified stock option to purchase
250,000 shares of our common stock at an exercise price of $21.94 per share,
which was granted outside of the Stock Option Plan, in connection with his
commencement of employment in July 1998. The option was subsequently
cancelled in connection with our 1998 cancellation/regrant program and
currently represents the right to purchase 192,308 shares of common stock at
an exercise price of $10.31 per share. The option becomes exercisable ratably
over a four-year period from the November 9, 1998 grant date and has a term
of ten years expiring on November 9, 2008. The stock option agreement
provides for acceleration of the option in the event of certain corporate
transactions, including a merger, sale, or change of control.
FORGIVENESS OF RELOCATION LOAN. See "Certain Relationships and Related
Transactions" for a discussion of the $150,000 forgivable relocation loan
extended to Mr. Borer in April 1999 which may be cancelled if his employment
is terminated without cause or a change of control occurs.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1999, Dr. Blair and Messrs. Conrad and Hale served as the members
of our Compensation Committee. We have no insider relationships reportable
under this item.
22
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF OUR PREVIOUS OR
FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT
OF 1934 THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT,
IN WHOLE OR IN PART, THE FOLLOWING BOARD COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION AND THE PERFORMANCE GRAPH INCLUDED HEREIN SHALL NOT BE
INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL COMPENSATION POLICY. Our fundamental policy is to offer our
executive officers competitive compensation opportunities based upon their
contribution to our financial success and their personal performance. It is our
objective to have a substantial portion of each officer's compensation
contingent upon our performance, as well as upon his or her own level of
performance. Accordingly, each executive officer's compensation package is
comprised of three elements:
- base salary which reflects individual performance and is
designed primarily to be competitive with salary levels in the
industry,
- annual variable performance awards payable in cash and tied to
the achievement of financial and individual performance goals
established by management and approved by our Board of
Directors, and
- long-term stock-based incentive awards which strengthen the
mutuality of interests between the executive officers and our
stockholders.
As an officer's level of responsibility increases, it is our intent to have a
greater portion of his or her total compensation be dependent upon our
performance and stock price appreciation rather than base salary.
FACTORS. Several of the more important factors which we considered in
establishing the components of each executive officer's compensation package for
1999 are summarized below. Additional factors were also taken into account, and
we may in our discretion apply entirely different factors, particularly
different measures of financial performance, in setting executive compensation
for future fiscal years. All compensation decisions will be designed to further
the general compensation policy indicated above.
- BASE SALARY. The base salary for each officer is set on the
basis of personal performance and the salary levels in effect
for comparable positions at similarly situated
biopharmaceutical and biomedical companies headquartered in the
same geographical region as us. This group of companies is
believed to be more relevant for establishing compensation, and
is therefore not the same as the "peer group" of companies
referred to in the performance graph included in this proxy
statement which displays comparative total stockholder returns.
As a general rule, we focus on the mid-range of compensation
for comparable positions at such similarly situated companies
in establishing base salary amounts for our executive officers.
See "Executive Compensation and Other Information" and "Certain
Relationships and Related Transactions" regarding the
employment agreements we have with both Dr. Kabakoff and Mr.
Whitehead.
- ANNUAL INCENTIVE COMPENSATION. Annual bonuses may be earned by
each executive officer on the basis of our achievement of
corporate targets and each officers' achievement of individual
performance targets, both of which we establish at the
beginning of the fiscal year. We do not assign a defined weight
to each component of the incentive compensation opportunity.
For 1999, the corporate performance targets were primarily
focused on growth in earnings per share, with the belief that
an increase in our earnings per share is a prime factor in
positively affecting the market price of our stock.
Accordingly, this element of executive compensation is earned
on the basis of our success in achieving the earnings per share
growth targets. There is no fixed percentage of base salary
utilized in calculating or setting annual incentive
compensation targets.
- LONG-TERM INCENTIVE COMPENSATION. From time to time, we grant
stock options to certain of our executive officers pursuant to
the Stock Option Plan. The grants are designed to consistently
align the interests of each executive officer with those of the
stockholders and to provide each individual with a significant
incentive to manage Dura from the perspective of an owner with
an equity stake in the business. The number of shares subject
to each option grant is based on the officer's level of
responsibilities, relative position in, and length of service
with us. Each grant allows the officer to
23
acquire shares of common stock at a fixed price per share (the
market price on the grant date) over a specified period of time
(up to ten years). Accordingly, the option will provide a
return to the executive officer only if the market price of our
common stock appreciates over the option term.
- POLICY REGARDING SECTION 162(m) OF THE INTERNAL REVENUE CODE.
The Committee believes that Section 162(m) of the Internal
Revenue Code, which disallows a tax deduction for certain
compensation in excess of $1 million, will likely not have an
effect on us in the near future. The Committee believes that
stock options granted at fair market value under our Stock
Option Plan meet the exception for qualified performance-based
compensation in accordance with the Internal Revenue Code
Regulations, so that amounts otherwise deductible with respect
to the options will not count towards the $1 million deduction
limit. The Committee's general policy is to take into account
the deductibility of compensation in determining the type and
amount of compensation payable to executive officers. However,
because the net cost of compensation is weighed against many
other factors in determining executive compensation, the
Committee may determine that it is appropriate to authorize
compensation that is not deductible, whether by reason of
Section 162(m) or otherwise.
CEO COMPENSATION. In setting the compensation payable to our Chief
Executive Officer, Mr. Garner, we have sought to be competitive with other
similarly situated companies in the industry as referred to above, while at
the same time tying a significant percentage of his compensation to our
performance.
Mr. Garner's 1999 base salary was established based on our
evaluation of his personal performance and our objective to have his base
salary keep pace with salaries being paid to similarly situated chief
executive officers. We also considered our financial performance during the
year, and while this factor was taken into account in determining Mr.
Garner's base salary for 1999, it may not be applied to the same extent in
future years in setting base salary. See "Executive Compensation and Other
Information" regarding the employment agreement we have with Mr. Garner.
The remaining components of Mr. Garner's 1999 compensation were
entirely dependent on our financial performance and provided no dollar
guarantees. Mr. Garner's 1999 cash bonus was based on our attainment of the
earnings growth targets which we established as a part of his individual
bonus plan for the year. The option grants made to him during 1999 were based
on his performance during the year and were intended to place a significant
portion of his total compensation at risk, since the options will have no
value unless there is appreciation in the value of our common stock over the
option term. The amount of his option grants were determined in light of our
financial performance in 1999, including growth of 51% in revenues, profit
for each of the quarters during the year, culminating in growth in earnings
per share which represented a 34% increase over 1998 (excluding the after-tax
impact of one-time charges in both years). As indicated, it is our objective
to have an increasing percentage of Mr. Garner's total compensation each year
tied to the attainment of performance targets and stock price appreciation on
his option shares. In establishing bonus amounts, if any, paid to Mr. Garner
in future years, we may consider a variety of performance factors which will
include, but not be limited to, financial performance.
We conclude our report with the acknowledgment that no member of the
Compensation Committee is one of our current or former officers or employees.
COMPENSATION COMMITTEE
JAMES C. BLAIR
HERBERT J. CONRAD
DAVID F. HALE
24
PERFORMANCE GRAPH
The following graph compares our total stockholder returns over the last
five years to the Standard & Poor's 500 Index and to a peer group comprised of
the pharmaceutical companies in the S&P 500. The graph is constructed on the
assumption that $100 was invested on December 31, 1994 in each (a) our common
stock, (b) the S&P 500, and (c) the pharmaceutical companies in the S&P 500, and
that all dividends were reinvested, although dividends have not been declared on
our common stock. The pharmaceutical companies in the S&P 500 consist of the
following: Eli Lilly and Company, Merck & Co., Inc., Pfizer Inc.,
Schering-Plough Corp. and Upjohn Co. The stockholder return shown on the graph
below is not necessarily indicative of future performance, and we will not make
or endorse any predictions as to future stockholder returns.
[GRAPH]
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
See "Executive Compensation and Other Information" for a discussion of
the employment agreements we have with Messrs. Garner and Whitehead and Dr.
Kabakoff and for a discussion of the Executive Change of Control Severance
Agreements we entered into with each of the Named Executive Officers.
Our officers and directors are indemnified under Delaware General
Corporation Law and our certificate of incorporation and bylaws to the fullest
extent permitted under Delaware law. We have also entered into indemnification
agreements with each of our officers and directors.
CERTAIN BUSINESS RELATIONSHIPS
Dr. Kabakoff currently serves as a director, Chairman, President and
Chief Executive Officer, and Mr. Garner also serves as a director, of Spiros
Corp. II, a separate company which has engaged Dura through various
agreements to further develop products to which Spiros Corp. II has rights,
for delivery through Spiros-Registered Trademark-, our proprietary dry powder
pulmonary drug delivery system. During 1999, we recorded contract revenues
from Spiros Corp. II of $55,496,263.
We have a purchase option that entitles us to purchase all, but not less
than all, of the callable common stock of Spiros Corp. II. The purchase option
is exercisable at any time before December 31, 2002, which exercise period may
be shortened or lengthened in certain circumstances. If the purchase option is
exercised, the per share exercise price is $25.26 through March 31, 2000, and
increases on a quarterly basis to $45.95 per share through December 31, 2002.
The purchase option exercise price may be paid in cash or shares of our common
stock, or any combination of the two, at our sole discretion. We have no
obligation to exercise the purchase option. We own all of the issued and
outstanding special common stock of Spiros Corp. II, which confers certain
voting and other rights, including the right to elect two directors of
25
Spiros Corp. II. In addition, we hold an option to acquire Spiros Corp. II's
exclusive rights for the use of the Spiros-Registered Trademark- system with
albuterol and with a second product other than albuterol. The purchase price
for these options is payable in cash.
On March 20, 2000, we entered into a definitive merger agreement with
Spiros Corp. II to acquire all of the outstanding callable common stock of
Spiros Corp. II for a combination of cash and warrants to purchase our common
stock. The transaction is subject to a number of conditions, including
regulatory approval and approval of the merger by the stockholders of Spiros
Corp. II. The transaction is expected to close in mid-2000.
INDEBTEDNESS OF MANAGEMENT
In connection with Mr. Borer's relocation from Denver, Colorado, to
San Diego, California, to assume his position as Dura's Senior Vice President
and Chief Financial Officer, we extended Mr. Borer a forgivable relocation
loan in the principal amount of $150,000 in April 1999. The indebtedness is
secured by a trust deed on Mr. Borer's residence. Twenty percent ($30,000) of
the original principal amount will be forgiven by us each April commencing in
2000, provided that Mr. Borer's employment continues on a regular full-time
basis. The promissory note bears no interest and is intended to qualify as an
employee relocation loan as defined in Treasury Regulations. The entire
principal balance of the loan is due upon the earlier of the following
events: (a) voluntarily termination of his employment, (b) five years after
the loan was extended, or (c) sale of his residence. The note provides that
if Mr. Borer's employment is terminated without cause or a change of control
occurs, any balance outstanding on the loan will be forgiven in full. A
change of control is deemed to have occurred if ownership of more than 50% of
our voting power is transferred or upon the sale, transfer or other
disposition of all or substantially all of our assets.
Mr. Borer relocated in 1996 at our request from San Diego,
California, to Denver, Colorado, to fulfill his appointment as General
Manager of our Health Script division. We extended Mr. Borer a forgivable
relocation loan in July 1996 in the principal amount of $75,000 on similar
terms and conditions as the 1999 loan. Twenty percent of this loan ($15,000)
was forgiven in July 1997 and 1998, and a prorated amount ($12,500) was
forgiven in 1999. Mr. Borer repaid the $32,500 balance of the note to us in
May 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers,
directors and holders of more than 10% of our common stock to file with the
SEC reports regarding their ownership and changes in ownership of our
securities. We believe that during 1999 our executive officers, directors and
10% stockholders complied with all Section 16(a) filing requirements. In
making this statement, we have relied upon examination of the copies of Forms
3, 4 and 5 provided to us and the written representations of our executive
officers, directors and 10% stockholders.
FORM 10-K
WE WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF OUR
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND LIST OF
EXHIBITS. REQUESTS SHOULD BE SENT TO THE ATTENTION OF INVESTOR RELATIONS,
DURA PHARMACEUTICALS, INC., 7475 LUSK BLVD., SAN DIEGO, CALIFORNIA 92121.
STOCKHOLDER PROPOSALS
Stockholders may submit proposals to be included in our proxy
statement for next year's annual meeting of stockholders if they comply with
rules and regulations promulgated by the SEC and our bylaws. Stockholder
proposals must be submitted in writing to our secretary and received by us by
December 20, 2000 to be considered for inclusion in next year's proxy
statement. In addition, the proxy solicited by our Board of Directors for
next year's annual meeting of stockholders will confer discretionary
authority to vote on any stockholder proposal presented at that meeting,
unless we receive proper notice of such proposal not later than March 5, 2001.
26
OTHER MATTERS
Our Board of Directors is not aware of any matter to be presented for
action at the annual meeting other than the matters set forth in this proxy
statement. Should any other matter requiring a vote of the stockholders
arise, the persons named as proxies on the enclosed proxy card will vote the
shares represented thereby in the interests of Dura in accordance with their
best judgment. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed proxy card.
By Order of our Board of Directors
/s/ JOHN R. COOK
Dated: April 19, 2000 JOHN R. COOK
VICE PRESIDENT, ASSOCIATE GENERAL COUNSEL
AND SECRETARY
27
DURA PHARMACEUTICALS, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This 2000 Employee Stock Purchase Plan is intended to promote
the interests of Dura Pharmaceuticals, Inc., a Delaware corporation, by
providing eligible employees with the opportunity to acquire a proprietary
interest in the Corporation through participation in a payroll-deduction based
employee stock purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret
and construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Section 423 of the Code. Decisions of the Plan Administrator
shall be final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares
of authorized but unissued or reacquired Common Stock, including shares of
Common Stock purchased on the open market. The maximum number of shares of
Common Stock which may be issued over the term of the Plan shall not exceed
500,000 shares.
B. Should any change be made to the Common Stock by
reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant and in the aggregate on any one Purchase Date and
(iii) the number and class of securities and the price per share in effect under
each outstanding purchase right in order to prevent the dilution or enlargement
of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase
under the Plan through a series of overlapping or successive offering periods
until such time as (i) the maximum number of shares of Common Stock available
for issuance under the Plan shall have been purchased or (ii) the Plan shall
have been sooner terminated.
B. Each offering period shall be of such duration (not
to exceed twelve (12) months) as determined by the Plan Administrator prior to
the start date of such offering period. Initially, twelve (12) month offering
periods shall commence at semi-annual intervals on the first business day of
February and August each year over the term of the Plan. Accordingly, two (2)
separate offering periods shall commence in each calendar year the Plan remains
in existence. However, the initial offering period shall commence at the
Effective Time and terminate on the last business day in July 2001.
C. Each offering period shall be comprised of a series
of one or more successive Purchase Intervals. Purchase Intervals shall run from
the first business day in February each year to the last business day in July of
the same year and from the first business day in August each year to the last
business day in January of the following year. However, the first Purchase
Interval in effect under the initial offering period shall commence at the
Effective Date and terminate on the last business day in January 2001.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the
start date of an offering period under the Plan may enter that offering period
on such start date. However, an Eligible Employee may participate in only one
offering period at a time.
B. Except as provided in Section IV.D. above, an
Eligible Employee must, in order to participate in a particular offering period,
complete the enrollment forms prescribed by the Plan Administrator (including a
stock purchase agreement and a payroll deduction authorization) and file such
forms with the Plan Administrator (or its designate) on or before the start date
of that offering period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant
for purposes of acquiring shares of Common Stock during an offering period may
be any multiple of one percent (1%) of the Cash Earnings paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
ten percent (10%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the
offering period, reduce his or her rate of payroll deduction to become
effective as soon as possible after filing the appropriate form with
the Plan Administrator. The Participant may not, however, effect more
than one (1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the
commencement of any new Purchase Interval within the offering period,
increase the rate of his or her payroll deduction by filing the
appropriate form with the Plan Administrator. The new rate (which may
not exceed the ten percent (10%) maximum) shall become
2
effective on the start date of the first Purchase Interval following
the filing of such form.
B. Payroll deductions shall begin on the first pay day
following the start date of the offering period and shall (unless sooner
terminated by the Participant) continue through the pay day ending with or
immediately prior to the last day of that offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be required
to be held in any segregated account or trust fund and may be commingled with
the general assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under
the Plan on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be
granted a separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the start date of the
offering period and shall provide the Participant with the right to purchase
shares of Common Stock, in a series of successive installments over the
remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right
shall be automatically exercised in installments on each successive Purchase
Date within the offering period, and shares of Common Stock shall accordingly be
purchased on behalf of each Participant (other than Participants whose payroll
deductions have previously been refunded pursuant to the Termination of Purchase
Right provisions below) on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. PURCHASE PRICE. The purchase price per share at which
Common Stock will be purchased on the Participant's behalf on each Purchase Date
within the offering period
3
shall be equal to eighty-five percent (85%) of the LOWER of (i) the Fair Market
Value per share of Common Stock on the start date of the offering period in
which such individual is participating or (ii) the Fair Market Value per share
of Common Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of
Common Stock purchasable by a Participant on each Purchase Date during the
offering period shall be the number of whole shares obtained by dividing the
amount collected from the Participant through payroll deductions during the
Purchase Interval ending with that Purchase Date by the purchase price in effect
for the Participant for that Purchase Date. However, the maximum number of
shares of Common Stock purchasable per Participant on any one Purchase Date
shall not exceed 1,500 shares, subject to periodic adjustments in the event of
certain changes in the Corporation's capitalization.
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not
applied to the purchase of shares of Common Stock on any Purchase Date because
they are not sufficient to purchase a whole share of Common Stock shall be held
for the purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable on the Purchase Date
shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following
provisions shall govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the
next scheduled Purchase Date in the offering period in which he or she
is participating, terminate his or her outstanding purchase right by
filing the appropriate form with the Plan Administrator (or its
designate), and no further payroll deductions shall be collected from
the Participant with respect to the terminated purchase right. Any
payroll deductions collected during the Purchase Interval in which such
termination occurs shall, at the Participant's election, be immediately
refunded or held for the purchase of shares on the next Purchase Date.
If no such election is made at the time such purchase right is
terminated, then the payroll deductions collected with respect to the
terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall
be irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before the start date of that
offering period.
(iii) Should a Participant in one offering period
enroll in another offering period, then the purchase right for the
previous offering period shall terminate.
4
(iv) Should the Participant cease to remain an
Eligible Employee for any reason (including death, disability or change
in status) while his or her purchase right remains outstanding, then
that purchase right shall immediately terminate, and all of the
Participant's payroll deductions for the Purchase Interval in which the
purchase right so terminates shall be immediately refunded. However,
should the Participant cease to remain in active service by reason of
an approved unpaid leave of absence, then the Participant shall have
the right, exercisable up until the last business day of the Purchase
Interval in which such leave commences, to (a) withdraw all the payroll
deductions collected to date on his or her behalf for that Purchase
Interval or (b) have such funds held for the purchase of shares on his
or her behalf on the next scheduled Purchase Date. In no event,
however, shall any further payroll deductions be collected on the
Participant's behalf during such leave. Upon the Participant's return
to active service (x) within ninety (90) days following the
commencement of such leave or (y) prior to the expiration of any longer
period for which such Participant's right to reemployment with the
Corporation is guaranteed by statute or contract, his or her payroll
deductions under the Plan shall automatically resume at the rate in
effect at the time the leave began, unless the Participant withdraws
from the Plan prior to his or her return. An individual who returns to
active employment following a leave of absence which exceeds in
duration the applicable (x) or (y) time period will be treated as a new
Employee for purposes of subsequent participation in the Plan and must
accordingly re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before the start date of any
subsequent offering period in which he or she wishes to participate.
G. CORPORATE TRANSACTION. In the event of any Corporate
Transaction, each outstanding purchase right shall be exercised, immediately
prior to the effective date of any Corporate Transaction, by applying the
payroll deductions of each Participant for the Purchase Interval in which such
Corporate Transaction occurs to the purchase of whole shares of Common Stock at
a purchase price per share equal to eighty-five percent (85%) of the LOWER of
(i) the Fair Market Value per share of Common Stock on the start date of the
offering period in which such individual is participating at the time such
Corporate Transaction occurs or (ii) the Fair Market Value per share of Common
Stock immediately prior to the effective date of such Corporate Transaction. The
applicable limitations on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase. However, the
outstanding purchase right shall not be exercised if the Plan is expressly
assumed or continued by the surviving entity in such Corporate Transaction.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Corporate
Transaction, and Participants shall, following the receipt of such notice, have
the right to terminate their outstanding purchase rights prior to the effective
date of the Corporate Transaction.
H. PRORATION OF PURCHASE RIGHTS. Should the total number
of shares of Common Stock to be purchased pursuant to outstanding purchase
rights on any particular date
5
exceed the number of shares then available for issuance under the Plan, the Plan
Administrator shall make a pro-rata allocation of the available shares on a
uniform and nondiscriminatory basis, and the payroll deductions of each
Participant, to the extent in excess of the aggregate purchase price payable for
the Common Stock pro-rated to such individual, shall be refunded.
I. ASSIGNABILITY. The purchase right shall be
exercisable only by the Participant and shall not be assignable or transferable
by the Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no
stockholder rights with respect to the shares subject to his or her outstanding
purchase right until the shares are purchased on the Participant's behalf in
accordance with the provisions of the Plan and the Participant has become a
holder of record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to
acquire Common Stock pursuant to any purchase right outstanding under this Plan
if and to the extent such accrual, when aggregated with (i) rights to purchase
Common Stock accrued under any other purchase right granted under this Plan and
(ii) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Corporation or any Corporate Affiliate,
would otherwise permit such Participant to purchase more than Twenty-Five
Thousand Dollars ($25,000) worth of stock of the Corporation or any Corporate
Affiliate (determined on the basis of the Fair Market Value per share on the
date or dates such rights are granted) for each calendar year such rights are at
any time outstanding.
B. For purposes of applying such accrual limitations to
the purchase rights granted under the Plan, the following provisions shall be in
effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of installments on
each successive Purchase Date during the offering period on which such
right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one (1) or more other purchase rights at a rate
equal to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the date
or dates of grant) for each calendar year such rights were at any time
outstanding.
C. If by reason of such accrual limitations, any
purchase right of a Participant does not accrue for a particular Purchase
Interval, then the payroll deductions which the Participant made during that
Purchase Interval with respect to such purchase right shall be promptly
refunded.
6
D. In the event there is any conflict between the
provisions of this Article and one or more provisions of the Plan or any
instrument issued thereunder, the provisions of this Article shall be
controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on February 23,
2000 and shall become effective at the Effective Date, PROVIDED no purchase
rights granted under the Plan shall be exercised, and no shares of Common Stock
shall be issued hereunder, until (i) the Plan shall have been approved by the
stockholders of the Corporation and (ii) the Corporation shall have complied
with all applicable requirements of the 1933 Act (including the registration of
the shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or The Nasdaq Stock Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval is not obtained, or such compliance is not effected, within
twelve (12) months after the date on which the Plan is adopted by the Board, the
Plan shall terminate and have no further force or effect, and all sums collected
from Participants during the initial offering period hereunder shall be
refunded.
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the EARLIEST of (i) the last business day in July 2010, (ii) the
date on which all shares available for issuance under the Plan shall have been
sold pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Corporate
Transaction. No further purchase rights shall be granted or exercised, and no
further payroll deductions shall be collected, under the Plan following such
termination.
X. AMENDMENT/TERMINATION OF THE PLAN
A. The Board may alter, amend, suspend or terminate the
Plan at any time to become effective immediately following the close of any
Purchase Interval. However, the Plan may be amended or terminated immediately
upon Board action, if and to the extent necessary to assure that the Corporation
will not recognize, for financial reporting purposes, any compensation expense
in connection with the shares of Common Stock offered for purchase under the
Plan, should the financial accounting rules applicable to the Plan at the
Effective Date be subsequently revised so as to require the recognition of
compensation expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following
amendments or revisions to the Plan without the approval of the Corporation's
stockholders: (i) increase the number of shares of Common Stock issuable under
the Plan or the maximum number of shares purchasable per Participant on any one
Purchase Date, except for permissible adjustments in the event of certain
changes in the Corporation's capitalization, (ii) alter the purchase price
formula so as to reduce the purchase price payable for the shares of Common
Stock purchasable under the Plan or (iii) modify eligibility requirements for
participation in the Plan.
7
XI. GENERAL PROVISIONS
A. Nothing in the Plan shall confer upon the Participant
any right to continue in the employ of the Corporation or any Corporate
Affiliate for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Corporate Affiliate
employing such person) or of the Participant, which rights are hereby expressly
reserved by each, to terminate such person's employment at any time for any
reason, with or without cause.
B. All costs and expenses incurred in the administration
of the Plan shall be paid by the Corporation; however, each Plan Participant
shall bear all costs and expenses incurred by such individual in the sale or
other disposition of any shares purchased under the Plan.
C. The provisions of the Plan shall be governed by the
laws of the State of California without regard to that State's conflict-of-laws
rules.
8
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE DATE
Dura Pharmaceuticals, Inc.
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of
Directors.
B. CASH EARNINGS shall mean the (i) base salary payable
to a Participant by one or more Participating Corporations during such
individual's period of participation in one or more offering periods under the
Plan plus (ii) all overtime payments, bonuses, commissions, current
profit-sharing distributions and other incentive-type payments. Such Cash
Earnings shall be calculated before deduction of (A) any income or employment
tax withholdings or (B) any pre-tax contributions made by the Participant to any
Code Section 401(k) salary deferral plan or any Code Section 125 cafeteria
benefit program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall NOT include any contributions (other
than Code Section 401(k) or Code Section 125 contributions) made on the
Participant's behalf by the Corporation or any Corporate Affiliate to any
employee benefit or welfare plan now or hereafter established.
C. CODE shall mean the Internal Revenue Code of 1986, as
amended.
D. COMMON STOCK shall mean the Corporation's common
stock.
E. CORPORATE AFFILIATE shall mean any parent or
subsidiary corporation of the Corporation (as determined in accordance with Code
Section 424), whether now existing or subsequently established.
F. CORPORATE TRANSACTION shall mean any of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding
those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of
all or substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by
an person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by or is
under common control with the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
A-1
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders.
G. CORPORATION shall mean Dura Pharmaceuticals, Inc., a
Delaware corporation, and any corporate successor to all or substantially all of
the assets or voting stock of Dura Pharmaceuticals, Inc. which shall by
appropriate action adopt the Plan.
H. EFFECTIVE DATE shall mean August 1, 2000. Any
Corporate Affiliate which becomes a Participating Corporation after such
Effective Date shall designate a subsequent Effective Date with respect to its
employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is
employed by a Participating Corporation on a basis under which he or she is
regularly expected to render more than twenty (20) hours of service per week for
more than five (5) months per calendar year for earnings considered wages under
Code Section 3401(a), and who has been employed by a Participating Corporation
for one (1) month.
J. FAIR MARKET VALUE per share of Common Stock on any
relevant date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
The Nasdaq Stock Market, then the Fair Market Value shall be the
closing selling price per share of Common Stock on the date in
question, as such price is reported by the National Association of
Securities Dealers on The Nasdaq Stock Market or any successor system.
If there is no closing selling price for the Common Stock on the date
in question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the
Stock Exchange determined by the Plan Administrator to be the primary
market for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
K. 1933 ACT shall mean the Securities Act of
1933, as amended.
L. PARTICIPANT shall mean any Eligible Employee
of a Participating Corporation who is actively participating in the Plan.
M. PARTICIPATING CORPORATION shall mean the
Corporation and such Corporate Affiliate or Affiliates as may be authorized from
time to time by the Board to extend the benefits of the Plan to their Eligible
Employees. The Participating Corporations in the Plan are listed in attached
Schedule A.
A-2
N. PLAN shall mean the Corporation's 2000 Employee Stock
Purchase Plan, as set forth in this document.
O. PLAN ADMINISTRATOR shall mean the committee of two
(2) or more Board members appointed by the Board to administer the
Plan.
P. PURCHASE DATE shall mean the last business day of
each Purchase Interval. The initial Purchase Date shall be January 31, 2001.
Q. PURCHASE INTERVAL shall mean each successive six
(6)-month period within the offering period at the end of which there shall be
purchased shares of Common Stock on behalf of each Participant.
R. STOCK EXCHANGE shall mean either the American Stock
Exchange or the New York Stock Exchange.
A-3
DURA PHARMACEUTICALS, INC.
1992 STOCK OPTION PLAN
AS AMENDED AND RESTATED MARCH 3, 1999
AND FURTHER AMENDED APRIL 5, 2000
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
A. IMPLEMENTATION. This 1992 Stock Option Plan ("Plan") was
implemented as of December 9, 1992 ("Effective Date"), to enable Dura
Pharmaceuticals, Inc. ("Company") to grant options to the following eligible
individuals ("Eligible Individuals") in order to attract them and to retain
their services: (a) key employees (including officers and directors) of the
Company or its subsidiaries or any parent corporation who are primarily
responsible for the management, growth and financial success of the Company or
its subsidiaries, (b) non-employee members of the Board of Directors ("Board")
of the Company or any of its subsidiaries, and (c) consultants and independent
contractors who perform valuable services for the Company or its subsidiaries.
B. SUCCESSOR PLAN. This Plan is a successor to the Company
Stock Option Plan that was adopted by the Board in 1983 ("1983 Plan"). No
further option grants (including, but not limited to automatic option grants)
will be made under the 1983 Plan on and after the Effective Date of this Plan.
All options outstanding under the 1983 Plan on the Effective Date have been
incorporated into this Plan and will be treated as outstanding options under
this Plan. Each outstanding option so incorporated will continue to be governed
solely by the express terms and conditions of the instruments evidencing such
grant. No provision of this Plan will be deemed to affect or otherwise modify
the rights or obligations of the holders of such incorporated options with
respect to their acquisition of shares of the Company's Common Stock under the
terms of the incorporated options.
II. ADMINISTRATION OF THE PLAN
A. COMMITTEE. The Plan will be administered by the Board of
Directors or by a committee or committees appointed by the Board, and consisting
of two or more members of the Board ("Plan Administrator"). The Board may
delegate the responsibility for administration of the Plan with respect to
designated classes of optionees to different committees, subject to such
limitations as the Board deems appropriate. With respect to any matter, the term
"Committee," when used in this Plan, will refer to the committee that has been
delegated authority with respect to such matter. Members of a committee will
serve for such term as the Board may determine, and will be subject to removal
by the Board at any time.
B. SECTION 16(b) COMMITTEE. Notwithstanding any other
provision of this Agreement, each grant of an option or other transaction
between the Company and any
Section 16 Insider shall be valid and enforceable only if approved by the Board
of Directors or by a committee composed exclusively of two or more Non-Employee
Directors. For this purpose, a "Section 16 Insider" shall mean an officer or
director of the Corporation subject to the short-swing profit liabilities of
Section 16 of the Exchange Act of 1934 Act, as amended, and a Non-Employee
Director shall have the meaning set forth in Rule 16b-3(b)(3).
C. AUTHORITY. Any Committee will have full authority to
administer the Plan within the scope of its delegated responsibilities,
including authority to interpret and construe any relevant provision of the
Plan, to adopt such rules and regulations as it may deem necessary, and to
determine the terms of grants made under the Plan (which need not be identical).
Decisions of a Committee made within the discretion delegated to it by the Board
will be final and binding on all persons.
III. STOCK SUBJECT TO THE PLAN
A. NUMBER OF SHARES. Shares of the Company's Common Stock
available for issuance under the Plan shall be drawn from either the Company's
authorized but unissued shares of Common Stock or from reacquired shares of
Common Stock, including shares repurchased by the Company on the open market.
The maximum number of shares of Common Stock that may be issued over the term of
the Plan shall not exceed 10,857,360 shares, subject to adjustment from time to
time in accordance with the provisions of this Section. To the extent one or
more outstanding options under the 1983 Plan that have been incorporated into
this Plan are subsequently exercised, the number of shares issued with respect
to each such option will reduce, on a share-for-share basis, the number of
shares available for issuance under this Plan.
B. EXPIRED OPTIONS. Should an outstanding option under this
Plan (including any outstanding option under the 1983 Plan incorporated into
this Plan) expire or terminate for any reason prior to exercise in full
(including any option cancelled in accordance with the cancellation and regrant
provisions of this Plan), the shares subject to the portion of the option not so
exercised will be available for subsequent option grant under this Plan. Shares
subject to any option or portion thereof cancelled in accordance with the stock
appreciation (or limited stock appreciation) rights provisions of this Plan will
not be available for subsequent option grant under the Plan.
C. ADJUSTMENTS. If any change is made to the Common Stock
issuable under the Plan (including Common Stock issuable under an Automatic
Option Grant) by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Company's receipt of
consideration, then appropriate adjustments will be made to (i) the number
and/or class of shares issuable under the Plan, (ii) the number and/or class of
shares and price per share in effect under each outstanding option under the
Plan, (iii) the maximum number and/or class of shares for which any one
participant may be granted stock options and separately exercisable stock
appreciation rights in any fiscal year or over the term of the Plan and (iv) the
number and/or class of shares and price per share in effect under each
outstanding option incorporated into this Plan from the 1983 Plan. The purpose
of these adjustments will be to preclude the enlargement or dilution of rights
and benefits under the options.
2
ARTICLE TWO
STANDARD OPTION PROVISIONS
I. TERMS AND CONDITIONS OF OPTIONS
A. COMMITTEE DISCRETION.
(1) Except as provided under the Automatic Option
Grant provisions of this Plan, the Committee will have full authority to
determine which Eligible Individuals are to receive option grants under the
Plan, the number of shares to be governed by each such grant, whether the option
is to be an incentive stock option ("Incentive Option") that satisfies the
requirements of Section 422 of the Internal Revenue Code or a non-qualified
option not intended to satisfy such requirements ("Non-Qualified Option"), the
time or times at which each such option is to become exercisable, and the
maximum term for which the option is to remain outstanding.
(2) Notwithstanding any other provision of this Plan,
no individual shall be granted stock options or separately exercisable stock
appreciation rights for more than 400,000 shares in the aggregate in any fiscal
year or for more than 1,500,000 shares in the aggregate over the lifetime of the
Plan.
B. TERM. No option granted under the Plan will be exercisable
after the expiration of 10 years from the date the option was granted.
C. PRICE. The exercise price per share shall be fixed by the
Plan Administrator but shall not be less than 100% percent of the Fair Market
Value per share of Common Stock on the option grant date, provided that the Plan
Administrator may fix the exercise price at less than 100% if the optionee, at
the time of the option grant, shall have made a payment to the Company
(including payment made by means of an agreed salary reduction) equal to the
excess of the Fair Market Value of the Common Stock on the option grant date
over such exercise price.
D. EXERCISE AND PAYMENT. After any option granted under the
Plan becomes exercisable, it may be exercised by notice to the Company at any
time prior to the termination of such option. The option price will be payable
in full in cash or check made payable to the Company; provided, however, that
the Committee may, either at the time the option is granted or at the time it is
exercised and subject to such limitations as it may determine, authorize payment
of all or a portion of the option price in one or more of the following
alternative forms:
(1) a promissory note authorized pursuant to Section
IV of this Article; or
(2) full payment in shares of Common Stock valued as
of the exercise date and held for the requisite period to avoid a charge to the
Company's earnings; or
(3) full payment through a sale and remittance
procedure under which the option holder delivers a properly executed exercise
notice together with irrevocable instructions
3
to a broker to promptly deliver to the Company the amount of sale proceeds to
pay the option prices.
For purposes of Subparagraphs (1) and (3) immediately above,
the Exercise Date shall be the date on which written notice of the exercise of
the option is delivered to the Company. In all other cases, the Exercise Date
will be the date on which written notice and actual payment is received by the
Company.
The sale and remittance procedure authorized for the exercise
of outstanding options under this Plan shall be available for all options
granted under this Plan on or after the Effective Date and for all non-qualified
options outstanding under the 1983 Plan and incorporated into this Plan. The
Plan Administrator may also allow such procedure to be utilized in connection
with one or more disqualifying dispositions of Incentive Option shares effected
after the Effective Date, whether such Incentive Options were granted under this
Plan or the 1983 Stock Option Plan.
E. STOCKHOLDER RIGHTS. An option holder will have no
stockholder rights with respect to any shares covered by an option (including an
Automatic Option Grant) prior to the Exercise Date of the option, as defined in
the immediately preceding Paragraph and in the Automatic Option Grant provisions
of Section II of Article Three of this Plan.
F. SEPARATION FROM SERVICE. The Committee will determine
whether options will continue to be exercisable, and the terms of such exercise,
on and after the date that an optionee ceases to be employed by, or to provide
services to, the Company or its subsidiaries provided, however, that in no event
will an option be exercisable after the specified expiration date of the option
term. The date of termination of an optionee's employment or services will be
determined by the Committee, which determination will be final.
G. INCENTIVE OPTIONS. Options granted under the Plan that are
intended to be Incentive Options will be subject to the following additional
terms:
(1) DOLLAR LIMITATION. The aggregate fair market
value (determined as of the respective date or dates of grant) of the Common
Stock for which one or more options granted to any Employee after December 31,
1986 under this Plan (or any other option plan of the Company or its parent or
subsidiary corporations) may for the first time become exercisable as incentive
stock options under the Federal tax laws during any one calendar year shall not
exceed the sum of $100,000. To the extent the Employee holds two or more such
options which become exercisable for the first time in the same calendar year,
the foregoing limitation on the exercisability of such options as incentive
stock options under the Federal tax laws shall be applied on the basis of the
order in which such options are granted.
(2) 10% STOCKHOLDER. If any employee to whom an
Incentive Option is to be granted pursuant to the provisions of the Plan is, on
the date of grant, the owner of stock (determined with application of the
ownership attribution rules of Section 424(d) of the Internal Revenue Code)
possessing more than 10% of the total combined voting power of all classes of
stock of his or her employer corporation or of its parent or subsidiary
corporation ("10%
4
Stockholder"), then the following special provisions will apply to the option
granted to such individual:
(i) The option price per share of the stock
subject to such Incentive Option will not be less than 110% of the Fair Market
Value of the option shares on the date of grant; and
(ii) The option will not have a term in
excess of 5 years from the date of grant.
(3) PARENT AND SUBSIDIARY. For purposes of this
Section, "parent corporation" and "subsidiary corporation" will have the meaning
attributed to those terms, as they are used in Section 422(b) of the Internal
Revenue Code.
(4) EMPLOYEES. Incentive Options may only be granted
to employees of the Company or its subsidiaries.
H. FAIR MARKET VALUE. For all purposes under this Plan
(including, but not limited to Automatic Option Grants) the fair market value
per share of Common Stock on any relevant date under the Plan ("Fair Market
Value") will be determined as follows:
(1) If the Common Stock is not at the time listed or
admitted to trading on any national stock exchange but is traded in the
over-the-counter market, the fair market value will be the mean between the
highest bid and lowest asked prices (or, if such information is available, the
closing selling price) per share of Common Stock on the date in question in the
over-the-counter market, as such prices are reported by the National Association
of Securities Dealers on the Nasdaq National Market. If there are no reported
bid and asked prices (or closing selling price) for the Common Stock on the date
in question, then the mean between the highest bid price and lowest asked price
(or the closing selling price) on the last preceding date for which such
quotations exist will be determinative of fair market value.
(2) If the Common Stock is at the time listed or
admitted to trading on any national stock exchange, then the fair market value
will be the closing selling price per share of Common Stock on the date in
question on the stock exchange determined by the Committee to be the primary
market for the Common Stock, as such price is officially quoted in the composite
tape of transactions on such exchange. If there is no reported sale of Common
Stock on such exchange on the date in question, then the fair market value will
be the closing selling price on the exchange on the last preceding date for
which such quotation exists.
(3) If the Common Stock is at the time neither listed
nor admitted to trading on any stock exchange nor traded in the over-the-counter
market, then the fair market value will be determined by the Committee after
taking into account such factors as the Committee shall deem appropriate.
I. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of
the Optionee, Incentive Options shall be exercisable only by the Optionee and
shall not be assignable or transferable other than by will or by the laws of
descent and distribution following the Optionee's death. However, a
Non-Qualified Option may be assigned in whole or in part during the
5
Optionee's lifetime. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate.
II. STOCK APPRECIATION RIGHTS
If, and only if the Committee, in its discretion, elects to
implement an option surrender program under the Plan, one or more option holders
may, upon such terms as the Committee may establish at the time of the option
grant or at any time thereafter, be granted the right to surrender all or part
of an unexercised option in exchange for a distribution equal in amount to the
excess of (i) the Fair Market Value (at date of surrender) of the shares for
which the surrendered option or portion thereof is at the time exercisable over
(ii) the aggregate option price payable for such shares. The distribution to
which an option holder becomes entitled under this Section may be made in shares
of Common Stock, valued at Fair Market Value at the date of surrender, in cash,
or partly in shares and partly in cash, as the Committee, in its sole
discretion, deems appropriate.
III. CORPORATE TRANSACTION/CHANGE OF CONTROL/HOSTILE TAKEOVER
A. CORPORATE TRANSACTION. In the event of any of the following
transactions ("Corporate Transaction"):
(1) a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the state of the Company's incorporation,
(2) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in liquidation or dissolution of
the Company,
(3) any reverse merger in which the Company is the
surviving entity but in which fifty percent (50%) or more of the Company's
outstanding voting stock is transferred to holders different from those who held
such securities immediately prior to such merger, or
(4) an acquisition by any person or related group of
persons (other than the Company or a person that directly or indirectly
controls, is controlled by or is under common control with, the Company) of
ownership of more than fifty percent (50%) of the Company's outstanding Common
Stock, pursuant to a tender or exchange offer,
the exercisability of each option at the time outstanding
under this Article Two shall automatically accelerate so that each such option
shall, immediately prior to the specified effective date for the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for all
or any portion of such shares. Upon the consummation of the Corporate
Transaction, all outstanding options under this Article Two shall terminate and
cease to be outstanding.
6
B. HOSTILE TAKEOVER. One or more officers of the Company
subject to the short-swing profit restrictions of the Federal securities laws
may, in the Committee's sole discretion, be granted, in tandem with their
outstanding options, limited stock appreciation rights as described below. In
addition all Automatic Option Grants under this Plan will be made in tandem with
limited stock appreciation rights as described below.
(1) Upon the occurrence of a Hostile Takeover, each
outstanding option with such a limited stock appreciation right in effect for at
least six (6) months will automatically be cancelled in return for a cash
distribution from the Company in an amount equal to the excess of (i) the
Takeover Price (defined below) of the shares of Common Stock at the time subject
to the cancelled option (whether or not the option is otherwise at the time
exercisable for such shares) over (ii) the aggregate exercise price payable for
such shares. The cash distribution payable upon such cancellation shall be made
within five (5) days following the consummation of the Hostile Takeover. Neither
the approval of the Committee nor the consent of the Board shall be required in
connection with such option cancellation and cash distribution.
(2) For purposes of the limited stock appreciation
rights described above, the following definitions shall be in effect:
(i) A Hostile Takeover shall be deemed to
occur upon the acquisition by any person or related group of persons (other than
the Company or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Company) of ownership of more than 50% of
the Company's outstanding Common Stock (excluding the Common Stock holdings of
officers and directors of the Company who participate in this Plan) pursuant to
a tender or exchange offer which the Board does not recommend the Company's
stockholders accept.
(ii) The Takeover Price per share shall be
deemed to be equal to the greater of (a) the Fair Market Value per share on the
date of cancellation, or (b) the highest reported price per share paid in
effecting the Hostile Takeover. However, if the cancelled option is an Incentive
Option, the Takeover Price shall not exceed the clause (a) price per share.
C. COMPANY RIGHTS. The grant of options (including Automatic
Option Grants) under this Plan shall in no way affect the right of the Company
to adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
IV. LOANS OR GUARANTEE OF LOANS
The Committee may assist any optionee (including any officer)
in the exercise of one or more outstanding options under this Article by (a)
authorizing the extension of a loan to such optionee from the Company, (b)
permitting the optionee to pay the option price for the purchased Common Stock
in installments over a period of years or (c) authorizing a guarantee by the
Company of a third-party loan to the optionee. The terms of any loan,
installment method of payment or guarantee (including the interest rate and
terms of repayment) will be established by the Committee in its sole discretion.
Loans, installment payments and guarantees may be
7
granted without security or collateral (other than to optionees who are
consultants or independent contractors, in which event the loan must be
adequately secured by collateral other than the purchased shares), but the
maximum credit available to the optionee shall not exceed the sum of (i) the
aggregate option price (less par value) of the purchased shares plus (ii) any
federal and state income and employment tax liability incurred by the optionee
in connection with the exercise of the option. Automatic Option Grants will not
be subject to these loan and loan guarantee provisions.
V. CANCELLATION AND REGRANT OF OPTIONS
The Committee shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees and subject to
stockholder approval, the cancellation of any or all outstanding options under
this Article (including outstanding options under the 1983 Plan incorporated
into this Plan) and to grant in substitution new options under the Plan covering
the same or different numbers of shares of Common Stock but having an option
price per share not less than 100% of the fair market value of the Common Stock
on the new grant date. Automatic Option Grants will not be subject to these
cancellation and regrant provisions.
VI. REPURCHASE RIGHTS
The Committee may in its discretion determine that it shall be
a term and condition of one or more options exercised under the Plan that the
Company (or its assigns) shall have the right, exercisable upon the optionee's
separation from service with the Company and its subsidiaries, to repurchase any
or all of the shares of Common Stock previously acquired by the optionee upon
the exercise of such option. Any such repurchase right shall be exercisable upon
such terms and conditions (including the establishment of the appropriate
vesting schedule and other provisions for the expiration of such right in one or
more installments) as the Committee may specify in the instrument evidencing
such right. The Committee shall also have full power and authority to provide
for the automatic termination of these repurchase rights, in whole or in part,
and thereby accelerate the vesting of any or all of the purchased shares.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. GRANTS
A. AUTOMATIC OPTION GRANTS. Non-employee members of the Board
will automatically be granted Non-Qualified Options to purchase the number of
shares of Common Stock set forth below (subject to adjustment under Section
III(C) of Article One of this Plan) on the dates and pursuant to the terms set
forth below ("Automatic Option Grants").
B. CONTINUING DIRECTORS. On the date of each Annual
Stockholders Meeting, beginning with the Annual Meeting in calendar year 2000,
each continuing non-employee member of the Board will receive an Automatic
Option Grant to purchase 6,000 shares of
8
Common Stock; provided, however, that an individual who has not served as a
non-employee member of the Board for the immediately preceding 180 days will not
receive such a grant.
C. NEW DIRECTORS. Each individual person who is first elected
or appointed as a non-employee member of the Board on or after May 20, 1999 will
receive, on the effective date of such initial election or appointment, an
Automatic Option Grant to purchase 15,000 shares of Common Stock.
D. SPECIAL OPTION GRANT. Each individual serving as a
non-employee Board member on May 20, 1999 shall receive at that time a one-time
Automatic Option Grant for 15,000 shares. Such grant shall be in substitution
for the Automatic Option Grant which would otherwise be made to such individual
at the 1999 Annual Stockholders Meeting pursuant to the provisions of Section
I(B) of this Article Three.
II. TERMS
The terms applicable to each Automatic Option Grant will be as
follows:
A. PRICE. The option price per share will be equal to 100% of
the Fair Market Value of a share of Common Stock on the date of grant.
B. OPTION TERM. Each Automatic Option Grant will have a
maximum term of 10 years measured from the automatic grant date.
C. EXERCISABILITY. Each Automatic Option Grant will become
exercisable for all Automatic Option Grant shares one (1) year after the
automatic grant date, provided the optionee continues to serve as a Board member
throughout that one (1)-year period.
D. PAYMENT. Upon exercise of the option, the option price for
the purchased shares will become payable immediately in one or more of the
following alternative forms: cash, shares of Common Stock held for the requisite
period to avoid a charge to the Company's reported earnings and valued at Fair
Market Value on the Exercise Date (as defined below), or pursuant to a sale and
remittance procedure under which the option holder delivers a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale proceeds to pay the option price. For
these purposes, the Exercise Date shall be the date on which written notice of
the exercise of the option is delivered to the Company. Except to the extent the
sale and remittance procedure specified above is utilized for the exercise of
the option, payment of the exercise price for the purchased shares must
accompany the notice.
E. EFFECT OF TERMINATION OF BOARD MEMBERSHIP.
(1) Should the optionee cease to be a Board member
for any reason (other than death) while holding one or more Automatic Option
Grants, then the optionee will have 6 months following the date of such
cessation of Board membership in which to exercise each such option for any or
all of the shares of Common Stock for which the option is exercisable at the
time Board membership ceases; provided however, that in no event may such an
option be exercised after the expiration of its 10-year term.
9
(2) Should the optionee die while holding one or more
Automatic Option Grants, then each such option may subsequently be exercised,
for any or all of the shares of Common Stock for which the option is exercisable
at the time of the optionee's death, by the personal representative of the
optionee's estate or by the person or persons to whom the option is transferred
pursuant to the optionee's will or in accordance with the laws of descent and
distribution following optionee's death. Any such exercise must, however, occur
before the earlier of (i) the expiration of the option's 10-year term, or (ii)
12 months after the date of the optionee's death.
F. ACCELERATION. Automatic Option Grants will be subject to
acceleration and termination in the event of a Corporate Transaction as
described in Article Two, Section III(A) of this Plan.
G. HOSTILE TAKEOVER. Automatic Option Grants will be granted
in tandem with limited stock appreciation rights, as described in the Hostile
Takeover provisions contained in Article Two, Section III(B) of this Plan.
ARTICLE FOUR
MISCELLANEOUS
I. AMENDMENT OF THE PLAN
A. GENERAL RULES. The Board shall have complete and exclusive
power and authority to amend or modify the Plan in any or all respects
whatsoever. However, no such amendment or modification shall, without the
consent of the option holders, adversely affect rights and obligations with
respect to options at the time outstanding under the Plan. In addition, certain
amendments may be made conditional on first having obtained stockholder approval
if required by the Board or pursuant to any applicable laws or regulations.
B. AUTOMATIC OPTION GRANTS. Amendment of the Automatic Option
Grant provisions of this Plan is subject to the requirements outlined above. In
addition, the Automatic Option Grant provisions of this Plan may not be amended
more than once every 6 months, other than to comport with changes in the
Internal Revenue Code or rules thereunder.
C. AMENDMENT OF OPTIONS. The Committee shall have full power
and authority to modify or waive any or all of the terms, conditions or
restrictions applicable to any outstanding option, to the extent not
inconsistent with the Plan; provided, however, that no such modification or
waiver shall (1) without the consent of the option holder, adversely affect the
holder's rights thereunder or (2) affect any outstanding option granted pursuant
to the Automatic Option Grant provisions of this Plan except to the extent
necessary to conform to any amendment to this Plan.
10
II. TAX WITHHOLDING
A. OBLIGATION. The Company's obligation to deliver shares or
cash upon the exercise of stock options or stock appreciation rights granted
under the Plan is subject to the satisfaction of all applicable Federal, State
and local income and employment tax withholding requirements.
B. STOCK WITHHOLDING. The Plan Administrator may, in its
discretion and upon such terms and conditions as it may deem appropriate
(including the applicable safe-harbor provisions of SEC Rule 16b-3) provide any
or all holders of outstanding option grants under the Plan with the election to
have the Company withhold, from the shares of Common Stock otherwise issuable
upon the exercise of such options, one or more of such shares with an aggregate
fair market value equal to the designated percentage (any multiple of 5%
specified by the optionee) of the Federal and State income and employment
withholding taxes ("Withholding Taxes") incurred in connection with the
acquisition of such shares. In lieu of such direct withholding, one or more
optionees may also be granted the right to deliver shares of Common Stock to the
Company in satisfaction of such Withholding Taxes. The withheld or delivered
shares shall be valued at the Fair Market Value on the applicable determination
date for such Taxes or such other date required by the applicable safe-harbor
provisions of SEC Rule 16b-3.
III. EFFECTIVE DATE AND TERM OF PLAN
A. IMPLEMENTATION. This Plan, as successor to the Company's
1983 Stock Option Plan, became effective as of the Effective Date, and no
further option grants shall be made under the 1983 Plan on or after the
Effective Date of this Plan. The Plan was amended on April 5, 2000 to increase
the number of shares of Common Stock available for issuance by an additional
750,000 shares (the "Additional Shares Amendment"), and to revise Section V of
Article II to require stockholder approval of all future cancellations and
regrants of options. The Additional Shares Amendment is subject to stockholder
approval at the 2000 Annual Meeting, and no option grants made on the basis of
the share increase authorized by that amendment shall become exercisable in
whole or in part unless and until the Additional Shares Amendment is approved by
the stockholders. Should such stockholder approval not be obtained at the 2000
Annual Meeting, then the 750,000-share increase shall not be implemented.
Subject to the foregoing limitations, options may be granted under the Plan at
any time before the date fixed herein for the termination of the Plan.
B. TERMINATION. Unless sooner terminated due to a Corporate
Transaction or a Change in Control, the Plan will terminate upon the earlier of
(i) December 8, 2002, or (ii) the date on which all shares available for
issuance under the Plan have been issued or cancelled pursuant to exercise,
surrender or cash-out of options. If the date of termination is determined under
clause (i) above, then options outstanding on such date shall thereafter
continue to have force and effect in accordance with the provisions of the
instruments evidencing those options.
C. ADDITIONAL SHARES. Options to purchase shares of Common
Stock may be granted under the Plan which are in excess of the number of shares
then available for issuance under the Plan, provided any excess shares actually
issued are held in escrow until stockholder approval is obtained for a
sufficient increase in the number of shares available for issuance under
11
the Plan. If such stockholder approval is not obtained within twelve (12) months
after the date the first such excess option grants are made, then (i) any
unexercised excess options shall terminate and cease to be exercisable and (ii)
the Corporation shall promptly refund the purchase price paid for any excess
shares actually issued under the Plan and held in escrow, together with interest
(at the applicable Short Term Federal Rate) for the period the shares were held
in escrow.
IV. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of
shares pursuant to options granted under the Plan shall be used for general
corporate purposes.
V. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option
under the Plan, and the issuance of stock upon the exercise or surrender of any
such option shall be subject to the procurement by the Company of all approvals
and permits required by regulatory authorities having jurisdiction over the
Plan, the options granted under it and the stock issued pursuant to it.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Neither the establishment of this Plan, nor any action taken
under the terms of this Plan, nor any provision of this Plan shall be construed
so as to grant any individual the right to remain in the employ or service of
the Company (or any parent or subsidiary corporation) for any period of specific
duration, and the Company (or any parent or subsidiary corporation retaining the
services of such individual) may terminate such individual's employment or
service at any time and for any reason, with or without cause.
PROXY
DURA PHARMACEUTICALS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mitchell R. Woodbury and Michael T.
Borer, and each of them, with power to act without the other and with power
of substitution, as proxies and attorneys-in-fact and hereby authorizes them
to represent and vote, as provided on the other side, all the shares of Dura
Pharmaceuticals, Inc. Common Stock which the undersigned is entitled to vote,
and, in their discretion, to vote upon such other business as may properly
come before the Dura Annual Meeting of Stockholders to be held May 24, 2000
or any adjournment thereof, with all powers which the undersigned would
possess if present at the meeting.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
- -------------------------------------------------------------------------------
- FOLD AND DETACH HERE -
[DURA PHARMACEUTICALS LOGO]
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
1. VOTE BY PROXY CARD: Mark, sign and date your proxy card and return it
promptly in the enclosed envelope.
OR
2. VOTE BY TELEPHONE: Call toll free 1-800-840-1208 on a touch tone
telephone 24 hours a day, 7 days a week. There is NO CHARGE to you for this
call. Have your proxy card in hand.
OR
3. VOTE BY INTERNET: 24 hours a day, 7 days a week.
Follow the instructions at our Website Address: http://www.eproxy.com/dura
THANK YOU FOR VOTING
Please mark your
votes as indicated /X/
in this example
This proxy when properly executed will be voted by the Proxies in the manner
designated below. If this Proxy is returned signed but without a clear
voting designation, the Proxies will vote FOR Proposals 1, 2, 3 and 4.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3 AND 4.
PROPOSAL 1 -- ELECTION OF DIRECTORS WITHHELD
FOR FOR ALL
Nominees: / / / /
01 James C. Blair
02 Joseph C. Cook, Jr.
03 Cam L. Garner
04 David F. Hale
WITHHELD FOR: (write that nominee's name in the space provided below).
- ----------------------------------------------------------------------
FOR AGAINST ABSTAIN
/ / / / / /
PROPOSAL 2 -- APPROVAL OF 2000
EMPLOYEE STOCK PURCHASE PLAN
PROPOSAL 3 -- APPROVAL OF AMENDMENT / / / / / /
TO 1992 STOCK OPTION PLAN
PROPOSAL 4 -- RATIFICATION OF / / / / / /
DELOITTE & TOUCHE LLP AS
ACCOUNTANTS
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I consent to future access to the Annual Reports and Proxy Materials
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any time. / /
SIGNATURE ________________________ SIGNATURE _____________________ DATE _______
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