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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- ----- THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________.
COMMISSION FILE NUMBER: 000-23501
SPIROS DEVELOPMENT CORPORATION II, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0774288
(State or other jurisdiction (I.R.S. Employer
or incorporation or organization) Identification No.)
7475 LUSK BLVD., SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (619) 457-2553
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF
THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G)
OF THE ACT:
CALLABLE COMMON STOCK, $.001 PAR VALUE. THE CALLABLE COMMON STOCK IS REGISTERED
PURSUANT TO SECTION 12(G) OF THE ACT SEPARATELY AND AS PART OF UNITS, EACH UNIT
CONSISTING OF ONE SHARE OF CALLABLE COMMON STOCK OF SPIROS DEVELOPMENT
CORPORATION II, INC. AND ONE WARRANT (A "WARRANT") TO PURCHASE ONE-FOURTH OF ONE
SHARE OF DURA PHARMACEUTICALS, INC. COMMON STOCK. THE CALLABLE COMMON STOCK IS
NOT SEPARATELY TRADABLE APART FROM THE UNITS PRIOR TO DECEMBER 31, 1999 OR UPON
THE EARLIER OCCURRENCE OF CERTAIN EVENTS.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
--- ---
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ ].
The aggregate market value of the Units held by non-affiliates of the
registrant as of February 27, 1998 was $77,902,555. Market value is the
market value of the Units, each Unit consisting of one share of Callable
Common Stock of Spiros Development Corporation II, Inc. and a Warrant. There
is no quoted market value for the shares of Callable Common Stock apart from
the Units. For the purposes of this calculation, shares owned by officers,
directors (and their affiliates) and 10% or greater shareholders known to the
registrant have been deemed to be affiliates which should not be construed to
indicate that any such person possesses the power, direct or indirect, to
direct or cause the direction of the management or policies of the Registrant
or that such person is controlled by or under common control with the
Registrant.
The number of shares of the Registrant's Callable Common Stock and
Special Common Stock outstanding as of February 27, 1998 were 6,325,000 and
1,000, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the Annual Meeting of
Shareholders scheduled to be held on May 20, 1998, to be filed with the
Securities and Exchange Commission on or about April 9, 1998, referred to
herein as the "Proxy Statement," are incorporated as provided in Part III.
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INDEX
Part I:
Item 1. Business......................................................4
Item 2. Properties...................................................24
Item 3. Legal Proceedings............................................24
Item 4. Submission of Matters to a Vote of Security Holders..........24
Part II:
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters..........................................24
Item 6. Selected Financial Data......................................25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................26
Item 7A. Quantitative and Qualitative Disclosures about Market Risk...27
Item 8. Financial Statements and Supplementary Data..................27
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..........................27
Part III:
Item 10. Directors and Executive Officers of the Registrant...........27
Item 11. Executive Compensation.......................................28
Item 12. Security Ownership of Certain Beneficial Owners and
Management...................................................28
Item 13. Certain Relationships and Related Transactions...............28
Part IV:
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.....................................................28
Signatures...................................................30
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PART I
ITEM 1. BUSINESS
The discussion of Spiros Development Corporation II, Inc.'s ("Spiros Corp.
II" or the "Company") business contained in this report may contain certain
projections, estimates and other forward-looking statements that involve a
number of risks and uncertainties. For a discussion of factors which may
affect the outcome projected in such statements, see "Risks and
Uncertainties" on pages 18 through 24 of this Annual Report on Form 10-K.
While this outlook represents management's current judgment on the future
direction of the business, such risks and uncertainties could cause actual
results to differ materially from any future performance listed below. The
Company undertakes no obligation to release publicly the results of any
revisions to these forward-looking statements to reflect events and
circumstances arising after the date hereof. Unless the context otherwise
requires, "Dura" refers to Dura Pharmaceuticals, Inc., a Delaware
corporation, and its subsidiaries.
OVERVIEW
The Company was incorporated in the state of Delaware on September 23, 1997
to continue the development of Spiros-Registered Trademark-, a dry powder
pulmonary drug delivery system, and to conduct formulation work, clinical
trials and commercialization for certain specified leading asthma and chronic
obstructive pulmonary disease ("COPD") drugs for use with Spiros. Spiros
Corp. II may also expend funds on enhancements to the existing Spiros
technology, initial development of a next generation inhaler system and the
acquisition of capital equipment to be used in the manufacture of the Spiros
Products. Finally, Spiros Corp. II plans to use a portion of its funding to
conduct technical evaluation projects designed to identify additional
respiratory drug candidates for further development. The Company commenced
operations on December 22, 1997.
On December 22, 1997, the Company and Dura Pharmaceuticals, Inc. ("Dura")
completed a $101 million initial public offering (the "Offering") of
6,325,000 Units, each Unit consisting of one share of callable common stock
of the Company (the "Common Stock") and one warrant (the "SDCII Warrants") to
purchase one-fourth of one share of Dura's common stock. The offering
resulted in net proceeds to the Company of approximately $94 million.
Concurrently, Dura contributed $75 million to the Company. Substantially all
funds from the Offering, the $75 million contribution and interest earned
thereon (the "Available Funds"), are expected to be paid to Dura for the
development and commercialization of Spiros and the use of Spiros with
applications for albuterol, beclomethasone, ipratropium,
albuterol-ipratropium combination, budesonide and additional designated
compounds (the "Compounds"). In addition, the Company may also expend funds
on enhancements to the existing Spiros technology, the acquisition of capital
equipment to be used in the manufacture of the Spiros products, or to conduct
technical evaluation projects designed to identify additional respiratory
drug candidates for further development in Spiros. The SDCII Warrants will be
exercisable from January 1, 2000 through December 31, 2002 at an exercise
price of $54.84 per share of Dura common stock. In consideration of the SDCII
Warrants and the contribution of $75 million to Spiros Corp. II, Dura has an
irrevocable option (the "Purchase Option") through December 31, 2002, to
purchase all, but not less than all, of the then outstanding shares of Spiros
Corp. II callable common stock at predetermined prices. However, Dura is not
obligated to purchase such shares of Spiros Corp. II. Such purchase price may
be paid, at Dura's option, in cash, shares of Dura's common stock, or a
combination thereof. In addition, Dura received an option through specified
dates, to acquire Spiros Corp. II's exclusive rights for the use of Spiros
with albuterol (the "Albuterol Option") and with a second product other than
albuterol (the "Product Option") for cash.
In connection with the Offering, the Company also entered into the Technology
License Agreement, Albuterol and Product Option Agreement, Development
Agreement, Manufacturing and Marketing Agreement, and Services Agreement as
further discussed below under "Relationship with Dura."
Spiros Corp. II is not expected to have its own research, development,
clinical, licensing, administration, manufacturing or marketing employees or
facilities and thus will be entirely dependent on Dura in these areas.
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ASTHMA AND COPD MARKET
Asthma is a complex physiological disorder characterized by airway
hyperactivity to a variety of stimuli such as dust, pollen, stress or
physical exercise, resulting in airway obstruction that is partially or
temporarily reversible. The number of people with asthma has grown steadily
in recent years and is now believed to be over 200 million worldwide. COPD is
a complex condition comprising a combination of chronic bronchitis, emphysema
and airway obstruction. The U.S. combined market for therapeutic drugs to
treat asthma and COPD was approximately $2.9 billion in 1997. The primary
categories of therapeutic drugs used in the treatment of asthma and COPD
include bronchodilators and anti-inflammatories. Bronchodilators dilate the
airways and include beta agonists (such as albuterol and bitolterol),
xanthines (such as theophylline) and anticholinergics (such as ipratropium).
Anti-inflammatories reduce inflammation and include steroids (such as
beclomethasone, budesonide, flunisolide and triamcinolone).
PULMONARY DRUG DELIVERY SYSTEMS
Inhaled therapeutic drugs have been shown to be effective in treating or
preventing the symptoms of asthma, COPD and other respiratory diseases. When
treating respiratory diseases, inhalation delivery puts the drug directly
into the lung for topical treatment. If administered in capsule, tablet or
liquid form, rather than through inhalation, the patient must take sufficient
drug to achieve a systemic therapeutic blood level to benefit the lungs. In
many instances, this may cause serious side effects by impacting other
organs. Because inhaled therapy delivers the drug directly into the lung, it
provides comparable efficacy with less risk of systemic side effects at
greatly reduced dosages. Inhalation delivery also yields a fast onset of
action, hastening the time for patient relief.
TRADITIONAL INHALATION DELIVERY DEVICES
Traditional delivery systems used for administering inhaled drugs include the
following:
JET NEBULIZERS. Jet nebulizers aerosolize a liquid solution of medicine,
either ultrasonically or with compressed air, creating a fine mist that
patients inhale slowly over several minutes. Jet nebulizers are larger than
other inhalation delivery systems and, because of their size, are primarily
used to deliver aerosol to hospitalized patients, patients with acute asthma
exacerbation in a clinic or emergency room environment, and patients unable
to coordinate the use of other inhalation delivery technology.
METERED DOSE INHALERS. Metered dose inhalers ("MDIs") are the most popular
inhalation delivery system due to their relative convenience and portability.
MDIs consist of a suspension or solution of drug filled into a canister which
is sealed with a metering valve and pressurized using a propellant, most
commonly a chlorofluorocarbon ("CFC"). Because MDIs contain an internal
energy source, the CFCs, the operation is relatively flow rate independent,
and the dose exiting the MDI is relatively consistent. However, it is
estimated that only 10 to 20 percent of the dose from an MDI actually
deposits in the lung. The variation in lung deposition is in large part
reflected by the inability of most patients to coordinate actuation of the
system with inhalation.
DRY POWDER INHALERS. Dry powder inhalers ("DPIs") represent a significant
advancement in the development of inhalation delivery systems. Dry powder
inhalers are relatively convenient and portable, and are CFC-free. DPIs are
breath actuated, so they eliminate the need for hand-lung coordination
associated with MDIs. Although DPIs overcome the need for coordination of
actuation and inspiration, currently marketed DPIs require high inspiratory
flow rates and the ultimate dose delivered to the patient is dependent on
inspiratory flow rate. This high inspiratory flow rate is difficult to
achieve for pediatrics, the elderly and patients in acute respiratory
distress.
SPIROS
Spiros is a proprietary pulmonary drug delivery system that is designed to
aerosolize pharmaceuticals in dry powder formulations for delivery to the lungs
while providing certain advantages over traditional pulmonary delivery systems.
The Company believes new inhalation systems will gradually replace MDIs as the
leading pulmonary delivery systems, due primarily to the phasing out of CFCs and
coordination problems associated with many MDIs. Many companies are
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studying alternative propellants, such as hydrofluorocarbons ("HFAs"), for
use in MDIs, and the first albuterol MDI using an HFA propellant has obtained
the United States Food and Drug Administration ("FDA") approval and is being
marketed by Schering-Plough. However, the Company believes that any product
utilizing alternative propellants will still suffer from many of the
limitations of currently marketed MDIs, including the need for patients to
coordinate breathing with actuation of the drug delivery system. There are
two types of DPIs currently in commercial use worldwide, individual dose and
multiple dose. Individual dose DPIs currently marketed in the U.S. include
the Rotohaler-TM- (developed and marketed by Glaxo Wellcome, Inc. ("Glaxo"))
and the Spinhaler-Registered Trademark- (developed and marketed by Fisons
Limited). The Turbuhaler-Registered Trademark- (developed and marketed by
Astra Pharmaceuticals ("Astra")), a multiple dose DPI, is the leading DPI in
worldwide sales. In June 1997, the FDA approved the first Turbuhaler product,
the Pulmicort Turbuhaler, for marketing in the U.S., which Astra launched in
early 1998. Recently the FDA also approved two multiple dose DPIs developed
by Glaxo.
POTENTIAL ADVANTAGES OF SPIROS. The Company believes Spiros may have certain
advantages over other currently used methods of pulmonary drug delivery
including:
INSPIRATORY FLOW RATE INDEPENDENCE. Spiros is designed to deliver a
relatively consistent drug dose to the lungs over a wide range of
inspiratory flow rates, which can vary depending on a patient's health,
effort or physical abilities. Tests of Spiros on human subjects have
shown a relatively consistent and significant level of drug deposition
throughout the clinically relevant inspiratory range. Existing DPIs can
vary significantly in their level of drug deposition depending on the
patient's inspiratory flow rate and can deliver significantly less drug
at the lower flow rates typically associated with asthma attacks.
MINIMUM NEED FOR PATIENT COORDINATION. Spiros is breath-actuated and
does not require the user to coordinate inhalation and actuation of the
drug delivery system. MDIs generally require users to coordinate their
breathing with actuation of the MDI. Studies indicate that a significant
percentage of patients, particularly young children and the elderly, do
not use MDIs correctly. Spiros is designed to solve these coordination
problems by delivering the drug to patient's lungs as they inhale.
REDUCED SIDE EFFECTS. Spiros is designed to efficiently deliver drugs to
the lungs, thereby reducing drug deposition to the mouth and throat
which could reduce the possibility of unwanted side effects of certain
pharmaceutical agents, such as coughing and local irritation. With MDIs,
a significant portion of the dose is delivered to the mouth and throat
and is swallowed.
PATIENT CONVENIENCE. Spiros is designed to be convenient for patients,
with features such as breath actuation (Spiros is triggered by
inhalation), portability (light weight and small size), quick delivery
time, simple operation, dose delivery feedback and multi-dose
capability. Spiros also allows the patient to see the actual number of
doses remaining in a cassette or blister pack and an LED light provides
a warning of the need to replace Spiros prior to the end of its useful
life.
FREE OF CHLOROFLUOROCARBON PROPELLANTS. CFC propellants have ozone
destructive characteristics and are subject to worldwide regulations
aimed at eliminating their usage within the decade. Spiros does not use
CFCs while most MDIs, currently the most popular form of aerosol drug
delivery, use CFCs. Virtually all of the world's industrial nations,
under the auspices of the United Nations Environmental Program, have
pledged to cease use of CFCs by the year 2000. Continued use of CFCs in
medical products has been permitted under annual exemptions. As a result
of the planned phase out of CFCs, the Company believes that DPIs will
become a leading method for pulmonary drug delivery.
CORE SPIROS TECHNOLOGY
The core technology contained in Spiros which gives rise to the flow rate
independent delivery is an aerosol generator that uses electromechanical
energy to disperse dry powder to form an aerosol for inhalation. The main
components of the aerosol generator include the impeller, the motor, the
breath actuated switch, and the dosing chamber. When the switch is activated,
the electric circuit is completed and the impeller rotates. The action of the
impeller on the dry powder formulation supplies the energy to disperse the
drug and provide a zero-velocity cloud of aerosolized drug for
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inhalation. The cloud of aerosolized drug is suspended in the dosing chamber
and is delivered to the lungs only as the patient inhales.
Two separate Spiros systems are currently under development, both utilizing
the same core technology with distinct powder storage systems ("PSS").
Because of the physical and chemical requirements of the specific drugs
deliverable by Spiros, as well as the varying needs of the patients and
marketplace, the Company believes that its cassette and blisterdisk systems
will provide flexibility for delivery of many different types of drugs.
CASSETTE SYSTEM. The cassette system was the first Spiros system developed.
The PSS in this system is a 30-dose plastic cassette packed in a foil pouch.
In order to take a dose using the cassette system, the patient first opens
the lid of the Spiros generator to load the cassette. When the lid is closed
the cassette rotates to deliver a dose of drug into the dosing chamber. The
dosing chamber contains the impeller. When the patient inhales through the
mouthpiece, the impeller is automatically activated. The action of the
impeller on the powder in the chamber generates the aerosol which the patient
inhales. The patient then closes the lid. When the 30-dose cassette is empty,
the patient opens the lid and presses an ejection button on the bottom of the
system to remove an empty cassette and load a new cassette.
The Spiros cassette system has been produced in clinical trial quantities and
is being used in ongoing clinical trials of albuterol and beclomethasone.
Dura is currently working with outside vendors on Spiros Corp. II's behalf to
complete the necessary tooling for commercial scale production.
BLISTERDISK SYSTEM. Once a cassette is removed from the foil package it is no
longer protected from fluctuations in the relative humidity. Although some
drugs and powder formulations are sufficiently stable using the cassette
system, many other dry powders are sensitive to relative humidity. In those
cases, exposure to moisture causes agglomeration of the powder which can no
longer be readily aerosolized to the required aerodynamic diameter. The
blisterdisk system is being developed for drugs that require a barrier
against moisture or light. This system utilizes powder-filled sealed foil
blisters which prevent moisture build-up into the powder. The blisterdisk
system has been designed to contain 16 doses per blisterdisk and is believed
to be sufficiently flexible to accommodate a wide variety of drugs. In order
to take a dose using the blisterdisk system, the patient will open the
mouthpiece cover, push a button to open the blister and inhale through the
mouthpiece to actuate the impeller and aerosolize the dose. As the patient
closes the mouthpiece cover, the next blister is advanced to the dosing
position.
The Spiros blisterdisk system design has evolved to the prototype stage and
units that are suitable for laboratory testing have been produced. Further
refinements in the design of this system aimed at producing units suitable
for clinical trials are in progress.
SPIROS PRODUCTS IN DEVELOPMENT
Spiros Corp. II has selected five compounds to develop for delivery through
Spiros: a beta-agonist (albuterol), two steroids (beclomethasone and
budesonide), an anticholinergic (ipratropium) and a combination of a
beta-agonist and an anticholinergic (albuterol-ipratropium). There can be no
assurance that the pharmaceutical products currently in development by Spiros
Corp. II or that any products that may be developed in the future will be
approved by the FDA. In addition, there can be no assurance that FDA review
or other actions will not involve delays that could adversely affect the time
to market and the sale of the products.
ALBUTEROL. Albuterol, a beta-agonist, provides rapid symptomatic relief of
reversible bronchospasm. When administered by inhalation, it produces
significant bronchodilation promptly and its effects are demonstrable for a
number of hours. Albuterol is the most widely accepted asthma medication in
the world. The leading branded MDI products are Proventil, sold by
Schering-Plough, and Ventolin, sold by Glaxo. In 1997, U.S. sales of
albuterol were approximately $700 million as measured by average wholesale
prices.
In 1994, an Investigational New Drug ("IND") application was filed with the
FDA to begin clinical testing of an albuterol dry powder formulation with the
Spiros cassette system. In April 1996, dosing of subjects in a clinical trial
focusing on dose selection using a formulation of powdered albuterol with
Spiros was completed. In March 1997,
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patient dosing was completed in long-term and short-term pivotal clinical
trials. In November 1997, Dura submitted an New Drug Application ("NDA") with
the FDA for albuterol in the Spiros cassette system. In January, 1998 the FDA
informed Dura that the application was accepted for filing. The NDA includes
the results of clinical trials that were designed to demonstrate
comparability of the Spiros delivery system to a leading branded albuterol
MDI product. Three pivotal studies, in addition to a number of dose finding
and performance verification studies, were conducted for the submission.
An open label study of albuterol in the Spiros cassette system is currently
in progress. Interim results of this study were provided to the FDA in the
NDA and results of the full study must be submitted to and reviewed by the
FDA prior to product approval. Dura, on behalf of Spiros Corp. II, is
planning market launch of albuterol in the Spiros cassette system in late
1998 or early 1999, pending FDA approval. There can be no assurance of
receipt of FDA approval in a timely manner, if at all.
BECLOMETHASONE. Beclomethasone is a steroid used to treat the inflammatory
component of asthma and certain symptoms of COPD. Systemic side effects
resulting from the inhalation of beclomethasone are less than those that
occur with steroids taken in capsule, tablet or liquid form. Beclomethasone
was first launched in MDI form as Vanceril by Schering-Plough and later as
Beclovent by Glaxo. In 1997, U.S. sales of beclomethasone were approximately
$180 million as measured by average wholesale prices. In the first quarter of
1997, Dura completed dose ranging studies of a one dosage strength of
beclomethasone in the Spiros cassette system under an IND, and Dura commenced
a Phase III pivotal 12-week clinical trial to demonstrate safety and efficacy
in the fourth quarter of 1997. Enrollment of patients is currently scheduled
to be completed by the second quarter of 1998. Dura plans to submit, on
behalf of Spiros Corp. II, an NDA for beclomethasone in early 1999.
IPRATROPIUM. Ipratropium is an anticholinergic bronchodilator. Ipratropium is
most commonly prescribed for the long term management of COPD (including
chronic bronchitis and emphysema) and for the treatment of asthmatic patients
who are poorly controlled by, or who experience troublesome side effects
from, beta-agonists such as albuterol. Ipratropium acts at a site that is
different from the site where beta-agonists act and thus affords an
alternative approach to the treatment of airway obstruction. Ipratropium in
MDI form is marketed as Atrovent by Boehringer Ingelheim. In 1997, U.S. sales
of ipratropium were approximately $230 million as measured by average
wholesale prices. Dura has conducted initial preclinical formulation studies
using ipratropium in order to demonstrate that delivery via Spiros is
feasible. The Company currently anticipates that ipratropium will be the
first compound formulated for delivery through the Spiros blisterdisk system.
Dura, on behalf of Spiros Corp. II, has been in product development for a
formulation of ipratropium for delivery through Spiros and is preparing an IND
under which initial dose ranging clinical trials will be conducted. Such
trials are scheduled to begin in the second half of 1998.
ALBUTEROL-IPRATROPIUM COMBINATION. Albuterol and ipratropium are frequently
prescribed in combination for patients with COPD or asthma. Boehringer
Ingelheim has marketed an albuterol-ipratropium combination product,
Combivent, outside of the U.S. for a number of years. Combivent was approved
for marketing in the U.S. in early 1997 and has recently been launched in MDI
form.
Based on the substantial work performed with albuterol and the feasibility
study conducted with ipratropium, Spiros Corp. II believes that developing an
albuterol-ipratropium formulation for delivery using Spiros will be feasible
and intends to commence the development of this formulation in 1998.
BUDESONIDE. Budesonide is a new generation steroid used to treat the
inflammatory component of asthma. Budesonide has been marketed in several
dosage forms outside of the U.S., but to date, has only been available in the
U.S. in nasal spray form. However, in June 1997, the FDA approved for
marketing in the U.S. a dry powder formulation of budesonide for delivery
through Astra's Pulmicort Turbuhaler, which Astra launched in early 1998. In
1997, worldwide sales of budesonide were estimated to be greater than $600
million as measured by average wholesale prices. Dura, on behalf of Spiros
Corp. II, has begun formulation of budesonide for delivery through Spiros.
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OTHER PRODUCT DEVELOPMENT EFFORTS
The Board of Directors of Spiros Corp. II has the right, with the consent of
Dura, to select additional designated compounds for the treatment of
respiratory diseases, including asthma, allergy, cystic fibrosis or
respiratory infection for delivery using Spiros.
In the event that Spiros Corp. II obtains the rights to any designated
compounds, Spiros Corp. II will conduct technical evaluations of the
applicable compounds as candidates for delivery through Spiros. Technical
evaluations will generally include patent evaluation, establishment of
analytical methods, micronization of drug substance, preliminary formulation
development, preliminary aerosol characterization, preliminary stability
evaluation and animal bioavailability, efficacy and toxicology evaluation.
Technical evaluations may also include initial safety and efficacy studies in
humans.
In the event that additional funds become available to Spiros Corp. II,
whether through the exercise of the Albuterol Option or the Product Option,
such funds will become part of the Available Funds, and a portion of such
funds may be used for additional development of a next generation inhaler
system and certain other enhancements to the existing Spiros technology and
to fund the acquisition of capital equipment to be used to manufacture the
Spiros Products.
RELATIONSHIP WITH DURA
The following is a summary of certain provisions of the Stock Purchase
Option, the Technology Agreement, the Albuterol and Product Option Agreement,
the Development Agreement, the Manufacturing and Marketing Agreement and the
Services Agreement. The summary is qualified in its entirety by reference to
the full text of such agreements, copies of which may be obtained upon
request to the Company.
STOCK PURCHASE OPTION
Dura, as the holder of all of the issued and outstanding Special Shares will
have the right, as set forth in Spiros Corp. II's Amended and Restated
Certificate of Incorporation, to purchase all, but not less than all, of the
Spiros Corp. II Common Stock outstanding at the time such right is exercised.
The Purchase Option will be exercisable upon the exercise notice given at any
time beginning on the closing date of the Offering and ending on the earlier
of (i) December 31, 2002 or (ii) the 90th day after the date Spiros Corp. II
provides Dura (as such holder) with certain notice, although following the
receipt of such notice Dura may, at its election, extend such period by
providing additional funding for the continued development of Spiros Products
(but in no event beyond December 31, 2002). If the Purchase Option is
exercised, the Purchase Option Exercise Price, calculated on a per share
basis, will be as follows:
<TABLE>
<CAPTION>
If the Spiros Corp. II Common Stock is
Acquired Pursuant to the Purchase Option Exercise Price
- ----------------------------------------------------------- ----------------
<S> <C>
Before January 1, 2000 $ 24.01
On or after January 1, 2000 and on or before March 31, 2000 25.26
On or after April 1, 2000 and on or before June 30, 2000 26.57
On or after July 1, 2000 and on or before September 30, 2000 27.96
On or after October 1, 2000 and on or before December 31, 2000 29.41
On or after January 1, 2001 and on or before March 31, 2001 31.10
On or after April 1, 2001 and on or before June 30, 2001 32.88
On or after July 1, 2001 and on or before September 30, 2001 34.77
On or after October 1, 2001 and on or before December 31, 2001 36.76
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On or after January 1, 2002 and on or before March 31, 2002 38.87
On or after April 1, 2002 and on or before June 30, 2002 41.10
On or after July 1, 2002 and on or before September 30, 2002 43.46
On or after October 1, 2002 and on or before December 31, 2002 45.95
</TABLE>
The Purchase Option Exercise Price was determined by Dura and Spiros Corp.
II, giving consideration to the compound annual rate of return, as required
by potential investors, to be achieved upon any exercise of the Purchase
Option, the implied returns to investors purchasing securities with a similar
structure historically and the comparability of the Offering to those prior
offerings, the value of the Warrants, the nature of Spiros Products, the
agreements between Dura and Spiros Corp. II, and such other factors as Dura
and Spiros Corp. II deemed appropriate and advice given by the underwriters
of the Offering.
The Purchase Option Exercise Price may be paid in cash or shares of Dura
Common Stock, or any combination of the foregoing, at Dura's sole discretion.
Any such shares of Dura Common Stock will be valued based upon the average of
the closing price for Dura Common Stock on the Nasdaq National Market for 10
trading days immediately preceding the date of the exercise notice. In the
event the Purchase Option were transferred, the payment by the subsequent
holder of the majority of the Special Shares could be made in cash or, if
such holder or its parent is a company whose common equity securities are
listed on a national securities exchange or admitted to unlisted trading
privileges or listed on the Nasdaq National Market, in the sole discretion of
such holder, in shares of such listed common equity security.
Dura owns all of the issued and outstanding Special Shares, which grants Dura
the Purchase Option and confers certain voting and other rights, including
the right to elect two directors of Spiros Corp. II. Under its Amended and
Restated Certificate of Incorporation, Spiros Corp. II will be prohibited,
until the expiration of the Purchase Option, from taking or permitting
certain actions inconsistent with Dura's rights under the Purchase Option.
For example, until the expiration of the Purchase Option, Spiros Corp. II
will not be able to, among other things, without the consent of Dura, pay any
dividends, issue additional shares of capital stock, have outstanding
borrowings in excess of an aggregate of $1 million, or merge, liquidate or
sell all or substantially all of its assets or alter the Purchase Option. At
present, Dura has indicated it has no intention of transferring such Special
Shares.
TECHNOLOGY LICENSE AGREEMENT
Dura and Spiros Corp. II entered into a Technology License Agreement (the
"Technology Agreement"), under which Dura granted Spiros Corp. II an
exclusive, worldwide, perpetual, royalty-bearing license to use the core
Spiros technology in research, development and commercialization (except with
respect to beclomethasone in Asia) of the Spiros Products, including rights
to patents, patent applications and other intellectual property rights.
In consideration for these license rights granted to Spiros Corp. II by Dura,
Spiros Corp. II will pay Dura a technology access fee equal to the greater of
(a) 5% of the Net Sales of each Spiros Product or (b) $2 million for all
Spiros Products in any calendar year beginning in 1998. Spiros Corp. II's
obligation will terminate, on a country-by-country basis, (a) within 10 years
from the first sale of such Spiros Product in those countries where no
patents covering such product are issued and (b) in those countries where
patents covering the Spiros Products are issued, upon the expiration of the
last-to-expire patent covering such Spiros Product in such country.
In addition, Spiros Corp. II granted Dura (a) a worldwide, exclusive,
royalty-free license to use the core technology and the program technology to
develop the Spiros Products pursuant to the terms of the Development
Agreement, (b) a worldwide, exclusive, royalty-bearing license to use the
program technology to sell Spiros Products worldwide pursuant to the terms of
the Manufacturing and Marketing Agreement, (c) upon Dura's exercise of the
Albuterol Option, a worldwide, exclusive, royalty-free, irrevocable,
perpetual license to the program technology to develop, manufacture and
commercialize the Albuterol Product, (d) upon Dura's exercise of the Product
Option, a worldwide, exclusive, royalty-free, irrevocable, perpetual license
to the program technology to develop, manufacture and commercialize sell the
Spiros Product for which the Product Option is exercised, and (e) a
worldwide, exclusive, royalty-free, irrevocable, perpetual license to the
program technology, including technology relating to enhancements to the
existing Spiros technology or any next generation inhaler system, to develop,
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manufacture and commercialize products other than the Spiros Products,
including products that compete with the Spiros Products.
Under the Technology Agreement, Dura must use commercially reasonable efforts
to secure the rights of third parties in technology that is necessary or
useful to the development of the Spiros Products. Spiros Corp. II has no
obligation to accept any grant of such rights or to assume any obligation
without its prior written consent. If Spiros Corp. II desires to obtain any
such rights, Dura and Spiros Corp. II agree to negotiate in good faith
regarding the allocation of any royalty, license fee or other payments
payable to the third party and the assumption of any obligations applicable
to such license.
Until the expiration of the Purchase Option, Dura will direct and cause, at
Spiros Corp. II's expense, appropriate patent applications to be prepared,
prosecuted and maintained with respect to patents licensed to Spiros Corp. II
and with respect to any technology developed or acquired on behalf of Spiros
Corp. II by Dura. Upon the termination of the unexercised Purchase Option,
all patents and patent applications developed or acquired on behalf of Spiros
Corp. II will be assigned to Spiros Corp. II.
Pursuant to the terms of the Technology Agreement, if Spiros Corp. II or Dura
receives notice of alleged infringement of any patent, it must notify the
other party of such infringement and all recoveries in any action to enforce
patent rights shall be retained by the parties in proportion to the
respective portion of expenses borne by the parties in enforcing such action.
Spiros Corp. II agreed to indemnify Dura against certain third party claims,
including patent infringement claims, relating to the Spiros Corp. II's use
of the program technology or breach of the Technology Agreement, Development
Agreement or Manufacturing and Marketing Agreement. Dura agreed to indemnify
Spiros Corp. II against certain third party claims, including patent
infringement claims, relating to Dura's use of the program technology,
performance of development or breach of the Technology Agreement, Development
Agreement or Manufacturing and Marketing Agreement.
Prior to the expiration of the Purchase Option, Spiros Corp. II cannot
without Dura's prior written consent (a) license, sublicense, encumber or
otherwise transfer any rights in the program technology; (b) make, use or
sell any of the program technology; or (c) authorize, cause or assist in any
way any other person to do any of the foregoing. Following the expiration or
termination of the Purchase Option, the foregoing limitations will cease to
be applicable and Spiros Corp. II will have the right to license, sublicense,
encumber or otherwise transfer the program technology for use with any Spiros
Products that have not been acquired by Dura through the exercise of either
the Albuterol Option or the Product Option. Dura may assign its rights and
delegate its obligations under the Technology Agreement only to an affiliate
of Dura, certain successors of Dura or certain persons that acquired
substantially all of the assets of Dura.
The Technology Agreement will remain in full force and effect indefinitely,
unless terminated by (a) mutual agreement of the parties or (b) Dura's
exercise of the Purchase Option.
Either Dura or Spiros Corp. II may terminate the Technology Agreement prior
to its expiration if the other party (a) breaches any material obligation
under the Technology Agreement or the Development Agreement, which breach
continues for a period of 60 days after written notice thereof, (b) enters
into any voluntary proceeding in bankruptcy, reorganization or an arrangement
for the benefit of its creditors, or its Board of Directors or stockholders
authorize such action or (c) fails to dismiss any such proceeding within 60
days after the same is involuntarily commenced. If Spiros Corp. II terminates
the Technology Agreement, Spiros Corp. II's license to use the program
technology will continue (except with respect to any Spiros Products that
have been previously acquired by Dura through exercise of the Albuterol
Option or the Product Option), and Spiros Corp. II will be free to enter into
arrangements with third parties to research, develop and commercialize the
Spiros Products. If Dura terminates the Technology Agreement, (a) Spiros
Corp. II's license to use the core Spiros technology under the Technology
Agreement will terminate, (b) all of Spiros Corp. II's rights to the program
technology will revert to Dura, and (c) all rights to develop, use and sell
the Spiros Products will revert to Dura. Dura and Spiros Corp. II will use
reasonable efforts for a period of 120 days after the Technology Agreement is
terminated by Dura to reach
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agreement on royalties and other compensation to be paid by Dura to Spiros
Corp. II solely with respect to the Spiros Products and the program
technology and, in the absence of such agreement, the matter will be
submitted to binding arbitration. There can be no assurance that, upon
termination of the Technology Agreement by Spiros Corp. II, it will be able
to make alternative arrangements for the research, development and
commercialization of some or all of the Spiros Products.
ALBUTEROL AND PRODUCT OPTION AGREEMENT
Dura and Spiros Corp. II entered into the Albuterol and Product Option
Agreement pursuant to which Dura will obtain (a) the assets related to the
Albuterol Spiros Product (the "Albuterol Program Assets") and (b) the assets
related to the Product Option Spiros Product (the "Spiros Product Program
Assets").
The Albuterol Program Assets include (a) the Albuterol Product, (b) albuterol
as formulated for use in the Albuterol Product, (c) a perpetual,
sublicensable, non-exclusive, royalty-free license to the technology owned by
Dura or developed or acquired by Dura during the term of the Development
Agreement applicable to the Albuterol Product for use solely with the
Albuterol Product, and (d) all applications and documents filed with the FDA
or a foreign regulatory authority to obtain regulatory approval to commence
commercial sale or use of the Albuterol Product. The Albuterol Option is
exercisable commencing on the date of the closing of the Offerings and ending
on the earlier of (i) 360 days after receipt of FDA approval to market the
Albuterol Product or (ii) the date Dura ceases to manufacture or market the
Albuterol Product in accordance with the terms of the Manufacturing and
Marketing Agreement.
Upon exercise of the Albuterol Option, Dura will make a single payment to
Spiros Corp. II in cash equal to (a) the aggregate Purchase Option Exercise
Price, assuming acquisition of all shares of Spiros Corp. II Common Stock
issued pursuant to the Offerings four years following closing of the
Offerings, multiplied by (b) a fraction, the numerator of which will equal
the development and commercialization costs and expenses incurred by Spiros
Corp. II in connection with the development and commercialization of the
Albuterol Product and the denominator of which will equal the Available Funds
(excluding the Proceeds, if any, from the exercise of the Albuterol Option or
the Product Option).
The Spiros Product Program Assets include (a) the Option Product, (b) the
compound to be delivered by the Option Product, as formulated for use
specifically in the Option Product, (c) a perpetual, sublicensable,
non-exclusive, royalty-free license to the technology owned by Dura or
developed or acquired by Dura during the term of the Development Agreement
applicable to the Option Product for use solely with the Option Product, and
(d) all applications and documents filed with the FDA or a foreign regulatory
authority to obtain regulatory approval to commence commercial sale or use of
the Option Product. The Product Option is exercisable with respect to each
Spiros Product commencing on the date of the closing of the Offerings and
ending 90 days after receipt of FDA approval to market such Spiros Product;
provided, however, that the Product Option may only be exercised with respect
to a single Spiros Product.
Upon exercise of the Product Option, Dura will make a single payment to
Spiros Corp. II in cash equal to 110% of (a) the aggregate Purchase Option
Exercise Price, assuming acquisition of all shares of Spiros Corp. II Common
Stock issued pursuant to the Offering four years following the closing of the
Offering in December 2001, multiplied by (b) a fraction, the numerator of
which will equal the development and commercialization costs and expenses
incurred by Spiros Corp. II in connection with the development of the Option
Product and the denominator of which will equal the Available Funds
(excluding the proceeds, if any, from the exercise of the Albuterol Option or
the Product Option).
Any payments received by Spiros Corp. II with respect to the exercise of the
Albuterol Option and the Product Option will become part of the Available
Funds.
The Albuterol and Product Option Agreement will automatically terminate in
the event that Spiros Corp. II terminates the Technology Agreement, the
Development Agreement or the Manufacturing and Marketing
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Agreement, consistent with the terms of those agreements. Additionally, the
Albuterol and Product Option Agreement will terminate on the date the
Purchase Option terminates, whether by exercise or otherwise.
DEVELOPMENT AGREEMENT
Dura and Spiros Corp. II entered into the Development Agreement under which
Dura agreed to use commercially reasonable efforts to develop the program
technology for the purpose of the development of the Spiros Products and to
make certain other expenditures. Dura will furnish all labor, supervision,
services, supplies, and materials necessary to perform the development.
Dura also agreed to use commercially reasonable efforts to obtain the rights
to, and to sublicense to Spiros Corp. II, any patent or technology license
held by a third party that Dura reasonably determines to be necessary or
useful to enable Dura to conduct the development. Dura will act as Spiros
Corp. II's exclusive agent for the filing and prosecuting of all regulatory
applications and permits required to obtain FDA approval in Dura's name and
any other necessary regulatory approvals for the Spiros Products. In the
event that the Purchase Option expires unexercised, Dura will use its
reasonable efforts to cause all applications and documents filed with the FDA
or a foreign regulatory authority to obtain regulatory approvals for the
Spiros Products, with respect to which Dura has not acquired exclusive
rights, to be assigned to Spiros Corp. II.
Dura will conduct the development in accordance with an annual workplan and
budget. At the closing of the Offering, Dura provided Spiros Corp. II with a
workplan and budget covering December 1997 through December 31, 1998.
Thereafter, Dura and Spiros Corp. II will prepare annual workplans and
budgets. The annual workplans and budgets are subject to approval and
acceptance by Spiros Corp. II's Board of Directors. Dura must report any
significant deviations from an annual workplan and budget in a timely manner.
Further, reimbursement for expenditures from Spiros Corp. II may not exceed
in any calendar year 120% of the amount allocated in the applicable annual
workplan and budget, unless otherwise approved by Spiros Corp. II.
During the term of the Development Agreement, each of Dura and Spiros Corp.
II will provide the other with quarterly reports with respect to all payments
due and all credits taken for such quarter, including, in the case of Dura, a
statement of the Development Costs (defined below) incurred during such
quarter and a summary of work performed for Spiros Corp. II. Additionally,
each of Spiros Corp. II and Dura is required to maintain and make available
for inspection by an independent public accountant selected by the requesting
party, once in each calendar year and upon reasonable notice and during
regular business hours, such records of the other party as may be necessary
to verify the accuracy of reports and payments made in respect of the
Development Agreement.
Payments to Dura under the Development Agreement for Dura's work in
performing the development will be made for the full amount of all of Dura's
research and development expenses, general and administrative expenses,
capital equipment costs and all other costs and expenses (the "Development
Costs") incurred by Dura in performing the activities described above, up to
the maximum amount of the funds available to Spiros Corp. II, which include
substantially all of the Available Funds. Development Costs will include
development expenses (including salaries, benefits, supplies, and facilities
and overhead allocations) that are billed at a rate of fully burdened cost
plus 25%; provided, however, that services provided by third parties will be
billed at a rate of cost plus 20%. This pricing structure is considered by
Dura to be consistent with contractual relationships it has had with other
third parties. Development Costs also include costs for development conducted
by Dura from October 10, 1997 through the date of the closing of the Offering.
If Spiros Corp. II or Dura determines that the development of a particular
Spiros Product should be discontinued because continued development is not
feasible or is uneconomic, or that the development should be expanded to
include one or more Designated Compounds, then Spiros Corp. II and Dura will
use reasonable efforts to agree on the nature of the development and the
identity of any other compound on which unexpended Available Funds will be
spent.
Under the Development Agreement, the manufacture and sale of Spiros Products
for the sole purpose of conducting clinical trials necessary to obtain FDA
approval or any other required regulatory approval will be charged to Spiros
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Corp. II as Development Costs. Dura will remit to Spiros Corp. II any revenue
received by it from the sale of such Spiros Products prior to receipt of FDA
approval to market.
Either Dura or Spiros Corp. II may terminate the Development Agreement prior
to its expiration if the other party (a) breaches any material obligation
under the Technology Agreement or the Development Agreement, which breach
continues for a period of 60 days after written notice thereof, (b) enters
into any voluntary proceeding in bankruptcy, reorganization or an arrangement
for the benefit of its creditors, or its Board of Directors or stockholders
authorize such action or (c) fails to dismiss any such proceeding within 60
days after the same is involuntarily commenced.
Dura's obligation to perform development work under the Development Agreement
will terminate at such time as Spiros Corp. II has cash or cash equivalents
of less than $5 million, which is projected by Spiros Corp. II to occur on or
about February 28, 2001. Upon receipt of notice from Spiros Corp. II, Dura
may elect to provide additional funding for the development of the Spiros
Products.
Dura may assign its rights and delegate its obligations under the Development
Agreement only to an affiliate of Dura, certain successors of Dura or certain
persons that acquired substantially all of the assets of Dura. Spiros Corp.
II may not assign its rights or delegate its obligations under the
Development Agreement.
MANUFACTURING AND MARKETING AGREEMENT
Dura and Spiros Corp. II entered into the Manufacturing and Marketing
Agreement under which Spiros Corp. II granted to Dura an exclusive, worldwide
license to manufacture and market the Spiros Products. Dura will pay Spiros
Corp. II on a quarterly basis a royalty of 7% of the Net Sales of each Spiros
Product beginning upon receipt of FDA approval to market such product;
provided, however, that prior to the expiration of the Albuterol Option, no
royalty payment will be made with respect to Net Sales of the Albuterol
Product.
Under the Manufacturing and Marketing Agreement, Dura will agree to use
diligent efforts to commence sales of each Spiros Product promptly upon
receiving FDA approval for such product. Dura will be responsible for
maintaining competent, qualified sales personnel, and will agree not to make
any representations inconsistent with the approved labeling of each Spiros
Product.
"Net Sales" for purposes of the Manufacturing and Marketing Agreement and the
Technology Agreement will be defined as the gross amount invoiced for sales
of the Spiros Products by Dura or its sublicensees, if any, to third parties
less (i) discounts actually allowed, (ii) credits for claims, allowances,
retroactive price reductions or returned Spiros Products, (iii) prepaid
freight charges incurred in transporting Spiros Products to customers, (iv)
sales taxes and other governmental charges actually paid in connection with
the sales (but excluding what is commonly known as income taxes) and (v) any
royalty obligations under a certain royalty agreement under which Dura is
obligated to pay royalties to the inventor of certain aspects of the Spiros
technology. Net Sales will not include sales between or among Dura, its
affiliates and its sublicensees unless such sales are for end use rather than
for purposes of resale.
The Manufacturing and Marketing Agreement will terminate (a) upon the
exercise or termination of the Purchase Option or (b) by mutual agreement of
the parties at any time. In the event Dura exercises the Albuterol Option or
the Product Option, the Manufacturing and Marketing Agreement will terminate
with respect to the Albuterol Product or the Option Product, as the case may
be, but will otherwise continue in full force and effect.
SERVICES AGREEMENT
Spiros Corp. II entered into the Services Agreement with Dura under which
Dura will provide certain management and administrative services to Spiros
Corp. II at the rate of $100,000 per calendar quarter for services to be
performed internally by Dura and for services performed by third parties for
Dura on Spiros Corp. II's behalf. In addition, Spiros Corp. II will reimburse
Dura for all costs and expenses incurred by Dura in connection with the
Offering. The Services Agreement terminates on the earlier of (i) the
exercise of the Purchase Option or (ii) 12 months after expiration of the
Purchase Option.
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SPECIAL COMMON STOCK
There are currently issued 1,000 shares of Spiros Corp. II special common
stock (the "Special Shares"), all of which are held by Dura. The Special
Shares do not confer on the holders thereof the right to vote at any meeting
of Spiros Corp. II stockholders except as required by law or referred to in
the next paragraph and except that holders of a majority of Special Shares
are entitled to elect two directors. Nor do these shares have the right to
any profits of Spiros Corp. II. In the event of the winding up of Spiros
Corp. II, the Spiros Corp. II Common Stock shall have a priority over the
Special Shares with respect to return of capital, and the Special Shares
shall not otherwise be entitled to participate in any way in the profits or
assets of Spiros Corp. II. Spiros Corp. II does not presently intend to issue
any additional Special Shares.
Until the expiration of the Purchase Option, no resolution or act of the
Company to authorize or permit any of the following will be effective without
the prior written approval of the holders of a majority of the outstanding
Special Shares: (i) the allotment or issue of shares or other securities of
the Company or the creation of any right to such an allotment or issue; (ii)
the reduction of the Company's authorized capital stock; (iii) the alteration
of or any change to the rights, powers, preferences and restrictions of the
Special Shares; (iv) outstanding borrowings of an aggregate of more than $1
million at any one time; (v) the sale or other disposition of or the creation
of any lien or liens on the whole or a material part of the Company's
business or assets; (vi) the declaration or payment of dividends or the
making of any other distributions to the Company's shareholders; (vii) the
merger, consolidation or reorganization of the Company with or into any other
corporation; (viii) the sale, liquidation or other disposition of all or
substantially all of the assets of the Company; (ix) the alteration or
amendment of Articles IV or VII of the Company's Amended and Restated
Certificate of Incorporation; and (x) the adoption, amendment or repeal of
the Bylaws of the Company.
Thus Dura, as the holder of a majority of the outstanding Special Shares,
could preclude the holders of a majority of the shares of Spiros Corp. II
Common Stock and the Board of Directors of Spiros Corp. II from taking any of
the foregoing actions during such period. Dura, as holder of all of the
outstanding Special Shares, may transfer or sell all, but not less than all,
of such shares. As a result, an unrelated third party may acquire rights
associated with the Special Shares, including the rights discussed in this
section. In addition, there can be no assurance that any transferee of the
Special Shares will have the same financial resources or development,
manufacturing or marketing capabilities as Dura, which may have a material
adverse effect on the likelihood of the exercise of the Albuterol Option, the
Product Option or the Purchase Option. In addition, any resolution to wind up
the affairs of or liquidate Spiros Corp. II will confer upon the holders of
the Special Shares a right to vote and such Special Shares will carry a
number of votes equal to the total number of votes carried by the Spiros
Corp. II Common Stock at the time outstanding.
SALES AND MARKETING
Spiros Corp. II will rely entirely on Dura under the Manufacturing and
Marketing Agreement for its sales and marketing efforts. Under the
Manufacturing and Marketing Agreement, Dura will submit an annual marketing
plan to be approved by Spiros Corp. II.
COMPETITION
There are at least 10 companies currently involved in the development,
marketing or sales of dry powder pulmonary drug delivery systems. There are
two types of DPIs currently in commercial use worldwide, individual dose and
multiple dose. Individual dose DPIs currently marketed in the U.S. include
the Rotohaler-TM- (developed and marketed by Glaxo) and the
Spinhaler-Registered Trademark- (developed and marketed by Fisons Limited).
The Turbuhaler-Registered Trademark- (developed and marketed by Astra), a
multiple dose DPI, is the leading DPI in worldwide sales. In June 1997, the
FDA approved the first Turbuhaler product, the Pulmicort Turbuhaler, for
marketing in the U.S., which Astra launched in early 1998. Recently the FDA
also approved two multiple dose DPIs developed by Glaxo.
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Many of these companies, including large pharmaceutical firms with financial
and marketing resources and development capabilities substantially greater
than those of Spiros Corp. II, are engaged in developing, marketing and
selling products that compete with the proposed products of Spiros Corp. II.
In addition, Dura may develop or acquire products which may compete with
Spiros Products. Further, other products now in use or under development by
others may be more effective than Spiros Corp. II's current or future
products. The industry is characterized by rapid technological change, and
competitors may develop their products more rapidly than Spiros Corp. II.
Competitors may also be able to complete the regulatory process sooner, and
therefore, may begin to market their products in advance of Spiros Corp. II's
products. The Company believes that competition among both prescription
pharmaceuticals and pulmonary delivery systems will be based on, among other
things, product efficacy, safety, reliability, availability and price.
MANUFACTURING
A substantial amount of the work under the Development Agreement and the
Manufacturing and Marketing Agreement will be conducted at Dura's facilities.
Dura has informed Spiros Corp. II of its belief that its available facilities
are sufficient to satisfy its obligations for performance under the
Development Agreement and the Manufacturing and Marketing Agreement. However,
the same facilities may be used by Dura for work performed on its own account
and in the performance of third party contracts.
PATENTS AND PROPRIETARY RIGHTS
Dura presently holds five U.S. patents and four U.S. patent applications
relating to the Spiros technology to be further developed by Spiros Corp. II.
The issued patents include a patent with claims covering the use in Spiros of
an impeller to create an aerosol cloud of a drug intended for inhalation,
which expires in 2011. Dura has also filed certain continuations in part and
foreign patent applications relating to Spiros. All of the above patents and
patent applications, relating to the Spiros technology, together with their
respective continuations in part and foreign patent applications, have been
licensed to Spiros Corp. II pursuant to the Technology License Agreement.
Until the expiration or termination of the Purchase Option, Dura is required
to file patent applications, at Spiros Corp. II's expense, with respect to
inventions included in the program technology. Dura will be the owner and
Spiros Corp. II will be the exclusive licensee for use with the Spiros
Products of any patents included in the program technology. Spiros Corp. II's
success will therefore depend in part upon the ability of Dura or Spiros
Corp. II, as the case may be, to obtain strong patent protection both in the
United States and other countries.
Spiros Corp. II considers the protection of discoveries in connection with its
development activities important to its businesses. Spiros Corp. II intends
to seek patent protection in the U.S. and selected foreign countries where
deemed appropriate. There can be no assurance that issued patents or
subsequent patents, if issued, will adequately protect Spiros Corp. II or
that such patents will provide protection against infringement claims by
competitors. Dura has also filed certain foreign patent applications relating
to Spiros technology. There can be no assurance that additional patents, U.S.
or foreign, will be obtained covering the Spiros Products or that, if issued
or licensed, the patents covering such products will provide substantial
protection or be of commercial benefit. Federal court decisions establishing
legal standards for determining the validity and scope of patents in the
field are in transition. There can be no assurance that the historical legal
standards surrounding questions of validity and scope will continue to be
applied or that current defenses as to issued patents in the field will offer
protection in the future.
Spiros Corp. II also relies upon trade secrets, unpatented proprietary
know-how and continuing technological innovation to develop its competitive
position. There can be no assurance, however, that others may not acquire or
independently develop similar technology or, if patents are not issued with
respect to products arising from research, that Spiros Corp. II will be able
to maintain information pertinent to such research as proprietary technology
or trade secrets.
GOVERNMENT REGULATION
The manufacturing and marketing of Spiros Products are subject to regulation
by Federal and state government authorities, including the FDA, the
Environmental Protection Agency and the Occupational Safety and Health
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Administration, in the U.S. and other countries. In the U.S., pharmaceuticals
and drug delivery systems, including Spiros, are also subject to rigorous FDA
regulation and may be subject to regulation by other jurisdictions, including
the State of California. The Federal Food, Drug, and Cosmetic Act and the
Public Health Service Act govern the testing, manufacture, safety, efficacy,
labeling, storage, record keeping, approval, advertising and promotion of
Spiros Products. Product development and approval within this regulatory
framework takes a number of years and involves the expenditure of substantial
resources.
To obtain FDA approval for each of the Spiros Products, Dura, on behalf of
Spiros Corp. II, is required to conduct each of the following steps and
possibly others: (i) preclinical testing (laboratory and possibly animal
tests), (ii) the submission to the FDA of an IND application, which must
become effective before human clinical trials may commence, (iii) adequate
and well-controlled human clinical trials to establish safety and efficacy,
(iv) the submission of an NDA to the FDA for marketing approval, and (v) FDA
approval of the NDA prior to any commercial sale or shipment. The NDA must
include, in addition to a compilation of preclinical and clinical data,
complete information about product performance and manufacturing facilities
and processes. Prior to completion of the NDA review process, the FDA may
conduct an inspection of the facility, manufacturing procedures, operating
systems and personnel qualifications. In addition to obtaining FDA approval
for each product, each domestic drug and/or device manufacturing facility
must be registered with and approved by the FDA. Domestic manufacturing
facilities are subject to biennial inspections by the FDA and inspections by
other jurisdictions and must comply with Good Manufacturing Practice
("cGMPs") for both drugs and devices. To supply products for use in the U.S.,
foreign manufacturing establishments must comply with cGMP and other
requirements and are subject to periodic inspection by the FDA or by
regulatory authorities in such countries under reciprocal agreements with the
FDA.
Preclinical testing includes laboratory evaluation of product chemistry and
animal studies, if appropriate, to assess the safety and efficacy of the
product and its formulation. The results of the preclinical tests are
submitted to the FDA as part of an IND application, and unless the FDA
objects, the IND application will become effective 30 days following its
receipt by the FDA, thus allowing the product to be tested in humans.
Clinical trials involve the administration of the pharmaceutical product to
healthy volunteers or to patients identified as having the condition for
which the pharmaceutical agent is being tested. The pharmaceutical product is
administered under the supervision of a qualified principal investigator.
Clinical trials are conducted in accordance with Good Clinical Practice and
protocols previously submitted to the FDA (as part of the IND application)
that detail the objectives of the study, the parameters used to monitor
safety and the efficacy criteria evaluated. Each clinical study is conducted
under the auspices of an independent Institutional Review Board ("IRB") at
the institution at which the study is conducted. The IRB considers, among
other things, the design of the study, ethical factors, the safety of the
human subjects and the possible liability risk for the institution.
Clinical trials for new products are typically conducted in three sequential
phases that may overlap. In Phase I, the initial introduction of the
pharmaceutical into healthy human volunteers, the emphasis is on testing for
safety (adverse effects), dosage tolerance, metabolism, distribution,
excretion and clinical pharmacology. Phase II involves studies in a limited
patient population to determine the initial efficacy of the pharmaceutical
for specific targeted indications, to determine dosage tolerance and optimal
dosage and to identify possible adverse side effect and safety risks. Once a
compound is found to be effective and to have an acceptable safety profile in
Phase II evaluations, Phase III trials are undertaken to more fully evaluate
clinical outcomes. The FDA reviews both the clinical plans and the results of
the trials and may require the study to be discontinued at any time if there
are significant safety issues.
The results of the preclinical and clinical trials for pharmaceutical drug
products such as those being developed by Dura, on behalf of Spiros Corp. II,
are submitted to the FDA in the form of an NDA for marketing approval. FDA
approval can take several months to several years, or approval may be denied.
The approval process can be affected by a number of factors, including the
severity of the side effects, the availability of alternative treatments and
the risks and benefits demonstrated in clinical trials. Additional animal
studies or clinical trials may be requested during the FDA review process and
may delay marketing approval. After FDA approval for the initial indication,
further clinical trials are necessary to gain approval for the use of the
product for any additional indications. The FDA may also require
post-marketing testing and surveillance to monitor for adverse effects, which
can involve significant additional expense.
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Although the FDA has considerable discretion to decide what requirements must
be met prior to approval, the Company believes, based upon the FDA's
historical practice with respect to drug inhalers, that the FDA is likely to
regulate each combination of Spiros with a compound as a discrete
pharmaceutical or drug product requiring separate approval as a new drug. The
Company believes that the approval process for each drug/delivery combination
now under development may be shorter than the full NDA process described
above because the safety and efficacy of the compounds have already been
established in currently marketed formulations and delivery mechanisms.
Since completion of the pivotal trials, a number of modifications have been
made to the Spiros system, some of which address problems encountered with
the mechanical features of the Spiros delivery system during the pivotal
trials. These changes are intended to improve the reliability, performance,
manufacturability, and customer acceptance of the mechanical features of the
Spiros delivery system. The Company expects that it will be required to
complete testing and validation pursuant to cGMP requirements of the Spiros
system as modified for commercial distribution, which could be costly and
time-consuming. There can be no assurance that the FDA will not require the
Company to undertake further laboratory testing, field testing and/or
clinical studies in order to insure the safety and effectiveness of the
albuterol product intended to be commercialized by the Company and to insure
that it can be reliably manufactured. If a proposed change is deemed to be a
major modification by the FDA, the Company could be required to repeat one or
more of the clinical studies. Moreover, because of the time necessary to
validate the changes to the Spiros system, there can be no assurance that
Dura will be prepared for any FDA preapproval inspection of Dura's Spiros
manufacturing facilities in a timely manner. If the Company is required to
undertake additional laboratory testing and/or clinical studies or to
postpone the preapproval inspection, or if the Company fails to complete the
open label study in a timely manner, the Company could receive a
non-approvable letter and, in any event, there could be a substantial delay
in completion of the approval process.
In April 1996, the export provisions of the Federal Food, Drug, and Cosmetic
Act were relaxed to permit the export of unapproved drugs to a foreign
country, provided the product complies with the laws of that country and has
valid marketing authorization in at least one of a list of designated "Tier
1" countries. Once a product is exported to a qualified foreign country, the
Company will be subject to the applicable foreign regulatory requirements
governing human clinical trials and marketing approval in that country. The
requirements relating to the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country and there can
be no assurance that the Company will be able to meet and fulfill the
statutory requirements in a particular country.
RESEARCH AND DEVELOPMENT EXPENSES
Spiros Corp. II incurred research and development expenses of approximately
$7,040,000 for the period from September 23, 1997 (date of incorporation)
through December 31, 1997.
HUMAN RESOURCES
The Company has no employees. The officers, Dr. David S. Kabakoff, Chairman,
President and Chief Executive Officer, Erle T. Mast, Vice President and Chief
Financial Officer, and Mitchell R. Woodbury, Secretary, are employees of Dura.
RISKS AND UNCERTAINTIES
DEVELOPMENT RISKS ASSOCIATED WITH SPIROS. Spiros will require significant
additional development. There can be no assurance that development of Spiros
will be completed successfully, that Spiros will not encounter problems in
clinical trials that will cause the delay or suspension of such trials, that
current or future testing will show Spiros to be safe or efficacious or that
Spiros will receive regulatory approval. In addition, regulatory approvals
will have to be obtained for each drug to be delivered through the use of
Spiros prior to commercialization. Moreover, even if Spiros does receive
regulatory approval, there can be no assurance that Spiros will be
commercially successful, have all of the patent and other protections
necessary to prevent competitors from producing similar products and not
infringe on patent or other proprietary rights of third parties. The failure
of Spiros to receive timely regulatory approval and achieve commercial
success would have a material adverse effect on the Company.
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GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL. Development, testing,
manufacturing and marketing of pharmaceutical products including drug
delivery systems are subject to extensive regulation by numerous governmental
authorities in the U.S. and other countries. The process of obtaining FDA
approval of pharmaceutical products and drug delivery systems is costly and
time consuming. Any new pharmaceutical product must undergo rigorous
preclinical and clinical testing and an extensive regulatory approval process
mandated by the FDA. Such regulatory review includes the determination of
manufacturing capability and product performance. Marketing of drug delivery
systems also requires FDA approval, which can be costly and time consuming to
obtain. A separate regulatory approval will need to be obtained for each
Spiros drug delivery system.
Dura, on the Company's behalf, has submitted an abbreviated NDA called a
505(b)(2) application for the use of albuterol with the Spiros system. Dura,
on the Company's behalf, expects to submit an abbreviated NDA for the use of
other drugs with the Spiros system. No assurances can be given that all of
Dura's drugs identified for development with Spiros will be suitable for, or
approved under, abbreviated application procedures. Certain abbreviated
application procedures have been the subject of petitions filed by brand name
manufacturers which seek changes in the FDA's approval process for such
abbreviated applications. These requested changes include, among other
things, disallowance of the use by an applicant of an abbreviated application
with data considered proprietary by the original manufacturer that was
submitted to the FDA as part of an original NDA. The Company or Dura is
unable to predict at this time whether the FDA will make any changes to its
abbreviated application procedures as a result of such petitions or the
effect that such changes or challenges may have on Dura.
There can be no assurance that the pharmaceutical products currently in
development by the Company will be approved by the FDA. In addition, there
can be no assurance that all necessary approvals will be granted for future
products or that FDA review or actions will not involve delays caused by the
FDA's request for additional information or testing that could adversely
affect the time to market and sale of the products. For future products of
the Company, failure to comply with applicable regulatory requirements can,
among other things, result in the suspension of regulatory approval, as well
as possible civil and criminal sanctions.
NO MANUFACTURING OR MARKETING CAPABILITY. Spiros Corp. II has no
manufacturing or marketing capability. Spiros Corp. II is obligated to only
utilize Dura's manufacturing facilities for manufacturing in the U.S. during
the term of the Manufacturing and Marketing Agreement. Dura has the right
under the Manufacturing and Marketing Agreement to use contract manufacturers
and currently plans to rely on third parties to manufacture certain
components of Spiros. There can be no assurance that Dura's facilities or
those of its contract manufacturers will be satisfactory for the needs of
Spiros Corp. II. In addition, Dura or its contract manufacturers, as the case
may be, may require additional FDA approval prior to commencing manufacturing
of Spiros Products. There can be no assurance that the Spiros Products can be
manufactured, whether by Dura or a contract manufacturer, on a commercial
scale for commercially reasonable cost or on a timely basis. In addition,
Spiros Corp. II has no experience in sales, marketing or distribution. Under
the Manufacturing and Marketing Agreement, Dura has been granted exclusive
worldwide marketing rights to the Spiros Products. There can be no assurance
that Dura's sales and marketing force will be able to establish commercially
successful sales and distribution capabilities for the Spiros Products.
ABSENCE OF OPERATING HISTORY; NO ASSURANCE OF PROFITABILITY; LACK OF
DIVIDENDS. Spiros Corp. II was recently formed and has no operating history
upon which investors may base an evaluation of its likely financial
performance. Spiros Corp. II anticipates that substantially all of its
available funds may be expended prior to the earliest receipt of any
significant revenues by Spiros Corp. II, resulting in significant losses.
Further, even if the Spiros Products are developed in accordance with the
Development Agreement and marketed pursuant to the Manufacturing and
Marketing Agreement, there can be no assurance that they can be marketed
profitably. Even if such Spiros Products are commercialized profitably, the
initial losses incurred by Spiros Corp. II may never be recovered. Spiros
Corp. II is prevented from paying dividends on the Spiros Corp. II Common
Stock without the approval of Dura, and accordingly, does not expect to pay
any dividends.
COMPETITION. Many companies, including large pharmaceutical firms with
financial and marketing resources and development capabilities substantially
greater than those of Spiros Corp. II, are engaged in developing, marketing
and selling products that compete with those planned to be offered. The
selling prices of such products typically decline as competition increases.
Furthermore, other products now in use or under development by others may be
more effective than the Company's future products. The industry is
characterized by rapid technological change, and competitors may
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develop their products more rapidly than the Company. Competitors may also be
able to complete the regulatory process sooner, and therefore, may begin to
market their products in advance of the Company's products. The Company
believes that competition among pulmonary drug delivery systems aimed at the
asthma and COPD markets will be based on, among other things, product
efficacy, safety, reliability, availability and price.
There are at least 10 companies currently involved in the development,
marketing or sales of dry powder pulmonary drug delivery systems. There are
two types of DPIs currently in commercial use worldwide, individual dose and
multiple dose. Individual dose DPIs currently marketed in the U.S. include
the Rotohaler-TM- (developed and marketed by Glaxo) and the
Spinhaler-Registered Trademark- (developed and marketed by Fisons Limited).
The Turbuhaler-Registered Trademark- (developed and marketed by Astra), a
multiple dose DPI, is the leading DPI in worldwide sales. In June 1997, the
FDA approved the first Turbuhaler product, the Pulmicort Turbuhaler, for
marketing in the U.S., which Astra launched in early 1998. Recently the FDA
also approved two multiple dose DPIs developed by Glaxo.
COMMON MANAGEMENT. The Technology Agreement, the Development Agreement, the
Manufacturing and Marketing Agreement and the Albuterol and Product Option
Agreement (collectively, the "Major Agreements") were approved by Dura, as
controlling shareholder of Spiros Corp. II, at the time the Major Agreements
were executed, which, in such capacity, may have influenced the Board of
Directors of Spiros Corp. II to enter into such agreements. Two of the
members of the Board of Directors of Spiros Corp. II are persons who are
directors and/or officers of Dura and each of the three officers of the
Company are officers of Dura.
LACK OF ARM'S-LENGTH NEGOTIATION. The Development Agreement and the
Manufacturing and Marketing Agreement were not negotiated on an arm's-length
basis and Dura and Spiros Corp. II did not retain separate counsel in
connection therewith. In particular, the Board of Directors of Spiros Corp.
II may have been influenced by Dura, as the then controlling shareholder of
Spiros Corp. II, in entering into the Development Agreement and the
Manufacturing and Marketing Agreement. Dura is the contractor under the
Development Agreement and will perform or participate in all development and
other activities thereunder. Additionally, Dura will be primarily responsible
for the marketing and manufacture of Spiros Products under the Manufacturing
and Marketing Agreement. Spiros Corp. II will be responsible for and will pay
the development costs that are incurred by Dura under the Development
Agreement and the marketing and manufacturing costs incurred by Dura under
the Manufacturing and Marketing Agreement. Dura will determine unilaterally
certain activities to be undertaken under the Development Agreement and in
all events Dura will have substantial influence over all activities and
procedures (including the timing and priorities thereof) to be undertaken
under the Development Agreement and the Manufacturing and Marketing
Agreement. Dura has no obligation to complete any development or other
activity after all funds of Spiros Corp. II have been expended. Dura's own
projects and other third party projects may compete for time and resources
with projects undertaken pursuant to the Development Agreement and the
Manufacturing and Marketing Agreement and the resources that Dura expends
under such agreements may therefore be limited.
THE ALBUTEROL OPTION AND THE PRODUCT OPTION. If Dura exercises the Albuterol
Option for the albuterol product or the Product Option for any other Spiros
product, it will have sole discretion to control the commercialization of
such product, including discretion to allocate its marketing resources among
that product and other Dura products.
THE PURCHASE OPTION EXERCISE PRICE. The Purchase Option exercise price was
determined by Spiros Corp. II and Dura giving consideration to the Spiros
products, the agreements between Spiros Corp. II and Dura, such other factors
as Spiros Corp. II and Dura deemed appropriate and other advice given by the
underwriters of the Offering. Therefore, such price was not determined on an
arm's-length basis.
NO ASSURANCE OF SUCCESSFUL DEVELOPMENT OF THE SPIROS PRODUCTS. Spiros Corp.
II has agreed with Dura that Dura will conduct work on the Spiros Products in
accordance with the Development Agreement for the purpose of research,
clinical development, product development, including regulatory approval, and
commercialization of the Spiros Products. Dura's historical performance has
no relationship to Spiros Corp. II's potential product development and is not
indicative of the future performance of Spiros Corp. II. While certain
research and development on the Spiros Products being transferred to Spiros
Corp. II by Dura has been conducted, additional clinical studies and product
development are still to be undertaken. There can be no assurance that Spiros
Corp. II or Dura will be able to complete the development, gain regulatory
approval and successfully commercialize any of the Spiros Products or that
the Spiros
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Products can be introduced in a timely manner. The successful development of
any of the Spiros Products will require demonstration through human clinical
studies that such Spiros Products are both safe and efficacious.
NO ASSURANCE OF EXERCISE OF DURA'S OPTIONS. Dura is not obligated to exercise
the Purchase Option, the Albuterol Option or the Product Option, and it will
exercise such options only if, in the opinion of Dura's Board of Directors,
it is in Dura's best interest to do so. Even if the Spiros Products are
developed and approved, if Dura does not exercise the Purchase Option, the
Albuterol Option or the Product Option, Spiros Corp. II will be required to
find alternative ways to commercially market or exploit the Spiros Products
and there can be no assurance that Spiros Corp. II will be able to do so. If,
in the event Dura fails to exercise the Purchase Option, the Albuterol Option
and the Product Option and Spiros Corp. II determines to market the Spiros
Products itself, Spiros Corp. II will require substantial additional funds.
There can be no assurance that such funds will be available on attractive
terms, if at all. Similarly, if Spiros Corp. II determines to license the
Spiros Products to third parties, such arrangements, if available, may be on
terms less favorable to Spiros Corp. II than the terms of Spiros Corp. II's
arrangements with Dura.
NO ASSURANCE OF SUFFICIENT FUNDS. Although Spiros Corp. II believes that its
current funding will be sufficient to enable it to advance three Spiros
Products through the FDA approval stage, there can be no assurance that this
will be the case. Until the expiration of the Purchase Option, Spiros Corp.
II is significantly restricted from raising additional funds without Dura's
consent and there can be no assurance that Spiros Corp. II will have
sufficient funds to successfully develop any Spiros Products. While Dura may,
at its sole option, provide funds for further development of the Spiros
Products, it is not obligated to do so. If the Purchase Option is not
exercised, Spiros Corp. II would have to raise substantial funding while
hiring, or otherwise obtaining access to, research and management personnel.
NO ASSURANCE THAT THE PURCHASE OPTION WILL BE REPRESENTATIVE OF THE VALUE OF
SPIROS CORP. II. The Purchase Option exercise price was set forth in the
Spiros Corp. II Amended and Restated Certificate of Incorporation as of the
date of the closing of the Offering and therefore may not be representative
of the value of the Spiros Corp. II common stock at the time of the exercise
of the Purchase Option.
DEPENDENCE ON DURA. Substantially all of the Company's available funds will
be paid to Dura under the Development Agreement. Payments under the
Development Agreement will be made for the full amount of all of Dura's
research and development expenses, general and administrative expenses,
capital equipment costs and all other costs and expenses incurred by Dura in
performing the activities, on behalf of Spiros Corp. II, up to the maximum
amount of the funds available to Spiros Corp. II, which include substantially
all of the available funds. In addition, Dura will be primarily responsible
for the marketing and manufacturing of the Spiros Products, if any are
commercialized prior to the expiration of the Purchase Option. Spiros Corp.
II is not expected to have its own research, development, clinical,
licensing, administration, manufacturing or marketing employees or facilities
and thus will be entirely dependent on Dura in these areas. Subject to their
respective obligations under the Development Agreement and consistent with
commercially reasonable practices, Dura will have sole discretion to
determine the allocation of its research, development, clinical, licensing,
administration, manufacturing and marketing employees and facilities.
Although Dura believes that its personnel and facilities currently are or, in
the future, will be adequate for the performance of its duties under the
Development Agreement and the Manufacturing and Marketing Agreement, Dura's
proprietary and collaborative development, licensing, manufacturing and
marketing projects may compete for time and resources with projects
undertaken by Spiros Corp. II pursuant to the Development Agreement and the
Manufacturing and Marketing Agreement, thereby delaying development,
manufacture and marketing of the Spiros Products. Any material adverse change
in the business or financial condition of Dura would have a material adverse
effect upon Spiros Corp. II.
POTENTIAL COMPETITION FROM DURA. Dura is engaged in ongoing licensing and
development of new products. While Dura has licensed the rights to develop,
manufacture and commercialize the Spiros Products in connection with the Core
Technology to Spiros Corp. II, Dura is not prohibited from developing other
products using Spiros, including those that may compete with the Spiros
Products, or from in-licensing or acquiring products that may compete with
the Spiros Products. Dura's activities may, in some circumstances, lead to
the development, in-licensing or acquisition of products that compete with
the Spiros Products being developed by Spiros Corp II. It is possible that
Dura's rights with respect to such competitive products could reduce Dura's
incentive to exercise the Albuterol Option, the Product Option or the
Purchase Option.
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ABILITY OF SPECIAL SHAREHOLDER TO LIMIT CERTAIN SPIROS CORP. II ACTIVITIES.
Pursuant to the Company's Amended and Restated Certificate of Incorporation,
until the expiration of the Purchase Option, no resolution or act of the
Company to authorize or permit any of the following will be effective without
the prior written approval of Dura as the holder of all of the outstanding
Special Shares: (i) the allotment or issue of shares or other securities of
the Company or the creation of any right to such an allotment or issue; (ii)
the reduction of the Company's authorized capital stock; (iii) the alteration
of or any change to the rights, powers, preferences and restrictions of the
Special Shares; (iv) outstanding borrowings of an aggregate of more than $1
million at any one time; (v) the sale or other disposition of or the creation
of any lien or liens on the whole or a material part of the Company's
business or assets; (vi) the declaration or payment of dividends or the
making of any other distributions to the Company's shareholders; (vii) the
merger, consolidation or reorganization of the Company with or into any other
corporation; (viii) the sale, liquidation or other disposition of all or
substantially all of the assets of the Company; (ix) the alteration or
amendment of Articles IV or VII of the Company's Amended and Restated
Certificate of Incorporation; and (x) the adoption, amendment or repeal of
the Bylaws of the Company. Accordingly, Dura could preclude the holders of a
majority of the outstanding Spiros Corp. II Common Stock and the Board of
Directors of Spiros Corp. II from taking any of the foregoing actions during
such period. Dura, as holder of all of the outstanding Special Shares, may
transfer or sell all, but not less than all, of such shares. As a result, an
unrelated third party may acquire rights associated with the Special Shares,
including the rights discussed in this section and the right to exercise the
Albuterol Option, the Product Option and the Purchase Option. There can be no
assurance that any transferee of the special shares will have the same
financial resources or development, manufacturing or marketing capabilities
as Dura, which may have a material adverse effect on the likelihood of the
exercise of the Albuterol Option, the Product Option or the Purchase Option.
POTENTIAL LOSS OF TECHNOLOGY BY SPIROS CORP. II. Under the Development
Agreement, Spiros Corp. II is obligated to make payments to Dura equal in the
aggregate to substantially all of its available funds. If Spiros Corp. II
does not use its available funds as provided in the Development Agreement or
otherwise breaches any of its material obligations under the Major
Agreements, Dura may have the right to terminate the Technology Agreement,
the Development Agreement and the Manufacturing and Marketing Agreement, and
thereby reacquire rights to all technology licensed to Spiros Corp. II
thereunder, including improvements made to such technology using funds
provided by Spiros Corp. II. In the event of such a termination by Dura, it
is unlikely that Dura would exercise the Albuterol Option, the Product Option
or the Purchase Option.
ACCELERATION OF PURCHASE OPTION. If Spiros Corp. II terminates all Major
Agreements due to a material breach of any of the Major Agreements by Dura,
the Purchase Option automatically accelerates. The Purchase Option also
terminates in the event of certain voluntary or involuntary bankruptcy events
affecting Dura or an uncured material breach by Dura under any of its
material loan agreements. There can be no assurance that, at that time, the
development of the Spiros Products will have progressed to a point where Dura
will have sufficient information to determine whether to exercise the
Purchase Option. As a result, Dura may determine not to exercise the Purchase
Option. There can be no assurance that, upon termination of the Development
Agreement by Spiros Corp. II as described above, alternative arrangements for
the development of some or all of the Spiros Products could be made or that
such development of the Spiros Products by Spiros Corp. II would be
successful.
THIRD-PARTY REIMBURSEMENT; PRICING PRESSURES. The Company's commercial
success will depend in part on the availability of adequate reimbursement
from third-party health care payers, such as government and private health
insurers and managed care organizations. Third-party payers are increasingly
challenging the pricing of medical products and services. There can be no
assurance that reimbursement will be available to enable the Company to
achieve market acceptance of its products, if approved, or to maintain price
levels sufficient to realize an appropriate return on the Company's
investment in development. The market for the Company's products, if
approved, may be limited by actions of third-party payers. For example, many
managed health care organizations are now controlling the pharmaceuticals
that are on their formulary lists. The resulting competition among
pharmaceutical companies to place their products on these formulary lists has
created a trend of downward pricing pressure in the industry. In addition,
many managed care organizations are pursuing various ways to reduce
pharmaceutical costs and are considering formulary contracts primarily with
those pharmaceutical companies that can offer a full line of products for a
given therapy sector or disease state. There can be no assurance that the
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Company's products, if approved, will be included on the formulary lists of
managed care organizations or that downward pricing pressure in the industry
generally will not negatively impact the Company's operations.
LIMITED MANUFACTURING EXPERIENCE. Dura's principal manufacturing facility is
intended to be used to formulate, mill, blend and manufacture drugs to be
used with Spiros, pending regulatory approval. Equipment purchases and
validation are currently scheduled through 1998. Dura's manufacturing
facility must be registered with and licensed by various regulatory
authorities and must comply with current cGMP requirements prescribed by the
FDA and the State of California. Dura will need to significantly scale up its
current manufacturing operations and comply with cGMPs and other regulations
prescribed by various regulatory agencies in the U.S. and other countries to
achieve the prescribed quality and required levels of production of such
products to obtain marketing approval. Any failure or significant delay in
the validation of or obtaining a satisfactory regulatory inspection of the
new facility or failure to successfully scale up could have a material
adverse effect on the ability of Dura to manufacture products in connection
with Spiros. Dura intends to utilize third parties to produce components of
and assemble the Spiros aerosol generator. Such third parties have only
produced limited quantities of components and assembled generators and will
be required to significantly scale up their activities. There can be no
assurance that such third parties will be successful in completing these
activities in a timely manner or can meet cGMP requirements. Any failure or
delay in the scale up of aerosol generator manufacturing would have a
material adverse effect on the ability of Dura to manufacture Spiros Products.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY TECHNOLOGY; UNPREDICTABILITY OF
PATENT PROTECTION. The Company's success will depend, in part, on its ability
to obtain patents, protect trade secrets and other proprietary information
and operate without infringing upon the proprietary rights of others both in
the U.S. and abroad. There can be no assurance that patent applications for a
Spiros product will be approved, that Spiros Corp. II will develop any Spiros
product to the point that it is patentable, that any issued patents for a
Spiros product will provide Spiros Corp. II with adequate protection or will
not be challenged by others, or that the patents of others will not impair
the ability of Spiros Corp. II to do business. Furthermore, there can be no
assurance that others will not independently develop similar products,
duplicate any unpatented Spiros products or design around any patented Spiros
products in development or marketed by Spiros Corp. II.
The Company will rely on secrecy to protect technology where patent
protection is not believed to be appropriate or obtainable. There can be no
assurance that any confidentiality agreement entered into by Dura with third
parties will not be breached, that Spiros Corp. II will have adequate
remedies for any breach, that others will not independently develop
substantially equivalent proprietary information or that third parties will
not otherwise gain access to proprietary information concerning the Spiros
products or program technology.
The Company may be required to obtain licenses to patents or other
proprietary rights of others. No assurance can be given that any licenses
required under any such patents or proprietary rights would be made available
on terms acceptable to the Company, if at all . If the Company does not
obtain such licenses, it could encounter delays in Spiros product market
introductions or could find that the development, manufacture or sale of the
Spiros products requiring such licenses could be foreclosed. Moreover, the
Company could incur substantial costs and diversion of management time in
defending itself in any suits brought against it claiming infringement of the
patent rights of others or in asserting the Company's patent rights.
The Company is aware of foreign patents granted to third parties in the
United Kingdom that claim proprietary rights in areas that may overlap with
certain Spiros technology. In the event that the Company determines to market
any Spiros product in the United Kingdom and further determines that such
activity would infringe upon such third party patents, the Company may need
to either design around these patents, obtain licenses to such patents, or
avoid marketing products in the United Kingdom and other areas in Europe in
which these patents provide protection. There can be no assurance that
patents or patent applications do not exist or will not exist in the future
that may materially affect the Company's ability to make, use or sell any
current or future products.
ATTRACTION AND RETENTION OF KEY PERSONNEL. The Company will be highly
dependent on the principal members of Dura's scientific and management staff,
the loss of whose services might impede the achievement of development
objectives. Recruiting and retaining management and operational personnel and
qualified scientific personnel to perform research and development work for
the Company will also be critical to the Company's success. Although the
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Company believes Dura will be successful in attracting and retaining skilled
and experienced management, operational and scientific personnel, there can
be no assurance that Dura will be able to attract and retain such personnel
on acceptable terms given the competition among numerous pharmaceutical
companies, universities and research institutions for such personnel.
VOLATILITY OF THE COMPANY'S STOCK PRICE. The market prices for securities of
emerging companies have historically been highly volatile. Future
announcements concerning the Company, Dura or their competitors may have a
significant impact on the market price of the Spiros Corp. II Units. Such
announcements might include financial results, the results of testing,
technological innovations, new commercial products, changes to government
regulations, government decisions on commercialization of products,
developments concerning proprietary rights, litigation or public concern as
to safety of Spiros Corp. II's and Dura's products.
YEAR 2000 COMPLIANCE CONSIDERATIONS. Spiros Corp. II relies on Dura for its
operating and financial systems pursuant to the various agreements described.
The Company has made inquiries of Dura and Dura has responded that it
recognizes the need to ensure its operations will not be adversely impacted
by the inability of Dura's systems to process data having dates on or after
January 1, 2000 ("Year 2000"). Processing errors due to software failure
arising from calculations using the Year 2000 date are a recognized risk.
Dura has indicated that it is currently addressing the risk, with respect to
the availability and integrity of its financial systems and the reliability
of its operating systems, and is in the process of communicating with
suppliers, customers, financial institutions and others with whom it conducts
business to assess whether they are Year 2000 compliant. While the Company
believes that Dura's planning efforts are adequate to address the Year 2000
concerns, there can be no assurance that the systems of other companies on
which Dura's systems and operations rely will be converted on a timely basis
and will not have a material effect on the Company. In addition, the
potential impact of the Year 2000 on others with whom the Company, through
agreements with Dura, does business cannot be reasonably estimated at this
time. The cost of Dura's Year 2000 initiatives will be paid entirely by Dura.
ITEM 2. PROPERTIES
The Company's corporate offices are located in San Diego, California. The
Company does not own any facilities.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
(a) Market Information and Holders
On December 22, 1997, the Company and Dura completed the Offering of
6,325,000 Units. The Units commenced public trading on December 18, 1997.
High and low sales prices of Units for the period ended December 31, 1997 as
quoted on the Nasdaq Stock Market were $17 3/4 and $16 1/2, respectively. The
Units are quoted on the Nasdaq Stock Market under the symbol "SDCOZ" and are
quoted in the WALL STREET JOURNAL and other newspapers. The Units will trade
only as Units through December 31, 1999 or such earlier date as the Purchase
Option is exercised (the "Separation Date"). Prior to the Separation Date,
application will be made to quote the Common Stock on the Nasdaq Stock Market
or another quotation system or securities exchange. There can be no assurance
that the
24
<PAGE>
Common Stock will be eligible for quotation on the Nasdaq Stock Market or any
other quotation system or securities exchange. The Special Shares are not
publicly traded.
As of December 31, 1997, there was one holder of record and 2,500 beneficial
holders of record of Units and one holder of Special Shares.
(b) Dividends
Spiros Corp. II has not paid any dividends on its Common Stock and does not
expect to do so in the foreseeable future. Holders of Spiros Corp. II Common
Stock are entitled to receive any such dividends as may be recommended by the
Board of Directors and approved by the holder of the Special Shares. The
Special Shares are not entitled to receive dividends.
(c) Recent Sales of Unregistered Securities
In September 1997, the Company sold to Dura 1,000 Special Shares for
aggregate proceeds of $1,000. The issuance of the Special Shares was not
registered pursuant to the Securities Act of 1933 as amended (the "Act") and
the Special Shares were issued in connection with the Company's formation.
The Special Shares were exempt from registration pursuant to Section 4(2) of
the Act.
(d) Use of Proceeds from Registered Securities
On December 22, 1997, the Company and Dura completed the Offering of
6,325,000 Units, pursuant to a registration statement on Form S-1/S-3 (No.
333-37673/37673-01). The registration statement was declared effective on
December 16, 1997. Securities were first offered on December 17, 1997, and
the Offering closed on December 22, 1997. Merrill Lynch & Co. and Donaldson,
Lufkin & Jenrette Securities Corporation acted as managing underwriters of
the offering. The Units were sold to the public at an offering price of
$16.00 per Unit, with aggregate proceeds of $101.2 million. The Company
received all proceeds from the Offering, which totaled $94 million, net of
estimated offering expenses and underwriters' discounts of $7.2 million.
Offering expenses include $161,000 paid to Dura as reimbursement for direct
costs incurred by Dura in connection with the Offering. As of December 31,
1997, all net proceeds from the Offering were invested in cash, cash
equivalents and short term investments.
ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from the audited financial statements of
the Company. The information set forth below is not necessarily indicative of
the results of future operations and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 and the Company's Financial Statements and notes thereto
in Item 8.
<TABLE>
<CAPTION>
Period from
September 23, 1997
(Date of Incorporation) to
DECEMBER 31, 1997
-----------------
<S> <C>
Total revenues $ 222,000
Net loss $ (6,924,000)
Net loss per share: basic and diluted $ (1.09)
Total assets $170,506,000
Total liabilities $ 8,425,000
</TABLE>
No cash dividends were paid from September 23, 1997 (date of incorporation)
through December 31, 1997.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Spiros Development Corporation II, Inc. ("Spiros Corp. II" or the "Company")
was incorporated in the state of Delaware on September 23, 1997 for the
purpose of continuing the development of Spiros-Registered Trademark-, a dry
powder pulmonary drug delivery system, and to conduct formulation work,
clinical trials and commercialization for certain specified leading asthma
and chronic obstructive pulmonary disease ("COPD") drugs for use with Spiros.
The Company commenced operations on December 22, 1997.
On December 22, 1997, the Company and Dura Pharmaceuticals, Inc. ("Dura")
completed an initial public offering (the "Offering") of 6,325,000 Units (the
"Units"), each Unit consisting of one share of Callable Common Stock ("Common
Stock") of the Company and one warrant to purchase one-fourth of one share of
Dura common stock at a price of $54.84 per share. The Offering resulted in
net proceeds to the Company of approximately $94 million. Concurrently, Dura
contributed $75 million to the Company. Substantially all funds from the
Offering and the $75 million contribution from Dura and interest earned
thereon, are expected to be paid to Dura for the development and
commercialization of Spiros and the use of Spiros with certain drugs pursuant
to various agreements as described below. Through December 31, 1999, the
Units will trade publicly. Effective January 1, 2000, the Units will separate
into the two underlying securities.
Dura, as holder of 100% of the outstanding shares of the Company's Special
Common Stock, has an irrevocable option (the "Purchase Option") to purchase
all, but not less than all, of the issued and outstanding shares of the
Company's Common Stock at predetermined prices. Dura may exercise the
Purchase Option at any time through the earlier of (a) December 31, 2002, (b)
the 90th day after the date the Company provides Dura with quarterly
financial statements of the Company showing cash or cash equivalents of less
than $5 million, although Dura may extend such period by providing additional
funding for the continued development of Spiros, but in no event beyond
December 31, 2002, or (c) upon termination of the technology license,
development, or the manufacturing agreements between the Company and Dura. If
the Purchase Option is exercised, the per share 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 price may be paid, at Dura's
discretion, in cash, shares of Dura common stock, or any combination thereof.
In December 1997, the Company and Dura entered into a technology license
agreement whereby Dura granted to the Company an exclusive, worldwide,
perpetual royalty-bearing license to use technology owned by Dura relating to
the use of Spiros with the asthma and COPD drugs albuterol, beclomethasone,
ipratropium, budesonide, and a combination of albuterol and ipratropium. The
Company and Dura also executed a series of agreements which provide for the
development, marketing, and manufacturing of Spiros with specified compounds
and for the provision of general and administrative services by Dura. Since
all of the Company's current activities are conducted by Dura under these
agreements, the Company does not maintain any research staff nor occupy any
research facilities.
RESULTS OF OPERATIONS
The Company commenced operations in December 1997 and incurred a net loss of
$6,924,000 for the period September 23, 1997 (date of incorporation) through
December 31, 1997. Research and development costs for this period totaled
$7,040,000 and general and administrative expenses totaled $106,000. Research
and development expenses were for Spiros related activities performed by Dura
from October 10, 1997 through December 31, 1997. The Company's interest
income for the period totaled $222,000.
26
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's initial capitalization totaled $169 million, consisting of net
proceeds from the Offering of approximately $94 million and a $75 million
contribution from Dura. At December 31, 1997, the Company had cash, cash
equivalents, and short-term investments totaling $170.5 million and working
capital totaling $162.1 million. The Company believes that its working
capital and expected cash flows from its cash and short-term investments will
be sufficient to fund its cash requirements through at least December 31,
1998.
Spiros Corp. II relies on Dura for its operating and financial systems
pursuant to the various agreements described. The Company has made inquiries
of Dura and Dura has addressed that it recognizes the need to ensure its
operations will not be adversely impacted by the inability of Dura's systems
to process data having dates on or after January 1, 2000 ("Year 2000").
Processing errors due to software failure arising from calculations using the
Year 2000 date are a recognized risk. Dura has indicated that it is currently
addressing the risk, with respect to the availability and integrity of its
financial systems and the reliability of its operating systems, and is in the
process of communicating with suppliers, customers, financial institutions
and others with whom it conducts business to assess whether they are Year
2000 compliant. While the Company believes that Dura's planning efforts are
adequate to address the Year 2000 concerns, there can be no assurance that
the systems of other companies on which Dura's systems and operations rely
will be converted on a timely basis and will not have a material effect on
the Company. In addition, the potential impact of the Year 2000 on others
with whom the Company, through agreements with Dura, does business cannot be
reasonably estimated at this time. The cost of Dura's Year 2000 initiatives
will be paid entirely by Dura.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are filed as part of this Annual Report on Form 10-K
(see Item 14).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors. The information under the caption "Election
of Directors," appearing in the Proxy Statement to be filed on or about April 9,
1998, is incorporated herein by reference.
(b) Identification of Executive Officers. The information under the caption
"Executive Officers," appearing in the Proxy Statement to be filed on or
about April 9, 1998, is incorporated herein by reference.
(c) Compliance with Section 16 (a) of the Exchange Act. The information under
the caption "Section 16 (a) Beneficial Ownership Reporting Compliance,"
appearing in the Proxy Statement to be filed on or about April 9, 1998, is
incorporated herein by reference.
27
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The information under the heading "Executive Compensation and Other
Information," appearing in the Proxy Statement to be filed on or about April 9,
1998, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the headings "Principal Stockholders" and "Security
Ownership of Management," appearing in the Proxy Statement to be filed on or
about April 9, 1998, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the headings "Election of Directors," "Executive
Compensation and Other Information" and "Certain Business Relationships and
Related Transactions," appearing in the Proxy Statement to be filed on or
about April 9, 1998, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report
Balance Sheet
Statement of Operations
Statement of Shareholders' Equity
Statement of Cash Flows
Notes to Financial Statements
(a) 2. INDEX TO FINANCIAL STATEMENT SCHEDULES
Financial statement schedules are omitted because they are not required, are
not applicable or the information is included in the financial statements or
notes thereto.
(a) 3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <C> <S>
(1) 3.1 Amended and Restated Certificate of Incorporation.
(1) 3.2 Amended and Restated Bylaws.
4.1 Purchase option held by Dura Pharmaceuticals, Inc. to
purchase all of the outstanding Callable Common Stock of the
Company (included in Exhibit 3.1).
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <S>
4.2 Specimen Unit Certificate.
4.3 Specimen Certificate of Callable Common Stock.
4.4 Stock Certificate of Special Common Stock.
10.1 Technology License Agreement dated December 22, 1997 between
the Company, Dura Pharmaceuticals, Inc., Dura Delivery
Systems, Inc. and Spiros Development Corporation.
10.2 Development Agreement dated December 22, 1997 between the
Company and Dura Pharmaceuticals, Inc.
10.3 Albuterol and Product Option Agreement dated December 22, 1997
between the Company and Dura Pharmaceuticals, Inc.
10.4 Manufacturing and Marketing Agreement dated December 22,
1997 between the Company and Dura Pharmaceuticals, Inc.
10.5 Services Agreement dated December 22, 1997 between the
Company and Dura Pharmaceuticals, Inc.
10.6 + 1997 Stock Option Plan.
10.7 + Form of Notice of Grant of Stock Option.
10.8 + Form of Stock Option Agreement.
(1) 10.9 + Form of Indemnification Agreement between the Company and each of
its directors.
(1) 10.10 + Form of Indemnification Agreement between the Company and each of
its officers.
24.1 Power of Attorney (See Signature page).
27.1 Financial Data Schedule.
</TABLE>
(1) Incorporated by reference to the Company's Registration Statement
on Forms S-1/S-3 (No. 333-37673/37673-01), filed on October 10,
1997, as amended.
+ Management contract or compensation plan or arrangement.
(b) REPORTS ON FORM 8-K.
None.
SUPPLEMENTAL INFORMATION
The Annual Report on Form 10-K and Proxy material will be furnished to the
Company's shareholders subsequent to the filing of this report and the Company
will furnish such material to the Securities and Exchange Commission at that
time.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: MARCH 27, 1998 SPIROS DEVELOPMENT CORPORATION II, INC.
By: /S/ DAVID S. KABAKOFF
--------------------------------------------
David S. Kabakoff
Chairman, President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints David S. Kabakoff and Erle T. Mast, or either
of them, as his true and lawful attorneys-in-fact and agents, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form
10-K, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes may lawfully
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
ANNUAL REPORT ON FORM 10-K HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ DAVID S. KABAKOFF Chairman, President and MARCH 27, 1998
- ------------------------ Chief Executive Officer
(David S. Kabakoff) (Principal Executive Officer)
/s/ ERLE T. MAST Vice President and MARCH 27, 1998
- ------------------------ Chief Financial Officer
(Erle T. Mast) (Principal Financial and Accounting Officer)
/s/ CAM L. GARNER Director MARCH 27, 1998
- ------------------------
(Cam L. Garner)
/s/ SOL LIZERBRAM Director MARCH 27, 1998
- ------------------------
(Sol Lizerbram)
/s/ ALAIN B. SCHREIBER Director MARCH 27, 1998
- ------------------------
(Alain B. Schreiber)
/s/ ROBERT S. WHITEHEAD Director MARCH 27, 1998
- ------------------------
(Robert S. Whitehead)
</TABLE>
30
<PAGE>
EXHIBIT INDEX
TO
FORM 10-K
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<C> <C> <S>
(1) 3.1 Amended and Restated Certificate of Incorporation.
(1) 3.2 Amended and Restated By-laws.
4.1 Purchase option held by Dura Pharmaceuticals, Inc. to purchase
all of the outstanding Callable Common Stock of the Company
(included in Exhibit 3.1)
4.2 Specimen Unit Certificate.
4.3 Specimen Certificate of Callable Common Stock.
4.4 Stock Certificate of Special Common Stock.
10.1 Technology License Agreement dated December 22, 1997 between
the Company, Dura Pharmaceuticals, Inc., Dura Delivery
Systems, Inc. and Spiros Development Corporation.
10.2 Development Agreement dated December 22, 1997 between the
Company and Dura Pharmaceuticals, Inc.
10.3 Albuterol and Product Option Agreement dated December 22, 1997
between the Company and Dura Pharmaceuticals, Inc.
10.4 Manufacturing and Marketing Agreement dated December 22,
1997 between the Company and Dura Pharmaceuticals, Inc.
10.5 Services Agreement dated December 22, 1997 between the
Company and Dura Pharmaceuticals, Inc.
10.6 + 1997 Stock Option Plan.
10.7 + Form of Notice of Grant of Stock Option.
10.8 + Form of Stock Option Agreement.
(1) 10.9 + Form of Indemnification Agreement between the Company and each of
its directors.
(1) 10.10+ Form of Indemnification Agreement between the Company and each of
its officers.
24.1 Power of Attorney (See Signature page).
27.1 Financial Data Schedule.
</TABLE>
(1) Incorporated by reference to the Company's Registration Statement
on Forms S-1/S-3 (No. 333-37673/37673-01), filed on October 10,
1997, as amended.
+ Management contract or compensation plan or arrangement.
31
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report F-1
Balance Sheet as of December 31, 1997 F-2
Statement of Operations for the Period
September 23, 1997 (Date of Incorporation) through
December 31, 1997 F-3
Statement of Shareholders' Equity for the Period
September 23, 1997 (Date of Incorporation) through
December 31, 1997 F-4
Statement of Cash Flows for the Period September 23, 1997
(Date of Incorporation) through December 31, 1997 F-5
Notes to Financial Statements F-6
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Spiros Development Corporation
II, Inc.:
We have audited the accompanying balance sheet of Spiros Development
Corporation II, Inc. (a development stage enterprise) (the "Company") as of
December 31, 1997, and the related statements of operations, shareholders'
equity and cash flows for the period September 23, 1997 (date of
incorporation) through December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997, and
the results of its operations and its cash flows for the period September 23,
1997 (date of incorporation) through December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
San Diego, California
February 12, 1998
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
<CAPTION>
BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- -------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $139,035
Short-term investments 31,471
--------
Total current assets 170,506
--------
TOTAL $170,506
--------
--------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Payable to Dura Pharmaceuticals, Inc. $ 8,399
Accrued liabilities 26
--------
Total current liabilities 8,425
--------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Special common stock, par value $1.00, 1,000 shares
authorized, issued and outstanding 1
Callable common stock, par value $.001, 7,500,000 shares
authorized; 6,325,000 shares issued and outstanding 6
Additional paid-in capital 168,977
Unrealized gain on investments 21
Accumulated deficit (6,924)
--------
Total shareholders' equity 162,081
--------
TOTAL $170,506
--------
--------
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
FOR THE PERIOD SEPTEMBER 23, 1997 (DATE OF INCORPORATION)
THROUGH DECEMBER 31, 1997
(in thousands, except per share amount)
- -------------------------------------------------------------------------------
<S> <C>
REVENUES:
Interest income $ 222
-------
EXPENSES:
Research and development 7,040
General and administrative 106
-------
Total 7,146
-------
NET LOSS $(6,924)
-------
-------
NET LOSS PER SHARE:
Basic and diluted $ (1.09)
-------
-------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic and diluted 6,325
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
<CAPTION>
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD SEPTEMBER 23, 1997 (DATE OF INCORPORATION)
THROUGH DECEMBER 31, 1997
(in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
Special Callable
Common Stock Common Stock Additional Unrealized
-------------------- -------------------- Paid-in Gain on Accumulated
Shares Amount Shares Amount Capital Investments Deficit Total
-------- -------- -------- -------- ---------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sale of special common stock 1 $ 1 $ 1
Sale of callable common stock 6,325 $ 6 $ 93,961 93,967
Contribution from Dura
Pharmaceuticals, Inc. 75,000 75,000
Compensation expense for stock
options granted 16 16
Unrealized gain on investments $ 21 21
Net loss $(6,924) (6,924)
---- ---- ----- ---- -------- ----- ------- --------
BALANCE, DECEMBER 31, 1997 1 $ 1 6,325 $ 6 $168,977 $ 21 $(6,924) $162,081
---- ---- ----- ---- -------- ----- ------- --------
---- ---- ----- ---- -------- ----- ------- --------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
FOR THE PERIOD SEPTEMBER 23, 1997 (DATE OF INCORPORATION)
THROUGH DECEMBER 31, 1997
(in thousands)
- ---------------------------------------------------------------------------------------------------------
<S> <C>
OPERATING ACTIVITIES:
Net loss $ (6,924)
Adjustments to reconcile net loss to net cash provided by operating activities:
Compensation expense for stock options granted 16
Changes in assets and liabilities:
Payable to Dura Pharmaceuticals, Inc. 7,110
Accrued liabilities 26
--------
Net cash provided by operating activities 228
--------
INVESTING ACTIVITIES:
Purchases of short-term investments (31,450)
--------
FINANCING ACTIVITIES:
Net proceeds from issuance of special common and callable common stock 93,968
Contribution from Dura Pharmaceuticals, Inc. for purchase option 75,000
Increase in payable to Dura Pharmaceuticals, Inc. for issuance costs 1,289
--------
Net cash provided by financing activities 170,257
--------
NET INCREASE IN CASH AND CASH EQUIVALENTS 139,035
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD --
--------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $139,035
--------
--------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Spiros Development Corporation II, Inc. (the "Company") was incorporated in
the state of Delaware on September 23, 1997 for the purpose of continuing the
development of Spiros-Registered Trademark-, a dry powder pulmonary drug
delivery system, and to conduct formulation work, clinical trials and
commercialization for certain specified leading asthma and chronic
obstructive pulmonary disease ("COPD") drugs for use with Spiros. The Company
commenced operations on December 22, 1997. The accompanying financial
statements reflect the activities of the Company for the period September 23,
1997 (date of incorporation) through December 31, 1997.
On December 22, 1997, the Company and Dura Pharmaceuticals, Inc. ("Dura")
completed an initial public offering (the "Offering") of 6,325,000 Units,
each Unit consisting of one share of callable common stock of the Company and
one warrant to purchase one-fourth of one share of Dura common stock. The
offering resulted in net proceeds to the Company of approximately $94
million. Concurrently, Dura contributed $75 million to the Company.
Substantially all funds from the Offering, the $75 million contribution and
interest earned thereon, are expected to be paid to Dura for the development
and commercialization of Spiros and the use of Spiros with certain drugs
pursuant to various agreements (Note 4).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - Because the Company has not yet completed product
development, obtained regulatory approval or verified the market acceptance
and demand for Spiros, its activities have been accounted for as those of a
"development stage enterprise," as set forth in Statement of Financial
Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development
Stage Enterprises."
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and related notes. Changes in those estimates may affect amounts
reported in future periods.
CASH AND CASH EQUIVALENTS - The Company considers cash equivalents to include
only highly liquid securities with an original maturity of three months or
less. Investments with an original maturity of more than three months from
the date of acquisition are considered short-term investments.
SHORT-TERM INVESTMENTS - The Company has classified all of its short-term
investments as available-for-sale. The entire amount of the Company's
portfolio is available for current operations. Investments are carried at
fair value as determined by quoted market prices, with unrealized gains and
losses reported as a separate component of shareholders' equity. Investment
income is recognized when earned and includes the amortization of premiums
and discounts on investments. The Company invests its excess cash in money
market and fixed income securities of companies with strong credit ratings
and U.S. government obligations.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are expensed
as incurred.
STOCK BASED COMPENSATION - As permitted by SFAS No. 123, "Accounting for
Stock Based Compensation," the Company accounts for the costs associated with
stock option grants to employees in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations ("APB 25"). Compensation expense for costs associated with
stock option grants to non-employees is recognized ratably over the vesting
period.
F-6
<PAGE>
NET LOSS PER SHARE - The Company incurred a net loss for the period ended
December 31, 1997 and, as such, the weighted average number of shares of
Callable Common Stock used for basic and diluted earnings per share does not
include potential common shares from outstanding stock options as their
inclusion would be antidilutive. The weighted average number of shares also
exclude shares of special common stock ("Special Shares") outstanding since
such shares are not entitled to participate in the profits of the Company.
3. SHORT-TERM INVESTMENTS
The following is a summary of the Company's short-term investments as of
December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
Unrealized Fair
Cost Gains Value
------ ---------- -------
<S> <C> <C> <C>
Corporate debt securities $31,450 $21 $31,471
</TABLE>
The amortized cost and fair value of short-term investments as of December
31, 1997, by contractual maturity, are as follows (in thousands):
<TABLE>
<CAPTION>
Fair
Cost Value
------ -------
<S> <C> <C>
Due in one year or less $23,788 $23,803
Due after one year through
two years 7,662 7,668
------- -------
$31,450 $31,471
------- -------
------- -------
</TABLE>
4. ARRANGEMENTS WITH DURA PHARMACEUTICALS, INC.
The Company and Dura are party to various agreements entered into in December
1997 which provide for the development, marketing, and manufacturing of
Spiros with specified compounds and for the provision of general and
administrative services by Dura. A summary of these agreements is presented
below.
TECHNOLOGY LICENSE AGREEMENT - Under this agreement, Dura granted to the
Company an exclusive, worldwide (except for the use of beclomethasone in
certain parts of Asia), perpetual, royalty-bearing license to use technology
owned or controlled by Dura relating to the use of Spiros (the "Core
Technology") with the Compounds (collectively, the "Spiros Products"). In
consideration for these rights, the Company will pay, commencing in 1998, an
annual technology access fee equal to the greater of (a) 5% of the net sales
of each Spiros Product, or (b) $2 million. This obligation will terminate, on
a country-by-country basis, (a) within 10 years from the first sale of such
Spiros Product in those countries where no patents covering such product are
issued and (b) in those countries where patents covering the Spiros Products
are issued, upon the last expiration of the applicable patents.
The Technology License Agreement will remain in effect indefinitely, unless
terminated by mutual agreement of the Company and Dura or upon Dura's
exercise or expiration of its Purchase Option.
ALBUTEROL AND PRODUCT OPTION AGREEMENT - Under this agreement, the Company
granted to Dura the option to acquire for specified time periods the
Albuterol Option and the Product Option. The Albuterol Option is currently
exercisable and expires 360 days after receipt of U.S. Food and Drug
Administration (the "FDA") approval to market. The Product Option is
currently exercisable and expires 90 days after receipt of FDA approval to
market such Spiros Product. The formula for determining the purchase price
for each of the products is set forth in the agreement and is based, in part,
on the costs incurred by the Company for the development of the products.
F-7
<PAGE>
DEVELOPMENT AGREEMENT - Under this agreement, the Company has engaged Dura to
develop Spiros for use with the Spiros Products. Dura furnishes all labor,
supervision, services, supplies, and materials necessary to perform the
development activities and obtain regulatory approvals for the sale and
marketing of the Spiros Products. These activities are carried out by Dura in
accordance with annual workplans and budgets which are subject to approval
and acceptance by the Company's Board of Directors. Payments to Dura for
services provided under the Development Agreement are based on fully-burdened
costs incurred by Dura plus rates ranging from 20 to 25 percent.
MANUFACTURING AND MARKETING AGREEMENT - Under this agreement, the Company
granted to Dura an exclusive, worldwide license to manufacture and market the
Spiros Products. Dura will pay the Company on a quarterly basis a royalty of
7% of the net sales of each Spiros Product. Prior to the expiration of the
Product Option for albuterol, no royalty payment will be made with respect to
net sales of the albuterol product. The Manufacturing and Marketing Agreement
will terminate upon exercise or termination of the Purchase Option or by
mutual agreement of the Company and Dura at any time. In the event Dura
exercises either of its options under the Albuterol and Product Purchase
Option Agreement, the Manufacturing and Marketing Agreement will terminate
with respect to the applicable Spiros Product.
SERVICES AGREEMENT - Under this agreement, Dura will provide certain
management and administrative services to the Company at the rate of $100,000
per calendar quarter. In addition, the Company will reimburse Dura for all
costs and expenses incurred by Dura in connection with the Offering, net of
amounts reimbursed by the underwriters. Included in payables to Dura as of
December 31, 1997 is $1,289,000 for such Offering expenses. The Services
Agreement terminates upon exercise by Dura of the Purchase Option or 12
months after the expiration of the Purchase Option.
The Company's President and Chief Executive Officer, Vice President and Chief
Financial Officer, and Secretary are also officers of Dura. In addition, two
members of the Company's board of directors are officers of Dura, one of whom
is the Company's president.
5. SHAREHOLDERS' EQUITY
The Company's authorized capital stock consists of 7,500,000 shares of Common
Stock, of which 6,325,000 shares were issued and outstanding as of December
31, 1997, and 1,000 shares of Special Shares, of which 1,000 shares were
issued and outstanding as of December 31, 1997.
Dura, as the holder of 100% of the Special Shares, has an irrevocable option
(the "Purchase Option") to purchase all, but not less than all, of the issued
and outstanding shares of the Company's Callable Common Stock at
predetermined prices. Dura may exercise the Purchase Option at any time
through the earlier of (a) December 31, 2002, (b) the 90th day after the date
the Company provides Dura with quarterly financial statements of the Company
showing cash or cash equivalents of less than $5 million, although Dura may
extend such period by providing additional funding for the continued
development of the Spiros Products, but in no event beyond December 31, 2002,
or (c) upon termination of the Technology License, Development, or the
Manufacturing and Marketing Agreements between the Company and Dura (Note 4).
If the Purchase Option is exercised, the per share purchase price will be
$24.01 through December 31, 1999, increasing on quarterly basis to $45.95 per
share through December 31, 2002. The Purchase Option price may be paid, at
Dura's discretion, in cash, shares of Dura common stock, or any combination
thereof. Dura has no legal obligation to exercise the Purchase Option.
Through December 31, 1999, each share of the Company's Callable Common Stock
is combined to trade publicly as a unit with one warrant, expiring on January
1, 2003, to purchase one-fourth of one share of Dura's common stock at a
price per share of $54.84.
As holder of the Special Shares, Dura also has the right to elect two members
of the Company's board of directors and must approve certain corporate
transactions as set forth in the Company's Amended and Restated Certificate
of Incorporation, including (i) the allotment or issue of shares or other
securities of the Company or the creation of any right to such an allotment
or issue; (ii) the reduction of the Company's authorized capital stock; (iii)
the alteration of or any change to the rights, powers, preferences and
restrictions of the Special Shares; (iv) outstanding borrowings
F-8
<PAGE>
of an aggregate of more than $1 million at any one time; (v) the sale or
other disposition of or the creation of any lien or liens on the whole or a
material part of the Company's business or assets; (vi) the declaration or
payment of dividends or the making of any other distributions to the
Company's shareholders; (vii) the merger, consolidation or reorganization of
the Company with or into any other corporation; (viii) the sale, liquidation
or other disposition of all or substantially all of the assets of the
Company; (ix) the alteration or amendment of Articles IV or VII of the
Company's Amended and Restated Certificate of Incorporation; and (x) the
adoption, amendment or repeal of the Bylaws of the Company. As holder of the
Special Shares, however, Dura does not have the right to any profits of the
Company.
6. STOCK COMPENSATION PLAN
The Company has adopted the 1997 Stock Option Plan (the "Plan") to provide
for the initial issuance of up to 700,000 stock options to employees, board
members, and consultants or other independent advisors who provide services
to the Company. The number of shares issuable under the Plan is subject to an
automatic annual increase on February 15 of each calendar year, beginning
with the 1998 calendar year, by the number of shares necessary to cause the
total number shares authorized under the Plan to be equal to 15% of the then
outstanding shares of Common Stock of the Company. Generally, options are to
be granted at prices equal to at least 100% of the fair market value of the
Company's Common Stock at the date of grant, expire not later than 10 years
from the date of grant, and become vested upon Dura's exercise of its
Purchase Option (Note 5) or five years from the date of grant, whichever is
earlier. Options shall be canceled if the optionee ceases to provide services
to the Company prior to the vesting date.
In December 1997, the Company granted 548,000 options with an exercise price
of $14 per share, all of which were outstanding as of December 31, 1997. The
options expire in December 2007 and none were exercisable as of December 31,
1997.
In accordance with SFAS No. 123, the Company applies the provisions of APB 25
in accounting for stock options granted to employees and, accordingly, no
compensation expense has been recognized for options granted to employees. In
accordance with SFAS 123, options granted to non-employees are accounted for
based on their estimated fair value at grant date. Compensation expense equal
to the options' estimated fair value is recognized over the vesting period.
During the period ended December 31, 1997, 341,000 options were granted to
non-employees for which the Company recorded compensation expense of $16,000.
If the Company had elected to recognize compensation expense for options
granted to employees based on the estimated fair value of the options as of
the grant date, the net loss for the period ended December 31, 1997 would
have been increased by $10,000. The estimated weighted average fair value at
grant date of options granted during the period ended December 31, 1997 was
$4.58. The fair value was estimated using the Black-Scholes option-pricing
model with the following assumptions:
<TABLE>
<S> <C>
Expected dividend yield None
Expected stock price volatility 30%
Risk-free interest rate 5.7%
Expected life of options 4 years
</TABLE>
7. INCOME TAXES
As of December 31, 1997, the Company has a deferred tax asset totaling
approximately $2.4 million which relates primarily to federal net operating
loss carryforwards of approximately $6.9 million expiring in 2012. Because
the Company performs research and development and the prospect of generating
future earnings is uncertain, the deferred tax asset has been fully reserved.
F-9
SPECIMEN UNIT CERTIFICATE
THE SECURITIES OF SPIROS DEVELOPMENT CORPORATION II, INC. ARE SUBJECT TO AN
OPTION BY THE HOLDER OF THE SPECIAL COMMON STOCK OF SPIROS DEVELOPMENT
CORPORATION II, INC. AS DESCRIBED IN ARTICLE V OF THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF SPIROS DEVELOPMENT CORPORATION II, INC. TO
PURCHASE SUCH SECURITIES AT AN AGREED UPON PRICE EXERCISABLE BY NOTICE AT ANY
TIME COMMENCING ON THE CLOSING DATE OF THE UNIT OFFERING AND ENDING ON THE
EARLIER OF (i) DECEMBER 31, 2002, (ii) THE 90TH DAY AFTER THE DATE SPIROS
DEVELOPMENT CORPORATION II, INC. DELIVERS QUARTERLY FINANCIAL STATEMENTS OF
SPIROS DEVELOPMENT CORPORATION II, INC. TO THE HOLDER OF THE SPECIAL COMMON
STOCK SHOWING CASH OR CASH EQUIVALENTS OF LESS THAN $5 MILLION AND (iii) THE
DATE OF TERMINATION BY SPIROS DEVELOPMENT CORPORATION II, INC. OF THAT CERTAIN
TECHNOLOGY LICENSE AGREEMENT, DEVELOPMENT AGREEMENT OR MANUFACTURING AND
MARKETING AGREEMENT DATED ON OR ABOUT DECEMBER 22, 1997. COPIES OF THE AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION OF SPIROS DEVELOPMENT CORPORATION II,
INC. ARE AVAILABLE AT THE OFFICES OF SPIROS DEVELOPMENT CORPORATION II, INC.,
7475 LUSK BOULEVARD, SAN DIEGO, CALIFORNIA 92121, AND WILL BE FURNISHED TO ANY
STOCKHOLDER OF SPIROS DEVELOPMENT CORPORATION II, INC. ON REQUEST AND WITHOUT
COST.
Spiros Development Corporation II, Inc.
Dura Pharmaceuticals, Inc.
U-_____ _____ UNITS
UNIT CERTIFICATE
Each Unit Consisting of
One Share of Callable Common Stock, par value $0.001 per share,
of Spiros Development Corporation II, Inc. and
One Warrant to Purchase One-Fourth of One Share of Common Stock,
par value $0.001 per share, of Dura Pharmaceuticals, Inc.
SEE REVERSE SIDE FOR
CERTAIN DEFINITIONS
CUSIP 848935 20 1
THIS IS TO CERTIFY that
or registered assigns, is the registered
holder of the number of Units, offered pursuant to a Registration Statement
on Forms S-1/S-3 (the "Registration Statement"), set forth above ("Units"),
each of which entitles the holder to one share of callable common stock (the
"Callable Common Stock" or the "Shares"), par value $0.001 per share, of
Spiros Development Corporation II, Inc. ("SDC II") and one warrant (the
"Warrants") to purchase one-fourth of one share of common stock ("Dura Common
Stock"), par value $0.001 per share, of Dura Pharmaceuticals, Inc. ("Dura").
Each Warrant entitles the holder to purchase one-fourth of one share of Dura
Common Stock at an exercise price of $54.84 per share of Dura Common Stock
subject to adjustment, at any time after the securities included in the Units
become separately transferable through December 31, 2002. Capitalized terms
not otherwise defined herein shall have the meanings given to them in the
Registration Statement.
The Callable Common Stock and the Warrants may not be traded separately
until December 31, 1999 or such earlier date as the Purchase Option is
exercised or expires unexercised. At any time after the securities are
separately transferable, this Unit Certificate is exchangeable upon the
surrender hereof by the registered holder to the Transfer Agent in exchange
for one or more new Stock Certificates, representing in the
<PAGE>
aggregate the number of Shares comprising the Units represented hereby, and
one or more new Warrant Certificates, representing in the aggregate the
number of Warrants comprising the Units represented hereby.
SDC II and Dura, respectively, agree at all times to reserve or hold
available a sufficient number of shares of its Callable Common Stock and
Warrants to cover the number of securities issuable upon the exchange of this
Certificate and the exercise of rights of the underlying securities.
This Unit Certificate entitles the holder hereof, either at law or in
equity, to any rights as a shareholder of SDC II or warrant holder of Dura as
shall pertain to the underlying securities.
This Unit Certificate is exchangeable at any time upon the surrender
hereof by the registered holder to the Transfer Agent for one or more new
Unit Certificates of like tenor and date representing in the aggregate the
right to the number of Units represented hereby.
SDC II and Dura (the "Companies") may deem and treat the registered
holder of this Unit Certificate at any time as the absolute owner hereof and
of the securities covered hereby for all purposes and shall not be affected
by any notice to the contrary.
The Warrants covered by this Certificate are subject to the terms of the
Warrant Agreement. The Warrant Agreement is available at the executive
offices of Dura.
The Warrant Agreement is incorporated herein by reference and made a
part hereof and reference is hereby made thereto for a full description of
the rights, limitations of rights, obligations, duties and immunities
hereunder.
The terms of this Unit Certificate shall be governed by the laws of the
State of California without giving effect to conflicts of law principles
thereof.
This Unit Certificate shall not be valid or obligatory for any purpose
unless countersigned by the Transfer Agent.
IN WITNESS WHEREOF, the Companies have caused this Unit Certificate to
be executed by its duly authorized officers.
Dated:
Spiros Development Corporation II, Inc.
PRESIDENT SECRETARY
Dura Pharmaceuticals, Inc.
PRESIDENT SECRETARY
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
[REVERSE SIDE]
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE
CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
<PAGE>
UNIF GIFT MIN ACT........................Custodian........................
(Cust) (Minor)
under Uniform Gifts to Minors Act
..........................................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,__________________ hereby sell, assign and transfer
unto _____________________________________________________________________
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
_____________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING ZIP CODE, OF ASSIGNEE)
___________________________________ Units represented by the within
Certificate and do hereby irrevocably constitute and appoint
_____________________________________________________________________
Attorney to transfer the said units on the books of the within named Corporation
with full power of substitution in the premises.
Dated __________________
___________________
Signature
___________________
Signature
NOTICE: The signature(s) to this
assignment must correspond with the
name(s) as written upon the face of
the Certificate in every particular,
without alteration or enlargement or
any change whatever.
Signature(s) Guaranteed
By__________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
<PAGE>
SPECIMEN CERTIFICATE
CALLABLE COMMON STOCK
The securities of Spiros Development Corporation II, Inc., a Delaware company
(the "Company") evidenced hereby are subject to an option of the holder of a
majority of the Special Common Stock of the Company, as described in the Amended
and Restated Certificate of Incorporation of the Company, to purchase such
securities at an agreed upon price, exercisable by notice given at any time
beginning on the closing date of the offering of the Callable Common Stock, par
value $0.001 per share (the "Callable Common Stock"), of Spiros Development
Corporation II, Inc. and the warrants (the "Warrants") to purchase common shares
of Dura Pharmaceuticals, Inc. ("Dura") which comprise the Units, (the "Unit
Offering") and ending on the earlier of (i) December 31, 2002, (ii) the 90th day
after the date the Company provides such holder with quarterly financial
statements of the Company showing cash or cash equivalents of less than
$5,000,000 or (iii) the date of termination by the Company of that certain
Technology License Agreement, Development Agreement or Manufacturing and
Marketing Agreement dated on or about December 22, 1997. Copies of the
Amended and Restated Certificate of Incorporation of the Company are available
at the offices of the Company, 7475 Lusk Boulevard, San Diego, California
92121, Attention: Mitchell R. Woodbury and will be furnished to any shareholder
of the Company on request and without cost.
Until December 31, 1999 or such earlier date as the Purchase Option is
exercised or expires unexercised (the "Separation Date"), the shares of Callable
Common Stock represented by this Certificate may be traded, exchanged, or
otherwise transferred only together with the Warrant issued herewith. The
holder hereof may, but need not, submit this Certificate for the removal of this
legend after the Separation Date.
SPIROS DEVELOPMENT CORPORATION II, INC.
Incorporated Under The Laws of the State of Delaware
CALLABLE COMMON STOCK
FULLY PAID AND NON-ASSESSABLE CALLABLE COMMON STOCK,
PAR VALUE OF $.001 PER SHARE
OF SPIROS DEVELOPMENT CORPORATION II, INC.
CUSIP 848936100
See Reverse For Certain Definitions
<PAGE>
THIS CERTIFIES that
is the owner of Callable Common Stock of
SPIROS DEVELOPMENT CORPORATION II, INC. (the "Company"), transferable on the
books of the Company by the holder hereof, in person or by duly authorized
attorney, upon surrender of this Certificate properly endorsed. This
certificate and the shares represented hereby are subject to the laws of
Delaware, and to the Amended and Restated Certificate of Incorporation of the
Company as now or hereafter amended (copies of which are on file at the offices
of the Company and the Transfer Agent), which are made a part hereof with the
same force and effect as if they were set forth herein, to all of which the
holder, by acceptance hereof, assents. This certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Company has caused the facsimile signatures of
its duly authorized officers and the facsimile of its corporate seal to be
hereunto affixed.
Dated:
Countersigned and Registered:
Transfer Agent and Registrar
By: ____________________
Name:
Title:
Authorized Officer Authorized Officer
<PAGE>
[FORM OF REVERSE OF SPIROS DEVELOPMENT CORPORATION II, INC.'S
CALLABLE COMMON STOCK]
SPIROS DEVELOPMENT CORPORATION II, INC.
The Company will furnish without charge to each shareholder who so
requests a copy of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of shares of the
Company or series thereof, and the qualifications, limitations or restrictions
of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT...............Custodian..............................
(cust) (Minor)
under Uniform Gifts to Minors Act
....................................................
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, __________________ hereby sells, assigns and
transfers unto
Please insert Social Security
or other identifying number
of assignee
<PAGE>
Please print or typewrite name and address
including postal zip code of assignee
Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
attorney, to transfer the said same on the books of the within named Company,
with full power of substitution in the premises.
Dated:
Signature
Signature
Notice: The signature to this assignment must
correspond with the name as written upon the face
of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
In presence of:
<PAGE>
Important: All signatures must be guaranteed by a firm which is a
financial institution and a member of the Securities
Transfer Agent's medallion Program ("STAMP"), the Stock
Exchange Medallion Program ("SEMP") or the New York
Stock Exchange, Inc. Medallion Signature Program
("MSP").
Signature Guarantee:
Name of Firm
Authorized Signature
Name of Authorized Signatory
(Please print)
Address of Firm
Area Code and Telephone Number of Firm
<PAGE>
SPECIMEN CERTIFICATE
SPECIAL COMMON STOCK
The Special Common Stock, par value $1.00 of Spiros Development Corporation
II, Inc., a Delaware company (the "Company"), evidenced hereby entitles the
holders of a majority of the shares of such Special Common Stock to purchase
all, but not less than all, of the outstanding shares of the Company's
Callable Common Stock, par value $0.001 per share (the "Callable Common
Stock") exercisable by notice given at any time beginning on the closing
date of the offering of the Units, each Unit comprised of one share of
Callable Common Stock and one warrant to purchase one-fourth of one share of
the common stock of Dura Pharmaceuticals, Inc. and ending on the earlier of
(i) December 31, 2002, (ii) the 90th day after the date the Company provides
such holder with quarterly financial statements of the Company showing cash
or cash equivalents of less than $5,000,000 or (iii) the date of termination
by the Company of that certain Technology License Agreement, Development
Agreement or Manufacturing and Marketing Agreement dated on or about
December 22, 1997, all as described in the Amended and Restated
Certificate of Incorporation of the Company. Copies of the Amended and
Restated Certificate of Incorporation of the Company are available at the
offices of the Company, 7475 Lusk Boulevard, San Diego, California 92121,
Attention: Mitchell R. Woodbury and will be furnished to any stockholder of
the Company on request and without cost.
SPIROS DEVELOPMENT CORPORATION II, INC.
Incorporated Under The Laws of the State of Delaware
SPECIAL COMMON STOCK
FULLY PAID AND NON-ASSESSABLE CALLABLE COMMON STOCK,
PAR VALUE OF $1.00 PER SHARE
OF SPIROS DEVELOPMENT CORPORATION II, INC.
Certificate No. S-1
See Reverse For Certain Definitions
<PAGE>
THIS CERTIFIES that Dura Pharmaceuticals, Inc.
is the owner of 1,000 Shares of Special Common Stock of
SPIROS DEVELOPMENT CORPORATION II, INC. (the "Company"), transferable on the
books of the Company by the holder hereof, in person or by duly authorized
attorney, upon surrender of this certificate properly endorsed. This
certificate and the shares represented hereby are subject to the laws of
Delaware, and to the Amended and Restated Certificate of Incorporation of the
Company as now or hereafter amended (copies of which are on file at the offices
of the Company and the Transfer Agent), which are made a part hereof with the
same force and effect as if they were set forth herein, to all of which the
holder, by acceptance hereof, assents. This certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
IN WITNESS WHEREOF, the Company has caused the facsimile signatures of
its duly authorized officers and the facsimile of its corporate seal to be
hereunto affixed.
Dated: December 22, 1997
Countersigned and Registered:
/s/ Cam L. Garner, President /s/ Mitchell R. Woodbury, Secretary
---------------------------- -----------------------------------
Authorized Officer Authorized Officer
<PAGE>
[REVERSE OF SPIROS DEVELOPMENT CORPORATION II, INC.'S
SPECIAL COMMON STOCK]
SPIROS DEVELOPMENT CORPORATION II, INC.
The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the "Act"), and may not be offered, sold
or otherwise transferred, pledged or hypothecated in the absence of a
registration statement in effect with respect to such securities, or delivery
of an opinion of counsel in form and substance satisfactory to the issuer of
these securities that such offer, sale or transfer, pledge or hypothecation
is in compliance with the Act.
The Company will furnish without charge to each stockholder who so
requests a copy of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of shares of the
Company or series thereof, and the qualifications, limitations or restrictions
of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT...............Custodian..............................
(cust) (Minor)
under Uniform Gifts to Minors Act
....................................................
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, __________________ hereby sells, assigns and transfers
unto ______________________________________________________________________
(Please insert Social Security
or other identifying number of assignee)
______________________________________________________________________
Please print or typewrite name and address
including postal zip code of assignee
<PAGE>
____________________________________________ Shares of Special Common Stock
represented by the within certificate, and do hereby irrevocably constitute and
appoint
__________________________________________________________________
attorney, to transfer the said same on the books of the within named Company,
with full power of substitution in the premises.
Dated: __________________________
_______________________
Signature
_______________________
Signature
Notice: The signature to this
assignment must correspond with the name
as written upon the face of the
Certificate, in every particular,
without alteration or enlargement, or
any change whatever.
In presence of: __________________________
<PAGE>
Important: All signatures must be guaranteed by a firm which is a
financial institution and a member of the Securities
Transfer Agent's medallion Program ("STAMP"), the Stock
Exchange Medallion Program ("SEMP") or the New York
Stock Exchange, Inc. Medallion Signature Program
("MSP").
Signature Guarantee: ___________________________________
Name of Firm
___________________________________
Authorized Signature
___________________________________
Name of Authorized Signatory
(Please print)
___________________________________
Address of Firm
___________________________________
Area Code and Telephone Number of Firm
<PAGE>
TECHNOLOGY LICENSE AGREEMENT
This TECHNOLOGY LICENSE AGREEMENT (the "Agreement") is made as of
December 22, 1997, by and among DURA PHARMACEUTICALS, INC., a Delaware
corporation ("DURA"), DURA DELIVERY SYSTEMS, INC., a Delaware corporation
("DDSI"), SPIROS DEVELOPMENT CORPORATION, a Delaware corporation ("Spiros
Corp."), and SPIROS DEVELOPMENT CORPORATION II, INC., a Delaware corporation
("Spiros Corp. II").
RECITALS
WHEREAS, DURA and Spiros Corp. II are parties to the Development Agreement,
the Manufacturing and Marketing Agreement, and the Albuterol and Product Option
Agreement (all capitalized terms shall have the respective meanings set forth in
Section 1 hereof).
WHEREAS, DURA has the Purchase Option to acquire all of the Spiros Corp. II
Common Stock.
WHEREAS, DURA, DDSI and/or Spiros Corp. are the owners or licensees of the
Core Technology and of certain rights relating to the Spiros Products and
certain intellectual property rights relating thereto.
WHEREAS, DURA, DDSI and Spiros Corp. are willing to grant to Spiros Corp.
II and Spiros Corp. II desires to acquire from DURA, DDSI and Spiros Corp., a
license to the Core Technology and the Spiros Products for the purpose of
allowing Spiros Corp. II to perform research, develop and commercialize the
Spiros Products.
WHEREAS, pursuant to the Development Agreement, Spiros Corp. II has engaged
DURA to employ the intellectual property rights and technology licensed
hereunder in conducting the Development and commercialization of Spiros
Products.
WHEREAS, in the course of researching and developing the Program
Technology, DURA or Spiros Corp. II may develop certain inventions, processes or
know-how, or DURA may obtain on behalf of Spiros Corp. II rights to certain
additional technology or patents or other proprietary rights useful to other
than just the Spiros Products.
WHEREAS, DURA desires to acquire, and Spiros Corp. II is willing to grant
to DURA, an exclusive worldwide license or sublicense to make, use, market and
sell such developments, technology or rights other than with respect to Spiros
Products.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the
<PAGE>
receipt and sufficiency of which are hereby acknowledged, and in order to induce
DURA to enter into the Agreements, DURA, DDSI, Spiros Corp. and Spiros Corp. II
hereby agree as follows:
1. DEFINITIONS.
1.1 DEFINITIONS. All capitalized terms used herein and not otherwise
defined shall have the respective meanings, to the extent such terms are used
herein, set forth in SCHEDULE 1.1 attached hereto, which is incorporated by this
reference as though fully set forth herein.
1.2 SINGULAR AND PLURAL. Singular and plural forms, as the case may be,
of terms defined herein shall have correlative meanings.
2. GRANT OF LICENSES.
2.1 GRANT OF EXCLUSIVE LICENSES TO SPIROS CORP. II; RIGHT TO SUBLICENSE.
2.1.1 DURA GRANT. Subject to the terms and conditions of this
Agreement, DURA hereby grants to Spiros Corp. II an exclusive (against DURA and
all other Persons) perpetual, worldwide right and license, terminable only as
set forth herein, to employ the DURA Core Technology to research, develop, make,
have made, use, sell, have sold and import the Spiros Products (except with
respect to beclomethasone in Japan, Hong Kong, Singapore, the Republic of China,
Taiwan, the Republic of Korea and the People's Republic of China).
2.1.2 DDSI GRANT. Subject to the terms and conditions of this
Agreement, DDSI hereby grants to Spiros Corp. II an exclusive (against DDSI and
all other Persons) perpetual, worldwide right and license, terminable only as
set forth herein, to employ the DDSI Core Technology to research, develop, make,
have made, use, sell, have sold and import the Spiros Products (except with
respect to beclomethasone in Japan, Hong Kong, Singapore, the Republic of China,
Taiwan, the Republic of Korea and the People's Republic of China).
2.1.3 SPIROS CORP. GRANT. Subject to the terms and conditions of
this Agreement, Spiros Corp. hereby grants to Spiros Corp. II an exclusive
(against Spiros Corp. and all other Persons) perpetual, worldwide right and
license, terminable only as set forth herein, to employ the Spiros Core
Technology to research, develop, make, have made, use, sell, have sold and
import the Spiros Products (except with respect to beclomethasone in Japan, Hong
Kong, Singapore, the Republic of China, Taiwan, the Republic of Korea and the
People's Republic of China).
2.2 THIRD PARTY LICENSES TO DURA OR ANY OF ITS AFFILIATES. With respect
to the rights of third parties that may be obtained by DURA after the date
hereof, and which are necessary or useful to the Development under the
Development Agreement or the
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commercialization of the Spiros Products under the Manufacturing and
Marketing Agreement, DURA shall use commercially reasonable efforts to secure
such rights and the right to sublicense such rights to Spiros Corp. II and
shall sublicense such rights to Spiros Corp. II whenever possible; PROVIDED
that Spiros Corp. II shall not be obligated to accept any grant of rights or
assume any obligations hereunder without its prior written consent. If
Spiros Corp. II desires to obtain any such rights licensed to DURA or any of
its Affiliates pursuant to an agreement with any Person other than Spiros
Corp. II (a "Third Party Agreement"), the existence of which DURA shall
promptly inform Spiros Corp. II, Spiros Corp. II and DURA agree to negotiate
in good faith regarding the allocation between DURA or any of its Affiliates
and Spiros Corp. II of the royalty, license fee, milestone fee or other
payments payable to the third party and the assumption of any obligations
applicable to such license, if any. Spiros Corp. II shall bear the cost of
obtaining any such rights and shall assume such obligations only in
proportion to its and its sublicensees' (other than DURA's and/or any of its
Affiliates) use of such rights. Any sublicense granted to Spiros Corp. II
hereunder shall be limited to the rights that DURA and/or any of its
Affiliates has a right to grant under any such Third Party Agreement and to
any obligations under any such Third Party Agreement, and to any obligations
assumed by DURA and/or any of its Affiliates in consideration of the grant or
assignment of such rights to DURA which are to be sublicensed to Spiros Corp.
II. No party shall take any action, or fail to take any action within its
control, that would constitute or give rise to a breach or other violation by
DURA or any of its Affiliates of any such Third Party Agreement. The parties
agree that no future licensing fees are required to be paid by Spiros Corp.
II during the term of this Agreement as consideration for the licenses and
sublicenses granted to Spiros Corp. II hereunder, except as set forth in this
Section 2.2.
2.3 SPIROS CORP. II SUBLICENSES AND LICENSES TO DURA.
2.3.1 DEVELOPMENT LICENSE. Spiros Corp. II hereby grants DURA an
exclusive, even as to Spiros Corp. II and all other Persons, royalty-free
license to employ and engage in any and all uses of the Program Technology to
conduct Development, subject to the terms and conditions of and to the extent
necessary to perform its obligations under the Development Agreement. The
rights granted under this Section 2.3.1 may be further sublicensed by DURA only
to its Affiliates or as permitted under of the Development Agreement (and, in
such a case, solely to the extent necessary to perform any subcontracting
services thereunder) or as otherwise agreed to in writing by Spiros Corp. II.
2.3.2 COMMERCIALIZATION LICENSE. Spiros Corp. II hereby grants
DURA an exclusive, even as to Spiros Corp. II and all other Persons, worldwide
license to use the Program Technology to make, have made, use, sell, supply and
import Spiros Products subject to the terms and conditions of and to the extent
necessary to perform its obligations under the
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Manufacturing and Marketing Agreement. The rights granted under this
Section 2.3.2 may be further sublicensed by DURA only to its Affiliates or as
permitted under the Manufacturing and Marketing Agreement (and, in such a case,
solely to the extent necessary to perform any subcontracting services
thereunder) or as otherwise agreed to in writing by Spiros Corp. II.
2.3.3 ALBUTEROL PRODUCT LICENSE. Spiros Corp. II hereby grants
DURA effective upon the exercise of the Albuterol Option, an exclusive, royalty-
free, irrevocable, perpetual, worldwide license to use the Program Technology to
develop, make, have made, use, sell, have sold, supply and import the Albuterol
Product. The license granted hereunder shall include the right to grant
sublicenses with respect to the Program Technology licensed under this Section
2.3.3 for use with the Albuterol Product.
2.3.4 PRODUCT OPTION LICENSE. Spiros Corp. II hereby grants DURA
effective upon the exercise of the Product Option, an exclusive, royalty-free,
irrevocable, perpetual, worldwide license to use the Program Technology to
develop, have developed, make, have made, use, sell, have sold, supply and
import the Option Product. The license granted hereunder shall include the
right to grant sublicenses with respect to the Program Technology licensed under
this Section 2.3.4 for use with the Option Product.
2.3.5 ADDITIONAL LICENSE. Spiros Corp. II hereby grants DURA an
exclusive, royalty-free, irrevocable, perpetual, worldwide license to use the
Program Technology, including technology relating to enhancements to Spiros
technology or any next generation inhaler system in which Spiros Corp. II has
rights, to develop, have developed, make, have made, use, sell, have sold,
supply and import any products other than the Spiros Products.
2.3.6 OTHER LICENSES. The foregoing licenses are granted in
addition to, and not in substitution for, any other license granted to DURA,
whether pursuant to this Agreement or otherwise.
2.4 RESTRICTIONS UPON USE OF PROGRAM TECHNOLOGY. Except as provided in
the Agreements or by the prior written consent of DURA, Spiros Corp. II shall
not, directly or indirectly, prior to the expiration or termination (other than
by exercise) of the Purchase Option, (a) license, sublicense, encumber, pledge,
sell, assign or otherwise transfer to any Person any rights under the Program
Technology, (b) make, have made, use or sell any of the Program Technology for
any purpose whatsoever, or (c) authorize, cause or assist in any way any other
Person to do any of the foregoing. Following the expiration or termination
(other than by exercise) of the Purchase Option, the foregoing limitations shall
cease to be applicable and Spiros Corp. II shall have, without limitation, the
right to sublicense the Program Technology for use with the Spiros Products.
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2.5 ADJUSTMENT OF LICENSES. The licenses granted in Sections 2.1 and 2.3
hereunder shall be subject to adjustment (a) upon the Albuterol Option Closing
Date, so as to exclude any rights to the Albuterol Program Assets from the
licenses granted therein, and (b) upon the Product Option Closing Date, so as to
exclude any rights to Spiros Product Program Assets from the license granted
therein.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
3.1 REPRESENTATIONS, WARRANTIES AND COVENANTS OF DURA. DURA represents,
warrants and covenants to Spiros Corp. II as follows:
3.1.1 ORGANIZATION OF DURA. DURA is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority adequate for executing and delivering
and performing its obligations under this Agreement;
3.1.2 ORGANIZATION OF DDSI. DDSI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power and authority adequate for executing and delivering
and performing its obligations under this Agreement;
3.1.3 ORGANIZATION OF SPIROS CORP.. Spiros Corp. is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware with full corporate power and authority adequate for executing
and delivering and performing its obligations under this Agreement.
3.1.4 AUTHORIZATION. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
the part of DURA, DDSI and Spiros Corp. and this Agreement shall constitute a
legal, valid and binding obligation of each of DURA, DDSI and Spiros Corp.,
enforceable against DURA, DDSI and Spiros Corp. in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors;
3.1.5 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery
and performance of this Agreement do not and will not conflict with or
contravene any provision of the charter documents or by-laws of each of DURA,
DDSI and Spiros Corp. or any material agreement, document, instrument, indenture
or other obligation of DURA, DDSI or Spiros Corp.;
3.1.6 OTHER AGREEMENTS. None of DURA, DDSI or Spiros Corp. shall
enter into any agreement, make any commitment, take any action or fail to take
any action that would contravene any material provision of, or materially
derogate or restrict any of the rights and licenses granted or assigned to
Spiros Corp. II under, this Agreement and each of DURA, DDSI and Spiros Corp.
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agree to abide and be bound by the terms of any license agreement to which they
are a party, any of the rights to which have been or will be sublicensed or
assigned to Spiros Corp. II;
3.1.7 INTELLECTUAL PROPERTY RIGHTS. To the best of its
knowledge, each of DURA, DDSI and Spiros Corp. has sufficient legal and/or
beneficial title and ownership to grant the licenses to the DURA Core
Technology, the DDSI Core Technology and the Spiros Corp. Core Technology,
respectively, and the other intellectual property rights provided in Section
2 above. None of DURA, DDSI or Spiros Corp. is aware of and has not received
any communications alleging that it has violated, or that Spiros Corp. II by
practicing the Core Technology as contemplated in the Agreements would
violate, any intellectual property rights of any third party. Except for the
1933 Royalty Agreement, there are no outstanding options, licenses or
agreements of any kind between DURA, DDSI or Spiros Corp. and any third party
relating to the research, development, manufacture, use or sale of the Spiros
Products. To the best of its knowledge, there is no material unauthorized
use, infringement or misappropriation of any of the Core Technology. DURA,
DDSI and Spiros Corp. are not aware of, nor have they received any
communications challenging the ownership, validity or effectiveness of the
Core Technology.
3.1.8 VALIDITY. None of DURA, DDSI or Spiros Corp. is aware of any
action, suit or inquiry or investigation instituted by any federal, state, local
or foreign governmental agency or instrumentality which questions or threatens
the validity of the Agreements.
3.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SPIROS CORP. II. Spiros
Corp. II represents, warrants and covenants to DURA, DDSI and Spiros Corp. as
follows:
3.2.1 ORGANIZATION. Spiros Corp. II is a corporation duly
organized, validly existing and in good standing under the laws of State of
Delaware with full corporate power and authority adequate for executing and
delivering and performing its obligations under this Agreement;
3.2.2 AUTHORIZATION. The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
the part of Spiros Corp. II, and this Agreement shall constitute a legal, valid
and binding obligation of Spiros Corp. II, enforceable against Spiros Corp. II
in accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors;
3.2.3 COMPLIANCE WITH OTHER INSTRUMENTS. The execution, delivery
and performance of this Agreement do not and will not conflict with or
contravene any provision of the charter documents or by-laws of Spiros Corp. II
or any material agreement, document, instrument, indenture or other obligation
of Spiros Corp. II;
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3.2.4 OTHER AGREEMENTS. Spiros Corp. II shall not enter into any
agreement, make any commitment, take any action or fail to take any action that
would contravene any material provisions of, or materially derogate or restrict
any of the rights or licenses granted to DURA under, this Agreement;
3.2.5 SUBLICENSES. Spiros Corp. II agrees to abide and be bound by
the terms of the sublicenses granted to it in accordance with the terms of this
Agreement by DURA, DDSI and/or Spiros Corp. under any Third Party Agreement or
under any agreement with a third party;
3.2.6 NON-COMPETITION. Spiros Corp. II shall not, during the
term of this Agreement, without the prior written consent of DURA, solicit
the employment of any person, in any capacity, who, at any time during the
term of this Agreement, shall have been an officer, director, employee or
agent of DURA or any of its Affiliates, except for the officers of Spiros
Corp. II on the date hereof; and
3.2.7 VALIDITY. Spiros Corp. II is aware of no action, suit or
inquiry or investigation instituted by any federal, state, local or foreign
governmental agency or instrumentality which questions or threatens the validity
of the Agreements.
4. DISCLOSURE AND USE OF TECHNOLOGY AND RIGHTS.
4.1 TECHNOLOGY TRANSFER.
4.1.1 PRIOR TO EXPIRATION OR TERMINATION OF PURCHASE OPTION. At any
time prior to the expiration or termination (other than by exercise) of the
Purchase Option and upon request by Spiros Corp. II, each of DURA, DDSI and
Spiros Corp. shall, within a reasonable time thereafter, provide access to
Spiros Corp. II to all physical manifestations of the Program Technology which
they control.
4.1.2 AFTER EXPIRATION OR TERMINATION OF OPTION. After expiration
or termination (other than by exercise) of the Purchase Option, DURA shall,
except as provided otherwise in any of the Agreements, within thirty (30) days
of a written request by Spiros Corp. II, provide to Spiros Corp. II or a
sublicensee designated by Spiros Corp. II, reasonably sufficient quantities of
previously manufactured quantities of Spiros Products and all physical
manifestations of the Program Technology, including, without limitation, copies
of all laboratory notebooks, designs, specifications, formulas, procedures,
clinical and pre-clinical data and other information, all to the extent that
such Spiros Products, or Program Technology were developed prior to the time of
such required delivery. Spiros Corp. II shall pay all costs of shipping,
packaging, copying and similar or related costs in connection therewith,
provided such costs have not been previously paid by Spiros Corp. II hereunder
or under the
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Development Agreement.
4.1.3 TECHNICAL ASSISTANCE AFTER EXPIRATION OR TERMINATION OF
PURCHASE OPTION. For a period of one (1) year after expiration or termination
(other than by exercise) of the Purchase Option, each of DURA, DDSI and Spiros
Corp. shall provide to Spiros Corp. II, or a sublicensee designated by Spiros
Corp. II, at Spiros Corp. II's or such permitted sublicensee's sole option and
expense, reasonable technical assistance and instruction in understanding,
interpreting and applying the Program Technology solely for the purposes of
further developing the Program Technology and developing and commercializing
Spiros Products. Each of DURA, DDSI and Spiros Corp. shall make their
respective employees directly involved in the Development of the Program
Technology prior to the expiration or termination (other than by exercise) of
the Purchase Option, reasonably available for consultation by telephone, or in
person at their respective offices at reasonable cost, in connection with such
assistance and instruction, all at the sole expense of Spiros Corp. II or such
sublicensee. The obligations set forth in this Section 4.1.3 shall not include
any obligation to disclose matters unrelated to the application of the Program
Technology to the Spiros Products, matters with respect to the Albuterol Product
(following the exercise of the Albuterol Option) or matters with respect to the
Option Product (following the exercise of the Product Option).
4.2 PATENTS.
4.2.1 RIGHTS PRIOR TO EXPIRATION OR TERMINATION OF PURCHASE
OPTION. Except as set forth below, until the expiration or termination (other
than by exercise) of the Purchase Option, DURA shall, at Spiros Corp. II's
sole expense, direct and cause appropriate patent applications to be
prepared, filed and prosecuted in all relevant territories, in a timely
fashion, with respect to any inventions included in the Program Technology
whether arising out of inventions made solely by DURA employees or
consultants, inventions made solely by DDSI employees or consultants,
inventions made solely by Spiros Corp. employees or consultants, inventions
made solely by Spiros Corp. II employees or consultants or inventions made
jointly by any of the parties' employees or consultants. DURA and Spiros
Corp. II shall discuss and evaluate with each other such discoveries and
inventions and shall confer regarding the advisability of filing patent
applications to cover those discoveries and inventions, including the
countries in which such patent applications should be filed. DURA shall
cause any patents issuing thereon to be maintained and enforced that DURA and
Spiros Corp. II believe, in their commercially reasonable judgment, are
patentable and commercially and technically significant to Spiros Corp. II.
With respect to the Developed Technology that has substantial application to
Spiros Products, as well as to products other than the Spiros Products, the
expenses of preparing, prosecuting and maintaining such patents shall be
reasonably allocated between DURA and Spiros Corp. II by their mutual
agreement.
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4.2.2 RIGHTS AFTER EXPIRATION OR TERMINATION OF PURCHASE OPTION.
After the expiration or termination of the Purchase Option (other than by
exercise), Spiros Corp. II shall have the exclusive right, at its sole expense,
to prepare and prosecute, in its name, patent applications, and to maintain
patents issued with respect to the Program Technology. In the event that Spiros
Corp. II declines to prepare, prosecute or maintain any such patent application
or patent, Spiros Corp. II shall give DURA no less than sixty (60) days' prior
written notice of such decision but in all events at least as much time so as to
allow DURA to take action to forestall a loss of novelty or a statutory bar to
patentability. Following such written notice, and in order to protect its
rights, DURA shall have the right in its sole discretion and at its sole
expense, to undertake the preparation, prosecution or maintenance of any such
patent application or patent issued thereon with respect to the DURA Core
Technology, the DDSI Core Technology and the Spiros Core Technology.
Enforcement rights upon the expiration or termination (other than by exercise)
of the Purchase Option are governed by Section 5.2.2 hereunder.
4.2.3 COOPERATION. Each party agrees to cause each of its employees
and agents to take all actions and to execute, acknowledge and deliver all
instruments or agreements reasonably requested by the other party, and necessary
for the perfection, maintenance, enforcement or defense of that party's rights
as set forth above.
4.3 CONFIDENTIAL INFORMATION. Any party receiving Confidential
Information shall maintain the confidential and proprietary status of such
Confidential Information, keep such Confidential Information and each part
thereof within its possession or under its control sufficient to prevent any
activity with respect to the Confidential Information that is not specifically
authorized by this Agreement, use all commercially reasonable efforts to prevent
the disclosure of any Confidential Information to any other Person, and use
commercially reasonable efforts to ensure that such Confidential Information is
used only for those purposes specifically authorized herein; PROVIDED, HOWEVER,
that such restriction shall not apply to any Confidential Information that is
(a) independently developed by the receiving party outside the scope of this
Agreement or the Development Agreement (PROVIDED, HOWEVER, that such restriction
shall apply to any technology licensed by DURA, DDSI or Spiros Corp. to Spiros
Corp. II under this Agreement), (b) in the public domain at the time of its
receipt or thereafter becomes part of the public domain through no fault of the
receiving party, (c) received without an obligation of confidentiality from a
third party having the right to disclose such information, (d) released from the
restrictions of this Section 4.3 by the express written consent of the
disclosing party, (e) disclosed to any permitted assignee, permitted sublicensee
or permitted subcontractor of DURA, DDSI, Spiros Corp. or Spiros Corp. II under
the Agreements (if such assignee, sublicensee or
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subcontractor is subject to the provisions of this Section 4.3 or
substantially similar provisions) or (f) required by law, statute, rule or
court order to be disclosed (the disclosing party shall, however, use
commercially reasonable efforts to obtain confidential treatment of any such
disclosure). The obligations set forth in this Section 4.3 shall survive for
a period of ten (10) years from the expiration or termination (other than by
exercise) of the Purchase Option. Without limiting the generality of the
foregoing, DURA, DDSI, Spiros Corp. and Spiros Corp. II each shall use
commercially reasonable efforts to obtain, if not already in place,
confidentiality agreements from their respective employees and agents,
similar in scope to this Section 4.3, to protect the Confidential Information.
4.4 PERMITTED DISCLOSURES. Notwithstanding the provisions of Section 4.3
hereof, DURA, DDSI, Spiros Corp. and Spiros Corp. II (and their permitted
sublicensees) may, to the extent necessary, disclose and use Confidential
Information, consistent with the rights of DURA, DDSI, Spiros Corp. and Spiros
Corp. II otherwise granted hereunder (a) for the purpose of securing
institutional or government approval to clinically test or market any Spiros
Product, (b) for the purpose of securing patent protection for an invention
within the scope of the Program Technology, (c) in the case of Spiros Corp. II,
following expiration or termination (other than by exercise) of the Purchase
Option, to the extent necessary or useful in the development or
commercialization of any Spiros Products or (d) in the case of DURA, following
exercise of the Albuterol Option or the Product Option, to the extent necessary
or useful in the development or commercialization of the Albuterol Product or
the Option Product, respectively; PROVIDED, that the disclosing party obtains an
agreement from any Person to whom such Confidential Information is disclosed to
preserve the confidentiality thereof upon terms reasonably equivalent to those
set forth herein and to use such Confidential Information only for those
purposes consistent with the respective rights granted to Spiros Corp., DURA,
DDSI and Spiros Corp. II hereunder or under any of the Agreements.
5. PATENT INFRINGEMENT.
5.1 NOTIFICATION OF INFRINGEMENT. Each party shall notify all other
parties of any infringement known to such party by any Person of any Patent
Rights and shall provide all other parties with the available evidence, if any,
of such infringement.
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5.2 ENFORCEMENT OF PATENT RIGHTS. If any party has actual notice of
infringement by any Person of Patent Rights, the respective officers of DURA and
Spiros Corp. II shall confer to determine in good faith an appropriate course of
action to enforce such Patent Rights or otherwise abate the infringement
thereof, subject to the provisions of this Section 5.2. DURA and Spiros Corp.
II shall consult with each other in the planning and execution of any action to
enforce Patent Rights.
5.2.1 RIGHTS PRIOR TO EXPIRATION OR TERMINATION OF OPTION. Until
the expiration or termination (other than by exercise) of the Purchase Option,
if DURA determines that enforcement of Patent Rights is appropriate, DURA shall
have the right, but not the obligation, to take appropriate action to enforce
such Patent Rights. Any enforcement with respect to the Patent Rights shall be
at DURA's expense; PROVIDED, HOWEVER, that if DURA elects to so act with respect
to the Patent Rights, Spiros Corp. II shall have the right to participate in the
enforcement of such Patent Rights by agreeing to bear a percentage of the costs
of such enforcement in such amount as the parties shall determine. If, within
six (6) months after notice of infringement, DURA has not commenced an action to
enforce such Patent Rights or thereafter ceases to diligently pursue such
action, Spiros Corp. II shall have the right, at its expense, to take
appropriate action to enforce such Patent Rights as its sole remedy hereunder.
All amounts recovered in any action to enforce Patent Rights undertaken by DURA
and Spiros Corp. II, whether by judgment or settlement, shall be retained by
DURA and Spiros Corp. II pro rata according to the respective percentages of
expenses borne by them in enforcing such Patent Rights. Neither DURA nor Spiros
Corp. II shall enter into any settlement that includes the grant of a license
under, agreement not to enforce, or any statement prejudicial to the validity or
enforceability of any Patent Rights without the consent of the other, which
consent shall not be unreasonably withheld. Any amounts retained by Spiros
Corp. II shall not be considered Available Funds.
5.2.2 RIGHTS AFTER EXPIRATION OR TERMINATION OF OPTION. After the
expiration or termination (other than by exercise) of the Purchase Option, if
Spiros Corp. II determines that enforcement of Patent Rights is appropriate,
Spiros Corp. II shall have the right, but not the obligation, to take
appropriate action to enforce such Patent Rights. Any enforcement with respect
to the Patent Rights shall be at Spiros Corp. II's expense; PROVIDED, HOWEVER,
that if Spiros Corp. II elects to so act with respect to the Patent Rights, DURA
shall have the right to participate in the enforcement of such Patent Rights by
agreeing to bear a percentage of the costs of such enforcement in such amount as
the parties shall determine. If, within six (6) months after notice of
infringement, Spiros Corp. II has not commenced an action to enforce such Patent
Rights or thereafter ceases to diligently pursue such action, DURA shall have
the right, at its expense, to take appropriate action to enforce such Patent
Rights as its sole remedy hereunder. All amounts recovered in any action to
enforce Patent Rights undertaken by
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Spiros Corp. II and DURA, whether by judgment or settlement, shall be
retained by Spiros Corp. II or DURA pro rata according to the respective
percentages of expenses borne by them in enforcing such Patent Rights.
Neither DURA nor Spiros Corp. II shall enter into any settlement that
includes the grant of a license under, agreement not to enforce, or any
statement prejudicial to the validity or enforceability of any Patent Rights
without the consent of the other, which consent shall not be unreasonably
withheld.
5.2.3 COOPERATION. Each party agrees to cause each of its employees
and agents to take all actions and to execute, acknowledge and deliver all
instruments or agreements reasonably requested by the other party, and necessary
for the perfection, maintenance, enforcement or defense of the party's rights as
set forth above.
5.3 DISCLAIMER OF WARRANTY; CONSEQUENTIAL DAMAGES.
5.3.1 DISCLAIMER OF WARRANTY. Nothing in this Agreement shall be
construed as a representation made or warranty given by any party hereto that
any patents will issue based on pending applications within the Patent Rights,
or that any such Patent Rights which do issue will be valid, or that the
practice by a party hereto of any license granted hereunder, or that the use of
any Program Technology licensed hereunder, will not infringe the patent or
proprietary rights of any other Person. Spiros Corp. II understands that the
Development shall involve technologies that have not been approved by any
regulatory authority and that none of DURA, DDSI or Spiros Corp. guarantees the
safety or usefulness of any Spiros Product. In addition, except as expressly
set forth in Section 3 of this Agreement, DURA, DDSI, Spiros Corp. and Spiros
Corp. II acknowledge that THE PROGRAM TECHNOLOGY IS LICENSED TO Spiros Corp. II
AND SUBLICENSED TO DURA HEREUNDER AS IS, AND DURA, DDSI, SPIROS CORP. AND SPIROS
CORP. II EXPRESSLY DISCLAIM AND HEREBY WAIVE, RELEASE AND RENOUNCE ANY WARRANTY,
EXPRESS OR IMPLIED, WITH RESPECT TO SUCH PROGRAM TECHNOLOGY, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
NONINFRINGEMENT. Except as expressly set forth in this agreement, DURA, DDSI,
Spiros Corp. and Spiros Corp. II disclaim all warranties of any nature, express
or implied.
5.3.2 CONSEQUENTIAL DAMAGES. NONE OF THE PARTIES TO THIS AGREEMENT
SHALL BE ENTITLED TO RECOVER FROM ANOTHER PARTY HERETO ANY SPECIAL, INCIDENTAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES.
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6. INDEMNIFICATION.
6.1 INDEMNIFICATION BY DURA. DURA shall indemnify the Spiros Corp. II
Indemnitees, pay on demand and protect, defend, save and hold harmless each
Spiros Corp. II Indemnitee from and against any and all Claims incurred by or
asserted against any Spiros Corp. II Indemnitee of whatever kind or nature,
including, without limitation, any claim or liability based upon negligence,
warranty, strict liability, violation of government regulation or
infringement of patent or other propriety rights, arising from or occurring
as a result of (a) any use of the Program Technology by DURA or any
Affiliate, agent or sublicensee of DURA (other than Spiros Corp. II in
contravention of the terms of this Agreement), (b) any of the Development or
any other services to be performed by DURA during the term of the Agreements
pursuant to the Agreements, including, without limitation, any workers'
compensation claim by any DURA employee or consultant or other Person or (c)
subject to Section 5.3.2, any breach of the Agreements by DURA, except, with
respect to Spiros Corp. II Indemnitees, in cases in which Claims of Spiros
Corp. II Indemnitees are based upon the gross negligence or willful
misconduct of a Spiros Corp. II Indemnitee. A Spiros Corp. II Indemnitee
shall promptly notify DURA of any Claim with respect to which an Spiros Corp.
II Indemnitee is seeking indemnification hereunder, upon becoming aware
thereof, and permit DURA at DURA's cost to defend against such Claim and
shall cooperate in the defense thereof.
6.2 INDEMNIFICATION BY SPIROS CORP. II. Spiros Corp. II shall indemnify
the DURA Indemnitees, the DDSI Indemnitees and the Spiros Corp. Indemnitees, pay
on demand and protect, defend, save and hold harmless each DURA Indemnitee, DDSI
Indemnitee or Spiros Corp. Indemnitee from and against any and all Claims
incurred by or asserted against any DURA Indemnitee, DDSI Indemnitee or Spiros
Corp. Indemnitee of whatever kind or nature, including, without limitation, any
claim or liability based upon negligence, warranty, strict liability, violation
of government regulation or infringement of patent or other propriety rights,
arising from or occurring as a result of (a) any use of the Program Technology
by Spiros Corp. II or any sublicensee of Spiros Corp. II (other than the use of
such by DURA, DDSI or Spiros Corp. whether pursuant to the Agreements or
otherwise) or (b) subject to Section 5.3.2, any breach of the Agreements by
Spiros Corp. II, except, with respect to DURA Indemnitees, in cases in which
Claims are based upon the gross negligence or willful misconduct of a DURA
Indemnitee or, except with respect to DDSI Indemnitees, in cases in which Claims
are based upon the gross negligence or willful misconduct of a DDSI Indemnitee
or, except with respect to Spiros Corp. Indemnitees, in cases in which Claims
are based upon the gross negligence or willful misconduct of a Spiros Corp.
Indemnitee. An Indemnitee hereunder shall promptly notify Spiros Corp. II of
any Claim with respect to which such Indemnitee is seeking indemnification
hereunder, upon becoming aware thereof, and permit Spiros Corp. II at Spiros
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Corp. II's cost to defend against such Claim and shall cooperate in the
defense thereof.
6.3 DEFENSE OF CLAIMS. None of DURA, DDSI, Spiros Corp. or Spiros Corp.
II shall enter into, or permit, any settlement of any Claim for which
indemnification is being sought by such party hereunder without the express
written consent of each other party (or a DURA, DDSI, Spiros Corp. or Spiros
Corp. II Indemnitee, as the case may be), which consent shall not be
unreasonably withheld or delayed. Each party may, at its option and expense,
have its own counsel participate in any proceeding which is under the direction
of another party (the "Indemnifying Party") and will cooperate with the
Indemnifying Party and its insurer in the disposition of any such matter;
PROVIDED, HOWEVER, that if the Indemnifying Party shall not defend such Claim,
the other party shall have the right to defend such Claim itself and recover
from the Indemnifying Party all reasonable attorneys' fees and expenses incurred
by it during the course of such defense.
7. TECHNOLOGY ACCESS FEE.
7.1 FEE. In consideration of the license rights granted to Spiros
Corp. II herein and in recognition of DURA's, DDSI's and Spiros Corp.'s
expertise which they have developed over a period of years and individually,
Spiros Corp. II shall pay DURA, DDSI and Spiros Corp. an aggregate technology
access fee equal to the greater of (a) five percent (5%) of the Net Sales in
a calendar year for each Spiros Product, to be paid by Spiros Corp. II fifty
percent (50%) to DURA, twenty percent (20%) to DDSI and thirty percent
(30%) to Spiros Corp. or (b) Two Million Dollars for all Spiros Products in
any calendar year beginning in calendar 1998, to be paid by Spiros Corp. II
fifty percent (50%) to DURA, twenty percent (20%) to DDSI and thirty
percent (30%) to Spiros Corp.
7.2 TERM. Such technology access fee obligation shall terminate on a
country-to-country basis, on the following basis: (a) in those countries where
no patents covering such Spiros Product issue, ten (10) years following the
first commercial sale of such Spiros Product in such country; and (b) in those
countries where a patent(s) covering such Spiros Product issue, upon the
expiration of the last-to-expire patent covering the manufacture, use, import or
sale of a Spiros Product in such country.
7.3 PAYMENT OF TECHNOLOGY ACCESS FEES. Spiros Corp. II shall pay Five
Hundred Thousand Dollars ($500,000) on or before the forty-fifth (45th)
day following the end of each calendar quarter, fifty percent (50%) to
DURA, twenty percent (20%) to DDSI and thirty percent (30%) to Spiros
Corp. Within sixty (60) days following the end of each calendar year,
Spiros Corp. II shall provide to DURA, DDSI and Spiros Corp. a formal
accounting of the Net Sales of each Spiros Product in such calendar year
(the "Accounting"), and shall calculate the aggregate sum with respect to
sales of all Spiros Products which would be due if Spiros Corp. II were
to pay DURA five percent (5%) of the Net Sales in a calendar year for
each Spiros Product (the "Net Sales Amount"). In the event that the Net
Sales Amount is less than Two Million Dollars ($2,000,000), no additional
payments shall be due and payable from Spiros Corp. II with respect to
access to the Core Technology. In the event that the Net Sales Amount is
greater than Two Million Dollars ($2,000,000), Spiros Corp. II shall
promptly pay, but in no event later than five (5) business days following
delivery of the Accounting to DURA, DDSI and Spiros Corp., the difference
between the Net Sales Amount and Two Million Dollars ($2,000,000) with
respect to access to the Core Technology, fifty percent (50%) to DURA,
twenty percent (20%) to DDSI and thirty percent (30%) to Spiros Corp.
7.4 PRODUCT SALES. The Spiros Products for which such technology access
fees are payable shall be deemed to have been sold when shipped and billed to a
third party.
7.5 PAYEE. Such technology access fees shall be paid by Spiros Corp. II
directly to the party entitled thereto or to such party's designee as duly named
in a written notice to Spiros Corp. II.
7.6 PAYMENT IN DOLLARS. Such technology access fees shall
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be paid in United States currency. All technology access fees accrued in
currencies other than U.S. dollars shall be converted into U.S. dollars on
the basis of the rate of exchange applied by Citibank, N.A., New York, as of
the last banking day of each quarter for which such technology access fees
become due.
7.7 PROHIBITED PAYMENTS. Notwithstanding any other provision of the
Agreements, if Spiros Corp. II is prevented from paying any such technology
access fee by virtue of the statutes, laws, codes or governmental regulations of
the country from which the payment is to be made, then such technology access
fee shall be made by depositing funds in the currency in which accrued to the
other party's account in a bank acceptable to the other party in the country
whose currency is involved.
7.8 TAXES. If a law or governmental regulation requires withholding of
taxes on any payment due hereunder, such taxes shall be deducted from any amount
to be remitted hereunder and shall be paid to the proper taxing authority, and
proof of payment shall be provided to the party on whose behalf such taxes were
paid as evidence of such payment in such form as required by the tax authorities
having jurisdiction thereover.
7.9 REPORTS. Each payment of any such technology access fee shall be
accompanied by a written report, prepared and signed by a financial officer of
Spiros Corp. II, showing for the quarter for which payment is being made, the
gross sales and Net Sales of each Spiros Product sold and the technolgy access
fees which shall have accrued with respect thereto and currency conversion
calculations, if any. In the event that, for any quarter following the first
quarter in which a Spiros Product is sold for which such a technology access fee
would be payable, no such technology access fee is due, the party having
responsibility for sales of such Spiros Product shall report the same to the
other parties.
7.10 MAINTENANCE AND EXAMINATION OF RECORDS. At the request and expense
of DURA, Spiros Corp. II, or their respective Affiliates, the other parties
hereto and their Affiliates shall permit an independent certified public
accountant appointed by such party and reasonably acceptable to the other
party, at reasonable times and upon reasonable notice (but not exceeding once
in any twelve (12) month period), to examine those records as may be
necessary to: (a) determine, with respect to any calendar year ending not
more than three (3) years prior to such party's request, the correctness of
any report or payment under this Agreement; or (b) obtain information as to
the Spiros Product sales for any calendar year. Said independent certified
public accountant shall verify to the requesting party only the amount of
payment due or costs incurred hereunder and disclose no other information
revealed in its audit. Results of any such examination shall be made
available to the parties. Any amount of deficiency, or overcharge, shall be
paid or refunded promptly to Spiros Corp. II, plus interest at the commercial
prime lending rate of Citibank, N.A., New York (or equivalent banking
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institution) until the date paid. The party requesting the audit shall bear
the full cost of the performance of any such audit unless such audit
discloses a variance of more than five percent (5%) from the amount of the
original report, technology access fee or payment calculation, in which case
the party being audited shall bear the full cost of the performance of such
audit. DURA and Spiros Corp. II shall maintain and keep complete and
accurate records in sufficient detail to enable any examination concerning
technology access fees to be conducted pursuant to this Section 7.10.
8. TERM AND TERMINATION.
8.1 TERM. This Agreement shall be effective as of the date hereof and
shall continue in full force and effect indefinitely, unless terminated earlier
as provided in Sections 8.2, 8.3 and 8.4 hereof.
8.2 TERMINATION BY MUTUAL AGREEMENT. By mutual agreement, the parties
hereto may at any time terminate this Agreement and the Development on mutually
acceptable terms.
8.3 EFFECT OF PURCHASE OPTION EXERCISES.
8.3.1 PURCHASE OPTION. In the event the Purchase Option is
exercised by DURA, this Agreement shall terminate, effective upon the Purchase
Option Closing Date, without any obligation to make payments pursuant to Section
7 of this Agreement.
8.3.2 PARTIAL TERMINATION UPON EXERCISE OF ALBUTEROL OPTION. In the
event that the Albuterol Option is exercised, this Agreement shall terminate,
effective on the Albuterol Option Closing Date, with respect to the Albuterol
Program Assets and any obligation to make technology access fee payments with
respect to the Albuterol Product, but shall otherwise continue in full force and
effect until terminated pursuant to this Section 8.
8.3.3 PARTIAL TERMINATION UPON EXERCISE OF PRODUCT OPTION. In the
event that the Product Option is exercised, this Agreement shall terminate,
effective on the Product Option Closing Date, with respect to the Spiros Product
Program Assets and any obligation to make technology access fee payments with
respect to the Option Product, but shall otherwise continue in full force and
effect until terminated pursuant to this Section 8.
8.4 TERMINATION BY DURA, DDSI AND SPIROS. Either DURA, DDSI and Spiros
Corp., acting by unanimous action, or Spiros Corp. II shall have the right to
terminate this Agreement, effective as set forth in a written notice of the
occurrence of an Event of Default with respect to the other party.
8.5 RIGHTS IN BANKRUPTCY. All rights and licenses granted
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under or pursuant to this Agreement by DURA, DDSI, Spiros Corp. and Spiros
Corp. II are, and shall otherwise be deemed to be, for purposes of Section
365(n) of the Bankruptcy Code, licenses of rights to "intellectual property"
as defined under Section 101 of the Bankruptcy Code. The parties agree that
DURA and Spiros Corp. II as licensees of such rights under this Agreement,
shall retain and may fully exercise all of their rights and elections under
the Bankruptcy Code. The parties further agree that, in the event of the
commencement of a bankruptcy proceeding by or against DURA, DDSI, Spiros
Corp. or Spiros Corp. II under the Bankruptcy Code, the parties hereto which
are not parties to such proceeding shall be entitled to a complete duplicate
of (or complete access to, as appropriate) any such intellectual property and
all embodiments of such intellectual property, and same, if not already in
their possession, shall be promptly delivered to them upon any such
commencement of a bankruptcy proceeding upon their written request therefor.
8.6 EFFECT OF TERMINATION.
8.6.1 TERMINATION BY DURA, DDSI AND SPIROS CORP.. If DURA, DDSI and
Spiros Corp. terminate this Agreement pursuant to Section 8.4 hereof, (a) the
licenses and sublicenses granted to Spiros Corp. II under Section 2.1 of this
Agreement shall terminate, (b) all rights to the DURA Core Technology shall
revert to DURA, all rights to the DDSI Core Technology shall revert to DDSI and
all rights to the Spiros Core Technology shall revert to Spiros Corp., (c) all
rights to the Program Technology except as set forth in (b) above shall revert
to DURA, (d) all rights to develop, make, have made, use, sell and import all
Spiros Products shall revert to DURA, DDSI and/or Spiros Corp. and (e) the
provisions of Sections 1, 3.2.6, 4.3, 4.4, 5.3, 6, 9.4 and 9.5 of this Agreement
shall survive. DURA will use reasonable efforts for a period of 120 days after
a termination by DURA, DDSI and Spiros Corp., pursuant to Section 8.4 hereof, to
negotiate royalties or any other compensation to be paid by DURA to Spiros Corp.
II with respect to the Developed Technology that will revert to DURA. In the
event the parties are unable to agree on the royalties or other compensation to
be paid by DURA with respect to the Developed Technology with the 120 day
period, such matter shall be submitted by DURA and Spiros Corp. II to binding
arbitration in accordance with the rules of the American Arbitration
Association.
8.6.2 TERMINATION BY SPIROS CORP. II. If Spiros Corp. II terminates
this Agreement pursuant to Section 8.4 hereof, the provisions of Sections 1,
2.1, 2.3.3 (if the Albuterol Option has been exercised), 2.3.4 (if the Product
Option has been exercised), 2.3.5, 3.2.6, 4.2.2, 4.3, 4.4, 5.3, 6, 7, 9.4 and
9.5 of this Agreement shall survive; PROVIDED, HOWEVER, if Spiros Corp. II fails
to perform or observe or otherwise breaches its Material Obligations under
Section 7 of this Agreement, which failure or breach is unremedied for a period
of sixty (60) days after receipt by Spiros Corp. II of written notice thereof
from DURA, or in the event such failure or breach
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is not capable of cure within sixty (60) days, for such longer period of time
as Spiros Corp. II is vigorously pursuing such cure in good faith, DURA, DDSI
and Spiros Corp. shall have the right to terminate this Agreement with the
same effect as if DURA, DDSI and Spiros Corp. were to terminate this
Agreement pursuant to Section 8.4 hereof.
8.6.3 TERMINATION OF PURCHASE OPTION UNEXERCISED. If the Purchase
Option terminates unexercised, the licenses and sublicenses granted under
Sections 2.3.1 and 2.3.2 of this Agreement shall terminate.
8.6.4 CONTINUING OBLIGATION TO MAKE PAYMENTS. Notwithstanding
anything contained herein to the contrary, upon termination of this Agreement,
the obligation to pay any amounts payable by any party to another party which
accrued prior to such termination shall survive.
9. MISCELLANEOUS.
9.1 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No failure on the part of
DURA, DDSI, Spiros Corp. or Spiros Corp. II to exercise and no delay in
exercising any right, power, remedy or privilege under this Agreement or
provided by statute or at law or in equity or otherwise, including, without
limitation, the right or power to terminate this Agreement, shall impair,
prejudice or constitute a waiver of any such right, power, remedy or privilege
or be construed as a waiver of any breach of this Agreement or as an
acquiescence therein, nor shall any single or partial exercise of any such
right, power, remedy or privilege preclude any other or further exercise thereof
or the exercise of any other right, power, remedy or privilege.
9.2 FORCE MAJEURE. DURA, DDSI, Spiros Corp. and Spiros Corp. II shall
each be excused for any failure or delay in performing any of their respective
obligations under this Agreement, if such failure or delay is caused by Force
Majeure.
9.3 RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement is
intended or is to be construed to constitute DURA, DDSI, Spiros Corp. and Spiros
Corp. II as partners or joint venturers or one party as an employee of any other
party. Except as expressly provided herein, no party hereto shall have any
express or implied right or authority to assume or create any obligations on
behalf of or in the name of any other party or to bind any other party to any
contract, agreement or undertaking with any third party.
9.4 NOTICES. All notices, requests and other communications to DURA,
DDSI, Spiros Corp. or Spiros Corp. II hereunder shall be in writing (including
telecopy or similar electronic transmissions), shall refer specifically to this
Agreement and shall be personally delivered or sent by telecopy or other
electronic facsimile transmission or by registered mail or certified mail,
return receipt requested and postage prepaid, or
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by reliable overnight courier service, in each case to the respective address
specified below (or to such address as may be specified in writing to the
other party hereto):
If to DURA, addressed to:
Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
with a copy to the attention of General Counsel
If to DDSI, addressed to:
Dura Delivery Systems, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
If to SPIROS, addressed to:
Spiros Development Corporation
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
If to Spiros Corp. II, addressed to:
Spiros Development Corporation II, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
Each party shall provide each other party with copies of any notices sent
hereunder, with such copies sent at the same time as the original notice. Any
notice or communication given in conformity with this Section 9.4 shall be
deemed to be effective when received by the addressee, if delivered by hand,
telecopy or electronic transmission, three (3) days after mailing, if mailed,
and one (1) business day after delivery to a reliable overnight courier service.
9.5 FURTHER ASSURANCES. Each of DURA, DDSI, Spiros Corp. and Spiros Corp.
II hereby agrees to duly execute and deliver, or cause to be duly executed and
delivered, such further instruments and do and cause to be done such further
acts and things, including, without limitation, the filing of such additional
assignments, agreements, documents and instruments, that may be necessary or as
the other party hereto may at any time and from time to time reasonably request
in connection with this Agreement or to carry out more effectively the
provisions and purposes of, or to better assure and confirm unto such other
party its rights and remedies under, this Agreement.
9.6 SUCCESSORS AND ASSIGNS. The terms and provisions of
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this Agreement shall inure to the benefit of, and be binding upon, DURA,
DDSI, Spiros Corp., Spiros Corp. II and their respective successors and
assigns; PROVIDED, HOWEVER, that DURA, DDSI, Spiros Corp. and Spiros Corp. II
may not assign or otherwise transfer any of their respective rights and
interests, nor delegate any of their respective obligations, hereunder,
including, without limitation, pursuant to a merger or consolidation, without
the prior written consent of the other party hereto; PROVIDED FURTHER,
HOWEVER, that DURA, DDSI or Spiros Corp. may fully assign their respective
rights and interests, and delegate their respective obligations, hereunder,
effective upon written notice thereof (a) to an Affiliate if such Affiliate
assumes all of the obligations of DURA, DDSI or Spiros Corp., as the case may
be, hereunder and this Agreement remains binding upon Dura, DDSI or Spiros
Corp., as the case may be; or (b) to any Person that acquires all or
substantially all of the assets of Dura, DDSI or Spiros Corp. as the case may
be, or which is the surviving Person in a merger or consolidation with Dura,
DDSI or Spiros Corp. if such Person assumes all the obligations of DURA, DDSI
or Spiros Corp., as the case may be, hereunder. Notwithstanding the
foregoing, Spiros Corp. II shall have the right to assign its rights and
delegate its obligations hereunder following expiration or termination (other
than by exercise) of the Purchase Option. Any attempt to assign or delegate
any portion of this Agreement in violation of this Section 9.6 shall be null
and void. Subject to the foregoing any reference to DURA, DDSI, Spiros Corp.
or Spiros Corp. II hereunder shall be deemed to include the successors
thereto and assigns thereof.
9.7 AMENDMENTS. No amendment, modification, waiver, termination or
discharge of any provision of this Agreement, nor consent by DURA, DDSI, Spiros
Corp. or Spiros Corp. II to any departure therefrom, shall in any event be
effective unless the same shall be in writing specifically identifying this
Agreement and the provision intended to be amended, modified, waived, terminated
or discharged and signed by DURA, DDSI, Spiros Corp. and Spiros Corp. II, and
each amendment, modification, waiver, termination or discharge shall be
effective only in the specific instance and for the specific purpose for which
given. No provision of this Agreement shall be varied, contradicted or
explained by any other agreement, course of dealing or performance or any other
matter not set forth in an agreement in writing and signed by DURA, DDSI, Spiros
Corp. and Spiros Corp. II.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, as applied to contracts
made and performed entirely within the State of California. Except as otherwise
provided herein, any claim or controversy arising out of or related to this
contract or any breach hereof shall be submitted to a court of competent
jurisdiction in the State of California, and the parties hereby consent to the
jurisdiction and venue of such court.
9.9 SEVERABILITY. If any provision hereof should be held
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invalid, illegal or unenforceable in any respect in any jurisdiction, then,
to the fullest extent permitted by law, (a) all other provisions hereof shall
remain in full force and effect in such jurisdiction and shall be liberally
construed in order to carry out the intentions of the parties hereto as
nearly as may be possible and (b) such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
such provision in any other jurisdiction. To the extent permitted by
applicable law, DURA, DDSI, Spiros Corp. and Spiros Corp. II hereby waive any
provision of law that would render any provision hereof prohibited or
unenforceable in any respect.
9.10 HEADINGS. Headings used herein are for convenience only and shall not
in any way affect the construction of, or be taken into consideration in
interpreting, this Agreement.
9.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, taken together,
shall constitute one and the same instrument.
9.12 ENTIRE AGREEMENT. This Agreement, together with any agreements
referenced herein, constitute, on and as of the date hereof, the entire
agreement of DURA, DDSI, Spiros Corp. and Spiros Corp. II with respect to the
subject matter hereof, and all prior or contemporaneous understandings or
agreements, whether written or oral, between DURA, DDSI, Spiros Corp. and Spiros
Corp. II with respect to such subject matter are hereby superseded in their
entirety.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first above written.
SPIROS DEVELOPMENT CORPORATION II, INC.
By: /s/ David S. Kabakoff
-------------------------------------------
David S. Kabakoff
President and Chief Executive Officer
DURA PHARMACEUTICALS, INC.
By: /s/ Cam L. Garner
-------------------------------------------
Cam L. Garner
President and Chief Executive Officer
DURA DELIVERY SYSTEMS, INC.
By: /s/ Mitchell R. Woodbury
-------------------------------------------
Mitchell R. Woodbury
Secretary
SPIROS DEVELOPMENT CORPORATION
By: /s/ Mitchell R. Woodbury
-------------------------------------------
Mitchell R. Woodbury
Secretary
[SIGNATURE PAGE TO TECHNOLOGY LICENSE AGREEMENT]
<PAGE>
SCHEDULE 1.1
GLOSSARY
SCHEDULE 1.1
<PAGE>
SCHEDULE 1.1
GLOSSARY
"AFFILIATE" of a person shall mean a Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such Person. "Control" (and, with correlative meanings, the
terms "controlled by" and "under common control with") shall mean the possession
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting stock, by contract or
otherwise. In the case of a corporations, "control" shall mean, among other
things, the direct or indirect ownership of more than fifty percent (50%) of its
outstanding voting stock.
"AGREEMENTS" shall mean the Manufacturing and Marketing Agreement, the
Technology Agreement and the Development Agreement.
"ALBUTEROL OPTION" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"ALBUTEROL AND PRODUCT OPTION AGREEMENT" shall mean the Albuterol and
Product Option Agreement dated as of December 22, 1997, between DURA and Spiros
Corp. II, as amended, modified or supplemented from time to time.
"ALBUTEROL OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 1.5 of the Albuterol and Product Option Agreement.
"ALBUTEROL PROGRAM ASSETS" shall have the meaning assigned to it in Section
1.1 of the Albuterol and Product Option Agreement.
"ALBUTEROL PRODUCT" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"AVAILABLE FUNDS" shall mean the sum of (a) the net proceeds to Spiros
Corp. II from the sale of the Units in the Offering and the Contribution, (b)
all royalties remitted to Spiros Corp. II by DURA (or its Affiliates) from the
Sale of Spiros Products pursuant to the Agreements, (c) the Option Proceeds, if
any, (d) any other amounts provided by DURA to Spiros Corp. II, if any and (e)
interest or other income earned through temporary investment of the amounts
described in clauses (a), (b), (c) or (d).
"BANKRUPTCY CODE" shall mean the United States Bankruptcy Code, as amended
from time to time.
"CLAIM" shall mean any and all liabilities, damages, losses, settlements,
claims, actions, suits, penalties, fines, costs or expenses (including, without
limitation, reasonable attorneys' fees).
SCHEDULE 1.1
<PAGE>
"CONFIDENTIAL INFORMATION" shall mean all Program Technology disclosed by
DURA (and its Affiliates) to Spiros Corp. II or by Spiros Corp. II to DURA
pursuant to the Agreements or the Services Agreement.
"CONTRIBUTION" shall have the meaning assigned in Section 5.2 of the
Development Agreement.
"CORE TECHNOLOGY" shall mean the DURA Core Technology, the DDSI Core
Technology and the Spiros Core Technology.
"DDSI CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DDSI as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DDSI Patent Rights; PROVIDED,
HOWEVER, that DDSI Core Technology shall also include Technology acquired by
DDSI from a third party after the date of the closing of the Offering necessary
or useful to the development of the Spiros Products, except to the extent that
there are any limitations or restrictions on DDSI's ability to license or
sublicense such Technology. "Owned or controlled" shall include Technology that
DDSI owns, or under which DDSI is licensed and has the right to grant
sublicenses and/or grant immunity from suit.
"DDSI INDEMNITEE" shall mean DDSI, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DDSI PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DDSI (or the rights to
which have been assigned to DDSI) as of the date of the Technology Agreement
relating to dry powder inhalers, powder storage systems and/or formulation
methods for dry powder inhalation, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
patent applications and (c) any patent issued or issuing upon any of the
foregoing.
"DESIGNATED COMPOUND(S)" shall mean any compounds for delivery using the
System selected by Spiros Corp. II, and agreed to be developed by DURA.
"DEVELOPED TECHNOLOGY" shall mean any Technology including, without
limitation, any enhancements, substitutions or improvements to the Core
Technology that is (a) discovered, developed or otherwise acquired by DURA
pursuant to the terms of the Development Agreement or (b) otherwise acquired by
or on behalf of Spiros Corp. II during the term of the Development Agreement.
"DEVELOPMENT" shall mean the further development of the Program Technology
for the purpose of identifying, developing, manufacturing, marketing and
commercializing Spiros Products and
SCHEDULE 1.1
<PAGE>
the making of the Other Expenditures.
"DEVELOPMENT AGREEMENT" shall mean the Development Agreement dated as of
December 22, 1997, between DURA and Spiros Corp., as amended, modified or
supplemented from time to time.
"DEVELOPMENT COSTS" shall mean the Direct Development Costs, the Indirect
Development Costs and the Other Expenditures.
"DEVELOPMENT TERM" shall mean the period commencing on the Closing Date and
ending on the earlier of (a) the Option Closing Date or (b) the date the Option
terminates or expires other than by exercise.
"DIRECT DEVELOPMENT COSTS" shall mean all costs incurred by DURA or its
Affiliates in respect of the Development, other than Indirect Development
Costs, determined in accordance with generally accepted accounting principles
consistent with DURA's internal accounting system, allocated on a reasonable
and consistent basis. Direct Development Costs shall consist primarily of
fully-burdened payroll costs (burdened to include benefits, payroll taxes and
an allocation of facilities and overhead costs) and any other such costs
generated internally by DURA in respect of the Development.
"DPI" shall mean the motor-driven dry powder inhaler (other than an inahler
designed to deliver a single dose of a drug) developed by DURA, DDSI and/or
Spiros Corp. and to be developed by DURA and/or Spiros Corp. II.
"DURA COMMON STOCK" shall mean the Common Stock of DURA, par value $.001
per share.
"DURA CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DURA as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DURA Patent Rights and DURA
Trademarks; PROVIDED, HOWEVER, that DURA Core Technology shall also include
Technology acquired by DURA from a third party after the date of the closing of
the Offering necessary or useful to the development of the Spiros Products,
except to the extent that there are any limitations or restrictions on DURA's
ability to license or sublicense such Technology. "Owned or controlled" shall
include Technology that DURA owns, or under which DURA is licensed and has the
right to grant sublicenses and/or grant immunity from suit.
"DURA INDEMNITEE" shall mean DURA, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DURA PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DURA (or the rights to
which have been assigned to DURA) as of the date of the Technology Agreement
relating to DPIs, PSSs and/or formulation methods for dry powder inhalation, (b)
any
SCHEDULE 1.1
<PAGE>
patent application constituting an equivalent, counterpart, reissue,
extension or continuation (including, without limitation, a continuation in part
or a subdivision) of any of the foregoing patent applications and (c) any patent
issued or issuing upon any of the foregoing.
"DURA TRADEMARKS" shall mean Spiros-TM-.
"EVENT OF DEFAULT" shall mean any of the following events: (a) at any
time, if DURA or Spiros Corp. II fails to perform or observe or otherwise
breaches any of its Material Obligations, and such failure or breach continues
unremedied for a period of sixty (60) days after receipt by of written notice
thereof from the other party; (b) at any time, effective as set forth in a
written notice from the other party if DURA or Spiros Corp. II shall (i) seek
the liquidation, reorganization, dissolution or winding-up of itself or the
composition or readjustment of its debts (other than pursuant to a merger with
an Affiliate), (ii) apply for or consent to the appointment of, or the taking
possession by, a receiver, custodian, trustee or liquidator for itself or of all
or a substantial part of its assets, (iii) make a general assignment for the
benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy
Code, (v) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or
readjustment of debts (other than pursuant to a merger with an Affiliate) or
(vi) adopt any resolution of its Board of Directors or shareholders for the
purpose of effecting any of the foregoing (other than pursuant to a merger with
an Affiliate); or (c) at any time, effective as set forth in a written notice
from the other party, if a proceeding or case shall be commenced without the
application or consent of DURA or Spiros Corp. II as applicable, and such
proceeding or case shall continue undismissed, or an order, judgment or decrees
approving or ordering any of the following shall be entered and continued
unstayed and in effect, for a period of sixty (60) days from and after the date
service of process is effected, seeking (i) DURA's or Spiros Corp. II's, as
applicable, liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of DURA or Spiros Corp. II or for
all or any substantial part of its assets or (iii) similar relief in respect of
DURA or Spiros Corp. II under any law relating to bankruptcy, insolvency,
reorganization, winding-up or the composition or readjustment of debts.
"FDA" shall mean the United States Food and Drug Administration or any
successor agency or authority, the approval of which is required to market
health care products in the United States.
"FDA APPROVAL" shall mean the final regulatory approval of the FDA required
to commence commercial marketing of a health product.
SCHEDULE 1.1
<PAGE>
"FORCE MAJEURE" shall mean any act of God, any accident explosion, fire,
storm, earthquake, flood, drought, peril of the sea, riot, embargo, war or
foreign, federal, state or municipal order of general application, seizure,
requisition or allocation, any failure or delay of transportation, shortage of
or inability to obtain supplies, equipment, fuel or labor or any other
circumstance or event beyond the reasonable control of the party relying upon
such circumstance or event.
"INDIRECT DEVELOPMENT COSTS" shall mean all costs, fees and out-of-pocket
or other expenses, including the purchase of any capital equipment related to
the Development, incurred or paid by DURA to a third party, other than an
Affiliate of DURA, in respect of the Development, determined in accordance with
generally accepted accounting principles consistent with DURA's internal
accounting system, allocated on a reasonable and consistent basis.
"MANUFACTURING AND MARKETING AGREEMENT" shall mean the Manufacturing and
Marketing Agreement dated as of December 22, 1997 between DURA and Spiros
Corp. II, as amended, modified or supplemented from time to time.
"MANUFACTURE" shall mean the manufacture and assembly of the Spiros
Products.
"MATERIAL OBLIGATION" shall mean the material obligations of a party under
the Technology Agreement, the Development Agreement or the Manufacturing and
Marketing Agreement.
"NET SALES" shall mean the gross amount invoiced for sales of Spiros
Products by DURA or its sublicensees, if any, to third parties less (i)
discounts actually allowed, (ii) credits for claims, allowances, retroactive
price reductions or returned Spiros Products, (iii) prepaid freight charges
incurred in transporting Spiros Products to customers, (iv) sales taxes and
other governmental charges actually paid in connection with the sales (but
excluding what is commonly known as income taxes) and (v) any royalty
obligations under the 1993 Royalty Agreement. Net Sales shall not include sales
between or among DURA, its Affiliates and its sublicensees unless such sales are
for end use rather than for purposes of resale.
"OFFERING" shall mean the underwritten public offering of the Units
pursuant to the Registration Statement.
"OPTION PROCEEDS" shall have the meaning assigned to it in Section 3 of the
Albuterol and Product Option Agreement.
"OPTION PRODUCT" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"OTHER EXPENDITURES" shall mean funds spent by Spiros Corp. II to acquire
capital equipment, develop a next generation inhaler system or to enhance the
System.
SCHEDULE 1.1
<PAGE>
"PATENT RIGHTS" shall mean any patents or patent applications within the
Spiros Corp. II Patent Rights, the DURA Patent Rights, the DDSI Patent Rights
and the Spiros Corp. Patent Rights.
"PERSON" shall mean any individual, partnership, corporation, firm,
association, unincorporated organization, joint venture, trust or other entity.
"PRODUCT OPTION" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"PRODUCT OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 2.5 of the Albuterol and Product Option Agreement.
"PROGRAM TECHNOLOGY" shall mean the Core Technology and the Developed
Technology.
"PSS" shall mean the powder storage system developed and to be developed by
DURA for use with the DPI.
"PURCHASE AGREEMENT" shall mean the Purchase Agreement dated as of
December 16, 1997, among DURA, Spiros Corp. II, Merrill Lynch & Co., and
Donaldson, Lufkin & Jenrette.
"PURCHASE OPTION" shall mean the option granted to the holder of Spiros
Corp. II's Special Common Stock to purchase all of the Spiros Corp. II Common
Stock as set forth in Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION CLOSING DATE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION EXERCISE PRICE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form
S-1/S-3 filed by Spiros Corp. II and DURA dated October 10, 1997 (No.
333-37673/333-37673-01), including all exhibits and any amendments thereof
and supplements thereto.
"RESEARCH FUNDS" shall mean the Available Funds, less (i) all general and
administrative expenses including, without limitation, those paid or payable
pursuant to the Development Agreement or the Services Agreement, and the
reasonable out-of-pocket expenses of Spiros Corp. II directors and reasonable
compensation for Spiros Corp. II's independent directors, less (ii) any amounts
paid to DURA under the Development Agreement or the Services Agreement, less
(iii) any costs and expenses incurred in the defense or settlement of any action
or claim or in respect of a judgment thereon, and less (iv) One Million Dollars
($1,000,000) to be retained by Spiros Corp. II as working capital in the event
DURA does not exercise the Purchase Option.
SCHEDULE 1.1
<PAGE>
"SALE(S)" or "SELL" shall mean the activity undertaken by a sales
representative during a sales call on physicians, physician assistants, nurses,
hospitals, clinics, health maintenance organizations, preferred provider
organizations and managed care companies (including all forms of communication
not involving face to face contact by such sales representatives), describing
the FDA-approved indicated uses, safety, effectiveness, contraindications, side
effects, warnings and other relevant characteristics of the Spiros Product, in a
fair and balanced manner consistent with the requirements of the Federal Food,
Drug, and Cosmetic Act, as amended (and the regulations thereunder).
"SPIROS CASSETTE SYSTEM" shall mean a DPI in which the PSS is in the form
of a cassette.
"SPIROS CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
Spiros Corp. as of the date of the closing of the Offering necessary or useful
to the development of the Spiros Products, and (b) the Spiros Corp. Patent
Rights; PROVIDED, HOWEVER, that Spiros Core Technology shall also include
Technology acquired by Spiros Corp. from a third party after the date of the
closing of the Offering necessary or useful to the development of the Spiros
Products, except to the extent that there are any limitations or restrictions on
Spiros Corp.'s ability to license or sublicense such Technology. "Owned or
controlled" shall include Technology that Spiros Corp. owns, or under which
Spiros Corp. is licensed and has the right to grant sublicenses and/or grant
immunity from suit.
"SPIROS CORP. INDEMNITEE" shall mean Spiros Corp., its successors and
assigns, and the directors, officers, employees, agents and counsel thereof.
"SPIROS CORP. PATENT RIGHTS" shall mean those certain inventions described
in claims of (a) the patent applications pending, filed by Spiros Corp. (or the
rights to which have been assigned to Spiros Corp.) as of the date of the
Technology Agreement relating to dry powder inhalers, powder storage systems
and/or formulation methods for dry powder inhalation, (b) any patent application
constituting an equivalent, counterpart, reissue, extension or continuation
(including, without limitation, a continuation in part or a subdivision) of any
of the foregoing patent applications and (c) any patent issued or issuing upon
any of the foregoing.
"SPIROS CORP. II CHARTER" shall mean Amended and Restated Certificate of
Spiros Development Corporation II, Inc. in effect as of the closing of the
Offering, as amended from time to time.
"SPIROS CORP. II COMMON STOCK" shall mean the Callable Common Stock of
Spiros Corp. II, $.001 par value.
"SPIROS CORP. II INDEMNITEE" shall mean Spiros Corp. II, its
SCHEDULE 1.1
<PAGE>
successors and assigns, and the directors, officers, employees, agents and
counsel thereof.
"SPIROS CORP. II PATENT RIGHTS" shall mean those certain inventions
described in claims of (a) any patent application having one or more claims
covering Developed Technology, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
applications or (c) any patent issued or issuing upon any of the foregoing
applications.
"SPIROS PRODUCT(S)" shall mean (a) any System used with a formulation of
albuterol, beclomethasone, ipratropium, an albuterol-ipratropium combination,
budesonide or a Designated Compound developed, produced, manufactured or
marketed by DURA on behalf of Spiros Corp. II using the Program Technology.
"SPIROS PRODUCT PROGRAM ASSETS" shall have the meaning assigned to it in
Section 2.1 of the Albuterol and Product Option Agreement.
"SYSTEM" shall mean the DPI and the PSS when used together.
"TECHNOLOGY" shall mean, solely with respect to motor-driven dry powder
inhalers and powder storage systems for drugs for delivery through such
inhalers, the manufacture thereof, and formulations of drugs to be delivered
through such inhalers, public and nonpublic technical or other information,
trade secrets, know-how, processes, formulations, concepts, ideas, preclinical,
clinical, pharmacological or other data and testing results, experimental
methods, or results, assays, descriptions, business or scientific plans,
depictions, customer lists and any other written, printed or electronically
stored materials, pharmaceutical compounds or any other natural or man-made
pharmaceutical materials and any and all other intellectual property, including
patents and patent applications, of any nature whatsoever. The term
"Technology" shall include, without limitation, any of the foregoing as it
relates to enhancements of, substitutions for or improvements to the Core
Technology.
"TECHNOLOGY AGREEMENT" shall mean the Technology License Agreement dated
as of December 22, 1997, among DURA, DDSI, Spiros Corp. and Spiros Corp. II,
as amended, modified or supplemented from time to time.
"TERRITORY" shall mean the entire world.
"UNDERWRITERS" shall have the meaning assigned to it in the Registration
Statement.
"UNITS" shall mean units, each consisting of one share of Spiros Corp. II
Common Stock and one warrant to purchase one-fourth of one share of DURA Common
Stock, all as described in the Registration Statement.
SCHEDULE 1.1
<PAGE>
"1993 ROYALTY AGREEMENT" shall have the meaning assigned to it in the
Registration Statement.
SCHEDULE 1.1
<PAGE>
DEVELOPMENT AGREEMENT
This DEVELOPMENT AGREEMENT (the "Agreement") is made as of December 22,
1997, by and between DURA PHARMACEUTICALS, INC., a Delaware corporation
("DURA"), and SPIROS DEVELOPMENT CORPORATION II, INC., a Delaware corporation
("Spiros Corp. II").
RECITALS
WHEREAS, DURA and Spiros Corp. II are parties to the Technology Agreement,
the Manufacturing and Marketing Agreement, and the Albuterol and Product Option
Agreement (all capitalized terms shall have the respective meaning set forth in
Section 1 hereto).
WHEREAS DURA, Dura Delivery Systems, Inc., a Delaware corporation ("DDSI"),
and Spiros Development Corporation, a Delaware corporation ("Spiros Corp."),
have granted to Spiros Corp. II, and Spiros Corp. II has acquired from DURA,
DDSI and Spiros Corp., a license to certain technology for the purpose of
allowing Spiros Corp. II to further develop the Core Technology and to develop
and commercialize the Spiros Products.
WHEREAS, DURA has experience in the development of pharmaceutical products
and has the facilities, equipment, employees and other resources to accomplish
development activities, on behalf of Spiros Corp. II, with respect to such
rights and technology.
WHEREAS, Spiros Corp. II desires to engage DURA to perform such services in
connection with the Development, and DURA is willing to provide such services.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and in order to induce DURA to enter into the
Agreements, DURA and Spiros Corp. II hereby agree as follows:
1. DEFINITIONS.
1.1 DEFINITIONS. All capitalized terms used herein and not otherwise
defined shall have the respective meanings, to the extent such terms are used
herein, set forth in SCHEDULE 1.1 attached hereto, which is incorporated by this
reference as though fully set forth herein.
1.2 SINGULAR AND PLURAL. Singular and plural forms, as the case may be,
of terms defined herein shall have correlative meanings.
2. DEVELOPMENT SERVICES.
2.1 DEVELOPMENT. Spiros Corp. II hereby engages DURA, and DURA hereby
accepts such engagement, to use commercially reasonable efforts to undertake the
Development. Such services shall be provided as follows:
<PAGE>
2.1.1 WORKPLAN AND BUDGET. As of the date of the closing of the
Offering, DURA shall have provided Spiros Corp. II with a workplan and budget
acceptable to the Board of Directors of Spiros Corp. II covering the period from
the closing through December 31, 1998, a copy of which is attached hereto as
SCHEDULE 2.1. Thereafter, DURA and Spiros Corp. II shall prepare an annual
workplan and budget in accordance with Section 3 hereof. DURA and Spiros Corp.
II may make changes in the annual workplan and budget from time to time as
approved in writing by an authorized representative of each party. Expenditures
made on behalf of Spiros Corp. II by DURA for which DURA is to be reimbursed
pursuant to Section 5.1 hereof, shall not exceed in any calendar year one
hundred twenty percent (120%) of the amount allocated in the annual workplan and
budget applicable to such year unless otherwise approved by the Board of
Directors of Spiros Corp. II. DURA shall report significant deviations from the
annual workplan and budget to Spiros Corp. II in a timely manner.
2.1.2 CONDUCT OF DEVELOPMENT. During the term of this Agreement,
DURA shall use commercially reasonable efforts to (a) conduct the Development on
behalf of Spiros Corp. II in a prudent and skillful manner in accordance, in all
material respects, with the annual workplan and budget then in effect and
applicable laws, ordinances, rules, regulations, orders, licenses and other
requirements now or hereafter in effect and (b) diligently execute such annual
workplan and budget and report to Spiros Corp. II any significant deviations
therefrom in a timely manner. Spiros Corp. II hereby appoints DURA its
exclusive agent, for the term of this Agreement, with the sole power and
authority to file and prosecute all necessary regulatory applications and
permits in DURA's name required to obtain FDA Approval and other regulatory
approvals for the Spiros Products. DURA shall, at Spiros Corp. II's expense as
described below, furnish all labor, supervision, services, supplies and
materials necessary to perform the Development in accordance with the annual
workplan and budget then in effect. In addition to its undertakings pursuant to
the Technology Agreement, DURA agrees to use commercially reasonable efforts, on
behalf of itself, DDSI and Spiros Corp., to attempt to obtain and to sublicense
to Spiros Corp. II subject to the terms and conditions of the Technology
Agreement, on behalf of and at the expense of Spiros Corp. II but in accordance
with Section 2.4 of the Technology Agreement, any patent or technology license
or sublicense from any Person, including DURA, DDSI or Spiros Corp., that DURA
reasonably determines to be necessary or useful to enable DURA to conduct the
Development under this Agreement.
2.1.3 SUBCONTRACTS. Spiros Corp. II acknowledges that DURA may elect
to subcontract to third parties a portion of the Development. Spiros Corp. II
acknowledges and agrees that in performing the Development, DURA may, and is
hereby authorized to, without the prior written consent of Spiros Corp. II,
engage or agree or otherwise collaborate with other Persons, including, without
limitation, Affiliates of DURA or institutions performing other development
activities for DURA, to provide assistance in carrying out the Development.
2.1.4 CHANGES TO THE WORKPLANS. If at any time Spiros Corp. II
determines, based on the reports furnished pursuant to Section 3 hereof, in its
reasonable business judgment and in consultation with DURA, or DURA determines
with Spiros Corp. II's consent (which consent shall not be withheld
unreasonably), that the Development should be discontinued with respect to the
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<PAGE>
further development of a particular Spiros Product because the continuance
thereof is unfeasible or uneconomic, or that the Development should be expanded
to include one or more Designated Compounds, then Spiros Corp. II and DURA shall
use all reasonable efforts to agree on the nature of further development and the
identity of such Designated Compounds.
2.1.5 SALE OF SPIROS PRODUCTS PRIOR TO REGULATORY APPROVAL.
Spiros Corp. II hereby appoints DURA as its exclusive agent for the
Manufacture and Sale of Spiros Products during the term of this Agreement for
the sole purpose of conducting the clinical testing required to obtain FDA
Approval or other regulatory approval to market such Spiros Products. DURA
shall charge Spiros Corp. II for all the costs (determined in accordance with
Section 6.5 hereof) relating to the Manufacture and Sale of such Spiros
Products prior to FDA Approval of such Spiros Products as Development Costs,
and shall remit to Spiros Corp. II any revenues received by it from the sale
of such Spiros Products. Spiros Corp. II agrees that all such revenues
received hereunder with respect to Spiros Products shall be considered
Available Funds.
2.1.6 MANUFACTURE AND SALE OF SPIROS PRODUCTS FOLLOWING
REGULATORY APPROVAL. Spiros Corp. II and DURA hereby agree that the
Manufacture and Sale of each Spiros Product during the term of this Agreement
following FDA Approval or other required regulatory approval to market such
Spiros Product shall be governed solely by the terms and conditions of the
Manufacturing and Marketing Agreement.
2.2 DISCLAIMER OF WARRANTIES. DURA cannot and does not guarantee that the
Development will be successful in whole or in part, that any Spiros Products
will be developed or that any developed Spiros Products will be successful in
the marketplace. To the extent that DURA has complied with Section 2.1.2
hereof, the failure of DURA to further develop successfully the Program
Technology or to discover, develop or commercialize any Spiros Product will not
in and of itself constitute a breach by DURA of any representation, warranty,
covenant or other obligation under the Agreements. In addition, neither DURA
nor Spiros Corp. II makes any representation or warranty or guaranty that the
Available Funds will be sufficient for the completion of the Development of any
or all of the Spiros Products or to begin commercialization with respect to any
Spiros Product.
2.3 RIGHTS TO PROPERTY. All right, title and interest to the Program
Technology acquired or developed pursuant to this Agreement including any
submissions or applications to the FDA or any foreign equivalent made by DURA in
its name on behalf of Spiros Corp. II shall be the exclusive property of Spiros
Corp. II; PROVIDED, HOWEVER, that such right, title and interest shall be
subject in all events to (a) the rights to Albuterol Program Assets obtained
from Spiros Corp. II pursuant to the exercise of the Albuterol Option or (b) the
rights to the Spiros Product Program Assets obtained from Spiros Corp. II
pursuant to the exercise of the Product Option. All matters relating to patents
and patent applications with respect to the Program Technology acquired or
developed pursuant to this Agreement shall be governed by Section 5.2 of the
License Agreement.
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<PAGE>
2.4 TERMINATION OF DEVELOPMENT UPON EXERCISE OF THE ALBUTEROL OPTION. If
the Albuterol Option is exercised, Development hereunder shall cease with
respect to the Albuterol Product. DURA and the Board of Directors of Spiros
Corp. II shall agree upon an allocation to one or more remaining Spiros Products
or to the Other Expenditures of the funds available as a result of the exercise
of the Albuterol Option.
2.5 TERMINATION OF DEVELOPMENT UPON EXERCISE OF THE PRODUCT OPTION. If
the Product Option is exercised, Development hereunder shall cease with respect
to the Option Product. DURA and the Board of Directors of Spiros Corp. II shall
agree upon an allocation to one or more remaining Spiros Products or to the
Other Expenditures of the funds available as a result of the exercise of the
Product Option.
3. REPORTS AND RECORDS. Within thirty (30) days after the end of each
calendar quarter during the term of this Agreement, DURA shall provide to the
Board of Directors of Spiros Corp. II a reasonably detailed report setting forth
in respect of such quarter (a) the total Development Costs incurred, (b) a
summary of the work performed hereunder by DURA and its employees and agents and
(c) a description of any material developments with respect to the Program
Technology. Prior to December 1 of each year (commencing with December 1, 1998)
during the term of this Agreement, DURA shall report to the Board of Directors
of Spiros Corp. II with respect to the progress of the Development, which report
shall include the proposed annual workplan and budget for the next calendar
year. Prior to January 1 of each year (commencing January 1, 1999), the Board
of Directors of Spiros Corp. II shall approve such annual workplan and budget
with such changes as it may, in the exercise of its reasonable business
judgment, deem necessary and as DURA may approve (which approval shall not be
unreasonably withheld); PROVIDED, that no annual workplan and budget shall be
deemed effective until approved by DURA and the Board of Directors of Spiros
Corp. II. DURA shall prepare a final report, within ninety (90) days after the
expiration or termination of this Agreement, setting forth in reasonable detail
a summary of the work performed since the last report provided to the Board of
Directors hereunder and the material developments with respect thereto and
containing a final statement of all costs billed to Spiros Corp. II hereunder.
DURA shall keep and maintain proper and complete records and books of account
documenting all of its expenses related to the Development, including those
allocated to and reimbursed by Spiros Corp. II hereunder. At Spiros Corp. II's
request and expense, DURA shall permit a certified independent public accountant
selected by Spiros Corp. II to have access, no more than once in each calendar
year during the term of this Agreement and each year for three (3) calendar
years following the termination hereof, during regular business hours and upon
reasonable notice to DURA, to such records and books for the sole purpose of
determining the appropriateness of Development Costs invoiced hereunder;
PROVIDED, HOWEVER, that if such certified independent public accountant
reasonably determines that such Development Costs have been, for any calendar
year, after adjustments herein provided for, overstated by DURA by an amount
equal to or greater than five percent (5%), DURA shall promptly refund any such
overpayment to Spiros Corp. II and pay all reasonable fees and disbursements of
such certified independent public accountant incurred in the course of making
such determination.
4. OTHER ACTIVITIES. During the term of this Agreement, DURA shall devote
such time and
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effort to the performance of services pursuant to this Agreement as may be
necessary or appropriate to fulfill its duties under this Agreement;
PROVIDED, HOWEVER, it is specifically understood and agreed by Spiros Corp.
II that DURA shall not be required to devote itself, on a full-time basis, to
the provision of such services and that DURA shall have the right to engage
in its own development activities and in other business activities with other
Persons, and Spiros Corp. II shall not, by virtue of this Agreement, have any
right, title or interest in or to such independent activities or to the
income or profits derived therefrom and, without limiting DURA's obligation
to use commercially reasonable efforts to provide certain services hereunder,
nothing set forth in this Agreement shall limit or reduce the ability of DURA
to carry on such other activities.
5. PAYMENT FOR SERVICES; TIMING OF PAYMENTS.
5.1 PAYMENTS FOR DEVELOPMENT. In consideration of the Development
to be carried out by DURA during the term of this Agreement, Spiros Corp. II
shall reimburse DURA out of Available Funds for all of (a) the Direct
Development Costs plus a fee equal to twenty-five percent (25%) of all of
such costs (the "Management Fee"), PROVIDED that the cost to DURA of services
provided by Affiliates of DURA shall not exceed the cost to each Affiliate of
providing such services, and (b) the Indirect Development Costs plus a fee
equal to twenty percent (20%) of all such costs (the "Indirect Management
Fee"), invoiced to Spiros Corp. II by DURA. The amount to be paid to DURA
pursuant to this Agreement shall not exceed the amount of the Available
Funds. The Available Funds must be retained by Spiros Corp. II in an account
separate from all accounts containing any other funds. Spiros Corp. II agrees
to expend all Available Funds on Development and Other Expenditures pursuant
to this Agreement, except as otherwise set forth in the Agreements. In the
event that the cash and cash equivalents of Spiros Corp. II are reduced to
less than $5 million, DURA may, within thirty (30) days following notice from
Spiros Corp. II that such funds have been reduced to less than $5 million, at
its option (the "Funding Option"), provide additional funds sufficient in the
reasonable judgment of DURA and Spiros Corp. II to fund the continued
Development of Spiros Products for an additional twelve (12) months at a
level comparable to the level of funding provided during the prior twelve
(12) months, which funding shall be considered Available Funds. The Funding
Option may only be exercised one time and shall be irrevocable following
exercise. Payment to Spiros Corp. II of all amounts in respect of the Funding
Option must be made within thirty (30) days of its exercise.
5.2 CONTRIBUTIONS. Concurrently with the execution of this Agreement,
DURA will contribute Seventy-Five Million Dollars ($75,000,000) in cash to
Spiros Corp. II (the "Contribution").
5.3 DEVELOPMENT EXPENSES. Within five (5) business days of the closing of
the Offering and upon the receipt by Spiros Corp. II of an invoice therefor,
Spiros Corp. II shall reimburse DURA for all development services as set forth
on SCHEDULE 5.3 incurred by DURA through the date of the closing of the
Offering, estimated to be five million Dollars ($5,000,000)
but which shall in no event exceed seven million Dollars
($7,000,000).
5.4 TIMING OF PAYMENTS. Spiros Corp. II shall pay to DURA monthly the
Development
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Costs, plus the applicable Management Fee and Indirect Management Fee,
actually incurred in the prior month as shown on a statement delivered by
DURA to Spiros Corp. II. Spiros Corp. II shall make such payment within
fifteen (15) days after the delivery of such statement from DURA.
5.5 CALCULATION OF COSTS. Direct Development Costs shall be allocated on
a reasonable and consistent basis, and charged to Spiros Corp. II for services
performed by DURA on behalf of Spiros Corp. II hereunder. DURA's expenditures
and estimated expenditures for performing the Development hereunder shall be
determined using generally accepted accounting principles, consistent with
DURA's internal financial and accounting systems, allocated on a reasonable and
consistent basis. Allocation of all Indirect Development Costs shall be made by
DURA on a reasonable basis consistent with DURA's regular internal cost
accounting system.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS. The provisions of Section 3 of
the Technology Agreement with respect to DURA and Spiros Corp. II shall apply
with equal force and effect to this Agreement and are incorporated hereunder.
7. CONFIDENTIALITY. The provisions of Sections 4.3 and 4.4 of the Technology
Agreement shall apply with equal force and effect to this Agreement and are
incorporated hereunder.
8. DISCLAIMER OF WARRANTY; CONSEQUENTIAL DAMAGES. The provisions of Section
5.3 of the Technology Agreement shall apply with equal force and effect to this
Agreement and are incorporated hereunder.
9. INDEMNIFICATION AND INSURANCE.
9.1 INDEMNIFICATION. The provisions of Section 6 of the Technology
Agreement shall apply with equal force and effect to this Agreement and are
incorporated hereunder.
9.2 INSURANCE.
9.2.1 INSURANCE BY SPIROS CORP. II. To the extent Spiros Corp. II
develops or uses, or causes the development or use (except by DURA or its
Affiliates or subcontractors under this Agreement) of, the Spiros Products,
Spiros Corp. II shall, to the extent available at commercially reasonable rates,
maintain with insurers or underwriters of good repute such insurance relating to
the Development, and the sale and use of the Spiros Products, against such
risks, pursuant to such terms (including deductible limits or self-insured
retentions) and for such periods, as is customary for comparable businesses
undertaking the development, sale and use of products of a similar nature, and
shall, to the extent reasonably possible and not unreasonably expensive, cause
DURA, DDSI and Spiros Corp. to be named as additional insured parties on its
insurance policies. To the extent Spiros Corp. II is required to obtain
insurance under this Section 9.2.1 during the term of this Agreement, Spiros
Corp. II may use Available Funds to pay the premiums therefor.
9.2.2 INSURANCE BY DURA. DURA shall, to the extent available at
commercially
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reasonable rates, maintain, with insurers or underwriters of good repute such
insurance relating to the Development, against such risks and pursuant to
such terms (including deductible limits or self-insured retentions) as is
customary for comparable businesses undertaking research and development
programs of a similar nature, and shall, to the extent reasonably possible
and not unreasonably expensive, cause Spiros Corp. II to be named as an
additional insured party on its insurance policies.
10. TERM AND TERMINATION.
10.1 TERM. This Agreement shall be effective as of the date hereof and,
unless terminated earlier as provided in Sections 10.2, 10.3 and 10.4 hereof,
shall continue in full force and effect for the duration of the Development
Term.
10.2 TERMINATION BY MUTUAL AGREEMENT. By mutual agreement, the parties
hereto may at any time terminate this Agreement and the Development on mutually
acceptable terms.
10.3 EFFECT OF PURCHASE OPTION EXERCISES.
10.3.1 PURCHASE OPTION. In the event the Purchase Option is
exercised by DURA, this Agreement shall terminate, effective upon the Purchase
Option Closing Date, without any obligation to make payments pursuant to Section
7 of the Technology Agreement.
10.3.2 PARTIAL TERMINATION UPON EXERCISE OF ALBUTEROL OPTION. In
the event that the Albuterol Option is exercised as provided in the Albuterol
and Product Option Agreement, this Agreement shall terminate, effective on the
Albuterol Option Closing Date, with respect to the Albuterol Product, but shall
otherwise continue in full force and effect until terminated pursuant to this
Section 10.
10.3.3 PARTIAL TERMINATION UPON EXERCISE OF PRODUCT OPTION. In the
event that the Product Option is exercised as provided in the Albuterol and
Product Option Agreement, this Agreement shall terminate, effective on the
Product Option Closing Date, with respect to the Option Product but shall
otherwise continue in full force and effect until terminated pursuant to this
Section 10.
10.4 TERMINATION FOR EVENT OF DEFAULT. Either DURA or Spiros Corp. II
shall have the right to terminate this Agreement, effective as set forth in a
written notice to the othe party of the occurrence of an Event of Default with
respect to such other party.
10.5 EFFECT OF TERMINATION.
10.5.1 RETURN OF SPIROS PRODUCTS. In the event of the termination
of DURA's right to continue Development of one or more Spiros Products pursuant
to Section 10.4 as a result of an Event of Default by DURA, DURA shall within
thirty (30) days of the effective date of such termination, transfer to Spiros
Corp. II all Program Technology and all other data, records and materials in
DURA's possession or control which relate to such Spiros Products. DURA shall
also cooperate in the transfer of regulatory filings related to such Spiros
Products, and take such other
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actions and execute such other instruments, assignments and documents as may
be necessary to effect the transfer of such Development rights to Spiros
Corp. II.
10.5.2 CONTINUING OBLIGATION TO MAKE PAYMENTS. Termination of this
Agreement shall not relieve the parties hereto of any liability, including any
obligation to pay any amounts payable by any party to another party which
accrued prior to such termination, nor preclude any party from pursuing all
rights and remedies it may have hereunder or at law or equity with respect to
any breach of this Agreement nor prejudice any party's right to obtain
performance of any obligation.
11. MISCELLANEOUS.
11.1 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No failure on the part of DURA
or Spiros Corp. II to exercise and no delay in exercising any right, power,
remedy or privilege under this Agreement or provided by statute or at law or in
equity or otherwise, including, without limitation, the right or power to
terminate this Agreement, shall impair, prejudice or constitute a waiver of any
such right, power, remedy or privilege or be construed as a waiver of any breach
of this Agreement or as an acquiescence therein, nor shall any single or partial
exercise of any such right, power, remedy or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
11.2 FORCE MAJEURE. DURA and Spiros Corp. II shall each be excused for any
failure or delay in performing any of their respective obligations under this
Agreement, if such failure or delay is caused by Force Majeure.
11.3 RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement is
intended or is to be construed to constitute DURA and Spiros Corp. II as
partners or joint venturers or one party as an employee of any other party.
Except as expressly provided herein, no party hereto shall have any express or
implied right or authority to assume or create any obligations on behalf of or
in the name of any other party or to bind any other party to any contract,
agreement or undertaking with any third party.
11.4 NOTICES. All notices, requests and other communications to DURA or
Spiros Corp. II hereunder shall be in writing (including telecopy or similar
electronic transmissions), shall refer specifically to this Agreement and
shall be personally delivered or sent by telecopy or other electronic
facsimile transmission or by registered mail or certified mail, return
receipt requested and postage prepaid, or by reliable overnight courier
service, in each case to the respective address specified below (or to such
address as may be specified in writing to the other party hereto):
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If to DURA, addressed to:
Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
with a copy to the attention of General Counsel
If to Spiros Corp. II, addressed to:
Spiros Development Corporation II, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
Any notice or communication given in conformity with this Section 12.4 shall be
deemed to be effective when received by the addressee, if delivered by hand,
telecopy or electronic transmission, three (3) days after mailing, if mailed and
one (1) business day after delivery to a reliable overnight courier service.
11.5 FURTHER ASSURANCES. Each of DURA and Spiros Corp. II hereby agrees to
duly execute and deliver, or cause to be duly executed and delivered, such
further instruments and do and cause to be done such further acts and things,
including, without limitation, the filing of such additional assignments,
agreements, documents and instruments, that may be necessary or as the other
party hereto may at any time and from time to time reasonably request in
connection with this Agreement or to carry out more effectively the provisions
and purposes of, or to better assure and confirm unto such other party its
rights and remedies under, this Agreement.
11.6 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall inure to the benefit of, and be binding upon, DURA, Spiros Corp. II, and
their respective successors and assigns; PROVIDED, HOWEVER, that DURA and Spiros
Corp. II may not assign or otherwise transfer any of their respective rights and
interests, nor delegate any of their respective obligations, hereunder,
including, without limitation, pursuant to a merger or consolidation, without
the prior written consent of the other party hereto; PROVIDED FURTHER, HOWEVER,
that DURA may fully assign its rights and interests, and delegate its
obligations, hereunder, effective upon written notice thereof (a) to an
Affiliate if such Affiliate assumes all of the obligations of DURA hereunder and
this Agreement remains binding upon DURA; or (b) to any Person that acquires all
or substantially all of the assets of DURA, or which is the surviving Person in
a merger or consolidation with DURA, if such Person assumes all the obligations
of DURA hereunder. Notwithstanding the foregoing, Spiros Corp. II shall have
the right to assign its rights and delegate its obligations hereunder following
expiration or termination (other than by exercise) of the Purchase Option.
Notwithstanding the foregoing, Spiros Corp. II shall have the right to assign
its rights and delegate its obligations hereunder following expiration or
termination (other than by exercise) of the Purchase Option. Any attempt to
assign or delegate any portion of this Agreement in violation of this Section
11.6 shall be null and void. Subject to the foregoing any reference to DURA or
Spiros Corp. II hereunder shall be deemed to include the successors thereto and
assigns thereof.
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11.7 AMENDMENTS. No amendment, modification, waiver, termination or
discharge of any provision of this Agreement, nor consent by DURA or Spiros
Corp. II to any departure therefrom, shall in any event be effective unless the
same shall be in writing specifically identifying this Agreement and the
provision intended to be amended, modified, waived, terminated or discharged and
signed by DURA and Spiros Corp. II, and each amendment, modification, waiver,
termination or discharge shall be effective only in the specific instance and
for the specific purpose for which given. No provision of this Agreement shall
be varied, contradicted or explained by any other agreement, course of dealing
or performance or any other matter not set forth in an agreement in writing and
signed by DURA and Spiros Corp. II.
11.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, as applied to contracts
made and performed entirely within the State of California. Except as otherwise
provided herein, any claim or controversy arising out of or related to this
contract or any breach hereof shall be submitted to a court of competent
jurisdiction in the State of California, and the parties hereby consent to the
jurisdiction and venue of such court.
11.9 SEVERABILITY. If any provision hereof should be held invalid, illegal
or unenforceable in any respect in any jurisdiction, then, to the fullest extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intentions of the parties hereto as nearly as may be possible and (b)
such invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction. To the
extent permitted by applicable law, DURA and Spiros Corp. II hereby waive any
provision of law that would render any provision hereof prohibited or
unenforceable in any respect.
11.10 HEADINGS. Headings used herein are for convenience only and shall
not in any way affect the construction of, or be taken into consideration in
interpreting, this Agreement.
11.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, taken together,
shall constitute one and the same instrument.
11.12 ENTIRE AGREEMENT. This Agreement, together with any agreements
referenced herein, constitute, on and as of the date hereof, the entire
agreement of DURA and Spiros Corp. II with respect to the subject matter hereof,
and all prior or contemporaneous understandings or agreements, whether written
or oral, between DURA and Spiros Corp. II with respect to such subject matter
are hereby superseded in their entirety.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
DURA PHARMACEUTICALS, INC.
By /s/ Cam L. Garner
----------------------------------------------
Cam L. Garner
President and Chief Executive Officer
SPIROS DEVELOPMENT CORPORATION II, INC.
By /s/ David S. Kabakoff
----------------------------------------------
David S. Kabakoff
President and Chief Executive Officer
[SIGNATURE PAGE TO DEVELOPMENT AGREEMENT]
<PAGE>
SCHEDULE 1.1
GLOSSARY
SCHEDULE 1.1
<PAGE>
SCHEDULE 1.1
GLOSSARY
"AFFILIATE" of a person shall mean a Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such Person. "Control" (and, with correlative meanings, the
terms "controlled by" and "under common control with") shall mean the possession
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting stock, by contract or
otherwise. In the case of a corporations, "control" shall mean, among other
things, the direct or indirect ownership of more than fifty percent (50%) of its
outstanding voting stock.
"AGREEMENTS" shall mean the Manufacturing and Marketing Agreement, the
Technology Agreement and the Development Agreement.
"ALBUTEROL OPTION" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"ALBUTEROL AND PRODUCT OPTION AGREEMENT" shall mean the Albuterol and
Product Option Agreement dated as of December 22, 1997, between DURA and Spiros
Corp. II, as amended, modified or supplemented from time to time.
"ALBUTEROL OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 1.5 of the Albuterol and Product Option Agreement.
"ALBUTEROL PROGRAM ASSETS" shall have the meaning assigned to it in Section
1.1 of the Albuterol and Product Option Agreement.
"ALBUTEROL PRODUCT" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"AVAILABLE FUNDS" shall mean the sum of (a) the net proceeds to Spiros
Corp. II from the sale of the Units in the Offering and the Contribution, (b)
all royalties or fees remitted to Spiros Corp. II by DURA (or its Affiliates)
from the Sale of Spiros Products or in consideration of license rights
granted pursuant to the Agreements, (c) the Option Proceeds, if any, (d) any
other amounts provided by DURA to Spiros Corp. II, if any and (e) interest or
other income earned through temporary investment of the amounts described in
clauses (a), (b), (c) or (d).
"BANKRUPTCY CODE" shall mean the United States Bankruptcy Code, as amended
from time to time.
"CLAIM" shall mean any and all liabilities, damages, losses, settlements,
claims, actions, suits, penalties, fines, costs or expenses (including, without
limitation, reasonable attorneys' fees).
SCHEDULE 1.1
<PAGE>
"CONFIDENTIAL INFORMATION" shall mean all Program Technology disclosed by
DURA (and its Affiliates) to Spiros Corp. II or by Spiros Corp. II to DURA
pursuant to the Agreements or the Services Agreement.
"CONTRIBUTION" shall have the meaning assigned in Section 5.2 of the
Development Agreement.
"CORE TECHNOLOGY" shall mean the DURA Core Technology, the DDSI Core
Technology and the Spiros Core Technology.
"DDSI CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DDSI as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DDSI Patent Rights; PROVIDED,
HOWEVER, that DDSI Core Technology shall also include Technology acquired by
DDSI from a third party after the date of the closing of the Offering necessary
or useful to the development of the Spiros Products, except to the extent that
there are any limitations or restrictions on DDSI's ability to license or
sublicense such Technology. "Owned or controlled" shall include Technology that
DDSI owns, or under which DDSI is licensed and has the right to grant
sublicenses and/or grant immunity from suit.
"DDSI INDEMNITEE" shall mean DDSI, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DDSI PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DDSI (or the rights to
which have been assigned to DDSI) as of the date of the Technology Agreement
relating to dry powder inhalers, powder storage systems and/or formulation
methods for dry powder inhalation, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
patent applications and (c) any patent issued or issuing upon any of the
foregoing.
"DESIGNATED COMPOUND(S)" shall mean any compounds for delivery using the
System selected by Spiros Corp. II, and agreed to be developed by DURA.
"DEVELOPED TECHNOLOGY" shall mean any Technology including, without
limitation, any enhancements, substitutions or improvements to the Core
Technology that is (a) discovered, developed or otherwise acquired by DURA
pursuant to the terms of the Development Agreement or (b) otherwise acquired by
or on behalf of Spiros Corp. II during the term of the Development Agreement.
"DEVELOPMENT" shall mean the further development of the Program Technology
for the purpose of identifying, developing, manufacturing, marketing and
commercializing Spiros Products and
SCHEDULE 1.1
<PAGE>
the making of the Other Expenditures.
"DEVELOPMENT AGREEMENT" shall mean the Development Agreement dated as of
December 22, 1997, between DURA and Spiros Corp., as amended, modified or
supplemented from time to time.
"DEVELOPMENT COSTS" shall mean the Direct Development Costs, the Indirect
Development Costs and the Other Expenditures.
"DEVELOPMENT TERM" shall mean the period commencing on the Closing Date and
ending on the earlier of (a) the Option Closing Date or (b) the date the Option
terminates or expires other than by exercise.
"DIRECT DEVELOPMENT COSTS" shall mean all costs incurred by DURA or its
Affiliates in respect of the Development, other than Indirect Development
Costs, determined in accordance with generally accepted accounting principles
consistent with DURA's internal accounting system, allocated on a reasonable
and consistent basis. Direct Development Costs shall consist primarily of
fully-burdened payroll costs (burdened to include benefits, payroll taxes and
an allocation of facilities and overhead costs) and any other such costs
generated internally by DURA in respect of the Development.
"DPI" shall mean the motor-driven dry powder inhaler (other than an inahler
designed to deliver a single dose of a drug) developed by DURA, DDSI and/or
Spiros Corp. and to be developed by DURA and/or Spiros Corp. II.
"DURA COMMON STOCK" shall mean the Common Stock of DURA, par value $.001
per share.
"DURA CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DURA as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DURA Patent Rights and DURA
Trademarks; PROVIDED, HOWEVER, that DURA Core Technology shall also include
Technology acquired by DURA from a third party after the date of the closing of
the Offering necessary or useful to the development of the Spiros Products,
except to the extent that there are any limitations or restrictions on DURA's
ability to license or sublicense such Technology. "Owned or controlled" shall
include Technology that DURA owns, or under which DURA is licensed and has the
right to grant sublicenses and/or grant immunity from suit.
"DURA INDEMNITEE" shall mean DURA, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DURA PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DURA (or the rights to
which have been assigned to DURA) as of the date of the Technology Agreement
relating to DPIs, PSSs and/or formulation methods for dry powder inhalation, (b)
any
SCHEDULE 1.1
<PAGE>
patent application constituting an equivalent, counterpart, reissue,
extension or continuation (including, without limitation, a continuation in
part or a subdivision) of any of the foregoing patent applications and (c)
any patent issued or issuing upon any of the foregoing.
"DURA TRADEMARKS" shall mean SpirosTM.
"EVENT OF DEFAULT" shall mean any of the following events: (a) at any
time, if DURA or Spiros Corp. II fails to perform or observe or otherwise
breaches any of its Material Obligations, and such failure or breach continues
unremedied for a period of sixty (60) days after receipt by of written notice
thereof from the other party; (b) at any time, effective as set forth in a
written notice from the other party if DURA or Spiros Corp. II shall (i) seek
the liquidation, reorganization, dissolution or winding-up of itself or the
composition or readjustment of its debts (other than pursuant to a merger with
an Affiliate), (ii) apply for or consent to the appointment of, or the taking
possession by, a receiver, custodian, trustee or liquidator for itself or of all
or a substantial part of its assets, (iii) make a general assignment for the
benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy
Code, (v) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or
readjustment of debts (other than pursuant to a merger with an Affiliate) or
(vi) adopt any resolution of its Board of Directors or shareholders for the
purpose of effecting any of the foregoing (other than pursuant to a merger with
an Affiliate); or (c) at any time, effective as set forth in a written notice
from the other party, if a proceeding or case shall be commenced without the
application or consent of DURA or Spiros Corp. II as applicable, and such
proceeding or case shall continue undismissed, or an order, judgment or decrees
approving or ordering any of the following shall be entered and continued
unstayed and in effect, for a period of sixty (60) days from and after the date
service of process is effected, seeking (i) DURA's or Spiros Corp. II's, as
applicable, liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of DURA or Spiros Corp. II or for
all or any substantial part of its assets or (iii) similar relief in respect of
DURA or Spiros Corp. II under any law relating to bankruptcy, insolvency,
reorganization, winding-up or the composition or readjustment of debts.
"FDA" shall mean the United States Food and Drug Administration or any
successor agency or authority, the approval of which is required to market
health care products in the United States.
"FDA APPROVAL" shall mean the final regulatory approval of the FDA required
to commence commercial marketing of a health product.
SCHEDULE 1.1
<PAGE>
"FORCE MAJEURE" shall mean any act of God, any accident explosion, fire,
storm, earthquake, flood, drought, peril of the sea, riot, embargo, war or
foreign, federal, state or municipal order of general application, seizure,
requisition or allocation, any failure or delay of transportation, shortage of
or inability to obtain supplies, equipment, fuel or labor or any other
circumstance or event beyond the reasonable control of the party relying upon
such circumstance or event.
"INDIRECT DEVELOPMENT COSTS" shall mean all costs, fees and out-of-pocket
or other expenses, including the purchase of any capital equipment related to
the Development, incurred or paid by DURA to a third party, other than an
Affiliate of DURA, in respect of the Development, determined in accordance with
generally accepted accounting principles consistent with DURA's internal
accounting system, allocated on a reasonable and consistent basis.
"MANUFACTURING AND MARKETING AGREEMENT" shall mean the Manufacturing and
Marketing Agreement dated as of December 22, 1997 between DURA and Spiros Corp.
II, as amended, modified or supplemented from time to time.
"MANUFACTURE" shall mean the manufacture and assembly of the Spiros
Products.
"MATERIAL OBLIGATION" shall mean the material obligations of a party under
the Technology Agreement, the Development Agreement or the Manufacturing and
Marketing Agreement.
"NET SALES" shall mean the gross amount invoiced for sales of Spiros
Products by DURA or its sublicensees, if any, to third parties less (i)
discounts actually allowed, (ii) credits for claims, allowances, retroactive
price reductions or returned Spiros Products, (iii) prepaid freight charges
incurred in transporting Spiros Products to customers, (iv) sales taxes and
other governmental charges actually paid in connection with the sales (but
excluding what is commonly known as income taxes) and (v) any royalty
obligations under the 1993 Royalty Agreement. Net Sales shall not include sales
between or among DURA, its Affiliates and its sublicensees unless such sales are
for end use rather than for purposes of resale.
"OFFERING" shall mean the underwritten public offering of the Units
pursuant to the Registration Statement.
"OPTION PROCEEDS" shall have the meaning assigned to it in Section 3 of the
Albuterol and Product Option Agreement.
"OPTION PRODUCT" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"OTHER EXPENDITURES" shall mean funds spent by Spiros Corp. II to acquire
capital equipment, develop a next generation inhaler system or to enhance the
System.
SCHEDULE 1.1
<PAGE>
"PATENT RIGHTS" shall mean any patents or patent applications within the
Spiros Corp. II Patent Rights, the DURA Patent Rights, the DDSI Patent Rights
and the Spiros Corp. Patent Rights.
"PERSON" shall mean any individual, partnership, corporation, firm,
association, unincorporated organization, joint venture, trust or other entity.
"PRODUCT OPTION" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"PRODUCT OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 2.5 of the Albuterol and Product Option Agreement.
"PROGRAM TECHNOLOGY" shall mean the Core Technology and the Developed
Technology.
"PSS" shall mean the powder storage system developed and to be developed by
DURA for use with the DPI.
"PURCHASE AGREEMENT" shall mean the Purchase Agreement dated as of
December 16, 1997, among DURA, Spiros Corp. II, Merrill Lynch & Co., and
Donaldson, Lufkin & Jenrette.
"PURCHASE OPTION" shall mean the option granted to the holder of Spiros
Corp. II's Special Common Stock to purchase all of the Spiros Corp. II Common
Stock as set forth in Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION CLOSING DATE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION EXERCISE PRICE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form S-
1/S-3 filed by Spiros Corp. II and DURA dated October 10, 1997 (No. 333-37673/
333-37673-01), including all exhibits and any amendments thereof
and supplements thereto.
"RESEARCH FUNDS" shall mean the Available Funds, less (i) all general and
administrative expenses including, without limitation, those paid or payable
pursuant to the Development Agreement or the Services Agreement, and the
reasonable out-of-pocket expenses of Spiros Corp. II directors and reasonable
compensation for Spiros Corp. II's independent directors, less (ii) any amounts
paid to DURA under the Development Agreement or the Services Agreement, less
(iii) any costs and expenses incurred in the defense or settlement of any action
or claim or in respect of a judgment thereon, and less (iv) One Million Dollars
($1,000,000) to be retained by Spiros Corp. II as working capital in the event
DURA does not exercise the Purchase Option.
SCHEDULE 1.1
<PAGE>
"SALE(S)" or "SELL" shall mean the activity undertaken by a sales
representative during a sales call on physicians, physician assistants, nurses,
hospitals, clinics, health maintenance organizations, preferred provider
organizations and managed care companies (including all forms of communication
not involving face to face contact by such sales representatives), describing
the FDA-approved indicated uses, safety, effectiveness, contraindications, side
effects, warnings and other relevant characteristics of the Spiros Product, in a
fair and balanced manner consistent with the requirements of the Federal Food,
Drug, and Cosmetic Act, as amended (and the regulations thereunder).
"SPIROS CASSETTE SYSTEM" shall mean a DPI in which the PSS is in the form
of a cassette.
"SPIROS CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
Spiros Corp. as of the date of the closing of the Offering necessary or useful
to the development of the Spiros Products, and (b) the Spiros Corp. Patent
Rights; PROVIDED, HOWEVER, that Spiros Core Technology shall also include
Technology acquired by Spiros Corp. from a third party after the date of the
closing of the Offering necessary or useful to the development of the Spiros
Products, except to the extent that there are any limitations or restrictions on
Spiros Corp.'s ability to license or sublicense such Technology. "Owned or
controlled" shall include Technology that Spiros Corp. owns, or under which
Spiros Corp. is licensed and has the right to grant sublicenses and/or grant
immunity from suit.
"SPIROS CORP. INDEMNITEE" shall mean Spiros Corp., its successors and
assigns, and the directors, officers, employees, agents and counsel thereof.
"SPIROS CORP. PATENT RIGHTS" shall mean those certain inventions described
in claims of (a) the patent applications pending, filed by Spiros Corp. (or the
rights to which have been assigned to Spiros Corp.) as of the date of the
Technology Agreement relating to dry powder inhalers, powder storage systems
and/or formulation methods for dry powder inhalation, (b) any patent application
constituting an equivalent, counterpart, reissue, extension or continuation
(including, without limitation, a continuation in part or a subdivision) of any
of the foregoing patent applications and (c) any patent issued or issuing upon
any of the foregoing.
"SPIROS CORP. II CHARTER" shall mean Amended and Restated Certificate of
Spiros Development Corporation II, Inc. in effect as of the closing of the
Offering, as amended from time to time.
"SPIROS CORP. II COMMON STOCK" shall mean the Callable Common Stock of
Spiros Corp. II, $.001 par value.
"SPIROS CORP. II INDEMNITEE" shall mean Spiros Corp. II, its
SCHEDULE 1.1
<PAGE>
successors and assigns, and the directors, officers, employees, agents and
counsel thereof.
"SPIROS CORP. II PATENT RIGHTS" shall mean those certain inventions
described in claims of (a) any patent application having one or more claims
covering Developed Technology, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
applications or (c) any patent issued or issuing upon any of the foregoing
applications.
"SPIROS PRODUCT(S)" shall mean (a) any System used with a formulation of
albuterol, beclomethasone, ipratropium, an albuterol-ipratropium combination,
budesonide or a Designated Compound developed, produced, manufactured or
marketed by DURA on behalf of Spiros Corp. II using the Program Technology.
"SPIROS PRODUCT PROGRAM ASSETS" shall have the meaning assigned to it in
Section 2.1 of the Albuterol and Product Option Agreement.
"SYSTEM" shall mean the DPI and the PSS when used together.
"TECHNOLOGY" shall mean, solely with respect to motor-driven dry powder
inhalers and powder storage systems for drugs for delivery through such
inhalers, the manufacture thereof, and formulations of drugs to be delivered
through such inhalers, public and nonpublic technical or other information,
trade secrets, know-how, processes, formulations, concepts, ideas, preclinical,
clinical, pharmacological or other data and testing results, experimental
methods, or results, assays, descriptions, business or scientific plans,
depictions, customer lists and any other written, printed or electronically
stored materials, pharmaceutical compounds or any other natural or man-made
pharmaceutical materials and any and all other intellectual property, including
patents and patent applications, of any nature whatsoever. The term
"Technology" shall include, without limitation, any of the foregoing as it
relates to enhancements of, substitutions for or improvements to the Core
Technology.
"TECHNOLOGY AGREEMENT" shall mean the Technology License Agreement dated as
of December 22, 1997, among DURA, DDSI, Spiros Corp. and Spiros Corp. II, as
amended, modified or supplemented from time to time.
"TERRITORY" shall mean the entire world.
"UNDERWRITERS" shall have the meaning assigned to it in the Registration
Statement.
"UNITS" shall mean units, each consisting of one share of Spiros Corp. II
Common Stock and one warrant to purchase one-fourth of one share of DURA Common
Stock, all as described in the Registration Statement.
SCHEDULE 1.1
<PAGE>
"1993 ROYALTY AGREEMENT" shall have the meaning assigned to it in the
Registration Statement.
<PAGE>
SCHEDULE 2.1
Proposed Budget and Workplan
<TABLE>
<CAPTION>
Year ended December 31,
(in millions)
-----------------------------------------------------------
(3 months) (4 months)
1997(2) 1998 1999 2000 2001 Total
---------- ------ ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Beginning cash balance . . . . . . . . . . . . . . $ -- $151.7 $95.8 $45.9 $12.4 $ --
Dura Contribution. . . . . . . . . . . . . . . . . 75.0 -- -- -- -- 75.0
Net proceeds of the Offerings. . . . . . . . . . . 81.7 -- -- -- -- 81.7
Interest income(1) . . . . . . . . . . . . . . . . -- 6.0 3.5 1.4 0.3 11.2
------ ------ ----- ----- ----- ------
Total . . . . . . . . . . . . . . . . . . . . $156.7 $157.7 $99.3 $47.3 $12.7 $167.9
------ ------ ----- ----- ----- ------
------ ------ ----- ----- ----- ------
Payments
Albuterol . . . . . . . . . . . . . . . . . . . 3.4 30.3 -- -- -- 33.7
Beclomethasone. . . . . . . . . . . . . . . . . 1.6 9.1 6.0 0.3 -- 17.0
Budesonide. . . . . . . . . . . . . . . . . . . -- 4.6 15.2 11.1 6.3 37.2
Ipratropium . . . . . . . . . . . . . . . . . . -- 9.5 16.1 9.0 -- 34.6
Albuterol-Ipratropium . . . . . . . . . . . . . -- 6.5 11.2 10.1 3.0 30.8
Other Expenditures . . . . . . . . . . . . . . . . -- 1.5 4.5 4.0 2.0 12.0
General and administrative expenses. . . . . . . . -- 0.4 0.4 0.4 0.4 1.6
------ ------ ----- ----- ----- ------
Total . . . . . . . . . . . . . . . . . . . . $ 5.0 $ 61.9 $53.4 $34.9 $11.7 $166.9
------ ------ ----- ----- ----- ------
------ ------ ----- ----- ----- ------
Ending cash balance . . . . . . . . . . . . . . . $151.7 $ 95.8 $45.9 $12.4 $ 1.0 $ 1.0
------ ------ ----- ----- ----- ------
------ ------ ----- ----- ----- ------
</TABLE>
- ------------------------
(1) Assumes an interest rate of 5%.
(2) Expenditures in the year ended December 31, 1997 include approximately $4
million to repay Dura for estimated costs and expenses to be incurred by
Dura on behalf of Spiros Corp. II between October 10, 1997 and the closing
of the Offerings.
<PAGE>
SCHEDULE 5.3
Contracting for Development services through closing.
Dry powder inhaler and drug development costs through closing of the
Offering.
SCHEDULE 5.3
<PAGE>
ALBUTEROL AND PRODUCT OPTION AGREEMENT
This ALBUTEROL AND PRODUCT OPTION AGREEMENT, is dated as of December 22,
1997, by and between DURA PHARMACEUTICALS, INC., a Delaware corporation
("DURA"), and SPIROS DEVELOPMENT CORPORATION II, INC., a Delaware corporation
("Spiros Corp II").
RECITALS
A. DURA and Spiros Development Corporation, a Delaware corporation
("Spiros Corp.") are parties to the Agreements as hereinafter defined. Except
where the context requires otherwise, capitalized terms used but not defined
herein shall have the respective meanings assigned to them in the Glossary
attached as SCHEDULE 1.1 to this Agreement.
B. Pursuant to the Technology Agreement, each of DURA and Spiros Corp.
have granted to Spiros Corp. II, and Spiros Corp. II has acquired from each of
DURA and Spiros Corp., an exclusive license to certain patent rights and
technology for the purpose of allowing Spiros Corp. II to develop and
commercialize Spiros Products.
C. As a condition to entering into the Agreements, and in partial
consideration of the Contribution, DURA desires to receive from Spiros Corp. II,
and Spiros Corp. II is willing to grant to DURA, an option to acquire the
Albuterol Program Assets (defined in Section 1.1 below), pursuant to the terms
of this Agreement.
D. As a further condition to entering into the Agreements, and in partial
consideration of the Contribution, DURA desires to receive from Spiros Corp. II,
and Spiros Corp. II is willing to grant to DURA, an option to acquire the Spiros
Product Program Assets (defined in Section 2.1 below), pursuant to the terms of
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, DURA and Spiros Corp. II hereby agree as follows:
1. ALBUTEROL OPTION
1.1 GRANT OF ALBUTEROL OPTION. Subject to the terms and conditions of
this Agreement, Spiros Corp. II hereby grants to DURA an option (the "Albuterol
Option") to acquire, for all purposes, medical uses and indications without any
limitation imposed by Spiros Corp. II, all of Spiros Corp. II's right, title and
interest in and to the following (the "Albuterol Program Assets"): (a) the
product developed by DURA pursuant to the Development Agreement with albuterol
in the Spiros Cassette System (the "Albuterol Product"), (b) albuterol as
formulated for use in the Albuterol Product, (c) a perpetual, sublicensable,
non-exclusive, royalty-free license to the technology owned by Dura or developed
or acquired by Dura during the term of the Development
<PAGE>
Agreement applicable to the Albuterol Product for use solely with the Albuterol
Product, and (d) all applications and documents filed with the FDA or any other
regulatory body to obtain regulatory approval to commence commercial sale or use
of the Albuterol Product. The tangible manifestations of the Albuterol Program
Assets shall be delivered to DURA promptly following the Albuterol Option
Closing Date (defined in Section 1.5 below).
1.2 ALBUTEROL OPTION PERIOD. Subject to earlier termination pursuant
to Section 8 hereof, the Albuterol Option is exercisable commencing on the
date of this Agreement and ending (the "Albuterol Option Termination Date")
at 11:59 p.m., San Diego time, on the earlier of (a) three hundred and sixty
(360) days after receipt of FDA Approval of the Albuterol Product or (b) the
date following the commencement of Manufacture of the Albuterol Product
pursuant to the Manufacturing and Marketing Agreement upon which Dura ceases
to manufacture or market the Albuterol Product in accordance with the terms
of the Manufacturing and Marketing Agreement. If the Albuterol Option
Termination Date is not a business day, then the Albuterol Option Termination
Date shall be 11:59 p.m., San Diego time, on the next succeeding business day.
1.3 EXERCISE PRICE. Upon exercise of the Albuterol Option, DURA shall
make a single payment (the "Albuterol Option Exercise Price") to Spiros Corp.
II equal to (a) the aggregate Purchase Option Exercise Price, assuming
acquisition of all shares of Spiros Corp. II Common Stock issued pursuant to
the Offering four years following the date of closing of the Offering,
multiplied by (b) a fraction, the numerator of which will equal the
development and commercialization costs and expenses incurred by Spiros Corp.
II in connection with the development and commercialization of the Albuterol
Product and the denominator of which will equal $ 167,900,000 plus the net
proceeds to DURA, if any, from the exercise by of the over-allotment option
described in the Registration Statement by the Underwriters in connection
with the Offering.
1.4 FORM OF PAYMENT. The Albuterol Option Exercise Price shall be paid in
cash, by certified or bank cashier's check (or wire transfer) made payable to
Spiros Corp. II.
1.5 MANNER OF EXERCISE. The Albuterol Option may be exercised at any time
during the Albuterol Option Period by written notice (the "Albuterol Purchase
Exercise Notice") to Spiros Corp. II, signed by an executive officer of DURA,
stating that the Albuterol Option is being exercised and setting forth: (a) the
estimated Albuterol Option Exercise Price as determined in accordance with
Section 1.3 hereof; and (b) a closing date, not less than twenty (20) nor more
than sixty (60) days after the date of such notice (the "Albuterol Option
Closing Date"), on which the Albuterol Program Assets shall be purchased.
1.6 ALBUTEROL OPTION CLOSING DATE.
(a) At the closing of the Albuterol Option on the Albuterol Option
Closing Date, (i) Spiros Corp. II shall deliver to DURA such documents, bills of
sale, licenses, sublicenses, further instruments of transfer and assignment and
other papers and take such further actions as may be reasonably required or
desirable to effect the transfer of the Albuterol Program Assets contemplated
hereby, and (ii) DURA shall deliver to Spiros Corp. II a certified or bank
cashier's check (or wire transfer) in the amount of the Albuterol Option
Exercise Price.
-2-
<PAGE>
(b) Transfer of all Albuterol Program Assets to DURA shall be deemed
to occur automatically on the Albuterol Option Closing Date, subject to the
provisions of Section 5 hereof. Notwithstanding any other provision of this
Agreement, with respect to any rights held by Spiros Corp. II pursuant to an
agreement with any person other than DURA, which rights relate to the Albuterol
Program Assets, the rights granted to DURA hereunder shall be limited to the
rights which Spiros Corp. II has a right to assign or grant under such agreement
and shall be subject to any obligations assumed by Spiros Corp. II in
consideration of the grant or assignment of such rights to Spiros Corp. II,
including all obligations to pay any license fees and royalties with respect to
the Albuterol Program Assets (such assumed obligations being referred to herein
as the "Assumed Albuterol Obligations"); PROVIDED, HOWEVER, that Spiros Corp. II
shall use commercially reasonable efforts to obtain the right to grant
sublicenses or assign such rights on terms reasonably acceptable to DURA.
2. PRODUCT OPTION
2.1 GRANT OF PRODUCT OPTION. Subject to the terms and conditions of this
Agreement, Spiros Corp. II hereby grants to DURA an option (the "Product
Option") to acquire, for all purposes, medical uses and indications without any
limitation imposed by Spiros Corp. II, all of Spiros Corp. II's right, title and
interest in and to the following (the "Spiros Product Program Assets"): (a) a
single Spiros Product (other than the Albuterol Product) developed by DURA
pursuant to the Development Agreement for which DURA determines to exercise the
Product Option (the "Option Product"), (b) the compound to be delivered by the
Option Product, as formulated for use specifically in the Option Product, (c) a
perpetual, sublicensable, non-exclusive, royalty-free license to the technology
owned by Dura or developed or acquired by Dura during the term of the
Development Agreement applicable to the Option Product for use solely with the
Option Product, and (d) all applications and documents filed with the FDA or any
other regulatory body to obtain regulatory approval to commence commercial sale
or use of the Option Product. The tangible manifestations of the Spiros Product
Program Assets shall be delivered to DURA promptly following the Product Option
Closing Date (as defined in Section 2.5 below).
2.2 PRODUCT OPTION PERIOD. Subject to earlier termination pursuant to
Section 8 hereof, the Product Option is exercisable with respect to each
Spiros Product commencing on the date of this Agreement and ending (the
"Product Option Termination Date") at 11:59 p.m., San Diego time, ninety (90)
days after receipt of FDA Approval of such Spiros Product. If the Product
Option Termination Date is not a business day, then the Product Option
Termination Date shall be 11:59 p.m., San Diego time, on the next succeeding
business day.
2.3 EXERCISE PRICE. Upon exercise of the Product Option, DURA shall make
a single payment (the "Product Option Exercise Price") to Spiros Corp. II, of
one hundred and ten percent (110%) of (a) the aggregate Purchase Option Exercise
Price, assuming acquisition of all shares of Spiros Corp. II Common Stock issued
pursuant to the Offering four years following the date of closing of the
Offering, multiplied by (b) a fraction, the numerator of which will equal the
development and commercialization costs and expenses incurred by Spiros Corp. II
in connection
-3-
<PAGE>
with the development and commercialization of the Option Product and the
denominator of which will equal $167,900,000 plus the net proceeds to DURA,
if any, from the exercise by of the over-allotment option described in the
Registration Statement by the Underwriters in connection with the Offering.
2.4 FORM OF PAYMENT. The Product Option Exercise Price shall be paid in
cash, by certified or bank cashier's check (or wire transfer) made payable to
Spiros Corp. II.
2.5 MANNER OF EXERCISE. The Product Option may be exercised at any time
during the Product Option Period by written notice (the "Product Purchase
Exercise Notice") to Spiros Corp. II, signed by an executive officer of DURA,
stating that the Product Option is being exercised and setting forth: (a) the
Spiros Product to be designated as the Option Product; (b) the estimated Product
Option Exercise Price as determined in accordance with Section 2.3 hereof; and
(c) a closing date, not less than twenty (20) nor more than sixty (60) days
after the date of such notice (the "Product Option Closing Date"), on which the
Spiros Product Program Assets shall be purchased.
2.6 PRODUCT OPTION CLOSING DATE.
(a) At the closing of the Product Option on the Product Option
Closing Date, (i) Spiros Corp. II shall deliver to DURA such documents, bills of
sale, licenses, sublicenses, further instruments of transfer and assignment and
other papers and take such further actions as may be reasonably required or
desirable to effect the transfer of the Spiros Product Program Assets
contemplated hereby, and (ii) DURA shall deliver to Spiros Corp. II a certified
or bank cashier's check (or wire transfer) in the amount of the Product Option
Exercise Price.
(b) Transfer of all Spiros Product Program Assets to DURA shall be
deemed to occur automatically on the Product Option Closing Date, subject to the
provisions of Section 5 hereof. Notwithstanding any other provision of this
Agreement, with respect to any rights held by Spiros Corp. II pursuant to an
agreement with any person other than DURA, which rights relate to the Spiros
Product Program Assets, the rights granted to DURA hereunder shall be limited to
the rights which Spiros Corp. II has a right to assign or grant under such
agreement and shall be subject to any obligations assumed by Spiros Corp. II in
consideration of the grant or assignment of such rights to Spiros Corp. II,
including all obligations to pay any license fees and royalties with respect to
the Spiros Product Program Assets (such assumed obligations being referred to
herein as the "Assumed Option Product Obligations"); PROVIDED, HOWEVER, that
Spiros Corp. II shall use commercially reasonable efforts to obtain the right to
grant sublicenses or assign such rights on terms reasonably acceptable to DURA.
3. DISPOSITION OF ALBUTEROL OPTION EXERCISE PRICE AND PRODUCT OPTION EXERCISE
PRICE. Until the expiration or termination of the Technology Agreement, the
Development Agreement or the Manufacturing and Marketing Agreement, at which
time all proceeds of the Albuterol Option Exercise Price and Product Option
Exercise Price (together with any interest, dividends and other earnings
thereon, the "Option Proceeds") received by Spiros Corp. II will become
unrestricted as to disposition or use by Spiros Corp. II, the Option Proceeds
shall be deemed Available Funds and shall not be otherwise expended, used,
encumbered or distributed.
-4-
<PAGE>
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. The provisions of Section 3 of
the Technology Agreement shall apply with equal force and effect to this
Agreement and are incorporated hereunder.
5. CONDITIONS TO ALBUTEROL OR PRODUCT OPTION CLOSING.
5.1 CONDITIONS TO OBLIGATIONS OF DURA. The obligations of DURA to
consummate the transactions contemplated by this Agreement following exercise of
the Albuterol Option or the Product Option shall be subject, at DURA's option,
to the fulfillment at or prior to the Albuterol Closing Date or Product Option
Closing Date, as the case may be, of each of the following conditions:
(a) Spiros Corp. II shall have duly executed and delivered to DURA
each of the documents, certificates and other items provided in Section
1.6(a)(i), in the case of the exercise of the Albuterol Option, and Section
2.6(a)(i), in the case of the exercise of the Product Option, of this Agreement
to the reasonable satisfaction of DURA and its counsel.
(b) The representations and warranties made by Spiros Corp. II
in Section 3.1 of the Technology Agreement shall be true and correct in all
material respects on and as of the Albuterol Option Closing Date or the
Product Option Closing Date, as the case may be, with the same effect as
though such representations and warranties had been made or given on and as
of such date, and Spiros Corp. II shall have performed and complied in all
material respects with all of Spiros Corp. II's obligations under this
Agreement which are to be performed or complied with by it on or prior to the
Albuterol Option Closing Date or the Product Option Closing Date, as the case
may be.
(c) No action, suit or other proceeding before a court, tribunal or
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement, or seeking to obtain substantial damages in respect thereof, or
involving a claim that consummation thereof would result in the violation of any
law, decree or regulation of governmental authority having appropriate
jurisdiction, and no preliminary or permanent injunction or other order, decree
or ruling issued by a court of competent jurisdiction or by a government,
regulatory or administrative agency or commission nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority shall be in effect which would (i) make the acquisition or holding by
DURA of the Albuterol Program Assets, or the Spiros Product Program Assets, as
the case may be, illegal or impose material limitations on its ability to
exercise full rights of ownership with respect to such Albuterol Program Assets
or Spiros Product Program Assets, as the case may be, or (ii) otherwise prevent
the consummation of the transactions contemplated hereby.
5.2 CONDITIONS TO OBLIGATIONS OF SPIROS CORP. II. The obligations of
Spiros Corp. II to consummate the transactions contemplated by this Agreement
following exercise of the Albuterol Option or Product Option, shall be subject,
at Spiros Corp. II's option, to the
-5-
<PAGE>
fulfillment at or prior to the Albuterol Option Closing Date or Product Option
Closing Date, as the case may be, of each of the following conditions:
(a) DURA shall have delivered to Spiros Corp. II the Albuterol
Option Exercise Price or the Product Option Exercise Price, as the case may be.
(b) Each of the representations and warranties made by DURA in
Section 3.1 of the Technology Agreement shall be true and correct in all
material respects on and as of the Albuterol Option Closing Date or the Product
Option Closing Date, as the case may be, with the same effect as though such
representations and warranties had been made or given on and as of such date,
and DURA shall have performed and complied in all material respects with all of
DURA's obligations under this Agreement which are to be performed or complied
with on or prior to the Albuterol Option Closing Date or the Product Option
Closing Date, as the case may be.
(c) No action, suit or other proceeding before a court, tribunal or
other governmental agency or body shall have been instituted or threatened to
restrain or prohibit the consummation of the transactions contemplated by this
Agreement, or seeking to obtain substantial damages in respect thereof, or
involving a claim that consummation thereof would result in the violation of any
law, decree or regulation of governmental authority having appropriate
jurisdiction, and no preliminary or permanent injunction or other order, decree
or ruling issued by a court of competent jurisdiction or by a government,
regulatory or administrative agency or commission nor any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority shall be in effect which would (i) make the transfer by Spiros Corp.
II of the Albuterol Program Assets or the Spiros Product Program Assets, as the
case may be, pursuant to this Agreement illegal or (ii) otherwise prevent the
consummation of the transactions contemplated hereby.
6. DISCLAIMER OF WARRANTY. SPIROS CORP. II DISCLAIMS ALL WARRANTIES, WHETHER
EXPRESS OR IMPLIED, (a) THAT THE ALBUTEROL PROGRAM ASSETS OR THE SPIROS PRODUCT
PROGRAM ASSETS, OR ANY USE THEREOF, WILL BE FREE FROM CLAIMS OF PATENT
INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF PROPRIETARY INFORMATION OF ANY
THIRD PARTY AND (b) OF THE ACCURACY, RELIABILITY, TECHNICAL OR COMMERCIAL VALUE,
COMPREHENSIVENESS OR MERCHANTABILITY OF THE ALBUTEROL PROGRAM ASSETS OR THE
SPIROS PRODUCT PROGRAM ASSETS OR THEIR SUITABILITY OR FITNESS FOR ANY PURPOSE
WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN, DEVELOPMENT, MANUFACTURE,
USE OR SALE OF PRODUCTS. EXCEPT AS EXPRESSLY SET FORTH HEREIN, THERE ARE NO
OTHER WARRANTIES OF WHATEVER NATURE, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
-6-
<PAGE>
7. ADDITIONAL AGREEMENTS. Following the receipt of the Albuterol Option
Exercise Notice and until the Albuterol Option Closing Date and following the
receipt of the Product Option Exercise Notice and until the Product Option
Closing Date, the following shall apply:
(a) DURA and Spiros Corp. II will take all reasonable actions necessary
to comply promptly with all legal requirements which may be imposed on them with
respect to the consummation of the transactions contemplated by this Agreement.
DURA and Spiros Corp. II will take all reasonable actions necessary to obtain
(and will cooperate with the other party in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
governmental entity, domestic or foreign, or other person, required to be
obtained or made by such party in connection with the taking of any action
contemplated by this Agreement.
(b) Spiros Corp. II shall each use its best efforts to ensure a quick
and effective transfer to DURA of the Albuterol Program Assets or the Spiros
Product Program Assets, as the case may be.
(c) Spiros Corp. II will use its best efforts to preserve the business
organization of Spiros Corp. II intact and, with respect to the Albuterol
Program Assets or the Spiros Product Program Assets, as the case may be, carry
on its business diligently and in substantially the same manner as it did prior
to such exercise and will take such action as may be necessary to maintain,
preserve, renew and keep in force and effect the existence, rights and
franchises of Spiros Corp. II, and Spiros Corp. II shall not, with respect
thereto, make or institute any change in its methods of sale, management,
accounting or operation.
(d) Spiros Corp. II shall ensure that, with respect to all Albuterol
Program Assets or all Spiros Product Program Assets, as the case may be, no
contract or commitment will be entered into, and no purchase or sale of assets
(tangible or intangible) will be made, by or on behalf of Spiros Corp. II,
except contracts, commitments, purchases or sales which are in the ordinary
course of business and consistent with past practice and are not material to
Spiros Corp. II (individually or in the aggregate).
8. TERM; SURVIVAL.
8.1 TERM. This Agreement shall continue in full force and effect until
the earliest of (a) the termination of the Technology Agreement, the Development
Agreement or the Manufacturing and Marketing Agreement by Spiros Corp. II as a
result of a breach of such agreement by DURA, (b) at such time as both the
Albuterol Option and Product Option have terminated as to DURA, whether by
exercise or otherwise, or (c) at such time as the Purchase Option terminates,
whether by exercise or otherwise, at which time this Agreement shall terminate.
8.2 SURVIVAL. If this Agreement is terminated hereunder, Section 3 shall
survive any such termination.
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<PAGE>
9. MISCELLANEOUS.
9.1 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No failure on the part of DURA
or Spiros Corp. II to exercise and no delay in exercising any right, power,
remedy or privilege under this Agreement or provided by statute or at law or in
equity or otherwise, including, without limitation, the right or power to
terminate this Agreement, shall impair, prejudice or constitute a waiver of any
such right, power, remedy or privilege or be construed as a waiver of any breach
of this Agreement or as an acquiescence therein, nor shall any single or partial
exercise of any such right, power, remedy or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
9.2 FORCE MAJEURE. DURA and Spiros Corp. II shall each be excused for any
failure or delay in performing any of their respective obligations under this
Agreement, if such failure or delay is caused by Force Majeure.
9.3 RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement is
intended or is to be construed to constitute DURA and Spiros Corp. II as
partners or joint venturers or one party as an employee of any other party.
Except as expressly provided herein, no party hereto shall have any express or
implied right or authority to assume or create any obligations on behalf of or
in the name of any other party or to bind any other party to any contract,
agreement or undertaking with any third party.
9.4 NOTICES. All notices, requests and other communications to DURA or
Spiros Corp. II hereunder shall be in writing (including telecopy or similar
electronic transmissions), shall refer specifically to this Agreement and shall
be personally delivered or sent by telecopy or other electronic facsimile
transmission or by registered mail or certified mail, return receipt requested,
postage prepaid, in each case to the respective address specified below (or to
such address as may be specified in writing to the other party hereto):
If to DURA, addressed to:
Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
with a copy to the attention
of General Counsel
If to Spiros Corp. II, addressed to:
Spiros Development Corporation II, Inc.
c/o Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
-8-
<PAGE>
Any notice or communication given in conformity with this Section 9.4 shall be
deemed to be effective when received by the addressee, if delivered by hand,
telecopy or electronic transmission, and three (3) days after mailing, if
mailed.
9.5 FURTHER ASSURANCES. Each of DURA and Spiros Corp. II hereby agrees to
duly execute and deliver, or cause to be duly executed and delivered, such
further instruments and do and cause to be done such further acts and things,
including, without limitation, the filing of such additional assignments,
agreements, documents and instruments, that may be necessary or as the other
party hereto may at any time and from time to time reasonably request in
connection with this Agreement or to carry out more effectively the provisions
and purposes of, or to better assure and confirm unto such other party its
rights and remedies under, this Agreement. Each party shall provide each other
party with copies of any notices sent hereunder with copies sent at the same
time as the original notice.
9.6 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall inure to the benefit of, and be binding upon, DURA, Spiros Corp. II, and
their respective successors and assigns; PROVIDED, HOWEVER, that DURA and Spiros
Corp. II may not assign or otherwise transfer any of their respective rights and
interests, nor delegate any of their respective obligations, hereunder,
including, without limitation, pursuant to a merger or consolidation, without
the prior written consent of the other party hereto; PROVIDED FURTHER, HOWEVER,
that DURA may fully assign its rights and interests, and delegate its
obligations, hereunder, effective upon written notice thereof (a) to an
Affiliate if such Affiliate assumes all of the obligations of DURA hereunder and
this Agreement remains binding upon DURA; or (b) to any Person that acquires all
or substantially all of the assets of DURA, or which is the surviving Person in
a merger or consolidation with DURA. Any attempt to assign or delegate any
portion of this Agreement in violation of this Section 9.6 shall be null and
void. Subject to the foregoing any reference to DURA or Spiros Corp. II
hereunder shall be deemed to include the successors thereto and assigns thereof.
9.7 AMENDMENTS. No amendment, modification, waiver, termination or
discharge of any provision of this Agreement, nor consent by DURA or Spiros
Corp. II to any departure therefrom, shall in any event be effective unless the
same shall be in writing specifically identifying this Agreement and the
provision intended to be amended, modified, waived, terminated or discharged and
signed by DURA and Spiros Corp. II, and each amendment, modification, waiver,
termination or discharge shall be effective only in the specific instance and
for the specific purpose for which given. No provision of this Agreement shall
be varied, contradicted or explained by any other agreement, course of dealing
or performance or any other matter not set forth in an agreement in writing and
signed by DURA and Spiros Corp. II.
9.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, as applied to contracts
made and performed entirely within the State of California. Except as otherwise
provided herein, any claim or controversy arising out of or related to this
contract or any breach hereof shall be submitted to a court of competent
jurisdiction in the State of California, and the parties hereby consent to the
jurisdiction and venue of such court.
-9-
<PAGE>
9.9 SEVERABILITY. If any provision hereof should be held invalid, illegal
or unenforceable in any respect in any jurisdiction, then, to the fullest extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intentions of the parties hereto as nearly as may be possible and (b)
such invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of such provision in any other jurisdiction. To the
extent permitted by applicable law, DURA and Spiros Corp. II hereby waive any
provision of law that would render any provision hereof prohibited or
unenforceable in any respect.
9.10 HEADINGS. Headings used herein are for convenience only and shall not
in any way affect the construction of, or be taken into consideration in
interpreting, this Agreement.
9.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which counterparts, when so executed and delivered, shall
be deemed to be an original, and all of which counterparts, taken together,
shall constitute one and the same instrument.
9.12 ENTIRE AGREEMENT. This Agreement, together with any agreements
referenced herein and the Prior Agreements, constitutes, on and as of the date
hereof, the entire agreement of DURA and Spiros Corp. II with respect to the
subject matter hereof, and all prior or contemporaneous understandings or
agreements, whether written or oral, between DURA and Spiros Corp. II with
respect to such subject matter are hereby superseded in their entirety.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal and delivered as of the date first above written.
SPIROS DEVELOPMENT CORPORATION II, INC.
By: /s/ David S. Kabakoff
-----------------------------------------
David S. Kabakoff
President and Chief Executive Officer
DURA PHARMACEUTICALS, INC.
By: /s/ Cam L. Garner
-----------------------------------------
Cam L. Garner
President and Chief Executive Officer
[SIGNATURE PAGE TO ALBUTEROL AND PRODUCT
PURCHASE OPTION AGREEMENT]
<PAGE>
SCHEDULE 1.1
GLOSSARY
SCHEDULE 1.1
<PAGE>
SCHEDULE 1.1
GLOSSARY
"AFFILIATE" of a person shall mean a Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such Person. "Control" (and, with correlative meanings, the
terms "controlled by" and "under common control with") shall mean the possession
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting stock, by contract or
otherwise. In the case of a corporations, "control" shall mean, among other
things, the direct or indirect ownership of more than fifty percent (50%) of its
outstanding voting stock.
"AGREEMENTS" shall mean the Manufacturing and Marketing Agreement, the
Technology Agreement and the Development Agreement.
"ALBUTEROL OPTION" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"ALBUTEROL AND PRODUCT OPTION AGREEMENT" shall mean the Albuterol and
Product Option Agreement dated as of December 22, 1997, between DURA and Spiros
Corp. II, as amended, modified or supplemented from time to time.
"ALBUTEROL OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 1.5 of the Albuterol and Product Option Agreement.
"ALBUTEROL PROGRAM ASSETS" shall have the meaning assigned to it in Section
1.1 of the Albuterol and Product Option Agreement.
"ALBUTEROL PRODUCT" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"AVAILABLE FUNDS" shall mean the sum of (a) the net proceeds to Spiros
Corp. II from the sale of the Units in the Offering and the Contribution, (b)
all royalties remitted to Spiros Corp. II by DURA (or its Affiliates) from the
Sale of Spiros Products pursuant to the Agreements, (c) the Option Proceeds, if
any, (d) any other amounts provided by DURA to Spiros Corp. II, if any and (e)
interest or other income earned through temporary investment of the amounts
described in clauses (a), (b), (c) or (d).
"BANKRUPTCY CODE" shall mean the United States Bankruptcy Code, as amended
from time to time.
"CLAIM" shall mean any and all liabilities, damages, losses, settlements,
claims, actions, suits, penalties, fines, costs or expenses (including, without
limitation, reasonable attorneys' fees).
SCHEDULE 1.1
<PAGE>
"CONFIDENTIAL INFORMATION" shall mean all Program Technology disclosed by
DURA (and its Affiliates) to Spiros Corp. II or by Spiros Corp. II to DURA
pursuant to the Agreements or the Services Agreement.
"CONTRIBUTION" shall have the meaning assigned in Section 5.2 of the
Development Agreement.
"CORE TECHNOLOGY" shall mean the DURA Core Technology, the DDSI Core
Technology and the Spiros Core Technology.
"DDSI CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DDSI as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DDSI Patent Rights; PROVIDED,
HOWEVER, that DDSI Core Technology shall also include Technology acquired by
DDSI from a third party after the date of the closing of the Offering necessary
or useful to the development of the Spiros Products, except to the extent that
there are any limitations or restrictions on DDSI's ability to license or
sublicense such Technology. "Owned or controlled" shall include Technology that
DDSI owns, or under which DDSI is licensed and has the right to grant
sublicenses and/or grant immunity from suit.
"DDSI INDEMNITEE" shall mean DDSI, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DDSI PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DDSI (or the rights to
which have been assigned to DDSI) as of the date of the Technology Agreement
relating to dry powder inhalers, powder storage systems and/or formulation
methods for dry powder inhalation, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
patent applications and (c) any patent issued or issuing upon any of the
foregoing.
"DESIGNATED COMPOUND(S)" shall mean any compounds for delivery using the
System selected by Spiros Corp. II, and agreed to be developed by DURA.
"DEVELOPED TECHNOLOGY" shall mean any Technology including, without
limitation, any enhancements, substitutions or improvements to the Core
Technology that is (a) discovered, developed or otherwise acquired by DURA
pursuant to the terms of the Development Agreement or (b) otherwise acquired by
or on behalf of Spiros Corp. II during the term of the Development Agreement.
"DEVELOPMENT" shall mean the further development of the Program Technology
for the purpose of identifying, developing, manufacturing, marketing and
commercializing Spiros Products and
SCHEDULE 1.1
<PAGE>
the making of the Other Expenditures.
"DEVELOPMENT AGREEMENT" shall mean the Development Agreement dated as of
December 22, 1997, between DURA and Spiros Corp., as amended, modified or
supplemented from time to time.
"DEVELOPMENT COSTS" shall mean the Direct Development Costs, the Indirect
Development Costs and the Other Expenditures.
"DEVELOPMENT TERM" shall mean the period commencing on the Closing Date and
ending on the earlier of (a) the Option Closing Date or (b) the date the Option
terminates or expires other than by exercise.
"DIRECT DEVELOPMENT COSTS" shall mean all costs incurred by DURA or its
Affiliates in respect of the Development, other than Indirect Development
Costs, determined in accordance with generally accepted accounting principles
consistent with DURA's internal accounting system, allocated on a reasonable
and consistent basis. Direct Development Costs shall consist primarily of
fully-burdened payroll costs (burdened to include benefits, payroll taxes and
an allocation of facilities and overhead costs) and any other such costs
generated internally by DURA in respect of the Development.
"DPI" shall mean the motor-driven dry powder inhaler (other than an inahler
designed to deliver a single dose of a drug) developed by DURA, DDSI and/or
Spiros Corp. and to be developed by DURA and/or Spiros Corp. II.
"DURA COMMON STOCK" shall mean the Common Stock of DURA, par value $.001
per share.
"DURA CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DURA as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DURA Patent Rights and DURA
Trademarks; PROVIDED, HOWEVER, that DURA Core Technology shall also include
Technology acquired by DURA from a third party after the date of the closing of
the Offering necessary or useful to the development of the Spiros Products,
except to the extent that there are any limitations or restrictions on DURA's
ability to license or sublicense such Technology. "Owned or controlled" shall
include Technology that DURA owns, or under which DURA is licensed and has the
right to grant sublicenses and/or grant immunity from suit.
"DURA INDEMNITEE" shall mean DURA, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DURA PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DURA (or the rights to
which have been assigned to DURA) as of the date of the Technology Agreement
relating to DPIs, PSSs and/or formulation methods for dry powder inhalation, (b)
any
SCHEDULE 1.1
<PAGE>
patent application constituting an equivalent, counterpart, reissue,
extension or continuation (including, without limitation, a continuation in part
or a subdivision) of any of the foregoing patent applications and (c) any patent
issued or issuing upon any of the foregoing.
"DURA TRADEMARKS" shall mean Spiros-TM-.
"EVENT OF DEFAULT" shall mean any of the following events: (a) at any
time, if DURA or Spiros Corp. II fails to perform or observe or otherwise
breaches any of its Material Obligations, and such failure or breach continues
unremedied for a period of sixty (60) days after receipt by of written notice
thereof from the other party; (b) at any time, effective as set forth in a
written notice from the other party if DURA or Spiros Corp. II shall (i) seek
the liquidation, reorganization, dissolution or winding-up of itself or the
composition or readjustment of its debts (other than pursuant to a merger with
an Affiliate), (ii) apply for or consent to the appointment of, or the taking
possession by, a receiver, custodian, trustee or liquidator for itself or of all
or a substantial part of its assets, (iii) make a general assignment for the
benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy
Code, (v) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or
readjustment of debts (other than pursuant to a merger with an Affiliate) or
(vi) adopt any resolution of its Board of Directors or shareholders for the
purpose of effecting any of the foregoing (other than pursuant to a merger with
an Affiliate); or (c) at any time, effective as set forth in a written notice
from the other party, if a proceeding or case shall be commenced without the
application or consent of DURA or Spiros Corp. II as applicable, and such
proceeding or case shall continue undismissed, or an order, judgment or decrees
approving or ordering any of the following shall be entered and continued
unstayed and in effect, for a period of sixty (60) days from and after the date
service of process is effected, seeking (i) DURA's or Spiros Corp. II's, as
applicable, liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of DURA or Spiros Corp. II or for
all or any substantial part of its assets or (iii) similar relief in respect of
DURA or Spiros Corp. II under any law relating to bankruptcy, insolvency,
reorganization, winding-up or the composition or readjustment of debts.
"FDA" shall mean the United States Food and Drug Administration or any
successor agency or authority, the approval of which is required to market
health care products in the United States.
"FDA APPROVAL" shall mean the final regulatory approval of the FDA required
to commence commercial marketing of a health product.
SCHEDULE 1.1
<PAGE>
"FORCE MAJEURE" shall mean any act of God, any accident explosion, fire,
storm, earthquake, flood, drought, peril of the sea, riot, embargo, war or
foreign, federal, state or municipal order of general application, seizure,
requisition or allocation, any failure or delay of transportation, shortage of
or inability to obtain supplies, equipment, fuel or labor or any other
circumstance or event beyond the reasonable control of the party relying upon
such circumstance or event.
"INDIRECT DEVELOPMENT COSTS" shall mean all costs, fees and out-of-pocket
or other expenses, including the purchase of any capital equipment related to
the Development, incurred or paid by DURA to a third party, other than an
Affiliate of DURA, in respect of the Development, determined in accordance with
generally accepted accounting principles consistent with DURA's internal
accounting system, allocated on a reasonable and consistent basis.
"MANUFACTURING AND MARKETING AGREEMENT" shall mean the Manufacturing and
Marketing Agreement dated as of December 22, 1997 between DURA and Spiros
Corp. II, as amended, modified or supplemented from time to time.
"MANUFACTURE" shall mean the manufacture and assembly of the Spiros
Products.
"MATERIAL OBLIGATION" shall mean the material obligations of a party under
the Technology Agreement, the Development Agreement or the Manufacturing and
Marketing Agreement.
"NET SALES" shall mean the gross amount invoiced for sales of Spiros
Products by DURA or its sublicensees, if any, to third parties less (i)
discounts actually allowed, (ii) credits for claims, allowances, retroactive
price reductions or returned Spiros Products, (iii) prepaid freight charges
incurred in transporting Spiros Products to customers, (iv) sales taxes and
other governmental charges actually paid in connection with the sales (but
excluding what is commonly known as income taxes) and (v) any royalty
obligations under the 1993 Royalty Agreement. Net Sales shall not include sales
between or among DURA, its Affiliates and its sublicensees unless such sales are
for end use rather than for purposes of resale.
"OFFERING" shall mean the underwritten public offering of the Units
pursuant to the Registration Statement.
"OPTION PROCEEDS" shall have the meaning assigned to it in Section 3 of the
Albuterol and Product Option Agreement.
"OPTION PRODUCT" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"OTHER EXPENDITURES" shall mean funds spent by Spiros Corp. II to acquire
capital equipment, develop a next generation inhaler system or to enhance the
System.
SCHEDULE 1.1
<PAGE>
"PATENT RIGHTS" shall mean any patents or patent applications within the
Spiros Corp. II Patent Rights, the DURA Patent Rights, the DDSI Patent Rights
and the Spiros Corp. Patent Rights.
"PERSON" shall mean any individual, partnership, corporation, firm,
association, unincorporated organization, joint venture, trust or other entity.
"PRODUCT OPTION" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"PRODUCT OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 2.5 of the Albuterol and Product Option Agreement.
"PROGRAM TECHNOLOGY" shall mean the Core Technology and the Developed
Technology.
"PSS" shall mean the powder storage system developed and to be developed by
DURA for use with the DPI.
"PURCHASE AGREEMENT" shall mean the Purchase Agreement dated as of
December 16, 1997, among DURA, Spiros Corp. II, Merrill Lynch & Co., and
Donaldson, Lufkin & Jenrette.
"PURCHASE OPTION" shall mean the option granted to the holder of Spiros
Corp. II's Special Common Stock to purchase all of the Spiros Corp. II Common
Stock as set forth in Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION CLOSING DATE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION EXERCISE PRICE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form
S-1/S-3 filed by Spiros Corp. II and DURA dated October 10, 1997 (No.
333-37673/333-37673-01), including all exhibits and any amendments thereof
and supplements thereto.
"RESEARCH FUNDS" shall mean the Available Funds, less (i) all general and
administrative expenses including, without limitation, those paid or payable
pursuant to the Development Agreement or the Services Agreement, and the
reasonable out-of-pocket expenses of Spiros Corp. II directors and reasonable
compensation for Spiros Corp. II's independent directors, less (ii) any amounts
paid to DURA under the Development Agreement or the Services Agreement, less
(iii) any costs and expenses incurred in the defense or settlement of any action
or claim or in respect of a judgment thereon, and less (iv) One Million Dollars
($1,000,000) to be retained by Spiros Corp. II as working capital in the event
DURA does not exercise the Purchase Option.
SCHEDULE 1.1
<PAGE>
"SALE(S)" or "SELL" shall mean the activity undertaken by a sales
representative during a sales call on physicians, physician assistants, nurses,
hospitals, clinics, health maintenance organizations, preferred provider
organizations and managed care companies (including all forms of communication
not involving face to face contact by such sales representatives), describing
the FDA-approved indicated uses, safety, effectiveness, contraindications, side
effects, warnings and other relevant characteristics of the Spiros Product, in a
fair and balanced manner consistent with the requirements of the Federal Food,
Drug, and Cosmetic Act, as amended (and the regulations thereunder).
"SPIROS CASSETTE SYSTEM" shall mean a DPI in which the PSS is in the form
of a cassette.
"SPIROS CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
Spiros Corp. as of the date of the closing of the Offering necessary or useful
to the development of the Spiros Products, and (b) the Spiros Corp. Patent
Rights; PROVIDED, HOWEVER, that Spiros Core Technology shall also include
Technology acquired by Spiros Corp. from a third party after the date of the
closing of the Offering necessary or useful to the development of the Spiros
Products, except to the extent that there are any limitations or restrictions on
Spiros Corp.'s ability to license or sublicense such Technology. "Owned or
controlled" shall include Technology that Spiros Corp. owns, or under which
Spiros Corp. is licensed and has the right to grant sublicenses and/or grant
immunity from suit.
"SPIROS CORP. INDEMNITEE" shall mean Spiros Corp., its successors and
assigns, and the directors, officers, employees, agents and counsel thereof.
"SPIROS CORP. PATENT RIGHTS" shall mean those certain inventions described
in claims of (a) the patent applications pending, filed by Spiros Corp. (or the
rights to which have been assigned to Spiros Corp.) as of the date of the
Technology Agreement relating to dry powder inhalers, powder storage systems
and/or formulation methods for dry powder inhalation, (b) any patent application
constituting an equivalent, counterpart, reissue, extension or continuation
(including, without limitation, a continuation in part or a subdivision) of any
of the foregoing patent applications and (c) any patent issued or issuing upon
any of the foregoing.
"SPIROS CORP. II CHARTER" shall mean Amended and Restated Certificate of
Spiros Development Corporation II, Inc. in effect as of the closing of the
Offering, as amended from time to time.
"SPIROS CORP. II COMMON STOCK" shall mean the Callable Common Stock of
Spiros Corp. II, $.001 par value.
"SPIROS CORP. II INDEMNITEE" shall mean Spiros Corp. II, its
SCHEDULE 1.1
<PAGE>
successors and assigns, and the directors, officers, employees, agents and
counsel thereof.
"SPIROS CORP. II PATENT RIGHTS" shall mean those certain inventions
described in claims of (a) any patent application having one or more claims
covering Developed Technology, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
applications or (c) any patent issued or issuing upon any of the foregoing
applications.
"SPIROS PRODUCT(S)" shall mean (a) any System used with a formulation of
albuterol, beclomethasone, ipratropium, an albuterol-ipratropium combination,
budesonide or a Designated Compound developed, produced, manufactured or
marketed by DURA on behalf of Spiros Corp. II using the Program Technology.
"SPIROS PRODUCT PROGRAM ASSETS" shall have the meaning assigned to it in
Section 2.1 of the Albuterol and Product Option Agreement.
"SYSTEM" shall mean the DPI and the PSS when used together.
"TECHNOLOGY" shall mean, solely with respect to motor-driven dry powder
inhalers and powder storage systems for drugs for delivery through such
inhalers, the manufacture thereof, and formulations of drugs to be delivered
through such inhalers, public and nonpublic technical or other information,
trade secrets, know-how, processes, formulations, concepts, ideas, preclinical,
clinical, pharmacological or other data and testing results, experimental
methods, or results, assays, descriptions, business or scientific plans,
depictions, customer lists and any other written, printed or electronically
stored materials, pharmaceutical compounds or any other natural or man-made
pharmaceutical materials and any and all other intellectual property, including
patents and patent applications, of any nature whatsoever. The term
"Technology" shall include, without limitation, any of the foregoing as it
relates to enhancements of, substitutions for or improvements to the Core
Technology.
"TECHNOLOGY AGREEMENT" shall mean the Technology License Agreement dated
as of December 22, 1997, among DURA, DDSI, Spiros Corp. and Spiros Corp. II,
as amended, modified or supplemented from time to time.
"TERRITORY" shall mean the entire world.
"UNDERWRITERS" shall have the meaning assigned to it in the Registration
Statement.
"UNITS" shall mean units, each consisting of one share of Spiros Corp. II
Common Stock and one warrant to purchase one-fourth of one share of DURA Common
Stock, all as described in the Registration Statement.
SCHEDULE 1.1
<PAGE>
"1993 ROYALTY AGREEMENT" shall have the meaning assigned to it in the
Registration Statement.
SCHEDULE 1.1
<PAGE>
MANUFACTURING AND MARKETING AGREEMENT
This MANUFACTURING AND MARKETING AGREEMENT (the "Agreement") is made as
of December 22, 1997 by and between DURA PHARMACEUTICALS, INC., a Delaware
corporation ("DURA"), and SPIROS DEVELOPMENT CORPORATION II, INC., a Delaware
corporation ("Spiros Corp. II").
RECITALS
WHEREAS, DURA and Spiros Corp. II are parties to the Development
Agreement, the Technology Agreement and the Albuterol and Product Option
Agreement (all capitalized terms shall have the respective meaning set forth
in Section 1 hereof).
WHEREAS, DURA has the Purchase Option to acquire all of the Spiros Corp.
II Common Stock.
WHEREAS, DURA has the expertise necessary to manufacture, itself or
through subcontractors, the Spiros Products.
WHEREAS, DURA has marketing and sales personnel currently performing
marketing for respiratory pharmaceutical products.
WHEREAS, Spiros Corp. II desires to license DURA to manufacture, promote
and sell the Spiros Products, and DURA is willing to accept such engagement.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce DURA to
enter into the Agreements, DURA and Spiros Corp. II hereby agree as follows:
1. DEFINITIONS.
1.1 DEFINITIONS. All capitalized terms used herein and not otherwise
defined shall have the respective meanings, to the extent such terms are used
herein, set forth in SCHEDULE 1.1 attached hereto, which is incorporated by
this reference as though fully set forth herein.
1.2 SINGULAR AND PLURAL. Singular and plural forms, as the case may
be, of terms defined herein shall have correlative meanings.
2. DURA'S RESPONSIBILITIES.
2.1 DURA'S GENERAL RESPONSIBILITIES. During the term of this
Agreement, DURA shall, at its sole expense (except as otherwise expressly
provided herein), in addition to its other obligations hereunder, have
responsibility for performing the activities set forth below:
<PAGE>
(a) supervise, train and maintain such competent and qualified
sales personnel as may be required to promote the Spiros Products as provided
herein;
(b) use diligent and commercially reasonable efforts to launch,
market, promote and commence Sales of a Spiros Product promptly upon receipt
of FDA Approval of such Spiros Product;
(c) on or before the thirtieth (30th) day of each calendar quarter
following receipt of FDA Approval, furnish to Spiros Corp. II a report
containing DURA's Manufacture and Sales activities during the prior calendar
quarter;
(d) make no statement, representation or warranty, oral or
written, concerning the Spiros Products inconsistent with or contrary to the
labeling approved by regulatory authorities in respect of the Spiros Products;
(e) promptly submit to Spiros Corp. II all adverse drug experience
information concerning the Spiros Products; and
(f) conform its practices and procedures relating to Spiros
Product sampling to product sampling practices and procedures DURA follows
with respect to other similar products, which practices and procedures shall
be in compliance with applicable rules and regulations.
DURA shall take such other actions as DURA and Spiros Corp. II may jointly
agree upon and deem necessary, desirable or appropriate to promote and Sell
the Spiros Products effectively and as contemplated by this Agreement.
2.2 ADVERTISING AND PROMOTIONAL RESPONSIBILITIES. From time to time,
but at least once each year, DURA shall develop and formulate a marketing
plan setting forth DURA's strategies and plans for pricing, marketing and
detailing Spiros Products. Marketing plans shall be prepared in a manner
appropriate for product launch and consistent with sales and marketing plans
for similarly placed pharmaceutical products. The marketing plans shall be
submitted to the Board of Directors of Spiros Corp. II as part of the annual
workplan and budget for approval.
2.3 TERMS OF SALE. DURA will be responsible for determining all terms
of sale, including but not limited to, policies concerning pricing, credit
terms, cash discounts and returns and allowances.
3. ROYALTIES.
3.1 ROYALTIES ON SALES OF SPIROS PRODUCTS. Dura shall receive and
retain on its own behalf all payments by purchasers
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of the Spiros Products Sold by DURA hereunder. DURA hereby agrees to pay to
Spiros Corp. II royalties equal to seven percent (7%) of Net Sales of each
Spiros Products Sold beginning on the date of FDA Approval of such product;
provided, however, that prior to the expiration of the Albuterol Option no
royalty payment shall apply with respect to Net Sales of the Albuterol
Product.
3.2 ROYALTY PAYMENT. Royalties due on Net Sales of Spiros Products
shall be paid quarterly in arrears, on or before the forty-fifth (45th) day
following the end of each calendar quarter. Acceptance by Spiros Corp. II of
any payment remitted hereunder, whether or not the amount shall be in
dispute, shall not constitute acceptance by Spiros Corp. II of the account or
schedules on which such payment is based.
3.3 SINGLE ROYALTY. All sales of Spiros Products among DURA, its
Affiliates and any of their sublicensees shall be disregarded for purposes of
computing royalties under this Section 3, but in such instances royalties
shall be payable only upon sales to unlicensed third parties unless such
other sales were for purposes of end use, rather than for resale. Nothing
contained herein shall obligate DURA to pay Spiros Corp. II more than one
royalty on any unit of Spiros Products sold.
3.4 LATE PAYMENTS. DURA shall pay interest to Spiros Corp. II on the
aggregate amount of any amounts payable by DURA that are not paid on or
before the date such payments are due under this Agreement at a rate per
annum equal to the lesser of the prime rate of interest as reported by
Citibank, N.A., New York, from time to time, plus two percent (2%), or the
highest rate permitted by applicable law, calculated on the number of days
such payment is delinquent.
4. ACCOUNTING AND STATEMENTS.
4.1 ROYALTY STATEMENTS. DURA shall keep, and cause its Affiliates, if
any, to keep true and accurate accounts of all royalties payable to Spiros
Corp. II under the Agreement and DURA shall deliver or cause to be delivered
to Spiros Corp. II written statements of royalties due on or before the
forty-fifth (45th) day following the end of each calendar quarter and at the
same time shall pay Spiros Corp. II the amount of such royalties shown to be
due pursuant to Section 3. Such reports shall show in reasonably specific
detail: (a) the gross sales of each Spiros Product sold by DURA, its
Affiliates and sublicensees during the reporting period and the calculation
of Net Sales from such gross sales; (b) the royalties payable in United
States dollars, if any, which shall have accrued hereunder based upon Net
Sales of Spiros Products; (c) the withholding taxes, if any, required by law
to be deducted in respect of such sales; and (d) the date of the first
commercial sale of each Spiros Product.
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4.2 RECORDS. DURA shall keep, and cause its Affiliates and sublicensees,
if any, to keep accurate records in sufficient detail to be able to determine
the amount of royalties payable. Spiros Corp. II shall have the right at its
own expense to have an independent certified public accounting firm examine the
relevant books and records of account of DURA, any of its Affiliates or
sublicensees during reasonable business hours not more often than once during
each calendar year, to determine whether appropriate accounting and payment of
royalties have been made during the preceding two (2) calendar years. This
independent certified public accounting firm shall treat as confidential and
shall not disclose to Spiros Corp. II any information other than information
which is needed or proper to support the information required to be given to
Spiros Corp. II pursuant to this Agreement. If such accounting firm concludes
that additional royalties were owed during such period, DURA shall pay the
additional royalties within thirty (30) days of the date Spiros Corp. II
delivers to DURA such accounting firm's written report so concluding. The fees
charged by such accounting firm shall be paid by Spiros Corp. II; PROVIDED,
HOWEVER, if the audit discloses that the royalties payable by DURA for the
audited period are more than one hundred five percent (105%) of the royalties
actually paid for such period, then DURA shall pay the reasonable fees and
expenses charged by such accounting firm.
4.3 SUBLICENSEE RECORDS. DURA shall include in each permitted sublicense
granted by it pursuant to this Agreement or the License Agreement a provision
requiring the sublicensee to make reports to DURA, to keep and maintain records
of sales made pursuant to such sublicense and to grant access to such records by
Spiros Corp. II's independent accountant to the same extent required of DURA
under this Agreement.
5. MANUFACTURING AND SALE RECORDS. DURA shall keep, maintain, update and
preserve for the benefit of Spiros Corp. II true, accurate and complete
records of all efforts made by DURA pursuant to this Agreement, including,
without limitation, records of current and prospective customer contacts,
status of sales programs, advertising efforts, promotion efforts, market
feedback, marketing strategy, distribution, business leads and sales leads
("Records"). Upon written request of Spiros Corp. II or upon the termination
of this Agreement, copies of the Records shall be sent by DURA to Spiros
Corp. II within sixty (60) days of such request or termination.
6. MANUFACTURING PRACTICES.
6.1 MANUFACTURING SPECIFICATIONS. The Manufacture of all Spiros
Products during the term of this Agreement shall be the responsibility of
DURA. DURA shall manufacture, or cause its
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subcontractor to manufacture, the Spiros Products under this Agreement in
compliance in all material respects with all requirements of applicable laws
and regulations and all applicable good manufacturing practices, as
prescribed from time to time by the FDA and other applicable worldwide
regulatory authorities, using the specifications, manufacturing methods and
formulae as agreed upon by DURA and Spiros Corp. II in writing.
6.2 INSPECTION OF MANUFACTURING FACILITIES. DURA or its subcontractor
shall permit Spiros Corp. II and its duly authorized agents, at Spiros Corp.
II's sole expense, to enter DURA's or its subcontractor's premises, upon
reasonable notice during normal working hours, for the purpose of inspecting
the manufacturing processes and components used in the manufacture of the
Spiros Products and the quality thereof.
7. CONFIDENTIALITY. The provisions of Sections 4.3 and 4.4 of the
Technology Agreement shall apply with equal force and effect to this
Agreement and are incorporated hereunder.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS. The provisions of Section 3
of the Technology Agreement with respect to DURA and Spiros Corp. II shall
apply with equal force and effect to this Agreement and are incorporated
hereunder. In addition, DURA represents, warrants and covenants to Spiros
Corp. II as follows:
8.1 DURA'S EFFORTS. DURA shall use its commercially reasonable efforts
to locate and contact specialist respiratory physicians and other physicians,
hospitals, clinics, health maintenance organizations, preferred provider
organizations and managed care companies for the purpose of determining
whether such persons, groups or entities may be interested in buying or
prescribing the Spiros Products. DURA hereby agrees that failure to use its
commercially reasonable efforts as described in this Agreement shall
constitute a material breach of this Agreement;
8.2 COMPLIANCE WITH APPLICABLE LAWS. DURA shall comply (and shall
require all its sublicensees, agents and representatives to comply) with all
applicable laws, statutes, regulations and treaties relating to the
Manufacture and Sale of the Spiros Corp. II's Products and the performance of
DURA's obligations hereunder. DURA shall demonstrate, at Spiros Corp. II's
reasonable request, compliance with all applicable laws, statutes,
regulations and treaties;
8.3 USE OF NAMES. DURA shall use the then-current names used by Spiros
Corp. II for the Spiros Products (but will not represent or imply that it is
Spiros Corp. II or an Affiliate of Spiros Corp. II, or a part of or partner
or joint venturer with Spiros Corp. II);
8.4 NOTIFICATION OF PROBLEMS WITH SPIROS PRODUCTS. DURA
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shall keep Spiros Corp. II informed as to any problems encountered with the
Spiros Products and any suggested resolutions for those problems and shall
communicate promptly to Spiros Corp. II any and all modifications, design
changes or improvements suggested by any employee or agent; and
8.5 RECORDS. DURA shall keep and maintain a file of all persons and
entities to which Spiros Products have been sold by DURA or its sublicensees,
including: name; address; serial number, if any, of the Spiros Products;
date of delivery; and any applicable contract or purchase order executed by
such person or entity. Such file may be inspected by Spiros Corp. II at any
time and a complete copy of such file shall be delivered to Spiros Corp. II
upon the termination or earlier expiration of this Agreement pursuant to
Section 9.
9. TERM AND TERMINATION.
9.1 TERM. This Agreement shall be effective as of the date hereof and,
unless terminated earlier as provided in Sections 9.2, 9.3 and 9.4 hereof,
and shall continue in full force and effect until such time as the Purchase
Option terminates or expires (other than by exercise), subject to Section 9.6.
9.2 TERMINATION BY MUTUAL AGREEMENT. By mutual agreement, the parties
hereto may at any time terminate this Agreement on mutually acceptable terms.
9.3 EFFECT OF OPTION EXERCISES.
9.3.1 PURCHASE OPTION. Subject to Section 9.6, in the event
the Purchase Option is exercised by DURA, this Agreement shall terminate,
effective upon the Purchase Option Closing Date, without any obligation to
make payments pursuant to Section 7 of the Technology Agreement.
9.3.2 PARTIAL TERMINATION UPON EXERCISE OF ALBUTEROL OPTION.
In the event that the Albuterol Option is exercised, this Agreement shall
terminate, effective on the Albuterol Option Closing Date, with respect to
the Albuterol Program Assets and any obligation to make royalty payments with
respect to the Albuterol Product, but shall otherwise continue in full force
and effect until terminated pursuant to this Section 9.
9.3.3 PARTIAL TERMINATION UPON EXERCISE OF PRODUCT OPTION. In
the event that the Product Option is exercised, this Agreement shall
terminate, effective on the Product Option Closing Date, with respect to the
Option Product and any obligation to make royalty payments with respect to
the Product Option, but shall otherwise continue in full force and effect
until terminated pursuant to this Section 9.
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9.4 TERMINATION BY DURA. Either DURA or Spiros Corp. II shall have the
right to terminate this Agreement, effective as set forth in a written notice
to the other of an Event of Default with respect to such other party.
9.5 EFFECT OF TERMINATION.
9.5.1 RETURN OF SPIROS PRODUCTS. In the event of the
termination of DURA's right to continue to Manufacture and Sell one or more
(other than as a result of the exercise of the Albuterol Option or the
Product Option) Spiros Products pursuant to Section 9.4 as a result of an
Event of Default by DURA, DURA shall within thirty (30) days of the effective
date of such termination, transfer to Spiros Corp. II all Program Technology
and all other data, records and materials in DURA's possession or control
which relate to such Spiros Products. In addition, DURA shall within fifteen
(15) days of the effective date of the termination notify Spiros Corp. II in
writing of the quantity of such Spiros Products which it has in inventory,
and DURA shall thereupon be permitted during the six (6) months following
such termination to Sell such inventory of Spiros Products; provided that
Spiros Corp. II shall first have the right to purchase such Spiros Products
for a transfer price equal to the cost of manufacture of such products
together with DURA's overhead thereon. DURA shall also cooperate in the
transfer of regulatory filings related to such Spiros Products, and take such
other actions and execute such other instruments, assignments and documents
as may be necessary to effect the transfer of the Manufacture and Sale rights
to Spiros Corp. II.
9.5.2 SURVIVAL. Sections 1, 2.1(c), (d), (e) and (f), 3 (but
only to the extent rights to payments have accrued prior to termination), 4,
5, 7, 8, 9, 10 and 11 of this Agreement, and all obligations to pay any
amounts due hereunder, shall survive, and shall not be affected by, any
termination of this Agreement pursuant to this Section 9.
10. INDEMNIFICATION AND INSURANCE.
10.1 INDEMNIFICATION. The provisions of Sections 6.1 and 6.2 of the
Technology Agreement shall apply with equal force and effect to this
Agreement and are incorporated hereunder.
10.2 INSURANCE.
10.2.1 INSURANCE BY SPIROS CORP. II. To the extent Spiros Corp.
II develops or uses, or causes the development or use (except by DURA or its
Affiliates or sublicensees under this Agreement) of, the Spiros Products,
Spiros Corp. II shall, to the extent available at commercially reasonable
rates, maintain with insurers or underwriters of good repute such insurance
relating
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to the development, sale and use of the Spiros Products, against such risks,
pursuant to such terms (including deductible limits or self-insured
retentions) and for such periods, as is customary for comparable businesses
undertaking the development, sale and use of products of a similar nature,
and shall, to the extent reasonably possible and not unreasonably expensive,
cause DURA and its Affiliates to be named as additional insured parties on
its insurance policies. To the extent Spiros Corp. II is required to obtain
insurance under this Section 10.2.1 during the term of this Agreement, Spiros
Corp. II may use Available Funds to pay the premiums therefore.
10.2.2 INSURANCE BY DURA. DURA shall, to the extent available
at commercially reasonable rates, maintain, with insurers or underwriters of
good repute such insurance relating to the Development, Manufacture and Sale,
against such risks and pursuant to such terms (including deductible limits or
self-insured retentions) as is customary for comparable businesses
undertaking research, development and commercialization programs of a similar
nature, and shall, to the extent reasonably possible and not unreasonably
expensive, cause Spiros Corp. II to be named as an additional insured party
on its insurance policies.
11. MISCELLANEOUS.
11.1 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No failure on the part of
DURA or Spiros Corp. II to exercise and no delay in exercising any right,
power, remedy or privilege under this Agreement or provided by statute or at
law or in equity or otherwise, including, without limitation, the right or
power to terminate this Agreement, shall impair, prejudice or constitute a
waiver of any such right, power, remedy or privilege or be construed as a
waiver of any breach of this Agreement or as an acquiescence therein, nor
shall any single or partial exercise of any such right, power, remedy or
privilege preclude any other or further exercise thereof or the exercise of
any other right, power, remedy or privilege.
11.2 FORCE MAJEURE. DURA and Spiros Corp. II shall each be excused for
any failure or delay in performing any of their respective obligations under
this Agreement, if such failure or delay is caused by Force Majeure.
11.3 RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement
is intended or is to be construed to constitute DURA and Spiros Corp. II as
partners or joint venturers or one party as an employee of any other party.
Except as expressly provided herein, no party hereto shall have any express
or implied right or authority to assume or create any obligations on behalf
of or in the name of any other party or to bind any other party to any
contract, agreement or undertaking with any third party.
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11.4 NOTICES. All notices, requests and other communications to DURA or
Spiros Corp. II hereunder shall be in writing (including telecopy or similar
electronic transmissions), shall refer specifically to this Agreement and
shall be personally delivered or sent by telecopy or other electronic
facsimile transmission or by registered mail or certified mail, return
receipt requested, postage prepaid, or reliable overnight courier service, in
each case to the respective address specified below (or to such address as
may be specified in writing to the other party hereto):
If to DURA, addressed to:
Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
with a copy to the attention of General Counsel
If to Spiros Corp. II, addressed to:
Spiros Development Corporation II, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
Any notice or communication given in conformity with this Section 11.4 shall
be deemed to be effective when received by the addressee, if delivered by
hand, telecopy or electronic transmission, three (3) days after mailing, if
mailed, and one (1) business day after delivery to a reliable overnight
courier service.
11.5 FURTHER ASSURANCES. Each of DURA and Spiros Corp. II hereby agrees
to duly execute and deliver, or cause to be duly executed and delivered, such
further instruments and do and cause to be done such further acts and things,
including, without limitation, the filing of such additional assignments,
agreements, documents and instruments, that may be necessary or as the other
party hereto may at any time and from time to time reasonably request in
connection with this Agreement or to carry out more effectively the
provisions and purposes of, or to better assure and confirm unto such other
party its rights and remedies under, this Agreement.
11.6 SUCCESSORS AND ASSIGNS. The terms and provisions of this Agreement
shall inure to the benefit of, and be binding upon, DURA, Spiros Corp. II,
and their respective successors and assigns; PROVIDED, HOWEVER, that DURA and
Spiros Corp. II may not assign or otherwise transfer any of their respective
rights and interests, nor delegate any of their respective obligations,
hereunder, including, without limitation, pursuant to a merger or
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consolidation, without the prior written consent of the other party hereto;
PROVIDED FURTHER, HOWEVER, that DURA may fully assign its rights and
interests, and delegate its obligations, hereunder, effective upon written
notice thereof (a) to an Affiliate if such Affiliate assumes all of the
obligations of DURA hereunder and this Agreement remains binding upon DURA;
or (b) to any Person that acquires all or substantially all of the assets of
DURA, or which is the surviving Person in a merger or consolidation with
DURA, if such Person assumes all the obligations of DURA hereunder.
Notwithstanding the foregoing, Spiros Corp. II shall have the right to assign
its rights and delegate its obligations hereunder following expiration or
termination (other than by exercise) of the Purchase Option. Any attempt to
assign or delegate any portion of this Agreement in violation of this Section
11.6 shall be null and void. Subject to the foregoing any reference to DURA
or Spiros Corp. II hereunder shall be deemed to include the successors
thereto and assigns thereof.
11.7 AMENDMENTS. No amendment, modification, waiver, termination or
discharge of any provision of this Agreement, nor consent by DURA or Spiros
Corp. II to any departure therefrom, shall in any event be effective unless
the same shall be in writing specifically identifying this Agreement and the
provision intended to be amended, modified, waived, terminated or discharged
and signed by DURA and Spiros Corp. II, and each amendment, modification,
waiver, termination or discharge shall be effective only in the specific
instance and for the specific purpose for which given. No provision of this
Agreement shall be varied, contradicted or explained by any other agreement,
course of dealing or performance or any other matter not set forth in an
agreement in writing and signed by DURA and Spiros Corp. II.
11.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, as applied to
contracts made and performed entirely within the State of California. Except
as otherwise provided herein, any claim or controversy arising out of or
related to this contract or any breach hereof shall be submitted to a court
of competent jurisdiction in the State of California, and the parties hereby
consent to the jurisdiction and venue of such court.
11.9 SEVERABILITY. If any provision hereof should be held invalid,
illegal or unenforceable in any respect in any jurisdiction, then, to the
fullest extent permitted by law, (a) all other provisions hereof shall remain
in full force and effect in such jurisdiction and shall be liberally
construed in order to carry out the intentions of the parties hereto as
nearly as may be possible and (b) such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
such provision in any other jurisdiction. To the extent permitted by
applicable law, DURA and Spiros Corp. II
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hereby waive any provision of law that would render any provision hereof
prohibited or unenforceable in any respect.
11.10 HEADINGS. Headings used herein are for convenience only and shall
not in any way affect the construction of, or be taken into consideration in
interpreting, this Agreement.
11.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which counterparts, when so executed and delivered,
shall be deemed to be an original, and all of which counterparts, taken
together, shall constitute one and the same instrument.
11.12 ENTIRE AGREEMENT. This Agreement, together with any agreements
referenced herein, constitute, on and as of the date hereof, the entire
agreement of DURA and Spiros Corp. II with respect to the subject matter
hereof, and all prior or contemporaneous understandings or agreements,
whether written or oral, between DURA and Spiros Corp. II with respect to
such subject matter are hereby superseded in their entirety.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF the parties have executed this Agreement as of the date
first above written.
DURA PHARMACEUTICALS, INC.
By: /s/ Cam L. Garner
-------------------------------------------------
Cam L. Garner
President and Chief Executive Officer
SPIROS DEVELOPMENT CORPORATION II, INC.
By: /s/ David S. Kabakoff
-------------------------------------------------
David S. Kabakoff,
President and Chief Executive Officer
[SIGNATURE PAGE TO MANUFACTURING AND
MARKETING AGREEMENT]
<PAGE>
SCHEDULE 1.1
GLOSSARY
<PAGE>
SCHEDULE 1.1
GLOSSARY
"AFFILIATE" of a person shall mean a Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such Person. "Control" (and, with correlative meanings, the
terms "controlled by" and "under common control with") shall mean the possession
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting stock, by contract or
otherwise. In the case of a corporations, "control" shall mean, among other
things, the direct or indirect ownership of more than fifty percent (50%) of its
outstanding voting stock.
"AGREEMENTS" shall mean the Manufacturing and Marketing Agreement, the
Technology Agreement and the Development Agreement.
"ALBUTEROL OPTION" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"ALBUTEROL AND PRODUCT OPTION AGREEMENT" shall mean the Albuterol and
Product Option Agreement dated as of December 22, 1997, between DURA and Spiros
Corp. II, as amended, modified or supplemented from time to time.
"ALBUTEROL OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 1.5 of the Albuterol and Product Option Agreement.
"ALBUTEROL PROGRAM ASSETS" shall have the meaning assigned to it in Section
1.1 of the Albuterol and Product Option Agreement.
"ALBUTEROL PRODUCT" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"AVAILABLE FUNDS" shall mean the sum of (a) the net proceeds to Spiros
Corp. II from the sale of the Units in the Offering and the Contribution, (b)
all royalties remitted to Spiros Corp. II by DURA (or its Affiliates) from the
Sale of Spiros Products pursuant to the Agreements, (c) the Option Proceeds, if
any, (d) any other amounts provided by DURA to Spiros Corp. II, if any and (e)
interest or other income earned through temporary investment of the amounts
described in clauses (a), (b), (c) or (d).
"BANKRUPTCY CODE" shall mean the United States Bankruptcy Code, as amended
from time to time.
"CLAIM" shall mean any and all liabilities, damages, losses, settlements,
claims, actions, suits, penalties, fines, costs or expenses (including, without
limitation, reasonable attorneys' fees).
SCHEDULE 1.1
<PAGE>
"CONFIDENTIAL INFORMATION" shall mean all Program Technology disclosed by
DURA (and its Affiliates) to Spiros Corp. II or by Spiros Corp. II to DURA
pursuant to the Agreements or the Services Agreement.
"CONTRIBUTION" shall have the meaning assigned in Section 5.2 of the
Development Agreement.
"CORE TECHNOLOGY" shall mean the DURA Core Technology, the DDSI Core
Technology and the Spiros Core Technology.
"DDSI CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DDSI as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DDSI Patent Rights; PROVIDED,
HOWEVER, that DDSI Core Technology shall also include Technology acquired by
DDSI from a third party after the date of the closing of the Offering necessary
or useful to the development of the Spiros Products, except to the extent that
there are any limitations or restrictions on DDSI's ability to license or
sublicense such Technology. "Owned or controlled" shall include Technology that
DDSI owns, or under which DDSI is licensed and has the right to grant
sublicenses and/or grant immunity from suit.
"DDSI INDEMNITEE" shall mean DDSI, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DDSI PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DDSI (or the rights to
which have been assigned to DDSI) as of the date of the Technology Agreement
relating to dry powder inhalers, powder storage systems and/or formulation
methods for dry powder inhalation, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
patent applications and (c) any patent issued or issuing upon any of the
foregoing.
"DESIGNATED COMPOUND(S)" shall mean any compounds for delivery using the
System selected by Spiros Corp. II, and agreed to be developed by DURA.
"DEVELOPED TECHNOLOGY" shall mean any Technology including, without
limitation, any enhancements, substitutions or improvements to the Core
Technology that is (a) discovered, developed or otherwise acquired by DURA
pursuant to the terms of the Development Agreement or (b) otherwise acquired by
or on behalf of Spiros Corp. II during the term of the Development Agreement.
"DEVELOPMENT" shall mean the further development of the Program Technology
for the purpose of identifying, developing, manufacturing, marketing and
commercializing Spiros Products and
SCHEDULE 1.1
<PAGE>
the making of the Other Expenditures.
"DEVELOPMENT AGREEMENT" shall mean the Development Agreement dated as of
December 22, 1997, between DURA and Spiros Corp., as amended, modified or
supplemented from time to time.
"DEVELOPMENT COSTS" shall mean the Direct Development Costs, the Indirect
Development Costs and the Other Expenditures.
"DEVELOPMENT TERM" shall mean the period commencing on the Closing Date and
ending on the earlier of (a) the Option Closing Date or (b) the date the Option
terminates or expires other than by exercise.
"DIRECT DEVELOPMENT COSTS" shall mean all costs incurred by DURA or its
Affiliates in respect of the Development, other than Indirect Development
Costs, determined in accordance with generally accepted accounting principles
consistent with DURA's internal accounting system, allocated on a reasonable
and consistent basis. Direct Development Costs shall consist primarily of
fully-burdened payroll costs (burdened to include benefits, payroll taxes and
an allocation of facilities and overhead costs) and any other such costs
generated internally by DURA in respect of the Development.
"DPI" shall mean the motor-driven dry powder inhaler (other than an inahler
designed to deliver a single dose of a drug) developed by DURA, DDSI and/or
Spiros Corp. and to be developed by DURA and/or Spiros Corp. II.
"DURA COMMON STOCK" shall mean the Common Stock of DURA, par value $.001
per share.
"DURA CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DURA as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DURA Patent Rights and DURA
Trademarks; PROVIDED, HOWEVER, that DURA Core Technology shall also include
Technology acquired by DURA from a third party after the date of the closing of
the Offering necessary or useful to the development of the Spiros Products,
except to the extent that there are any limitations or restrictions on DURA's
ability to license or sublicense such Technology. "Owned or controlled" shall
include Technology that DURA owns, or under which DURA is licensed and has the
right to grant sublicenses and/or grant immunity from suit.
"DURA INDEMNITEE" shall mean DURA, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DURA PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DURA (or the rights to
which have been assigned to DURA) as of the date of the Technology Agreement
relating to DPIs, PSSs and/or formulation methods for dry powder inhalation, (b)
any
SCHEDULE 1.1
<PAGE>
patent application constituting an equivalent, counterpart, reissue,
extension or continuation (including, without limitation, a continuation in part
or a subdivision) of any of the foregoing patent applications and (c) any patent
issued or issuing upon any of the foregoing.
"DURA TRADEMARKS" shall mean Spiros=TM=.
"EVENT OF DEFAULT" shall mean any of the following events: (a) at any
time, if DURA or Spiros Corp. II fails to perform or observe or otherwise
breaches any of its Material Obligations, and such failure or breach continues
unremedied for a period of sixty (60) days after receipt by of written notice
thereof from the other party; (b) at any time, effective as set forth in a
written notice from the other party if DURA or Spiros Corp. II shall (i) seek
the liquidation, reorganization, dissolution or winding-up of itself or the
composition or readjustment of its debts (other than pursuant to a merger with
an Affiliate), (ii) apply for or consent to the appointment of, or the taking
possession by, a receiver, custodian, trustee or liquidator for itself or of all
or a substantial part of its assets, (iii) make a general assignment for the
benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy
Code, (v) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or
readjustment of debts (other than pursuant to a merger with an Affiliate) or
(vi) adopt any resolution of its Board of Directors or shareholders for the
purpose of effecting any of the foregoing (other than pursuant to a merger with
an Affiliate); or (c) at any time, effective as set forth in a written notice
from the other party, if a proceeding or case shall be commenced without the
application or consent of DURA or Spiros Corp. II as applicable, and such
proceeding or case shall continue undismissed, or an order, judgment or decrees
approving or ordering any of the following shall be entered and continued
unstayed and in effect, for a period of sixty (60) days from and after the date
service of process is effected, seeking (i) DURA's or Spiros Corp. II's, as
applicable, liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of DURA or Spiros Corp. II or for
all or any substantial part of its assets or (iii) similar relief in respect of
DURA or Spiros Corp. II under any law relating to bankruptcy, insolvency,
reorganization, winding-up or the composition or readjustment of debts.
"FDA" shall mean the United States Food and Drug Administration or any
successor agency or authority, the approval of which is required to market
health care products in the United States.
"FDA APPROVAL" shall mean the final regulatory approval of the FDA required
to commence commercial marketing of a health product.
SCHEDULE 1.1
<PAGE>
"FORCE MAJEURE" shall mean any act of God, any accident explosion, fire,
storm, earthquake, flood, drought, peril of the sea, riot, embargo, war or
foreign, federal, state or municipal order of general application, seizure,
requisition or allocation, any failure or delay of transportation, shortage of
or inability to obtain supplies, equipment, fuel or labor or any other
circumstance or event beyond the reasonable control of the party relying upon
such circumstance or event.
"INDIRECT DEVELOPMENT COSTS" shall mean all costs, fees and out-of-pocket
or other expenses, including the purchase of any capital equipment related to
the Development, incurred or paid by DURA to a third party, other than an
Affiliate of DURA, in respect of the Development, determined in accordance with
generally accepted accounting principles consistent with DURA's internal
accounting system, allocated on a reasonable and consistent basis.
"MANUFACTURING AND MARKETING AGREEMENT" shall mean the Manufacturing and
Marketing Agreement dated as of December 22, 1997 between DURA and Spiros
Corp. II, as amended, modified or supplemented from time to time.
"MANUFACTURE" shall mean the manufacture and assembly of the Spiros
Products.
"MATERIAL OBLIGATION" shall mean the material obligations of a party under
the Technology Agreement, the Development Agreement or the Manufacturing and
Marketing Agreement.
"NET SALES" shall mean the gross amount invoiced for sales of Spiros
Products by DURA or its sublicensees, if any, to third parties less (i)
discounts actually allowed, (ii) credits for claims, allowances, retroactive
price reductions or returned Spiros Products, (iii) prepaid freight charges
incurred in transporting Spiros Products to customers, (iv) sales taxes and
other governmental charges actually paid in connection with the sales (but
excluding what is commonly known as income taxes) and (v) any royalty
obligations under the 1993 Royalty Agreement. Net Sales shall not include sales
between or among DURA, its Affiliates and its sublicensees unless such sales are
for end use rather than for purposes of resale.
"OFFERING" shall mean the underwritten public offering of the Units
pursuant to the Registration Statement.
"OPTION PROCEEDS" shall have the meaning assigned to it in Section 3 of the
Albuterol and Product Option Agreement.
"OPTION PRODUCT" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"OTHER EXPENDITURES" shall mean funds spent by Spiros Corp. II to acquire
capital equipment, develop a next generation inhaler system or to enhance the
System.
SCHEDULE 1.1
<PAGE>
"PATENT RIGHTS" shall mean any patents or patent applications within the
Spiros Corp. II Patent Rights, the DURA Patent Rights, the DDSI Patent Rights
and the Spiros Corp. Patent Rights.
"PERSON" shall mean any individual, partnership, corporation, firm,
association, unincorporated organization, joint venture, trust or other entity.
"PRODUCT OPTION" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"PRODUCT OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 2.5 of the Albuterol and Product Option Agreement.
"PROGRAM TECHNOLOGY" shall mean the Core Technology and the Developed
Technology.
"PSS" shall mean the powder storage system developed and to be developed by
DURA for use with the DPI.
"PURCHASE AGREEMENT" shall mean the Purchase Agreement dated as of
December 16, 1997, among DURA, Spiros Corp. II, Merrill Lynch & Co., and
Donaldson, Lufkin & Jenrette.
"PURCHASE OPTION" shall mean the option granted to the holder of Spiros
Corp. II's Special Common Stock to purchase all of the Spiros Corp. II Common
Stock as set forth in Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION CLOSING DATE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION EXERCISE PRICE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form
S-1/S-3 filed by Spiros Corp. II and DURA dated October 10, 1997 (No. 333-
37673/333-37673-01), including all exhibits and any amendments thereof
and supplements thereto.
"RESEARCH FUNDS" shall mean the Available Funds, less (i) all general and
administrative expenses including, without limitation, those paid or payable
pursuant to the Development Agreement or the Services Agreement, and the
reasonable out-of-pocket expenses of Spiros Corp. II directors and reasonable
compensation for Spiros Corp. II's independent directors, less (ii) any amounts
paid to DURA under the Development Agreement or the Services Agreement, less
(iii) any costs and expenses incurred in the defense or settlement of any action
or claim or in respect of a judgment thereon, and less (iv) One Million Dollars
($1,000,000) to be retained by Spiros Corp. II as working capital in the event
DURA does not exercise the Purchase Option.
SCHEDULE 1.1
<PAGE>
"SALE(S)" or "SELL" shall mean the activity undertaken by a sales
representative during a sales call on physicians, physician assistants, nurses,
hospitals, clinics, health maintenance organizations, preferred provider
organizations and managed care companies (including all forms of communication
not involving face to face contact by such sales representatives), describing
the FDA-approved indicated uses, safety, effectiveness, contraindications, side
effects, warnings and other relevant characteristics of the Spiros Product, in a
fair and balanced manner consistent with the requirements of the Federal Food,
Drug, and Cosmetic Act, as amended (and the regulations thereunder).
"SPIROS CASSETTE SYSTEM" shall mean a DPI in which the PSS is in the form
of a cassette.
"SPIROS CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
Spiros Corp. as of the date of the closing of the Offering necessary or useful
to the development of the Spiros Products, and (b) the Spiros Corp. Patent
Rights; PROVIDED, HOWEVER, that Spiros Core Technology shall also include
Technology acquired by Spiros Corp. from a third party after the date of the
closing of the Offering necessary or useful to the development of the Spiros
Products, except to the extent that there are any limitations or restrictions on
Spiros Corp.'s ability to license or sublicense such Technology. "Owned or
controlled" shall include Technology that Spiros Corp. owns, or under which
Spiros Corp. is licensed and has the right to grant sublicenses and/or grant
immunity from suit.
"SPIROS CORP. INDEMNITEE" shall mean Spiros Corp., its successors and
assigns, and the directors, officers, employees, agents and counsel thereof.
"SPIROS CORP. PATENT RIGHTS" shall mean those certain inventions described
in claims of (a) the patent applications pending, filed by Spiros Corp. (or the
rights to which have been assigned to Spiros Corp.) as of the date of the
Technology Agreement relating to dry powder inhalers, powder storage systems
and/or formulation methods for dry powder inhalation, (b) any patent application
constituting an equivalent, counterpart, reissue, extension or continuation
(including, without limitation, a continuation in part or a subdivision) of any
of the foregoing patent applications and (c) any patent issued or issuing upon
any of the foregoing.
"SPIROS CORP. II CHARTER" shall mean Amended and Restated Certificate of
Spiros Development Corporation II, Inc. in effect as of the closing of the
Offering, as amended from time to time.
"SPIROS CORP. II COMMON STOCK" shall mean the Callable Common Stock of
Spiros Corp. II, $.001 par value.
"SPIROS CORP. II INDEMNITEE" shall mean Spiros Corp. II, its
SCHEDULE 1.1
<PAGE>
successors and assigns, and the directors, officers, employees, agents and
counsel thereof.
"SPIROS CORP. II PATENT RIGHTS" shall mean those certain inventions
described in claims of (a) any patent application having one or more claims
covering Developed Technology, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
applications or (c) any patent issued or issuing upon any of the foregoing
applications.
"SPIROS PRODUCT(S)" shall mean (a) any System used with a formulation of
albuterol, beclomethasone, ipratropium, an albuterol-ipratropium combination,
budesonide or a Designated Compound developed, produced, manufactured or
marketed by DURA on behalf of Spiros Corp. II using the Program Technology.
"SPIROS PRODUCT PROGRAM ASSETS" shall have the meaning assigned to it in
Section 2.1 of the Albuterol and Product Option Agreement.
"SYSTEM" shall mean the DPI and the PSS when used together.
"TECHNOLOGY" shall mean, solely with respect to motor-driven dry powder
inhalers and powder storage systems for drugs for delivery through such
inhalers, the manufacture thereof, and formulations of drugs to be delivered
through such inhalers, public and nonpublic technical or other information,
trade secrets, know-how, processes, formulations, concepts, ideas, preclinical,
clinical, pharmacological or other data and testing results, experimental
methods, or results, assays, descriptions, business or scientific plans,
depictions, customer lists and any other written, printed or electronically
stored materials, pharmaceutical compounds or any other natural or man-made
pharmaceutical materials and any and all other intellectual property, including
patents and patent applications, of any nature whatsoever. The term
"Technology" shall include, without limitation, any of the foregoing as it
relates to enhancements of, substitutions for or improvements to the Core
Technology.
"TECHNOLOGY AGREEMENT" shall mean the Technology License Agreement dated as
of December 22, 1997, among DURA, DDSI, Spiros Corp. and Spiros Corp. II, as
amended, modified or supplemented from time to time.
"TERRITORY" shall mean the entire world.
"UNDERWRITERS" shall have the meaning assigned to it in the Registration
Statement.
"UNITS" shall mean units, each consisting of one share of Spiros Corp. II
Common Stock and one warrant to purchase one-fourth of one share of DURA Common
Stock, all as described in the Registration Statement.
SCHEDULE 1.1
<PAGE>
"1993 ROYALTY AGREEMENT" shall have the meaning assigned to it in the
Registration Statement.
SCHEDULE 1.1
<PAGE>
SERVICES AGREEMENT
SERVICES AGREEMENT (this "Agreement") made as of the 22 day of December,
1997, among DURA PHARMACEUTICALS, INC., a Delaware corporation ("DURA"), and
SPIROS DEVELOPMENT CORPORATION II, INC., a Delaware corporation ("Spiros Corp.
II").
WHEREAS:
DURA and Spiros Corp. II desire to provide the services described herein on
the terms set forth herein. Any capitalized terms not defined herein shall have
the meaning assigned to such terms in the Glossary attached as SCHEDULE 1.1 to
this Agreement.
NOW IT IS HEREBY AGREED AS FOLLOWS:
1. SERVICES. Upon the request of Spiros Corp. II from time to time, DURA
will supply Spiros Corp. II with management and administrative services as
mutually agreed upon. Such services will be provided at reasonable times and
upon reasonable notice, as mutually agreed to by the parties.
2. COMPENSATION. Spiros Corp. II shall pay to DURA a fee of $100,000,
quarterly in arrears within 30 days of the date of the invoice received from
DURA for the services provided.
3. REIMBURSEMENT. Upon the consummation of the Offering, Spiros Corp. II
shall reimburse DURA for all out-of-pocket expenses incurred by DURA in
connection with the services provided hereunder, including those out-of-pocket
expenses incurred pursuant to the Offering. In addition, Spiros Corp. II shall
reimburse DURA for its direct and indirect costs, including the fully burdened
cost of labor for DURA's employees that performed services in connection with
the Offering.
4. TERM AND TERMINATION.
A. This Agreement shall terminate upon the later of (i) one year
after the termination of the Purchase Option (as defined in the Prospectus
relating to the Offering) or (ii) upon the exercise of the Purchase Option.
This Agreement can be terminated by Spiros Corp. II at any time after
termination of the Purchase Option. Either party may, in its discretion,
terminate this Agreement in the event that the Technology Agreement,
Development Agreement or Manufacturing and Marketing Agreement terminates as
a result of an Event of Default by the other party.
B. Notwithstanding the foregoing, in the event that the Offering is
not
<PAGE>
consummated and is withdrawn, this Agreement shall terminate and be of no
further force and effect.
5. INDEMNIFICATION OF DURA. Spiros Corp. II hereby agrees to indemnify,
protect and hold DURA harmless from any and all liabilities, costs or expenses
incurred by DURA as a result of services rendered by DURA under this Agreement,
including lawsuits of and claims by third parties, except for liabilities, costs
or expenses resulting from DURA's own negligence or wilful misconduct.
6. FORCE MAJEURE. DURA shall not be liable for delay in performance of
any of its obligations hereunder if such delay is due to causes beyond its
reasonable control including, without limitation, acts of God, fires, strikes,
acts of ware, or intervention of any government or authority; provided, however,
that any such delay or failure shall be remedied by such party as soon as
possible.
7. RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement is
intended or is to be construed to constitute DURA and Spiros Corp. II as
partners or joint venturers or DURA as an employee of Spiros Corp. II. Neither
party hereto shall have any express or implied right or authority to assume or
create any obligations on behalf of or in the name of the other party or to bind
the other party to any contract, agreement or undertaking with any third party.
8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute this Agreement.
9. NOTICES. Any notice or other communication required or permitted to
be given to any party under this Agreement shall be given in writing and shall
be delivered by hand or by registered mail, postage prepaid and return receipt
requested, or by reputable overnight delivery service or courier, addressed to
each party at the following addresses or such other address as may be designated
by notice pursuant to this Section 9:
If to Spiros Corp. II: Spiros Corporation II, Inc.
c/o Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
-2-
<PAGE>
If to DURA: Dura Pharmaceuticals, Inc.
7475 Lusk Boulevard
San Diego, CA 92121
Attention: President
with a copy to the attention
of General Counsel
Any notice or communication given in conformity with this Section 9 shall be
deemed to be effective when received by the addressee, if delivered by hand or
delivery service or courier, and three days after mailing, if mailed.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts to
be performed wholly within the State of California. Except as otherwise
provided herein, any claim or controversy arising out of or related to this
Agreement or any breach thereof shall be submitted to a court of competent
jurisdiction in the State of California and the parties hereby consent to the
jurisdiction and venue of such court.
11. SEVERABILITY. If any provision in this Agreement is deemed to be or
becomes invalid, illegal or unenforceable in any jurisdiction, (i) such
provision will be deemed amended in such jurisdiction to conform to applicable
laws of such jurisdiction so as to be valid and enforceable or, it cannot be so
amended without materiality altering the intention of the parties, it will be
deleted, (ii) the validity, legality and enforceability of such provision will
not in any way be affected or impaired thereby in any other jurisdiction and
(iii) the remaining provisions of this Agreement shall continue in full force
without being impaired or invalidated in any way.
12. AMENDMENTS. No amendment, modification or addition hereto shall be
effective or binding on either party unless set forth in writing and executed by
a duly authorized representative of both parties.
13. WAIVER. No waiver of any right under this Agreement shall be deemed
effective unless contained in a writing signed by the party charged with such
waiver, and no waiver of any breach or failure to perform shall be deemed to be
a waiver of any future breach or failure to perform or of any other right
arising under this Agreement.
14. HEADINGS. The section headings contained in this Agreement are
included for convenience only and form no part of the agreement between the
parties.
15. ASSIGNMENT. Neither party may assign its rights and obligations
hereunder without the prior written consent of the other party, which consent
may not be unreasonably withheld; provided, however, that DURA may assign such
rights and obligations hereunder to an Affiliate or to any person or entity with
which DURA is merged or consolidated or which
-3-
<PAGE>
purchases all or substantially all of the assets of DURA. DURA may subcontract
all or any portion of its duties hereunder to third parties, in its sole
discretion; provided, however, that any such subcontractor shall be bound by the
terms of this Agreement.
16. NO EFFECT ON OTHER AGREEMENTS. No provision of this Agreement shall
be construed so as to negate, modify or affect in any way the provisions of any
other agreement between the parties unless specifically referred to, and solely
to the extent provided, in any such other agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
DURA PHARMACEUTICALS, INC.,
a Delaware corporation
By: /s/ Cam L. Garner
--------------------------------------------------
Name: Cam L. Garner
-------------------------------------------------
Title: Chairman, President & CEO
-------------------------------------------------
SPIROS DEVELOPMENT CORPORATION II, INC.,
a Delaware corporation
By: /s/ David S. Kabakoff
--------------------------------------------------
Name: David S. Kabakoff
-------------------------------------------------
Title: Chairman, President & CEO
-------------------------------------------------
[SIGNATURE PAGE TO SERVICES AGREEMENT]
<PAGE>
SCHEDULE 1.1
GLOSSARY
SCHEDULE 1.1
<PAGE>
SCHEDULE 1.1
GLOSSARY
"AFFILIATE" of a person shall mean a Person that directly, or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such Person. "Control" (and, with correlative meanings, the
terms "controlled by" and "under common control with") shall mean the possession
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting stock, by contract or
otherwise. In the case of a corporations, "control" shall mean, among other
things, the direct or indirect ownership of more than fifty percent (50%) of its
outstanding voting stock.
"AGREEMENTS" shall mean the Manufacturing and Marketing Agreement, the
Technology Agreement and the Development Agreement.
"ALBUTEROL OPTION" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"ALBUTEROL AND PRODUCT OPTION AGREEMENT" shall mean the Albuterol and
Product Option Agreement dated as of December 22, 1997, between DURA and Spiros
Corp. II, as amended, modified or supplemented from time to time.
"ALBUTEROL OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 1.5 of the Albuterol and Product Option Agreement.
"ALBUTEROL PROGRAM ASSETS" shall have the meaning assigned to it in Section
1.1 of the Albuterol and Product Option Agreement.
"ALBUTEROL PRODUCT" shall have the meaning assigned to it in Section 1.1 of
the Albuterol and Product Option Agreement.
"AVAILABLE FUNDS" shall mean the sum of (a) the net proceeds to Spiros
Corp. II from the sale of the Units in the Offering and the Contribution, (b)
all royalties remitted to Spiros Corp. II by DURA (or its Affiliates) from the
Sale of Spiros Products pursuant to the Agreements, (c) the Option Proceeds, if
any, (d) any other amounts provided by DURA to Spiros Corp. II, if any and (e)
interest or other income earned through temporary investment of the amounts
described in clauses (a), (b), (c) or (d).
"BANKRUPTCY CODE" shall mean the United States Bankruptcy Code, as amended
from time to time.
"CLAIM" shall mean any and all liabilities, damages, losses, settlements,
claims, actions, suits, penalties, fines, costs or expenses (including, without
limitation, reasonable attorneys' fees).
SCHEDULE 1.1
<PAGE>
"CONFIDENTIAL INFORMATION" shall mean all Program Technology disclosed by
DURA (and its Affiliates) to Spiros Corp. II or by Spiros Corp. II to DURA
pursuant to the Agreements or the Services Agreement.
"CONTRIBUTION" shall have the meaning assigned in Section 5.2 of the
Development Agreement.
"CORE TECHNOLOGY" shall mean the DURA Core Technology, the DDSI Core
Technology and the Spiros Core Technology.
"DDSI CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DDSI as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DDSI Patent Rights; PROVIDED,
HOWEVER, that DDSI Core Technology shall also include Technology acquired by
DDSI from a third party after the date of the closing of the Offering necessary
or useful to the development of the Spiros Products, except to the extent that
there are any limitations or restrictions on DDSI's ability to license or
sublicense such Technology. "Owned or controlled" shall include Technology that
DDSI owns, or under which DDSI is licensed and has the right to grant
sublicenses and/or grant immunity from suit.
"DDSI INDEMNITEE" shall mean DDSI, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DDSI PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DDSI (or the rights to
which have been assigned to DDSI) as of the date of the Technology Agreement
relating to dry powder inhalers, powder storage systems and/or formulation
methods for dry powder inhalation, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
patent applications and (c) any patent issued or issuing upon any of the
foregoing.
"DESIGNATED COMPOUND(S)" shall mean any compounds for delivery using the
System selected by Spiros Corp. II, and agreed to be developed by DURA.
"DEVELOPED TECHNOLOGY" shall mean any Technology including, without
limitation, any enhancements, substitutions or improvements to the Core
Technology that is (a) discovered, developed or otherwise acquired by DURA
pursuant to the terms of the Development Agreement or (b) otherwise acquired by
or on behalf of Spiros Corp. II during the term of the Development Agreement.
"DEVELOPMENT" shall mean the further development of the Program Technology
for the purpose of identifying, developing, manufacturing, marketing and
commercializing Spiros Products and
SCHEDULE 1.1
<PAGE>
the making of the Other Expenditures.
"DEVELOPMENT AGREEMENT" shall mean the Development Agreement dated as of
December 22, 1997, between DURA and Spiros Corp., as amended, modified or
supplemented from time to time.
"DEVELOPMENT COSTS" shall mean the Direct Development Costs, the Indirect
Development Costs and the Other Expenditures.
"DEVELOPMENT TERM" shall mean the period commencing on the Closing Date and
ending on the earlier of (a) the Option Closing Date or (b) the date the Option
terminates or expires other than by exercise.
"DIRECT DEVELOPMENT COSTS" shall mean all costs incurred by DURA or its
Affiliates in respect of the Development, other than Indirect Development
Costs, determined in accordance with generally accepted accounting principles
consistent with DURA's internal accounting system, allocated on a reasonable
and consistent basis. Direct Development Costs shall consist primarily of
fully-burdened payroll costs (burdened to include benefits, payroll taxes and
an allocation of facilities and overhead costs) and any other such costs
generated internally by DURA in respect of the Development.
"DPI" shall mean the motor-driven dry powder inhaler (other than an inahler
designed to deliver a single dose of a drug) developed by DURA, DDSI and/or
Spiros Corp. and to be developed by DURA and/or Spiros Corp. II.
"DURA COMMON STOCK" shall mean the Common Stock of DURA, par value $.001
per share.
"DURA CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
DURA as of the date of the closing of the Offering necessary or useful to the
development of the Spiros Products, and (b) the DURA Patent Rights and DURA
Trademarks; PROVIDED, HOWEVER, that DURA Core Technology shall also include
Technology acquired by DURA from a third party after the date of the closing of
the Offering necessary or useful to the development of the Spiros Products,
except to the extent that there are any limitations or restrictions on DURA's
ability to license or sublicense such Technology. "Owned or controlled" shall
include Technology that DURA owns, or under which DURA is licensed and has the
right to grant sublicenses and/or grant immunity from suit.
"DURA INDEMNITEE" shall mean DURA, its successors and assigns, and the
directors, officers, employees, agents and counsel thereof.
"DURA PATENT RIGHTS" shall mean those certain inventions described in
claims of (a) the patent applications pending, filed by DURA (or the rights to
which have been assigned to DURA) as of the date of the Technology Agreement
relating to DPIs, PSSs and/or formulation methods for dry powder inhalation, (b)
any
SCHEDULE 1.1
<PAGE>
patent application constituting an equivalent, counterpart, reissue,
extension or continuation (including, without limitation, a continuation in part
or a subdivision) of any of the foregoing patent applications and (c) any patent
issued or issuing upon any of the foregoing.
"DURA TRADEMARKS" shall mean Spiros-TM-.
"EVENT OF DEFAULT" shall mean any of the following events: (a) at any
time, if DURA or Spiros Corp. II fails to perform or observe or otherwise
breaches any of its Material Obligations, and such failure or breach continues
unremedied for a period of sixty (60) days after receipt by of written notice
thereof from the other party; (b) at any time, effective as set forth in a
written notice from the other party if DURA or Spiros Corp. II shall (i) seek
the liquidation, reorganization, dissolution or winding-up of itself or the
composition or readjustment of its debts (other than pursuant to a merger with
an Affiliate), (ii) apply for or consent to the appointment of, or the taking
possession by, a receiver, custodian, trustee or liquidator for itself or of all
or a substantial part of its assets, (iii) make a general assignment for the
benefit of its creditors, (iv) commence a voluntary case under the Bankruptcy
Code, (v) file a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up or composition or
readjustment of debts (other than pursuant to a merger with an Affiliate) or
(vi) adopt any resolution of its Board of Directors or shareholders for the
purpose of effecting any of the foregoing (other than pursuant to a merger with
an Affiliate); or (c) at any time, effective as set forth in a written notice
from the other party, if a proceeding or case shall be commenced without the
application or consent of DURA or Spiros Corp. II as applicable, and such
proceeding or case shall continue undismissed, or an order, judgment or decrees
approving or ordering any of the following shall be entered and continued
unstayed and in effect, for a period of sixty (60) days from and after the date
service of process is effected, seeking (i) DURA's or Spiros Corp. II's, as
applicable, liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of DURA or Spiros Corp. II or for
all or any substantial part of its assets or (iii) similar relief in respect of
DURA or Spiros Corp. II under any law relating to bankruptcy, insolvency,
reorganization, winding-up or the composition or readjustment of debts.
"FDA" shall mean the United States Food and Drug Administration or any
successor agency or authority, the approval of which is required to market
health care products in the United States.
"FDA APPROVAL" shall mean the final regulatory approval of the FDA required
to commence commercial marketing of a health product.
SCHEDULE 1.1
<PAGE>
"FORCE MAJEURE" shall mean any act of God, any accident explosion, fire,
storm, earthquake, flood, drought, peril of the sea, riot, embargo, war or
foreign, federal, state or municipal order of general application, seizure,
requisition or allocation, any failure or delay of transportation, shortage of
or inability to obtain supplies, equipment, fuel or labor or any other
circumstance or event beyond the reasonable control of the party relying upon
such circumstance or event.
"INDIRECT DEVELOPMENT COSTS" shall mean all costs, fees and out-of-pocket
or other expenses, including the purchase of any capital equipment related to
the Development, incurred or paid by DURA to a third party, other than an
Affiliate of DURA, in respect of the Development, determined in accordance with
generally accepted accounting principles consistent with DURA's internal
accounting system, allocated on a reasonable and consistent basis.
"MANUFACTURING AND MARKETING AGREEMENT" shall mean the Manufacturing and
Marketing Agreement dated as of December 22, 1997 between DURA and Spiros
Corp. II, as amended, modified or supplemented from time to time.
"MANUFACTURE" shall mean the manufacture and assembly of the Spiros
Products.
"MATERIAL OBLIGATION" shall mean the material obligations of a party under
the Technology Agreement, the Development Agreement or the Manufacturing and
Marketing Agreement.
"NET SALES" shall mean the gross amount invoiced for sales of Spiros
Products by DURA or its sublicensees, if any, to third parties less (i)
discounts actually allowed, (ii) credits for claims, allowances, retroactive
price reductions or returned Spiros Products, (iii) prepaid freight charges
incurred in transporting Spiros Products to customers, (iv) sales taxes and
other governmental charges actually paid in connection with the sales (but
excluding what is commonly known as income taxes) and (v) any royalty
obligations under the 1993 Royalty Agreement. Net Sales shall not include sales
between or among DURA, its Affiliates and its sublicensees unless such sales are
for end use rather than for purposes of resale.
"OFFERING" shall mean the underwritten public offering of the Units
pursuant to the Registration Statement.
"OPTION PROCEEDS" shall have the meaning assigned to it in Section 3 of the
Albuterol and Product Option Agreement.
"OPTION PRODUCT" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"OTHER EXPENDITURES" shall mean funds spent by Spiros Corp. II to acquire
capital equipment, develop a next generation inhaler system or to enhance the
System.
SCHEDULE 1.1
<PAGE>
"PATENT RIGHTS" shall mean any patents or patent applications within the
Spiros Corp. II Patent Rights, the DURA Patent Rights, the DDSI Patent Rights
and the Spiros Corp. Patent Rights.
"PERSON" shall mean any individual, partnership, corporation, firm,
association, unincorporated organization, joint venture, trust or other entity.
"PRODUCT OPTION" shall have the meaning assigned to it in Section 2.1 of
the Albuterol and Product Option Agreement.
"PRODUCT OPTION CLOSING DATE" shall have the meaning assigned to it in
Section 2.5 of the Albuterol and Product Option Agreement.
"PROGRAM TECHNOLOGY" shall mean the Core Technology and the Developed
Technology.
"PSS" shall mean the powder storage system developed and to be developed by
DURA for use with the DPI.
"PURCHASE AGREEMENT" shall mean the Purchase Agreement dated as of
December 16, 1997, among DURA, Spiros Corp. II, Merrill Lynch & Co., and
Donaldson, Lufkin & Jenrette.
"PURCHASE OPTION" shall mean the option granted to the holder of Spiros
Corp. II's Special Common Stock to purchase all of the Spiros Corp. II Common
Stock as set forth in Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION CLOSING DATE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter.
"PURCHASE OPTION EXERCISE PRICE" shall have the meaning assigned to it in
Article V of the Spiros Corp. II Charter
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form S-
1/S-3 filed by Spiros Corp. II and DURA dated October 10, 1997 (No. 333-
37673/333-37673-01), including all exhibits and any amendments thereof
and supplements thereto.
"RESEARCH FUNDS" shall mean the Available Funds, less (i) all general and
administrative expenses including, without limitation, those paid or payable
pursuant to the Development Agreement or the Services Agreement, and the
reasonable out-of-pocket expenses of Spiros Corp. II directors and reasonable
compensation for Spiros Corp. II's independent directors, less (ii) any amounts
paid to DURA under the Development Agreement or the Services Agreement, less
(iii) any costs and expenses incurred in the defense or settlement of any action
or claim or in respect of a judgment thereon, and less (iv) One Million Dollars
($1,000,000) to be retained by Spiros Corp. II as working capital in the event
DURA does not exercise the Purchase Option.
SCHEDULE 1.1
<PAGE>
"SALE(S)" or "SELL" shall mean the activity undertaken by a sales
representative during a sales call on physicians, physician assistants, nurses,
hospitals, clinics, health maintenance organizations, preferred provider
organizations and managed care companies (including all forms of communication
not involving face to face contact by such sales representatives), describing
the FDA-approved indicated uses, safety, effectiveness, contraindications, side
effects, warnings and other relevant characteristics of the Spiros Product, in a
fair and balanced manner consistent with the requirements of the Federal Food,
Drug, and Cosmetic Act, as amended (and the regulations thereunder).
"SPIROS CASSETTE SYSTEM" shall mean a DPI in which the PSS is in the form
of a cassette.
"SPIROS CORE TECHNOLOGY" shall mean (a) Technology owned or controlled by
Spiros Corp. as of the date of the closing of the Offering necessary or useful
to the development of the Spiros Products, and (b) the Spiros Corp. Patent
Rights; PROVIDED, HOWEVER, that Spiros Core Technology shall also include
Technology acquired by Spiros Corp. from a third party after the date of the
closing of the Offering necessary or useful to the development of the Spiros
Products, except to the extent that there are any limitations or restrictions on
Spiros Corp.'s ability to license or sublicense such Technology. "Owned or
controlled" shall include Technology that Spiros Corp. owns, or under which
Spiros Corp. is licensed and has the right to grant sublicenses and/or grant
immunity from suit.
"SPIROS CORP. INDEMNITEE" shall mean Spiros Corp., its successors and
assigns, and the directors, officers, employees, agents and counsel thereof.
"SPIROS CORP. PATENT RIGHTS" shall mean those certain inventions described
in claims of (a) the patent applications pending, filed by Spiros Corp. (or the
rights to which have been assigned to Spiros Corp.) as of the date of the
Technology Agreement relating to dry powder inhalers, powder storage systems
and/or formulation methods for dry powder inhalation, (b) any patent application
constituting an equivalent, counterpart, reissue, extension or continuation
(including, without limitation, a continuation in part or a subdivision) of any
of the foregoing patent applications and (c) any patent issued or issuing upon
any of the foregoing.
"SPIROS CORP. II CHARTER" shall mean Amended and Restated Certificate of
Spiros Development Corporation II, Inc. in effect as of the closing of the
Offering, as amended from time to time.
"SPIROS CORP. II COMMON STOCK" shall mean the Callable Common Stock of
Spiros Corp. II, $.001 par value.
"SPIROS CORP. II INDEMNITEE" shall mean Spiros Corp. II, its
SCHEDULE 1.1
<PAGE>
successors and assigns, and the directors, officers, employees, agents and
counsel thereof.
"SPIROS CORP. II PATENT RIGHTS" shall mean those certain inventions
described in claims of (a) any patent application having one or more claims
covering Developed Technology, (b) any patent application constituting an
equivalent, counterpart, reissue, extension or continuation (including, without
limitation, a continuation in part or a subdivision) of any of the foregoing
applications or (c) any patent issued or issuing upon any of the foregoing
applications.
"SPIROS PRODUCT(S)" shall mean (a) any System used with a formulation of
albuterol, beclomethasone, ipratropium, an albuterol-ipratropium combination,
budesonide or a Designated Compound developed, produced, manufactured or
marketed by DURA on behalf of Spiros Corp. II using the Program Technology.
"SPIROS PRODUCT PROGRAM ASSETS" shall have the meaning assigned to it in
Section 2.1 of the Albuterol and Product Option Agreement.
"SYSTEM" shall mean the DPI and the PSS when used together.
"TECHNOLOGY" shall mean, solely with respect to motor-driven dry powder
inhalers and powder storage systems for drugs for delivery through such
inhalers, the manufacture thereof, and formulations of drugs to be delivered
through such inhalers, public and nonpublic technical or other information,
trade secrets, know-how, processes, formulations, concepts, ideas, preclinical,
clinical, pharmacological or other data and testing results, experimental
methods, or results, assays, descriptions, business or scientific plans,
depictions, customer lists and any other written, printed or electronically
stored materials, pharmaceutical compounds or any other natural or man-made
pharmaceutical materials and any and all other intellectual property, including
patents and patent applications, of any nature whatsoever. The term
"Technology" shall include, without limitation, any of the foregoing as it
relates to enhancements of, substitutions for or improvements to the Core
Technology.
"TECHNOLOGY AGREEMENT" shall mean the Technology License Agreement dated as
of December 22, 1997, among DURA, DDSI, Spiros Corp. and Spiros Corp. II, as
amended, modified or supplemented from time to time.
"TERRITORY" shall mean the entire world.
"UNDERWRITERS" shall have the meaning assigned to it in the Registration
Statement.
"UNITS" shall mean units, each consisting of one share of Spiros Corp. II
Common Stock and one warrant to purchase one-fourth of one share of DURA Common
Stock, all as described in the Registration Statement.
SCHEDULE 1.1
<PAGE>
"1993 ROYALTY AGREEMENT" shall have the meaning assigned to it in the
Registration Statement.
SCHEDULE 1.1
<PAGE>
Spiros Development Corporation II, Inc. 1997 Stock Option Plan.
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
1997 STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Option Plan is intended to promote the interests of
Spiros Development Corporation II, Inc., a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be comprised of a Discretionary Option Grant
Program under which eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock.
B. The Plan shall become effective on the date on which the Common
Stock is first registered under Section 12 of the 1934 Act (the "Plan Effective
Date"), and options may be granted at any time from and after the Plan Effective
Date until the date the Plan terminates in accordance with the provisions of
Section III of Article Three.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant Program with respect to Section 16
Insiders. Administration of the Discretionary Option Grant Program with respect
to all other persons eligible to participate in those programs may, at the
Board's discretion, be vested in the Primary Committee or a Secondary Committee,
or the Board may retain the power to administer the program with respect to all
those other persons.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions
of any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
<PAGE>
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant
Program and to make such determinations under, and issue such interpretations
of, the provisions of such programs and any outstanding options or stock
issuances thereunder as it may deem necessary or advisable. Decisions of the
Plan Administrator within the scope of its administrative functions under the
Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant Program under its jurisdiction or any outstanding
option thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant Program are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of
directors of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who
provide services to the Corporation (or any Parent or Subsidiary).
B. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
which eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a Non-
Statutory Option, the time or times when each option is to become exercisable
and the maximum term for which the option is to remain outstanding.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock which may be issued over the term of the Plan shall
initially not exceed 700,000 shares (the "Overall Limitation").
2
<PAGE>
B. The Overall Limitation under the Plan shall automatically
increase on February 15 of each calendar year during the term of the Plan,
beginning with the 1998 calendar year, by that number of shares necessary to
cause the Overall Limitation to be equal to 15% of the then outstanding
shares of the Common Stock of the Company. No Incentive Options may be
granted on the basis of the additional shares of Common Stock resulting from
such annual increases.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances
for more than 200,000 shares of Common Stock in the aggregate per calendar
year, beginning with the 1997 calendar year.
D. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the
options (including any options incorporated from the predecessor Plan) expire
or terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article
Two. All shares issued under the Plan (including shares issued upon exercise
of options incorporated from the Predecessor Plan), whether or not those
shares are subsequently repurchased by the Corporation pursuant to its
repurchase rights under the Plan, shall reduce on a share-for-share basis the
number of shares of Common Stock available for subsequent issuance under the
Plan. In addition, should the exercise price of an option under the Plan
(including any option incorporated from the Predecessor Plan) be paid with
shares of Common Stock or should shares of Common Stock otherwise issuable
under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or
the vesting of a stock issuance under the Plan, then the number of shares of
Common Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the
stock issuance, and not by the net number of shares of Common Stock issued to
the holder of such option or stock issuance.
E. Should any change be made to the Common Stock by reason of any
stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as
a class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the maximum number and/or class of
securities for which the share reserve is to increase automatically each
year, (iii) the number and/or class of securities for which any one person
may be granted options, separately exercisable stock appreciation rights and
direct stock issuances per calendar year, (iv) the number and/or class of
securities for which automatic option grants are to be made subsequently per
Eligible Director under the Automatic Option Grant Program and (v) the number
and/or class of securities and the exercise price per share in effect under
each outstanding option (including any option incorporated from the
Predecessor Plan) in order to prevent the dilution or enlargement of benefits
thereunder. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
3
<PAGE>
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; PROVIDED, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon
exercise of the option and shall, subject to the provisions of Section I of
Article Three and the documents evidencing the option, be payable in one or more
of the forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(iii) through a special sale and remittance procedure
pursuant to which the Optionee shall concurrently provide irrevocable
instructions to (a) a Corporation-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the
Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
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<PAGE>
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option. However, no option shall have a term in excess of ten
(10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the
Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or in part by the
Optionee at the time of death may be subsequently exercised 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.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise
period, the option may not be exercised in the aggregate for more than
the number of vested shares for which the option is exercisable on the
date of the Optionee's cessation of Service. Upon the expiration of
the applicable exercise period or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
outstanding for any otherwise exercisable shares for which the option
has not been exercised. However, the option shall, immediately upon
the Optionee's cessation of Service, terminate and cease to be
outstanding for any and all shares for the option is not otherwise at
that time exercisable.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
5
<PAGE>
(i) extend the period of time for which the option is
to remain exercisable following the Optionee's cessation of Service
from the limited exercise period otherwise in effect for that option
to such greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but
also with respect to one or more additional installments for which the
option would have become exercisable had the Optionee continued in
Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become the
record holder of the purchased shares.
E. 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-Statutory
Option may, in connection with the Optionee's estate plan, be assigned in whole
or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. 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. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall NOT be subject to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during
6
<PAGE>
any one calendar year shall not exceed the sum of One Hundred Thousand
Dollars ($100,000). To the extent the Employee holds two (2) 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 Options shall be applied on the basis of the order in which such
options are granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
exercisable for the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as fully
vested shares. However, an outstanding option shall NOT become exercisable on
such an accelerated basis if and to the extent: (i) such option is, in
connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or (ii) such option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing at the time of the Corporate Transaction on any shares for which the
option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
B. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
C. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
PROVIDED the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan and (iii) the maximum number and/or
class of securities for which any one person may be granted stock options under
the Plan per calendar year.
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<PAGE>
D. The Plan Administrator shall have the discretionary authority to
provide for the automatic acceleration of one or more outstanding options upon
the occurrence of a Corporate Transaction, whether or not those options are to
be assumed in the Corporate Transaction, so that each such option shall,
immediately prior to the effect date of such Corporate Transaction, become fully
exercisable for the total number of shares at the time subject to that option
and may be exercised for any or all of those shares as fully vested shares.
E. The Plan Administrator shall have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of one or
more outstanding options in the event the Optionee's Service is subsequently
terminated by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those options are assumed and do not otherwise
accelerate. Any options so accelerated shall remain exercisable for fully
vested shares until the EARLIER of (i) the expiration of the option term or (ii)
the expiration of the one (1) year period measured from the effective date of
the Involuntary Termination.
F. The Plan Administrator shall have the discretionary authority to
provide for the automatic acceleration of one or more outstanding options upon
the occurrence of a Change in Control so that each such option shall,
immediately prior to the effect date of such Change in Control, become fully
exercisable for the total number of shares at the time subject to that option
and may be exercised for any or all of those shares as fully vested shares.
Alternatively, the Plan Administrator may condition the automatic acceleration
of one or more outstanding options upon the subsequent termination of the
Optionee's Service by reason of an Involuntary Termination within a designated
period (not to exceed eighteen (18) months) following the effective date of such
Change in Control. Each option so accelerated shall remain exercisable for
fully vested shares until the EARLIER of (i) the expiration of the option term
or (ii) the expiration of the one (1) year period measured from the effective
date of Optionee's cessation of Service.
G. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
H. The outstanding options shall in no way affect the right of the
Corporation 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.
8
<PAGE>
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.
9
<PAGE>
ARTICLE THREE
MISCELLANEOUS
I. INTENTIONALLY OMITTED
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options under the Plan shall be subject to the satisfaction
of all applicable Federal, state and local income and employment tax withholding
requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options under the Plan with the right to use shares of
Common Stock in satisfaction of all or part of the Taxes incurred by such
holders in connection with the exercise of those options. Such right may be
provided to any such holder in either or both of the following formats:
STOCK WITHHOLDING: The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option, a portion of those shares with an aggregate Fair
Market Value equal to the percentage of the Taxes (not to exceed one hundred
percent (100%)) designated by the holder.
STOCK DELIVERY: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised, one or more shares of Common
Stock previously acquired by such holder (other than in connection with the
option exercise triggering the Taxes) with an aggregate Fair Market Value equal
to the percentage of the Taxes (not to exceed one hundred percent (100%))
designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately upon the Plan
Effective Date. Options may be granted under the Discretionary Option Grant
Program at any time on or after the Plan Effective Date. However, no options
granted under the Plan may be exercised, and no shares shall be issued under the
Plan, until the Plan is approved by the Corporation's
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<PAGE>
stockholders. If such stockholder approval is not obtained within twelve
(12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall terminate upon the EARLIEST of (i) October 31,
2007, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Should the Plan
terminate on October 31, 2007, then all option grants outstanding at that time
shall thereafter continue to have force and effect in accordance with the
provisions of the documents evidencing those grants.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options at the time outstanding under the Plan unless the Optionee
consents to such amendment or modification. In addition, certain amendments may
require stockholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant Program which in excess of the number of shares
then available for issuance under the Plan, provided those options shall not
become exercisable for any of the excess shares unless and until there is
obtained stockholder approval of an amendment sufficiently increasing the number
of shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first of such option grants is made, then all options with such excess
shares shall immediately terminate and cease to be exercisable with respect to
those excess shares.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares
of Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan or the granting of any stock
option under the Plan upon the exercise of any granted option shall be subject
to the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
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<PAGE>
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining such person) or of the Optionee, which rights
are hereby expressly reserved by each, to terminate such person's Service at any
time for any reason, with or without cause.
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<PAGE>
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person
or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation), of beneficial ownership (within
the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities pursuant to a tender or
exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested elections
for Board membership, to be comprised of individuals who either (A)
have been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
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F. CORPORATION shall mean Spiros Development Corporation II, Inc., a
Delaware corporation, and its successors.
G. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary option
grant program in effect under the Plan.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
J. FAIR MARKET VALUE per share of Common Stock on any relevant date shall
be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be deemed equal to
the closing selling price per share of Common Stock on the date in
question, as such price is reported on the Nasdaq National Market. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator to
be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
K. INCENTIVE OPTION shall mean an option which satisfies the requirements
of Code Section 422.
L. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by
the Corporation for reasons other than Misconduct, or
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(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and
target bonus under any performance based bonus or incentive programs)
by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.
M. MISCONDUCT shall mean the commission of any act of fraud, embezzlement
or dishonesty by the Optionee, any unauthorized use or disclosure by such person
of confidential information or trade secrets of the Corporation (or any Parent
or Subsidiary), or any other intentional misconduct by such person adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
any Optionee or other person in the Service of the Corporation (or any Parent or
Subsidiary).
N. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
O. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
P. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant Program.
Q. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
R. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability
of the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more.
S. PLAN shall mean the Corporation's 1997 Stock Option Plan, as set forth
in this document.
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T. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant Program with respect to one or more
classes of eligible persons, to the extent such entity is carrying out its
administrative functions under the programs with respect to the persons under
its jurisdiction.
U. PLAN EFFECTIVE DATE shall mean the date on which the Common Stock is
first registered under Section 12 of the 1934 Act.
V. PRIMARY COMMITTEE shall mean the committee of two (2) or more non-
employee Board members appointed by the Board to administer the Discretionary
Option Grant Program with respect to Section 16 Insiders.
W. SECONDARY COMMITTEE shall mean a committee of one (1) or more Board
members appointed by the Board to administer the Discretionary Option Grant
Program with respect to eligible persons other than Section 16 Insiders.
X. 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.
Y. SERVICE shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
Z. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
AB. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options in connection
with the exercise of those options.
AC. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
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1997 Stock Option Plan Form of Notice of Grant of Stock Option.
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the "Option") to
purchase shares of the Common Stock of Spiros Development Corporation II, Inc.
(the "Corporation"):
OPTIONEE:
------------------------------------------------------------
GRANT DATE:
----------------------------------------------------------
EXERCISE PRICE: $ per share
------------------------------------------
NUMBER OF OPTION SHARES: shares
--------------------------------------
EXPIRATION DATE:
-----------------------------------------------------
TYPE OF OPTION: Incentive Stock Option
-------
Non-Statutory Stock Option
-------
EXERCISE SCHEDULE: The Option shall become exercisable for all the
Option Shares upon the Optionee's completion of five (5) years of
Service measured from the Grant Date. However, the Option shall
become exercisable for all the Option Shares on an accelerated basis
immediately prior to the occurrence of the following performance
milestone, provided such milestone event occurs during the Optionee's
period of Service: Dura Pharmaceuticals, Inc. ("Dura") shall
purchase all of the Corporation's outstanding Common Stock pursuant
to the stock purchase option granted to Dura under the Corporation's
Amended and Restated Certificate of Incorporation. In no event shall
the Option become exercisable for any Option Shares after Optionee's
cessation of Service.
Optionee understands and agrees that the Option is granted subject
to and in accordance with the terms of the Spiros Development Corporation II,
Inc. 1997 Stock Option Plan (the "Plan"). Optionee further agrees to be
bound by the terms of the Plan and the terms of the Option as set forth in
the attached Stock Option Agreement. If this is Optionee's first stock
option grant under the Plan, a copy of the prospectus for the Plan is also
attached hereto. A copy of the Plan is available upon request made to the
Corporate Secretary at the Corporation's principal offices.
<PAGE>
NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Notice or in the
attached Stock Option Agreement or in the Plan shall confer upon Optionee any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining Optionee) or of Optionee, which
rights are hereby expressly reserved by each, to terminate Optionee's Service at
any time for any reason, with or without cause.
DEFINITIONS. All capitalized terms in this Notice shall have the
meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
DATED: , 199
----------------------- --
SPIROS DEVELOPMENT
CORPORATION II, INC.
By:
-------------------------------------
Title:
----------------------------------
------------------------------------------
OPTIONEE
Address:
--------------------------------
------------------------------------------
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<PAGE>
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE>
1997 Stock Option Plan Form of Stock Option Agreement.
<PAGE>
SPIROS DEVELOPMENT CORPORATION II, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or of the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent
or Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee,
as of the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from
time to time during the option term specified in Paragraph 2 at the Exercise
Price.
2. OPTION TERM. This option shall have a maximum term of ten
(10) years measured from the Grant Date and shall accordingly expire at the
close of business on the Expiration Date, unless sooner terminated in
accordance with Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised,
during Optionee's lifetime, only by Optionee. However, if this option is
designated a Non-Statutory Option in the Grant Notice, then this option may,
in connection with the Optionee's estate plan, be assigned in whole or in
part during Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established for the exclusive benefit of one
or more such family members. The assigned portion shall be exercisable only
by the person or persons who acquire a proprietary interest in the option
pursuant to such assignment. The terms applicable to the assigned portion
shall be the same as those in effect for this 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.
<PAGE>
4. DATES OF EXERCISE. This option shall become exercisable for
the Option Shares in one or more installments as specified in the Grant
Notice. As the option becomes exercisable for such installments, those
installments shall accumulate, and the option shall remain exercisable for
the accumulated installments until the Expiration Date or sooner termination
of the option term under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph
2 shall terminate (and this option shall cease to be outstanding) prior to
the Expiration Date should any of the following provisions become applicable:
(i) Should Optionee cease to remain in Service
for any reason (other than death, Permanent Disability or Misconduct)
while this option is outstanding, then the period during which this
option may be exercised shall be limited to a three (3)-month period
commencing with the date of such cessation of Service. In no event,
however, shall this option be exercisable at any time after the
Expiration Date.
(ii) Should Optionee dies while holding this
option, then the personal representative of Optionee's estate or the
person or persons to whom the option is transferred pursuant to
Optionee's will or in accordance with the laws of descent and
distribution shall have the right to exercise this option. Such right
shall lapse, and this option shall cease to be outstanding, upon the
EARLIER of (A) the expiration of the twelve (12)-month period measured
from the date of Optionee's death or (B) the Expiration Date.
(iii) Should Optionee cease Service by reason of
Permanent Disability while this option is outstanding, then the period
during which this option may be exercised shall be limited to twelve
(12)-month period commencing with the date of such cessation of
Service. In no event, however, shall this option be exercisable at
any time after the Expiration Date.
(iv) During the limited period of post-Service
exercisability, this option may not be exercised in the aggregate for
more than the number of Option Shares for which the option is
exercisable at the time of Optionee's cessation of Service. Upon the
expiration of such limited exercise period or (if earlier) upon the
Expiration Date, this option shall terminate and cease to be
outstanding for any otherwise exercisable Option Shares for which the
option has not been exercised. However, this option shall,
immediately upon Optionee's cessation of Service for any reason,
terminate and cease to be outstanding with respect to any and all
Option Shares for which this option is not otherwise at that time
exercisable.
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<PAGE>
(v) Should Optionee's Service be terminated for
Misconduct, then this option shall terminate immediately and cease to
remain outstanding.
6. SPECIAL ACCELERATION OF OPTION.
(a) In the event of a Corporate Transaction, this option, to
the extent outstanding at that time, but not otherwise fully exercisable,
shall automatically accelerate so that this option shall, immediately prior
to the effective date of the Corporate Transaction, become exercisable for
all of the Option Shares at the time subject to this option and may be
exercised for any or all of those Option Shares as fully-vested shares of
Common Stock. However, this option shall not become exercisable on such an
accelerated basis, if and to the extent: (i) this option is, in connection
with the Corporate Transaction, to be assumed by the successor corporation
(or parent thereof) or (ii) this option is to be replaced with a cash
incentive program of the successor corporation which preserves the spread
existing at the time of the Corporate Transaction on the Option Shares for
which this option is not otherwise at that time exercisable (the excess of
the Fair Market Value of those Option Shares over the aggregate Exercise
Price payable for such shares) and provides for subsequent pay-out in
accordance with the same option exercise/vesting schedule set forth in the
Grant Notice.
(b) Immediately following the Corporate Transaction, this
option shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or parent thereof) in connection with
the Corporate Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately
after such Corporate Transaction, to apply to the number and class of
securities which would have been issuable to Optionee in consummation of such
Corporate Transaction had the option been exercised immediately prior to such
Corporate Transaction, and appropriate adjustments shall also be made to the
Exercise Price, PROVIDED the aggregate Exercise Price shall remain the same.
(d) This option may also become exercisable on an accelerated
basis in accordance with the terms and conditions of any special addendum
attached to this Agreement.
(e) This Agreement shall not in any way affect the right of
the Corporation 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.
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<PAGE>
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price
in order to reflect such change and thereby preclude a dilution or
enlargement of benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have
any stockholder rights with respect to the Option Shares until such person
shall have exercised the option, paid the Exercise Price and become a holder
of record of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or
any part of the Option Shares for which this option is at the time
exercisable, Optionee (or any other person or persons exercising the option)
must take the following actions:
(i) Execute and deliver to the Corporation a
Notice of Exercise for the Option Shares for which the option is
exercised.
(ii) Pay the aggregate Exercise Price for the
purchased shares in one or more of the following forms:
(A) cash or check made payable to the
Corporation;
(B) a promissory note payable to the Corporation,
but only to the extent authorized by the Plan Administrator in
accordance with Paragraph 13;
(C) shares of Common Stock held by Optionee (or
any other person or persons exercising the option) for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date; or
(D) through a special sale and remittance
procedure pursuant to which Optionee (or any other person or
persons exercising the option) shall concurrently provide
irrevocable written instructions (I) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to
4
<PAGE>
cover the aggregate Exercise Price payable for the purchased
shares plus all applicable Federal, state and local income and
employment taxes required to be withheld by the Corporation by
reason of such exercise and (II) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage
firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to
the Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option (if
other than Optionee) have the right to exercise this option.
(iv) Make appropriate arrangements with the
Corporation (or Parent or Subsidiary employing or retaining Optionee)
for the satisfaction of all Federal, state and local income and
employment tax withholding requirements applicable to the option
exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option
Shares, with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any
fractional shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the
Option Shares upon such exercise shall be subject to compliance by the
Corporation and Optionee with all applicable requirements of law relating
thereto and with all applicable regulations of any stock exchange (or the
Nasdaq National Market, if applicable) on which the Common Stock may be
listed for trading at the time of such exercise and issuance.
(b) The inability of the Corporation to obtain approval from
any regulatory body having authority deemed by the Corporation to be
necessary to the lawful issuance and sale of any Common Stock pursuant to
this option shall relieve the Corporation of any liability with respect to
the non-issuance or sale of the Common Stock as to which such approval shall
not have been obtained. The Corporation, however, shall use its best efforts
to obtain all such approvals.
5
<PAGE>
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise
provided in Paragraphs 3 and 6, the provisions of this Agreement shall inure
to the benefit of, and be binding upon, the Corporation and its successors
and assigns and Optionee, Optionee's assigns and the legal representatives,
heirs and legatees of Optionee's estate.
12. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and
addressed to the Corporation at its principal corporate offices. Any notice
required to be given or delivered to Optionee shall be in writing and
addressed to Optionee at the address indicated below Optionee's signature
line on the Grant Notice. All notices shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, postage prepaid and properly
addressed to the party to be notified.
13. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a full-recourse
promissory note payable to the Corporation. The terms of any such promissory
note (including the interest rate, the requirements for collateral and the
terms of repayment) shall be established by the Plan Administrator in its
sole discretion.
14. CONSTRUCTION. This Agreement and the option evidenced hereby
are made and granted pursuant to the Plan and are in all respects limited by
and subject to the terms of the Plan. All decisions of the Plan
Administrator with respect to any question or issue arising under the Plan or
this Agreement shall be conclusive and binding on all persons having an
interest in this option.
15. GOVERNING LAW. The interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.
16. EXCESS SHARES. If the Option Shares covered by this Agreement
exceed, as of the Grant Date, the number of shares of Common Stock which may
without stockholder approval be issued under the Plan, then this option shall
be void with respect to those excess shares, unless stockholder approval of
an amendment sufficiently increasing the number of shares of Common Stock
issuable under the Plan is obtained in accordance with the provisions of the
Plan.
17. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the
event this option is designated an Incentive Option in the Grant Notice, the
following terms and conditions shall also apply to the grant:
(i) This option shall cease to qualify for
favorable tax treatment as an Incentive Option if (and to the extent)
this option is exercised for one or more Option Shares: (A) more than
three (3) months after the date
6
<PAGE>
Optionee ceases to be an Employee for any reason other than death or
Permanent Disability or (B) more than twelve (12) months after the date
Optionee ceases to be an Employee by reason of Permanent Disability.
(ii) No installment under this option shall
qualify for favorable tax treatment as an Incentive Option if (and to
the extent) the aggregate Fair Market Value (determined at the Grant
Date) of the Common Stock for which such installment first becomes
exercisable hereunder would, when added to the aggregate value
(determined as of the respective date or dates of grant) of the Common
Stock or other securities for which this option or any other Incentive
Options granted to Optionee prior to the Grant Date (whether under the
Plan or any other option plan of the Corporation or any Parent or
Subsidiary) first become exercisable during the same calendar year,
exceed One Hundred Thousand Dollars ($100,000) in the aggregate.
Should such One Hundred Thousand Dollar ($100,000) limitation be
exceeded in any calendar year, this option shall nevertheless become
exercisable for the excess shares in such calendar year as a Non-
Statutory Option.
(iii) Should the exercisability of this option be
accelerated upon a Corporate Transaction, then this option shall
qualify for favorable tax treatment as an Incentive Option only to the
extent the aggregate Fair Market Value (determined at the Grant Date)
of the Common Stock for which this option first becomes exercisable in
the calendar year in which the Corporate Transaction occurs does not,
when added to the aggregate value (determined as of the respective
date or dates of grant) of the Common Stock or other securities for
which this option or one or more other Incentive Options granted to
Optionee prior to the Grant Date (whether under the Plan or any other
option plan of the Corporation or any Parent or Subsidiary) first
become exercisable during the same calendar year, exceed One Hundred
Thousand Dollars ($100,000) in the aggregate. Should the applicable
One Hundred Thousand Dollar ($100,000) limitation be exceeded in the
calendar year of such Corporate Transaction, the option may
nevertheless be exercised for the excess shares in such calendar year
as a Non-Statutory Option.
(iv) Should Optionee hold, in addition to this
option, one or more other options to purchase Common Stock which
become exercisable for the first time in the same calendar year as
this option, then the foregoing limitations on the exercisability of
such options as Incentive Options shall be applied on the basis of the
order in which such options are granted.
18. LEAVE OF ABSENCE. The following provisions shall apply upon
the Optionee's commencement of an authorized leave of absence:
7
<PAGE>
(i) The exercise schedule in effect under the
Grant Notice shall be frozen as of the first day of the authorized
leave, and this option shall not become exercisable for any additional
installments of the Option Shares during the period Optionee remains
on such leave.
(ii) Should Optionee resume active Employee status
within sixty (60) days after the start date of the authorized leave,
Optionee shall, for purposes of the exercise schedule set forth in the
Grant Notice, receive Service credit for the entire period of such
leave. If Optionee does not resume active Employee status within such
sixty (60)-day period, then no Service credit shall be given for the
period of such leave.
(iii) If the option is designated as an Incentive
Option in the Grant Notice, then the following additional provision
shall apply:
- If the leave of absence continues for more
than ninety (90) days, then this option shall automatically
convert to a Non-Statutory Option under the Federal tax laws at
the end of the three (3)-month period measured from the ninety-
first (91st) day of such leave, unless the Optionee's
reemployment rights are guaranteed by statute or by written
agreement. Following any such conversion of the option, all
subsequent exercises of such option, whether effected before or
after Optionee's return to active Employee status, shall result
in an immediate taxable event, and the Corporation shall be
required to collect from Optionee the Federal, state and local
income and employment withholding taxes applicable to such
exercise.
(iv) In no event shall this option become
exercisable for any additional Option Shares or otherwise remain
outstanding if Optionee does not resume Employee status prior to the
Expiration Date of the option term.
8
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Spiros Development Corporation II, Inc. (the
"Corporation") that I elect to purchase____________ shares of the
Corporation's Common Stock (the "Purchased Shares") at the option exercise
price of $_____________ per share (the "Exercise Price") pursuant to that
certain option (the "Option") granted to me under the Corporation's 1997
Stock Incentive Plan on________________________, 199_.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a
condition for exercise. Alternatively, I may utilize the special
broker-dealer sale and remittance procedure specified in my agreement to
effect payment of the Exercise Price.
, 199
- -------------------- --
Date
--------------------------------------------
Optionee
Address:
------------------------------------
--------------------------------------------
Print name in exact manner
it is to appear on the
stock certificate:
--------------------------------------------
Address to which certificate
is to be sent, if different
from address above:
--------------------------------------------
--------------------------------------------
Social Security Number:
--------------------------------------------
Employee Number:
--------------------------------------------
<PAGE>
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of
the Corporation's outstanding securities are transferred to a person
or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
F. CORPORATION shall mean Spiros Development Corporation II, Inc., a
Delaware corporation.
G. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and
direction of the employer entity as to both the work to be performed and the
manner and method of performance.
H. EXERCISE DATE shall mean the date on which the option shall have
been exercised in accordance with Paragraph 9 of the Agreement.
I. EXERCISE PRICE shall mean the exercise price per share as specified
in the Grant Notice.
J. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
A-1
<PAGE>
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
the price is reported by the National Association of Securities
Dealers on the Nasdaq National Market or any successor system. If
there is no closing selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the closing selling
price on the last preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
L. GRANT DATE shall mean the date of grant of the option as specified
in the Grant Notice.
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of
the basic terms of the option evidenced hereby.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or
any Parent or Subsidiary), or any other intentional misconduct by Optionee
adversely affecting the business or affairs of the Corporation (or any Parent
or Subsidiary) in a material manner. The foregoing definition shall not be
deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or
discharge of Optionee or any other individual in the Service of the
Corporation (or any Parent or Subsidiary).
P. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
Q. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.
A-2
<PAGE>
R. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option as specified in the Grant Notice.
S. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
T. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
U. PERMANENT DISABILITY shall mean the inability of Optionee to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment which is expected to result in death or has
lasted or can be expected to last for a continuous period of twelve (12)
months or more.
V. PLAN shall mean the Corporation's 1997 Stock Incentive Plan.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee of
the Board acting in its administrative capacity under the Plan.
X. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or the New
York Stock Exchange.
Z. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain
owns, at the time of the determination, stock possessing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of
the other corporations in such chain.
A-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S BALANCE SHEET AS OF DECEMBER 31, 1997, AND THE RELATED STATEMENT OF
OPERATIONS FOR THE PERIOD FROM SEPTEMBER 23, 1997 (DATE OF INCORPORATION) TO
DECEMBER 31, 1997 AND THE NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> SEP-23-1997
<PERIOD-END> DEC-31-1997
<CASH> 139,035
<SECURITIES> 31,471
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 170,506
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 170,506
<CURRENT-LIABILITIES> 8,425
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 162,074
<TOTAL-LIABILITY-AND-EQUITY> 170,506
<SALES> 0
<TOTAL-REVENUES> 222
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,924)
<EPS-PRIMARY> (1.09)
<EPS-DILUTED> (1.09)
</TABLE>
