<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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
<TABLE>
<S> <C>
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total Fee Paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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</TABLE>
<PAGE> 2
DURAMED PHARMACEUTICALS, INC.
7155 EAST KEMPER ROAD
CINCINNATI, OHIO 45249
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 5040 Duramed Drive,
Cincinnati, Ohio 45213 on September 30, 1997 at 9:00 a.m. (EDT), for the purpose
of considering and acting upon the following:
1. The election of five directors of the Company.
2. The approval of the Company's 1997 Stock Option Plan to replace the
1988 Stock Option Plan.
3. The ratification of Ernst & Young LLP as auditors of the Company for
the fiscal year ending December 31, 1997.
4. Such other matters as may properly come before the meeting.
Only stockholders of record at the close of business on August 4, 1997
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
August 25, 1997
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.
7155 EAST KEMPER ROAD
CINCINNATI, OHIO 45249
(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 September 30, 1997.
This Proxy Statement and the accompanying proxy card are first being mailed to
stockholders of the Company on or about August 25, 1997.
OUTSTANDING VOTING SECURITIES
The number of voting securities of the Company outstanding on August 4,
1997, the record date for the meeting, was 14,844,666 shares of Common Stock,
$.01 par value, each entitled to one vote, owned by approximately 1,500
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
When the enclosed proxy card is properly executed and returned, the
shares it represents will be voted as specified; if no instructions are given,
proxies will be voted in accordance with the recommendations of the Board of
Directors. 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 facsimile. Banks, brokerage houses and other record owners will be
reimbursed for their reasonable expenses incurred in forwarding soliciting
material to beneficial owners and in obtaining voting instructions from those
owners.
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. The Company's Common Stock has no cumulative voting rights. Other
matters will be 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. The Company has
not established a procedure for confidential voting.
THE BOARD OF DIRECTORS
The Company's corporate powers are exercised, and its business,
property and affairs are managed, by or under the direction of the Board of
Directors. Currently there are five directors, including Dr. Derek G. Layton who
was appointed in November 1996 to fill the vacancy created by the unexpected
death in September 1996 of Mr. Doane Darling. The Board of Directors recommends
that the current five directors,
<PAGE> 4
described below, be elected to serve until the Annual Meeting in 1998 or until
their successors are elected and qualified.
E. THOMAS ARINGTON, age 60. Mr. Arington has been the Company's
President and Chief Executive Officer since 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 had the exclusive rights to market the Company's products.
MarketMaster, Inc. was acquired by the Company in December 1987. Mr. Arington's
career has also included 17 years with Lederle Laboratories, a division of
American Cyanamid, where he held a variety of executive management positions.
GEORGE W. BAUGHMAN, age 60. 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.
DEREK G. LAYTON, PH.D., age 56. Dr. Layton has been a director of the
Company since November 1996 and President of Duramed Europe, Ltd., a wholly
owned subsidiary of the Company, since its formation in May 1994. Prior to
joining the Company, he was a partner with the executive search company Ward
Howell, Inc. In 1983 Dr. Layton co-founded Porton International plc, an
Anglo-American conglomerate of companies focused on healthcare and
biotechnology. He served as Group Managing Director from 1983 to 1985 and as
Chief Executive Officer from 1985 to 1989. Dr. Layton has held a number of
senior academic positions in Europe and the U.S. and acted as an advisor to
several governments on the impact of biotechnology on existing industries.
STANLEY L. MORGAN, age 79. 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 61. Mr. Sundararaman is the Company's Secretary
and has been a director of the Company since 1982. Mr. Sundararaman is Manager,
Sales Automation and Distribution, USA for Lufthansa German Airlines and has
been with that company since 1961.
MEETINGS; COMMITTEES OF THE BOARD. The Company's Board of Directors
(the "Board") held eighteen meetings in 1996, of which fourteen were by
conference telephone. 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 held
one meeting, which was by conference telephone, during 1996. The Board also 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 1996,
including three meetings by conference telephone. The Board does not have a
nominating committee. Each incumbent director except Dr. Layton 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 1996.
COMPENSATION OF DIRECTORS. During 1996, nonemployee directors of the
Company received an annual fee of $10,000, 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. No fees are paid to directors
who are also employees of the Company.
- 2 -
<PAGE> 5
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.
The Company has an unfunded pension plan covering nonemployee directors
who have served on the Board for at least five years. No director who is, or at
any time during the five years prior to the end of service as a director was, an
employee of the Company may participate in the plan. The plan provides an annual
benefit, payable monthly from the time a participating director ceases to be a
member of the Board until death, equal to the director's most recent annual
Board fee, as adjusted annually to reflect changes in the Consumer Price Index.
The right of a director to receive benefits under the plan is forfeited if the
director engages in any activity determined by the Board to be contrary to the
best interests of the Company.
APPROVAL OF 1997 STOCK OPTION PLAN
GENERAL. The Company's 1997 Stock Option Plan (the "1997 Plan" or the
"Plan") was adopted by the Board of Directors, subject to stockholder approval,
on February 11, 1997. The Plan is intended to replace, and is substantially
identical to, the Company's 1988 Stock Option Plan, as amended and restated and
approved by the Company's stockholders at the Annual Meeting in July 1996 (the
"1988 Plan"). Although the 1988 Plan was reapproved by stockholders at the
Annual Meeting in July 1996 and authorized sufficient shares for
then-foreseeable option grants, only nonqualified option grants -- but not
incentive stock options -- can be granted under the 1988 Plan after January
1998. Therefore, the Board decided to adopt a new plan, the 1997 Plan, which
would permit the grant of both incentive and nonqualified option until 2007 (the
tenth anniversary of the Plan, in accordance with Internal Revenue Code
requirements for incentive stock options).
Currently, there are 4,360,000 shares of Common Stock authorized for
issuance under the 1988 Plan. Options for 2,794,751 shares are outstanding and
options for 859,928 shares have been exercised, leaving 705,321 shares available
for option grant. The Company's intent is to grant no additional options under
the 1988 Plan, assuming approval of the 1997 Plan. Therefore, the 705,321 shares
of Common Stock remaining available for grant under the 1988 Plan essentially
are proposed to be transferred to the 1997 Plan. An additional 794,679 shares
are provided for in the 1997 Plan. If the 1997 Plan is not approved, the Company
will continue to grant options under the 1988 Plan.
A summary of the 1997 Plan follows. The text of the Plan is set forth
as Exhibit A to this Proxy Statement and should be reviewed for full
information.
THE PLAN. Any employee on the regular payroll of the Company may be
selected to participate in the Plan. Additionally, options may be granted under
the Plan to advisors to the Company. Nonemployee directors of the Company are
not eligible to participate in the Plan. Up to 1,500,000 shares of Common Stock
may be issued pursuant to the Plan; however, options for no more than 200,000
shares may be granted to any eligible employee during any period of twelve
consecutive months. Appropriate adjustments in the number of shares issuable and
in the number and prices of shares covered by outstanding options will be made
to give effect to any changes in the Company's capitalization (stock splits,
stock dividends, etc.).
The Plan is administered by a committee (the "Committee") of at least
two members of the Company's Board of Directors. In addition to administering
and interpreting the Plan, the Committee has authority to select optionees,
determine the number of shares for which an option is granted, set the option's
price and term, select the type of option and establish all other terms and
conditions of the option. The Committee may waive or amend the terms and
conditions of, or accelerate the vesting of, an option. For the purpose of
option grants to and approval of other transactions with persons who are subject
to
- 3 -
<PAGE> 6
Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act") with
respect to the Company, each Committee member must be a "Non-Employee Director"
as defined in Rule 16b-3 under the Exchange Act. The Board may perform any of
the functions of the Committee and, for the foreseeable future, it is expected
that all option grants will be made by the Board. Only the Board may amend or
terminate the Plan.
Both incentive stock options and nonqualified options may be granted to
employee-participants in the Plan. Advisors may only receive nonqualified
options. The per share exercise price of a nonqualified option must be at least
50% of the fair market value of a share of the Common Stock on the date the
option is granted. The per share exercise price of an incentive stock option may
not be less than 100% of the Common Stock's fair market value on the date of
grant, and no incentive stock option may be exercised after ten years from the
date of grant. Incentive stock options granted to an optionee holding more than
10% of the Company's outstanding Common Stock must have a price of at least 110%
of fair market value on the date of grant and may be for a term no longer than
five years.
An option's exercise price may be paid in cash, or, with the approval
of the Committee, by the tender of shares of the Company's Common Stock or by
directing that shares otherwise issuable upon the option's exercise be withheld
as payment. Shares which are tendered or withheld are valued at their fair
market value on the date of tender or withholding and may be counted as
available for issuance under the Plan. For purposes of the Plan, fair market
value means the last sale price for the Common Stock reported on the Nasdaq
National Market on a given date. On August 15, 1997, the fair market value of
the Company's Common Stock was $4.69 per share.
Generally, an unexercisable option granted to an employee of the
Company terminates when the optionee terminates employment with the Company. An
exercisable option granted to an employee terminates on the earlier of (i) its
full exercise, (ii) its expiration date or (iii) the end of the three-month
period following the date of termination of employment. If, however, an optionee
becomes disabled or dies while employed by the Company or within three months
thereafter, a then-exercisable option may be exercised for one year after the
date of death or commencement of disability. An option granted to an advisor
terminates upon the earlier of its full exercise or its expiration date. The
Plan allows the Committee to extend these option exercise periods.
A nonqualified option may be transferred pursuant to a domestic
relations order, to the spouse or child of the optionee or under other
circumstances, terms and conditions established by the Committee. Otherwise, an
option is not transferrable except by the optionee's will or the laws of descent
and distribution and, during an optionee's lifetime, may only be exercised by
the optionee or the optionee's legal representative or guardian.
The Board may amend or terminate the Plan at any time; however, no Plan
amendment may alter or impair an outstanding option without the optionee's
consent. No option may be granted under the Plan subsequent to February 10,
2007.
In the event any person becomes the beneficial owner of more than 50%
of the Company's Common Stock, or commences a tender offer which, if successful,
would have that result, all outstanding options will become immediately
exercisable. Similarly, if the Company enters into an agreement of
reorganization, merger or consolidation in which the Company is not to be the
surviving corporation or enters into an agreement for the sale or transfer of
all or substantially all of its assets, all outstanding options also will become
immediately exercisable. If the successor or transferee corporation does not
agree to continue the Plan, both the Plan and all outstanding options will
terminate as of the effective date of the transaction. An optionee who is
subject to Section 16 of the Exchange Act may, immediately prior to the
consummation of the transaction and in lieu of the consideration receivable by
other optionees in the transaction, tender any unexercised options to the
Company and receive a cash payment equal to the difference between the aggregate
"fair value" of the shares of the Company's Common Stock subject to the holder's
unexercised options and the aggregate option price of those shares. The Plan
provides that, if
- 4 -
<PAGE> 7
payments to an optionee by the Company would constitute "excess parachute
payments" under the Code, amounts payable in accordance with the Plan's change
of control provisions will be reduced so that the employee is not subject to the
20% excise tax on the payment and the Company is able to deduct the entire
payment.
Generally, an optionee recognizes no income upon the grant or exercise
of an incentive stock option and, if the stock purchased on option exercise is
not disposed of within two years from the date of grant nor within one year
after exercise, the amount realized on sale or taxable exchange in excess of the
option price is treated as a long term capital gain and the Company is not
entitled to a federal income tax deduction. If stock acquired on exercise of an
incentive stock option is disposed of before the expiration of either of the
prescribed holding periods, the lesser of (i) the difference between the option
price and the fair market value at the time of exercise or (ii) the difference
between the option price and the amount realized upon disposition is treated as
ordinary income to the optionee at the time of disposition and is allowed as a
deduction to the Company; any excess of the amount realized upon sale over the
fair market value at the time of exercise generally is treated as capital gain
to the optionee. In general, an optionee who exercises a nonqualified option
recognizes taxable ordinary income, and the Company is entitled to a deduction,
at the time of exercise of the option in an amount equal to the excess of the
fair market value of the shares purchased over the option price.
ACCOUNTING EFFECTS. The proceeds of the sale of stock under the Plan
constitute general funds of the Company and may be used by it for any purpose.
Under present accounting practices followed by the Company, neither the grant at
fair market value nor the exercise of an option generally results in any charge
against the Company's earnings. The grant of options at a price less than 100%
of fair market value results in compensation expense to the Company. To date,
the Company has granted all options under the Plan at an exercise price equal to
at least 100% of the fair market value of the Common Stock.
GRANTS. No options have been granted under the Plan. Historically, the
Company has granted options on a broad-based basis to most of its employees, and
the Plan contains no limitation as to the maximum number of participants. The
recipients of, and numbers of shares subject to, future grants under the Plan
are not determinable at this time.
Options currently are outstanding under the Company's 1986 Stock Option
Plan (under which no new grants can be made) and 1988 Stock Option Plan for the
following numbers of shares: Mr. E. Thomas Arington, 1,368,343 shares; Mr.
Jeffrey T. Arington, 130,001 shares; Mr. Holt, 109,334 shares; Dr. Layton,
38,000 shares; all current (employee) executive officers as a group, 1,607,678
shares; and all employees, including all current officers who are not executive
officers, as a group, 1,261,555 shares. The Company's nonemployee directors, who
receive "formula" grants under the 1991 Stock Option Plan for Nonemployee
Directors, hold outstanding options as follows: Mr. Baughman, 25,000 shares; Mr.
Morgan, 24,000 shares; and Mr. Sundararaman, 15,000 shares.
The Board of Directors intends to cause the following resolution to be
presented to stockholders for action at the Annual Meeting:
RESOLVED, that the Duramed Pharmaceuticals, Inc. 1997 Stock
Option Plan be, and it hereby is, approved and adopted by the
stockholders of the Company.
The Board of Directors recommends a vote "FOR" approval and adoption of the
Plan.
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<PAGE> 8
EXECUTIVE COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS. The current executive officers of the Company are
as follows:
<TABLE>
<CAPTION>
Name Age Title
- ---- --- -----
<S> <C> <C>
E. Thomas Arington 60 Chairman of the Board, President and
Chief Executive Officer
S. Sundararaman 61 Secretary and Director
Jeffrey T. Arington 37 Senior Vice President, Marketing,
Sales and Science
Timothy J. Holt 45 Senior Vice President, Finance and
Administration, Treasurer and Chief
Financial Officer
</TABLE>
Information about Messrs. E. Thomas Arington 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, Sales and Science since 1995. He served as the Company's Senior Vice
President, Marketing, Science and Operations from 1994 until 1995, as Vice
President, Sales and Marketing of the Company from 1989 until 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 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.
Officers of the Company are elected by, and serve at the discretion of,
the Board of Directors.
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, (ii) each of the Company's other
executive officers at the end of 1996 whose salary and bonus exceeded $100,000,
and (iii) a former executive officer of the Company. Mr. Arington and these
other persons are sometimes referred to as the "named executive officers."
- 6 -
<PAGE> 9
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
-----------------------------------------------------------------------
Other Securities
Annual Underlying
Compen- Stock Option All Other
Name and Bonus sation Grants Compensation
Principal Position Year Salary ($) ($) ($)(1) (#) ($)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Arington 1996 $369,213 $ --- --- 518,500 $32,522
Chief Executive Officer 1995 422,142 --- --- --- 35,159
1994 400,000 461,000 --- 95,158 27,699
Jeffrey T. Arington 1996 $148,489 $ --- --- 17,000 $ 3,107
Senior Vice President 1995 155,262 --- --- --- 3,308
1994 137,885 50,000 --- --- 3,883
Timothy J. Holt 1996 $145,883 $ --- --- 15,000 $ 3,188
Senior Vice President 1995 155,262 --- --- --- 5,540
and Treasurer 1994 137,885 50,000 --- --- 4,115
Ivan E. Pusecker(3) 1996 $135,123 $ --- --- 38,000 $ 3,040
1995 144,606 --- --- --- 3,830
1994 124,292 40,000 --- --- 4,030
- ----------------------------
<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 1996 are comprised of the following: (i) term
and/or whole life insurance premium payments for the benefit of Mr. E.
Thomas Arington ($23,629), Mr. Jeffrey T. Arington ($308), Mr. Holt
($540) and Mr. Pusecker ($830); (ii) disability insurance premium
payments for Mr. E. Thomas Arington ($5,893); (iii) matching
contributions to the Company's 401(k) Plan on behalf of Mr. E. Thomas
Arington ($3,000), Mr. Jeffrey T. Arington ($2,799), Mr. Holt ($2,648)
and Mr. Pusecker ($2,210) in respect of their contributions to the
Plan.
(3) Although Mr. Pusecker continues to render service to the Company as a
full time employee, he resigned as an executive officer of the Company
on November 5, 1996.
</TABLE>
STOCK OPTIONS. The following table presents information on option
grants during 1996 to the named executive officers. The Company's plans do not
provide for the grant of stock appreciation rights.
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<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants(1)
-------------------------------------------------------------------------------------------------------
Number of
Securities % of Total Potential Realizable
Underlying Options Exercise Value at Assumed
Options Granted to or Base Annual Rates of Stock
Granted Employees in Price Expiration Price Appreciation for
Name (#) Fiscal Year ($/Sh) Date Option Term
---------------------------------
5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Arington 500,000 48.6% $8.625 5/13/06 $1,795,855 $5,414,034
18,500 1.8% $8.625 5/13/06 $ 66,447 $ 200,319
Jeffrey T. Arington 10,000 1.0% $8.625 5/13/06 $ 35,917 $ 108,281
7,000 0.7% $8.625 7/11/06 $ 25,142 $ 75,796
Timothy J. Holt 10,000 1.0% $8.625 5/13/06 $ 35,917 $ 108,281
5,000 0.5% $8.625 7/11/06 $ 17,959 $ 54,140
Ivan E. Pusecker 10,000 1.0% $8.625 5/13/06 $ 35,917 $ 108,281
5,000 0.5% $8.625 7/11/06 $ 17,959 $ 54,140
23,000 2.2% $7.625 11/5/06 $ 110,292 $ 279,503
<FN>
(1) All options having an expiration date of May 13, 2006 were granted
originally on May 13, 1996 with an exercise price of $17.50 per share,
and all options having an expiration date of July 11, 2006 were granted
originally on July 11, 1996 with an exercise price of $14.50 per share.
These options were repriced on November 11, 1996. See "Option Repricing
Table."
</TABLE>
The grants for 10,000 shares to each of Messrs. Jeffrey T. Arington,
Holt and Pusecker became exercisable as to 50% of the shares on May 13,
1996 and the remaining 50% of the shares became exercisable on May 13,
1997. The 23,000 share grant to Mr. Pusecker became exercisable on
November 5, 1996. All other options become exercisable at a maximum
rate of 25% of the shares per year beginning on the first anniversary
of the date of grant.
Each option becomes exercisable in full (i) if any person becomes, or
commences a tender offer which could result in the person becoming, the
beneficial owner of more than 50% of the outstanding shares of the
Company's Common Stock or (ii) in the event of the execution of an
agreement of merger, consolidation or reorganization pursuant to which
the Company is not to be the surviving corporation or the execution of
an agreement of sale or transfer of all or substantially all of the
assets of the Company. Under certain change-of-control circumstances,
an optionee will be entitled to receive a cash payment equal to the
difference between the "fair value" of all unexercised option shares
and the aggregate option price of those shares.
With respect to each named executive officer, the following table sets
forth information concerning option exercises during 1996 and unexercised
options held at December 31, 1996.
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<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-the-
Value Realized ($) Underlying Unexercised Money Options at FY-End
Options at FY-End (#) ($)
(Market Price on
Shares Acquired on Exercise Less Exercisable/ Exercisable/
Name Exercise (#) Exercise Price) Unexercisable Unexercisable
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E. Thomas Arington --- --- 949,843/418,500 $4,426,902/---
Jeffrey T. Arington 8,000 $118,000 100,001/12,000 $543,705/---
Timothy J. Holt --- --- 83,334/10,000 $443,329/---
Ivan E. Pusecker 23,000 $402,010 66,200/10,000 $224,990/---
</TABLE>
EMPLOYMENT AGREEMENT. On March 30, 1994, the Company entered into an
Amended and Restated Employment Agreement (the "Agreement") with Mr. E. Thomas
Arington. 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 per month.
For 1996, the Compensation Committee had determined to increase Mr. Arington's
salary to $500,000 per year. In view of the Company's operating results,
however, Mr. Arington declined the increase and, in addition, during the periods
February 29 to July 29 and November 9 to December 30, 1996, voluntarily reduced
his salary by 50% below that paid in 1995. (See "Report of the Compensation
Committee on Executive Compensation.") The Agreement also entitles Mr. Arington
to receive an annual bonus equal to the following percentages of the Company's
income before taxes: 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. Mr. Arington received no bonus in respect of 1996.
The Agreement provides for life and disability insurance and for
certain other customary benefits. Options to purchase 254,685 shares of Common
Stock previously granted to Mr. Arington are continued by the 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.
OPTION REPRICING TABLE. As discussed in the Compensation Committee
Report below, in November 1996 the Company gave certain holders of stock
options, including certain executive officers, the opportunity to have the
exercise price of their options amended to a lower price. The following option
repricing table sets forth certain information concerning the repricing of stock
options for executive officers of the Company in November 1996 and within the
previous ten years.
- 9 -
<PAGE> 12
Ten-Year Option Repricings
--------------------------
<TABLE>
<CAPTION>
Number of
Securities Market Price Exercise Length of
Underlying of Stock at Price at Original Term
Options Time of Time of New Remaining at
Repriced Repricing Repricing Exercise Date of
Name Date (#)(1) ($) ($) Price ($) Repricing
---- ---- ---------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas 11/11/96 518,500 $7.500 $17.50 $8.625 9 yrs 6 mos
Arington 3/18/91 254,685 $1.563 $ 8.56 $1.563 8 yrs 10 mos
Jeffrey T. 11/11/96 10,000 $7.500 $17.50 $8.625 9 yrs 6 mos
Arington 11/11/96 7,000 $7.500 $14.50 $8.625 9 yrs 8 mos
3/18/91 6,000 $1.563 $ 5.75 $1.563 6 yrs 10 mos
3/18/91 3,333 $1.563 $ 5.75 $1.563 7 yrs 6 mos
3/18/91 3,333 $1.563 $ 7.25 $1.563 8 yrs 0 mos
3/18/91 5,333 $1.563 $ 2.75 $1.563 8 yrs 9 mos
Timothy J. 11/11/96 10,000 $7.500 $17.50 $8.625 9 yrs 6 mos
Holt 11/11/96 5,000 $7.500 $14.50 $8.625 9 yrs 8 mos
3/18/91 10,000 $1.563 $ 6.00 $1.563 5 yrs 6 mos
3/18/91 6,667 $1.563 $ 5.75 $1.563 6 yrs 10 mos
3/18/91 3,333 $1.563 $ 5.75 $1.563 7 yrs 6 mos
3/18/91 3,333 $1.563 $ 7.25 $1.563 8 yrs 0 mos
3/18/91 2,000 $1.563 $ 2.75 $1.563 8 yrs 9 mos
Ivan E. Pusecker 11/11/96 10,000 $7.500 $17.50 $8.625 9 yrs 6 mos
11/11/96 5,000 $7.500 $14.50 $8.625 9 yrs 8 mos
Doane F. Darling 3/18/91 6,667 $1.563 $ 8.75 $1.563 8 yrs 3 mos
- ------------------------------
<FN>
(1) With respect to the options repriced on March 18, 1991, optionees were
offered the choice of retaining existing options or receiving two new
options, with new 3-year vesting schedules, for every three existing
options exchanged. Mr. E. Thomas Arington exchanged old options for
382,028 shares for new options for 254,685 shares, Mr. Jeffrey T.
Arington exchanged old options for 27,001 shares for new options for
17,999 shares, Mr. Holt exchanged old options for 38,001 shares for new
options for 25,333 shares and Mr. Darling exchanged old options for
10,001 shares for new options for 6,667 shares.
</TABLE>
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.
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 1994. In early 1995, a
conscious decision was made by management to increase expenditures for
manufacturing and other launch activities in connection with the
then-anticipated approval
- 10 -
<PAGE> 13
of the Company's conjugated estrogens product and to provide the additional
personnel and capital resources needed to implement the Company's business plan,
including increased product development expenditures. This planned investment in
the future contributed substantially to increased expenses, and therefore
reduced levels of performance, and the Company reported losses for 1995 and
1996. However, the Company's management has also recognized the importance of
balancing a strong product development commitment against the need to conserve
resources, and action has been taken to implement operational changes consistent
with these two corporate goals.
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 caliber 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 have been affected by the cash
flow difficulties faced by the Company and, in the case of the Company's Chief
Executive Officer, payment of portions of salary and bonus have been deferred
from time to time until the Company's cash flow situation improved.
During 1995, the Compensation Committee established target ranges of
total cash salary and bonus compensation for 1996 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. Actual salaries paid to the named executive officers for 1996 were
below the target range. No bonuses were paid for 1996.
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 in 1994. 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
per month. For 1996, the salary was set at $41,667 per month, an increase over
the $33,334 per month paid in 1995. However, in view of the Company's need to
conserve resources, the Chief Executive Officer did not accept this salary
increase and, in addition, during the periods February 26 to July 29 and
November 9 to December 30, 1996, voluntarily reduced his salary by 50% below
that paid in 1995. The base salary provisions of the amended Employment
Agreement were approved by the Compensation Committee after consideration of a
number of factors. These factors, which were applied in a subjective manner,
included the view of the Compensation Committee that the Company's very survival
over the preceding few years 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.
During December 1996, the members of the Compensation Committee
considered the salary to be paid to the Company's Chief Executive Officer for
1997. This involved a subjective consideration of the Company's operating
results during 1996, the successful conclusion of the second part of the
Company's private placement of Series C Preferred Stock and the private
placement of Series D Preferred Stock which provided needed working capital for
the Company, the entering into of various product agreements with other
companies, the acquisition of Hallmark Pharmaceuticals, Inc., the substantial
efforts expended pursuing an approval from the FDA of the Company's conjugated
estrogens product and the status of the Company's overall product development
program. The Committee concluded that the salary for the Company's Chief
Executive Officer for 1997 should be maintained at the level of $41,667 per
month originally set for 1996.
Annual salaries for 1996 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
- 11 -
<PAGE> 14
the services of the individual. The Company's lack of profitability and the
market value of its stock were considered in a subjective manner in establishing
executive officers' base salaries for 1996, but were not a substantial factor in
such determination. Due to the Company's need to conserve resources, various
salary reductions were implemented during periods of 1996.
Salaries for 1997 were not increased over those originally established
for 1996.
Annual Bonuses. The Company's general policy is to pay annual bonuses
to its executive officers. The Chief Executive Officer's Employment Agreement
provides for bonuses (approved by the Company's stockholders in 1994) equal to
the following percentages of the Company's income before taxes: for 1996, 6%,
and for each of 1997 and 1998, 5%. Any bonuses paid to other executive officers
are 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 determination is subjective in nature
and is based upon the factors outlined above under "Annual Salaries." The
determination of bonuses for the Company's executive officers other than the
Chief Executive Officer typically involves a subjective consideration of the
Company's level of profitability during a particular year and the increase in
the market value of the Company's Common Stock during that year. As a result of
the Company's losses, no cash bonuses were paid or accrued for 1996.
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. Prior to September 26, 1996, these grants were made by
the Compensation Committee. Since that date, grants have been made by the Board
of Directors. These stock option grants have, in the view of the Compensation
Committee and the Board, been the principal factor in enabling the Company to
retain and build a competent management team in the face of the Company's
financial condition.
The size of option grants to individual employees of the Company is
determined 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
Board of Directors also considers the recommendations of the Chief Executive
Officer which are based on the same subjective factors described above. In
making these determinations, the Board of Directors considers the cash
compensation received by recipients and the amount and terms of options already
held by the recipients.
On May 13, 1996, an option to purchase 18,500 shares was granted to E.
Thomas Arington and options to purchase 10,000 shares were granted to each of
the Company's other executive officers. These option grants were made in
consideration of the factors described above and also in recognition of the fact
that the Company did not pay a cash bonus to its executive officers for 1995 and
that the cash salaries of the Company's executive officers had been reduced. On
the same date, the Compensation Committee determined to make a contingent award
of options to purchase 500,000 shares to the Company's Chief Executive Officer,
Mr. E. Thomas Arington. Mr. Sundararaman did not participate in the Committee
vote on this award. In so doing, the Committee noted that the effect of the
private placement of the Series C Preferred Stock, along with the acquisition of
Hallmark Pharmaceuticals, would reduce the Chief Executive Officer's percentage
ownership of the Company, on a fully diluted basis, from approximately 13.0% to
approximately 10.7%. As noted above, the Committee (and now the Board of
Directors) places significant reliance upon grants of stock options for the
purpose of providing incentives to management. The Committee also noted its
desire to ensure that the Company's Chief Executive Officer, individually,
continues to hold a significant equity percentage ownership of the Company. This
grant of options to the Company's Chief Executive Officer was contingent upon
receipt of approval by the Company's stockholders. This approval was received at
the Annual Meeting of Stockholders held on July 8, 1996.
Option Repricing. During 1996, the Company instituted various cost
reductions, including substantial layoffs of personnel and reductions in salary
and benefits. These actions were taken to conserve resources and allow the
Company to continue to pursue its business plan while awaiting an FDA decision
on the
- 12 -
<PAGE> 15
Company's application for its conjugated estrogens product. On November 11,
1996, the Board of Directors noted that it was extremely important that the
Company take appropriate actions to retain the services of the various Company
employees who had suffered the effects of these cost reductions. The Board of
Directors noted that the Company had gone to great difficulty and expense to
build an employee team capable of executing the Company's business plan and that
the Company's future plans would be greatly enhanced by the continued services
of such individuals. As described above, the Company historically has relied
upon stock option grants to encourage key employees to remain with the Company.
The directors noted that the market price of the Company's Common Stock had
declined during 1996, presumably as a result of the delay in action on the
conjugated estrogens application and that, therefore, the outstanding stock
options had lost some of their value as an encouragement to retain key
employees. Accordingly, the directors discussed various incentives which could
be supplied to continue to retain the services of these individuals. After this
discussion, it was agreed that the exercise prices of certain outstanding
options to purchase Common Stock of the Company should be adjusted. The
directors selected an exercise price equal to 115% of the closing price of the
Common Stock of the Company on November 11, 1996 and decided that all employee
options which were outstanding at that time and which bore a greater exercise
price, would be repriced to that value. The directors authorized the Company to
take all action necessary to effect such amendments, with the understanding that
all other terms of the outstanding options would remain in effect.
On May 5, 1997 the Company was notified by the FDA that at this time it
would not approve a generic conjugated estrogens product based upon its existing
guidance and current official USP compositional standards. Although the Company
remains optimistic about its future, continuation of the product development
activities necessary to achieve its business plan, without the previously
anticipated revenues from conjugated estrogens, will result in losses into 1998
and will require the Company to continue cost reductions and conservation of its
resources. The impact of the FDA's decision on the Company's stock price also
was immediate, resulting in a drop from $11.125 to as low as $3.00 per share. At
a meeting on May 8, 1997, the Board of Directors determined that it was crucial
that the Company be able to retain its employee team in the coming months.
Because of cost containment pressures, the directors decided that the best
currently available incentive was a further repricing of outstanding stock
options. Accordingly, all outstanding employee options with an exercise price
greater than $5.00 per share were repriced to that amount, with all other terms
and conditions of the options remaining unchanged.
Compensation Committee: Board of Directors:
S. Sundararaman, Chairman E. Thomas Arington
George W. Baughman George W. Baughman
Stanley L. Morgan Derek G. Layton
Stanley L. Morgan
S. Sundararaman
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 1996 salaries 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, 1996, the
amount of outstanding indebtedness subject to these guarantees was $877,342.
- 13 -
<PAGE> 16
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. & Foreign). In each case it is assumed that $100 was invested on
December 31, 1991 and that all dividends were reinvested.
<TABLE>
<CAPTION>
====================================================================================================================================
1991 1992 1993 1994 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Duramed Pharmaceuticals(1) $100 $883 $1,400 $3,933 $4,000 $1,867
- ------------------------------------------------------------------------------------------------------------------------------------
Nasdaq Index $100 $116 $ 134 $ 131 $ 185 $ 227
- ------------------------------------------------------------------------------------------------------------------------------------
Nasdaq Pharmaceuticals, Inc. $100 $ 83 $ 74 $ 56 $ 102 $ 102
====================================================================================================================================
<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 January 1992 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>
- 14 -
<PAGE> 17
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 LLP, Certified Public Accountants, as independent auditors of the
Company for the year 1997.
Ernst & Young LLP has served the Company since 1984. The Company has
been informed that neither Ernst & Young LLP 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 LLP.
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 1997 will be permitted to stand
unless the Board finds other good reasons for making a change. Representatives
of Ernst & Young LLP 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
In late October 1996, the Company loaned Ivan E. Pusecker, then an
executive officer of the Company, $93,881 to assist him in resolving certain
financial circumstances. Mr. Pusecker remains as a highly-valued employee of the
Company. The loan bears interest at the prime rate, commencing January 1, 1997,
and is payable in full on December 31, 1997.
PRINCIPAL STOCKHOLDERS AND
HOLDINGS OF MANAGEMENT
The following table sets forth, as of August 4, 1997, certain
information with regard to the beneficial ownership of the Company's common
stock by (i) each of the Company's stockholders known to hold more than 5% of
the outstanding shares of common stock, (ii) each director and current executive
officer named on the Summary Compensation Table, individually, and (iii) all
directors and executive officers of the Company as a group.
- 15 -
<PAGE> 18
<TABLE>
<CAPTION>
Name Beneficial Ownership
---- ----------------------------------
Number Of Shares (1) Percent
-------------------- -------
<S> <C> <C>
E. Thomas Arington 1,839,479 11.6%
7155 East Kemper Road
Cincinnati, OH 45249
George W. Baughman 73,000 *
Derek G. Layton 8,700 *
Stanley L. Morgan 77,000 *
S. Sundararaman 218,716 1.5%
Jeffrey T. Arington 142,014 *
Timothy J. Holt 110,353 *
All directors and 2,469,262 15.3%
executive officers
as a group (7 persons)
<FN>
*Less than one percent.
- ---------------------
(1) Excludes shares of Common Stock subject to options which cannot be
exercised within 60 days after August 4, 1997. Includes options to
purchase the following numbers of shares: Mr. E. Thomas Arington,
1,054,468 shares; Mr. Baughman, 25,000 shares; Mr. Layton, 8,700
shares; Mr. Morgan, 24,000 shares; Mr. Sundararaman, 15,000 shares; Mr.
Jeffrey T. Arington, 105,851 shares; Mr. Holt, 89,184 shares; and all
current directors and executive officers as a group, 1,322,203 shares.
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 1996.
PROXY STATEMENT PROPOSALS
Stockholder proposals will be considered for inclusion in the Proxy
Statement for the 1998 Annual Meeting if they are received by the Company before
the close of business on April 18, 1998.
- 16 -
<PAGE> 19
OTHER BUSINESS
The Company is not aware of any other matters which may properly be
presented at the meeting. However, if other matters do come before the meeting,
proxies will be voted on those matters in accordance with the recommendations 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.
- 17 -
<PAGE> 20
EXHIBIT A
DURAMED PHARMACEUTICALS, INC.
1997 Stock Option Plan
ARTICLE I
OBJECTIVES
1.1 The objectives of this Stock Option Plan (the "Plan") are
to enable Duramed Pharmaceuticals, Inc. ("Duramed") to compete successfully in
retaining and attracting employees and advisors of outstanding ability, to
stimulate the efforts of employees and advisors toward Duramed's objectives and
to encourage ownership of shares of its Common Stock by its employees and
advisors.
ARTICLE II
DEFINITIONS
2.1 For purposes of the Plan each of the following terms shall
have the definition which is attributed to it, unless another definition is
clearly indicated by a particular usage and context.
A. "ADVISOR" means any person who provides bona fide
advisory or consulting services to the Company other than
services in connection with the offer or sale of securities in
a capital-raising transaction.
B. "BOARD" means the Board of Directors of Duramed.
C. "CODE" means the Internal Revenue Code of 1986, as
amended. Reference to any Section of the Code includes the
provisions of that Section as it may be amended or replaced by
any other section(s) of like intent and purpose and also
includes any regulations or rulings promulgated thereunder.
D. "COMPANY" means Duramed and any parent or
subsidiary of Duramed, as the terms "parent" and "subsidiary"
are defined in Sections 424(e) and 424(f) of the Code.
E. "DISABILITY" means permanent and total disability
as defined in Section 22(e)(3) of the Code.
F. "EFFECTIVE DATE OF GRANT" means the date on which,
or such later date as of which, the Committee makes an award
of an Option.
G. "ELIGIBLE EMPLOYEE" means any individual (other
than one who receives retirement benefits, stipends,
consulting fees, honorariums, and the like) who performs
services for the Company and is included on the regular
payroll of the Company.
A-1
<PAGE> 21
H. "EXCHANGE ACT" means the Securities Exchange Act
of 1934, as amended.
I. "FAIR MARKET VALUE" means the last sale price
reported on The Nasdaq Stock Market, or on any stock exchange
on which the Shares are traded, on a specified date or, if
there are no reported sales on such date, then the last
reported sales price on the next preceding day on which such a
sale was transacted. If the Shares are not then traded as
described in the preceding sentence, then the average of the
closing bid and asked prices on the specified date or last
preceding day on which bid and asked prices were reported, or
such other method as the Committee may select, shall be used
in determining Fair Market Value for a Share.
J. "INCENTIVE STOCK OPTION" shall have the same
meaning as is given to that term by Section 422 of the Code.
K. "NONQUALIFIED STOCK OPTION" means any Option other
than an Incentive Stock Option.
L. "OPTION" means the right, subject to the terms of
this Plan and to such other terms and conditions as the
Committee may establish, to purchase from Duramed a stated
number of Shares at a specified price.
M. "OPTION PRICE" means the purchase price per Share
subject to an Option. The Option Price shall not be (i) less
than 50% of the Fair Market Value of a Share on the Effective
Date of Grant in the case of a Nonqualified Stock Option,
except that no Nonqualified Stock Option which is intended to
result in compensation that qualifies for exclusion from the
deduction limitation of Code Section 162(m) shall be granted
with an Option Price of less than 100% of the Fair Market
Value of a Share on the Effective Date of Grant, or (ii) less
than 100% of the Fair Market Value of a Share on the Effective
Date of Grant in the case of an Incentive Stock Option, except
as otherwise provided in Section 8.1.
N. "SHARE" means one share of the Common Stock, par
value $.01 per share, of Duramed.
ARTICLE III
ADMINISTRATION
3.1 ADMINISTRATION. The Plan shall be administered by a
committee (the "Committee") of at least two members of the Board. For the
purpose of option grants to and approval of other transactions with persons who
are subject to Section 16 of the Exchange Act with respect to Duramed, each
member of the Committee shall be a "Non-Employee Director" as defined in Rule
16b-3 under the Exchange Act; provided, however, that nothing in this Plan shall
prohibit these, or any other functions of the Committee under this Plan, from
being performed by the Board. To the extent that it is desired that compensation
resulting from the grant of a particular Option be excluded from the deduction
limitation of Section 162(m) of the Code, all directors comprising the Committee
granting such Option also shall be "outside directors" within the meaning of
Code Section 162(m). Subject to and consistent with the provisions of the Plan,
the Committee shall establish such rules and regulations as it may deem
necessary or appropriate for the proper administration of the Plan, shall
interpret the provisions of the Plan, shall
A-2
<PAGE> 22
decide all questions of fact arising in the application of Plan provisions and
shall make such other determinations and take such actions in connection with
the Plan and the Options granted hereunder as it deems necessary or advisable.
3.2 Except as specifically limited by the provisions of the
Plan, the Committee shall have authority to:
A. Determine which Eligible Employees or Advisors
shall be granted Options;
B. Determine the number of Shares which may be
subject to each Option;
C. Determine the term and the Option Price of each
Option;
D. Determine whether an Option is an Incentive Stock
Option or a Nonqualified Stock Option (except that only
Nonqualified Stock Options may be granted to Advisors);
E. Determine the time or times when Options will be
granted; and
F. Determine all other terms and conditions of each
Option, including (but not limited to) the terms of any Option
agreement. The Committee may, in its discretion, determine as
a condition of any Option that a stated percentage of Shares
covered by such Option shall be exercisable in any one year or
other stated period of time. The Committee may also waive or
amend the terms and conditions of, or accelerate the vesting
of, an Option under circumstances selected by the Committee.
3.3 Any action, decision, interpretation or determination by
the Committee with respect to the application or administration of this Plan
shall be final and binding upon all persons, and need not be uniform with
respect to its determination of recipients, amount, timing, form, terms or
provisions of Options.
3.4 No member of the Committee shall be liable for any action
or determination taken or made in good faith with respect to the Plan or any
Option granted hereunder and, to the extent not prohibited by applicable law,
all members shall be indemnified by the Company for any liability and expenses
which they may incur as a result of any claim or cause of action or threatened
claim or cause of action, arising in connection with the administration of this
Plan or the grant of any Option hereunder.
ARTICLE IV
SHARES ISSUABLE
4.1 Except as provided in Article XI, the number of Shares
which may be issued under the Plan shall not exceed 1,500,000 Shares in the
aggregate and Options for no more than 200,000 Shares may be granted to any
individual Eligible Employee during any period of twelve (12) consecutive
months. If any Option expires or terminates for any reason without being
completely exercised, the Shares with respect to which such Option was not
exercised may again be subject to other Options. Shares tendered or withheld as
payment for the Option Price pursuant to Section 7.1 also shall be available for
issuance
A-3
<PAGE> 23
under the Plan. The Committee may make such other determinations regarding the
counting of Shares issued pursuant to the Plan as it deems necessary or
advisable, provided that such determinations shall be permitted by law.
ARTICLE V
GRANTING OF OPTIONS
5.1 Subject to the terms and conditions of the Plan, the
Committee may, from time to time, grant Options to Eligible Employees or
Advisors on such terms and conditions as the Committee shall determine. Subject
to the restriction of Section 3.2(D), more than one Option and more than one
form of Option may be granted to the same individual. No director of Duramed who
is not an employee of the Company and included on its regular payroll may be
granted Options under this Plan.
ARTICLE VI
EXERCISE OF OPTIONS
6.1 Any person entitled to exercise an Option may do so,
without the need for further approval pursuant to Exchange Act Rule 16b-3, in
whole or in part by delivering to Duramed, attention: Stock Option Plan
Administrator, at its principal office a written notice of exercise. The written
notice shall specify the number of Shares for which an Option is being exercised
and shall be accompanied by full payment of the Option Price for the Shares
being purchased.
ARTICLE VII
PAYMENT OF OPTION PRICE
7.1 Subject to such administrative requirements as the
Committee may impose, payment of the Option Price shall be made in cash, or,
with the approval of the Committee, by the tender of previously owned Shares or
by directing that a portion of the Shares to be issued upon exercise of the
Option be withheld by Duramed as payment (to the extent permitted by law) or by
a combination of the foregoing. If payment by the tender of previously owned
Shares or the withholding of Shares is selected, the value of each Share shall
be deemed to be the Fair Market Value of a Share on the day the Shares are
tendered or withheld for payment. In the case of a tender of previously owned
Shares, this shall be the date on which the Shares, duly endorsed or accompanied
by a stock power duly endorsed for transfer to Duramed, are received by Duramed.
In the case of a withholding of Shares, this shall be the date on which a
complete and correct notice of exercise directing the withholding is received by
Duramed. Notwithstanding the foregoing, an Option's exercise price may also be
paid pursuant to a "cashless" exercise/sale procedure involving a simultaneous
sale by a broker, in which case the exercise date shall be the trade date,
provided that proceeds of such sale in full payment of the Option Price are
received by Duramed on such date.
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ARTICLE VIII
INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS
8.1 Any option designated as an Incentive Stock Option will be
subject to the general provisions applicable to all Options granted under the
Plan. In addition, an Incentive Stock Option shall be subject to the following
specific provisions:
A. No Incentive Stock Option may be exercised after
the expiration of ten years from the Effective Date of Grant.
B. At the time the Incentive Stock Option is granted,
if the Eligible Employee owns, directly or indirectly, stock
representing more than 10% of the total combined voting power
of all classes of stock of the Company then:
(i) The Option Price must equal at least
110% of the Fair Market Value on the Effective Date
of Grant; and
(ii) The term of the Option shall not be
greater than five years from the Effective Date of
Grant.
C. The aggregate Fair Market Value (determined as of
the Effective Date of Grant) of the Shares with respect to
which Incentive Stock Options are exercisable for the first
time by any holder during any calendar year (under all plans
of the Company) shall not exceed $100,000.
8.2 If any Option is not granted, exercised or held pursuant
to the provisions of Code Section 422, it will be considered to be a
Nonqualified Stock Option to the extent that any or all of the grant is in
conflict with those provisions.
ARTICLE IX
TRANSFERABILITY OF OPTIONS
9.1 During the lifetime of an Eligible Employee or Advisor to
whom an Option has been granted, such Option is non-assignable and
non-transferable and may be exercised only by such individual or that
individual's legal representative or guardian, except that a Nonqualified Stock
Option may be transferred (A) pursuant to a "domestic relations order" as
defined in Section 414(p)(1)(B) of the Code, (B) to the spouse or a child of the
Eligible Employee or Advisor to whom the Option was granted or (C) to such other
persons or entities, in accordance with such terms and conditions, as the
Committee may permit. In the event of the death of an Eligible Employee or
Advisor to whom an Option has been granted, the Option shall be transferable
pursuant to the holder's Will or by the laws of descent and distribution and may
thereafter be exercised by the transferee(s) as provided in Article X.
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ARTICLE X
TERMINATION OF OPTIONS
10.1 Unless earlier terminated pursuant to Article XIII, an
Option granted to an Eligible Employee will terminate as follows:
A. During the period of the Eligible Employee's
continuous employment with the Company, the Option will
terminate upon the earlier of the date on which it has been
fully exercised, it expires by its terms or it is terminated
by the mutual agreement of the Company and the Eligible
Employee.
B. Upon termination of employment for any reason any
unexercisable Option shall immediately terminate. Except as
provided in Section 10.1(C), any Option which is exercisable
on the date of termination of employment will terminate upon
the earlier of its full exercise, the expiration of the Option
by its terms or the end of the three-month period following
the date of termination. For purposes of the Plan, a leave of
absence approved by the Company shall not be deemed to be
termination of employment.
C. If an Eligible Employee to whom an Option was
granted becomes subject to a Disability or dies while employed
by the Company or within three months of termination of
employment for any reason, the Option may be exercised at any
time within one year after the date of death or the
commencement of Disability, to the extent that the Eligible
Employee shall have been entitled to exercise it at the time
of death or the commencement of Disability, by the Eligible
Employee or the Eligible Employee's legal representative or
guardian or by the representative(s) of the Eligible
Employee's estate or the person(s) to whom the Option may have
been transferred by Will or by the laws of descent and
distribution.
10.2 An Option granted to an Advisor will terminate upon the
earlier of the full exercise of the Option or the expiration of the Option by
its terms.
10.3 The provisions of Sections 10.1 and 10.2 above shall
apply irrespective of whether a Nonqualified Stock Option has been transferred
to a person or entity other than the Eligible Employee or Advisor to whom the
Option was granted.
10.4 The Committee, at its discretion, may extend the periods
for Option exercise set forth in this Article X.
ARTICLE XI
ADJUSTMENTS TO SHARES AND OPTION PRICE
11.1 The Committee shall make appropriate adjustments in the
number of Shares available for issuance under the Plan, the number of Shares
subject to outstanding Options and the Option Price of optioned Shares in order
to give effect to changes in the Shares as a result of any merger,
consolidation, recapitalization, reclassification, combination, stock dividend,
stock split, or other similar event. The
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determination as to the method and extent of such adjustments shall be within
the sole discretion of the Committee.
ARTICLE XII
AMENDMENT OR DISCONTINUANCE OF PLAN
12.1 The Board may at any time amend, suspend or discontinue
the Plan; provided, however, that no amendment to the Plan shall alter or impair
any Option granted under the Plan without the consent of the holder thereof.
ARTICLE XIII
CERTAIN EVENTS
13.1 In the event Duramed shall consolidate with, merge into,
or transfer all or substantially all of its assets to another corporation or
corporations (a "successor corporation"), such successor corporation may
obligate itself to continue this Plan and to assume all obligations under the
Plan. In the event that such successor corporation does not obligate itself to
continue this Plan as above provided, the Plan shall terminate effective upon
such consolidation, merger or transfer, and, except as provided in Section 13.4,
any Option previously granted hereunder shall terminate. If practical, Duramed
shall give each holder of an Option twenty (20) days prior notice of any
possible transaction which might terminate this Plan and the Options previously
granted hereunder.
13.2 In the event any person, by any means of purchase or
acquisition, becomes the "beneficial owner" (as defined in Exchange Act Rule
13d-3 as in effect on February 11, 1997) of more than 50% of the outstanding
Shares of Duramed, or commences a tender offer pursuant to Exchange Act
Regulation 14C (as in effect on February 11, 1997) which, if successful, would
result in such person becoming the beneficial owner of more than 50% of such
Shares, then all Options which are outstanding at the time of such event shall
immediately become exercisable in full.
13.3 In the event of the execution of an agreement of
reorganization, merger or consolidation of Duramed with one or more corporations
as a result of which Duramed is not to be the surviving corporation (whether or
not Duramed shall be dissolved or liquidated) or the execution of an agreement
of sale or transfer of all or substantially all of the assets of Duramed, then
all Options which are outstanding at the time of such event shall immediately
become exercisable in full.
13.4 In the event of any of the transactions referred to in
Section 13.3 hereof, any holder of one or more Options who is subject to the
reporting requirements of Section 16(a) of the Exchange Act with respect to
Duramed shall be entitled to tender such Options to the Company and to receive
from the Company a payment of cash equal to the difference between the aggregate
"Fair Value" of Shares subject to the holder's Options which are outstanding and
not exercised immediately prior to the time of consummation of the transaction
and the aggregate Option Price of such Shares. For this purpose, "Fair Value"
shall mean the cash value per Share to be paid to stockholders pursuant to such
agreement, or if cash value is not to be paid, the highest Fair Market Value of
a Share during the 60-day period immediately preceding the date of the
consummation of the transaction. The foregoing payment under this Section 13.4
shall be made in lieu of and in full discharge of any and all obligations of the
Company in respect of all subject Options of the holder.
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13.5 The grant of Options under the Plan shall in no way
affect the right of Duramed 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.
13.6 Notwithstanding the foregoing, in the event the amounts
deemed payable under this Article XIII when added to all other payments to the
holder of an Option by the Company, would, if made, constitute Excess Parachute
Payments within the meaning of Sections 280G and 4999 of the Code, the amounts
deemed payable by the Company under this Article shall be reduced by the amount
deemed necessary to cause the holder to receive $1,000.00 less than three times
the holder's Base Amount (as that term is defined in Code Section 280G) from all
such payments to the holder from the Company. In the event the amount of the
payments exceeds the amount subsequently determined to have been due, the excess
benefits over three times the Base Amount shall constitute a loan by the Company
to the holder, payable on demand by the Company, with interest at a rate equal
to 120% of the applicable federal rate determined under Section 1274 of the
Code, compounded semi-annually.
ARTICLE XIV
EFFECTIVE DATE
14.1 This Plan became effective as of February 11, 1997. No
Option shall be granted hereunder subsequent to February 10, 2007 or subsequent
to any earlier date as of which this Plan is terminated.
ARTICLE XV
MISCELLANEOUS
15.1 Nothing contained in this Plan shall constitute the
granting of an Option. Each Option shall be represented by a written Option
agreement, executed by both the Eligible Employee or Advisor and Duramed.
15.2 Certificates for Shares purchased through exercise of
Options will be issued in regular course after exercise of the Option and
payment therefor as called for by the terms of the Option but in no event shall
Duramed be obligated to issue certificates more often than once each quarter of
each fiscal year. No person holding an Option or entitled to exercise an Option
granted under this Plan shall have any rights or privileges of a stockholder of
Duramed with respect to any Shares issuable upon exercise of such Option until
certificates representing such Shares shall have been issued and delivered. No
Option may be transferred, and no Option shall be exercisable or Shares issued
and delivered upon exercise of an Option, unless and until Duramed has complied
with all applicable registration requirements of the Securities Act of 1933 and
any applicable state securities laws and with any applicable listing
requirements of any national securities exchange on which Duramed's securities
may then be listed as well as any other requirements of law.
15.3 Nothing contained in this Plan or in any Option granted
pursuant to it shall confer upon any person any right to continue in the employ
of or in any business relationship with the Company or to interfere in any way
with the right of the Company to terminate a person's employment or business
relationship with the Company at any time. So long as a holder of an Option
shall continue to be an employee of the Company, the Option shall not be
affected by any change of the employee's duties or position.
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15.4 This Plan shall be construed and administered in
accordance with and governed by the laws of the State of Delaware.
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<PAGE> 29
DURAMED PHARMACEUTICALS, INC.
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR ANNUAL MEETING
The undersigned hereby appoints E. Thomas Arington and Timothy
J. Holt, 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 5040 Duramed Drive, Cincinnati, Ohio 45213
on September 30, 1997, at 9:00 a.m. (EDT), and at any adjournments thereof:
1. Election of E. Thomas Arington, George W. Baughman, Derek G. Layton, 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 approve the
Company's 1997 Stock Option Plan.
3. [ ] FOR [ ] AGAINST [ ] ABSTAIN on the proposal to ratify the
appointment of Ernst & Young LLP 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 the recommendation of the
Board of Directors.
Please mark: I do [ ] do not [ ] plan to attend the meeting.
Dated , 1997
------------------------------
-----------------------------------------
-----------------------------------------
(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.
