SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
[AMENDMENT NO. _________]
Filed by the registrant /X/
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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 Rule 14a-11(c) or Rule 14a-12
DURA PHARMACEUTICALS, INC.
(Name of Registrant as Specified in Its Charter)
Mitchell R. Woodbury, Sr. Vice President General Counsel & Secretary
DURA PHARMACEUTICALS, INC. 7475 LUSK BLVD., SAN DIEGO, CA 92121
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:_______
(2) Aggregate number of securities to which transactions applies:_________
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):________
(4) Proposed maximum aggregate value of transactions:_____________________
(5) Total fee paid:_______________________________________________________
/ / 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.
(1) Amount previously paid: _____________________________________________
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(4) Date filed: _________________________________________________________
[LOGO]
DURA PHARMACEUTICALS, INC.
7475 LUSK BLVD.
SAN DIEGO, CALIFORNIA 92121
April 16, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
of Dura Pharmaceuticals, Inc., which will be held at the offices of the
Company at 7475 Lusk Blvd., San Diego, California, on Thursday, May 20, 1999
at 10:00 a.m.
Details of the business to be conducted at the Annual Meeting are given
in the attached Notice of Annual Meeting of Stockholders and Proxy Statement.
In order for us to have an efficient meeting, please sign, date and
return the enclosed proxy promptly in the accompanying reply envelope, or
vote by telephone or using the internet, where available. If you are able to
attend the Annual Meeting and wish to change your proxy vote, you may do so
simply by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely,
/s/ CAM L. GARNER
CAM L. GARNER
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, 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. If your shares are held through your broker, you may be
able to vote by telephone or using the internet; see the voting
instructions included with your proxy card. If you vote by telephone or
using the internet, you do not need to return your proxy card.
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[LOGO]
DURA PHARMACEUTICALS, INC.
7475 LUSK BLVD.
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1999
The Annual Meeting (the "Annual Meeting") of Stockholders of Dura
Pharmaceuticals, Inc. (the "Company") will be held at the offices of the
Company, 7475 Lusk Blvd., San Diego, California, on Thursday, May 20, 1999 at
10:00 a.m., for the following purposes:
1. To elect three (3) directors to serve two-year terms to expire at
the Annual Meeting of Stockholders in 2001.
2. To approve an amendment to the 1992 Stock Option Plan (the "Option
Plan") to increase the authorized number of shares of Common Stock
available for issuance under the Option Plan and to adjust the
automatic grant provisions of the Option Plan.
3. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent public accountants for the fiscal year ending December
31, 1999.
4. 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 22, 1999 are
entitled to vote at the Annual Meeting. A list of stockholders entitled to
vote at the Annual Meeting will be available for inspection at 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
your shares are held through your broker, you may be able to vote by
telephone or using the internet; see the voting instructions included with
your proxy card. If you attend the Annual Meeting and vote by ballot, your
proxy will be revoked automatically and only your vote at the Annual Meeting
will be counted. The prompt return of your proxy will assist us in preparing
for the Annual Meeting.
By Order of the Board of Directors
/s/ MITCHELL R. WOODBURY
Dated: April 16, 1999 MITCHELL R. WOODBURY
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
DURA PHARMACEUTICALS, INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1999
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 20, 1999 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, 1999. A stockholder may vote in person, by mail,
or through the valid appointment of a proxy. In addition, telephone or
internet voting may be available depending on the voting process of each bank
or broker, and if applicable, instructions for voting are enclosed with the
proxy card.
The mailing address of the principal executive office of the Company is
7475 Lusk Blvd., San Diego, California 92121.
PURPOSE OF THE MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Stockholders. Each proposal is described in more detail in this Proxy
Statement.
VOTING RIGHTS AND SOLICITATION
Any stockholder executing a proxy has the power to revoke it at any time
before it is voted by delivering written notice of such revocation to 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, electronic mail or facsimile. In addition, the Company
has retained Georgeson & Company Inc. to assist in the solicitation of
proxies, for which they will be paid a fee of approximately $9,000, plus
reasonable expenses incurred.
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 22,
1999 (the "Record Date"). At the close of business on the Record Date, the
Company had 44,103,633 issued and outstanding shares of common stock, $.001
par value per share (the "Common Stock"). There were no outstanding shares of
preferred stock, $.001 par value per share. Each stockholder is entitled to
one vote on matters brought before the Annual Meeting for each share of
Common Stock held by the stockholder at the Record Date. Cumulative voting is
not permitted. 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, LLC, 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 eight
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. Conrad and Ramseier and Dr. Smith, 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 2001, or until a successor is elected and
has qualified. The three 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 2001
HERBERT J. CONRAD, 66, 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 Sicor Inc.
("Gensia"), a biopharmaceutical company, Biotechnology General Corp., a
biotechnology company, and UroCor, Inc., a urological diagnostics and
therapeutics company.
GORDON V. RAMSEIER, 54, 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., 71, 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
consultant to the Company.
DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING OF STOCKHOLDERS IN 2000
JAMES C. BLAIR, PH.D., 59, has served as a managing member of Domain
Associates, LLC, 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 the Company's Compensation, Audit, and Nominating Committees. Dr.
Blair is currently a director of Amylin Pharmaceuticals, Inc. ("Amylin"),
Aurora Biosciences Corp., CoCensys, Inc., Trega Biosciences, Inc. ("Trega"),
all biopharmaceutical companies, and Vista Medical Technologies, Inc., a
medical device company.
JOSEPH C. COOK, JR., 57, has been Chairman and Chief Executive Officer
of Amylin since 1998. Mr. Cook is a founder and Chairman of Microbia, Inc. He
is also a founder of Clinical Products, Ltd., Life Science Advisors, LLC,
Cambrian Associates, LLC and Mountain Ventures, Inc. 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
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member of both the Company's Audit and Nominating Committees. He is currently
a director of both Amylin and NABI, Inc., a biopharmaceutical 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 was named Chairman of the
Board in 1995, has served as Chief Executive Officer of the Company since
1990 and served as President from 1990 to 1998. 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, Spiros Development
Corporation II, Inc. ("Spiros Corp. II"), a developer of pulmonary drug
delivery systems, CardioDynamics International Corporation, a manufacturer of
medical devices, and Nanogen, Inc., a biotechnology company.
DAVID F. HALE, 50, has served as President and Chief Executive Officer
of Women First HealthCare, Inc. since 1998 and is currently a director. Mr.
Hale was first elected director of the Company in 1986 and currently serves
as a member of the Company's Compensation Committee. 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 is currently a director
of Collateral Therapeutics, Inc., a cardiovascular gene therapy company.
DAVID S. KABAKOFF, PH.D., 51, joined the Company in 1996 as Executive
Vice President and as a director and was named President, Dura Technologies
in 1998. Dr. Kabakoff has served as Chairman, Chief Executive Officer and
President of Spiros Corp. II since 1997. He served as Chief Executive Officer
and President 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
currently serves as a director of Spiros Corp. II.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors met a total of ten times and took
action by unanimous written consent a total of eight times during the fiscal
year ended December 31, 1998. 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).
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 four times in fiscal 1998. 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 plans. 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
1998, the Audit Committee met twice. The Audit Committee assists in selecting
the independent auditors, designating services they are to perform and
maintaining effective communication with those auditors. The Company also has
a standing Nominating Committee currently composed of the following two
non-employee directors: Dr. Blair and Mr. Cook. The Nominating Committee did
not meet during fiscal 1998 as all such matters were considered at meetings
of the full Board of Directors. The Nominating Committee recommends qualified
candidates to the Board for election as directors of the Company and will
consider nominees recommended by stockholders. Such recommendations should be
submitted to the Secretary of the Company.
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PROPOSAL 2
APPROVAL OF AMENDMENT TO THE COMPANY'S
1992 STOCK OPTION PLAN
GENERAL
The stockholders are being asked to approve the following amendments to
the Company's 1992 Stock Option Plan (the "Option Plan"), which were approved
by the Company's Board of Directors on March 3, 1999, subject to stockholder
approval. The amendments will effect the following changes: (i) increase the
number of shares of Common Stock available for issuance under the Option Plan
by an additional 1,500,000, (ii) decrease the number of shares of Common
Stock subject to the automatic option grants made to newly-elected or
newly-appointed non-employee Board members under the Automatic Option Grant
Program from 30,000 shares to 15,000 shares effective May 20, 1999, (iii)
decrease the number of shares of Common Stock subject to the automatic option
grants made to continuing non-employee Board members under the Automatic
Option Grant Program from 8,000 to 6,000 shares per year effective with the
2000 Annual Meeting, and (iv) effect a one-time automatic option grant for
15,000 shares on May 20, 1999 to each individual serving as a non-employee
Board member on that date, with such grant to be in substitution for the
8,000-share option grant which would otherwise be made at the Annual Meeting.
Prior to the amendment, 8,607,360 shares were available for issuance
under the Option Plan. The amendment as it relates to the increase in the
number of shares available for issuance was adopted by the Board principally
as the result of the significant growth in the number of employees in the
Company in 1998, and with the expectation that the Company will, in order to
achieve its objectives, need to continue to attract, retain and motivate high
caliber employees. It is the intention of the Board of Directors that every
employee of the Company be granted stock options in order to motivate
employees to build stockholder value and to align the interests of the
employees with those of the Company's stockholders. In fiscal 1998, the
number of employees of the Company increased from 644 to 942. In 1999 alone,
the Company expects to add approximately 246 employees, including
approximately 160 employees in its Acute Care unit in support of products
acquired in December 1998, together with additional products which may be
acquired in the hospital market segment. The amendment as it relates to the
adjustment of automatic option grants for the non-employee directors was
adopted in anticipation of certain changes in the compensation paid to the
Company's Board of Directors.
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 approved. The summary,
however, is not intended 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 Company's headquarters in San Diego, California.
PLAN STRUCTURE. The Plan is divided into two separate components:
OPTION GRANT PROGRAM. Officers, employees, non-employee Board
members and independent consultants may, at the discretion of the plan
administrator, be granted options to purchase shares of Common Stock at an
exercise price based on the fair market value of the option shares on the
grant date. One or more granted options may also include stock appreciation
rights which will allow the holders to surrender those options for payments
from the Company based on the appreciation in the market value of the Common
Stock over the period the options are outstanding.
AUTOMATIC OPTION GRANT PROGRAM. Eligible non-employee Board members
will automatically receive option grants under the program to purchase shares
of Common Stock at designated intervals over their period of Board service.
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 the Committee may be removed by the Board. The
Company will pay all costs of
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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 maximum number of shares available for issuance over
the term of the Option Plan may not exceed 10,107,360 shares of Common Stock,
including the 1,500,000-share increase for which stockholder approval is
being sought as a part of Proposal 2.
Should any option under the Option Plan expire or terminate for any
reason 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.
ADJUSTMENTS IN CAPITALIZATION. If any change is made to the Common Stock
issuable under the Option Plan 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 securities issuable under the Option Plan, (ii) the number
and/or class of securities and price per share in effect under each
outstanding option under the Option Plan, (iii) the maximum number and/or
class of securities for which any one participant may be granted stock
options and separately exercisable stock appreciation rights in any fiscal
year or over the term of the Option Plan, (iv) the number and/or class of
securities for which option grants are to be made to newly-elected or
continuing non-employee Board members under the Automatic Option Grant
Program and (v) the number and/or class of securities and price per share in
effect under each outstanding option incorporated into this Option Plan from
any predecessor plan. The purpose of these adjustments will be to preclude
the enlargement or dilution of rights and benefits under the options.
ELIGIBILITY. The persons eligible to receive discretionary stock options
include all 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 March 31, 1999, six
non-employee Board members, eight executive officers, and approximately 928
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. For purposes of establishing the option exercise price and
for other valuation purposes under the Option Plan, 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 31, 1999, the closing selling price of the Company's Common Stock
was $14.125 per share.
PER-EMPLOYEE LIMITATION. Options for not 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. Stockholder approval of this Proposal will constitute re-approval of
these limitations.
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 IRS Code of 1986, as amended (the "IRS
Code"), or a non-qualified option ("NQO"), which is not intended to satisfy
the requirements of Section 422 of the IRS 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.
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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 sale 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.
AUTOMATIC GRANTS. Each person who is newly elected or appointed as a
non-employee director after May 20, 1999 will receive, on the date of such
election or appointment, an NQO for 15,000 shares of Common Stock. On the
date of each Annual Stockholders' Meeting, beginning with the 2000 Annual
Meeting, 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
6,000 shares of Common Stock. In addition, each individual serving as a
non-employee director on May 20, 1999 will receive a one-time NQO for 15,000
shares of Common Stock on that date. Collectively, such grants will be
referred to herein as "Automatic Grants." Stockholder approval of this
Proposal will also constitute pre-approval of each Automatic Grant made on or
after the date of the 1999 Annual Meeting and the subsequent exercise of that
grant in accordance with the terms summarized below.
The exercise price of each Automatic Grant will be equal to 100% of the
fair market value of the Common Stock on the date of grant. The exercise
price of an Automatic Grant will be payable in cash or in Common Stock held
for such period of time as may be required to avoid a charge to 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 withholding 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 six months after the
optionee ceases to serve as a director or within twelve months after the
optionee ceases to serve as a director due to the optionee's death.
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,
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each outstanding option will automatically vest and become exercisable for
all of the option shares and may be exercised for any or all of such
shares. 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 the 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 (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.
7
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the Plan may be either ISOs which satisfy the
requirements of Section 422 of the IRS Code or NQOs which are not intended to
satisfy such requirements. The Federal income tax treatment for the two types
of options differ as follows:
INCENTIVE OPTIONS. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized
at the time the option is exercised. The optionee will, however, recognize
regular taxable income in the year in which the purchased shares are sold or
otherwise made the subject of disposition. For Federal tax purposes,
dispositions are divided into two categories: (i) qualifying and (ii)
disqualifying. A qualifying disposition occurs if the sale or other
disposition is made after the optionee has held the shares for more than two
years after the option grant date and more than one year after the exercise
date. If either of these two holding periods is not satisfied, then a
disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term
capital gain in an amount equal to the excess of (i) the amount realized upon
the sale or other disposition of the purchased shares over (ii) the exercise
price paid for the shares. If there is a disqualifying disposition of the
shares, then the excess of (i) the fair market value of those shares on the
exercise date over (ii) the exercise price paid for the shares will be
taxable as ordinary income to the optionee. Any additional gain or loss
recognized upon the disposition will be recognized as a capital gain or loss
by the optionee.
If the optionee makes a disqualifying disposition of the purchased
shares, then the Company will be entitled to an income tax deduction, for the
taxable year in which such disposition occurs, equal to the excess of (i) the
fair market value of such shares on the option exercise date over (ii) the
exercise price paid for the shares. In no other instance will the Company be
allowed a deduction with respect to the optionee's disposition of the
purchased shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee
upon the grant of an NQO. The optionee will in general recognize ordinary
income in the year in which the option is exercised equal to the excess of
the fair market value of the purchased shares on the exercise date over the
exercise price paid for those shares, and the optionee will be required to
satisfy the tax withholding requirements applicable to such income.
Special provisions of the IRS Code apply to the acquisition of shares
under an NQO if the purchased shares are subject to repurchase by the Company
or other substantial risk of forfeiture. These special provisions may be
summarized as follows:
If the shares acquired upon exercise of the NQO are subject to
repurchase by the Company, at the original exercise price paid per share,
in the event the optionee's service terminates prior to vesting in the
shares, then the optionee will not recognize any taxable income at the time
of exercise. The optionee will have to report as ordinary income, as and
when the Company's repurchase right lapses, an amount equal to the
difference between the fair market value of the shares on the date the
repurchase right lapses and the option exercise price paid for those
shares.
The optionee may, however, elect under Section 83(b) of the IRS Code
to include as ordinary income in the year of exercise an amount equal to
the difference between the fair market value of the purchased shares on the
date of exercise (determined as if the shares were not subject to the
Company's repurchase right) and the option exercise price paid for the
shares. If the Section 83(b) election is made, the optionee will not
recognize any additional income as and when the Company's repurchase right
lapses.
The Company will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the optionee in connection with
the exercise of the NQO. The deduction will in general be allowed for the
taxable year of the Company in which such ordinary income is recognized by
the optionee.
STOCK APPRECIATION RIGHTS. An optionee who is granted a stock
appreciation right will recognize ordinary income in the year of exercise
equal to the amount of the appreciation distribution. The Company will be
entitled to an income tax deduction equal to such distribution for the
taxable year in which the ordinary income is recognized by the optionee.
8
DEDUCTIBILITY OF EXECUTIVE COMPENSATION. The Company anticipates that
any compensation deemed paid by it in connection with disqualifying
dispositions of ISO shares or exercises of NQOs granted with exercise prices
equal to the fair market value of the shares on the grant date will qualify
as performance-based compensation for purposes of IRS Code Section 162(m) and
will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation
paid to certain executive officers of the Company.
PARACHUTE PAYMENT. If the exercisability of an option is accelerated as
a result of a change of 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
IRS Code's "excess parachute" provisions. Those provisions generally provide
that if "parachute" payments exceed three times an employee's average
compensation for the five tax years preceding the change of control, 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.
ACCOUNTING TREATMENT
Option grants or stock issuances with exercise or issue prices less than
the fair market value of the shares on the grant or issue date will result in
a direct compensation expense to the Company's earnings equal to the
difference between the exercise or issue price and the fair market value of
the shares on the grant or issue date. Such expense will be accruable by the
Company over the period that the option shares or issued shares are to vest.
Option grants or stock issuances with exercise or issue prices not less than
the fair market value of the shares on the grant or issue date will not
result in any direct charge to the Company's earnings. However, the fair
value of those options is required to be disclosed in the notes to the
Company's financial statements, and the Company must also disclose, in
pro-forma statements to the Company's financial statements, the impact those
options would have upon the Company's reported earnings were the value of
those options at the time of grant treated as compensation expense. Whether
or not granted at a discount, the number of outstanding options may be a
factor in determining the Company's earnings per share on a fully-diluted
basis.
The Financial Accounting Standards Board recently announced its
intention to issue an exposure draft of a proposed interpretation of APB
Opinion 25, "Accounting for Stock Issued to Employees." Under the proposed
interpretation, option grants made to non-employee Board members or
independent consultants after December 15, 1998 will result in a direct
charge to the Company's reported earnings based upon the fair value of the
option measured initially as of the grant date and then subsequently on the
vesting date of each installment of the option shares. Accordingly, such
charge will include the appreciation in the value of the option shares over
the period between the grant date of the option (or, if later, the effective
date of the final interpretation) and the vesting date of each installment of
the option shares. In addition, if the proposed interpretation is adopted,
any options which are repriced after December 15, 1998 will also trigger a
direct charge to the Company's reported earnings measured by the appreciation
in the value of the underlying shares over the period between the grant date
of the option (or, if later, the effective date of the final interpretation)
and the date the option is exercised for those shares.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in compensation expense to be
charged against 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 such outstanding stock appreciation rights
has increased from prior quarter-end will be accrued as compensation expense,
to the extent such fair market value is in excess of the aggregate exercise
price in effect for such rights.
9
OUTSTANDING OPTION GRANTS UNDER THE OPTION PLAN
The following table shows, as to the Company's Chairman 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 from inception of the Option Plan on December 9,
1992 through February 28, 1999.
OPTIONS GRANTED UNDER THE OPTION PLAN
-------------------------------------
For the Period 12-9-92 Through 2-28-99
-----------------------------------------------------------
Net Number
of Options Weighted Average
Total Number Held After Exercise Price
of Options Cancellations/ for Total
Name or Group Granted Regrants Options Granted
------------- ------- -------- ---------------
Cam L. Garner 1,570,980 1,133,705 $13.55
Director, Chairman and Chief Executive Officer
David S. Kabakoff 573,077 263,077 $22.24
Director, President, Dura Technologies
Charles W. Prettyman 421,483 300,055 $13.69
Senior Vice President, Clinical
Development and Regulatory Affairs
Julia Brown 383,262 222,021 $18.70
Executive Vice President
Mitchell R. Woodbury 327,692 222,692 $17.50
Senior Vice President, General Counsel
and Secretary
All current non-employee directors who are not 561,000(1) 561,000(1) $12.93
executive officers as a group (6 persons)
All current executive officers as a group 4,105,198 2,823,238 $16.41
(8 persons)
All employees who are not 6,268,509 3,819,142 $16.97
executive officers as a group
- -------------------
(1) 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."
In accordance with the provisions of the Option Plan, the Company has
effected selected cancellation and regrant programs for its employees during
the last two years. The column entitled "Total Number of Options Granted"
shown in the above table reflects all options granted under the Option Plan
to the respective individuals or groups, without giving effect to the
cancellation of the underlying options. Each cancellation/regrant program
required the surrender and cancellation of the underlying option in exchange
for the optionee receiving a new option. The column entitled "Net Number of
Options Held After Cancellations/Regrants" reflects the actual number of
options granted to each individual or group after cancellation of the
underlying option which is no longer outstanding.
10
The terms of each cancellation/regrant program detailed below consisted
of (i) the cancellation of the underlying option in exchange for (ii) a new
option for the SAME NUMBER of shares (with the exception of the November 1998
program described below) with (iii) a new exercise price which constituted
the fair market value of the Common Stock on the new grant date where (iv)
vesting of the underlying option was forfeited and (v) the replacement option
vests over a new four-year period commencing on the new grant date and (vi)
the option remains valid for a new 10-year term.
On April 25, 1997, the Company implemented an option
cancellation/regrant program for all current employees, including executive
officers, who held stock options granted during the period from August 22,
1996 through April 24, 1997. Regranted options had a new exercise price of
$25.00 per share. The options cancelled and regranted pursuant to this
program were as follows: Mr. Garner, 150,000 shares; Dr. Kabakoff, 20,000
shares; Mr. Prettyman, 35,000 shares; Ms. Brown, 40,000 shares, Mr. Woodbury,
30,000 shares; all current executive officers as a group, 285,000 shares; all
employees who are not executive officers as a group, 469,350 shares; total
number of options cancelled and regranted, 754,350 shares.
On February 25, 1998 the Company implemented an option
cancellation/regrant program for all employees, excluding all officers of the
Company, who held stock options granted during the period from April 28, 1997
through February 24, 1998. Regranted options had a new exercise price of
$23.94 per share. A total of 440,001 options were cancelled and regranted
under this program. On October 7, 1998, the Company implemented a similar
program for the same group of employees who held stock options granted from
June 23, 1995 through October 7, 1998. Regranted options had a new exercise
price of $8.88 per share. A total of 955,906 options were cancelled and
regranted pursuant to this program. No executive officer was eligible for, or
participated in, either the February 1998 or October 1998
cancellation/regrant programs.
On November 9, 1998, the Company implemented an option
cancellation/regrant program for all officers who held stock options with an
exercise price greater than $10.31 per share, the fair market value of the
Common Stock on November 9, 1998. The number of new options granted was
subject to a reduction by a ratio of 1.3 options forfeited for each 1 new
option granted. An aggregate of 287,762 options were forfeited and not
regranted pursuant to this program. The options cancelled and regranted
pursuant to this program were as follows: Mr. Garner, 287,275 cancelled,
220,980 granted; Dr. Kabakoff, 290,000 cancelled, 223,077 granted; Mr.
Prettyman, 86,428 cancelled, 66,483 granted; Ms. Brown, 121,241 cancelled,
93,262 granted, Mr. Woodbury, 75,000 cancelled, 57,692 granted; all current
executive officers as a group, 1,246,960 cancelled, 959,198 granted; all
employees who are not executive officers as a group, 584,110 cancelled,
496,316 granted; total number of options cancelled, 1,831,070, total
regranted, 1,408,514 shares.
The Compensation Committee determined that the November 1998 program was
necessary because equity incentives are a significant component of the total
compensation for 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. The program, and the "reduction ratio" of 1.3 to 1, was recommended by
and implemented after consultation with a nationally-recognized executive
management compensation firm.
The "Weighted Average Exercise Price for Total Options Granted" shown in
the above table is calculated based on all options granted since inception of
the Option Plan, irrespective of cancellations which were effected pursuant
to the option cancellation/regrant programs discussed above.
See the discussion concerning the April 1997 and November 1998 option
cancellation/regrant programs 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 1998 Cancellation and
Regrant of Options."
As of February 28, 1999, options covering 4,107,360 shares of Common
Stock were outstanding under the Option Plan, 1,148,748 shares remained
available for future option grants and 3,351,252 shares have been issued
pursuant to the exercise of outstanding options under the Option Plan.
11
NEW BENEFITS UNDER THE OPTION PLAN
Effective as of the Annual Meeting, the amendment will increase the
number of shares authorized for issuance under the Option Plan by 1,500,000
shares to a total of 10,107,360 shares. No option for any of such 1,500,000
shares will have been granted prior to the date of the Annual Meeting.
However, if this Proposal is approved by the stockholders, then at the Annual
Meeting, each of the individuals serving as a non-employee Board member will
receive a one-time Automatic Grant for 15,000 shares under the Automatic
Option Grant Program. Each option will have an exercise price equal to the
fair market value per share of the Common Stock on such grant date and will
be in substitution for the 8,000-share Automatic Grant which would otherwise
be made to each continuing non-employee Board member at the Annual Meeting.
Effective May 20, 1999, newly-appointed or newly-elected non-employee Board
members will receive Automatic Grants for 15,000 shares, and commencing with
the 2000 Annual Meeting, Automatic Grants to continuing non-employee
Directors will be in the amount of 6,000 shares per year.
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 Option Plan, as amended, will
become effective immediately upon approval by the stockholders at the Annual
Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR APPROVAL OF THE AMENDMENT TO THE OPTION PLAN.
PROPOSAL 3
RATIFICATION 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, 1999. 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 DELOITTE & TOUCHE LLP
AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
12
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, 1999. Except as indicated in the footnotes to this table, the
entities named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).
Number Percentage
Name and Address of Shares of Shares
of Beneficial Owner Owned Outstanding
------------------- ----- -----------
Safeco Corporation (1) 2,928,300 6.64%
Safeco Plaza
Seattle, WA 98185
Crabbe Huson Group, Inc. (2) 2,269,500 5.15%
121 SW Morrison, Suite 1400
Portland, OR 97204
- -------------------
(1) Pursuant to Amendment No. 2 to Schedule 13G dated February 11, 1999 filed
by Safeco Common Stock Trust, Safeco Asset Management Company ("Safeco
Asset") and Safeco Corporation ("Safeco Corp."). Safeco Asset is a
subsidiary and Safeco Corp. is a parent holding company. Safeco Asset is an
investment adviser and reported shares owned beneficially by registered
investment companies for which Safeco Asset serves as investment adviser.
(2) Pursuant to Form 13F dated February 16, 1999.
13
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, 1999 by each director and
nominee, by the Company's Chairman and Chief Executive Officer and by the
directors and executive officers as a group. Options shown in the table were
granted pursuant to the Company's Option Plan and represent the shares
issuable upon exercise of outstanding options, now exercisable or exercisable
within 60 days of January 31, 1999. The address for each beneficial owner
listed below is 7475 Lusk Blvd., San Diego, California 92121. Except as
indicated in the footnote to this table, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws,
where applicable. Percentage of ownership is calculated pursuant to SEC Rule
13d-3(d)(1).
Number
Number of Shares Percentage
of Shares Underlying of Shares
Name Owned Options/Warrants Outstanding
---- ----- ---------------- -----------
James C. Blair 14,900 256,000 (1) *
Herbert J. Conrad 0 34,000 *
Joseph C. Cook, Jr 26,999 46,000 *
David F. Hale 0 26,000 *
Gordon V. Ramseier 0 58,000 *
Charles G. Smith 9,000 54,000 *
Cam L. Garner 30,734 103,050 *
David S. Kabakoff 3,593 24,216 *
Charles W. Prettyman 0 15,896 *
Julia Brown 17,726 34,001 *
Mitchell R. Woodbury 2,032 44,342 *
Directors and executive officers 108,834 767,797 1.95%
as a group (14 persons)
- -------------------
*Less than 1%
(1) 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 III 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.
14
EXECUTIVE OFFICERS
The Company's executive officers are:
Name Age Position Held With the Company
---- --- ------------------------------
Cam L. Garner 50 Chairman, Chief Executive Officer and director
Robert S. Whitehead 49 President
David S. Kabakoff 51 President, Dura Technologies and director
Julia Brown 51 Executive Vice President
Michael T. Borer 40 Senior Vice President and Chief Financial Officer
Lloyd E. Flanders 58 Senior Vice President, Program Management
and R&D Planning
Charles W. Prettyman 53 Senior Vice President, Clinical Development
and Regulatory Affairs
Mitchell R. Woodbury 57 Senior Vice President, General Counsel and
Secretary
MR. GARNER and DR. KABAKOFF are directors of the Company. See "Election
of Directors" for a discussion of each individual's business experience.
ROBERT S. WHITEHEAD joined the Company in 1998 as President. Prior to
joining the Company, Mr. Whitehead served as Chairman and Chief Executive
Officer of Trega. He joined Trega in 1993 as President and Chief Executive
Officer and was named Chairman in 1998. From 1992 to 1993, Mr. Whitehead was
Senior Vice President, Commercial Operations, of Solvay Pharmaceuticals. He
was previously with Searle Pharmaceuticals from 1979 to 1992, during which
period he held several positions, including President and General Manager,
Searle Canada. Mr. Whitehead served as a director of Spiros Corp. II in 1998.
He also served as a director of Spiros Corp. and its predecessor from 1993
through 1997.
JULIA BROWN joined the Company in 1995 as Vice President, Business
Planning and shortly thereafter became Vice President, Business Development.
She was named a Senior Vice President in 1997 and Executive Vice President in
1998. Prior to joining the Company, Ms. Brown spent over 25 years with Lilly
and certain subsidiaries dealing with pharmaceuticals, medical devices and
diagnostics. From 1992 to 1994, she was general manager of IVAC Corporation's
Vital Signs Division. From 1986 to 1992, Ms. Brown held several marketing
positions with Hybritech, including Division Vice President of Marketing.
MICHAEL T. BORER joined the Company in 1994 as Director of Finance and
became Senior Director, Finance in 1996. He served as General Manager of the
Company's Health Script division from 1996 to 1998, when he was then named
Senior Vice President and Chief Financial Officer of the Company. From 1993
to 1994, he was Project Leader with San Diego Gas & Electric. From 1981 to
1993, he held various positions, the last of which was Senior Manager, with
the accounting firm of Deloitte & Touche LLP.
LLOYD E. FLANDERS, PH.D., joined the Company in 1998 as Senior Vice
President, Program Management and R&D Planning. Prior to joining the Company,
Dr. Flanders served as Senior Vice President, Preclinical Development and R&D
Administration at Ligand Pharmaceuticals Inc. from 1992 to 1998. From 1985
until 1992, he was employed by the Parke-Davis Division of Warner-Lambert
Company as Director, Research Planning and then Vice President, Drug
Development. From 1971 to 1985, Dr. Flanders worked at Searle R&D in a number
of capacities, including Director of Project Management.
15
CHARLES W. PRETTYMAN joined the Company in 1991 as Vice President,
Clinical Development and Regulatory Affairs and was named a Senior Vice
President in 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 1988 to 1991. In 1988, Mr.
Prettyman served as Executive Director, Drug Regulatory Affairs, Central
Nervous System Development at Ciba-Geigy Pharmaceuticals. From 1977 until
1987, Mr. Prettyman held various positions with the United States Food and
Drug Administration, including Director, Program Management, Office of the
Commissioner.
MITCHELL R. WOODBURY joined the Company in 1994 as Vice President,
General Counsel and Secretary and was named a Senior Vice President in 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 1992 to 1994. From 1991 until 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 from 1981
through 1992.
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, 1998,
1997 and 1996. Dr. Kabakoff joined the Company in May 1996 and Ms. Brown
became an executive officer of the Company in January 1997.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
-------------------------------------------- ----------------------------
Total
Number Net Number
of of Options
Other Securities Held After All
Name and Annual Underlying Cancellations/ Other
Principal Position Year Salary Bonus Compensation Options/SARs Regrants Compensation
- ------------------ ---- ------ ----- ------------ ------------ -------- ------------
Cam L. Garner 1998 $408,846 $230,000 $-- 220,980 220,980 $99,910
Chairman and 1997 $395,000 $475,000 $-- 275,000 0 $31,540
Chief Executive Officer 1996 $345,000 $610,000 $-- 170,000 7,725 $21,093
David S. Kabakoff 1998 $271,923 $ 70,000 $-- 223,077 223,077 $10,698
President, Dura 1997 $265,000 (1) $-- 60,000 0 $10,406
Technologies 1996 $170,000 $105,000 $-- 250,000 0 $ 3,466
Charles W. Prettyman 1998 $214,332 $ 50,000 $-- 66,483 66,483 $ 0
Senior Vice President, 1997 $190,000 (1) $-- 65,000 2,057 $ 0
Clinical Development and 1996 $180,000 $190,000 $-- 55,000 8,040 $ 0
Regulatory Affairs
Julia Brown 1998 $185,577 $ 70,000 $-- 103,262 93,262 $24,069
Executive Vice President 1997 $170,000 $150,000 $-- 80,000 0 $12,157
Mitchell R. Woodbury 1998 $175,192 $ 65,000 $-- 57,692 57,692 $17,386
Senior Vice President, 1997 $170,000 $135,000 $-- 65,000 0 $ 7,356
General Counsel and 1996 $150,000 $135,000 $-- 40,000 0 $ 1,445
Secretary
- -------------------
(1) 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.
Bonus amounts shown in the table include amounts deferred under the
Company's 401(k) Profit Sharing Plan (the "401(k) Plan") pursuant to Section
401(k) of the IRS Code and the Company's Deferred Compensation Plan (the
"Deferred Comp. Plan"). Perquisites and other personal benefits paid to the
Named Executive Officers are less than the minimum reporting threshold of
$50,000 or 10% of the total annual salary plus bonus for the Named Executive
Officer, and such amounts paid, if any, are represented in the table by "--".
The "Total Number of Securities Underlying Options/SARs" shown in the
table includes all options granted under the Option Plan in each year without
giving effect to the cancellation/regrant programs described in "Proposal 2,
Approval of Amendment to the Company's 1992 Stock Option Plan, Outstanding
Option Grants Under the Option Plan." Each cancellation/regrant program
required the surrender and cancellation of the underlying option in exchange
for the regranted option. The column entitled "Net Number of Options Held
After Cancellations/Regrants" reflects the actual number of options granted
to each individual or group after cancellation of the underlying option which
is no longer outstanding and after giving effect to the reduction in new
options received which was required by the November 1998 program discussed in
the next paragraph.
Options which were cancelled and regranted pursuant to the April 1997
program were as follows: Mr. Garner, 150,000 shares; Dr. Kabakoff, 20,000
shares; Mr. Prettyman, 35,000 shares; Ms. Brown, 40,000 shares, Mr. Woodbury,
17
30,000 shares. The November 1998 cancellation/regrant program required a
reduction in the number of new options granted by a ratio of 1.3 options
forfeited for each 1 new option granted. Options which were cancelled and
regranted pursuant to the November 1998 program were as follows: Mr. Garner,
287,275 cancelled, 220,980 granted; Dr. Kabakoff, 290,000 cancelled, 223,077
granted; Mr. Prettyman, 86,428 cancelled, 66,483 granted; Ms. Brown, 121,241
cancelled, 93,262 granted, Mr. Woodbury, 75,000 cancelled, 57,692 granted.
Options originally granted in 1995, 1996 and 1997 were among those which were
cancelled and regranted in the November 1998 program. Other than the
cancelled and regranted options, there were no additional options granted in
1998 to the Named Executive Officers.
See the discussion concerning the April 1997 and November 1998 option
cancellation/regrant programs contained in Proposal 2 above and 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 1998 Cancellation and Regrant of Options."
All Other Compensation includes: (1) contributions made by the Company
pursuant to the 401(k) Plan which were earned by the participants for the
1998, 1997 and 1996 fiscal years, respectively, and which were used to
purchase shares of the Company's Common Stock as follows: Mr. Garner $5,400,
$6,650 and $6,750; Dr. Kabakoff $5,400, $6,650 and $3,150; Ms. Brown $5,400,
$6,650 and n/a; and Mr. Woodbury $5,400, $6,650 and $6,750; and (2)
above-market interest earned by the participants on their Deferred Comp. Plan
account for the 1998, 1997 and 1996 fiscal years, respectively, as follows:
Mr. Garner $47,277, $24,890 and $14,343; Dr. Kabakoff $6,626, $3,756 and
$316; Ms. Brown $24,069, $12,157 and n/a; and Mr. Woodbury $17,386, $7,356
and $1,445.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's Option Plan to the Named Executive Officers. No
stock appreciation rights ("SARs") were granted under the Option Plan to the
Named Executive Officers in fiscal year ended December 31, 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
- ------------------------------------------------------------------------------------------- Potential Realizable
Number of Percent of Value at Assumed
Securities Total Annual Rates of Stock
Underlying Options/SARs Price Appreciation for
Options/ Granted to Exercise or Option Term
SARs Employees in Base Price Expiration ------------------------------
Name Granted Fiscal Year ($/Share) Date 5% 10%
- --------------------- -------------- ---------------- --------------- -------------- ------------------------------
Cam L. Garner 220,980 5.40% $10.31 11-9-08 $1,432,813 $3,631,030
David S. Kabakoff 223,077 5.45% $10.31 11-9-08 $1,446,410 $3,665,486
Charles W. Prettyman 66,483 1.62% $10.31 11-9-08 $ 431,069 $1,092,414
Julia Brown 93,262 2.28% $10.31 11-9-08 $ 604,720 $1,532,433
Mitchell R. Woodbury 57,692 1.41% $10.31 11-9-08 $ 374,069 $ 947,965
All options shown in the table were granted pursuant to the November
1998 cancellation and regrant program, the terms of which required the
optionee to surrender for cancellation 1.3 options for each 1 new option
granted. An aggregate of 287,762 options were forfeited and not regranted
pursuant to the November 1998 program. The "Percent of Total Options/SARs
Granted to Employees in Fiscal Year" in the above table is calculated based
on all options granted in the last fiscal year, irrespective of cancellations
which were effected pursuant to the option cancellation/regrant programs
discussed in Proposal 2 above. Other than the cancelled and regranted
options, there were no additional options granted in 1998 to the Named
Executive Officers. See also "Executive Compensation and Other Information --
Ten-Year Information Regarding
18
Repricing, Cancellation and Regrant of Options" and "Board Compensation
Committee Report on Executive Compensation -- Compensation Committee Report
on 1998 Cancellation and Regrant of Options."
Each option becomes exercisable ratably over a four-year period and has
a term of ten years from the date of grant, November 9, 1998. The exercise
price per share of options granted represented the fair market value of the
underlying shares of Common Stock on the date the option was granted. The
exercise price may be paid in cash or in shares of Common Stock valued at
fair market value on the exercise date or a combination of cash or shares or
any other form of consideration approved by the Board of Directors. The
Option Plan provides for acceleration of outstanding options in the event of
certain corporate transactions, including a merger, sale, or change of
control.
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 ten-year option term will be at the assumed 5% and 10% levels or at
any other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants made to the executive officers.
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options pursuant to the Option
Plan during the fiscal year ended December 31, 1998 and unexercised options
held as of the end of the fiscal year. 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, 1998 was $15.19.
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, 1998 December 31, 1998
Upon Value ------------------------------ ------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Cam L. Garner 4,643 $ 88,797 83,128 219,874 $540,550 $1,049,133
David S. Kabakoff 0 0 7,939 215,138 $ 38,742 $1,049,873
Charles W. Prettyman 0 0 10,266 64,117 $ 85,194 $ 312,891
Julia Brown 14,486 $184,179 24,729 91,023 $181,482 $ 447,259
Mitchell R. Woodbury 0 0 37,113 62,899 $221,897 $ 285,277
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. The Company is re-evaluating its
compensation program for Directors, and in anticipation of certain changes,
has adopted amendments to the Option Plan, subject to stockholder approval,
which are set forth in "Proposal 2, Approval of Amendment to the Company's
1992 Stock Option Plan." If the amendments are approved, the Automatic Grant
of a non-qualified stock option to be received by newly-appointed
non-employee Directors would be decreased from 30,000 shares to 15,000 shares
effective May 20, 1999. In addition, the Automatic Grant to be received by
each person who (i)(A) is a continuing non-employee director or (B) is
re-elected at an annual meeting, and (ii) has served as a non-employee
director for the
19
immediately preceding 180 days, would be decreased from 8,000 shares to 6,000
shares, effective with the 2000 Annual Meeting. Lastly, a special one-time
Automatic Grant for 15,000 shares would be made on May 20, 1999 to each
individual serving as a non-employee Board member on that date, with such
grant to be in substitution for the 8,000-share Automatic Grant which would
otherwise be made at the 1999 Annual Meeting. The exercise price for the
option 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, as defined in the Option Plan.
The Company entered into a one-year Consulting Agreement with Mr. Conrad
in April 1995, pursuant to which Mr. Conrad provides certain consulting
services to the Company related to marketing and licensing strategies, and
for which Mr. Conrad receives compensation of $1,000 per month, plus
reimbursement of out-of-pocket expenses. Such agreement has been extended for
subsequent periods and currently expires May 1999.
The Company engaged Life Science Advisors, LLC, 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 1998 fiscal year
of $31,853, plus reimbursement of out-of-pocket expenses.
TEN-YEAR INFORMATION REGARDING REPRICING, CANCELLATION AND REGRANT OF OPTIONS
As discussed in "Board Compensation Committee Report on Executive
Compensation -- Compensation Committee Report on 1998 Cancellation and
Regrant of Options," during the last fiscal year the Company implemented an
option cancellation/regrant program for officers holding stock options at
exercise prices greater than $10.31 per share. At each individual's election,
options then outstanding with an exercise price greater than $10.31 per share
were cancelled in exchange for options with an exercise price of $10.31 per
share, the fair market value of the Common Stock on November 9, 1998, the
date the program was effected. The number of new options granted was subject
to reduction by a ratio of 1 new option issued for each 1.3 options
forfeited. Vesting on the underlying option was forfeited and the replacement
option vests over a new four-year period, commencing November 9, 1998, and
remains valid for a ten-year term. Options originally granted in 1995, 1996
and 1997 were among those which were cancelled and regranted.
The Compensation Committee determined that this program was necessary
because equity incentives are a significant component of the total
compensation for 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. The program, and the "reduction ratio" of 1.3 to 1, was recommended by
and implemented after consultation with a nationally-recognized executive
management compensation firm.
On April 25, 1997, the Company implemented a similar option
cancellation/regrant program for all current employees, including executive
officers, who held stock options granted during the period from August 22,
1996 through April 24, 1997. For each option cancelled, a new option for the
same number of shares was regranted at an exercise price of $25.00 per share,
the fair market value of the Common Stock on the new grant date. Vesting on
the underlying option was forfeited and the replacement option vests over a
new four-year period, commencing on the new grant date, and the option
remains valid for a ten-year term.
The following table sets forth information with respect to each
executive officer of the Company who held an option which was subject to an
option repricing program during the last ten fiscal years ended December 31,
1998. The table details his or her participation in the Company's option
cancellation/regrant programs which were effected April 25, 1997 and November
9, 1998.
20
TEN-YEAR OPTION/SAR REPRICINGS
1998
Length of
Original
Number of Net Option
Securities Number of Market Price Term
Underlying Replacement of Stock at Exercise Price Remaining
Options/SARs Options Time of at Time of New at Date of
Repriced or Issued (#) Repricing or Repricing or Exercise Repricing or
Name Date Amended (#) (1) Amendment ($) Amendment ($) Price ($) Amendment
---- ---- ----------- ---------- ------------- ------------- --------- ------------
Michael T. Borer 4-25-97 8,718 (2) 8,718 $25.00 $37.63 $25.00 9 1/2 years
Senior Vice President 11-9-98 2,000 1,538 $10.31 $26.00 $10.31 7 1/2 years
and Chief Financial 11-9-98 6,298 4,845 $10.31 $26.88 $10.31 7 1/2 years
Officer 11-9-98 8,718 (2) 6,706 $10.31 $25.00 $10.31 8 1/2 years
11-9-98 30,000 23,077 $10.31 $44.88 $10.31 9 years
11-9-98 10,000 7,692 $10.31 $43.25 $10.31 9 years
Julia Brown 4-25-97 40,000 (2) 40,000 $25.00 $37.63 $25.00 9 1/2 years
Executive Vice President 11-9-98 31,241 24,032 $10.31 $13.94 $10.31 7 years
11-9-98 40,000 (2) 30,769 $10.31 $25.00 $10.31 8 1/2 years
11-9-98 40,000 30,769 $10.31 $44.88 $10.31 9 years
11-9-98 10,000 7,692 $10.31 $17.63 $10.31 9 3/4 years
Lloyd E. Flanders 11-9-98 80,000 61,538 $10.31 $21.68 $10.31 9 1/2 years
Sr V.P., Program Mgmt
and R&D Planning
Cam L. Garner 4-25-97 150,000 (2) 150,000 $25.00 $37.63 $25.00 9 1/2 years
Chairman and 11-9-98 12,275 9,442 $10.31 $19.38 $10.31 7 1/4 years
Chief Executive Officer 11-9-98 150,000 (2) 115,385 $10.31 $25.00 $10.31 8 1/2 years
11-9-98 125,000 96,153 $10.31 $44.88 $10.31 9 years
David S. Kabakoff 4-25-97 20,000 (2) 20,000 $25.00 $37.63 $25.00 9 1/2 years
President, Dura 11-9-98 230,000 176,923 $10.31 $29.63 $10.31 7 1/2 years
Technologies 11-9-98 20,000 (2) 15,385 $10.31 $25.00 $10.31 8 1/2 years
11-9-98 40,000 30,769 $10.31 $44.88 $10.31 9 years
Charles W. Prettyman 4-25-97 35,000 (2) 35,000 $25.00 $37.63 $25.00 9 1/2 years
Senior Vice President, 11-9-98 11,525 8,865 $10.31 $13.94 $10.31 7 years
Clinical Development and 11-9-98 11,960 9,200 $10.31 $19.38 $10.31 7 1/4 years
Regulatory Affairs 11-9-98 32,943 (2) 25,341 $10.31 $25.00 $10.31 8 1/2 years
11-9-98 30,000 23,077 $10.31 $44.88 $10.31 9 years
Robert S. Whitehead, 11-9-98 250,000 192,308 $10.31 $21.94 $10.31 9 1/2 years
President
Mitchell R. Woodbury 4-25-97 30,000 (2) 30,000 $25.00 $37.63 $25.00 9 1/2 years
Senior Vice President, 11-9-98 10,000 7,692 $10.31 $19.38 $10.31 7 1/4 years
General Counsel & 11-9-98 30,000 (2) 23,077 $10.31 $25.00 $10.31 8 1/2 years
Corporate Secretary 11-9-98 35,000 26,923 $10.31 $44.88 $10.31 9 years
- -------------------
(1) The November 9, 1998 cancellation/regrant program required the participant
to forfeit 1.3 options for each 1 new replacement option issued.
(2) The options issued in the April 25, 1997 cancellation/regrant program were
cancelled and regranted in the November 9, 1998 cancellation/regrant
program. Only the November 9, 1998 option is currently outstanding.
An aggregate of 285,000 options granted to the executive officers were
cancelled and regranted under the April 1997 program. An aggregate of
1,246,960 options were cancelled and 959,198 options were reissued (resulting
in 287,762 options being forfeited and not reissued) to the executive
officers under the November 1998 program. The option cancellation/regrant
programs were conducted in accordance with the terms and conditions of the
Option Plan.
See also "Proposal 2, Approval of Amendment to the Company's 1992 Stock
Option Plan--Outstanding Option Grants Under the Option Plan.
21
EMPLOYMENT CONTRACTS, SEVERANCE AGREEMENTS 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. He currently serves as Chairman and CEO. The current employment term
ends May 31, 2000 and will automatically renew for successive one-year
periods, unless either Mr. Garner or 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 sixty days' written notice.
During the employment term, Mr. Garner will receive an annual base salary
(currently $460,000) 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. The current employment term ends April 30, 2000 and will
automatically renew for successive one-year terms. Dr. Kabakoff's current
annual base salary is $295,000 and is subject to annual review and increase
at the sole discretion of the Board of Directors.
"Proposal 2, Approval of Amendment to the Company's 1992 Stock Option
Plan," contains a summary of the material terms and provisions of the Option
Plan, pursuant to which, under certain circumstances, the exercisability of
certain options granted to Named Executive Officers is accelerated in the
event of certain corporate transactions, changes of control and changes in
the composition of the Board of Directors. In addition, as described in the
Option Plan summary, in the event of certain changes of control, certain
options granted to Named Executive Officers may be, to the extent exercisable
and outstanding for at least six months, automatically cancelled in return
for a payment to the optionee equal to the difference between the market
price of the optioned shares (or the highest tender price, if applicable),
less the exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1998, 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 1998 fiscal year are summarized below. Additional factors
22
were also taken into account, and we may in our discretion apply entirely
different factors, particularly different measures of financial performance,
in setting executive compensation for future fiscal years; all compensation
decisions will be designed to further the general compensation policy
indicated above.
- - BASE SALARY. The base salary for each officer is set on the basis of
personal performance and the salary levels in effect for comparable
positions at similarly situated biopharmaceutical and biomedical companies
headquartered in the same geographical region as 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, Severance Agreements and Change of Control
Arrangements" and "Certain Relationships and Related Transactions -
Transactions with Management and Others" regarding the employment
agreements in effect between the Company and each Dr. Kabakoff and Mr.
Whitehead.
- - 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 1998, while corporate financial performance targets were
not achieved, the Compensation Committee believed that many of the factors
which adversely impacted the Company's earnings per share results were
unrelated to the performance of the Company's executive management team and
that the management team successfully implemented significant initiatives
designed to benefit the Company and its stockholders. Accordingly, the
Compensation Committee approved the award of bonuses to executive
management; however, in recognition of the reduction in the Company's
year-over-year earnings per share results, such bonuses in the aggregate
averaged less than 53% of the bonuses awarded at the end of the 1997 fiscal
year. There is no fixed percentage of base salary utilized in calculating
or setting annual incentive compensation targets.
LONG-TERM INCENTIVE COMPENSATION. From time to time, the
Compensation Committee grants stock options to certain of the Company's
executive officers pursuant to 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 ten 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. Other than the November
1998 option cancellation/regrant program discussed later in this report,
there were no additional options granted in 1998 to the Named Executive
Officers.
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 1998 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. See "Executive Compensation and
Other Information -- Employment Contracts, Severance Agreements and Change of
Control Arrangements" regarding the employment agreement in effect between
the Company and Mr. Garner.
Historically, much of Mr. Garner's bonus (with no specific
weighting or other formula application) has been dependent upon a variety of
Company performance factors including, but not limited to, financial
performance, with no dollar guarantees. While the Company's performance in
1998 in terms of earnings per share
23
significantly lagged such results for 1997, the Compensation Committee
determined that Mr. Garner's performance and leadership in effecting a number
of initiatives designed to achieve long-term Company success merited payment
of a bonus. However, in recognition of the reduction in the Company's
year-over-year earnings per share results, the bonus awarded to Mr. Garner in
fiscal year 1998 was 48% of the bonus awarded in fiscal year 1997.
Options granted to Mr. Garner are intended to place a significant
portion of his total compensation at risk, since the options will have no
value unless there is appreciation in the value of the Common Stock over the
option term. Other than the November 1998 option cancellation/regrant program
discussed later in this report, there were no additional options granted in
1998 to Mr. Garner.
COMPENSATION COMMITTEE REPORT ON 1998 CANCELLATION AND REGRANT OF
OPTIONS. During the 1998 fiscal year, the Compensation Committee determined
that factors affecting the stock price of the Company unrelated to
performance and accomplishments of the executive management team made it
appropriate and 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. A cancellation/regrant program was implemented, whereby
certain outstanding options were cancelled and new options were granted with
a lower exercise price per share equal to the fair market price of the Common
Stock on the regrant date. The number of new options granted was also subject
to a reduction by a 1.3 to 1 ratio; that is, for every option regranted the
recipient was required to forfeit and have cancelled 1.3 options. The
program, and the "reduction ratio" of 1.3 to 1, was recommended by and
implemented after consultation with a nationally-recognized executive
management compensation firm.
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 November 9, 1998, the Compensation Committee approved
the cancellation and regrant of any outstanding option with an exercise price
greater than $10.31 per share held by the executive officers, at their
individual election. 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 $10.31 per share, the fair market price of the Common Stock
on that date, with a reduction in the number of new options granted by a
ratio of 1.3 options cancelled for every 1 new option granted. Vesting on the
underlying option was forfeited and the option was cancelled. The replacement
option vests over a new four-year period and has a ten-year term.
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 stockholders' 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
24
PERFORMANCE GRAPH
The following graph compares total stockholder returns of the Company
over the last five years 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 December
31, 1993 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.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Dura S & P 500 S & P Pharmaceutical Companies
12/31/93 59.18367 113.4666375 74.43925062
6/30/94 85.71429 108.0712253 68.15506418
12/31/94 118.3673 111.7200613 83.60825247
6/30/95 153.551 132.5135615 102.8566709
12/31/95 283.6735 149.8285047 137.3055885
6/30/96 457.1429 163.1345934 148.2789002
12/31/96 779.5918 180.189253 175.2670672
6/30/97 651.102 215.3153811 228.0441992
12/31/97 749.0612 236.0626627 264.3800247
6/30/98 365.3061 275.8130823 337.205859
12/31/98 247.9673 299.0172468 398.962323
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
See "Executive Compensation and Other Information -- Employment
Contracts, Severance Agreements and Change of Control Arrangements" for a
discussion of the employment agreements between the Company and each Mr.
Garner and Dr. Kabakoff. In June 1998, Mr. Whitehead entered into an
employment agreement with the Company upon substantially the same terms and
conditions as those agreements in place with Mr. Garner and Dr. Kabakoff. The
current employment term ends July 2000, subject to automatic renewals for a
one-year term. Mr. Whitehead's current annual base salary is $295,000 and is
subject to annual review and increase at the sole discretion of the Board of
Directors.
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 currently serves as a director, Chairman, President and
Chief Executive Officer, and Mr. Garner also serves as a director, of Spiros
Corp. II, a separate company which has engaged the Company through various
agreements to further develop certain products to which Spiros Corp. II has
rights, for delivery through Spiros-Registered Trademark-, the Company's
proprietary dry powder pulmonary drug delivery system. During 1998, the
Company recorded contract revenues from Spiros Corp. II of $47,800,000.
The Company has a purchase option which entitles it to purchase all, but
not less than all, of the callable common stock of Spiros Corp. II. The
purchase option is exercisable at any time before December 31, 2002 (which
exercise period may be shortened or lengthened in certain circumstances). If
the purchase option is exercised, the per share exercise price will be $24.01
through December 31, 1999, increasing on a quarterly basis to $45.95 per
share through December 31, 2002. The purchase option exercise price may be
paid in cash or shares of the Company's common stock, or any combination of
the foregoing, at the Company's sole discretion. The Company has no legal
obligation to exercise the purchase option. The Company owns all of the
issued and outstanding special common stock of Spiros Corp. II, which confers
certain voting and
25
other rights, including the right to elect two directors of Spiros Corp. II.
In addition, Dura holds an option to acquire Spiros Corp. II's exclusive
rights for the use of the Spiros-Registered Trademark- system with albuterol
and with a second product other than albuterol. The purchase price for these
options is payable in cash.
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 (the "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 1998 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 20, 2000 (120 days prior to May 20, 2000). 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. In
addition, the proxy solicited by the Board of Directors for the next year's
Annual Meeting of Stockholders will confer discretionary authority to vote on
any stockholder proposal presented at that meeting, unless the Company
receives notice of such proposal not later than January 20, 2000.
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, 1999 MITCHELL R. WOODBURY
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
26
APPENDIX
DURA PHARMACEUTICALS, INC.
1992 STOCK OPTION PLAN
AS AMENDED AND RESTATED MARCH 3, 1999
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
A. IMPLEMENTATION. This 1992 Stock Option Plan ("Plan") was
implemented as of December 9, 1992 ("Effective Date"), to enable Dura
Pharmaceuticals, Inc. ("Company") to grant options to the following eligible
individuals ("Eligible Individuals") in order to attract them and to retain
their services: (a) key employees (including officers and directors) of the
Company or its subsidiaries or any parent corporation who are primarily
responsible for the management, growth and financial success of the Company or
its subsidiaries, (b) non-employee members of the Board of Directors ("Board")
of the Company or any of its subsidiaries, and (c) consultants and independent
contractors who perform valuable services for the Company or its subsidiaries.
B. SUCCESSOR PLAN. This Plan is a successor to the Company Stock
Option Plan that was adopted by the Board in 1983 ("1983 Plan"). No further
option grants (including, but not limited to automatic option grants) will be
made under the 1983 Plan on and after the Effective Date of this Plan. All
options outstanding under the 1983 Plan on the Effective Date have been
incorporated into this Plan and will be treated as outstanding options under
this Plan. Each outstanding option so incorporated will continue to be governed
solely by the express terms and conditions of the instruments evidencing such
grant. No provision of this Plan will be deemed to affect or otherwise modify
the rights or obligations of the holders of such incorporated options with
respect to their acquisition of shares of the Company's Common Stock under the
terms of the incorporated options.
II. ADMINISTRATION OF THE PLAN
A. COMMITTEE. The Plan will be administered by the Board of Directors
or by a committee or committees appointed by the Board, and consisting of two or
more members of the Board. 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).
C. AUTHORITY. Any Committee will have full authority to administer the
Plan within the scope of its delegated responsibilities, including authority to
interpret and construe any relevant provision of the Plan, to adopt such rules
and regulations as it may deem necessary, and to determine the terms of grants
made under the Plan (which need not be identical). Decisions of a Committee made
within the discretion delegated to it by the Board will be final and binding on
all persons.
III. STOCK SUBJECT TO THE PLAN
A. NUMBER OF SHARES. Shares of the Company's Common Stock available
for issuance under the Plan shall be drawn from either the Company's authorized
but unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Company on the open market. The maximum
number of shares of Common Stock that may be issued over the term of the Plan
shall not exceed 10,107,360 shares, subject to adjustment from time to time in
accordance with the provisions of this Section. To the extent one or more
outstanding options under the 1983 Plan that have been incorporated into this
Plan are subsequently exercised, the number of shares issued with respect to
each such option will reduce, on a share-for-share basis, the number of shares
available for issuance under this Plan.
B. EXPIRED OPTIONS. Should an outstanding option under this Plan
(including any outstanding option under the 1983 Plan incorporated into this
Plan) expire or terminate for any reason prior to exercise in full (including
any option cancelled in accordance with the cancellation-regrant provisions of
this Plan), the shares subject to the portion of the option not so exercised
will be available for subsequent option grant under this Plan. Shares subject to
any option or portion thereof cancelled in accordance with the stock
appreciation (or limited stock appreciation) rights provisions of this Plan will
not be available for subsequent option grant under the Plan.
C. ADJUSTMENTS. If any change is made to the Common Stock issuable
under the Plan (including Common Stock issuable under an Automatic Option Grant)
by reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Company's receipt of consideration, then
appropriate adjustments will be made to (i) the number and/or class of shares
issuable under the Plan, (ii) the number and/or class of shares and price per
share in effect under each outstanding option under the Plan, (iii) the maximum
number and/or class of shares for which any one participant may be granted stock
options and separately exercisable stock appreciation rights in any fiscal year
or over the term of the Plan and (iv) the number and/or class of shares and
price per share in effect under each outstanding option incorporated into this
Plan from the 1983 Plan. The purpose of these adjustments will be to preclude
the enlargement or dilution of rights and benefits under the options.
2
ARTICLE TWO
STANDARD OPTION PROVISIONS
I. TERMS AND CONDITIONS OF OPTIONS
A. COMMITTEE DISCRETION.
(1) Except as provided under the Automatic Option Grant
provisions of this Plan, the Committee will have full authority to determine
which Eligible Individuals are to receive option grants under the Plan, the
number of shares to be governed by each such grant, whether the option is to be
an incentive stock option ("Incentive Option") that satisfies the requirements
of Section 422 of the Internal Revenue Code or a non-qualified option not
intended to satisfy such requirements ("Non-Qualified Option"), the time or
times at which each such option is to become exercisable, and the maximum term
for which the option is to remain outstanding.
(2) Notwithstanding any other provision of this Plan, no
individual shall be granted stock options or separately exercisable stock
appreciation rights for more than 400,000 shares in the aggregate in any fiscal
year or for more than 1,500,000 shares in the aggregate over the lifetime of the
Plan.
B. TERM. No option granted under the Plan will be exercisable after
the expiration of 10 years from the date the option was granted.
C. PRICE. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than 100% percent of the Fair Market Value
per share of Common Stock on the option grant date, provided that the Plan
Administrator may fix the exercise price at less than 100% if the optionee, at
the time of the option grant, shall have made a payment to the Company
(including payment made by means of an agreed salary reduction) equal to the
excess of the Fair Market Value of the Common Stock on the option grant date
over such exercise price.
D. EXERCISE AND PAYMENT. After any option granted under the Plan
becomes exercisable, it may be exercised by notice to the Company at any time
prior to the termination of such option. The option price will be payable in
full in cash or check made payable to the Company; provided, however, that the
Committee may, either at the time the option is granted or at the time it is
exercised and subject to such limitations as it may determine, authorize payment
of all or a portion of the option price in one or more of the following
alternative forms:
(1) a promissory note authorized pursuant to Section IV of this
Article; or
(2) full payment in shares of Common Stock valued as of the
exercise date and held for the requisite period to avoid a charge to the
Company's earnings; or
(3) full payment through a sale and remittance procedure under
which the option holder delivers a properly executed exercise notice together
with irrevocable instructions
3
to a broker to promptly deliver to the Company the amount of sale proceeds to
pay the option prices.
For purposes of Subparagraphs (1) and (3) immediately above, the
Exercise Date shall be the date on which written notice of the exercise of the
option is delivered to the Company. In all other cases, the Exercise Date will
be the date on which written notice and actual payment is received by the
Company.
The sale and remittance procedure authorized for the exercise of
outstanding options under this Plan shall be available for all options granted
under this Plan on or after the Effective Date and for all non-qualified options
outstanding under the 1983 Plan and incorporated into this Plan. The Plan
Administrator may also allow such procedure to be utilized in connection with
one or more disqualifying dispositions of Incentive Option shares effected after
the Effective Date, whether such Incentive Options were granted under this Plan
or the 1983 Stock Option Plan.
E. 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%
4
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.
(4) EMPLOYEES. Incentive Options may only be granted to employees of
the Company or its subsidiaries.
H. FAIR MARKET VALUE. For all purposes under this Plan (including, but
not limited to Automatic Option Grants) the fair market value per share of
Common Stock on any relevant date under the Plan ("Fair Market Value") will be
determined as follows:
(1) If the Common Stock is not at the time listed or admitted to
trading on any national stock exchange but is traded in the over-the-counter
market, the fair market value will be the mean between the highest bid and
lowest asked prices (or, if such information is available, the closing selling
price) per share of Common Stock on the date in question in the over-the-counter
market, as such prices are reported by the National Association of Securities
Dealers on the Nasdaq National Market. If there are no reported bid and asked
prices (or closing selling price) for the Common Stock on the date in question,
then the mean between the highest bid price and lowest asked price (or the
closing selling price) on the last preceding date for which such quotations
exist will be determinative of fair market value.
(2) If the Common Stock is at the time listed or admitted to trading
on any national stock exchange, then the fair market value will be the closing
selling price per share of Common Stock on the date in question on the stock
exchange determined by the Committee to be the primary market for the Common
Stock, as such price is officially quoted in the composite tape of transactions
on such exchange. If there is no reported sale of Common Stock on such exchange
on the date in question, then the fair market value will be the closing selling
price on the exchange on the last preceding date for which such quotation
exists.
(3) If the Common Stock is at the time neither listed nor admitted to
trading on any stock exchange nor traded in the over-the-counter market, then
the fair market value will be determined by the Committee after taking into
account such factors as the Committee shall deem appropriate.
I. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death. However, a Non-Qualified Option
may be assigned in whole or in part during the
5
Optionee's lifetime. The assigned portion may only be exercised by the person
or persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate.
II. STOCK APPRECIATION RIGHTS
If, and only if the Committee, in its discretion, elects to
implement an option surrender program under the Plan, one or more option holders
may, upon such terms as the Committee may establish at the time of the option
grant or at any time thereafter, be granted the right to surrender all or part
of an unexercised option in exchange for a distribution equal in amount to the
excess of (i) the Fair Market Value (at date of surrender) of the shares for
which the surrendered option or portion thereof is at the time exercisable over
(ii) the aggregate option price payable for such shares. The distribution to
which an option holder becomes entitled under this Section may be made in shares
of Common Stock, valued at Fair Market Value at the date of surrender, in cash,
or partly in shares and partly in cash, as the Committee, in its sole
discretion, deems appropriate.
III. CORPORATE TRANSACTION/CHANGE OF CONTROL/HOSTILE TAKEOVER
A. CORPORATE TRANSACTION. In the event of any of the following
transactions ("Corporate Transaction"):
(1) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state of the Company's incorporation,
(2) the sale, transfer or other disposition of all or substantially
all of the assets of the Company in liquidation or dissolution of the Company,
(3) any reverse merger in which the Company is the surviving entity
but in which fifty percent (50%) or more of the Company's outstanding voting
stock is transferred to holders different from those who held such securities
immediately prior to such merger, or
(4) an acquisition by any person or related group of persons (other
than the Company or a person that directly or indirectly controls, is controlled
by or is under common control with, the Company) of ownership of more than fifty
percent (50%) of the Company's outstanding Common Stock, pursuant to a tender or
exchange offer,
the exercisability of each option at the time outstanding
under this Article Two shall automatically accelerate so that each such option
shall, immediately prior to the specified effective date for the Corporate
Transaction, become fully exercisable with respect to the total number of shares
of Common Stock at the time subject to such option and may be exercised for all
or any portion of such shares. Upon the consummation of the Corporate
Transaction, all outstanding options under this Article Two shall terminate and
cease to be outstanding.
6
B. HOSTILE TAKEOVER. One or more officers of the Company subject to
the short-swing profit restrictions of the Federal securities laws may, in
the Committee's sole discretion, be granted, in tandem with their outstanding
options, limited stock appreciation rights as described below. In addition
all Automatic Option Grants under this Plan will be made in tandem with
limited stock appreciation rights as described below.
(1) Upon the occurrence of a Hostile Takeover, each outstanding option
with such a limited stock appreciation right in effect for at least six (6)
months will automatically be cancelled in return for a cash distribution from
the Company in an amount equal to the excess of (i) the Takeover Price (defined
below) of the shares of Common Stock at the time subject to the cancelled option
(whether or not the option is otherwise at the time exercisable for such shares)
over (ii) the aggregate exercise price payable for such shares. The cash
distribution payable upon such cancellation shall be made within five (5) days
following the consummation of the Hostile Takeover. Neither the approval of the
Committee nor the consent of the Board shall be required in connection with such
option cancellation and cash distribution.
(2) For purposes of the limited stock appreciation rights described
above, the following definitions shall be in effect:
(i) A Hostile Takeover shall be deemed to occur upon the
acquisition by any person or related group of persons (other than the Company
or a person that directly or indirectly controls, is controlled by, or is
under common control with, the Company) of ownership of more than 50% of the
Company's outstanding Common Stock (excluding the Common Stock holdings of
officers and directors of the Company who participate in this Plan) pursuant
to a tender or exchange offer which the Board does not recommend the
Company's 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
7
granted without security or collateral (other than to optionees who are
consultants or independent contractors, in which event the loan must be
adequately secured by collateral other than the purchased shares), but the
maximum credit available to the optionee shall not exceed the sum of (i) the
aggregate option price (less par value) of the purchased shares plus (ii) any
federal and state income and employment tax liability incurred by the
optionee in connection with the exercise of the option. Automatic Option
Grants will not be subject to these loan and loan guarantee provisions.
V. CANCELLATION AND REGRANT OF OPTIONS
The Committee shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under this Article (including
outstanding options under the 1983 Plan incorporated into this Plan) and to
grant in substitution new options under the Plan covering the same or different
numbers of shares of Common Stock but having an option price per share not less
than 100% of the fair market value of the Common Stock on the new grant date.
Automatic Option Grants will not be subject to these cancellation and regrant
provisions.
VI. REPURCHASE RIGHTS
The Committee may in its discretion determine that it shall be
a term and condition of one or more options exercised under the Plan that the
Company (or its assigns) shall have the right, exercisable upon the optionee's
separation from service with the Company and its subsidiaries, to repurchase any
or all of the shares of Common Stock previously acquired by the optionee upon
the exercise of such option. Any such repurchase right shall be exercisable upon
such terms and conditions (including the establishment of the appropriate
vesting schedule and other provisions for the expiration of such right in one or
more installments) as the Committee may specify in the instrument evidencing
such right. The Committee shall also have full power and authority to provide
for the automatic termination of these repurchase rights, in whole or in part,
and thereby accelerate the vesting of any or all of the purchased shares.
8
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
The provisions of this Article Three reflect the amendments
to the Automatic Option Grant Program authorized by the Board on March 3,
1999, subject to stockholder approval at the 1999 Annual Meeting.
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(D) of Article One of this Plan) on the dates and pursuant to the terms
set forth below ("Automatic Option Grants").
B. CONTINUING DIRECTORS. On the date of each Annual Stockholders
Meeting, beginning with the Annual Meeting in calendar year 2000, each
continuing non-employee member of the Board will receive an Automatic Option
Grant to purchase 6,000 shares of 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.1
C. NEW DIRECTORS. Each individual person who is first elected or
appointed as a non-employee member of the Board on or after May 20, 1999 will
receive, on the effective date of such initial election or appointment, an
Automatic Option Grant to purchase 15,000 shares of Common Stock.2
D. SPECIAL OPTION GRANT. Each individual serving as a non-employee
Board member on May 20, 1999 shall receive at that time a one-time Automatic
Option Grant for 15,000 shares. Such grant shall be in substitution for the
Automatic Option Grant which would otherwise be made to such individual at
the 1999 Annual Stockholders Meeting pursuant to the provisions of Section
I(B) of this Article Three.
II. TERMS
The terms applicable to each Automatic Option Grant will be as
follows:
A. PRICE. The option price per share will be equal to 100% of the Fair
Market Value of a share of Common Stock on the date of grant.
- -------------------
(1) The reduction in the number of shares subject to this grant
from 8,000 to 6,000 shares was authorized by the Board on March 3, 1999,
subject to stockholder approval at the 1999 Annual Meeting. If so approved,
this change shall become effective as of the Annual Meeting in calendar year
2000.
(2) The reduction in the number of shares subject to this grant
from 30,000 to 15,000 shares was authorized by the Board on March 3, 1999,
subject to stockholder approval at the 1999 Annual Meeting. If so approved,
this change shall become effective on May 20, 1999.
9
B. OPTION TERM. Each Automatic Option Grant will have a maximum term
of 10 years measured from the automatic grant date.
C. EXERCISABILITY. Each Automatic Option Grant will become
exercisable for all Automatic Option Grant shares one (1) year after the
automatic grant date, provided the optionee continues to serve as a Board
member throughout that one (1)-year period.
D. PAYMENT. Upon exercise of the option, the option price for the
purchased shares will become payable immediately in one or more of the
following alternative forms: cash, shares of Common Stock held for the
requisite period to avoid a charge to the Company's reported earnings and
valued at Fair Market Value on the Exercise Date (as defined below), or
pursuant to a sale and remittance procedure under which the option holder
delivers a properly executed exercise notice together with irrevocable
instructions to a broker to promptly deliver to the Company the amount of
sale proceeds to pay the option price. For these purposes, the Exercise Date
shall be the date on which written notice of the exercise of the option is
delivered to the Company. Except to the extent the sale and remittance
procedure specified above is utilized for the exercise of the option, payment
of the exercise price for the purchased shares must accompany the notice.
E. EFFECT OF TERMINATION OF BOARD MEMBERSHIP.
(1) Should the optionee cease to be a Board member for any reason
(other than death) while holding one or more Automatic Option Grants, then the
optionee will have 6 months following the date of such cessation of Board
membership in which to exercise each such option for any or all of the shares of
Common Stock for which the option is exercisable at the time Board membership
ceases; provided however, that in no event may such an option be exercised after
the expiration of its 10-year term.
(2) Should the optionee die while holding one or more Automatic Option
Grants, then each such option may subsequently be exercised, for any or all of
the shares of Common Stock for which the option is exercisable at the time of
the optionee's death, by the personal representative of the optionee's estate or
by the person or persons to whom the option is transferred pursuant to the
optionee's will or in accordance with the laws of descent and distribution
following optionee's death. Any such exercise must, however, occur before the
earlier of (i) the expiration of the option's 10-year term, or (ii) 12 months
after the date of the optionee's death.
F. ACCELERATION. Automatic Option Grants will be subject to
acceleration and termination in the event of a Corporate Transaction as
described in Article Two, Section III(A) of this Plan.
G. HOSTILE TAKEOVER. Automatic Option Grants will be granted in
tandem with limited stock appreciation rights, as described in the Hostile
Takeover provisions contained in Article Two, Section III(B) of this Plan.
10
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.
II. TAX WITHHOLDING
A. OBLIGATION. The Company's obligation to deliver shares or cash
upon the exercise of stock options or stock appreciation rights granted under
the Plan is subject to the satisfaction of all applicable Federal, State and
local income and employment tax withholding requirements.
B. STOCK WITHHOLDING. The Plan Administrator may, in its discretion
and upon such terms and conditions as it may deem appropriate (including the
applicable safe-harbor provisions of SEC Rule 16b-3) provide any or all
holders of outstanding option grants under the Plan with the election to have
the Company withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such options, one or more of such shares with an aggregate
fair market value equal to the designated percentage (any multiple of 5%
specified by the optionee) of the Federal and State income and employment
withholding taxes ("Withholding Taxes") incurred in connection with the
acquisition of such shares. In lieu of such direct withholding, one or more
optionees may also be granted the right to deliver shares of Common Stock to
the Company in satisfaction of such Withholding Taxes. The withheld or
delivered shares shall be valued at the Fair Market Value on the applicable
determination date for such Taxes or such other date required by the
applicable safe-harbor provisions of SEC Rule 16b-3.
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III. EFFECTIVE DATE AND TERM OF PLAN
A. IMPLEMENTATION. This Plan, as successor to the Company's 1983
Stock Option Plan, became effective as of the Effective Date, and no further
option grants shall be made under the 1983 Plan on or after the Effective
Date of this Plan. The Plan was amended on March 3, 1999 (the "1999
Amendment") to effect the following changes: (i) increase the number of
shares of Common Stock available for issuance by an additional 1,500,000
shares, (ii) reduce the number of shares of Common Stock for which an
Automatic Option Grant is to be made to a newly-elected or appointed
non-employee Board member under Section I(C) of Article Three from 30,000
shares to 15,000 shares, effective May 20, 1999, (iii) reduce the number of
shares of Common Stock for which an Automatic Option Grant is to be made on
an annual basis to each continuing non-employee Board member under Section
I(B) of Article Three from 8,000 shares to 6,000 shares, effective as of the
calendar year 2000 Annual Stockholders Meeting, and (iv) effect a one-time
Automatic Option Grant of 15,000 shares to each individual serving as a
non-employee Board member on May 20, 1999 pursuant to Section I(D) of Article
Three. The 1999 Amendment is subject to stockholder approval at the 1999
Annual Meeting, and no option grants made on the basis of the share increase
authorized by that amendment shall become exercisable in whole or in part
unless and until the 1999 Amendment is approved by the stockholders. Should
such stockholder approval not be obtained at the 1999 Annual Meeting, then
the 1,500,000 share increase shall not be implemented, and none of the
revisions to the Automatic Option Grant Program under Article Three shall
become effective. Subject to the foregoing limitations, options may be
granted under the Plan at any time before the date fixed herein for the
termination of the Plan.
B. TERMINATION. Unless sooner terminated due to a Corporate
Transaction or a Change in Control, the Plan will terminate upon the earlier of
(i) December 8, 2002, or (ii) the date on which all shares available for
issuance under the Plan have been issued or cancelled pursuant to exercise,
surrender or cash-out of options. If the date of termination is determined under
clause (i) above, then options outstanding on such date shall thereafter
continue to have force and effect in accordance with the provisions of the
instruments evidencing those options.
C. ADDITIONAL SHARES. Options to purchase shares of Common Stock may
be granted under the Plan which are in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued are held in escrow until 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.
IV. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of shares
pursuant to options granted under the Plan shall be used for general
corporate purposes.
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V. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option under
the Plan, and the issuance of stock upon the exercise or surrender of any
such option shall be subject to the procurement by the Company of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it and the stock issued pursuant to
it.
VI. NO EMPLOYMENT/SERVICE RIGHTS
Neither the establishment of this Plan, nor any action taken under the
terms of this Plan, nor any provision of this Plan shall be construed so as to
grant any individual the right to remain in the employ or service of the Company
(or any parent or subsidiary corporation) for any period of specific duration,
and the Company (or any parent or subsidiary corporation retaining the services
of such individual) may terminate such individual's employment or service at any
time and for any reason, with or without cause.
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PROXY
DURA PHARMACEUTICALS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mitchell R. Woodbury and Michael T. Borer,
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 20, 1999, 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)
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- FOLD AND DETACH HERE -
[DURA PHARMACEUTICALS LOGO]
Please mark
your votes as /X/
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
WITHHELD
FOR FOR ALL FOR AGAINST ABSTAIN
ITEM 1-ELECTION OF DIRECTORS / / / / ITEM 2-APPROVAL OF / / / / / / Unless otherwise specified
Nominees: AMENDMENT TO 1992 by the undersigned, this
Herbert J. Conrad STOCK OPTION PLAN proxy will be voted FOR
Gordon V. Ramseier proposals 1, 2 and 3 and
Charles G. Smith ITEM 3-RATIFICATION / / / / / / will be voted by the
OF DELOITTE & TOUCHE proxy-holder at his
LLP AS INDEPENDENT discretion as to any other
ACCOUNTANTS matters properly transacted
at the Meeting or any
WITHHELD FOR: (write that nominee's name in the space adjournments thereof. To
provided below). vote in accordance with the
Board of Directors'
- -------------------------------------------------------- recommendations, just sign
below, no boxes need to be
checked.
Signature Signature Date
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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.
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- FOLD AND DETACH HERE -