<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Duramed Pharmaceuticals, Inc.
________________________________________________________________________________
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
_________________________________________________________________
4) Proposed maximum aggregate value of transaction:
_________________________________________________________________
5) Total Fee Paid:
_________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_________________________________________________________________
2) Form, Schedule or Registration Statement No.:
_________________________________________________________________
3) Filing Party:
_________________________________________________________________
4) Date Filed:
_________________________________________________________________
<PAGE> 2
DURAMED PHARMACEUTICALS, INC.
5040 LESTER ROAD
CINCINNATI, OHIO 45213
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
We are pleased to invite you to attend the Annual Meeting of
Stockholders of Duramed Pharmaceuticals, Inc., to be held at the Holiday Inn,
1717 Airport Exchange Boulevard, Erlanger, Kentucky 41018 at 9:00 a.m. (EDT),
on May 19, 1995 for the purpose of considering and acting upon the following:
1. The election of five directors of the Company.
2. The amendment of the Company's Restated Certificate of Incorporation
to increase the number of authorized shares of common stock, $.0l par
value, from 20,000,000 to 50,000,000 shares.
3. The ratification of Ernst & Young as auditors of the Company for the
fiscal year ending December 31, 1995.
4. Such other matters as may properly come before the meeting.
Only stockholders of record at the close of business on March 24, 1995
are entitled to receive notice of, and to vote at, the meeting. Management, at
present, knows of no other business to be brought before the meeting.
By Order of The Board of Directors
E. THOMAS ARINGTON
President and Chief Executive Officer
Cincinnati, Ohio
April __, 1995
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE MARK, SIGN AND
DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES OR CANADA. PROXIES
MAY BE REVOKED BY WRITTEN NOTICE OF REVOCATION, THE SUBMISSION OF A LATER DATED
PROXY, OR ATTENDING THE MEETING AND VOTING IN PERSON.
<PAGE> 3
DURAMED PHARMACEUTICALS, INC.
5040 LESTER ROAD
CINCINNATI, OHIO 45213
(513) 731-9900
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors of Duramed Pharmaceuticals, Inc. (the "Company") of
proxies to be voted at the Annual Meeting of Stockholders on May 19, 1995.
This Proxy Statement and the accompanying Proxy card are first being mailed to
stockholders of the Company on or about April __, 1995.
OUTSTANDING VOTING SECURITIES
The number of voting securities of the Company outstanding on March
24, 1995, the record date for the meeting, was _________ shares of common
stock, $.01 par value, all of one class and each entitled to one vote, owned by
approximately _____ stockholders of record. A list of stockholders of the
Company may be examined at the offices of the Company at the address given
above.
PROXIES AND VOTING
The persons named as proxies were selected by the Board of Directors
of the Company and are directors or officers of the Company.
When the enclosed form of proxy is properly executed and returned, the
shares it represents will be voted as specified at the meeting. Any
stockholder giving a proxy has the power to revoke it at any time before it is
voted by giving written notice to the Company, by giving a later dated proxy
indicating a desire to vote differently or by appearing at the meeting and
casting a ballot. There are no rights of appraisal or similar rights of
dissenting stockholders with respect to any matter to be acted upon at the
meeting.
The cost of solicitation of proxies will be paid by the Company. In
addition to the solicitation of proxies by use of the mails, solicitation may
be made by officers and regular employees of the Company by personal interview,
telephone and telegraph. Banks, brokerage houses and other custodians,
nominees or fiduciaries will be reimbursed for their reasonable expenses
incurred in forwarding soliciting material to their principals and in obtaining
authorizations for the execution of the proxies.
In accordance with the General Corporation Law of the State of
Delaware, the affirmative vote of a plurality of the shares present in person
or represented by proxy at the meeting will be sufficient for the election of
directors. Generally, other matters are determined by the affirmative vote of
a majority of the shares present in person or represented by proxy, with
abstentions having the effect of negative votes and broker non-votes deemed to
be absent shares; however, adoption of the proposed amendment to the Company's
Restated Certificate of Incorporation requires the affirmative vote of the
holders of two-thirds of the Company's outstanding shares and, in this case,
abstentions and broker non-votes will have the effect of votes against the
proposal. Votes at the meeting will be tabulated by financial management
employees of the Company. The Company has not established a procedure for
confidential voting.
<PAGE> 4
THE BOARD OF DIRECTORS
Pursuant to the Delaware General Corporation Law, as implemented by
the Company's Certificate of Incorporation and By-Laws, all corporate powers
are exercised, and the Company's business, property and affairs are managed, by
or under the direction of the Board of Directors.
Directors of the Company are elected at the Annual Meeting of
Stockholders. Currently there are five directors, and the Board of Directors
recommends that the current five directors be reelected. The persons described
below have been nominated for election as directors to serve until the Annual
Meeting in 1996 or until their successors are elected and qualified. The
Company's common stock has no cumulative voting rights.
At the present time it is intended that proxies received by management
of the Company which contain no instructions to the contrary will be voted for
the nominees listed below. Management does not contemplate that any nominee
will be unable to serve but, if that contingency should occur, the persons
named as proxies reserve the right to substitute another person of their choice
as a director when voting at the Annual Meeting.
Set forth below is certain information with respect to each nominee.
E. THOMAS ARINGTON, age 58. Mr. Arington became the Company's
President and Chief Executive Officer in October 1987. He became a director of
the Company in December 1987 and its Chairman of the Board in May 1988. Prior
to joining the Company, he was President of MarketMaster, Inc., a health care
consulting firm which since September 1984 had engaged exclusively in marketing
the Company's products. MarketMaster, Inc. was acquired by the Company in
December 1987.
GEORGE W. BAUGHMAN, age 57. Mr. Baughman was elected a director of
the Company in April 1989. Mr. Baughman has been President and Chairman of
Advanced Research Associates, a consulting firm specializing in information
systems and technology and in financial analysis and planning, for more than
the past five years. He was employed by The Ohio State University for
twenty-five years, retiring as Director of Special Projects, Office of
President.
DOANE F. DARLING, age 60. Mr. Darling has been a director of the
Company since May 1988 and has been Senior Vice-President, Corporate Planning
since April 1, 1994. From 1989 through March 1994 he was Vice President,
Corporate Planning of the Company. For more than five years prior to 1989 he
was President and Chairman of Cedar Hill Associates Inc., a marketing-oriented
management consulting firm located in Worthington, Ohio.
STANLEY L. MORGAN, age 77. Mr. Morgan was elected a director of the
Company in April 1989. Mr. Morgan is the retired Executive Vice President of
Ben Venue Laboratories, Inc., a leading pharmaceutical manufacturer of sterile
dosage forms and bulk pharmaceutical products. He served Ben Venue in many
capacities including Chief Administrative Officer, Chief Engineer and Executive
Director of Research and Development. Since retirement he has been a
consultant to the pharmaceutical industry.
S. SUNDARARAMAN, age 58. Mr. Sundararaman is the Company's Secretary
and has been a director of the Company since 1982. Mr. Sundararaman is
Manager, Automation Marketing, USA for Lufthansa German Airlines and has been
with that company since 1961.
- 2 -
<PAGE> 5
MEETINGS; COMMITTEES OF THE BOARD. The Board of Directors held seven
meetings in 1994. The Board of Directors has an Audit Committee composed of
Messrs. Baughman (Chairman), Morgan and Sundararaman. The Audit Committee
deals with financial reporting and control of the Company's assets. The
Committee met one time during 1994. The Board has a Compensation Committee
consisting of Messrs. Sundararaman (Chairman), Morgan and Baughman. The
Compensation Committee has responsibility for making recommendations to the
full Board concerning all matters dealing with officers' compensation and
fringe benefits. The Committee met seven times during 1994. The Board does
not have a nominating committee. Each incumbent director attended more than
seventy five percent of the aggregate of all meetings of the Board of Directors
which he was eligible to attend and all meetings of committees upon which he
served during 1994.
COMPENSATION OF DIRECTORS. During 1994, nonemployee directors of the
Company received an annual fee of $6,000, fees of $1,200 for each Board meeting
attended, plus reimbursement of expenses, and fees of $500 for each Board
meeting held by conference telephone. Committee meeting fees are paid at the
same rates as fees for Board meetings; however, no fees are paid for committee
meetings held on the same dates as Board meetings. Effective January 1, 1995,
the annual fee was increased to $10,000. No fees are paid to directors who are
also employees of the Company. Each nonemployee director also is annually
awarded nondiscretionary options to purchase 5,000 shares of the Company's
common stock and is reimbursed by the Company for up to $7,500 per year in
legal and financial consulting expenses.
AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
The Board of Directors has unanimously declared it advisable that an
amendment to the Company's Restated Certificate of Incorporation be adopted
increasing the number of authorized shares of common stock from the current
20,000,000 shares to 50,000,000 shares. The number of authorized shares of
preferred stock will not be changed. As of _____________, 1994 there were
___________ shares of common stock outstanding; an additional __________ shares
were reserved for issuance upon the exercise of outstanding options and
warrants and in the event of the conversion of the Company's outstanding Series
B Non-Voting Convertible Preferred Stock. Therefore, at present, __________
shares are available for future issuance. If the proposed increase is
authorized, __________ shares will be available for future issuance.
The purpose of increasing the number of authorized shares of common
stock is to provide additional shares which could be issued for corporate
purposes without further stockholder approval unless required by applicable law
or regulation. Such purposes could include payment of stock dividends,
subdivision of outstanding shares through stock splits, and effecting future
acquisitions of other businesses or meeting requirements for working capital or
capital expenditures through the issuance of additional shares. At present, no
such transactions are planned by the Company.
The increase in authorized shares will allow the Board of Directors to
issue additional shares if appropriate opportunities should arise without the
time delay involved in obtaining stockholder approval. To the extent that any
additional shares (or securities convertible into common stock) may be issued
on other than a pro rata basis to current stockholders, the present ownership
position of current stockholders may be diluted.
In addition, if another party should seek to acquire or take over
control of the Company, and the Company's Board of Directors does not believe
such transaction is in the best interest of the Company and its stockholders,
some or all of the newly authorized shares could be issued to another party to
try to block such transaction. In this connection, the Company's Restated
Certificate of Incorporation contains special voting requirements for approval
of business combination transactions unless certain conditions are met;
- 3 -
<PAGE> 6
these provisions are designed to encourage parties seeking to acquire, merge
with or take over control of the Company to negotiate the proposed transaction
with the Board of Directors.
The Company also has issued and outstanding Rights to purchase
Preferred Stock of the Company that contain provisions that could have
anti-takeover effects. Each Right entitles stockholders to buy one
one-hundredth newly issued share of the Company's Series A Preferred Stock at
an exercise price of $80.00 (which price is subject to adjustment in the event
of changes in the Company's capitalization). The Rights will be exercisable
only if a person or group acquires 20% or more of the Company's common stock,
announces a tender offer or exchange offer for 30% or more of the common stock
or is declared an "Adverse Person" (based on factors described in the Rights
Agreement) by the Company's Board of Directors with the concurrence of a
majority of the Company's outside directors. The Rights also provide holders
(other than an Acquiring Person or Adverse Person as defined in the Rights
Agreement) with the right to purchase, in lieu of the Series A Preferred Stock,
common shares of the Company (or, in certain circumstances, to receive cash,
property or other securities of the Company) having a market value at that time
of twice each Right's exercise price under certain circumstances where a person
or group has acquired a 30% block of the Company's common stock or been
declared an "Adverse Person." Depending upon circumstances, some or all of the
shares authorized by the proposed increase could be issued pursuant to the
Rights. Additionally, if the Company is acquired in a merger or other business
combination, each Right will entitle its holder to purchase, in lieu of the
Series A Preferred Stock, at the Right's exercise price, a number of the
acquiring company's common shares having a market value at that time of twice
the Right's exercise price.
Holders of shares of common stock have no preemptive rights and there
are no rights of appraisal or similar rights of dissenting stockholders with
respect to the proposed increase in the number of authorized shares of common
stock.
The Company's Board of Directors submits the following resolution
containing the amendment for consideration by the Company's stockholders. The
Board deems approval of the amendment to be advisable and recommends that
stockholders vote in favor of its adoption. The affirmative vote of the
holders of two-thirds of the Company's shares of common stock outstanding on
the record date will be required for adoption. Abstentions and broker
non-votes will have the effect of votes against the resolution.
RESOLVED, that the Restated Certificate of Incorporation of
the Corporation be amended by revising the first paragraph of the
Article IV thereof, with no changes being made to the second and third
paragraphs of said Article, so that as amended the first paragraph of
said Article shall be and read as follows:
ARTICLE IV. CAPITAL STOCK
The number of shares which the Corporation is
authorized to have is:
A. 50,000,000 shares of Common Stock, with a
par value of $.01 per share and
B. 500,000 shares of Preferred Stock, with a par
value of $.001 per share.
- 4 -
<PAGE> 7
<TABLE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS. The current executive officers of the Company are as follows:
<CAPTION>
Name Age Title
- - ---- --- -----
<S> <C> <C>
E. Thomas Arington 58 Chairman of the Board, President and Chief Executive Officer
Doane F. Darling 60 Senior Vice President, Corporate Planning and Director
S. Sundararaman 58 Secretary and Director
Jeffrey T. Arington 34 Senior Vice President, Marketing, Science and Operations
Timothy J. Holt 42 Senior Vice President, Finance and Administration, Treasurer and
Chief Financial Officer
Ivan E. Pusecker 52 Vice President, Corporate Projects Administration
</TABLE>
Information about Messrs. E. Thomas Arington, Darling and Sundararaman
is given above under "The Board of Directors." Information about the Company's
other executive officers is given below:
JEFFREY T. ARINGTON. Mr. Arington has been Senior Vice President,
Marketing, Science and Operations since April 1, 1994. He served as Vice
President, Sales and Marketing of the Company from 1989 through March 1994 and
as Executive Director of Sales and Marketing from 1987 until 1989. From 1984
until 1987, he was employed by MarketMaster in a variety of executive
positions. Jeffrey T. Arington is E. Thomas Arington's son.
TIMOTHY J. HOLT. Mr. Holt has been Senior Vice President, Finance and
Administration since April 1, 1994. He served as Vice President, Finance of
the Company from 1985 through March 1994. Prior to joining the Company in 1985,
Mr. Holt was Vice President-Finance and Chief Financial Officer of Vortec
Corporation, a then publicly held company operating in the fields of specialty
manufacturing and home health care equipment, and also held financial management
positions with privately held companies including Eagle Software Publishing.
IVAN E. PUSECKER. Mr. Pusecker has been Vice President, Corporate
Projects Administration since April 1, 1994. He served as Vice President,
Operations of the Company from 1989 through March 1994 and as Executive
Director of Operations from 1987 until 1989. He was Vice President of
Corporate Development of MarketMaster from 1986 to 1987 and served as President
and Chief Executive Officer of McNivan Foods, Inc., a marketer of specialized
nutritional supplements, from 1984 to 1986.
Officers of the Company are elected by, and serve at the discretion
of, the Board of Directors.
- 5 -
<PAGE> 8
SUMMARY INFORMATION. The following table sets forth, for the fiscal
years indicated, amounts of cash and certain other compensation paid by the
Company to (i) Mr. E. Thomas Arington and (ii) each of the Company's four most
highly compensated executive officers other than Mr. Arington who were serving
as executive officers at the end of 1994 and whose salary and bonus exceeded
$100,000. Mr. Arington and these other executive officers are sometimes
referred to hereafter as the "named executive officers."
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Compensation
Annual Compensation Awards
--------------------------------------------------------------
Other Securities
Annual Underlying
Compen- Stock Option All Other
Name and Bonus sation Grants Compensation
Principal Position Year Salary ($) ($) ($)(1) (#) ($)(2)
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Arington 1994 $400,000 $461,000 --- 95,158 $27,699
Chief Executive Officer 1993 360,000 360,000 --- --- 29,095
1992 360,000 125,000 --- 1,000,000 25,863
Jeffrey T. Arington 1994 $137,885 $ 50,000 --- --- $ 3,883
Senior Vice President 1993 118,896 25,000 --- --- 1,231
1992 88,808 20,000 --- 60,000 ---
Doane F. Darling 1994 $107,846 $ 30,000 --- --- $ 2,769
Senior Vice President 1993 92,631 12,000 --- --- 739
1992 80,677 10,000 --- 40,000 ---
Timothy J. Holt 1994 $137,885 $ 50,000 --- --- $ 4,115
Senior Vice President 1993 116,350 25,000 --- --- 1,463
and Treasurer 1992 102,423 20,000 --- 60,000 648
Ivan E. Pusecker 1994 $124,292 $ 40,000 --- --- $ 4,030
Vice President 1993 116,350 12,000 --- --- 1,753
1992 102,423 15,000 --- 60,000 698
- - ----------------------------
<FN>
(1) None, other than perquisites which did not exceed the lesser of $50,000 or 10% of salary and bonus for any named
executive officer.
(2) Amounts disclosed for 1994 are comprised of the following: (i) term life insurance premium payments for the benefit of
Mr. E. Thomas Arington ($20,304), Mr. Jeffrey T. Arington ($308), Mr. Holt ($540) and Mr. Pusecker ($830); (ii) disability
insurance premium payments for Mr. E. Thomas Arington ($5,544); and (iii) matching contributions to the Company's 401(k)
Plan on behalf of Mr. E. Thomas Arington ($1,851), Mr. Jeffrey T. Arington ($3,575), Mr. Darling ($2,769), Mr. Holt
($3,575) and Mr. Pusecker ($3,200) in respect of their contributions to the Plan.
</TABLE>
- 6 -
<PAGE> 9
STOCK OPTIONS. The Company has two existing plans pursuant to which
options for shares of common stock may be granted to employees: the 1986 Stock
Option Plan and the 1988 Stock Option Plan. Neither of the Plans provides for
the grant of stock appreciation rights ("SARs").
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants(1)
-------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
% of Total Annual Rates of Stock
Options Exercise Price Appreciation
Options Granted to or Base for Option Term
Granted Employees in Price Expiration -------------------
Name (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Arington 95,158 100% $5.875 3/4/02 $273,579 $658,969
Jeffrey T. Arington --- --- --- --- --- ---
Doane F. Darling --- --- --- --- --- ---
Timothy J. Holt --- --- --- --- --- ---
Ivan E. Pusecker --- --- --- --- --- ---
<FN>
(1) Mr. Arington's option was granted on January 3, 1994 as a "reload" option, with the number of shares covered by the option
being equal to the number of previously-owned shares surrendered by him in payment of the exercise price for an option (the
"Original Option") simultaneously being exercised by him. The "reload" option has an exercise price equal to the fair
market value of the Company's common stock on the date of exercise of the Original Option and expires on the expiration
date of the Original Option. The "reload" option vested on June 3, 1994. Under the Company's plans, the exercise price of
options may be paid in cash or, if permitted by the Compensation Committee, by the transfer of shares of the Company's
common stock valued at their fair market value on the date of exercise. Each option becomes exercisable in full (i) if any
person becomes, or commences a tender offer which could result in the person becoming, the beneficial owner of more than
50% of the outstanding shares of the Company's common stock or (ii) in the event of the execution of an agreement of
merger, consolidation or reorganization pursuant to which the Company is not to be the surviving corporation or the
execution of an agreement of sale or transfer of all or substantially all of the assets of the Company. Under certain
change-of-control circumstances, an optionee will be entitled to receive a cash payment equal to the difference between the
"fair value" of all unexercised option shares and the aggregate option price of those shares.
</TABLE>
With respect to each named executive officer, the following table sets
forth information concerning option exercises during 1994 and unexercised
options held at December 31, 1994.
- 7 -
<PAGE> 10
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<CAPTION>
Number of
Securities
Value Realized ($) Underlying Value of Unexercised In-
Unexercised Options the-Money Options at FY-
at FY-End (#) End ($)
(Market Price on
Shares Acquired Exercise Less Exercisable/ Exercisable/
Name on Exercise (#) Exercise Price) Unexercisable Unexercisable
- - ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E. Thomas Arington 500,000 $2,372,500 849,843/0 $ 11,013,186/$0
Jeffrey T. Arington --- --- 99,001/4,000 $ 1,336,963/$57,000
Doane F. Darling 7,833 $ 51,365 57,834/0 $ 767,117/$0
Timothy J. Holt 25,000 $ 118,625 77,134/1,200 $ 1,033,317/$17,100
Ivan E. Pusecker --- --- 102,800/1,200 $ 1,290,225/$17,100
</TABLE>
EMPLOYMENT AGREEMENT. On March 30, 1994, the Company entered into an
Amended and Restated Employment Agreement (the "Agreement") with Mr. E. Thomas
Arington, which restated and amended Mr. Arington's prior agreement with the
Company. The initial term of the Agreement continues until December 31, 1998,
subject to automatic annual extensions if notice of termination is not given by
either party prior to specified dates. The effect of the Agreement is to
provide for an initial five year employment term, with subsequent "rolling
three year" minimum terms. The Agreement may be amended by agreement between
the Compensation Committee of the Board of Directors and Mr. Arington.
Under the Agreement, Mr. Arington is to receive a salary in an amount
to be set by the Compensation Committee, but not less than $33,333.00 per
month. For 1994, the salary was set at that amount; for 1995, the salary has
been set at $36,000.00 per month. In addition, the Agreement entitles Mr.
Arington to receive for each of the years 1994 through 1998 a separate annual
bonus equal to the following percentages of the Company's income before taxes:
8% for 1994; 7% for 1995; 6% for 1996; and 5% for each of 1997 and 1998. After
1998, a bonus will be paid in such a manner and amount as the Compensation
Committee might at that time determine. This incentive compensation
arrangement was approved by the Company's stockholders at the 1994 Annual
Meeting of Stockholders.
The Agreement also provides for life and disability insurance and for
certain other customary benefits. Options to purchase 254,685 shares of common
stock of the Company granted to Mr. Arington under his prior Agreement are
continued by the new Agreement. If Mr. Arington's employment is voluntarily
terminated by him, or if he is terminated by the Company with cause, the
Agreement provides that he will not compete with the Company for a period of
one year after termination.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION.
Executive Compensation Policies. The Company's executive compensation
consists of three components: annual salaries, annual bonuses and stock option
grants.
As described in more detail in the Company's Annual Report to
Stockholders for 1994, in a proactive response to various regulatory,
industry-wide and Company-specific issues, the Company in late 1990 voluntarily
suspended shipments of all its products and subsequently voluntarily
surrendered all but two of its drug approvals. Thereafter, the Company's
efforts were focused necessarily on a survival and recovery plan. Through
execution of this plan, the Company returned to profitable operations in 1993
and enjoyed increased profitability in 1994.
- 8 -
<PAGE> 11
The Company's policies on executive compensation have reflected the
Company's history since 1990. These policies have been designed to retain the
services of competent and talented managers, and to obtain the services of
additional individuals of similar calibre, during a very difficult period. To
that end, a significant component of executive compensation has been stock
option grants, which serve to align closely the interests of management with
those of stockholders. Salary and bonus levels were affected by the cash flow
difficulties faced by the Company during the period 1990 to 1993 and, in the
case of the Company's Chief Executive Officer, payment of portions of salary
and bonus has been deferred from time to time until the Company's cash flow
situation improved.
During late 1993, the Compensation Committee established target ranges
of total cash compensation for 1994 for different levels of management of the
Company. The ranges of target total cash compensation were based upon the
Compensation Committee's subjective judgment as appropriate to meet the
policies on executive compensation described in the preceding paragraph. For
the Company's named executive officers, other than its Chief Executive Officer,
the target range included base salary and a performance bonus of up to 50% of
base salary. Salary and bonus actually paid to the named executive officers,
other than the Chief Executive Officer, for 1994 was somewhat below the target
range.
Annual Salaries. The annual salary of the Company's Chief Executive
Officer is established pursuant to the terms of an Employment Agreement with
the Company which was initially entered into in 1987 and amended as of March
30, 1994. Prior to its amendment during 1994, the Employment Agreement had
provided for a minimum salary of $20,000 per month and the salary had been set
by the Compensation Committee at $30,000 per month for each of 1992 and 1993.
Under the Amended Employment Agreement, the Chief Executive Officer is to
receive a salary in an amount to be set by the Compensation Committee, but not
less than $33,333.00 per month. For 1994, the salary was set at that amount.
The base salary provisions of the Amended Employment Agreement were approved by
the Compensation Committee after consideration of a number of factors described
in the Proxy Statement for the 1994 Annual Meeting of Stockholders. These
factors, which were applied in a subjective manner, included the substantially
improved operating results of the Company during 1993, the view of the
Compensation Committee that the improvements in such results, as well as the
Company's very survival over the preceding few years and its improved prospects
for the future, were due in large part to the efforts of the Company's Chief
Executive Officer, and the Compensation Committee's desire to ensure the
continued services of the Company's Chief Executive Officer.
Annual salaries for 1994 for executive officers other than the Chief
Executive Officer were established by the Company's Chief Executive Officer,
taking into consideration the target levels for total cash compensation
established by the Compensation Committee, and were based upon factors which
are typically subjective, such as his perception of the individual officer's
performance, value to the Company, responsibility assumed, potential for
assumption of increased responsibility, and salary level needed to retain the
services of the individual. The Company's profitability and the market value
of its stock were considered in a subjective manner in establishing executive
officers' base salaries for 1994, but were not a substantial factor in such
determination.
Annual Bonuses. The Company pays annual bonuses to its executive
officers. The bonus paid to the Company's Chief Executive Officer is
established by his Employment Agreement at an amount equal to the following
percentages of the Company's income before taxes: For 1994, 8%; for 1995, 7%;
for 1996, 6%; and for each of 1997 and 1998, 5%. This incentive bonus
arrangement was approved by the Company's stockholders at the 1994 Annual
Meeting. Bonuses paid to other executive officers for 1994 were determined by
the Company's Chief Executive Officer in consideration of the target levels for
total cash compensation established by the Compensation Committee. The Chief
Executive Officer's recommendation was subjective in nature and was based upon
the factors outlined above under "Annual Salaries." The determination of
bonuses for 1994 for the Company's executive officers other than the Chief
Executive Officer did involve a subjective consideration of the Company's level
of profitability during 1994 and the increase in the market value of the
Company's common stock during 1994.
- 9 -
<PAGE> 12
Stock Option Grants. Since the end of 1990, the Company has relied
heavily upon significant grants of stock options for the purpose of providing
incentives to management. These stock option grants have, in the view of the
Compensation Committee, been the principal factor in enabling the Company to
retain and build a competent management team in the face of the Company's past
financial difficulties. The option grants not only provide incentives to the
Company's executive officers, but also, in the Compensation Committee's view,
serve to align directly the interests of such individuals with the interests of
the Company's stockholders. In all, options to purchase _____ shares of common
stock have been granted under the Company's stock option plans. The majority
of these stock option grants were made during the period from 1991 through
1993. Each of these plans has been approved by the Company's stockholders.
The Company's stock option plans are administered by the Compensation
Committee, which, among other things, determines the size of grants to be made
to individual employees of the Company. This determination has been made on a
subjective basis, taking into account such factors as the employee's level of
performance and responsibility and the loss which would be suffered by the
Company if the employee were to leave the Company's employ. With respect to
individuals other than the Company's Chief Executive Officer, the Compensation
Committee also considers the recommendations of the Chief Executive Officer
which are based on the same subjective factors described above. In making
these determinations, the Compensation Committee did consider the cash
compensation received by recipients and the amount and terms of options already
held by the recipients. Although stock option grants are not based upon
objective performance criteria, the practical value of the option grants
depends upon the performance of the Company's common stock after the date of
grant.
During 1994, only one option grant was made to any of the named
executive officers. This was the grant of a "reload" option to purchase 95,158
shares to the Company's Chief Executive Officer in connection with his exercise
during 1994 of options to purchase 500,000 shares of common stock of the
Company. The "reload" option gives the Chief Executive Officer an opportunity
to replace shares of common stock surrendered by him in payment of the purchase
price of his exercised options. The option was granted by the Compensation
Committee based upon its continuing desire to increase the Chief Executive
Officer's equity ownership in the Company, as described in the proxy statements
for the 1993 and 1994 Annual Meetings of the Company's stockholders.
Compensation Committee: E. Thomas Arington
S. Sundararaman, Chairman Chief Executive Officer
George W. Baughman
Stanley L. Morgan
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. As
discussed above under "Report of the Compensation Committee on Executive
Compensation," Mr. E. Thomas Arington, the Company's Chief Executive Officer,
determined the 1994 salaries and bonuses of the Company's other named executive
officers, taking into consideration the target range for total cash
compensation established by the Compensation Committee.
Certain indebtedness of the Company is guaranteed by Mr. Sundararaman,
the Company's Secretary and the Chairman of the Compensation Committee, as well
as by a former director and officer of the Company. As of December 31, 1994,
the amount of outstanding indebtedness subject to these guarantees was
approximately $1,230,985.
PERFORMANCE GRAPH. The following graph and table compare, over the
period shown, the cumulative total stockholder return of the Company's common
stock to the cumulative total return of companies included in the Center for
Research in Security Prices' Index for the Nasdaq Stock Market (U.S. Companies)
and in a peer group index comprised of Nasdaq Pharmaceuticals Stocks (SIC
2830-2839 U.S.
- 10 -
<PAGE> 13
& Foreign). In each case it is assumed that $100 was invested on December 31,
1989 and that all dividends were reinvested.
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Duramed Pharmaceuticals (1) $100.00 $ 10.16 $ 9.37 $ 82.81 $131.25 $368.75
- - --------------------------------------------------------------------------------------------------------------
Nasdaq Index $100.00 $ 84.92 $136.28 $158.58 $180.93 $176.91
- - --------------------------------------------------------------------------------------------------------------
Nasdaq Pharmaceuticals, Inc. $100.00 $119.95 $318.78 $265.53 $236.63 $178.40
<FN>
(1) The Company's common stock was delisted from the Nasdaq Stock Market in September 1991 and was relisted on September 19,
1994. Prices during the period from September 1991 to September 1994 are based on the averages of the bid and ask prices
quoted on the OTC Bulletin Board; prices for other periods are based on the closing prices reported on the Nasdaq Stock
Market.
</TABLE>
RATIFICATION OF APPOINTMENT
OF INDEPENDENT AUDITORS
The Board of Directors desires to obtain from the stockholders an
indication of their approval or disapproval of the Board's action in appointing
Ernst & Young, Certified Public Accountants, as independent auditors of the
Company for the year 1995.
Ernst & Young has served the Company since 1984. The Company has been
informed that neither Ernst & Young nor any of its partners has any direct
financial interest or any material indirect financial interest in the Company
and during the past three years has had no connection therewith in the capacity
of promoter, underwriter, voting trustee, director, officer, or employee.
The Board of Directors recommends a vote "FOR" approval of Ernst &
Young.
In the event the resolution is defeated, the adverse vote will be
considered a direction to the Board of Directors to select other auditors for
the following year. However, because of the difficulty and expense of making
any substitution of auditors so long after the beginning of the current year,
it is contemplated that the appointment for the year 1995 will be permitted to
stand unless the Board finds other good reasons for making a change.
Representatives of Ernst & Young will be in attendance at the meeting, with the
opportunity to make a statement if they desire, and will be available to
respond to appropriate questions.
CERTAIN TRANSACTIONS
Since 1988 the Company has marketed, and distributed under the Duramed
label, substantially all prescription products for Invamed, Inc. ("Invamed"),
a New Jersey-based generic drug manufacturer. The Company's market
representation and distribution agreement with Invamed expired on December 31,
1994, and the arrangement is continuing subject to termination on 30-days'
notice by either party. The Company has a separate agreement with Invamed
pursuant to which it distributes the Invamed product, Cyclobenzaprine, and has
other agreements with Invamed covering the development and, if Food and Drug
Administration approval is received, manufacture by Invamed of Verapamil S.R.,
which will be marketed by the Company on a variable profit basis with Invamed.
In connection with these arrangements, the
- 11 -
<PAGE> 14
Company has granted Invamed options covering an aggregate of 435,000 shares of
the Company's common stock and has agreed to grant Invamed options covering an
additional 200,000 shares of common stock if specified conditions relating to
the development and approval of Verapamil S.R. are met.
PRINCIPAL STOCKHOLDERS AND
HOLDINGS OF MANAGEMENT
The following table sets forth, as of March 1, 1995, certain
information with regard to the beneficial ownership of the Company's common
stock by (i) each of the Company's present stockholders known to hold more than
5% of the outstanding shares of common stock, (ii) each director and each
executive officer named on the Summary Compensation Table, individually, and
(iii) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Name Beneficial Ownership
---- ------------------------------
Number Of Shares (1) Percent
-------------------- -------
<S> <C> <C>
E. Thomas Arington 1,671,123 18.9%
5040 Lester Road
Cincinnati, OH 45213
George W. Baughman 68,500 *
Doane F. Darling 66,121 *
Stanley L. Morgan 67,000 *
S. Sundararaman %
Jeffrey T. Arington 125,531 1.6%
Timothy J. Holt 105,315 1.3%
Ivan E. Pusecker 103,334 1.3%
All directors and %
executive officers
as a group (8 persons)
Invamed, Inc. 435,000 5.2%
20 Dwight Place
Fairfield, New Jersey 07006
*Less than one percent.
- - ---------------
<FN>
(1) Excludes shares of common stock subject to options or warrants which cannot be exercised within 60 days after March 1, 1995.
Includes options, warrants or arrangements to purchase the following numbers of shares: Mr. E. Thomas Arington, 849,843
shares; Mr. Baughman, 32,000 shares; Mr. Darling, 57,834 shares; Mr. Morgan, 17,000 shares; Mr. Sundararaman, 23,000 shares;
- 12 -
<PAGE> 15
Mr. Jeffrey T. Arington, 99,001 shares; Mr. Holt, 77,134 shares; Mr. Pusecker, 102,800 shares; all directors and
executive officers as a group, 1,258,612 shares; and Invamed, Inc., 435,000 shares.
</TABLE>
In addition to the shares listed above, The Provident Bank, One East
Fourth Street, Cincinnati, Ohio (the "Bank"), owns 346,718 shares (4.3%) of the
Company's common stock and 74,659 shares of the Company's Series B Non-Voting
Convertible Preferred Stock (the "Series B Preferred Stock") which is
convertible into 746,590 shares of common stock. Because of regulatory
requirements, the Series B Preferred Stock may not be converted if, as a
result, the Bank and certain of its affiliates would then own in excess of 5.0%
of any class of the Company's voting capital stock, except that conversion is
permitted immediately prior to and in conjunction with certain transactions
involving the sale of the underlying common stock.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who beneficially own
more than ten percent of the Company's equity securities, to file reports of
security ownership and changes in such ownership with the Securities and
Exchange Commission (the "SEC"). Officers, directors and greater than
ten-percent beneficial owners also are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.
Based upon a review of copies of such forms and written
representations from its executive officers and directors, the Company believes
that all Section 16(a) filing requirements were complied with on a timely basis
during and for 1994.
PROXY STATEMENT PROPOSALS
Stockholder proposals will be considered for inclusion in the Proxy
Statement for the 1996 Annual Meeting if they are received by the Company
before the close of business on December __, 1995.
OTHER BUSINESS
The Company is not aware of any business or matter which may properly
be presented at the meeting other than as discussed herein. However, if any
other matters do come before the meeting, or an adjournment thereof, it is
intended that the proxies will vote thereon in accordance with the
recommendation of the Board of Directors.
STOCKHOLDERS MAY OBTAIN WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K BY WRITING TO THE SENIOR VICE PRESIDENT, FINANCE AND ADMINISTRATION
OF THE COMPANY AT THE COMPANY'S ADDRESS SHOWN ABOVE.
- 13 -
<PAGE> 16
DURAMED PHARMACEUTICALS, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR ANNUAL MEETING
The undersigned hereby appoints E. Thomas Arington, and Doane F.
Darling, and each of them, attorneys with the powers which the undersigned
would possess if personally present, including the power of substitution, to
vote all shares of the undersigned at the Annual Meeting of Stockholders of
Duramed Pharmaceuticals, Inc. to be held at the Holiday Inn, 1717 Airport
Exchange Boulevard, Erlanger, Kentucky 41018 on May 19, 1995, at 9:00 a.m.
(EDT), and at any adjournments thereof:
1. Election of E. Thomas Arington, George W. Baughman, Doane F. Darling,
Stanley L. Morgan, and S. Sundararaman as directors.
/ / FOR all nominees; / / WITHHELD from all nominees; / / *EXCEPTIONS
(as marked
below).
For all nominees except as noted on line below:
*EXCEPTIONS___________________________________________________________________
2. / / FOR / / AGAINST / / ABSTAIN on the proposal to amend the
Company's Restated Certificate
of Incorporation to increase
the number of authorized
shares of common stock from
20,000,000 to 50,000,000 shares.
3. / / FOR / / AGAINST / / ABSTAIN on the proposal to ratify the
appointment of Ernst & Young
as independent auditors.
4. Upon such other business as may properly come before the meeting.
The proxy will be voted on the above as specified. IF NO SPECIFICATION IS
MADE, THE PROXY SHALL BE VOTED "FOR" EACH OF THE PROPOSALS AND IN FAVOR OF THE
NOMINEES LISTED ABOVE.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
As to any other matter or if any of said nominees are not available for
election, said attorneys shall vote in accordance with their best judgment.
Please mark: I do / / do not / / plan to attend the meeting.
Dated___________________________, 1995
________________________________________
________________________________________
(Signature of Stockholder)
IMPORTANT: Please date and sign exactly
as name appears hereon. If shares are
held jointly, each stockholder named
should sign. Executors, administrators,
trustees, etc. should so indicate when
signing. If the signer is a corporation,
please sign full corporate name by duly
authorized officer.
