SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 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.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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[LOGO]
DURA PHARMACEUTICALS, INC.
7475 LUSK BLVD.
SAN DIEGO, CALIFORNIA 92121
April 16, 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,
/s/ Cam L. Garner
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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[LOGO]
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 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
/s/ Mitchell R. Woodbury
Dated: April 16, 1998 MITCHELL R. WOODBURY
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
DURA PHARMACEUTICALS, INC.
PROXY STATEMENT
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 (the "Annual Meeting") 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 16, 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 46,185,361 outstanding shares of common stock, $.001 par value per share
(the "Common Stock"), and no shares of preferred stock, $.001 par value per
share (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,
though 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. Cook, Garner and Hale and Drs. Blair 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. The five candidates receiving the highest number of
affirmative votes by holders of Common Stock represented and voting at the
Annual Meeting will be elected directors of the Company.
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 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 Chairman and Chief Executive Officer of
Amylin since March 1998. He has also 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, Spiros Development Corporation II, Inc. ("Spiros Corp. II"), a
developer of pulmonary drug delivery systems, and CardioDynamics International
Corporation, a manufacturer of medical devices. 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 a director, 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. 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-LaRoche 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 the 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 the aggregate
total of such 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 non-employee 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
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services they are to 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 of 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 46,185,361 shares of Common Stock outstanding, and an additional
8,832,644 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 $.001 per share and the Preferred Stock
shall have a par value of $.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
4
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 the holders 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.
PROPOSAL 3
APPROVAL OF AMENDMENT TO THE COMPANY'S
1992 STOCK OPTION PLAN
GENERAL
The stockholders 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 stockholder approval. The
effect of the amendment will be to increase the number of shares available for
issuance under the Option Plan by an additional 1,000,000 shares to a total of
8,607,360 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 stockholders at the Annual Meeting.
Prior to the amendment, 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 of (a) $287.5 million principal amount of 3 1/2% Convertible
Subordinated Notes due July 15, 2002 which were issued in July 1997, and (b)
Warrants to purchase shares of Common Stock which are a component of Units
offered by Spiros Corp. II and the Company which were issued in December 1997.
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 of the provisions
of the Option Plan. Copies of the actual Option Plan documents may be obtained
by any stockholder 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 Securities Exchange Act of 1934,
as amended (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.
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SHARE RESERVE. The aggregate number of shares available for issuance under
the Option Plan may not exceed 8,607,360 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.
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 selling 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 of 1986, as amended (the "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 ten 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: (i) in 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, as hereinafter defined) 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, an NQO may
be assigned in whole or in part during the optionee's lifetime. The terms
applicable to the assigned portion are the same as those in effect for the
option immediately prior to such assignment.
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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, an 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 an 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 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 ten years. The Automatic Grant will become fully
exercisable one year after the grant date (or immediately upon a Corporate
Transaction as described below). Finally, the Automatic Grant will be granted
in tandem with a limited stock appreciation right as described below. Options
granted under the Automatic Grant program will expire if not exercised within 6
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
stockholders 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.
7
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 (as defined below), 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.
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 stockholders accept.
The Takeover Price per share shall be deemed to be equal to the
GREATER of (a) the Fair Market Value per share on the date of cancellation,
or (b) the highest reported price per share paid in effecting the Hostile
Takeover. However, if the cancelled option is an ISO, the Takeover Price
shall not exceed the clause (a) price per share.
AMENDMENT AND TERMINATION OF THE OPTION PLAN. The Board may amend, suspend
or discontinue the Option Plan at any time. Stockholder approval of amendments
to 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 an 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 an 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.
8
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 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.
9
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.
OPTIONS GRANTED UNDER THE OPTION PLAN
All Option Plan Years Through 2-28-98
-------------------------------------
Number of Weighted 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 who are not 513,000 (2) $11.60
executive officers as a group (6 persons)
All current executive officers as a group 2,930,000 (1) $14.34
(7 persons)
All employees who are not executive officers 3,512,986 (1) $14.41
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 shares. See discussion
concerning the option cancellation/regrant program contained in "Executive
Compensation and Other Information -- Ten-Year Information Regarding
Repricing, Cancellation and Regrant of Options" and "Board Compensation
Committee Report on Executive Compensation -- Compensation Committee Report
on 1997 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."
10
As of February 28, 1998, options covering 3,712,207 shares of Common Stock
were outstanding under the Option Plan, 1,705,746 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.
NEW OPTION PLAN BENEFITS
Effective as of the 1998 Annual Meeting, the amendment will increase the
number of shares authorized for issuance under the Option Plan by 1,000,000
shares to a total of 8,607,360 shares. None of the 1,000,000-share increase has
been granted prior to the date of the Annual Meeting.
VOTE REQUIRED FOR APPROVAL OF THE AMENDMENT TO THE OPTION PLAN
The affirmative vote of the holders of a majority of the shares of Common
Stock represented and voting at the Annual Meeting is necessary to approve the
amendment to the Option Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR THE APPROVAL OF THE AMENDMENT TO THE OPTION PLAN.
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
Annual Meeting to respond to questions and will have the opportunity to make a
statement if he or she desires to do so.
The affirmative vote of the holders of a majority of shares of Common Stock
represented and voting at the Annual Meeting will be required to ratify the
selection of Deloitte & Touche LLP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR THE RATIFICATION OF THE APPOINTMENT
OF DELOITTE & TOUCHE LLP
AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
11
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.
12
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.
13
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 and Spath and Dr. Kabakoff 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 an 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 and 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.
14
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
Securities All Other
Name and Other Annual Underlying Compensation
Principal Position Year Salary (1) Bonus (1) Compensation (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 $ -- 7,500 $ -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 Code 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.
15
(5) Includes the following option 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 $140,000,
respectively. Dura exercised its purchase option to acquire all of the
callable common stock of Spiros Corp. in December 1997.
16
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's Option Plan to the Named Executive Officers. No
stock appreciation rights ("SARs") were granted under the Option Plan to the
Named Executive Officers in fiscal year ended December 31, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
- --------------------------------------------------------------------------------------------------
Potential Realizable
Number of Percent of Value at Assumed
Securities Total Annual Rates of Stock
Underlying Options/SARs Price Appreciation for
Options/ Granted to Exercise or Option Term
SARs Employees in Base Price Expiration ---------------------------
Name Granted (1) Fiscal Year (2) ($/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 corporate 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 "Executive Compensation
and Other Information -- Ten-Year Information Regarding Repricing,
Cancellation and Regrant of Options" and "Board Compensation Committee
Report on Executive Compensation -- Compensation Committee Report on 1997
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. 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.
(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 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 "Executive
Compensation and Other Information -- Ten-Year Information Regarding
Repricing, Cancellation and Regrant of Options" and "Board Compensation
Committee Report on Executive Compensation -- Compensation Committee Report
on 1997 Cancellation and Regrant of Options."
17
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.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
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 Takeover.
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.
18
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 $25.00 per share, the
fair market value of the Common Stock on April 25, 1997. Vesting on the
underlying option was forfeited and the replacement option vests over a new
4-year period commencing April 25, 1997 and remains valid for a 10-year term.
The Compensation Committee determined that this program was necessary
because equity incentives are a significant component of the total compensation
of each employee and play a substantial role in the Company's ability to retain
the services of the individuals essential to the Company's long-term financial
success. Prior to implementation of the program, the market price of the Common
Stock had fallen and did not necessarily reflect the progress made by the
Company in financing operations, product acquisitions, research and development
programs and collaborative programs. The Compensation Committee felt that the
Company's ability to retain key employees would be significantly impaired unless
value was restored in the form of regranted options for the Common Stock at the
then current market price.
19
The following table sets forth information with respect to each executive
officer of the Company who held an option which was subject to an option
repricing program during the last ten fiscal years ended December 31, 1997. The
table details his or her participation in the option cancellation/regrant
program which was effected April 25, 1997.
TEN-YEAR OPTION/SAR REPRICINGS
1997
Length of
Number of Original
Securities Option Term
Underlying Market Price of Exercise Price Remaining at
Options/SARs Stock at Time of at Time of New Date of
Repriced or Repricing or Repricing or Exercise Repricing or
Name Date Amended (#) Amendment ($) 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.
20
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 EXCHANGE ACT THAT MIGHT INCORPORATE FUTURE FILINGS, INCLUDING THIS
PROXY STATEMENT, IN WHOLE OR IN PART, THE FOLLOWING BOARD COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION AND THE PERFORMANCE GRAPH
INCLUDED HEREIN SHALL NOT BE INCORPORATED BY REFERENCE INTO ANY SUCH
FILINGS.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL COMPENSATION POLICY. 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.
21
- 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 grant made to him during the 1997 fiscal year was based on his
performance during the year and was 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 his 1997 stock option grant, 125,000 shares
(excluding the 1996 option which was cancelled and regranted in 1997), 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
22
Development Corporation II, Inc.) As indicated, it is our objective to
have an increasing percentage of Mr. Garner's total compensation each year
tied to the attainment of performance targets and stock price appreciation
on his option shares. In establishing bonus amounts, if any, paid to Mr.
Garner in future years, we may consider a variety of 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 had 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 strike an appropriate balance between the interests of the
option holders and those of the stockholders. 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 its 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
23
PERFORMANCE GRAPH
The following graph compares total stockholder returns since the Company
became a reporting company under the Exchange Act, to the Standard & Poor's 500
Index (the "S&P 500") and to a peer group comprised of the Pharmaceutical
Companies in the S&P 500. The graph is constructed on the assumption that $100
was invested on 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.
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 each 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.
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
24
recorded contract revenues from Spiros Corp. of $19,277,000. Dr. Kabakoff
currently serves as a director, Chairman, President and Chief Executive Officer,
and Mr. Garner also serves as a director, of Spiros Corp. II, a separate,
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
/s/ Mitchell R. Woodbury
Dated: April 16, 1998 MITCHELL R. WOODBURY
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
25
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 *