<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File number 000-19809
DURA PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3645543
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5880 PACIFIC CENTER BLVD., SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (619) 457-2553
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
The number of shares of the Registrant's Common Stock outstanding as of June 30,
1996 was 37,471,880, as adjusted for the 100% stock dividend effective July 1,
1996.
<PAGE> 2
DURA PHARMACEUTICALS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
December 31, 1995 and June 30, 1996....................... 3
Consolidated Statements of Operations -
Three and six months ended June 30, 1995 and 1996......... 4
Consolidated Statements of Cash Flows -
Six months ended June 30, 1995 and 1996................... 5
Notes to Consolidated Financial Statements.................. 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 8-12
Risk Factors ............................................... 12-18
PART II - OTHER INFORMATION
Item 2. Changes in Securities........................................ 19
Item 4. Submission of Matters to a Vote of Security Holders.......... 19
Item 6. Exhibits and Reports on Form 8-K ............................ 20
SIGNATURES.............................................................. 21
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DURA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 25,554 $ 107,003
Short-term investments ........................................ 42,266 100,595
Accounts and other receivables ................................ 6,957 9,397
Inventory ..................................................... 3,069 3,294
Prepaid and other ............................................. 612 417
--------- ---------
Total current assets .................................... 78,458 220,706
PROPERTY ......................................................... 16,133 18,914
LICENSE AGREEMENTS AND PRODUCT RIGHTS ............................ 39,065 45,160
GOODWILL ......................................................... 7,083 6,857
OTHER ............................................................ 3,258 8,561
--------- ---------
Total ................................................... $ 143,997 $ 300,198
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................. $ 7,225 $ 8,715
Accrued wages, taxes and benefits ............................. 1,341 2,596
Current portion of long-term obligations ...................... 10,175 7,897
--------- ---------
Total current liabilities ............................... 18,741 19,208
--------- ---------
LONG-TERM OBLIGATIONS:
Notes payable - bank .......................................... 6,611 --
Other long-term obligations ................................... 8,816 9,134
--------- ---------
Total long-term obligations ......................... 15,427 9,134
OTHER NON-CURRENT LIABILITIES .................................... 732 894
--------- ---------
Total liabilities ....................................... 34,900 29,236
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, shares authorized - 5,000,000;
no shares issued or outstanding
Common stock, no par value, shares authorized -100,000,000; -- --
issued and outstanding - 37,471,880 and 31,530,654,
respectively ............................................... 216,514 369,219
Accumulated deficit ........................................... (103,320) (94,655)
Unrealized gain on investments ................................ 103 3
Warrant subscriptions receivable .............................. (4,200) (3,605)
--------- ---------
Total shareholders' equity .............................. 109,097 270,962
--------- ---------
Total ................................................... $ 143,997 $ 300,198
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- --------------------
1995 1996 1995 1996
-------- -------- -------- --------
REVENUES: (unaudited)
<S> <C> <C> <C> <C>
Sales ................................... $ 9,836 $ 12,905 $ 16,715 $ 26,960
Contract ................................ 3,233 5,895 5,791 10,426
-------- -------- -------- --------
Total revenues ................... 13,069 18,800 22,506 37,386
-------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of sales .......................... 2,844 3,799 4,232 7,422
Clinical, development and regulatory ... 2,085 3,720 4,175 7,119
Selling, general and administrative .... 6,441 7,306 11,981 15,046
Goodwill amortization .................. 122 113 148 226
-------- -------- -------- --------
Total operating costs and expenses 11,492 14,938 20,536 29,813
-------- -------- -------- --------
OPERATING INCOME .......................... 1,577 3,862 1,970 7,573
-------- -------- -------- --------
OTHER :
Interest income ........................ 439 1,501 963 2,410
Interest expense ....................... (97) (222) (97) (516)
Other expense .......................... (27) (2) (28) (2)
-------- -------- -------- --------
Total other ...................... 315 1,277 838 1,892
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ................ 1,892 5,139 2,808 9,465
PROVISION FOR INCOME TAXES ................ 81 530 141 800
-------- -------- -------- --------
NET INCOME ................................ $ 1,811 $ 4,609 $ 2,667 $ 8,665
======== ======== ======== ========
NET INCOME PER SHARE ...................... $ 0.07 $ 0.12 $ 0.10 $ 0.23
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES ..................... 26,003 38,679 25,752 37,277
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
DURA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
1995 1996
--------- ---------
(unaudited)
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES ................... $ 2,639 $ 12,582
--------- ---------
INVESTING ACTIVITIES:
Purchases of short-term investments ....................... (12,515) (88,371)
Sales and maturities of short-term investments ............ 1,896 29,941
Acquisition of product rights.............................. 4,012 (3,500)
Purchases of long-term investments......................... -- (5,000)
Company/product acquisitions, net of cash received......... (6,489) --
Capital expenditures ...................................... (5,720) (3,390)
Other ..................................................... (40) (303)
--------- ---------
Net cash (used for) investing activities ............ (18,856) (70,623)
--------- ---------
FINANCING ACTIVITIES:
Issuance of common stock and warrants, net of issuance cost 248 152,047
Bank borrowings ........................................... 4,360 --
Principal payments on notes payable ....................... (60) (7,057)
Principal payments on other long-term obligations ......... -- (5,500)
--------- ---------
Net cash provided by financing activities ........... 4,548 139,490
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........ (11,669) 81,449
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............ 33,463 25,554
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................. $ 21,794 $ 107,003
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) ................. $ 0 $ 105
Income taxes ........................................... $ 35 $ 8
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
DURA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Dura Pharmaceuticals, Inc. ("Dura" or the "Company") in accordance with the
instructions to Form 10-Q. The consolidated financial statements reflect all
adjustments, consisting of only normal recurring accruals, which are, in the
opinion of management, necessary for a fair statement of the results of the
interim periods presented. These consolidated financial statements and notes
thereto should be read in conjunction with the audited financial statements and
notes thereto included in the Company's Annual Report on Form 10-K, as amended,
for the year ended December 31, 1995.
The results of operations for the interim periods are not necessarily indicative
of results to be expected for any other interim period or for the year as a
whole.
The consolidated financial statements include the accounts of Dura and its three
wholly-owned subsidiaries, Health Script Pharmacy Services, Inc., acquired on
March 22, 1995, Healthco Solutions, Inc., incorporated on July 11, 1995, and
Dura Delivery Systems, Inc. ("DDSI"), acquired on December 29, 1995. All
intercompany transactions and balances are eliminated in consolidation.
Reclassifications - Prior to Dura's acquisition of DDSI on December 29, 1995,
Dura recorded costs made on behalf of DDSI as they were incurred and
simultaneously accrued reimbursement from DDSI by crediting the related costs.
Dura is recording contract revenues from Spiros Development Corporation ("Spiros
Corp."), a separate entity formed in December 1995, equal to the amounts due
from Spiros Corp. for development and management services less a prorata amount
allocated to the Series S warrant subscriptions receivable, established in
connection with the issuance and sale of Series S warrants in December 1995. The
DDSI reimbursements for the three and six months ended June 30, 1995 have been
reclassified to contract revenues to conform to the presentation used for Spiros
Corp..
Accounting for Stock-Based Compensation - In October 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation", which requires the
Company to adopt disclosure provisions for stock based compensation effective
January 1, 1996. The standard defines a fair value method of accounting for
stock options and other equity instruments. Under the fair value method,
compensation is measured at the grant date based on the fair value of the award
and is recognized over the service period, which is usually the vesting period.
This standard encourages rather than requires companies to adopt the fair value
method of accounting for employee stock-based transactions. Companies are
permitted to continue to account for such transactions under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," but will be required to disclose in a note to the financial
statements pro forma net income and net income per share as if the new method of
accounting had been
6
<PAGE> 7
applied. The Company has elected to continue to apply APB Opinion No. 25 in its
financial statements and will disclose in future annual reports the required pro
forma information in a footnote.
2. NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of common
and common equivalent shares during each period. Common equivalent shares
consist of stock options and warrants and are included in the computation of net
income per share using the treasury stock method. The computations of net income
per share are unchanged on a fully-diluted basis for all periods presented and
have been adjusted to reflect the 100% stock split effective July 1, 1996.
3. INCOME TAXES
The provisions for income taxes for the 1995 and 1996 periods reflect the
expected combined Federal and state tax rate of 40% offset by the expected
benefit from utilization of net operating loss carryforwards. During the three
and six months ended June 30, 1996, the Company recorded tax benefits from stock
option exercises of $528,000 and $658,000, respectively, which were credited to
common stock. At June 30, 1996, the valuation allowance against deferred tax
assets equaled 100% of the net deferred tax assets.
4. CAPITAL STOCK
Stock split - On May 29, 1996, the Company declared a 2-for-1 stock split in the
form of a 100% stock dividend on the Company's common stock effective July 1,
1996 for shareholders of record on June 17, 1996. All share amounts and net
income per share for all periods presented have been adjusted to give effect to
this stock dividend.
Common stock - On May 29, 1996, the Company completed an offering of 2,702,500
shares (5,405,000 shares post stock dividend) of common stock resulting in net
proceeds to the Company of $150.7 million. On May 29, 1996 the Company's
shareholders approved an amendment to the Articles of Incorporation increasing
the number of authorized shares of common stock from 25 to 100 million.
Stock options - On February 21, 1996 the shares authorized under the Company's
stock option plan, as adjusted for the July 1, 1996 stock dividend, were
increased by 1,500,000 to a total of 6,007,360.
5. PRODUCT RIGHTS
On July 3, 1996, the Company acquired from Procter & Gamble Pharmaceuticals,
Inc. ("P&G") the rights to the Entex(R) products, consisting of four
prescription upper respiratory drugs. The purchase price of $45.0 million
consisted of $25.0 million in cash paid at closing and $20.0 million due on July
3, 1997.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This information should be read in conjunction with the consolidated financial
statements and the notes thereto included in Item 1 of this Quarterly Report and
the audited financial statements and notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations for the year ended
December 31, 1995 contained in the Company's 1995 Report on Form 10-K, as
amended, for the year ended December 31, 1995. See "Risk Factors" for trends and
uncertainties known to the Company that could cause reported financial
information not to be necessarily indicative of the future, including discussion
of the effects of seasonality on the Company's quarterly operating results.
RECENT DEVELOPMENTS
Revenues for the three and six months ended June 30, 1996 increased 44% and 66%,
respectively, as compared to the same periods in the prior year. The increased
revenues are due in large part to the agreements the Company entered into in
1995 and the first half of 1996 that resulted in the acquisition and
in-licensing of nine products, the co-promotion of two products, and the
acquisition of Health Script. The acquisition of the Entex product rights, which
closed on July 3, 1996, will impact future results. In addition, the agreements
entered into in December 1995 with Spiros Corp. expanded the development program
for Spiros(TM), Dura's proprietary dry powder drug delivery system (formerly the
Dryhaler(R)). The Company continues to focus its efforts on acquiring rights for
marketing prescription pharmaceuticals to high prescribing respiratory
physicians and on developing Spiros. The following recent transactions reflect
the results of these efforts.
On July 3, 1996, the Company acquired from Procter & Gamble Pharmaceuticals,
Inc. ("P&G") the rights to the Entex(R) products, consisting of four
prescription upper respiratory drugs. The purchase price of $45.0 million
consisted of $25.0 million in cash paid at closing and $20.0 million due on July
3, 1997. The Entex Products generated approximately $42.4 million in U.S. and
Canadian sales for P&G in 1995. P&G will manufacture the Entex Products for the
Company under a supply agreement. Entex products represented approximately
three-quarters of all prescriptions written for decongestant/expectorants and
more than one-fourth of the total U.S. prescriptions written for sinusitis in
1995. The Entex Products, which represent an extension of the Company's existing
line of prescription pharmaceuticals, will be promoted primarily through the
distribution of samples to the same respiratory physician specialists currently
targeted by the Company's existing national pharmaceutical sales force.
On May 29, 1996, the Company's Board of Directors declared a 2-for-1 stock split
in the form of a 100% stock dividend on the Company's common stock. The stock
split was effective July 1, 1996 for shareholders of record on June 17, 1996.
The Company's shareholders approved an amendment to the Articles of
Incorporation increasing the number of authorized shares of common stock from 25
to 100 million on May 29, 1996.
8
<PAGE> 9
In May 1996, the Company completed a public offering of 2,702,500 shares
(5,405,000 shares post dividend) of common stock at a price of $58.75 per share
($29.38 per share post dividend) resulting in net proceeds to the Company of
approximately $150.7 million.
In March 1996, the Company signed an agreement to co-promote Uni-Dur(R), a once
a-day theophylline, with Key Pharmaceuticals, a unit of Schering-Plough
Corporation, in the U.S. Uni-Dur was launched by Key Pharmaceuticals in
September 1995 and is indicated for the relief and/or prevention of symptoms of
asthma and reversible bronchospasm associated with chronic bronchitis and
emphysema. Under the agreement, the Company's national sales organization will
promote Uni-Dur to the respiratory physician group it currently calls on and the
Company will receive royalty and incentive payments. The Company's national
sales organization commenced promotion of Uni-Dur on April 1, 1996.
In February 1996, Dura entered into an agreement with Houghten to provide, for a
four-year period, contract services for Houghten's drug development programs
using Dura's development capabilities and proprietary formulation and delivery
technology. Dura will receive (a) contract revenues from Houghten for services
provided and (b) rights to collaborate with Houghten on the development of new
compounds. Concurrently, Dura made a $5.0 million equity investment in Houghten,
which was subsequently converted into 775,193 shares of Houghten common stock.
Prior to Dura's acquisition of DDSI on December 29, 1995, Dura recorded costs
made on behalf of DDSI as they were incurred and simultaneously accrued
reimbursement from DDSI by crediting the related costs. Dura is currently
recording contract revenues from Spiros Corp., equal to the amounts due from
Spiros Corp. for development and management services less a prorata amount
allocated to the warrant subscriptions receivable. The DDSI reimbursements for
the three and six months ended June 30, 1995 have been reclassified to contract
revenues to conform to the presentation used for Spiros Corp. The information
presented in the results of operations below reflects this reclassification.
RESULTS OF OPERATIONS
Total revenues for the three and six months ended June 30, 1996 increased $5.7
and $14.9 million, respectively, over the same periods in 1995. Net income for
the three and six months ended June 30, 1996 increased $2.8 and $ 6.0 million,
or $0.05 and $0.13 per share, respectively, over the same periods in 1995.
Pharmaceutical sales for the three and six months ended June 30, 1996 were $12.9
and $27.0 million, increases of 31% and 61%, respectively, over the same periods
in 1995. The three and six month increases were due in large part to the sales
generated by newly acquired products and Health Script.
Gross profit (pharmaceutical sales less cost of sales) for the three and six
months ended June 30, 1996 increased $ 2.1 and $7.1 million, respectively, over
the same periods in 1995. Gross profit as a percentage of sales for the three
and six months ended June 30, 1996 was 71% and 72% as compared to 71% and 75%,
respectively, for the three and six months ended June 30, 1995. The decrease in
gross profit as a percentage of sales for the six months ended June 30, 1996 as
9
<PAGE> 10
compared to the prior period is due to product mix relating in large part to the
sales growth by Health Script.
Contract revenues for the three and six months ended June 30, 1996 increased
$2.7 and $4.6 million, or 82% and 80%, respectively, as compared to the same
periods in 1995. The Company, under agreements with several companies, conducts
feasibility testing and development work on various compounds for use with
Spiros. In addition, the Company receives royalties primarily from the
co-promotion of pharmaceutical products. Contract revenues from Spiros related
development and feasibility agreements for the three and six months ended June
30, 1996 were $4.6 and $8.7 million, including $4.1 and $7.8 million,
respectively, from Spiros Corp., and $2.6 and $4.6 million, including $1.7 and
$3.7 from DDSI, respectively, for the same periods in 1995. Contract revenues
from royalties were $1.3 and $1.7 million for the three and six months ended
June 30, 1996, and $276,000 and $342,000, respectively, for the same periods in
1995. In addition, for the three and six months ended June 30, 1995, the Company
recorded contract revenues of $400,000 and $800,000, respectively, resulting
from an agreement under which the Company received funding through December 1995
to expand its sales force.
Clinical, development and regulatory expenses for the three and six months ended
June 30, 1996 increased $1.6 and $2.9 million over the same periods in 1995. The
increases reflect expenses incurred by the Company under feasibility and
development agreements covering the use of various compounds with the Spiros
proprietary dry powder drug delivery system.
Selling, general and administrative expenses for the three and six months ended
June 30, 1996 increased $0.9 and $3.1 million, as compared to the same periods
in 1995, and decreased as a percentage of revenues to 39% and 40%, respectively,
as compared to 49% and 53% in the same periods in 1995. The dollar increase
results primarily from the operating costs of Health Script, acquired on March
22, 1995, and increased sales and contracting levels. The decrease as a
percentage of revenues reflects the productivity of the sales force, the growth
of pharmaceutical sales due to product acquisitions and the growth of contract
revenues.
Interest income for the three and six months ended June 30, 1996 increased $1.1
and $1.4 million, respectively, as compared to the three and six months ended
June 30, 1995. The increases are due to the cash generated from the August 1995
and May 1996 public stock offerings. Interest expense for the three and six
months ended June 30, 1996 increased by $125,000 and $419,000, respectively, as
compared to the three and six months ended June 30, 1995 as a result of
obligations incurred in connection with 1995 product acquisitions.
The Company recorded income tax provisions of $530,000 and $800,000 for the
three and six months ended June 30, 1996, and $81,000 and $ 141,000,
respectively, for the three and six months ended June 30, 1995. The provisions
reflect the expected combined Federal and state tax rate of 40% offset by the
expected benefit from utilization of net operating loss carryforwards.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased by $141.8 million to $ 201.5 million at
June 30, 1996, from $59.7 million at December 31, 1995; cash, cash equivalents
and short-term investments increased by $139.8 million to $207.6 million at June
30, 1996, from $67.8 million at December 31, 1995. The increases resulted
primarily from the $150.0 million in net proceeds from the May 1996 public stock
offering and cash generated by operations.
In 1995, the Company completed the first phase of construction, at its
headquarters, of a manufacturing facility that will be used to formulate, mill,
blend and fill drugs to be used with Spiros, pending regulatory approval. In
1996 the Company began a two year project to expand its manufacturing facility
to meet the production needs of products to be used with Spiros, pending
regulatory approval. Included in construction in progress at June 30, 1996 are
capital expenditures of $10.1 million relating to the facility. Equipment
purchases for and validation of the manufacturing facility are currently
scheduled through 1997. At June 30, 1996, the Company had open purchase
commitments for construction and validation of the facility, and equipment
purchases, of approximately $4.8 million.
At June 30, 1996, the Company had available a line of credit with a bank
providing for borrowings up to $5.0 million, against which there were no
borrowings outstanding. In accordance with bank loan agreements, all assets of
the Company are pledged as collateral to loans outstanding, and the Company is
required to maintain certain financial covenants. The Company retired all of its
outstanding bank debt, approximately $6.9 million, in May 1996.
The Development and Management Agreement between the Company and Spiros Corp.
requires Spiros Corp. to make payments to Dura, for development and management
services, within 15 days after the end of the month in which the services are
incurred. Dura records contract revenues from Spiros Corp. equal to the amounts
due from Spiros Corp. for development and management services less a prorata
amount allocated to the warrant subscriptions receivable. The Company has a
purchase option with respect to all of the shares of Spiros Corp. which is
exercisable through December 31, 1999 at predetermined prices (the "Spiros
Purchase Option"). In addition, the Company has an option, through specified
dates, to acquire Spiros Corp.'s exclusive rights for use of Spiros with
albuterol in the cassette version for a minimum of $15.0 million in cash (the
"Albuterol Purchase Option").
At June 30, 1996, the Company had an aggregate of $17.0 million in other
obligations, of which $7.9 million is to be paid within the next year. In
connection with the Entex product acquisition on July 3, 1996, the Company paid
cash of $25.0 million and is obligated to pay an additional $20.0 million on
July 3, 1997.
The Company has a $61.6 million net operating loss carryforward for Federal
income tax purposes of which approximately $32.1 million is currently available
to offset taxable income. The tax benefit from approximately $13.3 million of
the net operating loss carryforward currently available will be credited to
common stock when and if this amount is used to offset taxable income.
11
<PAGE> 12
The Company anticipates that its existing capital resources, together with cash
expected to be generated from operations and available bank borrowings, should
be sufficient to finance its operations and working capital through at least
June 1997. Significant additional resources, however, may be required in
connection with product or company acquisitions or in-licensing opportunities.
At present, the Company is actively pursuing the acquisition of rights to
several products and/or companies which may require the use of substantial
capital resources; however, there are no present agreements or commitments with
respect to any such acquisition.
RISK FACTORS
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could effect, the
Company's actual results and could cause the Company's actual consolidated
results for the third quarter of 1996, and beyond, to differ materially from
those expressed in any forward-looking statements made by, or on behalf of, the
Company.
REDUCTION IN GROSS MARGINS - In recent years, there has been a major shift in
the health care industry whereby payors (including health maintenance
organizations ("HMOs") and other managed care organizations) have become highly
cost conscious and have exerted increasing pressure on pricing by health care
providers (including pharmaceutical companies such as Dura) or risk the
substitution of alternative products or services. The increased power and
influence of these institutional payors has created downward price pressure in
the industry which is expected to continue. Therefore, the Company expects
average selling prices for its products to decline over time due to these and
other competitive pressures. The Company will seek to mitigate the effect of
reductions in average selling prices.
DEPENDENCE ON ACQUISITION OF RIGHTS TO PHARMACEUTICAL PRODUCTS - The Company's
strategy for growth is dependent upon acquiring, in-licensing and co-promoting
pharmaceuticals or companies developing and/or marketing pharmaceuticals
targeted primarily at allergists, ENTs, pulmonologists and a selected subset of
pediatricians and generalist physicians. Other companies, including those with
substantially greater resources, are also attempting to compete with the Company
for the right to those products. There can be no assurance that the Company will
be able to acquire, in-license or co-promote additional pharmaceuticals on
acceptable terms, if at all. The failure of the Company to acquire, in-license,
co-promote, develop or market commercially successful pharmaceuticals would have
a material adverse effect on the Company. There can be no assurance that the
Company, once it has obtained rights to a pharmaceutical product and committed
to payment terms, will be able to generate sales sufficient to create a profit
or otherwise avoid a loss.
DEVELOPMENT RISKS ASSOCIATED WITH SPIROS - Spiros will require significant
additional development by Dura. In addition, regulatory approvals for each drug
to be delivered through the use of Spiros will have to be obtained prior to
commercialization. There can be no assurance that development of Spiros will be
completed successfully, that Spiros will not encounter problems in clinical
trials that will cause the delay or suspension of any such trials, that such
testing will show Spiros to be safe or efficacious or that Spiros will receive
regulatory approval.
12
<PAGE> 13
Moreover, even if Spiros does receive regulatory approval, there can be no
assurance that Spiros will be commercially successful, have all of the patent
and other protections necessary to prevent competitors from producing similar
products and not infringe on patent or other proprietary rights of third
parties. The failure of Spiros to receive timely regulatory approval and achieve
commercial success would have a material adverse effect on the Company.
SEASONALITY AND FLUCTUATING QUARTERLY RESULTS - Historically, as a result of the
winter cold and flu season, industry-wide demand for respiratory products has
been stronger in the first and fourth quarters than during the second and third
quarters of the year. In addition, variations in the timing of the onset and
severity of the winter cold and flu season have influenced the Company's results
of operations in the past. Recent product acquisitions by the Company are likely
to increase the impact of sales trends during the winter cold and flu season.
However, the past growth and productivity of the sales force and the
introduction by the Company of new products have tended to mitigate the impact
of seasonality on the Company's results of operations. No assurances can be
given that future sales growth, if any, will continue to mitigate the impact of
seasonality.
COMPETITION - The Company directly competes with at least 25 other companies in
the U.S. which are currently engaged in developing, marketing and selling of
respiratory pharmaceuticals. Additionally, there are at least 10 companies
currently involved in developing, marketing and selling of dry powder pulmonary
drug delivery systems. Many of these companies have financial and marketing
resources and development capabilities substantially greater than those of the
Company. The selling prices of such products sold by the Company and its
competitors typically decline as competition increases. Further, other products
now in use or under development by others may be more effective than the
Company's current or future products. The industry is characterized by rapid
technological changes, and competitors may develop their products more rapidly
than the Company. Competitors may also be able to complete the regulatory
process sooner and therefore, may begin to market their products in advance of
the Company's products.
DEPENDENCE ON THIRD PARTIES; LIMITED MANUFACTURING EXPERIENCE - The Company's
strategy for development and commercialization of certain of its products is
dependent upon entering into various arrangements with corporate partners,
licensors and others and upon the subsequent success of these partners,
licensors and others in performing their obligations. The Company has limited
experience manufacturing products for commercial purposes and currently does not
have the capability to manufacture its pharmaceutical products and, therefore,
is dependent on contract manufacturers for the production of such products for
development and commercial purposes. The manufacture of the Company's products
is subject to current Good Manufacturing Practice ("cGMP") regulations
prescribed by the U.S. Food and Drug Administration ("FDA"). In the event that
the Company is unable to obtain or retain third party manufacturing it may not
be able to commercialize its products as planned. There can be no assurance that
the Company will be able to continue to obtain adequate supplies of such
products in a timely fashion at acceptable quality and prices. Also, there can
be no assurance that the Company will be able to enter into agreements for the
manufacture of future products with manufacturers whose facilities and
procedures comply with cGMP and other regulatory requirements. The Company's
current dependence upon others for manufacture of its products may adversely
affect the future profit
13
<PAGE> 14
margin, if any, on the sale of those products and the Company's ability to
develop and deliver products on a timely and competitive basis.
In 1995 the Company completed construction of a manufacturing facility located
in a Company-owned building adjacent to its headquarters. The facility initially
is intended to be used to formulate, mill, blend and manufacture drugs to be
used with Spiros, pending regulatory approval. Equipment purchases and
validation are currently scheduled through 1997. The Company's manufacturing
facility must be registered with and licensed by various regulatory authorities
and comply with cGMP requirements prescribed by the FDA. Any failure or
significant delay in the validation of or obtaining a satisfactory regulatory
inspection of the new facility could have a material adverse effect on the
Company's ability to manufacture products in connection with Spiros.
MANAGING GROWTH OF BUSINESS - The Company has experienced significant growth as
total revenues increased 66% in the six months ended June 30, 1996 and 58% in
fiscal 1995 as compared to prior periods. In 1995, the Company executed three
agreements relating to the acquisition, in-licensing and co-promotion of
products and acquired Health Script. In the first half of 1996, the Company
executed three agreements for the co-promotion and acquisition of products and
entered into a development agreement with Houghten. The Company anticipates that
the integration of the newly-acquired or any additional businesses or products
will require significant management attention. The Company's ability to achieve
and maintain profitability is based on management's ability to manage its
changing business effectively.
INCOME TAXES - The Company's effective income tax rate may vary from the
combined Federal and State statutory income tax rate of 40% due to the favorable
effects from utilization of net operating loss ("NOL") carryforwards. The NOL
carryforwards currently available for use by the Company are subject to the
limitations of Section 382 of the Internal Revenue Code due to a "change of
ownership". While the company believes the limitation will be increased by
approximately $2.9 million per year through 2006, this amount is not certain,
nor is it certain that a subsequent change of ownership could not result in a
further limitation. In addition, the NOL carryforwards are subject to review and
potential disallowance by the Internal Revenue Service upon audit of the Federal
income tax returns of the Company.
UNCERTAINTY OF PROFITABILITY; NEED FOR ADDITIONAL FUNDS - The Company has
experienced significant operating losses in the past and at June 30, 1996, the
Company's accumulated deficit was approximately $94.7 million. Although the
Company achieved profitability on an annual basis in fiscal 1994 and 1995 (prior
to the one-time charges of approximately $43.8 million in the fourth quarter of
1995) there can be no assurance that revenue growth or profitability will
continue on a quarterly or annual basis in the future. The acquisition and
in-licensing of products, the expansion of the Company's sales force in response
to acquisition and in-licensing of products, the maintenance of the Company's
existing sales force, the upgrade and expansion of its facilities, continued
pricing pressure and the potential exercise of either the Spiros Purchase Option
or the Albuterol Purchase Option will require the commitment of substantial
capital resources and may also result in significant losses. See "Exercise of
Purchase Options for Spiros Corp. Callable Common Stock and Albuterol Product;
Dilution." Depending upon, among other matters, the acquisition and in-licensing
opportunities available to it, the Company may need to
14
<PAGE> 15
raise additional funds for these purposes. The Company may seek such additional
funding through public and private financings, including equity financings.
Adequate funds for these purposes, whether through financial markets or from
other sources, may not be available when needed or on terms acceptable to the
Company. Insufficient funds may require the Company to delay, scale back,
eliminate or prevent some or all of its product acquisition and in-licensing
programs, the upgrade and expansion of its facilities and the potential exercise
of the Spiros Purchase Option or the Albuterol Purchase Option. The Company
anticipates that its existing capital resources, together with cash expected to
be generated from operations and bank borrowings, should be sufficient to
finance its current operations and working capital requirements through at least
June 1997.
EXERCISE OF PURCHASE OPTIONS FOR SPIROS CORP. CALLABLE COMMON STOCK AND
ALBUTEROL PRODUCT; DILUTION - The Company has a contractual relationship with
Spiros Corp. relating to the development of Spiros, pursuant to which certain
rights to Spiros were transferred by the Company and DDSI to Spiros Corp. The
Company has the Spiros Purchase Option, which is exercisable through December
31, 1999. If the Company exercises the Spiros Purchase Option, it will be
required to make a substantial cash payment or to issue shares of the Company's
common stock, or both. A payment in cash would reduce the Company's capital
resources. A payment in shares of the Company's common stock would result in a
decrease in the percentage ownership of the Company's shareholders at that time.
The exercise of the Spiros Purchase Option will likely require the Company to
record a significant charge to earnings and may adversely impact future
operating results. If the Company does not exercise the Spiros Purchase Option
prior to its expiration, the Company's rights in and to Spiros with respect to
certain compounds will be terminated. In addition, the Company has the Albuterol
Purchase Option, exercisable through specified dates, to acquire Spiros Corp.'s
exclusive rights for use of Spiros with albuterol in the cassette version. If
the Company exercises the Albuterol Purchase Option, it will required to make a
substantial cash payment which could have a significant effect on its capital
resources. The Company may not have sufficient capital resources to exercise the
Albuterol Purchase Option which may result in the Company's loss of valuable
rights. In addition, continuation of development and commercialization of an
albuterol product in a cassette version of Spiros may require substantial
additional expenditures by Dura.
The Company also has the option to provide funding for Spiros Corp. development
in certain circumstances. In the event that such funding is not provided and
other research funds are exhausted, the contractual relationship with Spiros
Corp. may be terminated by Spiros Corp. In such an event, Spiros Corp. will
retain its current rights to utilize Spiros technology which may have a material
adverse effect on the Company. As of the date of this report, the Company has
not made any definitive determination as to the exercise of the Spiros Purchase
Option, the Albuterol Purchase Option or any funding option.
GOVERNMENT REGULATION; NO ASSURANCE OF FDA APPROVAL - Development, testing,
manufacturing and marketing of the Company's products are subject to extensive
regulation by numerous governmental authorities in the U.S. and other countries.
The process of obtaining FDA approval of pharmaceutical products and drug
delivery systems is costly and time-consuming. Any new pharmaceutical must
undergo rigorous preclinical and clinical testing and an extensive regulatory
approval process mandated by the FDA. Marketing of drug delivery
15
<PAGE> 16
systems also requires FDA approval, which can be costly and time consuming to
obtain. The Company will need to obtain regulatory approval for each drug to be
delivered through the use of Spiros. There can be no assurance that the
pharmaceutical products currently in development, or those products acquired or
in-licensed by the Company, will be approved by the FDA. In addition, there can
be no assurance that all necessary clearances will be granted to the Company or
its licensors for future products or that FDA review or actions will not involve
delays adversely affecting the marketing and sale of the Company's products. For
both currently marketed and future products, failure to comply with applicable
regulatory requirements can, among other matters, result in the suspension of
regulatory approval, as well as possible civil and criminal sanctions. In
addition, changes in regulations could have a material adverse effect on the
Company.
The FDA is continuing an evaluation of the effectiveness of all drug products
containing ingredients marketed prior to 1962 (the year of enactment of the
"Drug Amendments of 1962" to the Federal Food, Drug and Cosmetic Act) as part of
its Drug Efficacy Study Implementation ("DESI") program to determine which drugs
are considered "new drugs" requiring approval through a New Drug Application
("NDA") for marketing. A policy guide issued by the FDA indicates that the FDA
will implement procedures to determine whether the new drug provisions are
applicable to existing products. If a final determination is made that a
particular drug requires an approved NDA, such approval will be required for
marketing to continue. If such a determination is made, the FDA might impose
various requirements; for example, it might require that the current product be
the subject of an approved NDA, that the product be reformulated and an NDA
approval be obtained, that the product must be sold on an over-the-counter basis
rather than as a prescription drug or that the product must be removed from the
market. There can be no assurance as to which of these courses the FDA will
require, if any, with respect to most of the Company's pharmaceutical products
or whether the Company will be able to obtain any approvals that the FDA may
deem necessary. If any of these actions are taken by the FDA, such actions could
have a material adverse effect on the Company's business. In addition, the
Company's Tornalate Metered Dose Inhaler uses chlorofluorocarbon ("CFC")
propellants. If CFCs are banned for use in the Tornalate Metered Dose Inhaler,
then the Company will not be able to market that product for sale. Health Script
is subject to regulation by state regulatory authorities, principally state
boards of pharmacy. In addition, Health Script is subject to regulation by other
state and Federal agencies with respect to reimbursement for prescription drug
benefits provided to individuals covered primarily by publicly-funded programs.
16
<PAGE> 17
PATENTS AND PROPRIETARY RIGHTS - The Company's success will depend in part on
its ability to obtain patents on current or future products or formulations,
defend its patents, maintain trade secrets and operate without infringing upon
the proprietary rights of others, both in the U.S. and abroad. However, eighteen
of the twenty pharmaceuticals currently marketed by the Company are not
protected by patents. The Company also has licenses or license rights to certain
other U.S. and foreign patent and patent applications. There can be no assurance
that patents, U.S. or foreign, will be obtained, or that, if issued or licensed
to the Company, they will be enforceable or will provide substantial protection
from competition or be of commercial benefit to the Company or that the Company
will possess the financial resources necessary to enforce or defend any of its
patent rights. The commercial success of the Company will also depend upon
avoiding the infringement of patents issued to competitors and upon maintaining
the technology licenses upon which certain of the Company's current products
are, or any future products under development might be, based. Litigation, which
could result in substantial cost to the Company, may be necessary to enforce the
Company's patent and license rights or determine the scope and validity of
proprietary rights of third parties. If any of the Company's products are found
to infringe upon patents or other rights owned by third parties, the Company
could be required to obtain a license to continue to manufacture or market such
products. There can be no assurance that licenses to such patent rights would be
made available to the Company on commercially reasonable terms, if at all. If
the Company does not obtain such licenses, it could encounter delays in
marketing affected products while it attempts to design around such patents or
it could find that the development, manufacture or sale of products requiring
such licenses is not possible. The Company currently has certain licenses from
third parties and in the future may require additional licenses from other
parties to develop, manufacture and market commercially viable products
effectively. There can be no assurance that such licenses will be obtainable on
commercially reasonable terms, if at all, or that the patents underlying such
licenses will be valid and enforceable.
PRODUCT LIABILITY AND RECALL - The Company faces an inherent business risk of
exposure to product liability claims in the event that the use of its
technologies or products is alleged to have resulted in adverse effects. Such
risks will exist even with respect to those products that receive regulatory
approval for commercial sale. While the Company has taken, and will continue to
take, what it believes are appropriate precautions, there can be no assurance
that it will avoid significant product liability exposure. The Company currently
has product liability insurance; however, there can be no assurance that the
level or breadth of any insurance coverage will be sufficient to fully cover
potential claims. There can be no assurance that adequate insurance coverage
will be available in the future at acceptable costs, if at all, or that a
product liability claim or recall would not materially and adversely affect the
business or financial condition of the Company.
17
<PAGE> 18
ATTRACTION AND RETENTION OF KEY PERSONNEL - The Company is highly dependent on
the principal members of its management staff, the loss of whose services might
impede the achievement of development objectives. Although the Company believes
that it is adequately staffed in key positions and that it will be successful in
retaining skilled and experienced management, operational and scientific
personnel, there can be no assurance that the Company will be able to attract
and retain such personnel on acceptable terms. The loss of the services of key
scientific, technical and management personnel could have a material adverse
effect on the Company, especially in light of the Company's recent significant
growth. The Company does not maintain key-person life insurance on any of its
employees.
VOLATILITY OF COMPANY STOCK PRICE; ABSENCE OF DIVIDENDS - The market prices for
securities of emerging companies, including the Company, have historically been
highly volatile. Future announcements concerning the Company or its competitors
may have a significant impact on the market price of the Company's common stock.
Such announcements might include financial results, the results of testing,
technological innovations, new commercial products, government regulations,
developments concerning proprietary rights, litigation or public concern as to
safety of the Company's products. No cash dividends have been paid on the
Company's common stock to date, and the Company does not anticipate paying cash
dividends in the foreseeable future.
CHANGE IN CONTROL - Certain provisions of the Company's charter documents
(including cumulative voting provisions for electing directors, provisions
providing for two classes of directors serving staggered two-year terms and
provisions permitting the Company to issue preferred stock in the future) and
terms relating to the acceleration of the exercisability of certain warrants and
options relating to the purchase of such securities by the Company in the event
of a change in control may have the effect of delaying, deferring or preventing
a change in control of the Company, thereby possibly depriving shareholders of
receiving a premium for their shares of the Company's common stock.
18
<PAGE> 19
PART II - OTHER INFORMATION
Item 2. Changes in Securities
On May 29, 1996 the Company declared a 2-for-1 stock split in the form
of a 100% stock dividend on the Company's common stock effective July
1, 1996 for shareholders of record on June 17, 1996.
Item 4. Submission of Matters to a Vote of Security Holders
On May 29, 1996, the Company's Annual Meeting of Shareholders was held
in La Jolla, California for the following purposes:
(1) To elect the five (5) directors to serve two-year terms to expire at
the 1998 Annual Meeting of Shareholders.
The total number of votes cast for, against and withheld for each
nominee was as follows:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C> <C>
James C. Blair 12,108,251 0 84,115
Joseph C. Cook 11,871,711 0 320,655
Cam L. Garner 12,106,046 0 86,320
David F. Hale 12,108,311 0 84,055
David S. Kabakoff 12,108,311 0 84,055
</TABLE>
The following directors, who were elected during the May 25, 1995
Annual Meeting of Shareholders, are serving terms that will expire in
1997:
Herbert J. Conrad
Gordon V. Ramseier
Charles G. Smith
Walter F. Spath
(2) To approve an amendment to the Company's Restated Articles of
Incorporation to increase the authorized number of shares of Common
Stock the Company. The total number of votes cast for, against and
withheld was 9,036,032; 2,992,367 and 89,967 respectively.
(3) To approve an amendment to increase the number of shares authorized
under the Company's 1992 Stock Option Plan by 750,000 to a total of
3,003,680. The total number of votes cast for, against and withheld was
8,532,344; 3,457,861 and 97,724 respectively.
(4) To ratify the appointment of Deloitte & Touche LLP as the Company's
independent public accountants for the year ending December 31, 1996.
The total number of votes cast for, against and withheld was
12,095,156; 5,087 and 92,123 respectively.
19
<PAGE> 20
PART II - OTHER INFORMATION
(CONTINUED)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Sixth Restated Articles of Incorporation
3.2 Certificate of Amendment of Sixth Restated Articles of
Incorporation
+10.1 Agreement for Purchase and Sale of Entex Assets dated
June 17, 1996 between Dura and Procter & Gamble (the
"Purchase Agreement")
10.2 1992 Stock Option Plan, as amended
11 Statements re: Computations of Net Income Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
On April 24, 1996 the Company filed a Current Report on Form
8-K/A dated December 29, 1995 ( which amended the Current
Report of the Company on Form 8-K filed on January 8, 1996)
providing the required financial statements and pro forma
financial information in connection with its acquisition of
Dura Delivery Systems, Inc. ("DDSI").
On April 24, 1996 the Company filed a Current Report on Form
8-K/A dated June 14, 1995 (which amended the Current Report of
the Company on Form 8-K filed on August 1, 1995) providing
historical information regarding its acquisition of the Rondec
product line and the required Pro Forma financial information.
+ Incorporated by reference to the Company's Form 8-K, filed on July 17, 1996.
20
<PAGE> 21
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
DURA PHARMACEUTICALS, INC.
(REGISTRANT)
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/S/ CAM L. GARNER Chairman, President and August 14, 1996
- ------------------------------- Chief Executive Officer
(CAM L. GARNER) (Principal Executive Officer)
/S/ JAMES W. NEWMAN Senior Vice President, August 14, 1996
- ------------------------------- Finance & Administration,
(JAMES W. NEWMAN) Chief Financial Officer
(Principal Financial and
Accounting Officer)
</TABLE>
21
<PAGE> 22
DURA PHARMACEUTICALS, INC.
FORM 10-Q
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Sixth Restated Articles of Incorporation
3.2 Certificate of Amendment of Sixth Restated Articles of
Incorporation
10.1 + Agreement for Purchase and Sale of Entex Assets dated June
17, 1996 between Dura and Procter & Gamble (the "Purchase
Agreement")
10.2 1992 Stock Option Plan, as amended
11 Statements re: Computations of Net Income Per Share
27 Financial Data Schedule
+ Incorporated by reference to the Company's Form 8-K, filed on July 17, 1996.
<PAGE> 1
EXHIBIT 3.1
SIXTH RESTATED ARTICLES OF INCORPORATION
OF DURA PHARMACEUTICALS, INC.
Cam L. Garner and Stephen R. Twiss certify that:
1. They are the President and the Secretary, respectively, of Dura
Pharmaceuticals, Inc., a California corporation (the "corporation").
2. The articles of incorporation of the corporation are amended and
restated to read as follows:
ARTICLE I
The name of the corporation is "Dura Pharmaceuticals, Inc."
ARTICLE II
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III
(A) Classes of Stock. The corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is Twenty-Five Million (25,000,000) shares of Common Stock and Five Million
(5,000,000) shares of Preferred Stock.
<PAGE> 2
(B) Powers, Preferences and Rights and Qualifications, Limitations and
Restrictions of Preferred Stock. The Preferred Stock may be issued from time to
time in one or more series. The Board of Directors is hereby authorized to fix
or alter from time to time the designation, powers, preferences and rights of
the shares of each such series and the qualifications, limitations or
restrictions thereof, including without limitation the dividend rights, dividend
rate, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), redemption price or prices, and the
liquidation preferences of any wholly unissued series of Preferred Stock, and to
establish from time to time the number of shares constituting any such series
and the designation thereof, or any of them (a "Preferred Stock Designation");
and to increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be
decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE IV
(A) Liability of Directors. The liability of the directors of the
corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
(B) Indemnity of Directors, Officers and Agents. The corporation is
authorized to indemnify the directors and officers of the corporation to the
fullest extent permissible under California law. The corporation is authorized
to provide indemnification of agents (as defined in Section 317 of the
California Corporations Code) through bylaw provisions, agreements with agents,
vote of shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in Section
204 of the California Corporations Code with respect to actions for breach of
duty to the corporation and its shareholders.
(C) Repeal or Modification. Any repeal or modification of the foregoing
provisions of this Article IV shall be prospective and shall not adversely
affect any right of indemnification or liability of a director, officer or agent
of the corporation relating to acts or omissions occurring prior to such repeal
or modification.
<PAGE> 3
ARTICLE V
(A) Classes, Election and Term of Office of Directors. The directors
shall be classified into two classes, as nearly equal in number as possible,
with the term of office of the first class to expire at the 1993 Annual Meeting
of Shareholders and the term of office of the second class to expire at the 1994
Annual Meeting of Shareholders. At each Annual Meeting of Shareholders following
such initial classification and election, directors elected to succeed those
directors whose terms expire shall be elected for a term of office to expire at
the second succeeding Annual Meeting of Shareholders after their election.
(B) Newly Created Directorships. Newly created directorships resulting
from any increase in the authorized number of directors shall, unless the Board
of Directors determines by resolution that any such newly created directorship
shall be filled by the shareholders, be filled only by the affirmative vote of a
majority of the directors then in office, even though less than a quorum of the
Board of Directors. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified.
ARTICLE VI
No action shall be taken by the shareholders of the corporation except
at an annual or special meeting of shareholders called in accordance with the
bylaws, and no action shall be taken by the shareholders by written consent.
ARTICLE VII
Advance notice of shareholder nominations for the election of directors
and of business to be brought by shareholders before any meeting of the
shareholders of the corporation shall be given in the manner provided in the
bylaws of the corporation.
ARTICLE VIII
Section 1. Shareholder Vote Required for Business Combinations.
(a) Shareholder Votes. In addition to any affirmative vote
required by law or by the articles of incorporation or by any Preferred Stock
Designation, and except as otherwise expressly provided in Section 2 of this
Article VIII:
<PAGE> 4
(i) any merger or consolidation of the corporation or
any subsidiary (as hereinafter defined) with (A) any Interested Shareholder (as
hereinafter defined) or (B) any other corporation (whether or not itself an
Interested Shareholder) which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of transactions)
to or with any Interested Shareholder or any Affiliate of any Interested
Shareholder of any assets of the corporation or any subsidiary having an
aggregate Fair Market Value (as hereinafter defined) equal to or greater than
15% of the corporation's assets as set forth on the corporation's most recent
audit consolidated financial statements; or
(iii) the issuance or transfer by the corporation or
any subsidiary (in one transaction or a series of transactions) of any
securities of the corporation or any subsidiary to any Interested Shareholder or
any Affiliate of any Interested Shareholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market Value
equal to or greater than 15% of the corporation's assets as set forth on the
corporation's most recent audited consolidated financial statements; or
(iv) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation proposed by or on behalf of any
Interested Shareholder or any Affiliate of any Interested Shareholder; or
(v) any reclassification of securities (including any
reverse stock split), or recapitalization of the corporation, or any merger or
consolidation of the corporation with any of its subsidiaries or any other
transaction (whether or not with or into or otherwise involving any Interested
Shareholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the corporation or any subsidiary which is
Beneficially Owned (as hereinafter defined) by any Interested Shareholder or any
Affiliate of any Interested Shareholder;
shall require the affirmative vote of the holders of greater than 50% of the
voting power of all of the then outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors (the "Voting
Stock"), voting together as a single class. Such affirmative vote shall be
required notwithstanding any other provisions of the articles of incorporation
or any provision of law or of any agreement with any national securities
exchange or otherwise which might otherwise permit a lesser vote or no vote.
<PAGE> 5
(b) Definition of Business Combination. The term "Business
Combination" as used in this Article VIII shall mean any transaction which is
referred to in any one or more of subparagraphs (i) through (v) of paragraph (a)
of this Section 1.
Section 2. Exceptions to Shareholder Vote Requirement.
The provisions of Section 1 of this Article VIII shall not be
applicable to any particular Business Combination, and such business combination
shall require only such affirmative vote as is required by law and any other
provision of the articles of incorporation and any Preferred Stock Designation,
if, in the case of a Business Combination that does not involve any cash or
other consideration being received by the shareholders of the corporation,
solely in their respective capacities as shareholders of the corporation, the
condition specified in the following paragraph (a) is met, or, in the case of
any other Business Combination, the conditions specified in either of the
following paragraph (a) or paragraph (b) are met:
(a) The Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter defined); provided,
however, that this condition shall not be capable of satisfaction unless there
are at least two Continuing Directors.
(b) All of the following conditions shall have been met:
(i) The consideration to be received by holders of
shares of a particular class (or series) of outstanding capital stock of the
corporation (including Common Stock and other than Excluded Preferred Stock (as
hereinafter defined)) shall be in cash or in the same form as the Interested
Shareholder or any of its Affiliates has previously paid for shares of such
class (or series) of capital stock. If the Interested Shareholder or any of its
Affiliates have paid for shares of any class (or series) of capital stock with
varying forms of consideration, the form of consideration to be received per
share by holders of shares of such class (or series) of capital stock shall be
either cash or the form used to acquire the largest number of shares of such
class (or series) of capital stock previously acquired by the Interested
Shareholder.
(ii) The aggregate amount of (x) the cash and (y) the
Fair Market Value, as of the date (the "Consummation Date") of the consummation
of the Business Combination, of the consideration other than cash to be received
per share by holders of Common Stock in such Business Combination shall be at
least equal to the higher of the following (in each case appropriately adjusted
in the event of any stock dividend, stock split, combination of shares of
similar event):
<PAGE> 6
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Shareholder or
any of its Affiliates for any shares of Common Stock acquired by
them within the two-year period immediately prior to the date of
the first public announcement of the proposal of the Business
Combination (the "Announcement Date") or in any transaction in
which the Interested Shareholder became an Interested Shareholder,
whichever is higher, plus interest compounded annually from the
first date on which the Interested Shareholder became an
Interested Shareholder (the "Determination Date") through the
Consummation Date at the publicly announced reference rate of
interest of Bank of America, N.T. & S.A. (or such other major bank
headquartered in the State of California as may be selected by the
Continuing Directors) from time to time in effect in the City of
San Francisco less the aggregate amount of any cash dividends
paid, and the Fair Market Value of any dividends paid in other
than cash, on each share of Common Stock from the Determination
Date through the Consummation Date in an amount up to but not
exceeding the amount of interest so payable per share of Common
Stock; and
(B) the Fair Market Value per share of Common
Stock on the Announcement Date or the Determination Date,
whichever is higher.
(iii) The aggregate amount of (x) the cash and (y) the
Fair Market Value, as of the Consummation Date, of the consideration other than
cash to be received per share by holders of shares of any class (or series),
other than Common Stock or Excluded Preferred Stock, of outstanding Voting Stock
shall be at least equal to the highest of the following (in each case
appropriately adjusted in the event of any stock dividend, stock split,
combination of shares or similar event), it being intended that the requirements
of this paragraph (b)(iii) shall be required to be met with respect to every
such class (or series) of outstanding Voting Stock whether or not the Interested
Shareholder or any of its Affiliates has previously acquired any shares of a
particular class (or series) of Voting Stock):
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the Interested Shareholder or
any of its Affiliates for any shares of such class (or series) of
Voting Stock acquired by them within the two-year period
immediately prior to the Announcement Date or in any transaction
in which
<PAGE> 7
it became an Interested Shareholder, whichever is higher, plus
interest compounded annually from the Determination Date through
the Consummation Date at the publicly announced reference rate of
interest of Bank of America, N.T. & S.A. (or such other major bank
headquartered in the State of California as may be selected by the
Continuing Directors) from time to time in effect in the City of
San Francisco less the aggregate amount of any cash dividends
paid, and the Fair Market Value of any dividends paid in other
than cash, on each share of such class (or series) of Voting Stock
from the Determination Date through the Consummation Date in an
amount up to but not exceeding the amount of interest so payable
per share of such class (or series) of Voting Stock;
(B) the Fair Market value per share of such class
(or series) of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher; and
(C) the highest preferential amount per share, if
any, to which the holders of shares of such class (or series) of
Voting Stock would be entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
corporation.
(iv) After such Interested Shareholder has become an
Interested Shareholder and prior to the consummation of such Business
Combination: (x) except as approved by a majority of the Continuing Directors,
there shall have been no failure to declare and pay at the regular date therefor
any full quarterly dividends (whether or not cumulative) on any outstanding
Preferred Stock; (y) there shall have been (A) no reduction in the annual rate
of dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock), except as approved by a majority of the
Continuing Directors, and (B) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which has the effect
of reducing the number of outstanding shares of the Common Stock, unless the
failure so to increase such annual rate is approved by a majority of the
Continuing Directors; and (z) neither such Interested Shareholder nor any of its
Affiliates shall have become the beneficial owner of any additional shares of
Voting Stock except as part of the transaction which results in such Interested
Shareholder becoming an Interested Shareholder; provided, however, that no
approval by Continuing Directors shall satisfy the requirements of this
subparagraph (iv) unless at the time of such approval there are at least two
Continuing Directors.
<PAGE> 8
(v) After such Interested Shareholder has become an
Interested Shareholder, such Interested Shareholder and any of its Affiliates
shall not have received the benefit, directly or indirectly (except
proportionately, solely in such Interested Shareholder's or Affiliate's capacity
as a shareholder of the corporation), of any loans, advances, guarantees,
pledges or other financial assistance or any tax credits or other tax advantages
provided by the corporation, whether in anticipation of or in connection with
such Business Combination or otherwise.
(vi) A proxy or information statement describing the
proposed Business Combination and complying with the requirements of the
Securities Exchange Act of 1934, as amended (The "1934 Act") and the rules and
regulations thereunder (or any subsequent provisions replacing such Act, rules
or regulations) shall be mailed to all shareholders of the corporation at least
30 days prior to the consummation of such Business Combination (whether or not
such proxy or information statement is required to be mailed pursuant to such
Act or subsequent provisions).
(vii) Such Interested Shareholder shall have supplied
the corporation with such information as shall have been requested pursuant to
Section 5 of this Article VIII within the time period set forth therein.
Section 3. Definitions.
For the purposes of this Article VIII:
(a) A "person" means any individual, limited partnership,
general partnership, corporation or other firm or entity.
(b) "Interested Shareholder" means any person (other than the
corporation or any Subsidiary) who or which:
(i) is the Beneficial Owner (as hereinafter defined),
directly or indirectly, of 15% or more of the voting power of the then
outstanding Voting Stock; or
(ii) is an Affiliate of the corporation and at any
time within the two-year period immediately prior to the date in question was
the Beneficial Owner, directly or indirectly, of 15% or more of the voting power
of the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to
any shares of Voting stock which were at any time within the two-year period
immediately prior to the date in question Beneficially Owned by an Interested
Shareholder, if such assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a public offering
within the meaning of the 1933 Act.
<PAGE> 9
(c) A person shall be a "Beneficial Owner" of or shall "Beneficially
Own" any Voting Stock:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly, within the
meaning of Rule 13d-3 under the 1934 Act as in effect on the adoption date of
the articles of incorporation; or
(ii) which such person or any of its Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (B) the right to vote pursuant to any
agreement, arrangement or understanding (but shall not be deemed to be the
beneficial owner of any shares of Voting Stock solely by reason of a revocable
proxy granted for a particular meeting of shareholders, pursuant to a public
solicitation of proxies for such meeting, and with respect to which shares
neither such person nor any such Affiliate or Associate is otherwise deemed the
beneficial owner); or
(iii) which is beneficially owned, directly or indirectly, within
the meaning of Rule 13d-3 under the 1934 Act as in effect on the adoption date
of the articles of incorporation, by any other person with which such person or
any of its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (other than solely
by reason of a revocable proxy as described in subparagraph (ii) of this
paragraph (c)) or disposing of any shares of Voting Stock;
provided, however, that in case of any employee stock ownership or similar plan
of the corporation or of any Subsidiary in which the beneficiaries thereof
possess the right to vote any shares of Voting Stock held by such plan, no such
plan nor any trustee with respect thereto (nor any Affiliate of such trustee),
solely by reason of such capacity of such trustee, shall be deemed, for any
purposes hereof, to Beneficially Own any shares of Voting Stock held under any
such plan.
(d) For the purposes of determining whether a person is an Interested
Shareholder pursuant to paragraph (b) of this Section 3, the number of shares of
Voting Stock deemed to be outstanding shall include shares deemed Beneficially
Owned through application of paragraph (c) of this Section 3 but shall not
include any other unissued shares of Voting Stock which may be issuable pursuant
to any agreement, arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under
<PAGE> 10
the 1934 Act as in effect on the adoption date of the articles of incorporation.
(f) "Subsidiary" means any corporation of which a majority of the
outstanding shares of any class of equity security is owned, directly or
indirectly, by the corporation; provided, however, that for the purposes of the
definition of Interested Shareholder set forth in paragraph (b) of this Section
3, the term "Subsidiary" shall mean only a corporation of which a majority of
the outstanding shares of each class of equity security is owned, directly or
indirectly, by the corporation.
(g) "Continuing Director" means a member of the Board of Directors of
the corporation who is not an Interested Shareholder or affiliated with an
Interested Shareholder.
(h) "Fair Market Value" means: (i) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the date in
question of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the 1934 Act on which such stock is listed, or, if such stock is not listed on
any such exchange, the highest closing sale price quotation with respect to a
share of such stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated Quotations System
or any system then in use, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as determined by
the Board of Directors in accordance with Section 4 of this Article VIII; and
(ii) in the case of property other than cash or stock, the fair market value of
such property on the date in question as determined by the Board of Directors in
accordance with Section 4 of this Article VIII.
(i) In the event of any Business Combination in which the corporation
survives, the phrase "consideration other than cash to be received" as used in
paragraphs (b)(ii) and (b)(iii) of Section 2 of this Article VIII shall include
the shares of Common Stock and/or the shares of any other class (or series) of
outstanding Voting Stock retained by the holders of such shares.
(j) "Whole Board" means the total number of directors which this
corporation would have if there were no vacancies.
(k) "Excluded Preferred Stock" means any series of Preferred Stock with
respect to which the Preferred Stock Designation creating such series expressly
provides that the provisions of this Article VIII shall not apply.
Section 4. Board Enforcement.
<PAGE> 11
(a) Compliance. A majority of the Whole Board but only if a majority of
the Whole Board shall then consist of Continuing Directors or, if a majority of
the Whole Board shall not then consist of Continuing Directors, a majority of
the then Continuing Directors, shall have the power and duty to determine, on
the basis of information known to them after reasonable inquiry, all facts
necessary to determine compliance with this Article VIII, including, without
limitation, (i) whether a person is an Interested Shareholder, (ii) the number
of shares of Voting Stock beneficially owned by any person, (iii) whether a
person is an Affiliate or Associate of another, (iv) whether the applicable
conditions set forth in paragraph (b) of Section 2 have been met with respect to
any Business Combination, (v) the Fair Market Value of stock or other property
in accordance with paragraph (h) of Section 3, and (vi) whether the assets which
are the subject of any Business Combination referred to in paragraph (a)(ii) of
Section 1 have or the consideration to be received for the issuance or transfer
of securities by the corporation or any Subsidiary in any Business Combination
referred to in paragraph (a)(iii) of Section 1 has, an aggregate Fair Market
Value equal to or greater than 15% of the corporation's assets as set forth on
the corporation's most recent audited consolidated financial statements.
(b) Demand as to Interested Shareholder. A majority of the Whole Board
shall have the right to demand, but only if a majority of the Whole Board shall
then consist of Continuing Directors, or, if a majority of the Whole Board shall
not then consist of Continuing Directors, a majority of the then Continuing
Directors shall have the right to demand, that any person who it is reasonably
believed is an Interested Shareholder (or holds of record shares of Voting Stock
Beneficially Owned by any Interested Shareholder) supply this corporation with
complete information as to (i) the record owner(s) of all shares Beneficially
Owned by such person who it is reasonably believed is an Interested Shareholder,
(ii) the number of, and class or series of, shares Beneficially Owned by such
person who it is reasonably believed is an Interested Shareholder and held of
record by each such record owner and the number(s) of the stock certificate(s)
evidencing such shares, and (iii) any other factual matter relating to the
applicability or effect of this Article VIII, as may be reasonably requested of
such person, and such person shall furnish such information within 10 days after
receipt of such demand.
(c) Fiduciary Obligation of Interested Shareholder. Nothing contained
in this Article VIII shall be construed to relieve any Interested Shareholder
from any fiduciary obligation imposed by law.
ARTICLE IX
<PAGE> 12
(A) The corporation reserves the right to repeal, alter, amend or
rescind any provision contained in the articles of incorporation, in the manner
now or hereafter prescribed by statute, except as provided in paragraph (B) of
this Article IX, and all rights conferred on shareholders herein are granted
subject to this reservation.
(B) Notwithstanding any other provision of the articles of
incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, the articles of
incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of greater than 50% of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal Article V, Article VI, Article VII, Article VIII or
Article IX.
* * *
3. The foregoing amendment and restatement of articles of incorporation
has been duly approved by the Board of Directors.
4. The foregoing amendment and restatement of articles of incorporation
has been duly approved by the required vote of shareholders in accordance with
Sections 902 and 903 of the Corporations Code. The total number of outstanding
shares of Common Stock of the corporation is 7,400,738. The number of shares
voting in favor of the amendment equalled or exceeded the vote required. The
percentage vote required for the approval of the amendment and restatement was
more than 50% of the total outstanding stock.
5. This corporation is a "listed corporation" as set forth and defined
in California Corporation Code Section 301.5.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 13
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: December 8, 1992.
\s\ CAM L. GARNER
---------------------------
Cam L. Garner, President
\s\ STEPHEN R. TWISS
---------------------------
Stephen R. Twiss, Secretary
[SIGNATURE PAGE TO SIXTH RESTATED ARTICLES
OF INCORPORATION OF DURA PHARMACEUTICALS, INC.]
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
SIXTH RESTATED ARTICLES OF INCORPORATION
OF
DURA PHARMACEUTICALS, INC.
Cam L. Garner and Mitchell R. Woodbury certify that:
1. They are the President and Secretary, respectively, of Dura
Pharmaceuticals, Inc., a California corporation (the "corporation").
2. Article III, Section A, of the Sixth Restated Articles of
Incorporation of the Corporation is amended to read in full as follows:
(A) Classes of Stock. The corporation is authorized to issue
two classes of stock to be designated, respectively, "Common Stock" and
Preferred Stock." The total number of shares which the corporation is
authorized to issue is One Hundred Million (100,000,000) shares of
Common Stock and Five Million (5,000,000) shares of Preferred Stock.
3. The foregoing amendment of the Sixth Restated Articles of
Incorporation has been duly approved by the Board of Directors.
4. The foregoing amendment has been duly approved by the required vote
of shareholders in accordance with Section 902 and 903 of the California
Corporations Code. The total number of outstanding shares of Common Stock of the
Corporation is 15,830,963. The number of shares voting in favor of the amendment
equaled or exceeded the vote required. The percentage vote required for the
approval of the amendment was more than 50% of the total outstanding Common
Stock.
<PAGE> 2
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Dated: May 29, 1996. \s\ CAM L. GARNER
-------------------------------
Cam L. Garner, President
\s\ MITCHELL R. WOODBURY
-------------------------------
Mitchell R. Woodbury, Secretary
<PAGE> 1
EXHIBIT 10.2
DURA PHARMACEUTICALS, INC.
1992 STOCK OPTION PLAN
EFFECTIVE DECEMBER 9, 1992; AS AMENDED JUNE 2, 1994; AS
AMENDED MAY 25, 1995; AS AMENDED MAY 29, 1996
AS AMENDED JULY 1, 1996
ARTICLE ONE
GENERAL PROVISIONS
PURPOSE OF THE PLAN
A. Implementation. This 1992 Stock Option Plan ("Plan") is implemented
as of December 9, 1992 ("Effective Date"), to enable Dura Pharmaceuticals, Inc.
("Company") to grant options to the following eligible individuals ("Eligible
Individuals") in order to attract them and to retain their services: (a) key
employees (including officers and directors) of the Company or its subsidiaries
or any parent corporation who are primarily responsible for the management,
growth and financial success of the Company or its subsidiaries, (b)
non-employee members of the Board of Directors ("Board") of the Company, and (c)
consultants and independent contractors who perform valuable services for the
Company or its subsidiaries.
B. Successor Plan. This Plan is a successor to the Company Stock Option
Plan that was adopted by the Board in 1983 ("1983 Plan"). No further option
grants (including, but not limited to automatic option grants) will be made
under the 1983 Plan on and after the Effective Date of this Plan. All options
outstanding under the 1983 Plan on the Effective Date are hereby incorporated
into this Plan and will be treated as outstanding options under this Plan. Each
outstanding option so incorporated will continue to be governed solely by the
express terms and conditions of the instruments evidencing such grant. No
provision of this Plan will be deemed to affect or otherwise modify the rights
or obligations of the holders of such incorporated options with respect to their
acquisition of shares of the Company's Common Stock under the terms of the
incorporated options.
II. ADMINISTRATION OF THE PLAN
A. Committee. The Plan will be administered by a committee or
committees appointed by the Board, and consisting of two or more members of the
Board. The Board may delegate the responsibility for administration of the Plan
with respect to designated classes of optionees to different committees, subject
to such limitations as the Board deems appropriate.
<PAGE> 2
With respect to any matter, the term "Committee," when used in this Plan, will
refer to the committee that has been delegated authority with respect to such
matter. Members of a committee will serve for such term as the Board may
determine, and will be subject to removal by the Board at any time.
B. Section 16(b) Committee. The composition of any committee
responsible for administration of the Plan with respect to optionees who are
subject to the trading restrictions of Section 16(b) of the Securities Exchange
Act of 1934 with respect to securities of the Company will comply with the
applicable requirements of Rule 16b-3 of the Securities and Exchange Commission.
C. Authority. Any Committee will have full authority to administer the
Plan within the scope of its delegated responsibilities, including authority to
interpret and construe any relevant provision of the Plan, to adopt such rules
and regulations as it may deem necessary, and to determine the terms of grants
made under the Plan (which need not be identical). Decisions of a Committee made
within the discretion delegated to it by the Board will be final and binding on
all persons.
III. STOCK SUBJECT TO THE PLAN
A. Number of Shares. Shares of the Company's Common Stock available for
issuance under the Plan shall be drawn from either the Company's authorized but
unissued shares of Common Stock or from reacquired shares of Common Stock,
including shares repurchased by the Company on the open market. The maximum
number of shares of Common Stock that may be issued over the term of the Plan
shall not exceed 6,007,360 shares, subject to adjustment from time to time in
accordance with the provisions of this Section. This authorized share reserve is
comprised of (i) the number of shares remaining available for issuance under the
1983 Plan as of the Effective Date, including the shares subject to the
outstanding options incorporated into this Plan and any other shares that would
have been available for future option grant under the 1983 Plan, plus (ii) an
additional 416,040 shares of Common Stock, plus (iii) an additional increase of
750,000 shares of Common Stock, plus (iv) an additional increase of 1,000,000
shares of Common Stock plus (v) an additional increase of 1,500,000 shares of
Common Stock. Accordingly, to the extent one or more outstanding options under
the 1983 Plan that have been incorporated into this Plan are subsequently
exercised, the number of shares issued with respect to each such option will
reduce, on a share-for-share basis, the number of shares available for issuance
under this Plan.
B. Expired Options. Should an outstanding option under this Plan
(including any outstanding option under the 1983 Plan incorporated into this
Plan) expire or terminate for any reason prior to exercise in full (including
any option cancelled in accordance with the cancellation-regrant provisions of
this Plan), the shares subject to the portion of the option not so exercised
will be available for subsequent option grant under this Plan. Shares subject to
any option or portion thereof cancelled in accordance with the stock
appreciation (or limited stock
<PAGE> 3
appreciation) rights provisions of this Plan will not be available for
subsequent option grant under the Plan.
C. Adjustments. If any change is made to the Common Stock issuable
under the Plan (including Common Stock issuable under an Automatic Option Grant)
by reason of any stock split, stock dividend, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
will be made to (i) the number and/or class of shares issuable under the Plan,
(ii) the number and/or class of shares and price per share in effect under each
outstanding option under the Plan, and (iii) the number and/or class of shares
and price per share in effect under each outstanding option incorporated into
this Plan from the 1983 Plan. The purpose of these adjustments will be to
preclude the enlargement or dilution of rights and benefits under the options.
ARTICLE TWO
STANDARD OPTION PROVISIONS
TERMS AND CONDITIONS OF OPTIONS
Committee Discretion.
Except as provided under the Automatic Option Grant
provisions of this Plan, the Committee will have full authority to determine
which Eligible Individuals are to receive option grants under the Plan, the
number of shares to be governed by each such grant, whether the option is to be
an incentive stock option ("Incentive Option") that satisfies the requirements
of Section 422 of the Internal Revenue Code or a non-qualified option not
intended to satisfy such requirements ("Non-Qualified Option"), the time or
times at which each such option is to become exercisable, and the maximum term
for which the option is to remain outstanding.
Notwithstanding any other provision of this Plan, no
individual shall be granted options to acquire more than 200,000 shares in any
fiscal year or 750,000 shares over the lifetime of the Plan.
B. Term. No option granted under the Plan will be exercisable after the
expiration of 10 years from the date the option was granted.
<PAGE> 4
C. Price. The option price per share will be fixed by the Committee;
provided, however, that in no event will the option price per share be less than
100% of the Fair Market Value of a share of Common Stock on the date of the
option grant.
D. Exercise and Payment. After any option granted under the Plan
becomes exercisable, it may be exercised by notice to the Company at any time
prior to the termination of such option. The option price will be payable in
full in cash or check made payable to the Company; provided, however, that the
Committee may, either at the time the option is granted or at the time it is
exercised and subject to such limitations as it may determine, authorize payment
of all or a portion of the option price in one or more of the following
alternative forms:
(1) a promissory note authorized pursuant to Section IV of
this Article; or
(2) full payment in shares of Common Stock valued as of the
exercise date and held for the requisite period to avoid a charge to the
Company's earnings; or
(3) full payment through a sale and remittance procedure under
which the option holder delivers a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale proceeds to pay the option prices.
For purposes of Subparagraphs (1) and (3) immediately above, the Exercise Date
shall be the date on which written notice of the exercise of the option is
delivered to the Company. In all other cases, the Exercise Date will be the date
on which written notice and actual payment is received by the Company.
The sale and remittance procedure authorized for the exercise of
outstanding options under this Plan shall be available for all options granted
under this Plan on or after the Effective Date and for all non-qualified options
outstanding under the 1983 Plan and incorporated into this Plan. The Plan
Administrator may also allow such procedure to be utilized in connection with
one or more disqualifying dispositions of Incentive Option shares effected after
the Effective Date, whether such Incentive Options were granted under this Plan
or the 1983 Stock Option Plan.
E. Shareholder Rights. An option holder will have no shareholder rights
with respect to any shares covered by an option (including an Automatic Option
Grant) prior to the Exercise Date of the option, as defined in the immediately
preceding Paragraph and in the Automatic Option Grant provisions of Section II
of Article Three of this Plan.
<PAGE> 5
F. Separation from Service. The Committee will determine whether
options will continue to be exercisable, and the terms of such exercise, on and
after the date that an optionee ceases to be employed by, or to provide services
to, the Company or its subsidiaries provided, however, that in no event will an
option be exercisable after the specified expiration date of the option term.
The date of termination of an optionee's employment or services will be
determined by the Committee, which determination will be final.
G. Incentive Options. Options granted under the Plan that are intended
to be Incentive Options will be subject to the following additional terms:
(1) Dollar Limitation. The aggregate fair market value
(determined as of the respective date or dates of grant) of the Common Stock for
which one or more options granted to any Employee after December 31, 1986 under
this Plan (or any other option plan of the Company or its parent or subsidiary
corporations) may for the first time become exercisable as incentive stock
options under the Federal tax laws during any one calendar year shall not exceed
the sum of $100,000. To the extent the Employee holds two or more such options
which become exercisable for the first time in the same calendar year, the
foregoing limitation on the exercisability of such options as incentive stock
options under the Federal tax laws shall be applied on the basis of the order in
which such options are granted.
(2) 10% Shareholder. If any employee to whom an Incentive
Option is to be granted pursuant to the provisions of the Plan is, on the date
of grant, the owner of stock (determined with application of the ownership
attribution rules of Section 424(d) of the Internal Revenue Code) possessing
more than 10% of the total combined voting power of all classes of stock of his
or her employer corporation or of its parent or subsidiary corporation ("10%
Shareholder"), then the following special provisions will apply to the option
granted to such individual:
(i) The option price per share of the stock
subject to such Incentive Option will not be less than 110% of the Fair Market
Value of the option shares on the date of grant; and
(ii) The option will not have a term in excess of 5 years
from the date of grant.
(3) Parent and Subsidiary. For purposes of this Section,
"parent corporation" and "subsidiary corporation" will have the meaning
attributed to those terms, as they are used in Section 422(b) of the Internal
Revenue Code.
(4) Employees. Incentive Options may only be granted to
employees of the Company or its subsidiaries.
H. Fair Market Value. For all purposes under this Plan (including, but
not limited to Automatic Option Grants) the fair market value per share of
Common Stock on any relevant date under the Plan ("Fair Market Value") will be
determined as follows:
<PAGE> 6
(1) If the Common Stock is not at the time listed or admitted
to trading on any national stock exchange but is traded in the over-the-counter
market, the fair market value will be the mean between the highest bid and
lowest asked prices (or, if such information is available, the closing selling
price) per share of Common Stock on the date in question in the over-the-counter
market, as such prices are reported by the National Association of Securities
Dealers through its NASDAQ system or any successor system. If there are no
reported bid and asked prices (or closing selling price) for the Common Stock on
the date in question, then the mean between the highest bid price and lowest
asked price (or the closing selling price) on the last preceding date for which
such quotations exist will be determinative of fair market value.
(2) If the Common Stock is at the time listed or admitted to
trading on any national stock exchange, then the fair market value will be the
closing selling price per share of Common Stock on the date in question on the
stock exchange determined by the Committee to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no reported sale of Common Stock on
such exchange on the date in question, then the fair market value will be the
closing selling price on the exchange on the last preceding date for which such
quotation exists.
(3) If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange nor traded in the over-the-counter
market, then the fair market value will be determined by the Committee after
taking into account such factors as the Committee shall deem appropriate.
I. Transferability. During the lifetime of the optionee, options
(including Automatic Option Grants) shall be exercisable only by the optionee
and shall not be assignable or transferable by the optionee otherwise than by
Will or by the laws of descent and distribution following the optionee's death.
STOCK APPRECIATION RIGHTS
If, and only if the Committee, in its discretion, elects to implement
an option surrender program under the Plan, one or more option holders may, upon
such terms as the Committee may establish at the time of the option grant or at
any time thereafter, be granted the right to surrender all or part of an
unexercised option in exchange for a distribution equal in amount to the
difference between (i) the Fair Market Value (at date of surrender) of the
shares for which the surrendered option or portion thereof is at the time
exercisable and (ii) the aggregate option price payable for such shares. The
distribution to which an option holder becomes entitled under this Section may
be made in shares of Common Stock, valued at Fair Market Value at the date of
surrender, in cash, or partly in shares and partly in cash, as the Committee, in
its sole discretion, deems appropriate. The option surrender provisions of this
Section will not apply to options granted pursuant to the Automatic Option Grant
provisions of this Plan.
III. CORPORATE TRANSACTION/CHANGE OF CONTROL/HOSTILE TAKEOVER
<PAGE> 7
Corporate Transaction. In the event of any of the following
transactions ("Corporate Transaction"):
(1) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state of the Company's incorporation,
(2) the sale, transfer or other disposition of all or
substantially all of the assets of the Company in liquidation or dissolution of
the Company,
(3) any reverse merger in which the Company is the surviving
entity but in which fifty percent (50%) or more of the Company's outstanding
voting stock is transferred to holders different from those who held such
securities immediately prior to such merger, or
(4) an acquisition by any person or related group of persons
(other than the Company or a person that directly or indirectly controls, is
controlled by or is under common control with, the Company) of ownership of more
than fifty percent (50%) of the Company's outstanding Common Stock, pursuant to
a tender or exchange offer,
the exercisability of each option at the time outstanding under this Article Two
shall automatically accelerate so that each such option shall, immediately prior
to the specified effective date for the Corporate Transaction, become fully
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for all or any portion of such
shares. Upon the consummation of the Corporate Transaction, all outstanding
options under this Article Two shall terminate and cease to be outstanding.
B. Hostile Takeover. One or more officers of the Company subject to the
short-swing profit restrictions of the Federal securities laws may, in the
Committee's sole discretion, be granted, in tandem with their outstanding
options, limited stock appreciation rights as described below. In addition all
Automatic Option Grants under this Plan will be made in tandem with limited
stock appreciation rights as described below.
(1) Upon the occurrence of a Hostile Takeover, each
outstanding option with such a limited stock appreciation right in effect for at
least six (6) months will automatically be cancelled in return for a cash
distribution from the Company in an amount equal to the excess of (i) the
Takeover Price (defined below) of the shares of Common Stock at the time subject
to the cancelled option (whether or not the option is otherwise at the time
exercisable for such shares) over (ii) the aggregate exercise price payable for
such shares. The cash distribution payable upon such cancellation shall be made
within five (5) days following the consummation of the Hostile Takeover. Neither
the approval of the Committee nor the consent of the Board shall be required in
connection with such option cancellation and cash distribution.
(2) For purposes of the limited stock appreciation rights
described above, the following definitions shall be in effect:
<PAGE> 8
(i) A Hostile Takeover shall be deemed to occur upon
the acquisition by any person or related group of persons (other than the
Company or a person that directly or indirectly controls, is controlled by, or
is under common control with, the Company) of ownership of more than 50% of the
Company's outstanding Common Stock (excluding the Common Stock holdings of
officers and directors of the Company who participate in this Plan) pursuant to
a tender or exchange offer which the Board does not recommend the Company's
shareholders accept.
(ii) The Takeover Price per share shall be deemed to be
equal to the greater of (a) the Fair Market Value per share on the date of
cancellation, or (b) the highest reported price per share paid in effecting the
Hostile Takeover. However, if the cancelled option is an Incentive Option, the
Takeover Price shall not exceed the clause (a) price per share.
C. Company Rights. The grant of options (including Automatic Option
Grants) under this Plan shall in no way affect the right of the Company to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
IV. LOANS OR GUARANTEE OF LOANS
The Committee may assist any optionee (including any officer) in the
exercise of one or more outstanding options under this Article by (a)
authorizing the extension of a loan to such optionee from the Company, (b)
permitting the optionee to pay the option price for the purchased Common Stock
in installments over a period of years or (c) authorizing a guarantee by the
Company of a third-party loan to the optionee. The terms of any loan,
installment method of payment or guarantee (including the interest rate and
terms of repayment) will be established by the Committee in its sole discretion.
Loans, installment payments and guarantees may be granted without security or
collateral (other than to optionees who are consultants or independent
contractors, in which event the loan must be adequately secured by collateral
other than the purchased shares), but the maximum credit available to the
optionee shall not exceed the sum of (i) the aggregate option price (less par
value) of the purchased shares plus (ii) any federal and state income and
employment tax liability incurred by the optionee in connection with the
exercise of the option. Automatic Option Grants will not be subject to these
loan and loan guarantee provisions.
V. CANCELLATION AND REGRANT OF OPTIONS
The Committee shall have the authority to effect, at any time and from
time to time, with the consent of the affected optionees, the cancellation of
any or all outstanding options under this Article (including outstanding options
under the 1983 Plan incorporated into this Plan) and to grant in substitution
new options under the Plan covering the same or different numbers of shares of
Common Stock but having an option price per share not less than 100% of the fair
market
<PAGE> 9
value of the Common Stock on the new grant date. Automatic Option Grants will
not be subject to these cancellation and regrant provisions.
V. REPURCHASE RIGHTS
The Committee may in its discretion determine that it shall be a term
and condition of one or more options exercised under the Plan that the Company
(or its assigns) shall have the right, exercisable upon the optionee's
separation from service with the Company and its subsidiaries, to repurchase any
or all of the shares of Common Stock previously acquired by the optionee upon
the exercise of such option. Any such repurchase right shall be exercisable upon
such terms and conditions (including the establishment of the appropriate
vesting schedule and other provisions for the expiration of such right in one or
more installments) as the Committee may specify in the instrument evidencing
such right. The Committee shall also have full power and authority to provide
for the automatic termination of these repurchase rights, in whole or in part,
and thereby accelerate the vesting of any or all of the purchased shares.
ARTICLE THREE
AUTOMATIC OPTION GRANT PROGRAM
I. GRANTS
A. Automatic Option Grants. Non-employee members of the Board will
automatically be granted Non-Qualified Options to purchase the number of shares
of Common Stock set forth below (subject to adjustment under Section III(C) of
Article One of this Plan) on the dates and pursuant to the terms set forth below
("Automatic Option Grants").
B. Continuing Directors. On the date of each Annual Shareholders
Meeting of the Company held after the Effective Date of this Plan, each
continuing non-employee member of the Board will receive an Automatic Option
Grant to purchase 4,000 shares of Common Stock; provided, however, that an
individual who has not served as a non-employee member of the Board for the
immediately preceding 180 days will not receive such a grant.
C. New Directors. Each individual person who is newly elected or
appointed as a non-employee member of the Board on or after the Effective Date
of this Plan will receive, on the effective date of such election or
appointment, an Automatic Option Grant to purchase 15,000 shares of Common
Stock.
II. TERMS
The terms applicable to each Automatic Option Grant will be as follows:
<PAGE> 10
A. Price. The option price per share will be equal to 100% of the Fair
Market Value of a share of Common Stock on the date of grant.
B. Option Term. Each Automatic Option Grant will have a maximum term of
10 years measured from the automatic grant date.
C. Exercisability. Each Automatic Option Grant will become exercisable
for all Automatic Option Grant shares 1 year after the automatic grant date,
provided the optionee continues to serve as a Board member throughout that
1-year period.
D. Payment. Upon exercise of the option, the option price for the
purchased shares will become payable immediately in one or more of the following
alternative forms: cash, shares of Common Stock held for the requisite period to
avoid a charge to the Company's reported earnings and valued at Fair Market
Value on the Exercise Date (as defined below), or pursuant to a sale and
remittance procedure under which the option holder delivers a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale proceeds to pay the option price. For
these purposes, the Exercise Date shall be the date on which written notice of
the exercise of the option is delivered to the Company. Except to the extent the
sale and remittance procedure specified above is utilized for the exercise of
the option, payment of the exercise price for the purchased shares must
accompany the notice.
E. Effect of termination of Board Membership.
(1) Should the optionee cease to be a Board member for any
reason (other than death) while holding one or more Automatic Option Grants,
then the optionee will have 6 months following the date of such cessation of
Board membership in which to exercise each such option for any or all of the
shares of Common Stock for which the option is exercisable at the time Board
membership ceases; provided however, that in no event may such an option be
exercised after the expiration of its 10-year term.
(2) Should the optionee die while holding one or more
Automatic Option Grants, then each such option may subsequently be exercised,
for any or all of the shares of Common Stock for which the option is exercisable
at the time of the optionee's death, by the personal representative of the
optionee's estate or by the person or persons to whom the option is transferred
pursuant to the optionee's Will or in accordance with the laws of descent and
distribution. Any such exercise must, however, occur before the earlier of (i)
the expiration of the option's 10-year term, or (ii) 12 months after the date of
the optionee's death.
F. Acceleration. Automatic Option Grants will be subject to
acceleration and termination in the event of a Corporate Transaction as
described in Article Two, Section III.A. of this Plan.
<PAGE> 11
G. Hostile Takeover. Automatic Option Grants will be granted in tandem
with limited stock appreciation rights, as described in the Hostile Takeover
provisions contained in Article Two, Section III.B. of this Plan.
ARTICLE FOUR
MISCELLANEOUS
I. AMENDMENT OF THE PLAN
A. General Rules. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects whatsoever.
However, no such amendment or modification shall, without the consent of the
option holders, adversely affect rights and obligations with respect to options
at the time outstanding under the Plan. In addition, the Board shall not,
without the approval of the Company's shareholders, (1) materially increase the
maximum number of shares issuable under the Plan (except to make permissible
adjustments related to changes in the Common Stock issuable under the Plan and
designed to preclude the enlargement or dilution of rights and benefits under
the Plan), (2) materially modify the eligibility requirements for the grant of
options under the Plan, or (3) otherwise materially increase the benefits
accruing to participants under the Plan.
B. Automatic Option Grants. Amendment of the Automatic Option Grant
provisions of this Plan is subject to the requirements outlined above. In
addition, the Automatic Option Grant provisions of this Plan may not be amended
more than once every 6 months, other than to comport with changes in the
Internal Revenue Code or rules thereunder.
C. Amendment of Options. The Committee shall have full power and
authority to modify or waive any or all of the terms, conditions or restrictions
applicable to any outstanding option, to the extent not inconsistent with the
Plan; provided, however, that no such modification or waiver shall (1) without
the consent of the option holder, adversely affect the holder's rights
thereunder or (2) affect any outstanding option granted pursuant to the
Automatic Option Grant provisions of this Plan except to the extent necessary to
conform to any amendment to this Plan.
II. TAX WITHHOLDING
A. Obligation. The Company's obligation to deliver shares or cash upon
the exercise of stock options or stock appreciation rights granted under the
Plan is subject to the satisfaction of all applicable Federal, State and local
income and employment tax withholding requirements.
B. Stock Withholding. The Plan Administrator may, in its discretion and
upon such terms and conditions as it may deem appropriate (including the
applicable safe-harbor provisions of SEC Rule 16b-3) provide any or all holders
of outstanding option grants under the Plan with
<PAGE> 12
the election to have the Company withhold, from the shares of Common Stock
otherwise issuable upon the exercise of such options, one or more of such shares
with an aggregate fair market value equal to the designated percentage (any
multiple of 5% specified by the optionee) of the Federal and State income taxes
("Taxes") incurred in connection with the acquisition of such shares. In lieu of
such direct withholding, one or more optionees may also be granted the right to
deliver shares of Common Stock to the Company in satisfaction of such Taxes. The
withheld or delivered shares shall be valued at the Fair Market Value on the
applicable determination date for such Taxes or such other date required by the
applicable safe-harbor provisions of SEC Rule 16b-3.
III. EFFECTIVE DATE AND TERM OF PLAN
A. Implementation. This Plan, as successor to the Company's 1983 Stock
Option Plan, shall become effective as of the Effective Date, and no further
option grants shall be made under the 1983 Plan on or after the Effective Date
of this Plan. Any options granted on the basis of the 208,020-share increase
authorized by this Plan shall not become exercisable in whole or in part unless
such share increase is approved by the Company's shareholders. If such
shareholder approval is not obtained within twelve (12) months after the
Effective Date of the Plan, then all options granted on the basis of such
208,020-share increase shall terminate without ever becoming exercisable for the
option shares, and no further option grants shall be made on the basis of such
share increase. Subject to the foregoing limitations, options may be granted
under this Plan at any time from and after the Effective Date of the Plan and
before the date fixed herein for termination of the Plan.
B. Termination. Unless sooner terminated due to a Corporate Transaction
or a Change in Control, the Plan will terminate upon the earlier of (i) October
8, 2003, or (ii) the date on which all shares available for issuance under the
Plan have been issued or cancelled pursuant to exercise, surrender or cash-out
of options. If the date of termination is determined under clause (i) above,
then options outstanding on such date shall thereafter continue to have force
and effect in accordance with the provisions of the instruments evidencing those
options.
C. Additional Shares. Options may be granted under this Plan to
purchase shares of Common Stock in excess of the number of shares then available
for issuance under the Plan, provided each option granted is not to become
exercisable, in whole or in part, at any time prior to shareholder approval of
an amendment authorizing a sufficient increase in the number of shares issuable
under the Plan.
III. USE OF PROCEEDS
Any cash proceeds received by the Company from the sale of shares
pursuant to options granted under the Plan shall be used for general corporate
purposes.
<PAGE> 13
IV. REGULATORY APPROVALS
The implementation of the Plan, the granting of any option under the
Plan, and the issuance of stock upon the exercise or surrender of any such
option shall be subject to the procurement by the Company of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the options granted under it and the stock issued pursuant to it.
V. NO EMPLOYMENT/SERVICE RIGHTS
Neither the establishment of this Plan, nor any action taken under the
terms of this Plan, nor any provision of this Plan shall be construed so as to
grant any individual the right to remain in the employ or service of the Company
(or any parent or subsidiary corporation) for any period of specific duration,
and the Company (or any parent or subsidiary corporation retaining the services
of such individual) may terminate such individual's employment or service at any
time and for any reason, with or without cause.
<PAGE> 1
EXHIBIT 11
DURA PHARMACEUTICALS, INC.
STATEMENTS RE: COMPUTATION OF EARNINGS PER SHARE
IN THOUSANDS, EXCEPT PER SHARE DATA (1)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1995 1996 1995 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
PRIMARY NET INCOME PER
SHARE
NET INCOME ................................... $ 1,811 $ 4,609 $ 2,667 $ 8,665
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES:
Common stock ............................. 21,108 33,819 21,014 32,598
Stock options ............................ 1,913 1,933 1,909 1,955
Warrants ................................. 2,982 2,927 2,829 2,724
------- ------- ------- -------
Total ................................. 26,003 38,679 25,752 37,277
======= ======= ======= =======
NET INCOME PER SHARE ......................... $ 0.07 $ 0.12 $ 0.10 $ 0.23
======= ======= ======= =======
FULLY DILUTED NET INCOME
PER SHARE:
NET INCOME ................................... $ 1,811 $ 4,609 $ 2,667 $ 8,665
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES ASSUMING
ISSUANCE OF ALL DILUTIVE
CONTINGENT SHARES:
Common stock ............................. 21,108 33,819 21,014 32,598
Stock options ............................ 2,096 1,934 2,169 2,064
Warrants ................................. 3,300 2,928 3,300 3,007
------- ------- ------- -------
Total ................................. 26,504 38,681 26,483 37,669
======= ======= ======= =======
NET INCOME PER SHARE ......................... $ 0.07 $ 0.12 $ 0.10 $ 0.23
======= ======= ======= =======
</TABLE>
(1) The per share data and weighted average number of common and common
equivalents shares have been adjusted to reflect the 100% stock dividend
effective July 1, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1996, AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996,
AND THE NOTES THERETO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 107,003
<SECURITIES> 100,595
<RECEIVABLES> 9,397
<ALLOWANCES> 0
<INVENTORY> 3,294
<CURRENT-ASSETS> 220,706
<PP&E> 20,822
<DEPRECIATION> 1,908
<TOTAL-ASSETS> 300,198
<CURRENT-LIABILITIES> 19,208
<BONDS> 9,134
0
0
<COMMON> 369,219
<OTHER-SE> (98,257)
<TOTAL-LIABILITY-AND-EQUITY> 300,198
<SALES> 26,960
<TOTAL-REVENUES> 37,386
<CGS> 7,422
<TOTAL-COSTS> 29,813
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 516
<INCOME-PRETAX> 9,465
<INCOME-TAX> 800
<INCOME-CONTINUING> 8,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,665
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
