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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
DURA 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/ No fee required.
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and 0-11.
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PRELIMINARY COPY
[LOGO]
DURA PHARMACEUTICALS, INC.
7475 LUSK BLVD.
SAN DIEGO, CALIFORNIA 92121
April 9, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Dura Pharmaceuticals, Inc., which will be held at the La Jolla Marriott, 4240 La
Jolla Village Drive, La Jolla, California, on Thursday, May 21, 1998 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. 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,
CAM L. GARNER
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
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YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are
requested to complete, sign and date the enclosed proxy as promptly as
possible and return it in the enclosed envelope. No postage need be
affixed if mailed in the United States.
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DURA PHARMACEUTICALS, INC.
7475 LUSK BLVD.
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 21, 1998
The Annual Meeting (the "Annual Meeting") of Stockholders of Dura
Pharmaceuticals, Inc. (the "Company") will be held at the La Jolla Marriott,
4240 La Jolla Village Drive, La Jolla, California, on Thursday, May 21, 1998 at
10:00 a.m., for the following purposes:
1. To elect five (5) directors to serve two-year terms to expire at the
Annual Meeting of Stockholders in 2000.
2. To approve an amendment to the the Company's Certificate of
Incorporation to increase the authorized number of shares of Common
Stock of the Company from 100,000,000 to a total of 200,000,000
shares.
3. To approve an amendment to the Company's 1992 Stock Option Plan to
increase the authorized number of shares of Common Stock available
for issuance under the Option Plan.
4. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1998.
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 23, 1998 will be
entitled to vote at the Annual Meeting. A list of stockholders entitled to vote
at the Annual Meeting will be available for inspection at the offices of the
Company. Whether or not you plan to attend the meeting in person, please sign,
date and return the enclosed proxy in the reply envelope provided. 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 will assist us in preparing for the Annual Meeting.
By Order of the Board of Directors
Dated: April 9, 1998 MITCHELL R. WOODBURY
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
DURA PHARMACEUTICALS, INC. PRELIMINARY
PROXY STATEMENT COPY
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1998
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 (the "Company"), for the Annual
Meeting of Stockholders to be held at 10:00 a.m. on May 21, 1998 and at any
adjournment or postponement of the Annual Meeting. These proxy materials were
first mailed to stockholders of record beginning on approximately April 9, 1998.
The mailing address of the principal executive office of the Company is
7475 Lusk Blvd., San Diego, California 92121.
PURPOSE OF 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 the
Secretary of the Company 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 the Company 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 regular employees of the Company may, without
additional remuneration, solicit proxies personally by telephone, telegram or
facsimile.
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 23, 1998
(the "Record Date"). At the close of business on the Record Date, the Company
had ______________ outstanding shares of common stock, par value $.001 per
share (the "Common Stock"), and no shares of preferred stock (the "Preferred
Stock"). 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. Both abstentions and broker
non-votes are counted as present for the purpose of determining the presence or
absence of a quorum for the transaction of business. For purposes of
determining the number of shares voting on a particular proposal, abstentions
are counted as shares voting, whereas broker non-votes are not counted as shares
voting. Thus, broker non-votes can have the effect of preventing approval of
certain proposals where the number of affirmative votes, through a majority of
the votes cast, does not constitute a majority of the required quorum.
ChaseMellon Shareholder Services, the Company's transfer agent, will tabulate
the votes.
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company is currently composed of nine
members. The Company's Certificate of Incorporation divides 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 of the Company. Unless individual
stockholders specify otherwise, each returned proxy will be voted for the
election of Messrs. Blair, Cook, Garner, Hale and Kabakoff, 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 2000, or until a successor is elected and has
qualified.
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 of Directors is not aware of any circumstances that would render any
nominee unavailable for election.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR THE NOMINEES LISTED HEREIN.
NOMINEES FOR ELECTION TO TERMS WHICH EXPIRE AT THE ANNUAL MEETING OF
STOCKHOLDERS IN 2000
James C. Blair, Ph.D., 58, has served as a general partner of Domain
Associates, a venture capital management company, since 1985. Dr. Blair was
first elected director of the Company in 1986 and currently serves as a member
of both the Company's Compensation Committee and the Audit Committee. Dr. Blair
is currently a director of Amylin Pharmaceuticals, Inc. ("Amylin"), Aurora
Biosciences Corp., CoCensys Inc., Gensia Sicor Inc. ("Gensia"), Trega
Biosciences, Inc. ("Trega"), all biopharmaceutical companies, and Vista Medical
Technologies, Inc., a medical device company.
Joseph C. Cook, Jr., 56, has been President of Cambrian Associates, LLC
since 1994 and has been a principal of Life Science Advisors, LLC ("Life Science
Advisors") since it was founded in 1994. Mr. Cook retired as Group Vice
President, Global Manufacturing, Engineering and Corporate Quality at Eli Lilly
and Company ("Lilly") 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.
Mr. Cook joined the Company's Board of Directors in 1995 and currently serves as
a member of the Company's Audit Committee. He is currently a director of
Amylin, NABI, Inc., a biopharmaceutical company, and Personnel Management, Inc.,
a temporary services company.
Cam L. Garner, 50, joined the Company in 1989 as Executive Vice President
of the Company (formerly Immunetech Pharmaceuticals), President of the Company's
former subsidiary and a director. He has served as President and Chief
Executive Officer of the Company since 1990 and was named Chairman of the Board
in 1995. Prior to joining the Company, Mr. Garner served as President of Syntro
Corporation, a biotechnology company, from 1987 to 1989. Mr. Garner is
currently a director of Safeskin Corporation, a manufacturer of medical
supplies, Trega, and Spiros Development Corporation II, Inc. ("Spiros Corp.
II"), a developer of pulmonary drug delivery systems. Mr. Garner received an
MBA from Baldwin-Wallace College and a B.S. in Biology from Virginia Wesleyan
College.
David F. Hale, 49, has served as President and Chief Executive Officer of
Women First Health Care, Inc. since February 1998. He served as President and
Chief Executive Officer of Gensia 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 ("Hybritech"), a biotechnology company which
was acquired by Lilly in 1986. Mr. Hale was first elected director of the
Company in 1986 and currently serves as a member of the Company's Compensation
Committee.
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David S. Kabakoff, Ph.D., 50, joined the Company in 1996 as a director and
Executive Vice President, and currently also serves as Chairman, President and
Chief Executive Officer of Spiros Corp. II. He served as President and Chief
Executive Officer of Spiros Development Corporation ("Spiros Corp.") from 1996
to 1997, prior to the Company's exercise of its purchase option to acquire all
of the outstanding stock of Spiros Corp. 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 of the Board. From 1983 to
1989, Dr. Kabakoff was employed by Hybritech, most recently as Senior Vice
President of Research and Development-Diagnostics. Dr. Kabakoff is a director
of Spiros Corp. II. He received a Ph.D. in Organic Chemistry from Yale
University and a B.A. in Chemistry from Case Western Reserve University.
DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING OF STOCKHOLDERS IN 1999
Herbert J. Conrad, 65, served as President of the Pharmaceuticals Division
and Senior Vice President of Hoffmann-La Roche Inc. ("Roche") 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. Mr. Conrad was first elected director of the Company in
1994 and currently serves as a member of the Company's Compensation Committee.
Mr. Conrad is a director of Gensia, Biotechnology General Corp., a biotechnology
company, and UroCor, Inc., a urological diagnostics and therapeutics company.
Gordon V. Ramseier, 53, has been Executive Director of a private consulting
company, The Sage Group, since 1995. The Sage Group provides consulting
services to companies in the health care field. Mr. Ramseier has operated a
private consulting company since 1994, and also performed such 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 President and Chief Executive Officer of the Company.
Mr. Ramseier was first elected director of the Company in 1986 and currently
serves as a member of the Company's Audit Committee.
Charles G. Smith, Ph.D., 70, 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 director of the Company in 1988 and also serves as a member of the
Company's Scientific Advisory Board.
Walter F. Spath, 53, joined the Company in 1988 and currently serves as
Senior Vice President, Sales and Marketing, and has served as a director since
1991. Prior to joining the Company, Mr. Spath was Corporate Vice President,
Commercial Development, at Searle Pharmaceuticals ("Searle") from 1986 to 1988,
where he also served in a variety of sales and marketing positions from 1975 to
1986. Prior to joining Searle, Mr. Spath was a marketing manager at Pfizer Inc.
Mr. Spath received an MBA in Marketing from University of Maryland and a B.S. in
Economics from Villanova.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors met a total of nine times and took action
by unanimous written consent a total of 13 times during the fiscal year ended
December 31, 1997. With the exception of Mr. Conrad, each director attended at
least 75% of the aggregate of (i) the total meetings of the Board of Directors
(held during the period for which he has been 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). Mr. Conrad attended 70% of such total of
meetings and was advised of all activity associated with meetings he did not
attend.
The Company has a standing Compensation Committee currently composed of
three non-employee directors: Dr. Blair, Mr. Conrad and Mr. Hale. The
Compensation Committee met once and took action by unanimous written consent a
total of three times in fiscal 1997. The Compensation Committee reviews and
acts on matters relating to compensation levels and benefit plans for executive
officers and key employees of the Company, including salary and stock options.
The Committee is also responsible for granting stock awards, stock options,
stock appreciation rights and other awards to be made under the Company's
existing incentive compensation plan. The Company also has a standing Audit
Committee currently composed of the following three directors: Dr. Blair, Mr.
Cook and Mr. Ramseier. During fiscal 1997, the Audit Committee met once. The
Audit Committee assists in selecting the independent auditors, designating
services they are to
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perform and maintaining effective communication with those auditors. The
Company does not have a standing Nominating Committee or any other committee
performing similar functions, as such matters are considered at meetings of the
full Board of Directors.
PROPOSAL 2
APPROVAL OF AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION
On February 19, 1998, the Company's Board of Directors approved an
amendment, subject to stockholder approval, to the Company's Certificate of
Incorporation (the "Certificate") in order to increase the number of authorized
shares of Common Stock the Company from 100,000,000 to 200,000,000 shares.
Pursuant to Article IV(A) of the Certificate, the Company is currently
authorized to issue 100,000,000 shares of Common Stock and 5,000,000 shares of
Preferred Stock. If the proposed amendment is approved, the authorized number
of shares of Common Stock will increase to 200,000,000. As of March 23, 1998,
there were outstanding _________ shares of Common Stock, and an additional
_____________ shares of Common Stock have been reserved for issuance upon the
exercise of stock options and warrants. No shares of Preferred Stock were
outstanding.
If this proposal is adopted by the Company's stockholders, paragraph (A) of
Article IV of the Company's Certificate will read as follows:
(A) CLASSES OF STOCK. The corporation is authorized to issue two
classes of stock, denominated Common Stock and Preferred Stock. The Common
Stock shall have a par value of $0.001 per share and the Preferred Stock shall
have a par value of $0.001 per share. The total number of shares of Common Stock
which the corporation is authorized to issue is Two Hundred Million
(200,000,000), and the total number of shares of Preferred Stock which the
corporation is authorized to issue is Five Million (5,000,000), which shares of
Preferred Stock shall be undesignated as to series.
The proposed increase in the number of shares of authorized Common Stock
will ensure that shares will be available, if needed, for issuance in connection
with stock splits, stock dividends, financings, acquisitions and other corporate
purposes. The Board of Directors believes that the availability of the
additional shares for such purposes without delay or the necessity for a special
stockholders' meeting would be beneficial to the Company. The Company does not
have any immediate plans, arrangements, commitments or understandings with
respect to the issuance of any of the additional shares of Common Stock which
would be authorized by the proposed amendment.
No further action or authorization by the Company's stockholders would be
necessary prior to the issuance of the additional shares of Common Stock unless
required by applicable law or regulatory agency or by the rules of any stock
exchange on which the Company's securities may then be listed. The National
Association of Securities Dealers, Inc. requires stockholder approval as a
prerequisite to continued inclusion of the shares on the Nasdaq National Market
in certain situations.
The proposed increase in the authorized number of shares of Common Stock
could have a number of effects on the Company's stockholders depending upon the
exact nature and circumstances of any actual issuances of authorized but
unissued shares. The increase could have an anti-takeover effect, in that
additional shares could be issued (within the limits imposed by applicable law)
in one or more transactions that could make a change in control or takeover of
the Company more difficult. For example, additional shares could be issued by
the Company so as to dilute the stock ownership or voting rights of persons
seeking to obtain control of the Company. Similarly, the issuance of additional
shares to certain persons allied with the Company's management could have the
effect of making it more difficult to remove the Company's current management by
diluting the stock ownership or voting rights of persons seeking to cause such
removal. In addition, an issuance of additional shares by the Company could
have an effect on the potential realizable value of a stockholder's investment.
In the absence of a proportionate increase in the Company's earnings and book
value, an increase in the
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aggregate number of outstanding shares of the Company caused by the issuance of
additional shares would dilute the earnings per share and book value per share
of all outstanding shares of the Company's Common Stock. If such factors were
reflected in the price per share of Common Stock, the potential realizable value
of a stockholder's investment could be adversely affected.
The holders of any of the additional shares of Common Stock issued in the
future would have the same rights and privileges as the holders of the shares of
Common Stock currently authorized and outstanding. Those rights do not include
preemptive rights with respect to the future issuance of any additional shares.
The proposed amendment to the Company's Certificate will not otherwise alter or
modify the rights, preferences, privileges or restrictions of the Common stock.
The affirmative vote of a majority of the outstanding shares of Common
Stock at the Record Date is necessary to approve an amendment to the Company's
Certificate.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR THE APPROVAL OF THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
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PROPOSAL 3
APPROVAL OF AMENDMENT TO THE COMPANY'S
1992 STOCK OPTION PLAN
GENERAL
The shareholders are being asked to vote on an amendment to the Company's
1992 Stock Option Plan (the "Option Plan"), which amendment was approved by the
Board of Directors on February 19, 1998, subject to shareholder approval. The
effect of the amendment will be to increase the number of shares available for
issuance under the Option Plan by an additional 700,000 shares to a total of
8,307,360 shares. The affirmative vote of a majority of the shares of Common
Stock represented and voting at the Annual Meeting is required for approval of
the amendment to the Option Plan. The Option Plan, as amended, will become
effective immediately upon approval by the shareholders at the Annual Meeting.
Prior to the amendments, 7,607,360 shares were available for issuance
under the Option Plan. The amendment to increase the shares available for
issuance was adopted by the Board principally as a result of the public
offerings by the Company in July 1997 of $287.5 million principal amount of 3
1/2% Convertible Subordinated Notes due July 15, 2002 and Warrants issued in
December 1997 to purchase shares of Common Stock which were issued as a
component of Units offered by Spiros Corp. II and the Company. An additional
7,259,140 shares of Common Stock may be issued upon conversion or exercise,
respectively, of such securities. The Board's intention is to retain
approximately the same proportion of shares subject to the Option Plan in
relation to the number of shares outstanding.
SUMMARY OF STOCK OPTION PLAN
The following is a summary of all material terms and provisions of the
Option Plan, assuming the amendment discussed above is adopted. The summary,
however, does not purport to be a complete description of all the provisions of
the Option Plan. Copies of the actual Option Plan documents may be obtained by
any shareholder upon written request to the Secretary of the Company at the
corporate offices in San Diego, California.
OPTION PLAN ADMINISTRATION. The Option Plan is administered by a committee
or committees (the "Committee") appointed by the Board from among its members
(the "Option Plan Administrator"). Administration of the Option Plan with
respect to persons subject to Section 16 of the Exchange Act will comply with
the applicable requirements of Rule 16b-3. The Option Plan Administrator is
generally authorized to construe and interpret the Option Plan, to establish
appropriate rules and regulations, to select key employees, consultants and
independent contractors of the Company and its subsidiaries for participation,
and to specify the terms of the options granted under the Option Plan. Members
of a Committee may be removed by the Board. The Company will pay all costs of
administration of the Option Plan. The cash proceeds received by the Company
from the issuance of shares pursuant to the Option Plan will be used for general
corporate purposes.
SHARE RESERVE. The aggregate number of shares available for issuance under
the Option Plan may not exceed 8,307,360 shares of Common Stock, subject to
adjustment from time to time in the event of certain changes to the Company's
capital structure.
Should any option under the Option Plan expire or terminate prior to
exercise or surrender in full (including any option incorporated into the Option
Plan from the Company's prior stock option plans), the shares subject to the
portion of the option not so 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 Option
Plan will NOT be available for subsequent grants.
Common Stock issuable upon exercise of an option under the Option Plan may
be subject to repurchase rights as determined by the Committee.
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ELIGIBILITY. The persons eligible to receive discretionary stock options
include all employees of the Company or its subsidiaries, non-employee members
of the Board or the board of directors of any subsidiary, and consultants and
other independent advisors who provide services to the Company or its
subsidiary. Only non-employee members of the Board will be eligible to receive
automatic option grants. As of January 31, 1998, seven executive officers,
six non-employee Board members, and approximately 642 other employees were
eligible to participate in the Option Plan, and the six non-employee Board
members were also eligible to participate in the automatic option grant
program.
VALUATION. The fair market value per share of Common Stock on any
relevant date under the Option Plan will be the closing selling price per
share on that date on the Nasdaq National Market. On March 2, 1998, the
closing price of the Company's Common Stock was $25.00 per share.
PER-EMPLOYEE LIMITATION. No more than 1,500,000 shares may be granted to
any one optionee over the lifetime of the Option Plan and no more than 400,000
shares may be granted to any one optionee in any fiscal year.
REPURCHASE RIGHTS. The Committee may include as an option term that the
Company (or its assigns) will have the right, exercisable on the optionee's
separation from service, to repurchase Common Stock acquired by the optionee
upon 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 Option Plan, the Committee may
grant either an incentive stock option ("ISO"), which satisfies the requirements
of Section 422 of the Internal Revenue Code ("Code"), or a non-qualified option
("NQO"), which is not intended to satisfy the requirements of Section 422 of the
Code. 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
10 years, and the exercise price for options may not be less than the fair
market value (as defined in the Option Plan) of the Common Stock on the date of
grant of the option, provided that the Option 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 the Company 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.
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: (i) shares of
the Company's Common Stock ("Previously Owned Shares") held for such period of
time as may be required in order to avoid a charge to the Company's earnings;
(ii) 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 the Company, out of the sales proceeds available on the settlement date,
funds to cover the option price plus all applicable withholding taxes; or (iii)
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. 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 the Company 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, a 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.
The Committee has the authority to reprice outstanding options, with the
consent of the affected optionee, through the cancellation of 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.
AUTOMATIC GRANTS. Each person who is newly elected or appointed as a
non-employee director after the effective date of the Option Plan will receive,
on the date of such election or appointment, a NQO for 30,000 shares of Common
Stock. On the date of each of the Company's Annual Meetings, each person who
(i) (A) is a continuing non-employee director or (B) is re-elected at the Annual
Meeting and (ii) has served as a non-employee director for the immediately
preceding 180 days, will receive a NQO for 8,000 shares of Common Stock
(collectively, the "Automatic Grant").
The exercise price of each Automatic Grant will be equal to 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
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such period of time as may be required to avoid a charge to the Company's
earnings or by means of a same day sale program, pursuant to which a designated
brokerage firm immediately sells shares purchased under the Automatic Grant and
pays over to the Company, out of the sales proceeds available on the settlement
date, funds to cover the option price plus all applicable employment taxes. The
term of the Automatic Grant will be 10 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 Option Grant Program will expire if not exercised
within six months after the optionee ceases to serve as a director or within
12 months after the optionee ceases to serve as a director due to the optionee's
death.
ACCELERATION OF OPTIONS. In the event of any of the following transactions
to which the Company is a party (a "Corporate Transaction"):
(i) 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),
(ii) the sale, transfer or other disposition of all or substantially all
of the assets of the Company in complete liquidation or dissolution of the
Company,
(iii) a reverse merger in which the Company is the surviving entity but
in which the holders of securities possessing more than 50% of the combined
voting power of the Company's outstanding securities (as determined
immediately prior to such merger) transfer their ownership of those
securities to a person or persons not otherwise part of the transferor
group, or
(iv) a tender or exchange offer made directly to the Company's
shareholders in which any person or related group of persons (other than
the Company or any affiliate) acquires beneficial ownership of securities
possessing more than 50% of the combined voting power of the Company's
outstanding securities,
each outstanding option will automatically become exercisable for all of the
option shares and may be exercised for any or all of such shares. The Company's
outstanding repurchase rights under the 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 the 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 the
Company.
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
Common Stock at the time of the new grant. Automatic Grants are not subject
to the cancellation and regrant provisions.
STOCK APPRECIATION RIGHTS. The 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 the Company 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 officers of the Company 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, and the optionee will in
return be entitled to a cash distribution from the Company 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.
8
For purposes of these option cancellation provisions, the following
definitions are in effect under the Option Plan:
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 Option Plan) pursuant
to a tender or exchange offer which the Board does not recommend the
Company's shareholders 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 THE OPTION PLAN. The Board may amend, suspend
or discontinue the Option Plan at any time. Shareholder approval of amendments
of the Option Plan will be required when the amendments are made conditional on
such approval by the Board or when such approval is required by law or
regulation. Generally, the provisions of the Option Plan concerning Automatic
Grants may only be amended once every six months. The Option Plan will
terminate December 8, 2002 unless sooner terminated by the Board.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of certain federal income tax
consequences of the Option Plan. This description does not purport to be
complete.
The Company will be entitled to a business expense deduction equal to the
ordinary income recognized by an optionee on exercise of a NQO. The ordinary
income recognized will be equal to the excess of the fair market value of the
purchased shares on the date of recognition over the exercise price. Generally,
the date of recognition will be the date the option is exercised or, if later,
the first date shares acquired on exercise are not subject to a substantial risk
of forfeiture.
The Company will also be entitled to a business expense deduction equal to
the ordinary income recognized by an optionee due to a "disqualifying
disposition" of stock acquired pursuant to an ISO. A disqualifying disposition
occurs if an optionee disposes of the acquired shares within two years of the
date of the option grant, or within one year of the date the shares are acquired
by the optionee. In the case of a disqualifying disposition, the optionee will
generally recognize ordinary income in the year of disposition, in an amount
equal to the amount of ordinary income the optionee would have recognized from
the exercise of the option had the option been a NQO at the time of exercise.
To the extent that the aggregate fair market value (determined as of the
respective date or dates of grant) of shares with respect to which options that
would otherwise be ISOs are exercisable for the first time by any individual
during any calendar year exceeds the sum of $100,000, such options will be
treated as NQOs.
If the exercisability of an option is accelerated as a result of a change
in control of the Company, all or a portion of the value of the option at that
time may be a "parachute payment" for purposes of the 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 in control, the Company loses its deduction and the
recipient is subject to a 20% excise tax for the amount of the "parachute
payments" in excess of such average compensation.
An optionee who surrenders an outstanding option for a cash or stock
distribution from the Company will recognize ordinary income in the year of
surrender equal to the amount of the appreciation distribution. The
9
Company will be entitled to a corresponding business expense deduction for the
appreciation distribution. The deduction will be allowed in the taxable year of
the Company in which the ordinary income is recognized by the optionee.
On the date an ISO is exercised or, if later, the date shares acquired upon
exercise are not subject to a substantial risk of forfeiture, the optionee will
generally recognize alternative minimum taxable income in an amount equal to the
excess of the fair market value of the purchased shares over the exercise price.
An optionee's recognition of alternative minimum taxable income will have no
effect on the Company.
ACCOUNTING TREATMENT
Pursuant to the accounting policy selected by the Company, neither the
grant of options to employees nor the exercise of any options will result in any
charge to the Company's earnings. The grant of options to non-employees will
result in a charge to earnings equal to the fair market value of the options at
the date of grant. The number of outstanding options under the Option Plan will
be a factor in determining earnings per share.
Should one or more optionees be granted the unqualified right to surrender
their options under the Option Plan for a cash or stock distribution,
compensation expense will arise as a charge to the Company's earnings.
Accordingly, at the end of each fiscal quarter, the amount (if any) by which the
fair market value of the shares of Common Stock subject to each such
surrenderable option has increased from prior quarter-end will be accrued as
compensation expense, to the extent such amount is in excess of the aggregate
exercise price payable for such shares. In the event the fair market value of
such shares declines from quarter to quarter, appropriate adjustments to current
compensation expense will be made.
OUTSTANDING OPTION GRANTS UNDER THE OPTION PLAN
The following table shows, as to the Company's Chairman, President and
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company (collectively, the "Named Executive Officers")
and as to the various indicated groups, information with respect to stock
options granted during all Option Plan years through February 28, 1998.
10
OPTIONS GRANTED UNDER THE OPTION PLAN
ALL OPTION PLAN YEARS THROUGH 2-28-98
Weighted
Number of Average
Options Exercise Price
--------- --------------
Cam L. Garner 1,130,000 (1) $10.91
Director, Chairman,
President, Chief Executive
Officer and nominee
for Director
David S. Kabakoff 290,000 (1) $31.41
Director, Executive Vice
President, and nominee
for Director
Walter F. Spath 445,000 (1) $9.53
Director and Senior
Vice President, Sales
and Marketing
James W. Newman 365,000 (1) $15.06
Senior Vice President,
Finance and Administration,
and Chief Financial Officer
Charles W. Prettyman 295,000 (1) $11.54
Senior Vice President,
Development and
Regulatory Affairs
All current non-employee directors 513,000 (2) $11.60
who are not executive officers
as a group (6 persons)
All current executive officers 2,930,000 (1) $14.34
as a group (7 persons)
All employees who are 3,512,986 (1) $14.41
not executive officers
as a group
- ------------------------------------
(1) Includes options granted to the following individuals or groups which
were originally granted in 1996 and which were cancelled and regranted
in April 1997 as follows: Mr. Garner, 150,000 shares; Dr. Kabakoff,
20,000 shares; Mr. Spath, 40,000 shares; Mr. Newman, 40,000 shares; Mr.
Prettyman, 35,000 shares; all current executive officers as a group,
355,000 shares; and all employees who are not executive officers,
416,275. See discussion concerning the option cancellation/regrant
program contained in "Board Compensation Committee Report on Executive
Compensation - Compensation Committee Report on 1997 Cancellation and
Regrant of Options" and "Executive Compensation and Other Information -
Ten-Year Information Regarding Repricing, Cancellation and Regrant of
Options."
(2) Includes an option to purchase 100,000 shares of Common Stock granted to
Life Science Advisors, of which Mr. Cook is a principal, pursuant to a
consulting arrangement between Life Science Advisors and the Company.
See "Executive Compensation and Other Information -- Director
Compensation."
As of February 28, 1998, options covering 3,712,207 shares of Common
Stock were outstanding under the Option Plan, 1,405,746 shares remained
available for future option grants (assuming stockholder approval of the
increase which forms part of this proposal), and 3,189,407 shares have been
issued pursuant to the exercise of outstanding options under the Option Plan.
11
NEW OPTION PLAN BENEFITS
Effective as of the 1998 Annual Meeting, the effect of the amendments
will be to increase the number of shares authorized for issuance under the
Option Plan by 700,000 shares to a total of 8,307,360 shares. None of the
700,000-share increase has been granted prior to the date of the Annual
Meeting.
VOTE REQUIRED FOR APPROVAL OF THE AMENDMENT OF THE OPTION PLAN
The affirmative vote of a majority of the shares of Common Stock
represented and voting at the Annual Meeting is necessary to approve an
amendment of the Option Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR THE APPROVAL OF THE AMENDMENTS TO THE OPTION PLAN.
12
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF
INDEPENDENT ACCOUNTANTS
The Company is asking the stockholders to ratify the selection of Deloitte
& Touche LLP as the Company's independent public accountants for the year ending
December 31, 1998. In the event that the stockholders fail to ratify the
appointment, the Board of Directors will reconsider its selection. Even if the
selection is ratified, the Board of Directors, in its discretion, may direct the
appointment of a different independent accounting firm at any time during the
year if the Board of Directors feels that such a change would be in the
Company's and the stockholders' best interest.
A representative of Deloitte & Touche LLP is expected to be present at the
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 represented and
voting at the Annual Meeting will be required to ratify the selection of
Deloitte & Touche LLP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR THE RATIFICATION OF
THE SELECTION OF DELOITTE & TOUCHE LLP
AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
13
PRINCIPAL STOCKHOLDERS
The following are the only persons known by the Company to beneficially own
more than five percent of the outstanding shares of its Common Stock as of
January 31, 1998.
Shares Beneficially Owned
----------------------------------
Name and Address
of Beneficial Owner Number (1) Percent (2)
----------------------------- ----------------- ----------------
Putnam Investments, Inc. (3) 6,054,813 13.2%
One Post Office Square
Boston, Massachusetts 02109
Pilgrim Baxter & Associates, Ltd. (4) 4,303,390 9.4%
825 Duportail Road
Wayne, Pennsylvania 19087
- ---------------------------
(1) 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.
(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).
(3) Pursuant to Amendment No. 1 to Schedule 13G dated January 16, 1998 filed by
Putnam Investments, Inc., a parent holding company and a wholly-owned
subsidiary of Marsh & McLennan Companies, Inc., and certain of its
affiliates, which are investment advisers under the Investment Advisers Act
of 1940, as amended (an "Investment Adviser"). Such entities reported
shared voting and dispositive power as to these shares.
(4) Pursuant to Amendment No. 3 to Schedule 13G dated January 20, 1998 filed by
Pilgrim Baxter & Associates, Ltd., an Investment Adviser, which reported
sole voting power as to 3,509,390 shares and shared voting power as to
4,303,390 shares, and sole dispositive power as to all shares.
14
COMMON STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of shares of
Common Stock of the Company as of January 31, 1998, by each director and
nominee, each named Executive Officer, and by directors and executive
officers as a group. The address for each beneficial owner listed below is
7475 Lusk Blvd., San Diego, California 92121.
Shares Beneficially Owned
--------------------------------
Name Number (1)(2) Percent (3)
--------------------- --------------- -------------
James C. Blair (4) 262,900 *
Herbert J. Conrad 16,000 *
Joseph C. Cook, Jr. (5) 100,000 *
Cam L. Garner 94,371 *
David F. Hale 18,000 *
David S. Kabakoff 115,424 *
James W. Newman 101,957 *
Charles W. Prettyman 17,657 *
Gordon V. Ramseier 50,000 *
Charles G. Smith 62,000 *
Walter F. Spath 107,098 *
Directors and executive 1,026,304 2.2%
officers as a group
(13 persons)
- -----------------------
* Less than 1%
(1) Except as indicated in the footnotes 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.
(2) Share ownership in each case includes shares issuable upon exercise of
outstanding options, now exercisable or exercisable within 60 days of
January 31, 1998 to purchase shares of Common Stock for the following
persons or group: Dr. Blair 8,000; Mr. Conrad 16,000; Mr. Cook 38,000; Mr.
Garner 73,806; Mr. Hale 18,000; Dr. Kabakoff 113,356; Mr. Newman 86,229;
Mr. Prettyman 17,657; Mr. Ramseier 50,000; Dr. Smith 62,000; Mr. Spath
106,370; and directors and executive officers as a group 677,095.
(3) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).
(4) Includes 240,000 shares of Common Stock which may be acquired upon the
exercise of Series S Warrants, now exercisable or exercisable within 60
days, held by Domain Partners III, LP and DP Associates, LP. Dr. Blair is
one of several general partners of (a) the sole general partner of Domain
Partners III, LP and (b) 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.
(5) Includes options, now exercisable or exercisable within 60 days, to
purchase 10,000 shares of Common Stock 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.
15
EXECUTIVE OFFICERS
The Company's executive officers as of January 31, 1998 are:
Name Age Position Held With the Company
---- --- ------------------------------
Julia Brown 50 Senior Vice President, Business
Development
Cam L. Garner 50 Chairman, President, Chief Executive
Officer and director
David S. Kabakoff 50 Executive Vice President and director
James W. Newman 53 Senior Vice President, Finance and
Administration, Chief Financial Officer
and Assistant Secretary
Charles W. Prettyman 52 Senior Vice President, Development and
Regulatory Affairs
Walter F. Spath 53 Senior Vice President, Sales and
Marketing, and director
Mitchell R. Woodbury 56 Senior Vice President, General
Counsel and Secretary
Messrs. Garner, Kabakoff and Spath are directors of the Company. See
"Election of Directors" for a discussion of each individual's business
experience.
Julia Brown joined the Company in March 1995 as Vice President, Business
Planning, became Vice President, Business Development in October 1995 and was
named Senior Vice President in January 1997. Prior to joining the Company,
Ms. Brown spent over 25 years with Lilly and certain subsidiaries dealing
with pharmaceuticals, medical devices and diagnostics. From October 1992 to
December 1994, she was general manager of IVAC Corporation's Vital Signs
Division. From September 1986 to October 1992, Ms. Brown held several
marketing positions with Hybritech, including Division Vice President of
Marketing. Ms. Brown holds a B.S. in Microbiology from Louisiana Tech
University.
James W. Newman joined the Company in September 1991 as Vice President,
Finance and Administration, and Chief Financial Officer and was named Senior
Vice President in February 1996. Prior to joining the Company, Mr. Newman
served as President of George Wimpey of Texas and previously as Vice President
and Chief Financial Officer of George Wimpey, Inc., a land development and
home-building company, from October 1987 to September 1991. Mr. Newman holds an
MBA in Finance from Golden Gate University and a B.S. in Accounting from the
University of Illinois. Mr. Newman has been a Certified Public Accountant in
California since 1972.
Charles W. Prettyman joined the Company in December 1991 as Vice President,
Development and Regulatory Affairs and was named Senior Vice President in
February 1996. Prior to joining the Company, Mr. Prettyman served as Vice
President, Regulatory Affairs and Compliance at The Purdue Frederick Company, a
privately-held pharmaceutical company, from August 1988 to November 1991. From
January 1988 until August 1988, Mr. Prettyman served as Executive Director, Drug
Regulatory Affairs, Central Nervous System Development at Ciba-Geigy
Pharmaceuticals. From January 1977 until December 1987, Mr. Prettyman held
various positions with the United States Food and Drug Administration, including
Director, Program Management, Office of the Commissioner. Mr. Prettyman
received a M.S. in Biological Science from George Washington University and a
B.S. degree in Biology from Randolph Macon College.
Mitchell R. Woodbury joined the Company in June 1994 as Vice President,
General Counsel and Secretary and was named Senior Vice President in January
1997. Prior to joining the Company, Mr. Woodbury served as Vice President,
General Counsel and Secretary at Advanced Tissue Sciences, Inc., a biomedical
company. From October 1991 until June 1992, Mr. Woodbury served as Senior Vice
President, General Counsel of Intermark, Inc., a publicly held operating/holding
company. He was elected Vice President and Corporate Counsel of Intermark in
1980 and had served as Corporate Secretary since 1981. Mr. Woodbury received
his J.D. from the University of San Diego School of Law and a B.A. in Business
Administration from San Diego State University.
16
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned by the Named Executive Officers for services rendered in all
capacities to the Company for the fiscal years ended December 31, 1997, 1996 and
1995.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
--------------------------------------- ------------
Number of
Other Annual Securities All Other
Name and Compensation Underlying Compensation
Principal Position Year Salary (1) Bonus (1) (2) Options/SARs (3)(4)
------------------ ---- ---------- --------- ------------ ------------ ------------
Cam L. Garner 1997 $396,519 $475,000 $ -- 275,000 (5) $31,540
Chairman, President and 1996 $347,654 $610,000 $ -- 20,000 $21,093
Chief Executive Officer 1995 $337,391 $175,000 $ -- 25,000 $ 5,610
David S. Kabakoff (6) 1997 $266,019 (7) $ -- 60,000 (5) $10,406
Executive Vice President 1996 $171,635 $105,000 $ -- 230,000 $ 3,466
Walter F. Spath 1997 $210,808 $140,000 $ -- 90,000 (5) $12,687
Senior Vice President, 1996 $201,538 $190,000 $ -- -0- $ 7,006
Sales and Marketing 1995 $204,250 $ 40,000 $ -- 15,000 $ 3,750
James W. Newman 1997 $200,769 $140,000 $ -- 110,000 (5) $14,677
Senior Vice President, 1996 $190,039 $190,000 $ -- 20,000 $11,378
Finance and Administration, 1995 $175,870 $ 40,000 $ -- 15,000 $ 4,406
and Chief Financial Officer
Charles W. Prettyman 1997 $191,116 (7) $ -- 65,000 (5) $ -0-
Senior Vice President, 1996 $179,577 $190,000 $ -- 20,000 -0-
Development and Regulatory 1995 $167,700 $ 45,000 $ -- 7,000 -0-
Affairs
- ----------------------
(1) Includes amounts deferred under the Company's 401(k) Profit Sharing Plan
(the "401(k) Plan") pursuant to Section 401(k) of the Internal Revenue Code
of 1986, as amended, and the Company's Deferred Compensation Plan (the
"Deferred Comp. Plan").
(2) 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 "--".
(3) Includes contributions made by the Company pursuant to the 401(k) Plan
which were earned by the participants for the 1997, 1996 and 1995 fiscal
years, respectively, and which were used to purchase shares of the
Company's Common Stock as follows: Mr. Garner $6,650, $6,750, and $3,750;
Dr. Kabakoff $6,650, $3,150, and $0; Mr. Spath $6,650, $6,750, and $3,750;
and Mr. Newman $6,650, $6,750, and $3,750.
(4) Includes above-market interest earned by the participants on their
Deferred Comp. Plan account for the 1997, 1996 and 1995 fiscal years,
respectively, as follows: Mr. Garner $24,890, $14,343 and $1,860; Dr.
Kabakoff $3,756, $316 and $0; Mr. Spath $6,037, $256 and $0; and Mr.
Newman $8,027, $4,628 and $656.
17
(5) Includes the following option grant as to each individual which was
originally granted in December 1996 and which was cancelled and regranted
in April 1997, as follows: Mr. Garner, 150,000 shares; Dr. Kabakoff,
20,000 shares; Mr. Spath, 40,000 shares; Mr. Newman, 40,000 shares, and Mr.
Prettyman, 35,000 shares. See "Executive Compensation and Other
Information - Ten Year Information Regarding Repricing, Cancellation and
Regrant of Options."
(6) Dr. Kabakoff joined the Company in May 1996.
(7) Bonuses were paid in November 1997 by Spiros Corp., a separate company, to
Dr. Kabakoff and Mr. Prettyman in the amounts of $150,000 and $140,000,
respectively. Dura exercised its purchase option to acquire all of the
callable common stock of Spiros Corp. in December 1997.
18
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1992 Stock Option Plan (the "Option Plan") to the
Named Executive Officers. No stock appreciation rights ("SARs") were granted
under the Option Plan to the Named Executive Officers in fiscal year ended
December 31, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
- --------------------------------------------------------------------------------------------- Potential Realizable
Number of Percent of Value at Assumed
Securities Total Annual Rates of Stock
Underlying Options/SARs Price Appreciation for
Options/ Granted to Exercise or Option Term
SARs Employees in Base Price Expiration -----------------------
Name Granted (1) Fiscal Year (2) ($/Share) (3) Date (4) 5% (5) 10% (5)
- --------------------- ------------- --------------- ------------- ---------- --------- ----------
Cam L. Garner 150,000 (6) 8.34% $25.00 4-25-07 $2,358,355 $5,976,534
125,000 6.95% $44.88 12-19-07 $3,527,706 $8,939,899
David S. Kabakoff 20,000 (6) 1.11% $25.00 4-25-07 $ 314,447 $ 796,871
40,000 2.22% $44.88 12-19-07 $1,128,866 $2,860,768
Walter F. Spath 40,000 (6) 2.22% $25.00 4-25-07 $ 628,895 $1,593,742
50,000 2.78% $44.88 12-19-07 $1,411,082 $3,575,960
James W. Newman 40,000 (6) 2.22% $25.00 4-25-07 $ 628,895 $1,593,742
70,000 3.89% $44.88 12-19-07 $1,975,515 $5,006,344
Charles W. Prettyman 35,000 (6) 1.94% $25.00 4-25-07 $ 550,283 $1,394,525
30,000 1.66% $44.88 12-19-07 $ 846,649 $2,145,576
- ----------------------
(1) Each option becomes exercisable ratably over a four-year period. The
Option Plan provides for acceleration of outstanding options in the event
of certain corporation transactions, including a merger, sale, or change of
control.
(2) The Company granted options to acquire 1,797,950 shares of Common Stock to
the Company's, directors, officers and employees in 1997, of which options
to acquire 771,725 shares of Common Stock were granted pursuant to the
option cancellation/regrant program discussed in "Board Compensation
Committee Report on Executive Compensation - Compensation Committee Report
on 1997 Cancellation and Regrant of Options" and "Executive Compensation
and Other Information - Ten-Year Information Regarding Repricing,
Cancellation and Regrant of Options."
(3) The exercise price per share of options granted represented the fair market
value of the underlying shares of Common Stock on the dates the respective
options were granted as determined by the Board of Directors. 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 the Board of Directors. The fair
market value of shares of Common Stock will be determined in accordance
with certain provisions of the Option Plan based on the closing selling
price per share of a share of Common Stock on the date of grant on the
primary exchange on which the Company's Common Stock is listed or reported.
(4) Each option has a term of ten years from the date of grant. Options which
expire 4-25-07 were granted 4-25-97 and options which expire of 12-19-07
were granted 12-19-97.
(5) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the 10-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.
(6) Options granted in 1996 which were cancelled and regranted in 1997 pursuant
to the option cancellation/regrant program discussed in "Board Compensation
Committee Report on Executive Compensation - Compensation Committee Report
on 1997 Cancellation and Regrant of Options" and "Executive Compensation
and Other Information - Ten-Year Information Regarding Repricing,
Cancellation and Regrant of Options."
19
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options pursuant to the Option
Plan during the fiscal year ended December 31, 1997 and unexercised options held
as of the end of the fiscal year.
AGGREGATED 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
Shares Options/SARs at Options/SARs at
Acquired December 31, 1997 December 31, 1997 (1)
Upon Value -------------------------------- -------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- ---------- ----------- ------------- ----------- -------------
Cam L. Garner 118,460 $4,245,429 8,297 365,643 $331,007 $6,461,912
David S. Kabakoff 0 0 87,996 202,004 $1,429,495 $2,764,354
Walter F. Spath 50,000 $2,061,250 89,088 115,912 $3,513,179 $1,769,445
James W. Newman 46,700 $1,930,893 50,909 161,991 $2,121,130 $2,681,108
Charles W. Prettyman 29,442 $956,330 2,504 91,824 $83,783 $1,634,892
- -----------------------
(1) Value is defined as market price of the Company's Common Stock at fiscal
year end less exercise price. The market price of the Company's Common
Stock at December 31, 1997 was $45.88.
DIRECTOR COMPENSATION
The Company does not presently pay fees to its directors, other than
reimbursement for their out-of-pocket expenses incurred in attending meetings of
the Board of Directors and its committees. In addition, each non-employee
director is entitled to receive options under the Option Plan in connection with
his service on the Board of Directors. Each person who is newly elected or
appointed as a non-employee director after the effective date of the Option Plan
will receive, on the date of such election or appointment, a non-qualified
option for 30,000 shares of Common Stock. On the date of each of the Company's
Annual Meetings, each person who (i) (A) is a continuing non-employee director
or (B) is re-elected at the Annual Meeting and (ii) has served as a non-employee
director for the immediately preceding 180 days, will receive a non-qualified
stock option for 8,000 shares of Common Stock (collectively, the "Automatic
Grant"). The exercise price for the options is the fair market value of the
Common Stock on the date of grant and each option has a term of 10 years.
Automatic Grants are granted in tandem with limited stock appreciation rights
which become effective in the event of a hostile tender offer.
The Company entered into a one-year Consulting Agreement with Mr. Conrad in
April 1995, pursuant to which Mr. Conrad provided certain consulting services to
the Company related to marketing and licensing strategies, and for which Mr.
Conrad received compensation of $1,000 per month, plus reimbursement of
out-of-pocket expenses. Such agreement has been extended for subsequent
one-year terms and currently expires March 31, 1999.
The Company engaged Life Science Advisors, of which Mr. Cook is a
principal, in May 1995 to provide certain strategic consulting services on a
limited basis, for which it received compensation during the 1997 fiscal year of
$27,860, plus reimbursement of out-of-pocket expenses.
20
TEN-YEAR INFORMATION REGARDING REPRICING, CANCELLATION AND REGRANT OF OPTIONS
As discussed in "Board Compensation Committee Report on Executive
Compensation - Compensation Committee Report on 1997 Cancellation and Regrant of
Options," the Company implemented an option cancellation/regrant program for
executive officers and all other employees holding stock options granted during
the period from August 22, 1996 through April 25, 1997. The
cancellation/regrant was effected April 25, 1997 and each option held by those
individuals granted during the period from August 22, 1996 through April 25,
1997, at such individual's election, was cancelled in exchange for a new option
for the same number of shares with an exercise price of $25.00 per share, the
fair market value of the Common Stock on April 25, 1997. Vesting on the
underlying option was forfeited and the replacement option vests over a new
4-year period commencing April 25, 1997 and remains valid for a 10-year term.
The Compensation Committee determined that this program was necessary
because equity incentives are a significant component of the total compensation
of each employee and play a substantial role in the Company's ability to retain
the services of the individuals essential to the Company's long-term financial
success. Prior to implementation of the program, the market price of the Common
Stock has fallen and did not necessarily reflect the progress made by the
Company in financing operations, product acquisitions, research and development
programs and collaborative programs. The Compensation Committee felt that the
Company's ability to retain key employees would be significantly impaired unless
value was restored in the form of regranted options for the Common Stock at the
then current market price.
The following table sets forth information with respect to each executive
officer of the Company who held an option which was subject to an option
repricing program during the last ten fiscal years ended December 31, 1997. The
table details his or her participation in the option cancellation/regrant
program which was effected April 25, 1997.
21
TEN-YEAR OPTIONS/SAR REPRICINGS
1997
Length of
Number of Original
Securities Option Term
Underlying Market Price of Remaining at
Options/SARs Stock at Time of Exercise Price at Date of
Repriced or Repricing or Time of Repricing New Exercise Repricing or
Name Date Amended (#) Amendment ($) or Amendment ($) Price ($) Amendment
---- ---- ------------ ---------------- ----------------- ------------ ------------
Julia Brown 4-25-97 40,000 $25.00 $37.63 $25.00 9 1/2 years
Senior Vice President,
Business Development
Cam L. Garner 4-25-97 150,000 $25.00 $37.63 $25.00 9 1/2 years
Chairman, President &
Chief Executive Officer
David S. Kabakoff 4-25-97 20,000 $25.00 $37.63 $25.00 9 1/2 years
Executive Vice President
James W. Newman 4-25-97 40,000 $25.00 $37.63 $25.00 9 1/2 years
Senior Vice President,
Finance and Administration,
and Chief Financial Officer
Charles W. Prettyman 4-25-97 35,000 $25.00 $37.63 $25.00 9 1/2 years
Senior Vice President,
Development and
Regulatory Affairs
Walter F. Spath 4-25-97 40,000 $25.00 $37.63 $25.00 9 1/2 years
Senior Vice President,
Sales and Marketing
Mitchell R. Woodbury 4-25-97 30,000 $25.00 $37.63 $25.00 9 1/2 years
Senior Vice President,
General Counsel &
Corporate Secretary
An aggregate of 355,000 options originally granted December 6, 1996 under
the Option Plan to the executive officers were cancelled and regranted under the
April 25, 1997 cancellation/regrant program. The option cancellation/regrant
program was conducted in accordance with the terms and conditions of the Option
Plan.
See "Board Compensation Committee Report on Executive Compensation -
Compensation Committee Report on 1997 Cancellation and Regrant of Options" for a
further discussion regarding stock options which were cancelled and regranted
during the 1997 fiscal year.
22
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
In May 1990, the Company entered into an employment agreement with Mr.
Garner pursuant to which he was employed as President and Chief Executive
Officer. The current employment term ends May 31, 1998, and will automatically
renew for successive one year periods, unless either Mr. Garner or the Company
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 $395,000) subject to increase by the Company's Board of
Directors annually, with a minimum increase of at least 5%.
In the event of termination of employment by the Company without cause, the
Company is 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 of
the Company and he is terminated without cause, or following: (i) a change in
position with the Company that materially reduces Mr. Garner's level of
responsibility; (ii) a 10% or more reduction of Mr. Garner's compensation; or
(iii) a change in Mr. Garner's place of employment to more than 20 miles from
the Company's current facility in San Diego, California, unless Mr. Garner
otherwise agrees in writing.
In May 1996, Dr. Kabakoff entered into an employment agreement with the
Company upon substantially the same terms and conditions as described above for
Mr. Garner, with an initial term expiring April 30, 1998. Dr. Kabakoff's
current annual base salary is $265,000 and is subject to annual review and
increase at the sole discretion of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1997, Dr. Blair and Messrs. Conrad and Hale served as the members
of the Company's Compensation Committee. The Company has no insider
relationships reportable pursuant to this item.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE
COMPANY'S PREVIOUS OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT"), THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS
PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING REPORT 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. The fundamental policy of the Company is
to offer the executive officers competitive compensation opportunities
based upon their contribution to the financial success of the Company and
their personal performance. It is our objective to have a substantial
portion of each officer's compensation contingent upon the Company's
performance, as well as upon his or her own level of performance.
Accordingly, each executive officer's compensation package is comprised of
three elements: (i) base salary which reflects individual performance and
is designed primarily to be competitive with salary levels in the industry,
(ii) annual variable performance awards payable in cash and tied to the
achievement of financial and individual performance goals established by
management and approved by the Board of Directors, and (iii) long-term
stock-based incentive awards which strengthen the mutuality of interests
between the executive officers and the Company's 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 Company
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 the 1997 fiscal year 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.
23
- 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 the
Company. 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 the Company's executive officers.
See "Executive Compensation and Other Information - Employment
Contracts and Change of Control Arrangements" regarding the employment
agreement in effect between the Company and Dr. Kabakoff.
- ANNUAL INCENTIVE COMPENSATION. Annual bonuses may be earned by each
executive officer on the basis of the Company's and each officer's
achievement of corporate and individual performance targets,
respectively, 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 fiscal year 1997, the corporate
performance targets were primarily focused on growth in earnings per
share, with the belief that an increase in the Company's earnings per
share is a prime factor in positively affecting the market price of
the Company's stock. Accordingly, this element of executive
compensation is earned on the basis of the Company's 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. On December 19, 1997, the grants of
stock options to certain of the Company's executive officers were
approved under the 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 the Company from the perspective of an owner with
an equity stake in the business. The number of shares subject to each
option grant was based on the officer's level of responsibilities,
relative position in, and length of service with, the Company. Each
grant allows the officer to 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 10 years). Accordingly, the option will provide
a return to the executive officer only if the market price of the
Common Stock appreciates over the option term.
CEO COMPENSATION. In setting the compensation payable to the
Company's Chief Executive Officer, Mr. Garner, the Compensation Committee
has 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 such compensation to Company performance.
Mr. Garner's 1997 base salary was established based on our evaluation
of his personal performance and the objective of the Compensation Committee
to have his base salary keep pace with salaries being paid to similarly
situated chief executive officers. Over the last two fiscal years of Mr.
Garner's tenure as Chief Executive Officer, the Company has experienced an
annual compounded growth rate in revenue of 88%. While this factor has
been taken into account in the determination of Mr. Garner's base salary
for 1997, it may not be applied to the same extent in future years in
setting base salary. See "Executive Compensation and Other Information -
Employment Contracts and Change of Control Arrangements" regarding the
employment agreement in effect between the Company and Mr. Garner.
The remaining components of Mr. Garner's 1997 fiscal year compensation
were entirely dependent upon the Company's financial performance and
provided no dollar guarantees. The cash bonus paid to him for the 1997
fiscal year was based on the Company's attainment of the earnings growth
targets which we established as his individual bonus plan for the year.
The option grants made to him during the 1997 fiscal year were based on his
performance during the year and were intended to place a significant
portion of his total compensation for the year at risk, since the options
will have no value unless there is appreciation in the value of the Common
Stock over the option term. The amount of the stock option grants, 275,000
shares, was determined in light of the Company's record performance in
1997, including growth of 74% in revenues, profit for each of the quarters
during the year, culminating in growth in earnings per share which
represented a 65% increase over the prior year (excluding non-recurring
charges principally related to the exercise of the Spiros Development
Corporation purchase option and the cash contribution to Spiros Development
Corporation II, Inc.) As indicated, it is our objective to have an
increasing
24
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 Company performance factors
which will include, but not be limited to, financial performance.
COMPENSATION COMMITTEE REPORT ON 1997 CANCELLATION AND REGRANT OF
OPTIONS. During the 1997 fiscal year, the Compensation Committee
determined that factors affecting the stock price of the Company made it
necessary for the Company to implement a program to cancel and regrant
certain options to purchase Common Stock held by the Company's executive
officers and certain other employees. A cancellation/regrant program was
implemented, whereby certain outstanding options were cancelled and new
options for the same number of shares were granted with a lower exercise
price per share equal to the fair market price of the Common Stock on the
regrant date.
The Compensation Committee determined that this program was necessary
because equity incentives are a significant component of the total
compensation of each employee and play a substantial role in the Company's
ability to retain the services of the individuals essential to the
Company's long-term financial success. Prior to implementation of the
program, the market price of the Common Stock has fallen and did not
necessarily reflect the progress made by the Company in financing
operations, product acquisitions, research and development programs and
collaborative programs. The Compensation Committee felt that the Company's
ability to retain key employees would be significantly impaired unless
value was restored in the form of regranted options for the Common Stock at
the then current market price.
Accordingly, on April 25, 1997, the Compensation Committee approved
the cancellation and regrant of all outstanding options granted during the
period from August 22, 1996 through April 25, 1997 held by current
employees. Each optionee holding such an option had the opportunity to (i)
elect to retain the old option or (ii) accept a new option with an exercise
price of $25.00 per share, the fair market price of the Common Stock on
that date, and to cancel the older, higher-priced option. Each regranted
option covered the same number of shares subject to the higher-priced
option at the time of cancellation and vesting on the higher-priced option
was forfeited. The replacement option vests over a new four-year period.
The Compensation Committee believes the regranted options and new
vesting schedule strikes an appropriate balance between the interests of
the option holders and those of the shareholders. The lower exercise
prices in effect under the regranted options make those options valuable
once again to the executive officers and key employees critical to the
Company's financial performance. However, those individuals will enjoy the
benefits of the regranted options only if they remain in the Company's
employ and contribute to the Company's and investors' financial success.
We conclude our report with the acknowledgment that no member of
the Compensation Committee is a former or current officer or employee of
the Company or any of its subsidiaries.
COMPENSATION COMMITTEE
JAMES C. BLAIR
HERBERT J. CONRAD
DAVID F. HALE
25
PERFORMANCE GRAPH
The following graph compares total stockholder returns since the Company
became a reporting company under the Exchange Act, as amended, to the
Standard & Poor's 500 Index (the "S&P 500") and 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 February 7, 1992 in each (a) the
Company's 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 the Company's Common Stock. The Pharmaceutical
Companies in the S&P 500 consist of the following pharmaceutical companies:
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 the Company will not make
or endorse any predictions as to future stockholder returns.
[GRAPH]
Dura S & P 500 S & P Pharmaceutical Companies
2/7/92 100 100 100
3/31/92 67.34693878 98.19990756 93.34993453
6/30/92 51.02040816 99.28239558 87.16976053
9/30/92 57.14285714 101.632246 84.47583852
12/31/92 59.18367347 105.9889562 84.12953831
3/31/93 40.81632653 109.8713177 69.91532164
6/30/93 44.89795918 109.5940062 72.56641500
9/30/93 46.93877551 111.6373544 65.87046169
12/31/93 59.18367347 113.4666375 74.43925062
3/31/94 71.42857143 108.4361089 61.66958309
6/30/94 85.71428571 108.0712253 68.15506418
9/30/94 91.2244898 112.5519959 76.83581943
12/31/94 118.3673469 111.7200613 83.60825247
3/31/95 121.4285714 121.8005789 93.5451108
6/30/95 153.5510204 132.5135615 102.8566709
9/30/95 242.8571429 142.1610839 119.1058602
12/31/95 283.6734694 149.8285047 137.3055885
3/31/96 405.1428571 157.0215768 143.2593825
6/30/96 457.1428571 163.1345934 148.2789002
9/30/96 569.3877551 167.1920991 152.4883445
12/31/96 779.5918367 180.189253 175.2670672
3/31/97 583.6734694 184.1737819 187.2688783
6/30/97 651.1020408 215.3153811 228.0441992
9/30/97 712.3265306 230.4312924 232.814087
12/31/97 749.0612245 236.0626627 264.3800247
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
See "Executive Compensation and Other Information--Employment Contracts and
Change of Control Arrangements" for a discussion of the employment agreements
between the Company and Mr. Garner and Dr. Kabakoff.
Officers and directors of the Company are indemnified pursuant to certain
provisions of the Delaware General Corporation Law and the Company's Certificate
of Incorporation and Bylaws to the fullest extent permitted under Delaware law,
in addition to Indemnification Agreements in effect between the Company and its
officers and directors.
26
CERTAIN BUSINESS RELATIONSHIPS
Dr. Kabakoff was President and Chief Executive Officer and a director,
and Mr. Garner also served as a director, of Spiros Corp. during 1997, prior
to the Company's exercise of its purchase option to acquire all of the
callable common stock of Spiros Corp. in December 1997. Pursuant to certain
license, development and management agreements then in effect, Spiros Corp.
engaged the Company to develop certain compounds, to which Spiros Corp. had
certain rights, for delivery through Spiros-Registered Trademark-, the
Company's proprietary dry powder pulmonary drug delivery system. During 1997,
the Company recorded contract revenues from Spiros Corp. of $19,277,000. Dr.
Kabakoff currently serves as Chairman, President and Chief Executive Officer,
and Mr. Garner also serves as a director, of Spiros Corp. II, a separate,
newly-formed company which has engaged the Company through various agreements
to further develop certain products, to which Spiros Corp. II has rights, for
use with the Spiros-Registered Trademark- system. The Company has an option
to purchase all of the callable common stock of Spiros Corp. II. During 1997,
the Company recorded contract revenues from Spiros Corp. II of $6,626,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC") and the Nasdaq
National Market. Officers, directors and greater than 10% beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Company
or written representations from certain reporting persons that no Forms 5 were
required, the Company believes that, during the 1997 fiscal year, its officers,
directors and greater than 10% beneficial owners complied with all applicable
Section 16(a) filing requirements.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
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
Under the present rules of the SEC, the deadline for stockholders to submit
proposals to be considered for inclusion in the Company's Proxy Statement for
next year's Annual Meeting of Stockholders is expected to be January 21, 1999
(120 days prior to May 21, 1999). Such proposals may be included in next year's
Proxy Statement if they comply with certain rules and regulations promulgated by
the SEC and the Bylaws of the Company.
OTHER MATTERS
The 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 the Company 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 the Board of Directors
Dated: April 9, 1998 MITCHELL R. WOODBURY
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
27
DURA PHARMACEUTICALS, INC.
1992 STOCK OPTION PLAN
EFFECTIVE DECEMBER 9, 1992; AS AMENDED JUNE 2, 1994; AS
AMENDED MAY 25, 1995; AS AMENDED MAY 29, 1996
AS AMENDED JULY 1, 1996; AS AMENDED FEBRUARY 19, 1997
AS AMENDED FEBRUARY 19, 1998
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
A. IMPLEMENTATION. This 1992 Stock Option Plan ("PLAN") is 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 are hereby 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. 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 1934 Act, and a Non-Employee Director shall
have the meaning set forth in Rule 16b-3(b)(3).
28
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 8,307,360 shares, subject to adjustment from time to time in
accordance with the provisions of this Section. This authorized share reserve
is comprised of (i) the number of shares remaining available for issuance under
the 1983 Plan as of the Effective Date, including the shares subject to the
outstanding options incorporated into this Plan and any other shares that would
have been available for future option grant under the 1983 Plan, plus (ii) an
additional 416,040 shares of Common Stock, plus (iii) an additional increase of
750,000 shares of Common Stock, plus (iv) an additional increase of 1,000,000
shares of Common Stock, plus (v) an additional increase of 1,500,000 shares of
Common Stock, plus (vi) an additional increase of 1,600,000 shares of Common
Stock, plus (vii) an additional increase of 700,000 shares of Common Stock.
Accordingly, 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-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 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, and (iii) 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.
29
APPENDIX
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 options to acquire more than 400,000 shares in any fiscal year
or 1,500,000 shares 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 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.
30
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. SHAREHOLDER RIGHTS. An option holder will have no shareholder 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% SHAREHOLDER. 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%
SHAREHOLDER"), 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.
31
(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 through its NASDAQ system or any successor system. 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 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
difference between (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 and (ii) the aggregate option price payable for such shares. The
distribution to which an option holder becomes entitled under this
32
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. The option surrender
provisions of this Section will not apply to options granted pursuant to the
Automatic Option Grant provisions of this Plan.
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.
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:
33
(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 shareholders
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 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, 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
34
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 Shareholders Meeting
of the Company held after the Effective Date of this Plan, each continuing
non-employee member of the Board will receive an Automatic Option Grant to
purchase 8,000 shares of 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 newly elected or
appointed as a non-employee member of the Board on or after the Effective Date
of this Plan will receive, on the effective date of such election or
appointment, an Automatic Option Grant to purchase 30,000 shares of Common
Stock.
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.
35
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.
(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.
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.
36
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 taxes ("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 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, shall become 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. If shareholder approval of the 1,600,000-share increase is not
obtained by February 19, 1998, then each option granted under this Plan subject
to this share increase shall terminate without ever becoming exercisable for the
option shares and all shares issued hereunder shall be repurchased by the
Corporation at the purchase price paid, together with interest (at the
applicable Short Term Federal Rate). Subject to the foregoing limitations,
options may be granted under this Plan at any time from and after the Effective
Date of the Plan and before the date fixed herein for 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 shareholder approval is obtained for a
sufficient increase in the number of shares available for issuance under the
Plan. If such shareholder 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.
III. 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.
37
IV. 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.
V. 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.
38
PRELIMINARY
COPY
PROXY
DURA PHARMACEUTICALS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James W. Newman and Mitchell R. Woodbury,
jointly and severally, as proxies, with power to act without the other and with
power of substitution, and hereby authorizes them to represent and vote all of
the shares of Common Stock of Dura Pharmaceuticals, Inc. standing in the name of
the undersigned, as designated on the other side, with all powers which the
undersigned would possess if present at the Annual Meeting of Stockholders to be
held May 21, 1998, or any postponements or adjournments thereof, and to vote in
his or her discretion on such other business as may properly come before the
Meeting and any adjournments thereof.
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
* FOLD AND DETACH HERE *
[LOGO]
Please mark /X/
your votes as
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 and 4.
WITHHELD
FOR FOR ALL
ITEM 1-ELECTION OF DIRECTORS
Nominees: / / / /
James C. Blair
Joseph C. Cook, Jr.
Cam L. Garner
David F. Hale
David S. Kabakoff
WITHHELD FOR: (write that nominee's name in the
space provided below).
- ---------------------------------------------
FOR AGAINST ABSTAIN
ITEM 2 - APPROVAL OF / / / / / /
AMENDMENT TO CERTIFICATE OF INCORPORATION
ITEM 3 - APPROVAL OF AMENDMENT / / / / / /
TO 1992 STOCK OPTION PLAN
ITEM 4 - RATIFICATION / / / / / /
OF DELOITTE & TOUCHE LLP AS INDEPENDENT ACCOUNTANTS
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1, 2, 3 AND 4 AND WILL BE VOTED BY THE PROXY-HOLDER AT HIS DISCRETION
AS TO ANY OTHER MATTERS PROPERLY TRANSACTED AT THE MEETING OR ANY
ADJOURNMENTS THEREOF. TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTOR'S
RECOMMENDATIONS, JUST SIGN BELOW, NO BOXES NEED TO BE CHECKED.
Signature Signature Date
---------------- --------------- --------------
NOTE: Please sign as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
* FOLD AND DETACH HERE *