<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 [ ]
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[ ] 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-12
Duramed Pharmaceuticals, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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<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 the Holiday Inn,
Cincinnati Airport, 1717 Airport Exchange Boulevard, Erlanger, Kentucky 41018,
on September 12, 2000 at 9:00 a.m. (EDT), for the purpose of considering and
acting upon the following:
1. The election of seven directors of Duramed.
2. The approval of the 2000 Stock Option Plan.
3. The ratification of Ernst & Young LLP as auditors of Duramed for the
fiscal year ending December 31, 2000.
4. Such other matters as may properly come before the meeting.
Only stockholders of record at the close of business on July 18, 2000
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 3, 2000
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" or
"Duramed") of proxies to be voted at the Annual Meeting of Stockholders on
September 12, 2000. This Proxy Statement and the accompanying proxy card are
first being mailed to stockholders of the Company on or about August 3, 2000.
OUTSTANDING VOTING SECURITIES
The number of voting securities of Duramed outstanding on July 18,
2000, the record date for the meeting, was 26,272,922 shares of Common Stock,
$.01 par value, each entitled to one vote, owned by approximately 1,660
stockholders of record. A list of stockholders of the Company may be examined at
the offices of Duramed 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 Duramed, by giving a later dated
proxy indicating a desire to vote differently or by appearing at the meeting and
casting a ballot.
The cost of solicitation of proxies will be paid by Duramed. In
addition to the solicitation of proxies by use of the mails, solicitation may be
made by officers and regular employees of Duramed 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. Duramed's Common Stock has no cumulative voting rights. Other
matters, including approval of the 2000 Stock Option Plan, 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. There are no rights of appraisal or
similar rights of dissenting stockholders with respect to any matter to be acted
upon at the meeting.
<PAGE> 4
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. The Board of Directors has been composed of six members, Messrs. E.
Thomas Arington, Jeffrey T. Arington, George W. Baughman, Richard R. Frankovic,
Peter R. Seaver and S. Sundararaman, each of whom has been renominated for
election at the Annual Meeting. At the time of the Annual Meeting the size of
the Board will be increased to seven. Mr. Philip M. Uhrhan has been nominated to
fill the new position. The increase in Board size and nomination of Mr. Uhrhan
is in accordance with an agreement between the Company and Solvay
Pharmaceuticals, Inc. granting Solvay the right to designate one new director in
connection with its investment in the Company. See "Certain Transactions" and
"Principal Stockholders and Holdings of Management."
The Board of Directors recommends that each of the nominees, described
below, be elected to serve until the Annual Meeting in 2001 or until their
successors are elected and qualified.
E. THOMAS ARINGTON, age 63. Mr. Arington has been President, Chief
Executive Officer and a director of the Company since 1987 and Chairman of the
Board since 1988. Prior to joining the Company, he was President of
MarketMaster, Inc., a health care consulting firm which was acquired by the
Company in 1987. Mr. Arington's career has also included seventeen years with
Lederle Laboratories, a division of American Cyanamid, where he held a variety
of executive management positions.
JEFFREY T. ARINGTON, age 39. Mr. Arington has been Senior Vice
President, Marketing, Sales and Science of the Company 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 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. Mr. Arington has been a director of the
Company since 1998. Jeffrey T. Arington is E. Thomas Arington's son.
GEORGE W. BAUGHMAN, age 63. 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. Mr. Baughman has been a director of the Company since 1989.
RICHARD R. FRANKOVIC, age 58. Mr. Frankovic is a pharmaceutical
industry consultant, having retired in 1998 from Rugby Laboratories where he was
employed since 1980 and served as President from 1984 to 1998. Prior to joining
Rugby Laboratories, he was employed by Lederle Laboratories, where he held a
variety of management positions. Mr. Frankovic has been a director of the
Company since 1999.
PETER R. SEAVER, age 56. Mr. Seaver is a healthcare consultant.
Following his thirty-year career with The Upjohn Company, a pharmaceutical
manufacturer, he served as President of the Health Care Group of Kaleidoscope
Television, Inc., a health care cable company, from 1997 until April 2000. While
at The Upjohn Company, he held positions including Vice President of Marketing
from 1987 until 1989, Corporate Vice President, Worldwide Pharmaceutical
Marketing from 1989 until 1995 and Corporate Vice President for Health Care
Policy and Administration during 1996. Mr. Seaver has been a director of the
Company since 1998.
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<PAGE> 5
S. SUNDARARAMAN, age 64. 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.
PHILIP M. UHRHAN, age 50. Mr. Uhrhan has been Vice President Finance of
Solvay America, Inc., a chemical and pharmaceuticals company which is the parent
of Solvay Pharmaceuticals, Inc., since 1996. He was a partner with Ernst & Young
LLP for more than five years prior to joining Solvay America. Mr. Uhrhan also is
a director of Reliability Incorporated.
MEETINGS; COMMITTEES OF THE BOARD. Duramed's Board of Directors held 15
meetings in 1999, of which 10 were by conference telephone. The Board has an
Audit Committee, composed during the past year of Messrs. Frankovic (Chairman),
Baughman, Seaver and Sundararaman, which deals with financial reporting and
control of the Company's assets. The Committee did not meet separately from the
full Board of Directors during 1999. The Board also has a Compensation
Committee, consisting of Messrs. Seaver (Chairman), Baughman, Frankovic and
Sundararaman, which has responsibility for making recommendations to the full
Board concerning all matters dealing with officers' compensation and fringe
benefits. The Compensation Committee met six times during 1999, four by
conference telephone. 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 1999.
COMPENSATION OF DIRECTORS. During 1999, nonemployee directors of the
Company received an annual fee of $30,000. Of the annual fee, $12,000 was paid
in Duramed Common Stock and the remainder was paid in cash. Nonemployee
directors also received fees of $1,500 for each Board meeting attended, plus
reimbursement of expenses, and fees of $600 for each Board meeting held by
conference telephone. Fees of $1,000 are also paid for committee meetings
attended and held on a date other than a Board meeting date. During 1999, there
were no committee meetings held on a separate date from a Board meeting date. No
fees are paid to directors who are also employees of the Company. Each new
nonemployee director is automatically awarded options to purchase 10,000 shares
of the Company's Common Stock; in subsequent years, a nonemployee director
automatically receives options to purchase 5,000 shares of Common Stock. Each
nonemployee director also 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
elected prior to 1998 who have served on the Board for at least five years and
nonemployee directors elected in 1998 or after who have served on the Board for
at least ten 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. With certain exceptions for current long-serving
directors, the plan provides an annual benefit, payable monthly for a period of
ten years from the time a participating director ceases to be a member of the
Board, equal to 50% of 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.
During 1999 Mr. Baughman provided consulting services to the Company
for which he was paid $13,402.
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<PAGE> 6
APPROVAL OF 2000 STOCK OPTION PLAN
GENERAL. The Company's 2000 Stock Option Plan (the "2000 Plan" or the
"Plan") was adopted by the Board of Directors, subject to stockholder approval,
on July 18, 2000.
Duramed traditionally has relied heavily on stock option grants to
provide incentives to management. The Board of Directors believes that these
grants have been the principal factor enabling the Company to build and retain a
competent management team under difficult financial circumstances and that stock
options will continue to provide a valuable incentive even as the Company's
financial condition improves.
Of the 1,500,000 shares of Common Stock authorized for issuance under
the Company's 1997 Stock Option Plan, options for 1,379,984 shares are
outstanding and options for 72,820 shares have been exercised, leaving only
47,196 shares available for new option grants. Although some options remain
outstanding under the Company's 1986 and 1988 Stock Option Plans, no new options
may be granted under the 1986 Plan and only very limited grants may be made
under the 1988 Plan if and as shares become available due to the termination or
expiration of unexercised options. Therefore, so as to have any adequate supply
of shares available for future grants, the Board of Directors adopted the 2000
Plan.
The Board of Directors recommends a vote "FOR" approval of the 2000
Plan.
A summary of the 2000 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 1,300,000 shares of Common Stock
may be issued pursuant to the Plan; however, options for no more than 500,000
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 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.
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
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<PAGE> 7
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.
At the optionee's election, an option's exercise price may be paid in
cash or by the tender of shares of the Company's Common Stock which have been
owned by the optionee for at least six months. Shares which are tendered are
valued at their fair market value on the date of tender 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 July 18, 2000, the fair market value of the
Company's Common Stock was $5.66 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.
Only the Board may amend or terminate the Plan, and it may do so 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 September 11, 2010.
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. The Plan provides that,
if 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.
TAX CONSEQUENCES. 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
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<PAGE> 8
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 2000 Plan. Under the
terms of an Amended and Restated Employment Agreement effective July 18, 2000,
the Board has agreed to grant options to purchase 400,000 shares to the
Company's President and Chief Executive Officer if the Plan is approved by the
stockholders. 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, other future grants under the Plan are not determinable at this time.
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 2000. Ernst & Young LLP has served as independent auditors
of the Company since 1984.
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 2000 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.
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<PAGE> 9
EXECUTIVE COMPENSATION AND OTHER INFORMATION
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 other
executive officers whose salary and bonus during 1999 exceeded $100,000. Mr.
Arington and these other persons are sometimes referred to as the "named
executive officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
-----------------------------------------------------
Other Securities
Annual Underlying
Compen- Stock Option All Other
Name and Bonus sation Grants Compensation
Principal Position Year Salary ($) ($)(1) ($)(2) (#) ($)(3)
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Arington 1999 $500,000 -- -- 280,714 $29,018
Chief Executive Officer 1998 500,006 -- -- 175,000 62,669
1997 519,234 -- -- -- 43,423
Jeffrey T. Arington 1999 $207,500 -- -- 25,000 $ 3,508
Senior Vice President 1998 177,250 -- -- 23,000 3,200
1997 163,365 -- -- 22,000 3,207
Timothy J. Holt 1999 $195,000 -- -- 25,000 $ 3,920
Senior Vice President 1998 172,250 -- -- 20,000 3,920
1997 163,365 -- -- 20,000 3,802
</TABLE>
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(1) The Company has accrued the amount of $1.0 million dollars for the
payment of bonuses to employees for 1999. No allocations of bonus
amounts to individual employees have been made at this time.
(2) None, other than perquisites which did not exceed the lesser of $50,000
or 10% of salary and bonus for any named executive officer.
(3) Amounts disclosed for 1999 are comprised of the following: (i) term
and/or whole life insurance premium payments for the benefit of Mr. E.
Thomas Arington ($19,366), Mr. Jeffrey T. Arington ($308) and Mr. Holt
($720); (ii) disability insurance premium payments for Mr. E. Thomas
Arington ($6,452); and (iii) matching contributions to the Company's
401(k) Plan on behalf of Mr. E. Thomas Arington ($3,200), Mr. Jeffrey
T. Arington ($3,200) and Mr. Holt ($3,200) in respect of their
contributions to the Plan.
STOCK OPTIONS. The following table presents information on option
grants during 1999 to the named executive officers. The Company's plans do not
provide for the grant of stock appreciation rights.
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<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants(1)
-----------------------------------------------------------------------------------
Potential Realizable
Number of Value at Assumed
Securities % of Total Annual Rates of Stock
Underlying Options Exercise Price Appreciation for
Options Granted to or Base Option Term
Granted Employees in Price Expiration ------------------------
Name (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
E. Thomas Arington 280,714 45.6% $ 7.000 3/24/09 $1,235,777 $3,131,701
Jeffrey T. Arington 25,000 4.1% $13.125 6/15/09 $ 206,356 $ 522,947
Timothy J. Holt 25,000 4.1% $13.125 6/15/09 $ 206,356 $ 522,947
</TABLE>
----------------------------
(1) All options become exercisable at the rate of 20% of the shares per
year beginning on the first anniversary of the date of the 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 1999 and unexercised
options held at December 31, 1999.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Value Realized ($) Unexercised Options In-the-Money Options at
at FY-End (#) FY-End ($)
(Market Price on
Shares Acquired on Exercise Less Exercisable/ Exercisable/
Name Exercise (#) Exercise Price) Unexercisable Unexercisable
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
E. Thomas Arington 500,000 $2,935,000 803,343/520,714 $2,560,709/$457,589
Jeffrey T. Arington -- -- 134,701/47,300 $641,582/$67,194
Timothy J. Holt -- -- 112,534/42,800 $512,697/$53,805
</TABLE>
-8-
<PAGE> 11
CHANGE IN CONTROL CONTINGENT EMPLOYMENT AGREEMENTS. The Company has
entered into Change in Control Contingent Employment Agreements with Mr. Jeffrey
T. Arington and Mr. Holt. In the event of a "change in control" of the Company,
as defined in the agreements, the Company agrees to continue the employment of
the employee for twenty-four months following the date of the change in control.
The Compensation Committee of the Company's Board of Directors has approved in
principle new employment agreements with Mr. Jeffrey T. Arington, Mr. Holt and
several other employees that will provide for three year initial employment
terms with one year automatic renewals and for certain lump-sum payments (equal
to two times salary and bonus) in the event of termination following a change in
control of the Company. These agreements are not in final form but it is
expected that they will contain defined terms similar to those in Mr. E. Thomas
Arington's Employment Agreement described below.
EMPLOYMENT AGREEMENT. Effective July 18, 2000, the Company entered into
an Amended and Restated Employment Agreement with Mr. E. Thomas Arington. The
initial term of the Agreement expires on December 31, 2005; however, the
Agreement provides for automatic one year extensions if notice of termination is
not given by either party prior to specified dates. 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 $41,666 per month.
For 2000, the salary has been set at that amount. In addition, Mr. Arington is
entitled to receive for each year a separate annual bonus in such amount as may
be determined by the Compensation Committee of the Board of Directors. The
Agreement also provides for life and disability insurance and for certain other
customary benefits. The Agreement also provides that the Company will grant to
Mr. Arington options to purchase 400,000 shares of Common Stock if the
stockholders approve the 2000 Stock Option Plan being presented for
consideration at the Annual Meeting. These options will be granted at the time
of stockholder approval and will have an exercise price equal to the fair market
value of the Common Stock on that date. Further, the Agreement provides for the
payment of a lump sum benefit to Mr. Arington equal to three times Mr.
Arington"s salary and bonus, plus a gross-up for federal excise tax purposes if
necessary, pursuant to Section 280G of the Internal Revenue Code, plus vesting
of all outstanding options and the continuation of certain medical and insurance
benefits, in the event that Mr. Arington"s employment is terminated without
Cause by the Company or for Good Reason by Mr. Arington, following a Change in
Control of the Company during the term of the Agreement. These terms are defined
in the Agreement. Change in Control includes certain mergers, sales of assets or
tender offers. Good Reason includes a resignation by Mr. Arington for any reason
within six months after a Change in Control. Cause means willful and continued
failure to perform his duties under the Agreement or willfully engaging in
illegal conduct or gross misconduct which materially injures the Company. If Mr.
Arington terminates his employment without Good Reason, or if his employment is
terminated by the Company for 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.
The Company's policies on executive compensation have been designed to
retain and attract the services of competent and talented managers during
periods when the Company reported losses and faced substantial needs to conserve
cash flow. 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
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<PAGE> 12
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.
The Compensation Committee has established target ranges of total cash
salary and bonus compensation for different levels of management of the Company.
The ranges of target total cash compensation are 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 1999 were at the very bottom of or below the target
range. The Compensation Committee also has determined that, immediately
following the completion of each fiscal year, the Board of Directors will
establish a bonus pool for that year. A bonus pool of $1.0 million dollars has
been established for 1999. However, no allocations of bonus amounts have been
made at this time. Management of the Company will determine the amount of bonus
to be received by each individual employee based upon a subjective evaluation of
the performance of that individual. Any bonus paid to the Company's Chief
Executive Officer will be made by the Compensation Committee based upon a
subjective evaluation of Mr. Arington's performance.
Annual Salaries. The annual salary of the Company's Chief Executive
Officer for 1999 was established pursuant to the terms of his 1994 employment
agreement with the Company. Under that agreement, the Chief Executive Officer
received a salary in an amount set by the Compensation Committee, but not less
than $33,333 per month. For 1999, the salary was set at $41,667 per month. This
salary was approved by the Compensation Committee after consideration of a
number of factors. These factors, which were applied in a subjective manner,
included the Compensation Committee's desire to ensure the continued services of
the Company's Chief Executive Officer.
The Compensation Committee's consideration of the salary to be paid to
the Company's Chief Executive Officer for 2000 involved a subjective
consideration of the Company's operating results during 1999, the entering into
of various product agreements with other companies, 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 2000 should be maintained at the level of $41,667 per month.
Annual salaries for 1999 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 lack of profitability and the market
value of its stock were considered in a subjective manner in establishing
executive officers' base salaries for 1999, but were not a substantial factor in
such determination.
Annual Bonuses. The Company's general policy is to pay annual bonuses
to its executive officers. As in effect in 1999, the Chief Executive Officer's
prior employment agreement provided that a bonus might be paid to the Chief
Executive Officer in such manner and amount as the Compensation Committee
determined. The Company has entered into a new Employment Agreement with the
Company's Chief Executive Officer which also provides that a bonus may be paid
in such manner and amount as determined by the Compensation Committee. 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 determination of
bonuses for the Company's executive
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<PAGE> 13
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 noted above, a bonus pool of $1.0 million dollars has been accrued for
1999. However, no allocations of individual bonus amounts for the Chief
Executive Officer or other executive officers have been made at this time.
Stock Option Grants. For a number of years, the Company has relied
heavily upon significant grants of stock options for the purpose of providing
incentives to management. These grants are made by the Compensation Committee of
the Board of Directors. Stock option grants have, in the view of 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
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 Committee considers the cash compensation received by
recipients and the amount and terms of options already held by the recipients.
Options to purchase 280,714 shares were granted to the Chief Executive
Officer during 1999. Options to purchase 50,000 shares were granted to 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 had not paid a cash bonus to its executive officers for 1998.
Compensation Committee: Board of Directors:
Peter R. Seaver, Chairman E. Thomas Arington
George W. Baughman Jeffrey T. Arington
Richard R. Frankovic George W. Baughman
S. Sundararaman Richard R. Frankovic
Peter R. Seaver
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 1999 salaries of the Company's other named executive officers,
taking into consideration the target range for total cash compensation
established by the Compensation Committee.
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<PAGE> 14
PERFORMANCE GRAPH. The following graph and table compare, over the
period shown, the cumulative total stockholder return of Duramed'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.
and Foreign). In each case it is assumed that $100 was invested on December 31,
1994 and that all dividends were reinvested.
<TABLE>
<CAPTION>
==================================================================================================================
1994 1995 1996 1997 1998 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Duramed Pharmaceuticals $100 $102 $ 47 $ 39 $ 25 $ 48
------------------------------------------------------------------------------------------------------------------
Nasdaq Index $100 $141 $174 $213 $300 $542
------------------------------------------------------------------------------------------------------------------
Nasdaq Pharmaceuticals $100 $183 $184 $190 $242 $452
==================================================================================================================
</TABLE>
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<PAGE> 15
CERTAIN TRANSACTIONS
Mr. Philip B. Arington is employed by the Company as its Senior
Director of Sales and Marketing. His total compensation for 1999 was
approximately $103,000. Mr. Christopher H. Arington is employed by the Company
as its Director of Sales Operations. For 1999, his total compensation was
approximately $85,000. Mr. Philip B. Arington and Mr. Christopher H. Arington
are sons of Mr. E. Thomas Arington, the Company's Chairman of the Board and
Chief Executive Officer.
On October 6, 1999, the Company entered into an agreement with Solvay
Pharmaceuticals to jointly promote three of the companies' hormone products,
including Duramed's Cenestin(R) (synthetic conjugated estrogens, A) Tablets
("Cenestin"). The Company also granted Solvay Pharmaceuticals an option to
purchase 3,000,000 shares of the Company's Common Stock at $9.00 per share and
agreed to create a new Board of Directors position to be filled as designated by
Solvay Pharmaceuticals. Solvay Pharmaceuticals subsequently exercised its option
in full and designated Mr. Uhrhan as its nominee to the Board. See "The Board of
Directors" and "Principal Stockholders and Holdings of Management."
On March 1, 2000 the Company and Solvay Pharmaceuticals entered into an
expanded 10-year marketing agreement under which (effective January 1, 2000)
Solvay Pharmaceuticals accepted all responsibility for Cenestin physicians'
promotion, including assuming advertising, sales promotion and sales force
expenses. During the initial stage of the marketing agreement, Solvay
Pharmaceuticals will receive 80%, and the Company will receive 20%, of
Cenestin's gross profit until Solvay Pharmaceuticals has recovered all of the
ongoing advertising and marketing expenses and Cenestin becomes an
income-producing product. Unless the Company has by then recovered the $38
million it invested in Cenestin from March 1999 through December 31, 1999, the
agreement then will move to a second stage, during which the Company will
receive 80% of Cenestin net profit dollars, and Solvay Pharmaceuticals will
receive 20%, until the Company recovers the full $38 million. Thereafter, each
company will receive 50% of Cenestin net profit dollars on a going-forward
basis.
The Company also granted Solvay Pharmaceuticals a worldwide exclusive
license to Cenestin outside the United States (excluding Eastern European
countries that are covered by other arrangements and Puerto Rico) and the option
to an exclusive worldwide license to Verapamil SR, a calcium channel blocker for
the treatment of hypertension.
Additionally, on March 1, 2000, the Company entered into a $20 million
financing transaction collateralized by its Cincinnati facility and secured by a
loan guaranty from Solvay America.
PRINCIPAL STOCKHOLDERS AND
HOLDINGS OF MANAGEMENT
The following table sets forth, as of July 18, 2000, 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 continuing director, nominee
for director and named executive officer, individually, and (iii) all continuing
directors, nominees and executive officers of the Company as a group.
-13-
<PAGE> 16
<TABLE>
<CAPTION>
Beneficial Ownership
--------------------
Name Number Of Shares (1) Percent
---- -------------------- -------
<S> <C> <C>
Solvay Pharmaceuticals, Inc.(2)(3) 3,000,000 11.4%
901 Sawyer Road
Marietta, Georgia 30062
E. Thomas Arington(2) 1,873,118 6.9%
7155 East Kemper Road
Cincinnati, Ohio 45249
Jeffrey T. Arington 187,322 *
George W. Baughman 89,288 *
Richard R. Frankovic 10,418 *
Peter R. Seaver 31,288 *
S. Sundararaman 225,004 *
Philip M. Uhrhan(2)(4) 3,000,000 11.4%
Timothy J. Holt 141,341 *
All directors, nominees
and executive officers
as a group (9 persons)(5) 5,557,779 20.1%
</TABLE>
*Less than one percent.
-------------------------
(1) Excludes shares of Common Stock subject to options which cannot be
exercised within sixty days after July 18, 2000. Includes options to
purchase the following numbers of shares: Mr. E. Thomas Arington,
994,486 shares; Mr. Jeffrey T. Arington, 143,651 shares; Mr. Baughman,
35,000 shares; Mr. Frankovic, 10,000 shares; Mr. Seaver, 25,000 shares;
Mr. Sundararaman, 30,000 shares; Mr. Holt, 120,634 shares; and all
directors and executive officers as a group, 1,358,771 shares.
(2) Mr. Arington's address is 7155 East Kemper Road, Cincinnati, Ohio
45249. Solvay Pharmaceuticals' address is 901 Sawyer Road, Marietta,
Georgia 30062. Mr. Uhrhan's address is 333 Richmond Avenue, Houston,
Texas 77098.
(3) In connection with its acquisition of shares of the Company, Solvay
Pharmaceuticals agreed, that, until October 1, 2001, it will not (i)
acquire any material assets or equity securities of the Company except
pursuant to a stock split or dividend or other similar transaction,
(ii) make or participate in any solicitation of proxies to vote in
opposition to any matter that has been
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<PAGE> 17
recommended by the Company's Board, in favor of a matter that has not
been approved by the Board or participate in an election contest, (iii)
form or join any group with respect to any of the Company's shares or
the acquisition of any of its assets, (iv) deposit any shares into a
voting trust, (v) seek the election or removal of a member of the
Company's Board of Directors, or (vi) solicit, negotiate or otherwise
make or cause to be made a statement or proposal with respect to a
merger or acquisition of the Company, the sale of a substantial portion
of the Company's assets or the recapitalization of the Company. In
addition, until October 1, 2001, Solvay Pharmaceuticals has agreed not
to sell or otherwise transfer its shares to a third party if, as a
result of the transfer, the third party would hold more than 5% of the
Company's outstanding shares. Finally, until October 1, 2001, if the
Company notifies Solvay Pharmaceuticals that it is in the process of
carrying out a private or public sale of equity, Solvay Pharmaceuticals
has agreed not to sell or otherwise dispose of any of its shares until
90 days after that sale of securities by the Company.
Each of the restrictions agreed to by Solvay Pharmaceuticals will be
suspended if (i) any third party seeks to acquire 50% or more of the
Company's outstanding shares and the Company has not publicly
recommended that the offer not be accepted, (ii) the Company has
received an acquisition proposal from a third party and has not
rejected the proposal, (iii) there has been a change in control of the
Company, including the execution of an agreement that would result in a
change of control, (iv) the Company publicly announces that it is for
sale, (v) a person or group attempts to elect or remove a majority of
the Company's directors which is not publicly opposed by the Company
and which would result in a change in composition of a majority of the
Board, or (vi) the Company adopts a plan of liquidation or dissolution.
(4) Consists of 3,000,000 shares held by Solvay Pharmaceuticals. Mr. Uhrhan
disclaims any beneficial interest in these shares.
(5) Includes 3,000,000 shares held by Solvay Pharmaceuticals which are
deemed to be owned by Mr. Uhrhan and in which he disclaims any
beneficial interest.
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 these forms, the Company believes that all Section 16(a)
filing requirements were complied with on a timely basis during and for 1999
except that sales made by Mr. E. Thomas Arington in March 1999 totaling 25,000
shares of Common Stock were reported in May 1999 instead of in April 1999;
options automatically granted during 1999 to Messrs. Sundararaman, Baughman and
Seaver pursuant to the Company's Stock Option Plan for Nonemployee Directors
were reported in March 2000 instead of on their February 2000 Forms 5; and a
gift of 1,600 shares of Common Stock to a trust for the benefit of a child of
Mr. Jeffrey T. Arington was reported in March 2000 instead of on his February
2000 Form 5.
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<PAGE> 18
STOCKHOLDER PROPOSALS
Stockholder proposals will be considered for inclusion in the Proxy
Statement for the 2001 Annual Meeting if they are received by the Company before
the close of business on April 6, 2001.
In addition, if a stockholder desires to bring business before an
annual meeting which is not the subject of a proposal timely submitted for
inclusion in the Proxy Statement, the stockholder must follow procedures
outlined in the Company's By-Laws. A copy of these procedures is available upon
written request directed to the Senior Vice President, Finance and
Administration at the Company's address given above. One of the procedural
requirements in the By-Laws is timely notice in writing of the business the
stockholder proposes to bring before the meeting. For the 2001 Annual Meeting,
notice must be received by the Company no earlier than May 6, 2001 and no later
than June 5, 2001.
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.
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<PAGE> 19
Exhibit A
DURAMED PHARMACEUTICALS, INC.
2000 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.
A-1
<PAGE> 20
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.
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. "Mature Shares" means Shares which have been fully
paid and held, of record or beneficially, by the holder of an
Option for at least six months.
L. "Nonqualified Stock Option" means any Option other
than an Incentive Stock Option.
M. "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.
N. "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.
O. "Share" means one share of the Common Stock, par
value $.01 per share, of Duramed.
A-2
<PAGE> 21
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 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.
A-3
<PAGE> 22
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 1,300,000 Shares in the
aggregate and Options for no more than 500,000 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 as payment for
the Option Price pursuant to Section 7.1 also shall be available for issuance
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.
A-4
<PAGE> 23
ARTICLE VII
PAYMENT OF OPTION PRICE
7.1 Subject to such administrative requirements as the
Committee may impose, payment of the Option Price may be made, at the election
of the holder of an Option, in cash or by the tender of Mature Shares or by a
combination of the foregoing. If payment by the tender of Mature Shares is
selected, the value of each Mature Share shall be deemed to be the Fair Market
Value of a Share on the day the Mature Shares are tendered for payment, which
shall be the date on which the Mature Shares, duly endorsed or accompanied by a
stock power duly endorsed for transfer to Duramed, are received by Duramed. An
Option's exercise price also may 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.
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.
A-5
<PAGE> 24
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.
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
A-6
<PAGE> 25
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 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
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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 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.
13.5 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 Subject to stockholder approval, this Plan shall become
effective as of September 12, 2000. No Option shall be granted hereunder
subsequent to September 11, 2010 or subsequent to any earlier date as of which
this Plan is terminated.
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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.
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> 28
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 the Holiday Inn, Cincinnati Airport, 1717
Airport Exchange Boulevard, Erlanger, Kentucky 41018, on September 12, 2000, at
9:00 a.m. (EDT), and at any adjournments thereof:
1. Election of E. Thomas Arington, Jeffrey T. Arington, George W.
Baughman, Richard R. Frankovic, Peter R. Seaver, S. Sundararaman and
Philip M. Uhrhan as directors.
[ ] FOR all nominees [ ] WITHHELD from all nominees [ ] For all nominees
except as noted
on line below:
*EXCEPTIONS_____________________________________________________________________
2. [ ] FOR [ ] AGAINST [ ] ABSTAIN on the proposal to approve the 2000
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" THE PROPOSAL AND IN FAVOR OF ALL OF
THE NOMINEES LISTED ABOVE. 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.
(CONTINUED AND TO BE SIGNED ON THE OTHER SIDE)
Please mark: I do [ ] do not [ ] plan to attend the meeting.
Dated: _______________________________, 2000
--------------------------------------------
--------------------------------------------
(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.
