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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Duramed Pharmaceuticals, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
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Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
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computed pursuant to Exchange Act Rule 0- 11 (set forth the
amount on which the filing fee is calculated and state how it
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DURAMED PHARMACEUTICALS, INC.
7155 EAST KEMPER ROAD
CINCINNATI, OHIO 45249
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
We are pleased to invite you to attend the Annual Meeting of
Stockholders of Duramed Pharmaceuticals, Inc., to be held at the Embassy Suites
Hotel, 4554 Lake Forest Drive, Cincinnati, Ohio 45242 on July 8, 1996 at 9:00
a.m. (EDT), for the purpose of considering and acting upon the following:
1. The election of five directors of the Company.
2. The approval of the 1996 amendment and restatement of the Company's
1988 Stock Option Plan to increase the number of shares for which
options may be granted from 2,360,000 to 4,360,000 and to make other
revisions, including amendments necessary to bring the Plan into
compliance with Section 162(m) of the Internal Revenue Code.
3. The ratification of Ernst & Young LLP as auditors of the Company for
the fiscal year ending December 31, 1996.
4. Such other matters as may properly come before the meeting.
Only stockholders of record at the close of business on May 17, 1996
are entitled to receive notice of, and to vote at, the meeting. Management, at
present, knows of no other business to be brought before the meeting.
By Order of The Board of Directors
/s/ E. Thomas Arington
E. THOMAS ARINGTON
President and Chief Executive Officer
Cincinnati, Ohio
June 3, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, SIGN AND
DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES OR CANADA. PROXIES MAY BE
REVOKED BY WRITTEN NOTICE OF REVOCATION, THE SUBMISSION OF A LATER DATED PROXY,
OR ATTENDING THE MEETING AND VOTING IN PERSON.
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DURAMED PHARMACEUTICALS, INC.
7155 EAST KEMPER ROAD
CINCINNATI, OHIO 45249
(513) 731-9900
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Duramed Pharmaceuticals, Inc. (the "Company") of
proxies to be voted at the Annual Meeting of Stockholders on July 8, 1996. This
Proxy Statement and the accompanying Proxy card are first being mailed to
stockholders of the Company on or about June 3, 1996.
OUTSTANDING VOTING SECURITIES
The number of voting securities of the Company outstanding on May 17,
1996, the record date for the meeting, was 10,117,254 shares of common stock,
$.01 par value, all of one class and each entitled to one vote, owned by
approximately 1,080 stockholders of record. A list of stockholders of the
Company may be examined at the offices of the Company at the address given
above.
PROXIES AND VOTING
The persons named as proxies were selected by the Board of Directors of
the Company and are directors or officers of the Company.
When the enclosed form of proxy is properly executed and returned, the
shares it represents will be voted as specified at the meeting. Any stockholder
giving a proxy has the power to revoke it at any time before it is voted by
giving written notice to the Company, by giving a later dated proxy indicating a
desire to vote differently or by appearing at the meeting and casting a ballot.
There are no rights of appraisal or similar rights of dissenting stockholders
with respect to any matter to be acted upon at the meeting.
The cost of solicitation of proxies will be paid by the Company. In
addition to the solicitation of proxies by use of the mails, solicitation may be
made by officers and regular employees of the Company by personal interview,
telephone and telegraph. Banks, brokerage houses and other custodians, nominees
or fiduciaries will be reimbursed for their reasonable expenses incurred in
forwarding soliciting material to their principals and in obtaining
authorizations for the execution of the proxies.
In accordance with the General Corporation Law of the State of
Delaware, the affirmative vote of a plurality of the shares present in person or
represented by proxy at the meeting will be sufficient for the election of
directors. Generally, other matters are determined by the affirmative vote of a
majority of the shares present in person or represented by proxy, with
abstentions having the effect of negative votes and broker non-votes deemed to
be absent shares. Votes at the meeting will be tabulated by financial management
employees of the Company. The Company has not established a procedure for
confidential voting.
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THE BOARD OF DIRECTORS
Pursuant to the Delaware General Corporation Law, as implemented by the
Company's Certificate of Incorporation and By-Laws, all corporate powers are
exercised, and the Company's business, property and affairs are managed, by or
under the direction of the Board of Directors.
Directors of the Company are elected at the Annual Meeting of
Stockholders. Currently there are five directors, and the Board of Directors
recommends that the current five directors be reelected. The persons described
below have been nominated for election as directors to serve until the Annual
Meeting in 1997 or until their successors are elected and qualified. The
Company's common stock has no cumulative voting rights.
At the present time it is intended that proxies received by management
of the Company which contain no instructions to the contrary will be voted for
the nominees listed below. Management does not contemplate that any nominee will
be unable to serve but, if that contingency should occur, the persons named as
proxies reserve the right to substitute another person of their choice as a
director when voting at the Annual Meeting.
Set forth below is certain information with respect to each nominee.
E. THOMAS ARINGTON, age 59. Mr. Arington became the Company's
President and Chief Executive Officer in October 1987. He became a director
of the Company in December 1987 and its Chairman of the Board in May 1988. Prior
to joining the Company, he was President of MarketMaster, Inc., a health care
consulting firm which since September 1984 had the exclusive rights to market
the Company's products. MarketMaster, Inc. was acquired by the Company in
December 1987. Mr. Arington's career has also included 17 years with Lederle
Laboratories, a division of American Cyanamid, where he held a variety of
executive management positions.
GEORGE W. BAUGHMAN, age 58. Mr. Baughman was elected a director of
the Company in April 1989. Mr. Baughman has been President and Chairman of
Advanced Research Associates, a consulting firm specializing in information
systems and technology and in financial analysis and planning, for more than the
past five years. He was employed by The Ohio State University for twenty-five
years, retiring as Director of Special Projects, Office of President.
DOANE F. DARLING, age 61. Mr. Darling has been a director of the
Company since May 1988 and has been Senior Vice-President, Corporate Planning
since April 1994. From 1989 through March 1994 he was Vice President, Corporate
Planning of the Company. For more than five years prior to 1989 he was President
and Chairman of Cedar Hill Associates Inc., a marketing-oriented management
consulting firm located in Worthington, Ohio.
STANLEY L. MORGAN, age 78. Mr. Morgan was elected a director of the
Company in April 1989. Mr. Morgan is the retired Executive Vice President
of Ben Venue Laboratories, Inc., a leading pharmaceutical manufacturer of
sterile dosage forms and bulk pharmaceutical products. He served Ben Venue in
many capacities including Chief Administrative Officer, Chief Engineer and
Executive Director of Research and Development. Since retirement he has been a
consultant to the pharmaceutical industry.
S. SUNDARARAMAN, age 59. Mr. Sundararaman is the Company's Secretary
and has been a director of the Company since 1982. Mr. Sundararaman is
Manager, Automation Marketing, USA for Lufthansa German Airlines and has been
with that company since 1961.
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MEETINGS; COMMITTEES OF THE BOARD. The Board of Directors held fifteen
meetings in 1995, of which eleven were by conference telephone. The Board of
Directors has an Audit Committee composed of Messrs. Baughman (Chairman), Morgan
and Sundararaman. The Audit Committee deals with financial reporting and control
of the Company's assets. The Committee met one time during 1995. The Board has a
Compensation Committee consisting of Messrs. Sundararaman (Chairman), Morgan and
Baughman. The Compensation Committee has responsibility for making
recommendations to the full Board concerning all matters dealing with officers'
compensation and fringe benefits. The Committee met eleven times during 1995,
including seven meetings by conference telephone. The Board does not have a
nominating committee. Each incumbent director attended more than seventy five
percent of the aggregate of all meetings of the Board of Directors which he was
eligible to attend and all meetings of committees upon which he served during
1995.
COMPENSATION OF DIRECTORS. During 1995, nonemployee directors of the
Company received an annual fee of $10,000, fees of $1,200 for each Board meeting
attended, plus reimbursement of expenses, and fees of $500 for each Board
meeting held by conference telephone. Committee meeting fees are paid at the
same rates as fees for Board meetings; however, no fees are paid for committee
meetings held on the same dates as Board meetings. No fees are paid to directors
who are also employees of the Company. Each nonemployee director also is
annually awarded nondiscretionary options to purchase 5,000 shares of the
Company's common stock and is reimbursed by the Company for up to $7,500 per
year in legal and financial consulting expenses.
During 1995 the Company adopted an unfunded pension plan covering
nonemployee directors who have served on the Board for at least five years. No
director who is, or at any time during the five years prior to the end of
service as a director was, an employee of the Company may participate in the
plan. The plan provides an annual benefit, payable monthly from the time a
participating director ceases to be a member of the Board until death, equal to
the director's most recent annual Board fee, as adjusted annually to reflect
changes in the Consumer Price Index. The right of a director to receive benefits
under the plan is forfeited if the director engages in any activity determined
by the Board to be contrary to the best interests of the Company.
APPROVAL OF 1996 AMENDMENT AND RESTATEMENT
OF 1988 STOCK OPTION PLAN
GENERAL. The 1988 Stock Option Plan (the "Plan") was initially adopted
by the Company's stockholders in 1988 and, with stockholder approval, was
amended in 1989 and amended and restated in 1992. Other Plan amendments, not
requiring stockholder approval, were adopted by the Company's Board of Directors
in 1994. On May 13, 1996, the Board of Directors of the Company again amended
and restated the Plan (as amended and restated, the "Amended Plan"). The
amendments increase the number of shares issuable pursuant to option grants from
2,360,000 to 4,360,000, change the method of counting shares available for
issuance pursuant to the Plan, provide that the Plan's disinterested
administration requirement and restrictions on transferability of options will
not be applicable if not required by Rule 16b-3 under the Securities Exchange
Act of 1934 ("Rule 16b-3") and conform the Plan to certain requirements of ss.
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), relating
to the deductibility of executive compensation.
In determining to increase the number of shares issuable pursuant to
options granted under the Amended Plan, the Board of Directors noted that, of
the 2,360,000 shares currently authorized, none remain available for future
option grants. The directors believe that the efforts of the Company's
management and other key employees have been crucial to the survival of the
Company over the years and that the future of the Company is substantially
dependent upon retaining these individuals. The directors also noted that the
Company's proposed acquisition of
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Hallmark Pharmaceuticals, Inc. would increase the number of employees who would
be eligible to receive grants of options under the Plan. Key personnel may not
have sufficient incentive to continue with the Company if they do not have the
opportunity to benefit from the improved results which they achieve. The goal of
stock options granted under the Amended Plan is to provide this incentive.
The Amended Plan changes the method of counting shares available for
future issuance. The Plan permits payment of an option's exercise price in cash,
by the tender of previously-owned shares of the Company's common stock, by the
withholding of a portion of the shares of common stock otherwise issuable upon
exercise or by a combination of these methods. In the past, shares tendered or
withheld as payment have not been available for issuance under the Plan. As a
result of a change in the Securities and Exchange Commission's position
regarding share counting, it now is permissible for such shares to be counted as
available for issuance under a plan, and the Amended Plan so provides. The
Amended Plan also provides that the requirement of disinterested administration
and that the restrictions on transferability of options contained therein will
not be applicable if not required by Rule 16b-3.
The Amended Plan contains provisions necessary for options to meet the
requirements for performance-based compensation pursuant to Code sec. 162(m) and
the regulations thereunder (together, hereafter, "Code sec. 162(m)"), which
otherwise limit the deductibility of executive compensation. Specifically, the
Amended Plan provides that, to the extent it is desired that compensation
resulting from an option grant be excluded from the deduction limitation of Code
sec. 162(m), the option must be granted by a committee composed of "outside
directors" within the meaning of Code sec. 162(m) and must have an exercise
price of not less than 100% of the fair market value of the Company's common
stock on the date of grant. Additionally, under the terms of the Amended Plan,
options for no more than 550,000 shares of common stock may be granted to any
eligible employee during any period of twelve consecutive months.
GRANTS. In furtherance of the Board's objective to provide continued
incentive to the Company's management and key employees, on May 13, 1996,
subject to stockholder approval of the Amended Plan and acceptance by the Chief
Executive Officer, the Compensation Committee of the Board of Directors (Mr.
Sundararaman not participating in the vote) awarded nonqualified options to
purchase 500,000 shares of common stock under the Amended Plan to the Company's
Chief Executive Officer, Mr. E. Thomas Arington, at a price of $17.50 per share.
These options would vest at the rate of 20% per year over a five year period,
with the initial 20% becoming exercisable on the date of acceptance. Further
information concerning this stock option grant is given under "Executive
Compensation and Other Information -- Report of the Compensation Committee on
Executive Compensation." In reaching this decision, the members of the
Compensation Committee considered a number of factors, including the past
efforts of the Chief Executive Officer, the dilution in his beneficial ownership
of common stock of the Company as a result of the Company's recent private
placement and the proposed acquisition of Hallmark Pharmaceuticals, the Chief
Executive Officer's voluntary reduction in cash compensation and the desire of
the members of the Compensation Committee to continue to provide a significant
incentive to the Company's Chief Executive Officer. The members of the
Compensation Committee were aware that, as discussed hereinafter under
"Accounting Effects," this action could result in a non-cash charge to the
Company's earnings based upon the difference between the fair market value of
the Company's common stock on May 13, 1996 and the fair market value at the time
of the stockholders' meeting or the Chief Executive Officer's acceptance of the
option (whichever is later). Nevertheless, the Compensation Committee felt that
the option grant was appropriate and warranted.
The Company's Chief Executive Officer, while appreciating the motives
of the members of the Compensation Committee, has not yet accepted this stock
option grant. Mr. Arington, while reserving the right to decide in his sole
discretion whether to accept or reject this option grant, has indicated that his
decision will be based upon a number of factors, including the vote of the
Company's stockholders on amendment and restatement of the Plan, the receipt and
timing of approval of the Company's ANDA for its conjugated estrogens product
and the probable effect on the Company's reported earnings of any required
charge. If the Amended Plan is not approved by the Company's
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stockholders, or if Mr. Arington decides to reject the grant, this option grant
will be of no effect. Also, if approval of the Amended Plan is not obtained, the
Plan as in effect prior to May 13, 1996 will remain in effect, except that the
amendments necessary to conform the Plan to Code sec. 162(m) and the regulations
thereunder, and other amendments not requiring stockholder approval, will be
retained.
As many as 300 individuals may be eligible to receive option grants
under the Amended Plan. The Plan contains no limitation as to the maximum number
of participants. On May 13, 1996, the Compensation Committee granted an option
for 18,500 shares of common stock to Mr. E. Thomas Arington (in addition to the
500,000 specific grant discussed above) and options for 10,000 shares each to
Messrs. Jeffrey Arington, Doane Darling, Timothy Holt and Ivan Pusecker. In
addition, as of May 13, 1996, options previously granted under the Plan were
outstanding in the following amounts: Mr. E. Thomas Arington, 595,198 shares;
Mr. Jeffrey Arington, 100,334 shares; Mr. Darling, 52,834 shares; Mr. Holt,
65,000 shares; Mr. Pusecker, 37,000 shares; all current executive officers as a
group, 850,366 shares; Mr. Baughman, 7,000 shares; Mr. Morgan, 5,000 shares; and
all employees (other than current executive officers) as a group, 631,403
shares. The option grants to Messrs. Baughman and Morgan were made under the
formula provisions of the Plan prior to its amendment in 1992. The recipients
of, and numbers of shares subject to, future grants under the Amended Plan are
not determinable at this time.
THE AMENDED PLAN. The following is a summary of the Amended Plan, the
full text of which is set forth as Exhibit A to this Proxy Statement.
Up to 4,360,000 shares of the Company's common stock may be issued
pursuant to the Amended Plan. The number of shares issuable, as well as the
number of shares subject to outstanding options and the price of outstanding
options, will be appropriately adjusted to give effect to any change in the
Company's common stock as a result of any stock split or dividend, combination
or exchange of shares, recapitalization, reclassification or similar event.
The Amended Plan is administered by a committee (the "Committee")
composed, if required by Rule 16b-3, of at least two "disinterested" directors
of the Company (that is, directors who have not been within the past year, and
may not be while members of the Committee, granted options under the Company's
plans other than through "formula" provisions). To the extent that it is desired
that compensation resulting from an option grant be excluded from the deduction
limitation of Code sec. 162(m), all directors comprising the Committee granting
the option must be "outside directors" within the meaning of Code sec. 162(m).
Currently, the Company's "disinterested" directors are Messrs. Sundararaman,
Baughman and Morgan. Mr. Sundararaman may not be deemed an "outside director"
and, to the extent necessary, will not participate in Committee decisions on
certain option grants such as the grants to Mr. E. Thomas Arington described
above. In addition to administering and interpreting the Amended Plan, the
Committee has exclusive authority, subject to the terms of the Plan, to select
optionees, to determine the number of shares for which an option is granted, to
set an option's price and term, to select the type of option and to establish
all other terms and conditions of an option, including restrictions on exercise.
The Amended Plan also provides that the Committee may, under circumstances
selected by it, waive or amend the terms and conditions of, or accelerate the
vesting of, an option. Committee members are not liable for actions and
determinations made or taken in good faith with respect to the Amended Plan and,
to the extent not prohibited by law, will be indemnified by the Company for any
liability or expenses incurred in this connection.
Any employee of the Company included on its regular payroll may be
selected to participate in the Amended Plan. Additionally, options may be
granted under the Amended Plan to advisors and consultants to the Company.
Non-employee directors of the Company are ineligible to participate in the
Amended Plan.
Both incentive stock options and nonqualified options may be granted to
employee-participants in the Plan. Advisors may only receive nonqualified option
grants. For a nonqualified option, the per share exercise price must
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be at least 50% of the fair market value of a share of the Company's common
stock on the date the option is granted; however, if compensation expense
resulting from the option is intended to be excluded from the deduction
limitation of Code sec. 162(m), the option must have a per share exercise price
of not less than 100% of the common stock's fair market value on the date of
grant. For an incentive stock option, the per share exercise price may not be
less than 100% of the common stock's fair market value on the date of grant.
Additionally, no incentive stock option may be exercised after ten years from
the date of grant. If an optionee holds more than 10% of the Company's shares,
any incentive stock option granted to that person must have a price of at least
110% of fair market value on the date of grant and may be for a term no longer
than five years. The aggregate fair market value (determined as of the time of
grant) of shares with respect to which incentive stock options are exercisable
for the first time by a holder in any year (under all Plans of the Company) may
not exceed $100,000. Furthermore, options for no more than 550,000 shares of
common stock may be granted to any eligible employee under the Amended Plan
during any period of twelve consecutive months.
To the extent and under the conditions established by the Committee, an
option's exercise price may be paid in cash, by the surrender of
previously-owned shares of the Company's common stock, by directing that shares
otherwise issuable upon the option's exercise be withheld as payment or by a
combination of the foregoing. If payment by the surrender or withholding of
shares is permitted, these shares are valued at their fair market value on the
date surrendered or withheld. Shares tendered or withheld as payment are
available for issuance under the Amended Plan.
In cases where the Committee permits payment of an option's exercise
price by the tender of previouslyowned shares of common stock, the Committee
also may grant a replacement option to the optionee. The number of shares
covered by the replacement option must equal the number of whole shares tendered
to satisfy the exercise price of the original option, and the replacement option
must have an exercise price equal to 100% of the fair market value of the common
stock on its date of grant. A replacement option becomes exercisable six months
after its date of grant and expires on the expiration date of the original
option. Other terms and conditions of replacement options may be established by
the Committee.
For purposes of the Amended Plan, fair market value means the last sale
price for the common stock reported on the Nasdaq National Market on a given
date. On May 17, 1996, the fair market value of the Company's common stock was
$19.00 per share.
If an optionee is an employee of the Company and terminates employment
for any reason, any unexercisable option held by that optionee will terminate.
An exercisable option held by the optionee will generally terminate on the
earlier of (i) the option's full exercise, (ii) the expiration of the option by
its terms or (iii) the end of the three-month period following the date of
termination of employment. If, however, an optionee becomes disabled or dies
either while employed by the Company or within three months of termination of
employment, a then-exercisable option held by that optionee may be exercised at
any time within one year after the date of death or commencement of disability.
An option granted to an advisor to the Company terminates on the earlier of its
full exercise or the option's expiration by its terms. The Amended Plan provides
that, in its discretion, the Committee may extend the Plan's periods for option
exercise.
If required by Rule 16b-3 and except to the extent that an option may
be transferred pursuant to a domestic relations order, an option is not
transferrable except by the optionee's will or the laws of descent and
distribution and, during an optionee's lifetime, may only be exercised by the
optionee or the optionee's legal representative or guardian.
The Company's Board of Directors may amend or terminate the Amended
Plan at any time; however, stockholder approval is required for an amendment if
such approval is necessary to maintain the Amended Plan's
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compliance with Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). No Plan amendment may alter or impair an outstanding
option without the optionee's consent. No option may be granted under the
Amended Plan subsequent to February 28, 2002.
The Amended Plan provides that in the event any person becomes the
"beneficial owner" (as defined in Exchange Act Rule 13d-3) of more than 50% of
the Company's outstanding shares of common stock, or commences a tender offer
which if successful would result in the person becoming the beneficial owner of
more than 50% of such shares, then all outstanding options will immediately
become exercisable. In the event of the execution of an agreement of
reorganization, merger or consolidation of the Company with another corporation
in which the Company is not to be the surviving corporation, or in the event of
the execution of an agreement of sale or transfer of all or substantially all
the assets of the Company, all outstanding options also will become immediately
exercisable. If the successor or transferee corporation does not obligate itself
to continue the Amended Plan, both the Plan and the unexercised portion of all
outstanding options will terminate as of the effective date of any such
transaction. Should the Plan and all options terminate as a result of the
Company's reorganization, merger, consolidation or sale of assets, an optionee
who is subject to Section 16 of the Exchange Act will, in lieu of the
consideration receivable by other optionees in the transaction, receive a cash
payment equal to the difference between the aggregate "fair value" of the shares
of the Company's common stock subject to the holder's unexercised options and
the aggregate option price of those shares.
The Amended Plan also provides that, if payments to an optionee by the
Company would constitute "excess parachute payments" under the Code, amounts
payable in accordance with the Plan's change of control provisions will be
reduced so that the employee is not subject to the 20% excise tax on the payment
and the Company is able to deduct the entire payment.
It is intended that the incentive stock options granted under the
Amended Plan will meet the requirements of sec. 422 of the Code, under which the
optionee recognizes no income upon exercise of the option and, if the stock
purchased pursuant to the exercise of the option is held for certain periods,
the amount realized on sale or taxable exchange in excess of the option price is
generally treated as a long term capital gain. To the extent individual
optionees qualify for such tax treatment, the Company is not entitled to a
federal income tax deduction in connection with the grant or exercise of the
option. If stock acquired through the exercise of an incentive stock option is
disposed of before the expiration of the prescribed holding periods, the lesser
of (i) the difference between the option price and the fair market value at the
time of exercise or (ii) the difference between the option price and the amount
realized upon disposition of the stock is treated as ordinary income to the
optionee at the time of disposition and is allowed as a deduction to the
Company; any excess of the amount realized upon sale over the fair market value
at the time of exercise is generally treated as capital gain to the optionee. An
incentive stock option which is not granted, exercised or held in accordance
with Code sec. 422 is accorded tax treatment as a nonqualified option.
In general, an optionee who exercises a nonqualified option realizes
taxable ordinary income and the Company is entitled to a deduction at the time
of exercise of the option in an amount equal to the excess of the fair market
value of the shares purchased at the time of such exercise over the option
price. The proceeds of the sale of stock under the Amended Plan constitute
general funds of the Company and may be used by it for any purpose.
ACCOUNTING EFFECTS. Under present accounting practices followed by the
Company, neither the grant at fair market value nor the exercise of an option
under the Amended Plan generally results in any charge against the Company's
earnings. The grant of options at a price less than 100% of fair market value
results in compensation expense to the Company. The Company historically has
granted all options under the Plan at an exercise price equal to 100% of the
fair market value of the common stock on the date of grant. However, the recent
contingent grant of options to purchase 500,000 shares of common stock to Mr. E.
Thomas Arington may result in a non-cash charge
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to earnings. While this grant was made on May 13, 1996 at a price equal to 100%
of the fair market value on that date, it is contingent upon approval by the
stockholders of the Company of the Amended Plan as provided herein and on Mr.
Arington's acceptance of the option. Under current accounting practices, the
Company understands that the later of the date of the stockholders meeting or of
Mr. Arington's acceptance of the option would be treated as the date of
measurement for purposes of this option grant rather than May 13, 1996.
Accordingly, if the fair market value of the common stock at that time should be
greater than that at May 13, 1996, the grant would be treated as having been
made below the fair market value, and a non-cash charge to earnings (which could
be substantial) would be incurred in an amount equal to the difference.
The Board of Directors intends to cause the following resolution to be
presented to stockholders for action at the Annual Meeting:
RESOLVED, that the Duramed Pharmaceuticals, Inc. 1988 Stock
Option Plan, as amended and restated through May 13, 1996, be,
and it hereby is, approved and adopted by the stockholders of
the Company.
The Board of Directors recommends a vote "FOR" approval and adoption of the
Amended Plan.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS. The current executive officers of the Company are
as follows:
Name Age Title
- ---- --- -----
E. Thomas Arington 59 Chairman of the Board, President and Chief
Executive Officer
Doane F. Darling 61 Senior Vice President, Corporate Planning and
Director
S. Sundararaman 59 Secretary and Director
Jeffrey T. Arington 35 Senior Vice President, Marketing, Sales and
Science
Timothy J. Holt 43 Senior Vice President, Finance and
Administration, Treasurer and Chief Financial
Officer
Ivan E. Pusecker 53 Senior Vice President, Operations
Information about Messrs. E. Thomas Arington, Darling and Sundararaman
is given above under "The Board of Directors." Information about the Company's
other executive officers is given below:
- 8 -
11
JEFFREY T. ARINGTON. Mr. Arington has been Senior Vice President,
Marketing, Sales and Science since 1995. He served as the Company's Senior
Vice President, Marketing, Science and Operations from 1994 until 1995, as Vice
President, Sales and Marketing of the Company from 1989 until 1994 and as
Executive Director of Sales and Marketing from 1987 until 1989. From 1984 until
1987, he was employed by MarketMaster in a variety of executive positions.
Jeffrey T. Arington is E. Thomas Arington's son.
TIMOTHY J. HOLT. Mr. Holt has been Senior Vice President, Finance and
Administration since April 1994. He served as Vice President, Finance of the
Company from 1985 through March 1994. Prior to joining the Company in 1985, Mr.
Holt was Vice President-Finance and Chief Financial Officer of Vortec
Corporation, a then publicly held company operating in the fields of specialty
manufacturing and home health care equipment, and also held financial management
positions with privately held companies including Eagle Software Publishing.
IVAN E. PUSECKER. Mr. Pusecker has been Senior Vice President,
Operations since 1995. He served as the Company's Vice President, Corporate
Projects Administration from 1994 until 1995, as Vice President, Operations of
the Company from 1989 until 1994 and as Executive Director of Operations from
1987 until 1989. He was Vice President of Corporate Development of MarketMaster
from 1986 to 1987 and served as President and Chief Executive Officer of McNivan
Foods, Inc., a marketer of specialized nutritional supplements, from 1984 to
1986.
Officers of the Company are elected by, and serve at the discretion of,
the Board of Directors.
SUMMARY INFORMATION. The following table sets forth, for the fiscal
years indicated, amounts of cash and certain other compensation paid by the
Company to (i) Mr. E. Thomas Arington and (ii) each of the Company's four most
highly compensated executive officers other than Mr. Arington who were serving
as executive officers at the end of 1995 and whose salary and bonus exceeded
$100,000. Mr. Arington and these other executive officers are sometimes referred
to hereafter as the "named executive officers."
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
----------------------------------------------------------------
Other Securities
Annual Underlying
Compen- Stock Option All Other
Name and Bonus sation Grants Compensation
Principal Position Year Salary ($) ($) ($)(1) (#) ($)(2)
- -----------------------------------------------------------------------------------------------------------------------
E. Thomas Arington 1995 $422,142 $ --- --- --- $35,159
Chief Executive Officer 1994 400,000 461,000 --- 95,158 27,699
1993 360,000 360,000 --- --- 29,095
Jeffrey T. Arington 1995 $155,262 $ --- --- --- $ 3,308
Senior Vice President 1994 137,885 50,000 --- --- 3,883
1993 118,896 25,000 --- --- 1,231
Doane F. Darling 1995 $117,827 $ --- --- --- $ 2,956
Senior Vice President 1994 107,846 30,000 --- --- 2,769
1993 92,631 12,000 --- --- 739
Timothy J. Holt 1995 $155,262 $ --- --- --- $ 5,540
Senior Vice President 1994 137,885 50,000 --- --- 4,115
and Treasurer 1993 116,350 25,000 --- --- 1,463
- 9 -
12
Ivan E. Pusecker 1995 $144,606 $ --- --- --- $ 3,830
Senior Vice President 1994 124,292 40,000 --- --- 4,030
1993 116,350 12,000 --- --- 1,753
<FN>
- ----------------------------
(1) None, other than perquisites which did not exceed the lesser of $50,000 or
10% of salary and bonus for any named executive officer.
(2) Amounts disclosed for 1995 are comprised of the following: (i) term and/or
whole life insurance premium payments for the benefit of Mr. E. Thomas
Arington ($27,901), Mr. Jeffrey T. Arington ($308), Mr. Holt ($540) and Mr.
Pusecker ($830); (ii) disability insurance premium payments for Mr. E.
Thomas Arington ($4,258); (iii) matching contributions to the Company's
401(k) Plan on behalf of Mr. E. Thomas Arington ($3,000), Mr. Jeffrey T.
Arington ($3,000), Mr. Darling ($2,956), Mr. Holt ($3,000) and Mr. Pusecker
($3,000) in respect of their contributions to the Plan; and $2,000
representing the dollar value of 133 shares of Common Stock awarded to Mr.
Holt in recognition of his tenth anniversary of service with the Company.
STOCK OPTIONS. The Company has two existing plans pursuant to which options
for shares of common stock may be granted to employees: the 1986 Stock Option
Plan and the 1988 Stock Option Plan. Neither of the Plans provides for the grant
of stock appreciation rights. No options were granted to the named executive
officers during 1995. For information concerning the 1988 Stock Option Plan, see
"Approval of 1996 Amendment and Restatement of 1988 Stock Option Plan."
With respect to each named executive officer, the following table sets
forth information concerning option exercises during 1995 and unexercised
options held at December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
Number of Securities Value of Unexercised In-the-
Value Realized ($) Underlying Unexercised Money Options at FY-End ($)
Options at FY-End (#)
(Market Price on Exercisable/
Shares Acquired on Exercise Less Exercise Exercisable/ Unexercisable
Name Exercise (#) Price) Unexercisable
- -------------------------------------------------------------------------------------------------------------------------------
E. Thomas Arington --- --- 849,843/0 $11,225,646/$0
Jeffrey T. Arington --- --- 101,001/2,000 $1,390,713/$29,000
Doane F. Darling --- --- 57,834/0 $781,576/$0
Timothy J. Holt --- --- 77,734/600 $1,061,301/$8,700
Ivan E. Pusecker 42,800 $545,250 60,600/600 $840,900/$8,700
EMPLOYMENT AGREEMENT. On March 30, 1994, the Company entered into an
Amended and Restated Employment Agreement (the "Agreement") with Mr. E. Thomas
Arington, which restated and amended Mr. Arington's prior agreement with the
Company. The initial term of the Agreement continues until December 31, 1998,
subject to automatic annual extensions if notice of termination is not given by
either party prior to specified dates. The effect of the Agreement is to provide
for an initial five year employment term, with subsequent "rolling three
- 10 -
13
year" minimum terms. The Agreement may be amended by agreement between the
Compensation Committee of the Board of Directors and Mr. Arington.
Under the Agreement, Mr. Arington is to receive a salary in an amount
to be set by the Compensation Committee, but not less than $33,333 per month.
For 1995, the salary was set at $36,000 per month; for 1996, the Compensation
Committee had determined to increase Mr. Arington's salary to $500,000 per year.
In view of the Company's operating results, however, Mr. Arington declined the
increase and his 1995 salary continued in effect; in February 1996, he
voluntarily reduced his salary to $216,000 effective until such time that he
determines an adjustment is appropriate. In addition, the Agreement entitles Mr.
Arington to receive for each of the years 1994 through 1998 a separate annual
bonus equal to the following percentages of the Company's income before taxes:
8% for 1994; 7% for 1995; 6% for 1996; and 5% for each of 1997 and 1998. After
1998, a bonus will be paid in such a manner and amount as the Compensation
Committee might at that time determine. This incentive compensation arrangement
was approved by the Company's stockholders at the 1994 Annual Meeting of
Stockholders. Mr. Arington received no bonus in respect of 1995.
The Agreement also provides for life and disability insurance and for
certain other customary benefits. Options to purchase 254,685 shares of common
stock of the Company granted to Mr. Arington under his prior Agreement are
continued by the new Agreement. If Mr. Arington's employment is voluntarily
terminated by him, or if he is terminated by the Company with cause, the
Agreement provides that he will not compete with the Company for a period of one
year after termination.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION.
Executive Compensation Policies. The Company's executive compensation
consists of three components: annual salaries, annual bonuses and stock option
grants.
In a proactive response to various regulatory, industry-wide and
Company-specific issues, the Company in late 1990 voluntarily suspended
shipments of all its products and subsequently voluntarily surrendered all but
two of its drug approvals. Thereafter, the Company's efforts were focused
necessarily on a survival and recovery plan. Through execution of this plan, the
Company returned to profitable operations in 1993 and 1994. In early 1995, a
conscious decision was made by management to increase expenditures for
manufacturing and other launch activities in anticipation of the approval of the
Company's conjugated estrogens product and to provide the additional personnel
and capital resources needed to implement the Company's business plan. This
planned investment in the future contributed substantially to increased
expenses, and therefore reduced levels of performance, and the Company reported
a loss for 1995. The Company remains optimistic regarding the approval of its
conjugated estrogens product. However, the Company's management has also
recognized the importance of balancing a strong product development commitment
against the need to conserve resources, and action has been taken to implement
operational changes consistent with these two corporate goals.
The Company's policies on executive compensation have reflected the
Company's history since 1990. These policies have been designed to retain the
services of competent and talented managers, and to obtain the services of
additional individuals of similar caliber during a very difficult period. To
that end, a significant component of executive compensation has been stock
option grants which serve to align closely the interests of management with
those of stockholders. Salary and bonus levels have been affected by the cash
flow difficulties faced by the Company and, in the case of the Company's Chief
Executive Officer, payment of portions of salary and bonus have been deferred
from time to time until the Company's cash flow situation improved.
- 11 -
14
During early 1994, the Compensation Committee established target ranges
of total cash salary and bonus compensation for 1995 for different levels of
management of the Company. The ranges of target total cash compensation were
based upon the Compensation Committee's subjective judgment as appropriate to
meet the policies on executive compensation described in the preceding
paragraph. Actual salaries paid to the named executive officers for 1995 were
somewhat below the target ranges. No bonuses were paid for 1995.
Annual Salaries. The annual salary of the Company's Chief Executive
Officer is established pursuant to the terms of an Employment Agreement with the
Company which was initially entered into in 1987 and amended as of March 30,
1994. Prior to its amendment during 1994, the Employment Agreement had provided
for a minimum salary of $20,000 per month and the salary had been set by the
Compensation Committee at $30,000 per month for each of 1992 and 1993. Under the
Amended Employment Agreement, the Chief Executive Officer is to receive a salary
in an amount to be set by the Compensation Committee, but not less than $33,333
per month. For 1995, the salary was set at $36,000 per month. The base salary
provisions of the Amended Employment Agreement were approved by the Compensation
Committee after consideration of a number of factors. These factors, which were
applied in a subjective manner, included the substantially improved operating
results of the Company during 1994, the view of the Compensation Committee that
the improvements in such results, as well as the Company's very survival over
the preceding few years and its improved prospects for the future, were due in
large part to the efforts of the Company's Chief Executive Officer, and the
Compensation Committee's desire to ensure the continued services of the
Company's Chief Executive Officer.
During December 1995, the members of the Compensation Committee
considered the salary to be paid to the Company's Chief Executive Officer for
1996. This involved a subjective consideration of the Company's operating
results during 1995, the successful conclusion of the first part of the
Company's private placement of Series C Preferred Stock which provided needed
working capital for the Company, the entering into of various product agreements
with other companies, the possible acquisition of Hallmark Pharmaceuticals, Inc.
and the substantial efforts expended in efforts to gain approval from the FDA of
the Company's conjugated estrogens product. The Committee concluded that the
salary for the Company's Chief Executive Officer for 1996 should be set at
$41,667 per month. However, in view of the Company's need to conserve resources,
the Chief Executive Officer did not accept this salary increase, and, beginning
in February 1996, voluntarily reduced his salary by 50% below that paid in 1995.
Annual salaries for 1995 for executive officers other than the Chief
Executive Officer were established by the Company's Chief Executive Officer,
taking into consideration the target levels for total cash compensation
established by the Compensation Committee, and were based upon factors which are
typically subjective, such as his perception of the individual officer's
performance, value to the Company, responsibility assumed, potential for
assumption of increased responsibility, and salary level needed to retain the
services of the individual. The Company's profitability and the market value of
its stock were considered in a subjective manner in establishing executive
officers' base salaries for 1995, but were not a substantial factor in such
determination.
Salaries for 1996 were not increased over 1995 and, in order to
conserve resources, various salary reductions were implemented at the beginning
of the second quarter of 1996.
Annual Bonuses. The Company's policy is to pay annual bonuses to its
executive officers. The bonus to be paid to the Company's Chief Executive
Officer is established by his Employment Agreement at an amount equal to the
following percentages of the Company's income before taxes: For 1995, 7%; for
1996, 6%; and for each of 1997 and 1998, 5%. This incentive bonus arrangement
was approved by the Company's stockholders at the 1994 Annual Meeting. Bonuses
paid to other executive officers are determined by the Company's Chief Executive
Officer in consideration of the target levels for total cash compensation
established by the Compensation Committee. The Chief
- 12 -
15
Executive Officer's determination is subjective in nature and is based upon the
factors outlined above under "Annual Salaries." The determination of bonuses for
the Company's executive officers other than the Chief Executive Officer
typically involves a subjective consideration of the Company's level of
profitability during a particular year and the increase in the market value of
the Company's common stock during that year.
Notwithstanding the fact that the Company reported a net loss for 1995,
the Compensation Committee felt that it would be appropriate to recognize the
efforts of the Company's executive officers, including the Company's Chief
Executive Officer, by the payment of a bonus for 1995. However, the Company's
Chief Executive Officer expressed the view that no bonuses should be paid in
view of the Company's need to conserve resources. Accordingly, no cash bonuses
were paid or accrued for 1995.
Stock Option Grants. Since the end of 1990, the Company has relied
heavily upon significant grants of stock options for the purpose of providing
incentives to management. These stock option grants have, in the view of the
Compensation Committee, been the principal factor in enabling the Company to
retain and build a competent management team in the face of the Company's past
financial difficulties. The option grants not only provide incentives to the
Company's executive officers, but also, in the Compensation Committee's view,
serve to align directly the interests of such individuals with the interests of
the Company's stockholders.
Subject to certain limitations imposed by sec. 162(m) of the Code (see
"Approval of 1996 Amendment and Restatement of 1988 Stock Option Plan"), the
Company's stock option plans are administered by the Compensation Committee,
which, among other things, determines the size of grants to be made to
individual employees of the Company. This determination has been made on a
subjective basis, taking into account such factors as the employee's level of
performance and responsibility and the loss which would be suffered by the
Company if the employee were to leave the Company's employ. With respect to
individuals other than the Company's Chief Executive Officer, the Compensation
Committee also considers the recommendations of the Chief Executive Officer
which are based on the same subjective factors described above. In making these
determinations, the Compensation Committee considers the cash compensation
received by recipients and the amount and terms of options already held by the
recipients. Although stock option grants are not based upon objective
performance criteria, the practical value of the option grants depends upon the
performance of the Company's common stock after the date of grant.
During 1995, no option grants were made to any of the named executive
officers. On May 13, 1996, an option to purchase 18,500 shares was granted to E.
Thomas Arington and options to purchase 10,000 shares were granted to each of
Timothy J. Holt, Ivan Pusecker, Doane Darling and Jeffrey Arington. These option
grants were made in consideration of the factors described above and also in
recognition of the fact that the Company did not pay a cash bonus to its
executive officers for 1995 and that the cash salaries of the Company's
executive officers had been reduced. On the same date, the Compensation
Committee determined to make a contingent award of options to purchase 500,000
shares to the Company's Chief Executive Officer, Mr. E. Thomas Arington. Mr.
Sundararaman did not participate in the Committee vote on this award. In so
doing, the Committee noted that the effect of the private placement of the
Series C Preferred Stock, along with the proposed acquisition of Hallmark
Pharmaceuticals, would reduce the Chief Executive Officer's percentage ownership
of the Company, on a fully diluted basis, from approximately 13.0% to
approximately 10.7%. As noted above, the Committee places significant reliance
upon grants of stock options for the purpose of providing incentives to
management. The Committee also noted its desire to ensure that the Company's
Chief Executive Officer, individually, continues to hold a significant equity
percentage ownership of the Company. Mr. Arington has not yet accepted this
option grant. See "Approval of 1996 Amendment and Restatement of 1988 Stock
Option Plan -- Grants." This grant of options to the Company's Chief Executive
Officer is contingent upon receipt of approval by the Company's stockholders of
the increase in the number of options authorized for issuance under the Amended
Plan.
- 13 -
16
Compensation Committee:
S. Sundararaman, Chairman
George W. Baughman
Stanley L. Morgan
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. As
discussed above under "Report of the Compensation Committee on Executive
Compensation," Mr. E. Thomas Arington, the Company's Chief Executive Officer,
determined the 1995 salaries and bonuses of the Company's other named executive
officers, taking into consideration the target range for total cash compensation
established by the Compensation Committee.
Certain indebtedness of the Company is guaranteed by Mr. Sundararaman,
the Company's Secretary and the Chairman of the Compensation Committee, as well
as by a former director and officer of the Company. As of December 31, 1995, the
amount of outstanding indebtedness subject to these guarantees was approximately
$1,061,000.
PERFORMANCE GRAPH. The following graph and table compare, over the
period shown, the cumulative total stockholder return of the Company's common
stock to the cumulative total return of companies included in the Center for
Research in Security Prices' Index for The Nasdaq Stock Market (U.S. Companies)
and in a peer group index comprised of Nasdaq Pharmaceuticals Stocks (SIC
2830-2839 U.S. & Foreign). In each case it is assumed that $100 was invested on
December 31, 1990 and that all dividends were reinvested.
========================================================================================================================
1990 1991 1992 1993 1994 1995
- ------------------------------------------------------------------------------------------------------------------------
Duramed Pharmaceuticals(1) $100.00 $ 92.31 $815.39 $1,292.31 $3,630.77 $3,692.31
- ------------------------------------------------------------------------------------------------------------------------
Nasdaq Index $100.00 $106.55 $186.84 $ 214.48 $ 209.66 $ 296.53
- ------------------------------------------------------------------------------------------------------------------------
Nasdaq Pharmaceuticals, Inc. $100.00 $265.74 $221.14 $ 197.11 $ 148.35 $ 271.34
========================================================================================================================
- 14 -
17
(1) The Company's common stock was delisted from The Nasdaq Stock Market in
September 1991 and was relisted on September 19, 1994. Prices during
the period from September 1991 to September 1994 are based on the
averages of the bid and ask prices quoted on the OTC Bulletin Board;
prices for other periods are based on the closing prices reported on
The Nasdaq Stock Market.
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors desires to obtain from the stockholders an
indication of their approval or disapproval of the Board's action in appointing
Ernst & Young LLP, Certified Public Accountants, as independent auditors of the
Company for the year 1996.
Ernst & Young LLP has served the Company since 1984. The Company has
been informed that neither Ernst & Young LLP nor any of its partners has any
direct financial interest or any material indirect financial interest in the
Company and during the past three years has had no connection therewith in the
capacity of promoter, underwriter, voting trustee, director, officer, or
employee.
The Board of Directors recommends a vote "FOR" approval of Ernst &
Young LLP.
In the event the resolution is defeated, the adverse vote will be
considered a direction to the Board of Directors to select other auditors for
the following year. However, because of the difficulty and expense of making
any substitution of auditors so long after the beginning of the current year,
it is contemplated that the appointment for the year 1996 will be permitted to
stand unless the Board finds other good reasons for making a change.
Representatives of Ernst & Young LLP will be in attendance at the meeting, with
the opportunity to make a statement if they desire, and will be available to
respond to appropriate questions.
CERTAIN TRANSACTIONS
From 1988 until 1995, when the arrangement was terminated, the Company
marketed, and distributed under the Duramed label, substantially all
prescription products for Invamed, Inc. ("Invamed"), a New Jersey-based generic
drug manufacturer and the beneficial owner of approximately 5% of the Company's
Common Stock during 1995. The Company has other agreements with Invamed covering
the development and, if Food and Drug Administration approval is received,
manufacture by Invamed of Verapamil S.R., which will be marketed by the Company
on a variable profit basis with Invamed. In connection with these arrangements,
the Company granted Invamed options covering an aggregate of 435,000 shares of
the Company's common stock.
PRINCIPAL STOCKHOLDERS AND
HOLDINGS OF MANAGEMENT
The following table sets forth, as of May 17, 1996, certain information
with regard to the beneficial ownership of the Company's common stock by (i)
each of the Company's stockholders known to hold more than 5% of the outstanding
shares of common stock, (ii) each director and each executive officer named on
the Summary Compensation Table, individually, and (iii) all directors and
executive officers of the Company as a group.
- 15 -
18
Name Beneficial Ownership
- ---- ---------------------------------------
Number Of Shares (1) Percent
-------------------- -------
E. Thomas Arington 1,662,035 15.1%
7155 East Kemper Road
Cincinnati, OH 45249
George W. Baughman 73,000 *
Doane F. Darling 71,343 *
Stanley L. Morgan 72,000 *
S. Sundararaman 233,716 2.3%
Jeffrey T. Arington 133,960 1.3%
Timothy J. Holt 103,710 1.0%
Ivan E. Pusecker 86,137 *
All directors and 2,435,901 21.5%
executive officers
as a group (8 persons)
*Less than one percent.
<FN>
- ---------------
(1) Excludes shares of Common Stock subject to options which cannot be
exercised within 60 days after May 17, 1996. Includes options to purchase
the following numbers of shares: Mr. E. Thomas Arington, 854,468 shares;
Mr. Baughman, 37,000 shares; Mr. Darling, 62,834 shares; Mr. Morgan, 20,000
shares; Mr. Sundararaman, 10,000 shares; Mr. Jeffrey T. Arington, 106,001
shares; Mr. Holt, 82,734 shares; Mr. Pusecker, 42,600 shares; and all
directors and executive officers as a group, 1,215,637 shares.
In addition to the shares listed above, The Provident Bank, One East Fourth
Street, Cincinnati, Ohio (the "Bank"), owns 328,018 shares (3.2%) of the
Company's Common Stock, 32,529 shares of the Company's Series B Non-Voting
Convertible Preferred Stock (the "Series B Preferred Stock") which are
convertible into 325,290 shares of Common Stock and warrants exercisable at a
price of $18.125 per share for an additional 200,000 shares of Common Stock.
Because of regulatory requirements, the Series B Preferred Stock may not be
converted if, as a result, the Bank and certain of its affiliates would then own
in excess of 5.0% of any class of the Company's voting capital stock, except
that conversion is permitted immediately prior to and in conjunction with
certain transactions involving the sale of the underlying Common Stock.
- 16 -
19
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of the Company's equity securities, to file reports of
security ownership and changes in such ownership with the Securities and
Exchange Commission (the "SEC"). Officers, directors and greater than
ten-percent beneficial owners also are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file. Based upon a
review of copies of such forms and written representations from its executive
officers and directors, the Company believes that all Section 16(a) filing
requirements were complied with on a timely basis during and for 1995, except
that a Form 4 was filed after its due date reporting an anniversary award of 133
shares of common stock to Mr. Holt.
PROXY STATEMENT PROPOSALS
Stockholder proposals will be considered for inclusion in the Proxy
Statement for the 1997 Annual Meeting if they are received by the Company before
the close of business on February 3, 1996.
OTHER BUSINESS
The Company is not aware of any business or matter which may properly
be presented at the meeting other than as discussed herein. However, if any
other matters do come before the meeting, or an adjournment thereof, it is
intended that the proxies will vote thereon in accordance with the
recommendation of the Board of Directors.
STOCKHOLDERS MAY OBTAIN WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K BY WRITING TO THE SENIOR VICE PRESIDENT, FINANCE AND ADMINISTRATION OF
THE COMPANY AT THE COMPANY'S ADDRESS SHOWN ABOVE.
- 17 -
20
Exhibit A
DURAMED PHARMACEUTICALS, INC.
1988 Stock Option Plan
(As amended and restated through May 13, 1996)
ARTICLE I
OBJECTIVES
1.1 The objectives of this Stock Option Plan (the "Plan") are
to enable Duramed Pharmaceuticals, Inc. ("Duramed") to compete successfully in
retaining and attracting employees and advisors of outstanding ability, to
stimulate the efforts of employees and advisors toward Duramed's objectives and
to encourage ownership of shares of its Common Stock by its employees and
advisors.
ARTICLE II
ADMINISTRATION
2.1 ADMINISTRATION. The Plan shall be administered by a
committee of the Board of Directors of Duramed (the "Committee") to consist of
at least two directors, each of whom, unless not required by Rule 16b-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as such Rule may be
amended from time to time or any successor rule thereto ("Rule 16b-3"), is a
"disinterested person" as defined in Rule 16b-3. To the extent that it is
desired that compensation resulting from the grant of a particular Option be
excluded from the deduction limitation of Section 162(m) of the Code, all
directors comprising the Committee granting such Option also shall be "outside
directors" within the meaning of Code Section 162(m). Subject to and consistent
with the provisions of the Plan, the Committee shall establish such rules and
regulations as it may deem necessary or appropriate for the proper
administration of the Plan, shall interpret the provisions of the Plan, shall
decide all questions of fact arising in the application of Plan provisions and
shall make such other determinations and take such actions in connection with
the Plan and the Options granted hereunder as it deems necessary or advisable.
2.2 Except as specifically limited by the provisions of the
Plan, the Committee shall have exclusive authority to:
A. Determine which Eligible Employees, or Advisors
shall be granted Options;
B. Determine the number of Shares which may be subject
to each Option;
C. Determine the term and the Option Price of each
Option;
A-1
21
D. Determine whether an Option is an Incentive Stock
Option or a Nonqualified Stock Option (except that only
Nonqualified Stock Options may be granted to Advisors);
E. Determine the time or times when Options will be
granted; and
F. Determine all other terms and conditions of each
Option, including (but not limited to) the time and
conditions of exercise or vesting and the terms of any
Option agreement. The Committee may, in its discretion,
determine as a condition of any Option that a stated
percentage of Shares covered by such Option shall be
exercisable in any one year or other stated period of time.
The Committee may also waive or amend the terms and
conditions of, or accelerate the vesting of, an Option under
circumstances selected by the Committee.
2.3 Any action, decision, interpretation or determination by
the Committee with respect to the application or administration of this Plan
shall be final and binding upon all persons, and need not be uniform with
respect to its determination of recipients, amount, timing, form, terms or
provisions of Options.
2.4 No member of the Committee shall be liable for any action
or determination taken or made in good faith with respect to the Plan or any
Option granted hereunder and, to the extent not prohibited by applicable law,
all members shall be indemnified by the Company for any liability and expenses
which they may incur as a result of any claim or cause of action or threatened
claim or cause of action, arising in connection with the administration of this
Plan or the grant of any Option hereunder.
ARTICLE III
SHARES ISSUABLE
3.1 Except as provided in Article XI, the number of Shares
which may be issued under the Plan shall not exceed 4,360,000 Shares in the
aggregate and Options for no more than 550,000 Shares may be granted to any
individual Eligible Employee during any period of twelve (12) consecutive
months. If any Option expires or terminates for any reason without being
completely exercised, the Shares with respect to which such Option was not
exercised may again be subject to other Options. Shares tendered or withheld as
payment for the Option Price pursuant to Section 7.1 also shall be available for
issuance under the Plan. The Committee may make such other determinations
regarding the counting of Shares issued pursuant to the Plan as it deems
necessary or advisable, provided that such determinations shall be consistent
over the life of the Plan and shall be permitted by law.
A-2
22
ARTICLE IV
DEFINITIONS
4.1 For purposes of the Plan each of the following terms shall
have the definition which is attributed to it, unless another definition is
clearly indicated by a particular usage and context.
A. "ADVISOR" means any person who provides bona-fide
advisory or consulting services to the Company other than
services in connection with the offer or sale of securities
in a capital-raising operation.
B. "CODE" means the Internal Revenue Code of 1986, as
amended. Reference to any Section of the Code includes the
provisions of that Section as it may be amended or replaced
by any other section(s) of like intent and purpose and also
includes any regulations or rulings promulgated thereunder.
C. "COMPANY" means Duramed and any parent or subsidiary
of Duramed, as the terms "parent" and "subsidiary" are
defined in Sections 424(e) and 424(f) of the Code.
D. "DISABILITY" means permanent and total disability as
defined in Section 22(e)(3) of the Code.
E. "EFFECTIVE DATE OF GRANT" means the date on which,
or such later date as of which, the Committee makes an award
of an Option.
F. "ELIGIBLE EMPLOYEE" means any individual (other than
one who receives retirement benefits, stipends, consulting
fees, honorariums, and the like) who performs services for
the Company and is included on the regular payroll of the
Company.
G. "FAIR MARKET VALUE" means the last sale price
reported on any stock exchange or on any trading system
sponsored by the National Association of Securities Dealers,
Inc. on which the Shares are traded on a specified date or,
if there are no reported sales on such date, then the last
reported sales price on the next preceding day on which such
a sale was transacted. If the Shares are not then traded as
described in the preceding sentence, then the average of the
closing bid and asked prices on the specified date or last
preceding day on which bid and asked prices were reported,
as quoted by such source as the Committee may select, shall
be used in determining Fair Market Value for a Share.
H. "INCENTIVE STOCK OPTION" shall have the same meaning
as is given to that term by Section 422 of the Code.
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I. "NONQUALIFIED STOCK OPTION" means any Option other
than an Incentive Stock Option.
J. "OPTION" means the right, subject to the terms of
this Plan and to such other terms and conditions as the
Committee may establish, to purchase from Duramed a stated
number of Shares at a specified price.
K. "OPTION PRICE" means the purchase price per Share
subject to an Option. The Option Price shall not be (i) less
than 50% of the Fair Market Value of a Share on the
Effective Date of Grant in the case of a Nonqualified Stock
Option, except that no Option which is intended to result in
compensation that qualifies for exclusion from the deduction
limitation of Code Section 162(m) shall be granted with an
Option Price of less than 100% of the Fair Market Value of a
Share on the Effective Date of Grant, or (ii) less than 100%
of the Fair Market Value of a Share on the Effective Date of
Grant in the case of an Incentive Stock Option, except as
otherwise provided in Section 8.1.
L. "SHARE" means one share of the Common Stock, par
value $.01 per share, of Duramed.
ARTICLE V
GRANTING OF OPTIONS
5.1 Subject to the terms and conditions of the Plan, the
Committee may, from time to time prior to February 29, 2002, grant Options to
Eligible Employees or Advisors on such terms and conditions as the Committee
shall determine. Subject to the restriction of Section 2.2(D), more than one
Option and more than one form of Option may be granted to the same individual.
No director of Duramed who is not an employee of the Company and included on its
regular payroll may be granted Options under this Plan.
5.2 A period of at least six months must elapse from the date
of grant of any Option to a person who is subject to the reporting requirements
of Section 16(a) of the Exchange Act with respect to Duramed until the
disposition of the Option (other than upon exercise or conversion) or of any
shares acquired upon exercise of that Option.
ARTICLE VI
EXERCISE OF OPTIONS
6.1 Any person entitled to exercise an Option may do so in
whole or in part by delivering to Duramed, attention: Stock Option Plan
Administrator, at its principal office a written notice of exercise. The written
notice shall specify the number of Shares for which an Option is being exercised
and shall be accompanied by full payment of the Option Price for the Shares
being purchased.
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ARTICLE VII
PAYMENT OF OPTION PRICE
7.1 In the sole discretion of the Committee and subject to
such conditions as the Committee may impose relating to the use of Shares as
payment, payment of the Option Price may be made in cash, by the tender of
previously owned Shares, by directing that a portion of the Shares to be issued
upon exercise of the Option be withheld by Duramed as payment (to the extent
permitted by law) or by a combination of the foregoing. If payment by the tender
of previously owned Shares or the withholding of Shares is permitted, the value
of each Share shall be deemed to be the Fair Market Value of a Share on the day
the Shares are tendered or withheld for payment. In the case of a tender of
previously owned Shares, this shall be the date on which the Shares, duly
endorsed or accompanied by a stock power duly endorsed for transfer to Duramed,
are received by Duramed. In the case of a withholding of Shares, this shall be
the date on which a complete and correct notice of exercise directing the
withholding is received by Duramed. Notwithstanding the foregoing, an Option's
exercise price may also be paid pursuant to a "cashless" exercise/sale procedure
involving a simultaneous sale by a broker, in which case the exercise date shall
be the trade date, provided that proceeds of such sale in full payment of the
Option Price are received by Duramed on such date.
7.2 Where the Committee has permitted payment of the Option
Price to be made by the tender of previously owned Shares, then, at the time of
the tender of such Shares to the Company, the Committee may grant a new Option
("Replacement Option") to the person tendering the Shares, provided that such
person is otherwise eligible to receive a new Option grant under the Plan at the
time of tender. In addition to any other terms and conditions which may be
established by the Committee, each Replacement Option shall be subject to the
following terms and conditions:
A. The number of Shares covered by the Replacement Option
shall equal the number of whole Shares used to satisfy
the Option Price of the original Option;
B. The Effective Date of Grant of the Replacement Option
shall be the date of the exercise of the original Option;
C. The Option Price shall be the Fair Market Value of a
Share on the Effective Date of Grant of the Replacement
Option;
D. The Replacement Option shall become exercisable six
months after its Effective Date of Grant; and
E. Unless earlier exercised or terminated pursuant to the
terms of this Plan, the Replacement Option shall expire on the
expiration date of the original Option.
Except as is otherwise specified in this Section, each Replacement Option shall
be governed by the terms and conditions of this Plan applicable generally to
Options granted hereunder.
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ARTICLE VIII
INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS
8.1 Any option designated by the Committee as an Incentive
Stock Option will be subject to the general provisions applicable to all Options
granted under the Plan. In addition, an Incentive Stock Option shall be subject
to the following specific provisions:
A. No Incentive Stock Option may be exercised
after the expiration of ten years from the Effective Date of
Grant.
B. At the time the Incentive Stock Option is granted,
if the Eligible Employee owns, directly or indirectly, stock
representing more than 10% of the total combined voting power
of all classes of stock of the Company then:
(i) The Option Price must equal at
least 110% of the Fair Market Value on the
Effective Date of Grant; and
(ii) The term of the Option shall not be
greater than five years from the Effective Date of
Grant.
C. The aggregate Fair Market Value (determined as of
the Effective Date of Grant) of the Shares with respect to
which Incentive Stock Options are exercisable for the first
time by any holder during any calendar year (under all plans
of the Company) shall not exceed $100,000.
8.2 If any Option is not granted, exercised, or held pursuant
to the provisions of Code Section 422, it will be considered to be a
Nonqualified Stock Option to the extent that any or all of the grant is in
conflict with those provisions.
ARTICLE IX
TRANSFERABILITY OF OPTIONS
9.1 Unless not required by Rule 16b-3, during the lifetime of
an Eligible Employee or Advisor to whom an Option has been granted, such Option
is non-assignable and non-transferable and may be exercised only by such
individual or that individual's legal representative or guardian, except that a
Nonqualified Stock Option may be transferred pursuant to a "domestic relations
order" as defined in Section 414(p)(1)(B) of the Code. In the event of the death
of an Eligible Employee or Advisor to whom an Option has been granted, the
Option shall be transferable pursuant to the holder's Will or by the laws of
descent and distribution and may thereafter be exercised by the transferee(s) as
provided in Section 10.1(C).
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ARTICLE X
TERMINATION OF OPTIONS
10.1 Unless earlier terminated pursuant to Article XIII, an
Option granted to an Eligible Employee will terminate as follows:
A. During the period of the Eligible Employee's
continuous employment with the Company, the Option will
terminate upon the earlier of the date on which it has been
fully exercised, it expires by its terms or it is terminated
by the mutual agreement of the Company and the Eligible
Employee.
B. Upon termination of employment for any reason any
unexercisable Option shall immediately terminate. Except as
provided in Section 10.1(C), any Option which is exercisable
on the date of termination of employment will terminate upon
the earlier of its full exercise, the expiration of the Option
by its terms or the end of the three-month period following
the date of termination. For purposes of the Plan, a leave of
absence approved by the Company shall not be deemed to be
termination of employment.
C. If an Eligible Employee to whom an Option was
granted becomes subject to a Disability or dies while employed
by the Company or within three months of termination of
employment for any reason, the Option may be exercised at any
time within one year after the date of death or the
commencement of Disability, to the extent that the Eligible
Employee shall have been entitled to exercise it at the time
of death or the commencement of Disability, by the Eligible
Employee or the Eligible Employee's legal representative or
guardian or by the representative(s) of the Eligible
Employee's estate or the person(s) to whom the Option may have
been transferred by Will or by the laws of descent and
distribution.
10.2 An Option granted to an Advisor will terminate upon the
earlier of the full exercise of the Option or the expiration of the Option by
its terms.
10.3 The Committee, at its discretion, may extend the periods
for Option exercise set forth in Sections 10.1 and 10.2 above.
ARTICLE XI
ADJUSTMENTS TO SHARES AND OPTION PRICE
11.1 The Committee shall make appropriate adjustments in the
number of Shares available for issuance under the Plan, the number of Shares
subject to outstanding Options and the Option Price of optioned Shares in order
to give effect to changes in the Shares as a result of any merger,
consolidation, recapitalization,
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reclassification, combination, stock dividend, stock split, or other similar
event. The determination as to the method and extent of such adjustments shall
be within the sole discretion of the Committee.
ARTICLE XII
AMENDMENT OR DISCONTINUANCE OF PLAN
12.1 The Board of Directors of Duramed may at any time amend,
suspend or discontinue the Plan; provided, however, that stockholder approval
shall be required for any amendment if such approval is required to maintain the
Plan's compliance with Exchange Act Rule 16b-3 as that Rule may be in effect and
be interpreted from time to time.
12.2 No amendment to the Plan shall alter or impair any Option
granted under the Plan without the consent of the holder thereof.
ARTICLE XIII
CERTAIN EVENTS
13.1 In the event Duramed shall consolidate with, merge into,
or transfer all or substantially all of its assets to another corporation or
corporations (a "successor corporation"), such successor corporation may
obligate itself to continue this Plan and to assume all obligations under the
Plan. In the event that such successor corporation does not obligate itself to
continue this Plan as above provided, the Plan shall terminate effective upon
such consolidation, merger or transfer, and, except as provided in Section 13.4,
any Option previously granted hereunder shall terminate. If practical, Duramed
shall give each holder of an Option twenty (20) days prior notice of any
possible transaction which might terminate this Plan and the Options previously
granted hereunder.
13.2 In the event any person, by any means of purchase or
acquisition, becomes the "beneficial owner" (as defined in Exchange Act Rule
13d-3 as in effect on February 29, 1992, or any successor provision thereto) of
more than 50% of the outstanding Shares of Duramed, or commences a tender offer
pursuant to Exchange Act Regulation 14C as in effect on February 29, 1992, or
any successor provision thereto, which, if successful, would result in such
person becoming the beneficial owner of more than 50% of such Shares, then all
Options which are outstanding at the time of such event shall immediately become
exercisable in full.
13.3 In the event of the execution of an agreement of
reorganization, merger or consolidation of Duramed with one or more corporations
as a result of which Duramed is not to be the surviving corporation (whether or
not Duramed shall be dissolved or liquidated) or the execution of an agreement
of sale or transfer of all or substantially all of the assets of Duramed, then
all Options which are outstanding at the time of such event shall immediately
become exercisable in full.
13.4 In the event of the consummation of any of the
transactions called for in an agreement referred to in Section 13.3 hereof, any
holder of an Option who is subject to the reporting requirements of Section
16(a) of the Exchange Act with respect to Duramed shall receive a payment of
cash equal to the difference between the aggregate "Fair Value" of Shares
subject to the holder's Options which are outstanding and not
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exercised at the time of consummation of the transaction and the aggregate
Option Price of such Shares. For this purpose, "Fair Value" shall mean the cash
value per Share to be paid to stockholders pursuant to such agreement, or if
cash value is not to be paid, the highest Fair Market Value of a Share during
the 60-day period immediately preceding the date of the consummation of the
transaction. The cash payment shall be made within ten (10) days after
consummation of the transaction. The foregoing payments under this Section 13.4
shall be made in lieu of and in full discharge of any and all obligations of the
Company in respect of all subject Options of the holder.
13.5 The grant of Options under the Plan shall in no way
affect the right of Duramed 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.
13.6 Notwithstanding the foregoing, in the event the amounts
deemed payable under this Article XIII when added to all other payments to the
holder of an Option by the Company, would, if made, constitute Excess Parachute
Payments within the meaning of Sections 280G and 4999 of the Code, the amounts
deemed payable by the Company under this Article shall be reduced by the amount
deemed necessary to cause the holder to receive $1,000.00 less than three times
the holder's Base Amount (as that term is defined in Code Section 280G) from all
payments to the holder from the Company. In the event the amount of the payments
exceeds the amount subsequently determined to have been due, the excess benefits
over three times the Base Amount shall constitute a loan by the Company to the
holder, payable on demand by the Company, with interest at a rate equal to 120%
of the applicable federal rate determined under Section 1274 of the Code,
compounded semi-annually.
ARTICLE XIV
EFFECTIVE DATE
14.1 This Plan became effective as of February 29, 1992. No
Option shall be granted subsequent to February 28, 2002 or subsequent to any
earlier date as of which this Plan is terminated.
ARTICLE XV
MISCELLANEOUS
15.1 Nothing contained in this Plan or in any action taken by
the Board of Directors or stockholders of Duramed shall constitute the granting
of an Option. An Option shall be granted only at such time as a written Option
agreement, in such form as the Committee shall determine, shall have been
executed by both the Eligible Employee or Advisor and Duramed.
15.2 Certificates for Shares purchased through exercise of
Options will be issued in regular course after exercise of the Option and
payment therefor as called for by the terms of the Option but in no event shall
Duramed be obligated to issue certificates more often than once each quarter of
each fiscal year. No persons holding an Option or entitled to exercise an Option
granted under this Plan shall have any rights or privileges of a stockholder of
Duramed with respect to any Shares issuable upon exercise of such Option until
certificates representing such Shares shall have been issued and delivered. No
Shares shall be issued and delivered upon exercise of an Option unless and
until, in the opinion of counsel for Duramed, Duramed has complied with all
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applicable registration requirements of the Securities Act of 1933 and any
applicable state securities laws and with any applicable listing requirements of
any national securities exchange on which Duramed's securities may then be
listed as well as any other requirements of law.
15.3 Nothing contained in this Plan or in any Option granted
pursuant to it shall confer upon any person any right to continue in the employ
of or any business relationship with the Company or to interfere in any way with
the right of the Company to terminate employment or a business relationship at
any time. So long as a holder of an Option shall continue to be an employee of
the Company, the Option shall not be affected by any change of the employee's
duties or position.
15.4 This Plan shall be construed and administered in
accordance with and governed by the laws of the State of Delaware.
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DURAMED PHARMACEUTICALS, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR ANNUAL MEETING
The undersigned hereby appoints E. Thomas Arington and Doane
F. Darling, and each of them, attorneys with the powers which the undersigned
would possess if personally present, including the power of substitution, to
vote all shares of the undersigned at the Annual Meeting of Stockholders of
Duramed Pharmaceuticals, Inc. to be held at the Embassy Suites Hotel, 4554 Lake
Forest Drive, Cincinnati, Ohio 45242 on July 8, 1996, at 9:00 a.m. (EDT), and at
any adjournments thereof:
1. Election of E. Thomas Arington, George W. Baughman, Doane F. Darling,
Stanley L. Morgan, and S. Sundararaman as directors.
/ / FOR all nominees; / / WITHHELD from all nominees; / / *EXCEPTIONS (as
marked below).
For all nominees except as noted on line below:
*EXCEPTIONS
------------------------------------------------------------------
2./ / FOR / / AGAINST / / ABSTAIN on the 1996 amendment and restatement of the Company's
1988 Stock Option Plan to increase the number of shares for
which options may be granted and to affect other amendments.
3./ / FOR / / AGAINST / / ABSTAIN on the proposal to ratify the appointment of Ernst & Young
LLP as independent auditors.
4. Upon such other business as may properly come before the meeting.
The proxy will be voted on the above as specified. IF NO SPECIFICATION IS MADE, THE PROXY SHALL BE VOTED "FOR"
EACH OF THE PROPOSALS AND IN FAVOR OF THE NOMINEES LISTED ABOVE.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
As to any other matter or if any of said nominees are not available for election, said attorneys shall vote in
accordance with their best judgment.
Please mark: I do / / do not / / plan to attend the meeting.
Dated , 1996
--------------------------------
--------------------------------------------
--------------------------------------------
(Signature of Stockholder)
IMPORTANT: Please date and sign exactly as name
appears hereon. If shares are held jointly, each
stockholder named should sign. Executors,
administrators, trustees, etc. should so indicate when
signing. If the signer is a corporation, please sign full
corporate name by duly authorized officer.