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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
[AMENDMENT NO. 1]
Filed by the registrant /X/
Filed by a party other than the registrant
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
DURA PHARMACEUTICALS, INC.
--------------------------
(Name of Registrant as Specified in Its Charter)
Mitchell R. Woodbury, Sr. Vice President General Counsel & Secretary
Dura Pharmaceuticals, Inc. 5880 Pacific Center Blvd., San Diego, CA 92121
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transactions:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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[Logo]
DURA PHARMACEUTICALS, INC.
5880 PACIFIC CENTER BLVD.
SAN DIEGO, CALIFORNIA 92121
April 16, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Dura Pharmaceuticals, Inc., which will be held at the La Jolla Marriott, 4240 La
Jolla Village Drive, La Jolla, California, on Wednesday, May 28, 1997 at 10:00
a.m.
Details of the business to be conducted at the Annual Meeting are given in
the attached Notice of Annual Meeting of Shareholders and Proxy Statement.
In order for us to have an efficient meeting, please sign, date and return
the enclosed proxy promptly in the accompanying reply envelope. If you are able
to attend the Annual Meeting and wish to change your proxy vote, you may do so
simply by voting in person at the Annual Meeting.
We look forward to seeing you at the Annual Meeting.
Sincerely,
CAM L. GARNER
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
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YOUR VOTE IS IMPORTANT
In order to assure your representation at the meeting, you are requested to
complete, sign and date the enclosed proxy as promptly as possible and return it
in the enclosed envelope. No postage need be affixed if mailed in the United
States.
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<PAGE>
DURA PHARMACEUTICALS, INC.
5880 PACIFIC CENTER BLVD.
SAN DIEGO, CALIFORNIA 92121
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 28, 1997
The Annual Meeting (the "Annual Meeting") of Shareholders of Dura
Pharmaceuticals, Inc. (the "Company") will be held at the La Jolla Marriott,
4240 La Jolla Village Drive, La Jolla, California, on Wednesday, May 28, 1997 at
10:00 a.m., for the following purposes:
1. To elect four (4) directors to serve two-year terms to expire at the
1999 Annual Meeting of Shareholders.
2. To approve the Company's reincorporation in Delaware, through the
merger of Dura Pharmaceuticals, Inc., a California corporation, with
and into a wholly-owned Delaware subsidiary of Dura Pharmaceuticals,
Inc.
3. To approve amendments to the Company's 1992 Stock Option Plan to
increase the authorized number of shares of Common Stock available for
issuance under such Plan and certain other amendments.
4. To ratify the appointment of Deloitte & Touche LLP as the Company's
independent public accountants for the fiscal year ending December 31,
1997.
5. To transact any other business which may properly come before the
meeting or any adjournment(s) thereof.
Shareholders of record at the close of business on March 31, 1997 will be
entitled to vote at the Annual Meeting. A list of shareholders entitled to vote
at the Annual Meeting will be available for inspection at the offices of the
Company. Whether or not you plan to attend the meeting in person, please sign,
date and return the enclosed proxy in the reply envelope provided. If you
attend the Annual Meeting and vote by ballot, your proxy will be revoked
automatically and only your vote at the Annual Meeting will be counted. The
prompt return of your proxy will assist us in preparing for the Annual Meeting.
By Order of the Board of Directors
Dated: April 16, 1997 MITCHELL R. WOODBURY
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
<PAGE>
DURA PHARMACEUTICALS, INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 28, 1997
These proxy materials and the enclosed proxy card are being mailed in
connection with the solicitation of proxies by the Board of Directors of Dura
Pharmaceuticals, Inc., a California corporation (the "Company"), for the Annual
Meeting of Shareholders to be held at 10:00 a.m. on May 28, 1997 and at any
adjournment or postponement of the Annual Meeting. These proxy materials were
first mailed to shareholders of record beginning on approximately April 16,
1997.
The mailing address of the principal executive office of the Company is
5880 Pacific Center Boulevard, San Diego, California 92121.
PURPOSE OF MEETING
The specific proposals to be considered and acted upon at the Annual
Meeting are summarized in the accompanying Notice of Annual Meeting of
Shareholders. Each proposal is described in more detail in this Proxy
Statement.
VOTING RIGHTS AND SOLICITATION
Any shareholder executing a proxy has the power to revoke it at any time
before it is voted by delivering written notice of such revocation to the
Secretary of the Company before the Annual Meeting or by properly executing and
delivering a proxy bearing a later date. Proxies may also be revoked by any
shareholder present at the Annual Meeting who elects to vote his or her shares
in person. The cost of soliciting proxies will be paid by the Company and may
include reimbursement paid to brokerage firms and others for their expense in
forwarding solicitation material. Solicitation will be made primarily through
the use of the mail, but regular employees of the Company may, without
additional remuneration, solicit proxies personally by telephone or telegram.
In addition, the Company has retained Georgeson & Company, Inc. to assist in
the solicitation of proxies, for which they will be paid a fee of
approximately $12,000, plus reasonable expenses incurred.
The record date for determining those shareholders who are entitled to
notice of, and to vote at, the Annual Meeting has been fixed as March 31,
1997 (the "Record Date"). At the close of business on the Record Date, the
Company had 43,519,572 outstanding shares of Common Stock (the "Common
Stock"). Each share of Common Stock is entitled to one vote on matters
brought before the Annual Meeting. In voting for directors, each shareholder
has the right to cumulate his or her votes and give one nominee a number of
votes equal to the number of directors to be elected multiplied by the number
of shares held, or to distribute his or her votes on the same principle among
the nominees to be elected in such manner as the shareholder may see fit.
California corporate law allows a shareholder to cumulate his or her votes
with respect to the election of directors if the director nominee has been
placed in nomination prior to voting and if any shareholder present at the
meeting has given notice AT THE MEETING of their intention to cumulate votes.
Such notice allows all votes cast in the election to be counted
cumulatively. If no such notice is given, no cumulative voting will be used
in the election of directors. While the notice of intention to cumulate
votes may be presented orally at the Annual Meeting, it is prudent for any
shareholder intending to cumulate his or her votes to present a written
notice of such intention to the Chairman of the meeting prior to the
beginning of voting, but after all candidates have been placed in nomination.
The persons named in the enclosed proxy card may or may not elect to give
such notice and vote the shares they represent in such a manner. In
addition, non-management proxyholders present at the Annual Meeting may also
provide the requisite notice of intention to cumulate votes. Shareholders
who wish to cumulate their votes must be present at the Annual Meeting or
must give proxies to non-management proxyholders along with a written
statement that such non-management proxyholders have the authority to give
notice of their intention to cumulate votes. Discretionary authority to
cumulate votes is being solicited by the Board of Directors and it is
intended that the proxies received by the management proxyholders pursuant to
the solicitation will be voted in the manner best designed to cause the
election of the maximum number of the Board of Directors' nominees.
California statute and case law does not give specific instructions regarding
the treatment of abstentions and broker nonvotes for companies such as the
Company; however, the Company believes that California law provides that if
shares are represented and voted on any issue at a shareholder meeting, their
failure to vote "for" on any other issue (through either abstention or a
broker nonvote) has the same effect as a negative vote on that other issue.
<PAGE>
At the Record Date, directors and executive officers of the Company may
be deemed to be beneficial owners of an aggregate of 94,927 shares of the
Company's Common Stock (not including shares of the Common Stock issuable
upon exercise of outstanding stock options) constituting less than 1% of the
shares of Common Stock outstanding and entitled to vote at the Annual
Meeting. Such directors and executive officers have indicated to the Company
that each such person intends to vote or direct the vote of all shares of
Common Stock held or owned by such persons, or over which such person has
voting control, in favor of all of the Proposals. The approval of the
Proposals is not assured. See "Common Stock Ownership of Management."
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors of the Company is currently composed of nine
members. The Company's Sixth Restated Articles of Incorporation, as amended,
divides the Board into two classes of directors serving staggered two-year
terms, with one class of directors to be elected at each annual meeting of
shareholders. All of the nominees are now serving as directors of the
Company. Unless individual shareholders specify otherwise, each returned
proxy will be voted for the election of Messrs. Conrad, Ramseier, Smith and
Spath, who have each agreed to stand for election to hold office for a term
of two years, expiring at the Annual Meeting of Shareholders in 1999, or
until a successor is elected and has qualified, or for as many nominees of
the Board of Directors as possible, such votes to be distributed among such
nominees in the manner as the persons named in the enclosed proxy see fit.
If, however, any of those named are unable to serve, or for good cause
decline to serve at the time of the Annual Meeting, the persons named in the
enclosed proxy will exercise discretionary authority to vote for substitutes.
The Board of Directors is not aware of any circumstances that would render any
nominee unavailable for election. Discretionary authority to cumulate votes is
being solicited by the Board of Directors, and it is intended that the proxies
received by the management proxyholders pursuant to the solicitation will be
voted in a manner designed to cause the election of the maximum number of the
Board of Directors' nominees.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR THE NOMINEES LISTED HEREIN.
NOMINEES FOR ELECTION TO TERMS WHICH EXPIRE AT THE 1999 ANNUAL MEETING OF
SHAREHOLDERS
Herbert J. Conrad, 64, served as President of the Pharmaceuticals Division
and Senior Vice President of Hoffmann-La Roche Inc. ("Roche") from 1982 until
his retirement in 1993. Mr. Conrad joined Roche in 1960 and held various
positions over the years, including Senior Vice President of the Pharmaceuticals
Division, Chairman of the Board of Medi-Physics, Inc. and Vice President, Public
Affairs and Planning Division. Mr. Conrad was first elected director of the
Company in 1994 and currently serves as a member of the Company's Compensation
Committee. Mr. Conrad is a director of Gensia, Inc. ("Gensia"), a
biopharmaceutical company, Biotechnology General Corp., a biotechnology company,
and Bradley Pharmaceuticals, a pharmaceutical company.
Gordon V. Ramseier, 52, has been Executive Director of a private consulting
company, The Sage Group, since 1995. The Sage Group provides consulting
services to companies in the health care field. Mr. Ramseier has operated a
private consulting company since 1994, and also performed such consulting work
from 1990 to 1992. Mr. Ramseier served as President and Chief Executive Officer
of Onco Therapeutics, Inc. from 1992 until 1994. From 1986 to 1990,
Mr. Ramseier served as President and Chief Executive Officer of the Company.
Mr. Ramseier was first elected director of the Company in 1986 and currently
serves as a member of the Company's Audit Committee.
Charles G. Smith, Ph.D., 69, has operated a private consulting company
since 1986 and is currently a consultant for several health care companies.
Prior to his consulting work, Dr. Smith served with Revlon Health Care Group as
Vice President of Research and Development from 1975 to 1986 and is a founder of
Vanguard Medical Ltd., a British start-up company. Dr. Smith was first elected
director of the Company in 1988 and also serves as a member of the Company's
Scientific Advisory Board.
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Walter F. Spath, 52, joined the Company in 1988 and currently serves as
Senior Vice President, Sales and Marketing, and has served as a director since
1991. Prior to joining the Company, Mr. Spath was Corporate Vice President,
Commercial Development, at Searle Pharmaceuticals ("Searle") from 1986 to 1988,
where he also served in a variety of sales and marketing positions from 1975 to
1986. Prior to joining Searle, Mr. Spath was a marketing manager at Pfizer
Pharmaceuticals. Mr. Spath received an MBA in Marketing from University of
Maryland and a B.S. in Economics from Villanova.
DIRECTORS WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING OF SHAREHOLDERS
James C. Blair, Ph.D., 57, has served as a general partner of Domain
Associates, a venture capital management company, since 1985. Dr. Blair was
first elected director of the Company in 1986 and currently serves as a
member of both the Company's Compensation Committee and the Audit Committee.
Dr. Blair is currently a director of Amylin Pharmaceuticals, Inc.
("Amylin"), Aurora Biosciences, Inc., CoCensys Inc., Gensia, and Houghten
Pharmaceuticals, Inc. ("Houghten"), all biopharmaceutical companies, and
Vista Medical Technologies, Inc., a medical device company.
Joseph C. Cook, 55, has been President of Cambrian Associates, LLC since
1994 and has been a principal of Life Science Advisors, LLC ("Life Science
Advisors") since it was founded in 1994. Mr. Cook retired as Group Vice
President, Global Manufacturing, Engineering and Corporate Quality at Eli Lilly
and Company ("Lilly") in 1993. During his 28 years with Lilly, Mr. Cook was
Vice President of Sales and Marketing, Chief Financial Officer for Elanco
Products Company, and General Manager of a worldwide business unit of Lilly.
Mr. Cook joined the Company's Board of Directors in 1995 and currently serves as
a member of the Company's Audit Committee. He is currently a director of
Amylin, NABI, Inc., a biopharmaceutical company, and Personnel Management, Inc.,
a temporary services company.
Cam L. Garner, 49, joined the Company in 1989 as Executive Vice President
of the Company (formerly Immunetech Pharmaceuticals), President of the Company's
former subsidiary and a director. He has served as President and Chief
Executive Officer of the Company since 1990 and was named Chairman of the Board
in 1995. Prior to joining the Company, Mr. Garner served as President of Syntro
Corporation, a biotechnology company, from 1987 to 1989. Mr. Garner is
currently a director of Safeskin Corporation, a manufacturer of medical
supplies, and Houghten. Mr. Garner received an MBA from Baldwin-Wallace College
and a B.S. in Biology from Virginia Wesleyan College.
David F. Hale, 48, has served as President and Chief Executive Officer of
Gensia since 1987. Prior to joining Gensia, Mr. Hale was President and Chief
Executive Officer of Hybritech Incorporated ("Hybritech"), a biotechnology
company which was acquired by Lilly in 1986. Mr. Hale was first elected
director of the Company in 1986 and currently serves as a member of the
Company's Compensation Committee. Mr. Hale is currently a director and Chairman
of the Board of Gensia.
David S. Kabakoff, 49, joined the Company in 1996 as a director and
Executive Vice President, and as President and Chief Executive Officer of Spiros
Development Corporation ("Spiros Corp."). From 1989 to 1996, he was employed by
Corvas International, Inc., a biopharmaceutical company ("Corvas"), and served
in a number of capacities during that time period, including Chief Executive
Officer, President, Chief Operating Officer and Chairman of the Board. From
1983 to 1989, Dr. Kabakoff was employed by Hybritech, most recently as Senior
Vice President of Research and Development-Diagnostics. Dr. Kabakoff is a
director of Spiros Corp. Dr. Kabakoff received a Ph.D. in Organic Chemistry
from Yale University and a B.A. in Chemistry from Case Western Reserve
University.
BOARD MEETINGS AND COMMITTEES
The Company's Board of Directors met a total of eight times during the
fiscal year ended December 31, 1996. With the exception of Mr. Hale, each
director attended at least 75% of the aggregate of (i) the total meetings of the
Board of Directors (held during the period for which he has been a director) and
(ii) the total number of meetings held by all committees of the board on which
he served (during the periods that he served).
The Company has a standing Compensation Committee currently composed of
three non-employee directors: Dr. Blair, Mr. Conrad and Mr. Hale. The
Compensation Committee met three times in fiscal 1996. The Compensation
Committee reviews and acts on matters relating to compensation levels and
benefit plans for executive officers and key employees of the Company, including
salary and stock options. The Committee is also responsible for granting stock
awards, stock options, stock appreciation rights and other awards to be made
under the Company's existing incentive
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compensation plan. The Company also has a standing Audit Committee currently
composed of the following three directors: Dr. Blair, Mr. Cook and Mr.
Ramseier. During fiscal 1996, the Audit Committee met once. The Audit
Committee assists in selecting the independent auditors, designating services
they are to perform and maintaining effective communication with those auditors.
The Company does not have a standing Nominating Committee or any other committee
performing similar functions, as such matters are considered at meetings of the
full Board of Directors.
PROPOSAL 2
REINCORPORATION OF THE COMPANY IN DELAWARE
AND RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS
GENERAL
The Board of Directors has unanimously approved a proposal to change the
Company's state of incorporation from California to Delaware. The Board of
Directors believes the change in domicile to be in the best interests of the
Company and its shareholders for several reasons. Principally, the Board of
Directors believes that reincorporation will enhance the Company's ability to
attract and retain qualified members of the Company's Board of Directors as well
as encourage directors to continue to make independent decisions in good faith
on behalf of the Company. The Company believes that the more favorable
corporate environment afforded by Delaware will enable it to compete more
effectively with other public companies, most of which are incorporated in
Delaware, to attract new directors and to retain its current directors. To
date, the Company has not experienced difficulty in retaining directors.
Reincorporation in Delaware will allow the Company the increased flexibility and
predictability afforded by Delaware law. Concurrent with the reincorporation,
the Company proposes to adopt or maintain certain measures designed to make
hostile takeovers of the Company more difficult. The Board believes that
adoption of these measures will enable the Board to consider fully any proposed
takeover attempt and to negotiate terms that maximize the benefit to the Company
and its shareholders.
In recent years, a number of major public companies have obtained the
approval of their shareholders to reincorporate in Delaware. For the reasons
explained below, the Company believes it is beneficial and important that the
Company likewise avail itself of Delaware law.
For many years Delaware has followed a policy of encouraging incorporation
in that state. In furtherance of that policy, Delaware has adopted
comprehensive corporate laws which are revised regularly to meet changing
business circumstances. The Delaware legislature is particularly sensitive to
issues regarding corporate law and is especially responsive to developments in
modern corporate law. The Delaware courts have developed considerable expertise
in dealing with corporate issues as well as a substantial body of case law
construing Delaware's corporate law. As a result of these factors, it is
anticipated that Delaware law will provide greater predictability in the
Company's legal affairs than is presently available under California law.
In 1986, Delaware amended its corporate law to allow corporations to limit
the personal monetary liability of its directors for their conduct as directors
under certain circumstances. The directors have elected to adopt such a
provision in the Delaware certificate and bylaws. It should be noted that
Delaware law does not permit a Delaware corporation to limit or eliminate the
liability of its directors for intentional misconduct, bad faith conduct or any
transaction from which the director derives an improper personal benefit or for
violations of federal laws such as the federal securities laws. The Board of
Directors believes that Delaware incorporation will enhance the Company's
ability to recruit and retain directors in the future, however, the shareholders
should be aware that such a provision inures to the benefit of the directors,
and the interest of the Board of Directors in recommending the reincorporation
may therefore be in conflict with the interests of the shareholders. See
"--Indemnification and Limitation of Liability" for a more complete discussion
of these issues.
In 1987, California amended its corporate law in a manner similar to
Delaware to permit a California corporation to limit the personal monetary
liability of its directors for their conduct as directors under certain
circumstances. Nonetheless, the Board of Directors believes that the protection
from liability for directors is somewhat greater under the Delaware law than
under the California law and therefore that the Company's objectives in adopting
this type of provision can be better achieved by reincorporation in Delaware.
4
<PAGE>
The interests of the Board of Directors of the Company, management and
affiliated shareholders in voting on the reincorporation proposal may not be the
same as those of unaffiliated shareholders. Delaware law does not afford
minority shareholders some of the rights and protections available under
California law. Reincorporation of the Company in Delaware may make it more
difficult for minority shareholders to elect directors and influence Company
policies. A discussion of the principal differences between California and
Delaware law as they affect shareholders begins on page 6 of this Proxy
Statement.
In addition, portions of the reincorporation proposal may have the effect
of deterring hostile takeover attempts. A hostile takeover attempt may have a
positive or a negative effect on the Company and its shareholders, depending on
the circumstances surrounding a particular takeover attempt. Takeover attempts
that have not been negotiated or approved by the board of directors of a
corporation can seriously disrupt the business and management of a corporation
and generally present to the shareholders the risk of terms which may be less
than favorable to all of the shareholders than would be available in a board-
approved transaction. Board approved transactions may be carefully planned and
undertaken at an opportune time in order to obtain maximum value for the
corporation and all of its shareholders with due consideration to matters such
as the recognition or postponement of gain or loss for tax purposes, the
management and business of the acquiring corporation and maximum strategic
deployment of corporate assets.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the shareholders, providing all of the shareholders
with considerable value for their shares. However, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts are
sufficiently great that prudent steps to reduce the likelihood of such takeover
attempts are in the best interests of the Company and its shareholders.
Accordingly, the reincorporation plan includes certain proposals that may have
the effect of discouraging or deterring hostile takeover attempts.
Notwithstanding the belief of the Board of Directors as to the benefits to
shareholders of the changes, shareholders should recognize that one of the
effects of such changes may be to discourage a future attempt to acquire control
of the Company which is not presented to and approved by the Board of Directors,
but which a substantial number and perhaps even a majority of the Company's
shareholders might believe to be in their best interests or in which
shareholders might receive a substantial premium for their shares over the
current market prices. As a result, shareholders who might desire to
participate in such a transaction may not have an opportunity to do so.
The proposed reincorporation would be accomplished by merging the Company
into a newly-formed Delaware corporation which, just before the merger, will be
a wholly-owned subsidiary of the Company (the "Delaware Company"), pursuant to
an Agreement and Plan of Merger (the "Merger Agreement"), a copy of which is
attached as Exhibit A to this Proxy Statement. Upon the effective date of the
merger, the Delaware Company's name will be Dura Pharmaceuticals, Inc. The
reincorporation will not result in any change in the Company's business, assets
or liabilities, will not cause its corporate headquarters to be moved and will
not result in any relocation of management or other employees.
On the effective date of the proposed reincorporation, each outstanding
share of Common Stock of the Company will automatically convert into one
share of Common Stock of the Delaware Company, and shareholders of the
Company will automatically become shareholders of the Delaware Company. On
the effective date of the reincorporation, the number of outstanding shares
of Common Stock of the Delaware Company will be equal to the number of shares
of Common Stock of the Company outstanding immediately prior to the effective
date of the reincorporation. In addition, each outstanding option, warrant
or right to acquire shares of Common Stock of the Company will be converted
into an option or right to acquire an equal number of shares of Common Stock
of the Delaware Company, under the same terms and conditions as the original
options or rights. All of the Company's employee benefit plans, including
the 401(k) Profit Sharing Plan, the Deferred Compensation Plan and the 1992
Stock Option Plan, will be adopted and continued by the Delaware Company
following the reincorporation. Shareholders should recognize that approval of
the proposed reincorporation will constitute approval of the adoption and
assumption of those plans by the Delaware Company.
No action need be taken by shareholders to exchange their stock
certificates now; this will be accomplished at the time of the next transfer by
the shareholder. Certificates for shares in the Company will automatically
represent an equal number of shares in the Delaware Company upon completion of
the merger.
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The affirmative vote of the holders of a majority of the outstanding shares
of the Common Stock present in person or represented by proxy and voting at the
Annual Meeting is required for approval of the reincorporation. For purposes of
the vote, abstentions and broker non-votes will not be counted for any purpose
in determining whether this matter has been approved. If approved by the
shareholders, it is anticipated that the reincorporation would be completed as
soon thereafter as practicable. The reincorporation may be abandoned or the
Merger Agreement may be amended (with certain exceptions), either before or
after shareholder approval has been obtained, if in the opinion of the Board of
Directors, circumstances arise that make such action advisable; provided, that
any amendment that would effect a material change from the charter provisions
discussed in this Proxy Statement would require further approval by the holders
of a majority of the outstanding shares of the Common Stock.
SIGNIFICANT CHANGES CAUSED BY REINCORPORATION
In general, the Company's corporate affairs are governed at present by
the corporate law of California, the Company's state of incorporation, and by
the Company's Sixth Restated Articles of Incorporation, as amended (the
"California Articles") and the Company's Amended and Restated Bylaws (the
"California Bylaws"), which have been adopted pursuant to California law.
The California Articles and California Bylaws are available for inspection
during business hours at the principal executive offices of the Company. In
addition, copies may be obtained by writing to the Company at Dura
Pharmaceuticals, Inc., 5880 Pacific Center Boulevard, San Diego, California
92121-4204, Attention: Corporate Secretary.
If the reincorporation proposal is adopted, the Company will merge into,
and its business will be continued by, the Delaware Company. Following the
merger, issues of corporate governance and control would be controlled by
Delaware, rather than California law (however, see "--Application of California
Law After Reincorporation"). The California Articles and California Bylaws,
will, in effect, be replaced by the Certificate of Incorporation of the Delaware
Company (the "Delaware Certificate") and the bylaws of the Delaware Company (the
"Delaware Bylaws"), copies of which are attached as Exhibits B and C to this
Proxy Statement. Accordingly, the differences among these documents and between
Delaware and California law are relevant to your decision whether to approve the
reincorporation proposal.
A number of differences between California and Delaware law and among the
various charter documents are summarized in the chart below. Shareholders are
requested to read the following chart in conjunction with the discussion
following the chart and the Merger Agreement, the Delaware Certificate and the
Delaware Bylaws attached to this Proxy Statement. For each item summarized in
the chart, there is a reference to a page of this Proxy Statement on which a
more detailed discussion appears.
ISSUE DELAWARE CALIFORNIA
----- -------- ----------
Limitation of Delaware law permits the California law contains
Liability of limitation of liability of additional exceptions to
Directors and directors and officers to the the liability limitations
Officers Company except in connection of directors and officers.
(see page 8). with (i) breaches of the duty
of loyalty; (ii) acts or
omissions not in good faith or
involving intentional
misconduct or knowing
violations of law; (iii) the
payment of unlawful dividends
or unlawful stock repurchases
or redemptions; or (iv)
transactions in which a
director received an improper
personal benefit.
Indemnification Delaware law permits somewhat California Law permits
of Directors and broader indemnification and indemnification under
Officers could result in certain circumstances,
(see page 9). indemnification of directors subject to certain
and officers in circumstances limitations.
where California law would not
permit indemnification.
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ISSUE DELAWARE CALIFORNIA
----- -------- ----------
Cumulative Voting Cumulative voting not Cumulative voting is
for Directors available under Delaware law mandatory upon notice given
(see page 11). because not provided in the by a shareholder at a
Delaware Certificate. shareholders' meeting at
which directors are to be
elected. California law
permits Nasdaq National
Market System ("Nasdaq")
corporations with over 800
equity security holders to
eliminate cumulative
voting.
Number of Determined solely by Determined by the Board of
Directors (see resolution of the Board of Directors within a range
page 11). Directors. set in the California
Bylaws. Changes in the
authorized range must be
approved by the
shareholders.
Removal of Removal with or without cause Removal with or without
Directors by by affirmative vote of a cause by affirmative vote
Shareholders majority of the outstanding of a majority of the
(see page 11). shares. outstanding shares,
provided that shares voting
against removal could not
elect such director under
cumulative voting.
Filling Board Delaware law provides for the California law permits (a)
Vacancies Delaware Court of Chancery to any holder of 5% or more of
(see page 12). order an election to fill the corporation's voting
vacancies or newly created stock ("Voting Stock") or
directorships upon the (b) the superior court of
application of the holders of the appropriate county to
10% of the outstanding shares call a special meeting of
having a right to vote for shareholders to elect the
such directors if, at the time entire board if, after
of filling such vacancies or filling any vacancy, the
directorships, the directors directors then in office
then in office constitute less who have been elected by
than a majority of the entire the shareholders constitute
board as constituted less than a majority of the
immediately prior to any directors then in office.
increase.
Who May Call The Board of Directors, the The Board of Directors, the
Special Chairman of the Board or the Chairman of the Board, the
Shareholder Chief Executive Officer. President, or holders of
Meeting (see page 10% of the shares entitled
12). to vote at the special
meeting.
Action by Written Action by written consent not Action by written consent
Consent of permitted by Delaware not permitted by California
Shareholders in Certificate. All shareholder Articles. All shareholder
Lieu of a action must take place by a action must take place by a
Shareholder Vote shareholder vote at a meeting shareholder vote at a
at Shareholder of shareholders. meeting of shareholders.
Meeting
(see page 13).
Tender Offer Restricts hostile two-step No comparable statute. The
Statute (see page takeovers. California Articles include
13). a Fair Price provision
similar in effect to the
Delaware statute.
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ISSUE DELAWARE CALIFORNIA
----- -------- ----------
Amendment of Amendments to provisions Amendments to provisions
Certificate relating to the establishment relating to the
(see page 15). of the number of directors, establishment of the number
advance notice of shareholder of directors, advance
proposals and nominations, notice of shareholder
shareholder action without a proposals and nominations,
meeting and cumulative voting shareholder action without
require approval by a simple a meeting, cumulative
majority of the Voting Stock voting and the Fair Price
of the Delaware Company. provision require approval
by a simple majority of the
Voting Stock of the
Company.
Loans to Officers Board of Directors may Loans must be approved or
and Directors authorize if expected to ratified by a majority of
(see page 15). benefit the Company. the outstanding shares.
Class Vote for Generally not required unless A reorganization
Reorganizations a reorganization adversely transaction must generally
(see page 15). affects a specific class of be approved by a majority
shares. vote of each class of
shares outstanding.
Right of Permitted for any purpose Permitted for any purpose
Shareholders to reasonably related to such reasonably related to such
Inspect shareholder's interest as a shareholder's interest as a
Shareholder List shareholder. shareholder. Also, an
(see page 16). absolute right to 5%
shareholders and certain 1%
shareholders.
Appraisal Rights Generally available if Available in certain
(see page 16). shareholders receive cash in circumstances if the
exchange for the shares and in holders of 5% of the class
certain other circumstances. assert such rights.
Dividends Paid from surplus (including Generally limited to the
(see page 16). paid-in and earned surplus or greater of (i) retained
net profits). earnings or (ii) an amount
which would leave the
Company with assets of 125%
of liabilities and current
assets of 100% of current
liabilities.
Other Responsive legislature and
(see page 4). larger body of corporate case
law in Delaware provides more
predictable corporate legal
environment in Delaware.
INDEMNIFICATION AND LIMITATION OF LIABILITY
LIMITATIONS ON DIRECTOR LIABILITY.
Both California and Delaware permit a corporation to limit the personal
liability of a director to the corporation or its shareholders for monetary
damages for breach of certain duties as a director. The California and Delaware
laws adopt a self-governance approach by enabling a corporation to take
advantage of these provisions only if an amendment to the charter limiting such
liability is approved by a majority of the outstanding shares or such language
is included in the original charter.
The California Articles eliminate the liability of directors to the
corporation to the fullest extent permissible under California law. California
law does not permit the elimination of monetary liability where such liability
is based on: (a) intentional misconduct or knowing and culpable violation of
law; (b) acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders, or that involve the absence of
good faith on the part of the director;
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<PAGE>
(c) receipt of an improper personal benefit; (d) acts or omissions that show
reckless disregard for the director's duty to the corporation or its
shareholders, where the director in the ordinary course of performing a
director's duties should be aware of a risk of serious injury to the corporation
or its shareholders; (e) acts or omissions that constitute an unexcused pattern
of inattention that amounts to an abdication of the director's duty to the
corporation and its shareholders: (f) interested transactions between the
corporation and a director in which a director has a material financial
interest: and (g) liability for improper distributions, loans or guarantees.
The Delaware Certificate also eliminates the liability of directors to the
fullest extent permissible under Delaware law, as such law exists currently or
as it may be amended in the future. Under Delaware law, such provision may not
eliminate or limit director monetary liability for (a) breaches of the
director's duty of loyalty to the corporation or its shareholders; (b) acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law; (c) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (d) transactions in which the director received
an improper personal benefit. Such limitation of liability provision also may
not limit director's liability for violation of, or otherwise relieve the
Delaware Company or its directors from the necessity of complying with, federal
or state securities laws or affect the availability of non-monetary remedies
such as injunctive relief or rescission.
Shareholders should recognize that the proposed reincorporation and
associated measures are designed to shield a director from suits by the Delaware
Company or its shareholders for monetary damages for negligence or gross
negligence by the director in failing to satisfy the director's duty of care.
As a result, an action for monetary damages against a director predicated on a
breach of the duty of care would be available only if the Delaware Company or
its shareholders were able to establish that the director was disloyal in his or
her conduct, failed to act in good faith, engaged in intentional misconduct,
knowingly violated the law, derived an improper personal benefit or approved an
illegal dividend or stock repurchase. Consequently, the effect of such measures
may be to limit or eliminate an effective remedy which might otherwise be
available to a shareholder who is dissatisfied with the Board of Directors'
decisions. Although an aggrieved shareholder could sue to enjoin or rescind an
action taken or proposed by the Board of Directors, such remedies may not be
timely or adequate to prevent or redress injury in all cases.
The Company believes that directors are motivated to exercise due care in
managing the Company's affairs primarily by concern for the best interests of
the Company and its shareholders rather than by the fear of potential monetary
damage awards. As a result, the Company believes that the reincorporation
proposal should sustain the Board of Directors' continued high standard of
corporate governance without any decrease in accountability by directors to the
Company and its shareholders.
INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The California Bylaws and Delaware Bylaws relating to indemnification
similarly require that the Company and the Delaware Company, respectively,
indemnify its directors and its executive officers and officers to the fullest
extent permitted by the respective state law, provided, that the Company may
modify the extent of such indemnification by individual contracts with its
directors and executive officers, and, provided, further, that the Company will
not be required to indemnify any director or executive officer in connection
with a proceeding initiated by such person, with certain exceptions. Such
Bylaws permit the Company and the Delaware Company to provide indemnification to
their other officers, employees and agents as set forth in the respective state
law. Such indemnification is intended to provide the full flexibility available
under such laws. The Delaware Bylaws contain provisions similar to the
California Bylaws with respect to advances in that the Delaware Company is
required to advance expenses related to any proceeding contingent on such
persons' commitment to repay any advances unless it is determined ultimately
that such persons are entitled to be indemnified.
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. There are
nonetheless certain differences between the laws of the two states.
California law permits indemnification of expenses incurred in derivative
or third-party actions, except that with respect to derivative actions (a) no
indemnification may be made without court approval when a person is adjudged
liable to the corporation in the performance of that person's duty to the
corporation and its shareholders, unless a court determines such person is
entitled to indemnity for expenses, and then such indemnification may be made
only to the extent that such court shall determine and (b) no indemnification
may be made under California law, without court approval in respect of amounts
paid or expenses incurred in settling or otherwise disposing of a threatened or
pending action or amounts incurred in
9
<PAGE>
defending a pending action which is settled or otherwise disposed of without
court approval. Delaware allows indemnification of such expenses without court
approval.
Indemnification is permitted by both California and Delaware law providing
the requisite standard of conduct is met, as determined by a majority vote of a
disinterested quorum of the directors, independent legal counsel (if a quorum of
independent directors is not obtainable), a majority vote of a quorum of the
shareholders (excluding shares owned by the indemnified party) or the court
handling the action.
California law requires indemnification when the individual has
successfully defended the action on the merits (as opposed to Delaware law which
requires indemnification relating to a successful defense on the merits or
otherwise).
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is a
determination by a disinterested quorum of the directors, by independent legal
counsel or by a majority vote of a quorum of the shareholders that the person
seeking indemnification acted in good faith and in a manner reasonably believed
to be in or (in contrast to California law) not opposed to the best interests of
the corporation. Without court approval, however, no indemnification may be
made in respect of any derivative action in which such person is adjudged liable
for negligence or misconduct in the performance of his or her duty to the
corporation. Delaware law requires indemnification of expenses when the
individual being indemnified has successfully defended the action on the merits
or otherwise.
California corporations may include in their articles of incorporation a
provision which extends the scope of indemnification through agreements, bylaws
or other corporate action beyond that specifically authorized by statute. The
California Articles include such a provision.
A provision of Delaware law states that the indemnification provided by
statute shall not be deemed exclusive of any other rights under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise. Under
Delaware law, rights to indemnification and expenses are non-exclusive, in that
they need not be limited to those expressly provided by statute. California law
is similar in that it permits non-exclusive indemnification if authorized in the
Company's charter. The California Articles contain such an enabling provision.
Under Delaware law and the Delaware Bylaws, the Delaware Company is permitted to
indemnify its directors, officers, employees and other agents, within the limits
established by law and public policy, pursuant to an express contract, bylaw
provision, shareholder vote or otherwise, any or all of which could provide
indemnification rights broader than those currently available under the
California Bylaws or the California indemnification statutes. If the
reincorporation is approved, the Company intends to enter into indemnification
agreements with its officers and directors.
The indemnification and limitation of liability provisions of California
law, and not Delaware law, will apply to actions of the directors and officers
of the Company made prior to the proposed reincorporation. Nevertheless, the
Board of Directors has recognized in considering this reincorporation proposal
that the individual directors have a personal interest in obtaining the
application of Delaware law to such indemnity and limitation of liability issues
affecting them and the Company in the event they arise from a potential future
case, and that the application of Delaware law, to the extent that any director
or officer is actually indemnified in circumstances where indemnification would
not be available under California law, would result in expense to the Company
which the Company would not incur if the Company were not reincorporated. The
Board of Directors believes, however, that the overall effect of reincorporation
is to provide a corporate legal environment that enhances the Company's ability
to attract and retain high quality outside directors and thus benefits the
interests of the Company and its shareholders.
There is no pending or, to the Company's knowledge, threatened litigation
to which any of its directors is a party in which the rights of the Company or
its shareholders would be affected if the Company currently were subject to the
provisions of Delaware law rather than California law.
California and Delaware corporate law, the California Bylaws and the
Delaware Bylaws, as well as any indemnity agreements, may permit indemnification
for liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act") or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Board of Directors has been advised that, in the opinion
of the Securities and Exchange Commission (the "SEC"), indemnification for
liabilities arising under the Securities Act is contrary to public policy and is
therefore unenforceable, absent a decision to the contrary by a court of
appropriate jurisdiction.
10
<PAGE>
CUMULATIVE VOTING FOR DIRECTORS
Cumulative voting permits the holder of each share of stock entitled to
vote in the election of directors to cast that number of votes which equal the
number of directors to be elected. The holder may allocate all votes
represented by a share to a single candidate or may allocate those votes among
as many candidates as he or she chooses. Thus, a shareholder with a significant
minority percentage of the outstanding shares may be able to elect one or more
directors if voting is cumulative. In contrast, under non-cumulative voting,
the holder or holders of a majority of the shares entitled to vote in an
election of directors will be able to elect all the directors of the Company.
Under California law, cumulative voting in the election of directors is
mandatory upon notice given by a shareholder at a shareholders' meeting at which
directors are to be elected. In order to cumulate votes a shareholder must give
notice at the meeting, prior to the voting, of the shareholder's intention to
vote cumulatively. If any one shareholder gives such a notice, all shareholders
may cumulate their votes. However, California law permits a company, by
amending its articles of incorporation or bylaws, to eliminate cumulative voting
when the Company's shares are listed on a national stock exchange or traded on
the Nasdaq and are held by at least 800 equity security holders.
Cumulative voting is not available under Delaware law unless so provided in
the corporation's certificate of incorporation. The Delaware Certificate does
not provide for cumulative voting.
The elimination of cumulative voting could deter investors from acquiring a
minority block in the Company with a view toward obtaining a board seat and
influencing Company policy. It is also conceivable that the absence of
cumulative voting might deter efforts to seek control of the Company on a basis
which some shareholders might deem favorable.
OTHER MATTERS RELATING TO DIRECTORS
NUMBER OF DIRECTORS.
California law allows the number of persons constituting the board of
directors of a corporation to be fixed by the bylaws or the articles of
incorporation, or permits the bylaws to provide that the number of directors may
vary within a specified range, the exact number to be determined by the board of
directors. California law further provides that, in the case of a variable
board, the maximum number of directors may not exceed two times the minimum
number minus one. The California Bylaws provide for a Board of Directors that
may vary between five and nine members, inclusive, and the Board of Directors
has fixed the exact number of directors at nine. California law also requires
that any change in the range of a variable Board of Directors specified in the
articles and bylaws must be approved by a majority in interest of the
outstanding shares entitled to vote (or such greater proportion of the
outstanding shares as may be required by the articles of incorporation),
provided that a change reducing the minimum number of directors to less than
three cannot be adopted if votes cast against its adoption are equal to more
than 16 2/3% of the outstanding shares entitled to vote. The California Bylaws
require that any amendment reducing the minimum number of directors cannot be
adopted if votes cast against are equal to more than 16 2/3% of the outstanding
shares entitled to vote.
Delaware law permits a board of directors to change the authorized number
of directors by amendment to the bylaws unless the number of directors is fixed
in the certificate of incorporation or the manner of fixing the number of
directors is set forth in the certificate of incorporation, in which case the
number of directors may be changed only by amendment of the certificate of
incorporation or consistent with the manner specified in the certificate of
incorporation, as the case may be. The Delaware Certificate provides that the
exact number of directors shall be fixed from time to time exclusively by the
Board of Directors by resolution.
REMOVAL OF DIRECTORS.
Under California law, a director may be removed with or without cause by
the affirmative vote of a majority of the outstanding shares, provided that the
shares voted against removal would not be sufficient to elect the director by
cumulative voting. Under Delaware law, unless the board is classified or
cumulative voting is permitted, a director can be removed from office during his
term by shareholders with or without cause by the holders of a majority of the
shares then entitled to vote at an election of directors. The Delaware
Certificate provides that the Company's directors may be removed from office at
any time with or without cause by the affirmative vote of the holders of a
majority of the voting power of the then-outstanding
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<PAGE>
shares of Voting Stock of the Company. The term "cause" with respect to the
removal of directors is not defined in the Delaware General Corporation Law and
its meaning has not been precisely delineated by the Delaware courts.
FILLING BOARD VACANCIES.
Under California law, if, after the filling of any vacancy by the directors
of a corporation, the directors then in office who have been elected by the
corporation's shareholders constitute less than a majority of the directors then
in office, then: (i) any holder of more than 5% of the corporation's Voting
Stock may call a special meeting of shareholders, or (ii) the superior court of
the appropriate county may order a special meeting of the shareholders to elect
the entire board of directors of the corporation. Delaware law provides that
if, at the time of filling any vacancy or newly created directorship, the
directors then in office constitute less than a majority of the entire board of
directors as constituted immediately prior to any increase, the Delaware Court
of Chancery may, upon application of any shareholder or shareholders holding at
least 10% of the total number of shares at the time outstanding having the right
to vote for such directors, summarily order an election to be held to fill any
such vacancies or newly created directorships or to replace the directors chosen
by the directors then in office.
The proposed Delaware Certificate and Delaware Bylaws provide that
vacancies shall, unless the Board of Directors determines by resolution that any
such vacancies be filled by the shareholders or as otherwise provided by law, be
filled only by the affirmative vote of a majority of directors then in office,
even if such directors comprise less than a quorum of the Board of Directors.
CAPITALIZATION
Currently, the Company's capital stock consists of 100,000,000 authorized
shares of Common Stock, no par value, of which 43,519,572 shares are
issued and outstanding as of March 31, 1997, and 5,000,000 authorized shares of
Preferred Stock, no par value, none of which are issued and outstanding as of
March 31, 1997.
Upon the effectiveness of the reincorporation, the Delaware Company will
have the same number of outstanding shares of Common Stock that the Company had
outstanding immediately prior to the reincorporation.
The capitalization of the Delaware Company is identical to the
capitalization of the Company with the addition of a per share par value, with
authorized capital stock of 100,000,000 shares of Common Stock, $.001 par value,
and 5,000,000 shares of Preferred Stock, $.001 par value, consistent with
maintaining adequate capitalization for the current needs of the Company. The
Delaware Company's authorized but unissued shares of Preferred Stock will be
available for future issuance.
Under the Delaware Certificate, as under the California Articles, the Board
of Directors has the authority to determine or alter the rights, preferences,
privileges and restrictions to be granted to or imposed upon any wholly unissued
series of Preferred Stock and to fix the number of shares constituting any such
series and to determine the designation thereof.
The Board of Directors may authorize the issuance of Preferred Stock for
the purpose of adopting shareholder rights plans or in connection with various
corporate transactions, including corporate partnering arrangements. If the
reincorporation is approved, it is not the present intention of the Board of
Directors to seek shareholder approval prior to any issuance of Preferred Stock,
except as required by law or regulation. See "--Anti-Takeover Measures."
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDERS' MEETING
Under California law, a special meeting of shareholders may be called by
the Board of Directors, the Chairman of the Board of Directors, the President or
the holders of shares entitled to cast not less than 10% of the votes at such
meeting and such persons as are authorized by the articles of incorporation or
bylaws. Under Delaware law, a special meeting of shareholders may be called by
the Board of Directors or by any other person authorized to do so in the
certificate of incorporation or the bylaws. The Delaware Certificate and
Delaware Bylaws provide that such a meeting may be called by the Board of
Directors, the Chairman of the Board of Directors or the Chief Executive
Officer. Pursuant to the Delaware Certificate and Delaware Bylaws, if the
meeting is called by a person or persons other than the Board of Directors,
(i.e., by the Chairman of the Board of Directors or the Chief Executive Officer)
the Board of Directors shall determine the time and the place of such meeting
which shall be from 35 to 120 days after the receipt of the request for the
meeting.
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ACTION BY WRITTEN CONSENT OF SHAREHOLDERS
Under California and Delaware law, shareholders may execute an action by
written consent in lieu of a shareholder meeting. Both California and Delaware
law permits a corporation to eliminate such actions by written consent in its
charter. The Delaware Certificate, like the California Articles, continues to
prohibit actions by written consent of shareholders.
Prohibition of such shareholder written consents may lengthen the amount of
time required to take shareholder actions because certain actions by written
consent are not subject to the minimum notice requirement of a shareholders'
meeting. The prohibition of shareholder written consents may deter hostile
takeover attempts because of the lengthened shareholder approval process.
Without the ability to act by written consent, a holder or group of holders
controlling a majority in interest of the Delaware Company's capital stock will
not be able to amend the Delaware Bylaws or remove directors pursuant to a
written consent. Any such holder or group of holders would have to wait until a
shareholders' meeting was held to take any such action. The Board of Directors
believes this provision, like the other provisions to be included in the
Delaware Certificate and Delaware Bylaws, will enhance the Board of Directors'
opportunity to fully consider and effectively negotiate in the context of a
takeover attempt.
ADVANCE NOTICE REQUIREMENT FOR SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS
There is no specific statutory requirement under either California or
Delaware law with regard to advance notice of director nominations and
shareholder proposals. Absent a bylaw restriction, director nominations and
shareholder proposals may be made without advance notice at the annual meeting.
However, federal securities laws generally provide that shareholder proposals
that the proponent wishes to include in the Company's proxy materials must be
received not less than 120 days in advance of the date stated in the proxy
statement released in connection with the previous year's annual meeting.
The Delaware Bylaws provide that, in order for director nominations or
shareholder proposals to be properly brought before the annual meeting, the
shareholder must have delivered timely notice to the Secretary of the
corporation. To be timely under the Delaware Bylaws, notice must be delivered
not less than 120 days prior to the date stated in the Company's proxy statement
released to stockholders in connection with the previous year's annual meeting.
If no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than 30 days from the date contemplated at the
time of the previous year's proxy statement, the Delaware Bylaws will provide
that notice must be given not more than 90 days nor less than 60 days prior to
the annual meeting. Proper notice under the federal securities laws for a
proposal to be included in the Company's proxy materials will constitute proper
notice under the Delaware Bylaws. These notice requirements help ensure that
shareholders are aware of all proposals to be voted on at the annual meeting and
have the opportunity to consider each proposal in advance of the annual meeting.
ANTI-TAKEOVER MEASURES
Delaware law has been widely viewed to permit a corporation greater
flexibility in governing its internal affairs and its relationships with
shareholders and other parties than do the laws of many other states, including
California. In particular, Delaware law permits a corporation to adopt a number
of measures designed to reduce a corporation's vulnerability to hostile takeover
attempts. Such measures are either not currently permitted or are more narrowly
drawn under California law. Among these measures are the establishment of a
classified board of directors and the elimination of the right of shareholders
to call special shareholders' meetings, each of which is described above. In
addition, certain types of "poison pill" defenses (such as shareholder rights
plans) have been upheld by Delaware courts, while California courts have yet to
decide on the validity of such defenses, thus rendering their effectiveness in
California less certain.
As discussed above, numerous differences between California and Delaware
law, effective without additional action by the Delaware Company, could have a
bearing on unapproved takeover attempts. One such difference is the existence
of a Delaware statute regulating tender offers, which statute is intended to
limit coercive takeovers of companies incorporated in that state. California
has no comparable statute, but the California Articles include a Fair Price
provision similar to the Delaware statute, which prevents potential acquirors
who purchase a controlling interest in the Company for a certain price from
acquiring the remainder of the shares at a lesser price. Delaware law provides
that a corporation may not engage in any business combination with any
interested shareholder for a period of three years following the date that such
shareholder became an interested shareholder, unless (i) prior to the date the
shareholder became an interested shareholder the Board of Directors approved the
business combination or the transaction which resulted in the shareholder
becoming an interested
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shareholder, or (ii) upon consummation of the transaction which resulted in the
shareholder becoming an interested shareholder, the interested shareholder owned
at least 85% of the Voting Stock, or (iii) the business combination is approved
by the Board of Directors and authorized by 66 2/3% of the outstanding Voting
Stock which is not owned by the interested shareholder. An interested
shareholder means any person that is the owner of 15% or more of the outstanding
Voting Stock, however, the statute provides for certain exceptions to parties
who otherwise would be designated interested shareholders, including an
exception for parties that held 15% or more of the outstanding Voting Stock as
of December 23, 1987. Any corporation may decide to opt out of the statute in
its original certificate of incorporation or, at any time, by action of its
shareholders. The Company has no present intention of opting out of the
statute.
There can be no assurance that the Board of Directors would not adopt any
further anti-takeover measures available under Delaware law (some of which may
not require shareholder approval). Moreover, the availability of such measures
under Delaware law, whether or not implemented, may have the effect of
discouraging a future takeover attempt which a majority of the Delaware
Company's shareholders may deem to be in their best interests or in which
shareholders may receive a premium for their shares over then current market
prices. As a result, shareholders who might desire to participate in such
transactions may not have the opportunity to do so. Shareholders should
recognize that, if adopted, the effect of such measures, along with the
possibility of discouraging takeover attempts, may be to limit in certain
respects the rights of shareholders of the Delaware Company compared with the
rights of shareholders of the Company.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the shareholders, providing all of the shareholders
with considerable value for their shares. However, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts (such
as disruption of the Company's business and the possibility of terms which may
be less than favorable to all of the shareholders than would be available in a
board-approved transaction) are sufficiently great such that prudent steps to
reduce the likelihood of such takeover attempts and to enable the Board of
Directors to fully consider the proposed takeover attempt and actively negotiate
its terms are in the best interests of the Company and its shareholders.
In addition to the various anti-takeover measures that would be available
to the Delaware Company after the reincorporation due to the application of
Delaware law, the Delaware Company would retain the rights currently available
to the Company under California law to issue shares of its authorized but
unissued capital stock. Following the effectiveness of the proposed
reincorporation, shares of authorized and unissued Common Stock and Preferred
Stock of the Delaware Company could (within the limits imposed by applicable
law) be issued in one or more transactions, or Preferred Stock could be issued
with terms, provisions and rights which would make more difficult and,
therefore, less likely, a takeover of the Delaware Company. Any such issuance
of additional stock could have the effect of diluting the earnings per share and
book value per share of existing shares of Common Stock and Preferred Stock, and
such additional shares could be used to dilute the stock ownership of persons
seeking to obtain control of the Delaware Company.
It should be noted that the voting rights to be accorded to any unissued
series of Preferred Stock of the Delaware Company ("Delaware Preferred Stock")
remain to be fixed by the Delaware Company Board of Directors. Accordingly, if
the Delaware Company Board of Directors so authorizes, the holders of Delaware
Preferred Stock may be entitled to vote separately as a class in connection with
approval of certain extraordinary corporate transactions in circumstances where
Delaware law does not ordinarily require such a class vote, or might be given a
disproportionately large number of votes. Such Delaware Preferred Stock could
also be convertible into a large number of shares of Common Stock of the
Delaware Company under certain circumstances or have other terms which might
make acquisition of a controlling interest in the Delaware Company more
difficult or more costly, including the right to elect additional directors to
the Delaware Board of Directors. Potentially, the Delaware Preferred Stock
could be used to create voting impediments or to frustrate persons seeking to
effect a merger or otherwise to gain control of the Delaware Company. Also, the
Delaware Preferred Stock could be privately placed with purchasers who might
side with the management of the Delaware Company in opposing a hostile tender
offer or other attempt to obtain control.
If the reincorporation is approved it is not the present intention of the
Board of Directors to seek shareholder approval prior to any issuance of the
Preferred Stock or Common Stock of the Delaware Company, except as required by
law or regulation. Frequently, opportunities arise that require prompt action,
and it is the belief of the Board of Directors that the delay necessary for
shareholder approval of a specific issuance would be a detriment to the Delaware
Company and its shareholders. The Board of Directors does not intend to issue
any Preferred Stock except on terms which the Board of Directors deems to be in
the best interests of the Delaware Company and its then existing shareholders.
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AMENDMENT OF CERTIFICATE
Both the California Articles and the Delaware Certificate provide that the
provisions relating to the (i) establishment of the number of directors, (ii)
advance notice of shareholder proposals and nominations, (iii) shareholder
action without a meeting and (iv) cumulative voting can only be amended by the
affirmative vote of the holders of a majority of the Voting Stock of the Company
and the Delaware Company, respectively.
AMENDMENT OF BYLAWS
Both the California Bylaws and the Delaware Bylaws provide that the
provisions relating to the (i) establishment of the number of directors, (ii)
advance notice of shareholder proposals and nominations, (iii) shareholder
action without a meeting, (iv) cumulative voting, (v) filling vacancies on the
Board of Directors, (vi) excessive compensation and (vii) loans to officers can
only be amended by the affirmative vote of the holders of a majority of the
Voting Stock of the Company and the Delaware Company, respectively.
LOANS TO OFFICERS, DIRECTORS AND EMPLOYEES
California law provides that any loan or guaranty (other than loans to
permit the purchase of shares under certain stock purchase plans) for the
benefit of any officer or director, or any employee benefit plan authorizing
such loan or guaranty (except certain employee stock purchase plans), must be
approved by the shareholders of a California corporation.
Under Delaware law, a corporation may make loans to, or guarantee the
obligations of, officers or other employees when, in the judgment of the board
of directors, the loan or guaranty may reasonably be expected to benefit the
corporation. Both California law and Delaware law permit such loans or
guaranties to be unsecured and without interest.
CLASS VOTE FOR CERTAIN REORGANIZATIONS
With certain exceptions, California law requires that mergers,
reorganizations, certain sales of assets and similar transactions be approved by
a majority vote of each class of shares outstanding. Delaware law generally
does not require class voting for such transactions, except in certain
situations involving an amendment to the certificate of incorporation which
adversely affects a specific class of shares.
California law also requires that holders of a California corporation's
common stock receive nonredeemable common stock in a merger of the corporation
with the holder (or an affiliate of the holder) of more than 50% but less than
90% of its common stock, unless all of the holders of its common stock consent
to the merger or the merger has been approved by the California Commissioner of
Corporations at a "fairness" hearing. This provision of California law may have
the effect of making a cash "freezeout" merger by a majority shareholder more
difficult to accomplish. A cash freezeout merger is a transaction whereby a
minority shareholder is forced to relinquish his share ownership in a
corporation in exchange for cash, subject in certain instances to dissenters
rights. Delaware law has no comparable provision.
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INSPECTION OF SHAREHOLDER LISTS
California law provides for an absolute right of inspection of the
shareholder list for shareholders holding 5% or more of a corporation's Voting
Stock or shareholders holding 1% or more of such shares who have filed a
Schedule 14B with the SEC. Delaware law provides no such absolute right of
shareholder inspection. However, both California and Delaware law permit any
shareholder of record to inspect the shareholder list for any purpose reasonably
related to that person's interest as a shareholder.
APPRAISAL RIGHTS
Under both California law and Delaware law, a shareholder of a corporation
participating in certain mergers and reorganizations may be entitled to receive
cash in the amount of the "fair value" (Delaware) or "fair market value"
(California) of its shares, as determined by a court, in lieu of the
consideration it would otherwise receive in the transaction. The limitations on
such dissenters' appraisal rights are somewhat different in California and
Delaware.
Shareholders of a California corporation, the shares of which are listed on
a national securities exchange or on the OTC margin stock list, generally do not
have appraisal rights unless the holders of at least 5% of the class of
outstanding shares assert the appraisal right. In any reorganization in which
one corporation or the shareholders of one corporation own more than 5/6 of the
voting power of the surviving or acquiring corporation, shareholders are denied
dissenters' rights under California law. For this reason, appraisal rights will
not be available to shareholders in connection with the reincorporation
proposal.
Under Delaware law appraisal rights are not available to shareholders with
respect to a merger or consolidation by a corporation, the shares of which are
either listed on a national securities exchange or designated as a national
market system security or an interdealer quotation system security by the
National Association of Securities Dealers, Inc., or are held of record by more
than 2,000 holders if the shareholders receive shares of the surviving
corporation or shares of any other corporation which are similarly listed or
dispersed, and the shareholders do not receive any other property in exchange
for their shares except cash for fractional shares. Appraisal rights are also
unavailable under Delaware law to shareholders of a corporation surviving a
merger if no vote of those shareholders is required to approve the merger
because, among other things, the number of shares to be issued in the merger
does not exceed 20% of the shares of the surviving corporation outstanding
immediately before the merger and certain other conditions are met.
VOTING AND APPRAISAL RIGHTS IN CERTAIN TRANSACTIONS
Delaware law does not provide shareholders with voting or appraisal rights
when a corporation acquires another business through the issuance of its stock,
whether in exchange for assets or stock or in a merger with a subsidiary.
California law treats these kinds of acquisitions in the same manner as a merger
of the corporation directly with the business to be acquired and provides
appraisal rights in the circumstances described in the preceding section.
DIVIDENDS
Under California law, any dividends or other distributions to shareholders,
such as redemptions, are limited to the greater of (i) retained earnings or (ii)
an amount which would leave the corporation with assets (excluding certain
intangible assets) equal to at least 125% of its liabilities (excluding certain
deferred items) and current assets equal to at least 100% (or, in certain
circumstances, 125%) of its current liabilities. Delaware law allows the
payment of dividends and redemption of stock out of surplus (including paid-in
and earned surplus) or out of net profits for the current and immediately
preceding fiscal years. The Company has never paid cash dividends and has no
present plans to do so.
APPLICATION OF CALIFORNIA LAW AFTER REINCORPORATION
California law provides that if (i) the average of certain property,
payroll and sales factors results in a finding that more than 50% of the
Delaware Company's business is conducted in California, and in a particular
fiscal year more than 50% of the Delaware Company's outstanding voting
securities are held of record by persons having addresses in California, and
(ii) the Company's shares are traded in the Nasdaq and are held by fewer than
800 equity security holders, as of its most recent annual meeting of
shareholders, then the Delaware Company would become subject to certain
provisions of California law regardless of its state of incorporation. The
Company does not currently meet all of the above requirements.
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Because the Company's Common Stock is traded in the Nasdaq and the
Company's shares are held by at least 800 equity security holders, as of its
most recent annual meeting of shareholders, California law will not initially
apply to the Delaware Company if the reincorporation is approved. The Company
would not be subject to California law as long as it continued to meet both of
these requirements.
If the Delaware Company were to become subject to the provisions of
California law referred to above, and such provisions were enforced by
California courts in a particular case, many of the Delaware laws described in
this Proxy Statement would not apply to the Delaware Company. Instead, the
Delaware Company could be governed by certain California laws, including those
regarding liability of directors for breaches of the duty of care,
indemnification of directors, dissenters' rights of appraisal, removal of
directors as well as certain other provisions discussed above, to the exclusion
of Delaware law. The effects of applying both Delaware and California laws to a
Delaware corporation whose principal operations are based in California have not
yet been determined.
FEDERAL INCOME TAX CONSEQUENCES OF THE REINCORPORATION
The reincorporation provided for in the Merger Agreement is intended to be
a tax free reorganization under the Internal Revenue Code of 1986, as amended.
Assuming the reincorporation qualifies as a reorganization, no gain or loss will
be recognized to the holders of capital stock of the Company as a result of
consummation of the reincorporation, and no gain or loss will be recognized by
the Company or the Delaware Company. Each former holder of capital stock of the
Company will have the same basis in the capital stock of the Delaware Company
received by such holder pursuant to the reincorporation as such holder has in
the capital stock of the Company held by such holder at the time of consummation
of the reincorporation. Each shareholder's holding period with respect to the
Delaware Company's capital stock will include the period during which such
holder held the corresponding Company capital stock, provided the latter was
held by such holder as a capital asset at the time of consummation of the
reincorporation. The Company has not obtained a ruling from the Internal
Revenue Service or an opinion of legal or tax counsel with respect to the
consequences of the reincorporation.
The foregoing is only a summary of certain federal income tax consequences.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISERS REGARDING THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE PROPOSED REINCORPORATION, INCLUDING THE
APPLICABILITY OF THE LAWS OF ANY STATE OR OTHER JURISDICTION.
BOARD RECOMMENDATION
The foregoing discussion is an attempt to summarize the more important
differences in the corporation laws of Delaware and California and does not
purport to be an exhaustive discussion of all of the differences. Such
differences can be determined in full by reference to the California
Corporations Code and to the Delaware General Corporation Law. In addition,
both California and Delaware law provide that some of the statutory provisions
as they affect various rights of holders of shares may be modified by provisions
in the charter or bylaws of the corporation.
A vote FOR the reincorporation proposal will constitute approval of the
merger, the Delaware Certificate, the Delaware Bylaws, assumption of the
indemnification agreements, the adoption and assumption by the Delaware
Company of each of the Company's stock option and employee benefit plans and
all other aspects of this Proposal 2.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR THE REINCORPORATION OF THE COMPANY IN DELAWARE
AND RELATED CHANGES TO THE RIGHTS OF SHAREHOLDERS.
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<PAGE>
PROPOSAL 3
APPROVAL OF AMENDMENTS TO THE COMPANY'S
1992 STOCK OPTION PLAN
GENERAL
The shareholders are being asked to vote on amendments to the Company's
1992 Stock Option Plan (the "Plan"), which amendments were approved by the Board
of Directors on February 19, 1997, subject to shareholder approval. The effect
of the amendments will be to increase the number of shares available for
issuance under the Plan by an additional 1,600,000 to a total of 7,607,360
shares and to make certain changes to the Plan to take advantage of recent
changes in Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The affirmative vote of a majority of the shares of Common
Stock represented and voting at the Annual Meeting is required for approval of
the amendments to the Plan. The Plan, as amended, will become effective
immediately upon approval by the shareholders at the Annual Meeting.
Prior to the amendments, 6,007,360 shares (restated for the July 1, 1996
two-for-one stock split) were available for issuance under the Plan. The
amendment to increase the shares available for issuance was adopted by the
Board principally as a result of the public offerings of an aggregate of
10,225,000 shares of Common Stock which were completed during fiscal 1996,
with the intention of retaining approximately the same proportion of shares
subject to the Plan in relation to the number of shares outstanding.
SUMMARY OF STOCK OPTION PLAN
The following is a summary of all material terms and provisions of the
Plan, assuming the amendments discussed above are adopted. The summary,
however, does not purport to be a complete description of all the provisions of
the Plan. Copies of the actual Plan documents may be obtained by any
shareholder upon written request to the Secretary of the Company at the
corporate offices in San Diego, California.
PLAN ADMINISTRATION. The Plan is administered by a committee or committees
( the "Committee") appointed by the Board from among its members (the "Plan
Administrator"). Administration of the Plan with respect to persons subject to
Section 16 of the Exchange Act will comply with the applicable requirements of
Rule 16b-3. The Plan Administrator is generally authorized to construe and
interpret the Plan, to establish appropriate rules and regulations, to select
key employees, consultants and independent contractors of the Company and its
subsidiaries for participation, and to specify the terms of the options granted
under the Plan. Members of a Committee may be removed by the Board. The
Company will pay all costs of administration of the Plan. The cash proceeds
received by the Company from the issuance of shares pursuant to the Plan will be
used for general corporate purposes.
SHARE RESERVE. The aggregate number of shares available for issuance under
the Plan may not exceed 7,607,360 shares of Common Stock, subject to adjustment
from time to time in the event of certain changes to the Company's capital
structure.
Should any option under the Plan expire or terminate prior to exercise or
surrender in full (including any option incorporated into the Plan from the
Company's prior stock option plans), the shares subject to the portion of the
option not so exercised or surrendered will be available for subsequent option
grants. Shares subject to any option surrendered or cancelled in accordance
with the option surrender or cash-out provisions of the Plan will NOT be
available for subsequent grants.
Common Stock issuable upon exercise of an option under the Plan may be
subject to repurchase rights as determined by the Committee.
ELIGIBILITY. The persons eligible to receive discretionary stock options
include all employees of the Company or its subsidiaries, non-employee members
of the Board or the board of directors of any subsidiary, and consultants and
other independent advisors who provide services to the Company or its
subsidiary. Only non-employee members of the Board will be eligible to receive
automatic option grants.
PER-EMPLOYEE LIMITATION. No more than 1,500,000 shares may be granted to
any one optionee over the lifetime of the Plan and no more than 400,000 shares
may be granted to any one optionee in any fiscal year.
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REPURCHASE RIGHTS. The Committee may include as an option term that the
Company (or its assigns) will have the right, exercisable on the optionee's
separation from service, to repurchase Common Stock acquired by the optionee
upon the exercise of an option. The Committee may also provide for the
automatic termination of such a repurchase right.
GRANTS. Under the general terms of the Plan, the Committee may grant
either an incentive stock option ("ISO"), which satisfies the requirements of
Section 422 of the Internal Revenue Code ("Code"), or a non-qualified option
("NQO"), which is not intended to satisfy the requirements of Section 422 of the
Code. The Committee may also determine the number of shares of Common Stock
issuable under an option as well as the exercise date, the exercise price, and
the exercise period of an option. The duration of an option may not exceed 10
years, and the exercise price for options may not be less than the fair market
value (as defined in the Plan) of the Common Stock on the date of grant of the
option, provided that the Plan Administrator may fix the exercise price at less
than 100% of the fair market value to the extent that the optionee has made a
payment to the Company at the time of the grant of the option (including by
means of a salary reduction agreement) equal to the amount by which the fair
market value exceeds the exercise price.
Upon exercise, the price of an option is generally payable in full in cash.
In the Committee's discretion, the purchase price may be paid in: (i) shares of
the Company's Common Stock ("Previously Owned Shares") held for such period of
time as may be required in order to avoid a charge to the Company's earnings;
(ii) by means of a same-day sale program, pursuant to which a designated
brokerage firm immediately sells shares purchased under the option and pays over
to the Company, out of the sales proceeds available on the settlement date,
funds to cover the option price plus all applicable withholding taxes; or (iii)
by means of a promissory note. The Committee may also permit an optionee to
elect to have any withholding tax obligation paid through withholding of shares
or by delivery of Previously Owned Shares. In order to assist an optionee
(other than the recipient of an Automatic Grant) in the acquisition of Common
Stock pursuant to an option, the Committee may also authorize the Company to
extend secured or unsecured credit, in an amount sufficient to cover the
exercise price and any employment tax liability incurred upon exercise of the
option, to an optionee who is also an employee.
During the lifetime of an optionee, an ISO is exercisable only by the
optionee and is not assignable or transferable other than by will or by the
laws of descent and distribution following the optionee's death. However, a NQO
may be assigned in whole or in part during the optionee's lifetime. The terms
applicable to the assigned portion are the same as those in effect for the
option immediately prior to such assignment.
The Committee has the authority to reprice outstanding options, with the
consent of the affected optionee, through the cancellation of options and the
grant of replacement options with an exercise price equal to the fair market
value of the option shares on the regrant date.
AUTOMATIC GRANTS. Each person who is newly elected or appointed as a non-
employee director after the effective date of the Plan will receive, on the date
of such election or appointment, a NQO for 30,000 shares of Common Stock. On
the date of each of the Company's Annual Meetings, each person who (i) (A) is a
continuing non-employee director or (B) is re-elected at the Annual Meeting and
(ii) has served as a non-employee director for the immediately preceding 180
days, will receive a NQO for 8,000 shares of Common Stock (collectively, the
"Automatic Grant").
The exercise price of each Automatic Grant will be equal to the fair market
value of the Common Stock on the date of grant. The exercise price of an
Automatic Grant will be payable in cash or in Common Stock held for such period
of time as may be required to avoid a charge to the Company's earnings or by
means of a same day sale program, pursuant to which a designated brokerage firm
immediately sells shares purchased under the Automatic Grant and pays over to
the Company, out of the sales proceeds available on the settlement date, funds
to cover the option price plus all applicable employment taxes. The term of the
Automatic Grant will be 10 years. The Automatic Grant will become fully
exercisable one year after the grant date (or immediately upon a Corporate
Transaction as described below). Finally, the Automatic Grant will be granted
in tandem with a limited stock appreciation right as described below. Options
granted under the Automatic Option Grant Program will expire if not exercised
within six months after the optionee ceases to serve as a director or within
12 months after the optionee ceases to serve as a director due to the optionee's
death.
ACCELERATION OF OPTIONS. In the event of any of the following transactions
to which the Company is a party (a "Corporate Transaction"):
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(i) 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),
(ii) the sale, transfer or other disposition of all or substantially
all of the assets of the Company in complete liquidation or dissolution of the
Company,
(iii) a reverse merger in which the Company is the surviving entity
but in which the holders of securities possessing more than 50% of the combined
voting power of the Company's outstanding securities (as determined immediately
prior to such merger) transfer their ownership of those securities to a person
or persons not otherwise part of the transferor group, or
(iv) a tender or exchange offer made directly to the Company's
shareholders in which any person or related group of persons (other than the
Company or any affiliate) acquires beneficial ownership of securities possessing
more than 50% of the combined voting power of the Company's outstanding
securities,
each outstanding option will automatically become exercisable for all of the
option shares and may be exercised for any or all of such shares. The Company's
outstanding repurchase rights under the Plan will also terminate, and the shares
subject to such terminated rights will become fully vested, upon the Corporate
Transaction. Upon the consummation of the Corporate Transaction, all
outstanding options under the Plan will terminate and cease to be exercisable,
except to the extent assumed by the successor corporation.
The acceleration of options in the event of a Corporate Transaction may be
seen as an anti-takeover provision and may have the effect of discouraging a
merger proposal, a takeover attempt or other efforts to gain control of the
Company.
STOCK APPRECIATION RIGHTS. The Plan includes a stock appreciation rights
program, pursuant to which one or more optionees may, subject to Committee
approval, surrender their outstanding options in return for a payment from the
Company in an amount equal to the excess of (i) the fair market value (on the
option surrender date) of the shares of Common Stock subject to the surrendered
option over (ii) the aggregate option price payable for such shares. The
payment may, at the discretion of the Committee, be made either in cash or in
shares of Common Stock.
One or more officers of the Company subject to the short-swing profit
restrictions of the federal securities laws may, in the Committee's discretion,
be granted limited stock appreciation rights in tandem with their outstanding
options. In addition, all Automatic Grants will be made in tandem with the
grant of a limited stock appreciation right. Any option with such a limited
stock appreciation right in effect for at least six months will automatically be
cancelled upon the occurrence of a Hostile Takeover, and the optionee will in
return be entitled to a cash distribution from the Company in an amount equal to
the excess of (i) the Takeover Price 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.
For purposes of these option cancellation provisions, the following
definitions are in effect under the Plan:
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.
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 ISO, the Takeover Price shall not exceed the clause (a) price per
share.
AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend, suspend or
discontinue the Plan at any time. Shareholder approval of amendments of the
Plan will be required when the amendments are made conditional on such approval
by the Board or when such approval is required by law or regulation. Generally,
the provisions of the Plan
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concerning Automatic Grants may only be amended once every six months. The Plan
will terminate October 8, 2003, unless sooner terminated by the Board.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of certain federal income tax
consequences of the Plan. This description does not purport to be complete.
The Company will be entitled to a business expense deduction equal to the
ordinary income recognized by an optionee on exercise of a NQO. The ordinary
income recognized will be equal to the excess of the fair market value of the
purchased shares on the date of recognition over the exercise price. Generally,
the date of recognition will be the date the option is exercised or, if later,
the first date shares acquired on exercise are not subject to a substantial risk
of forfeiture.
The Company will also be entitled to a business expense deduction equal to
the ordinary income recognized by an optionee due to a "disqualifying
disposition" of stock acquired pursuant to an ISO. A disqualifying disposition
occurs if an optionee disposes of the acquired shares within two years of the
date of the option grant, or within one year of the date the shares are acquired
by the optionee. In the case of a disqualifying disposition, the optionee will
generally recognize ordinary income in the year of disposition, in an amount
equal to the amount of ordinary income the optionee would have recognized from
the exercise of the option had the option been a NQO at the time of exercise.
To the extent that the aggregate fair market value (determined as of the
respective date or dates of grant) of shares with respect to which options that
would otherwise be ISOs are exercisable for the first time by any individual
during any calendar year exceeds the sum of $100,000, such options will be
treated as NQOs.
If the exercisability of an option is accelerated as a result of a change
in control of the Company, all or a portion of the value of the option at that
time may be a "parachute payment" for purposes of the Code's "excess parachute"
provisions. Those provisions generally provide that if "parachute" payments
exceed three times an employee's average compensation for the five tax years
preceding the change in control, the Company loses its deduction and the
recipient is subject to a 20% excise tax for the amount of the "parachute
payments" in excess of such average compensation.
An optionee who surrenders an outstanding option for a cash or stock
distribution from the Company will recognize ordinary income in the year of
surrender equal to the amount of the appreciation distribution. The Company
will be entitled to a corresponding business expense deduction for the
appreciation distribution. The deduction will be allowed in the taxable year of
the Company in which the ordinary income is recognized by the optionee.
On the date an ISO is exercised or, if later, the date shares acquired upon
exercise are not subject to a substantial risk of forfeiture, the optionee will
generally recognize alternative minimum taxable income in an amount equal to the
excess of the fair market value of the purchased shares over the exercise price.
An optionee's recognition of alternative minimum taxable income will have no
effect on the Company.
ACCOUNTING TREATMENT
Pursuant to the accounting policy selected by the Company, neither the
grant of options to employees nor the exercise of any options will result in any
charge to the Company's earnings. The grant of options to non-employees will
result in a charge to earnings equal to the fair market value of the options at
the date of grant. The number of outstanding options under the Plan will be a
factor in determining earnings per share.
Should one or more optionees be granted the unqualified right to surrender
their options under the Plan for a cash or stock distribution, compensation
expense will arise as a charge to the Company's earnings. Accordingly, at the
end of each fiscal quarter, the amount (if any) by which the fair market value
of the shares of Common Stock subject to each such surrenderable option has
increased from prior quarter-end will be accrued as compensation expense, to the
extent such amount is in excess of the aggregate exercise price payable for such
shares. In the event the fair market value of such shares declines from quarter
to quarter, appropriate adjustments to current compensation expense will be
made.
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OUTSTANDING OPTION GRANTS UNDER THE PLAN
The following table shows, as to the Company's Chairman, President and
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company (collectively, the "Named Executive Officers")
and as to the various indicated groups, information with respect to stock
options granted during the fiscal year ended December 31, 1996 and during all
other Plan years which are outstanding as of December 31, 1996, as well as
options which the Company has determined to grant under the Plan during the 1997
fiscal year to the extent currently known or determinable: (i) the number of
shares of Common Stock subject to options granted and (ii) the weighted average
exercise price per share for such options.
OPTIONS GRANTED UNDER THE PLAN
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 All Other Plan Years
-------------------------------- ---------------------------- --------------------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Options Price Options Price Options Price
-------------- ---------------- ------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
Cam L. Garner -- -- 170,000 $35.48 835,000 $3.10
Director, Chairman, President,
Chief Executive Officer
Walter F. Spath -- -- 40,000 $37.63 355,000 $2.81
Director and Senior Vice
President, Sales and Marketing,
and nominee for Director
James W. Newman -- -- 60,000 $31.54 235,000 $4.12
Senior Vice President, Finance
and Administration and Chief
Financial Officer
Charles W. Prettyman -- -- 55,000 $30.99 210,000 $3.78
Senior Vice President,
Development and Regulatory
Affairs
David S. Kabakoff -- -- 250,000 $30.27 -- --
Director and
Executive Vice President
All current directors who are 48,000(1) (2) 48,000 $29.63 452,000(3) $5.47
not executive officers
(6 persons)
All current executive officers -- -- 655,000 $32.87 1,885,000 $3.97
as a group (7 persons)
All employees who are 31,150(4) $42.03 533,100 $31.30 1,811,932 $4.77
not executive officers
</TABLE>
- ------------------------------
(1) Each person who is a continuing non-employee director or nominee who is re-
elected at the Annual Meeting and has served as a non-employee director for
the immediately preceding 180 days will receive a NQO for 8,000 shares of
Common Stock, pursuant to the "Automatic Grant" provision of the Plan.
(2) Weighted average exercise price will be determined on the date of grant and
will be equal to the fair market value of the Common Stock on such date.
(3) Includes an option to purchase 100,000 shares of Common Stock granted to
Life Science Advisors, of which Mr. Cook is a principal, pursuant to a
consulting arrangement between Life Science Advisors and the Company. See
"Executive Compensation and Other Information--Director Compensation."
(4) As of January 31, 1997.
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NEW PLAN BENEFITS
Effective as of the 1997 Annual Meeting, the effect of the amendments will
be to increase the number of shares authorized for issuance under the Plan by
1,600,000 shares to a total of 7,607,360 shares. None of the 1,600,000-share
increase has been granted prior to the date of the Annual Meeting.
VOTE REQUIRED FOR APPROVAL OF THE AMENDMENT OF THE PLAN
The affirmative vote of a majority of the shares of Common Stock
represented and voting at the Annual Meeting is necessary to approve an
amendment of the Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR THE APPROVAL OF THE AMENDMENTS TO THE PLAN.
PROPOSAL 4
APPROVAL OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Company is asking the shareholders to ratify the selection of Deloitte
& Touche LLP as the Company's independent public accountants for the year ending
December 31, 1997. In the event that the shareholders fail to ratify the
appointment, the Board of Directors will reconsider its selection. Even if the
selection is ratified, the Board of Directors, in its discretion, may direct the
appointment of a different independent accounting firm at any time during the
year if the Board of Directors feels that such a change would be in the
Company's and the shareholders' best interest.
A representative of Deloitte & Touche LLP is expected to be present at the
meeting to respond to questions and will have the opportunity to make a
statement if they desire to do so.
The affirmative vote of the holders of a majority of shares represented and
voting at the Annual Meeting will be required to ratify the selection of
Deloitte & Touche LLP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE FOR THE RATIFICATION AND APPROVAL OF
THE SELECTION OF DELOITTE & TOUCHE LLP
AS THE COMPANY'S INDEPENDENT ACCOUNTANTS.
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PRINCIPAL SHAREHOLDERS
The following are the only persons known by the Company to beneficially own
more than five percent of the outstanding shares of its Common Stock as of
January 31, 1997.
Shares Beneficially Owned
---------------------------
Name and Address
of Beneficial Owner Number (1) Percent (2)
------------------------------ ------------ ------------
Pilgrim Baxter & 4,214,400 9.75%
Associates, Ltd. (3)
1255 Drummers Lane, Suite 300
Wayne, Pennsylvania 19087
Nicholas-Applegate Capital 3,647,959 8.44%
Management (4)
600 West Broadway, 29th Floor
San Diego, California 92101
Putnam Investments, Inc. (5) 3,090,529 7.15%
One Post Office Square
Boston, Massachusetts 02109
Husic Capital Management (6) 2,325,674 5.38%
555 California Street,
Suite 2900
San Francisco, CA 94104
- --------------------
(1) Except as indicated in the footnotes to this table, the entities named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them.
(2) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).
(3) Pursuant to Amendment No. 2 to Schedule 13G dated February 14, 1997 filed
by Pilgrim Baxter & Associates, Ltd., an investment adviser under the
Investment Advisers Act of 1940, as amended (an "Investment Adviser"), and
certain of its affiliates. Such entities reported shared voting power and
sole dispositive power as to these shares.
(4) Pursuant to a Schedule 13G dated February 3, 1997 filed by Nicholas-
Applegate Capital Management, an Investment Adviser, who reported sole
voting power over 3,158,369 shares, shared voting power over 3,650 shares,
and sole dispositive power over all 3,647,959 shares.
(5) Pursuant to a Schedule 13G dated January 27, 1997 filed by Putnam
Investments, Inc., a parent holding company and a wholly-owned subsidiary
of Marsh & McLennan Companies, Inc., and certain of its affiliates, which
are Investment Advisers. Such entities reported shared voting and
dispositive power as to these shares.
(6) Pursuant to Amendment No. 1 to Schedule 13G dated February 6, 1997 filed
by Husic Capital Management, an Investment Adviser, and certain of its
affiliates, which are parent holding companies. Such entities reported
shared voting and dispositive power as to these shares.
24
<PAGE>
COMMON STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth the beneficial ownership of shares of Common
Stock of the Company as of January 31, 1997, by each director and nominee, Named
Executive Officer, and by directors and executive officers as a group.
Shares Beneficially Owned
---------------------------------------
Name Number (1)(2) Percent (3)
- ---------------------- ---------------------------------------
James C. Blair (4) 21,000 *
Herbert J. Conrad 8,000 *
Joseph C. Cook (5) 102,201 *
Cam L. Garner 207,660 *
David F. Hale 10,000 *
David S. Kabakoff 2,000 *
James W. Newman 116,254 *
Charles W. Prettyman 20,239 *
Gordon V. Ramseier 42,000 *
Charles G. Smith 54,000 *
Walter F. Spath 126,079 *
Directors and executive 788,136 1.80%
officers as a group
(13 persons)
- -----------------------
* Less than 1%
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable.
(2) Share ownership in each case includes shares issuable upon exercise of
outstanding options, now exercisable or exercisable within 60 days of
January 31, 1997, to purchase shares of Common Stock for the following
persons or group: Mr. Conrad 8,000; Mr. Cook 30,000; Mr. Garner 82,660;
Mr. Hale 10,000; Mr. Newman 96,227; Mr. Prettyman 20,239; Mr. Ramseier
42,000; Mr. Smith 54,000; Mr. Spath 126,079; and directors and executive
officers as a group 618,109.
(3) Percentage of ownership is calculated pursuant to SEC Rule 13d-3(d)(1).
(4) Includes 8,000 shares held by Domain Associates, of which Dr. Blair is one
of several general partners. He disclaims ownership of any securities
which exceed his pecuniary interest and/or that are not actually
distributed to him.
(5) Includes options, now exercisable or exercisable within 60 days, to
purchase 70,201 shares of Common Stock held by Life Science Advisors. As a
principal of Life Science Advisors, Mr. Cook may be deemed to be the
indirect beneficial owner of shares held by Life Science Advisors.
25
<PAGE>
EXECUTIVE OFFICERS
The Company's executive officers as of January 31, 1997 are:
Name Age Position Held With the Company
---- --- -----------------------------
Julia Brown 49 Senior Vice President, Business
Development
Cam L. Garner 49 Chairman, President, Chief Executive
Officer and director
David S. Kabakoff 49 Executive Vice President and director
James W. Newman 52 Senior Vice President, Finance and
Administration, Chief Financial Officer
and Assistant Secretary
Charles W. Prettyman 51 Senior Vice President, Development and
Regulatory Affairs
Walter F. Spath 52 Senior Vice President, Sales and
Marketing, and director
Mitchell R. Woodbury 55 Senior Vice President, General Counsel
and Secretary
Messrs. Garner, Kabakoff and Spath are directors of the Company. See
"Election of Directors" for a discussion of each individual's business
experience.
Julia Brown joined the Company in March 1995 as Vice President, Business
Planning, became Vice President, Business Development in October 1995 and was
named Senior Vice President in January 1997. Prior
to joining the Company, Ms. Brown spent over 25 years with Lilly and certain
subsidiaries dealing with pharmaceuticals, medical devices and diagnostics.
From October 1992 to December 1994, she was general manager of IVAC
Corporation's Vital Signs Division. From September 1986 to October 1992, Ms.
Brown held several marketing positions with Hybritech, including Division Vice
President of Marketing. Ms. Brown holds a B.S. in Microbiology from Louisiana
Tech University.
James W. Newman joined the Company in September 1991 as Vice President,
Finance and Administration and was named a Senior Vice President in February
1996. Prior to joining the Company, Mr. Newman served as President of George
Wimpey of Texas and previously as Vice President and Chief Financial Officer of
George Wimpey, Inc., a land development and home-building company, from October
1987 to September 1991. Mr. Newman holds an MBA in Finance from Golden Gate
University and a B.S. in Accounting from University of Illinois. Mr. Newman has
been a Certified Public Accountant in California since 1972.
Charles W. Prettyman joined the Company in December 1991 as Vice President,
Development and Regulatory Affairs and was named a Senior Vice President in
February 1996. Prior to joining the Company, Mr. Prettyman served as Vice
President, Regulatory Affairs and Compliance at The Purdue Frederick Company, a
privately-held pharmaceutical company, from August 1988 to November 1991. From
January 1987 until August 1988, Mr. Prettyman served as Executive Director, Drug
Regulatory Affairs, Central Nervous System Development at Ciba-Geigy
Pharmaceuticals. From January 1977 until December 1987, Mr. Prettyman held
various positions with the United States Food and Drug Administration, including
Director, Program Management, Office of the Commissioner. Mr. Prettyman
received a M.S. in Biological Science from George Washington University and a
B.S. degree in Biology from Randolph Macon College.
Mitchell R. Woodbury joined the Company in June 1994 as Vice President,
General Counsel and Secretary and was named Senior Vice President in January
1997. Prior to joining the Company, Mr. Woodbury served as Vice President,
General Counsel and Secretary at Advanced Tissue Sciences, Inc., a biomedical
company. From October 1991 until June 1992, Mr. Woodbury served as Senior Vice
President, General Counsel of Intermark, Inc., a publicly held operating/holding
company. He was elected Vice President and Corporate Counsel of Intermark in
1980 and had served as Corporate Secretary since 1981. Mr. Woodbury received
his J.D. from the University of San Diego School of Law and a B.A. in Business
Administration from San Diego State University.
26
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table provides certain summary information concerning the
compensation earned by the Named Executive Officers for services rendered in all
capacities to the Company for the fiscal years ended December 31, 1996, 1995 and
1994.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------------------ ----------------------
Number of
Other Annual Securities All Other
Name and Compensation Underlying Compensation
Principal Position Year Salary (1) Bonus (1)(2) (3) Options/SARs (4)
------------------ ---- ---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cam L. Garner 1996 $347,654 $610,000 $ -- 170,000 $ 21,093
Chairman, President and Chief 1995 $337,391 $175,000 $ -- 25,000 $ 3,750
Executive Officer 1994 $260,000 $110,000 $ -- 100,000 $ 2,400
Walter F. Spath 1996 $201,538 $190,000 $ -- 40,000 $ 7,006
Senior Vice President, 1995 $204,250 $ 40,000 $ -- 15,000 $ 3,750
Sales and Marketing 1994 $165,000 $ 25,000 $ -- 15,000 $ 2,400
James W. Newman 1996 $190,039 $190,000 $ -- 60,000 $11,378
Senior Vice President, 1995 $175,870 $ 40,000 $ -- 15,000 $ 3,750
Finance and Administration 1994 $145,003 $ 25,000 $ -- 15,000 $ 2,400
Charles W. Prettyman 1996 $179,577 $190,000 $ -- 55,000 $-0-
Senior Vice President, 1995 $167,700 $ 45,000 $ -- 7,500 -0-
Development and Regulatory 1994 $148,540 $ 15,000 $ -- 12,500 -0-
Affairs
David S. Kabakoff (5) 1996 $171,635 $105,000 $ -- 250,000 $ 3,466
Executive Vice President
</TABLE>
- ----------------------
(1) Includes amounts deferred under the Company's 401(k) Profit Sharing Plan
(the "401(k) Plan") pursuant to Section 401(k) of the Internal Revenue Code
of 1986, as amended, and the Company's Deferred Compensation Plan (the
"Deferred Comp Plan").
(2) Includes the following bonuses based on the Company's performance during
the 1996 fiscal year, to be paid to the Named Executive Officers on
December 31, 1997, provided they continue in the Company's employ until
that time: Mr. Garner $110,000; Mr. Spath $40,000; Mr. Newman $40,000; Mr.
Prettyman $40,000; and Mr. Kabakoff $40,000.
(3) Perquisites and other personal benefits paid to the Named Executive
Officers are less than the minimum reporting threshold of $50,000 or 10% of
the total annual salary plus bonus for the Named Executive Officer, and
such amounts paid, if any, are represented in the table by "--".
(4) Includes (a) contributions made by the Company pursuant to the 401(k) Plan
which were earned by the participants for the 1996 fiscal year and which
were used to buy shares of the Company's Common Stock; and (b) above-market
interest earned by the participants on their Deferred Comp Plan account.
(5) Dr. Kabakoff joined the Company in May 1996.
27
<PAGE>
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Plan to the Named Executive Officers. No stock appreciation
rights ("SARs") were granted under the Plan in fiscal year ended December 31,
1996.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
- -----------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of Stock
Securities Total Price Appreciation for
Underlying Options/SARs Exercise or Option Term
Options/ Granted to Base Price ---------------------------------
SARs Employees in ($/Share) Expiration
Name Granted(1) Fiscal Year (2) Date 5%(3) 10%(3)
- ----------------------- --------------- --------------- --------------- --------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cam L. Garner 20,000 1.67% $19.38 02/21/06 $ 247,699 $ 623,960
150,000 12.58% $37.63 12/06/06 $ 3,549,324 $ 8,994,684
Walter F. Spath 40,000 3.35% $37.63 12/06/06 $ 946,486 $ 2,398,582
James W. Newman 20,000 1.67% $19.38 02/21/06 $ 247,669 $ 623,960
40,000 3.35% $37.63 12/06/06 $ 946,486 $ 2,398,582
Charles W. Prettyman 20,000 1.66% $19.38 02/21/06 $ 246,168 $ 621,571
35,000 2.93% $37.63 12/06/06 $ 828,176 $ 2,098,760
David S. Kabakoff 230,000 19.28% $29.63 05/29/06 $4,285,854 $ 10,001,196
20,000 1.67% $37.63 12/06/06 $ 473,243 $ 1,199,291
</TABLE>
- ----------------------
(1) Each option becomes exercisable ratably over a four-year period following
the grant date. See "Proposal 3, Approval of Amendments to the Company's
1992 Stock Option Plan," for a summary of the material terms and
provisions of the Plan.
(2) The exercise price per share of options granted represented the fair
market value of the underlying shares of Common Stock on the dates the
respective options were granted as determined by the Board of Directors.
See "Proposal 3, Approval of Amendments to the Company's 1992 Stock
Option Plan."
(3) There is no assurance provided to any executive officer or any other
holder of the Company's securities that the actual stock price
appreciation over the 10-year option term will be at the assumed 5% and
10% levels or at any other defined level. Unless the market price of the
Common Stock does in fact appreciate over the option term, no value will
be realized from the option grants made to the executive officers.
28
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information, with respect to the Named
Executive Officers, concerning the exercise of options during the fiscal year
ended December 31, 1996 and unexercised options held as of the end of the fiscal
year.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
Shares Options/SARs at Options/SARs at
Acquired December 31, 1996 December 31, 1996 (1)
Upon Value ---------------------------------------------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cam L. Garner 377,600 $8,734,715 51,936 315,464 $1,895,428 $7,832,888
Walter F. Spath 40,000 $ 975,200 117,600 87,400 $5,081,953 $2,148,796
James W. Newman 50,000 $1,377,631 86,501 103,099 $3,768,143 $2,586,327
Charles W. Prettyman 85,230 $1,535,853 12,402 81,368 $ 431,793 $1,959,458
David S. Kabakoff 0 0 0 250,000 $ 0 $4,245,099
</TABLE>
- ----------------------
(1) Value is defined as market price of the Company's Common Stock at fiscal
year end less exercise price. The market price of the Company's Common
Stock at December 31, 1996 was $47.75.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1996, Dr. Blair and Messrs. Conrad and Hale served as the members
of the Company's Compensation Committee.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
In May 1990, the Company entered into an employment agreement with Mr.
Garner pursuant to which he was employed as President and Chief Executive
Officer. The current employment term ends May 31, 1997, and will automatically
renew for successive one year periods, unless either Mr. Garner or the Company
elect otherwise. The agreement allows for termination of employment upon
Mr. Garner's death or disability and for cause or without cause upon 60 days
written notice. During the employment term, Mr. Garner will receive an annual
base salary (currently $395,000) subject to increase by the Company's Board of
Directors annually, with a minimum increase of at least 5%.
In the event of termination of employment by the Company without cause, the
Company is obligated to pay Mr. Garner six months base salary. Mr. Garner is
entitled to nine months base salary if there has been a change of control of the
Company and he is terminated without cause, or following: (i) a change in
position with the Company that materially reduces Mr. Garner's level of
responsibility; (ii) a 10% or more reduction of Mr. Garner's compensation; or
(iii) a change in Mr. Garner's place of employment to more than 20 miles from
the Company's current facility in San Diego, California, unless Mr. Garner
otherwise agrees in writing.
29
<PAGE>
In May 1996, Dr. Kabakoff entered into an employment agreement with the
Company upon the same basic terms and conditions as described above for Mr.
Garner, with an initial term expiring April 30, 1997. Dr. Kabakoff's current
annual base salary is $265,000 and is subject to annual review and increase at
the sole discretion of the Board of Directors.
"Proposal 3, Approval of Amendments to the Company's 1992 Stock Option
Plan", contains a summary of the material terms and provisions of the Plan,
pursuant to which, under certain circumstances, the exercisability of certain
options granted to Named Executive Officers is accelerated in the event of
certain corporate transactions, changes of control and changes in the
composition of the Board of Directors. In addition, as described in the Plan
summary, in the event of certain changes of control, certain options granted to
Named Executive Officers are, to the extent exercisable and outstanding for at
least six months, automatically cancelled in return for a payment to the
optionee equal to the difference between the market price of the optioned shares
(or the highest tender price, if applicable), less the exercise price.
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF THE COMPANY'S
PREVIOUS OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), THAT MIGHT
INCORPORATE FUTURE FILINGS, INCLUDING THIS PROXY STATEMENT, IN WHOLE OR IN PART,
THE FOLLOWING REPORT AND THE PERFORMANCE GRAPH ON PAGE 32 SHALL NOT BE
INCORPORATED BY REFERENCE INTO ANY SUCH FILINGS.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
- GENERAL COMPENSATION POLICY. The fundamental policy of the Company is
to offer the executive officers competitive compensation opportunities
based upon their contribution to the financial success of the Company and
their personal performance. It is our objective to have a substantial
portion of each officer's compensation contingent upon the Company's
performance, as well as upon his or her own level of performance.
Accordingly, each executive officer's compensation package is comprised of
three elements: (i) base salary which reflects individual performance and
is designed primarily to be competitive with salary levels in the industry,
(ii) annual variable performance awards payable in cash and tied to the
achievement of financial and individual performance goals established by
management and approved by the Board of Directors, and (iii) long-term
stock-based incentive awards which strengthen the mutuality of interests
between the executive officers and the Company's shareholders. As an
officer's level of responsibility increases, it is our intent to have a
greater portion of his or her total compensation be dependent upon Company
performance and stock price appreciation rather than base salary.
- FACTORS. Several of the more important factors which we considered in
establishing the components of each executive officer's compensation
package for the 1996 fiscal year are summarized below. Additional factors
were also taken into account, and we may in our discretion apply entirely
different factors, particularly different measures of financial
performance, in setting executive compensation for future fiscal years, but
all compensation decisions will be designed to further the general
compensation policy indicated above.
- BASE SALARY. The base salary for each officer is set on the basis of
personal performance and the salary levels in effect for comparable
positions at similarly situated biopharmaceutical and biomedical companies
headquartered in the same geographical region as the Company. This group
of companies is believed to be more relevant for establishing compensation,
and is therefore not the same as the "peer group" of companies referred to
in the Performance Graph on page 32 of this Proxy Statement which displays
comparative total shareholder returns. As a general rule, we focus on the
mid-range of compensation for comparable positions at such similarly
situated companies in establishing base salary amounts for the Company's
executive officers.
- ANNUAL INCENTIVE COMPENSATION. Annual bonuses are earned by each
executive officer on the basis of the Company's and each officer's
achievement of corporate and individual performance targets, respectively,
which we establish at the beginning of the fiscal year. We do not assign a
defined weight to each component of the incentive compensation opportunity.
For fiscal year 1996, the corporate performance targets were primarily
focused on growth in earnings per share, with the belief that an increase
in the Company's earnings per share is a prime factor in positively
affecting the market price of the Company's stock. Accordingly, this
element of executive compensation is earned on the basis of the Company's
success in achieving the earnings per share growth targets. With the
exception of Mr. Garner, the bonus for the Company's executive officers who
participated was equal to an average of 89% of base salary, excluding the
forfeitable bonus discussed below. There is no fixed percentage of base
salary utilized in calculating or setting annual incentive compensation
targets.
30
<PAGE>
Because of the extraordinary performance achieved by the Company
during the 1996 fiscal year, the Board of Directors determined it
appropriate to grant additional contingent bonuses to certain officers of
the Company, upon the condition that the individual officer remain in the
Company's employ through the end of the 1997 fiscal year. If the officer
meets this condition, the additional bonus will be paid on December 31,
1997; however, it will be forfeited in full as to any officer who does not
remain in the Company's employ through such date.
- LONG-TERM INCENTIVE COMPENSATION. On December 6, 1996, the grants of
stock options to certain of the Company's executive officers were approved
under the Plan. The grants are designed to consistently align the
interests of each executive officer with those of the shareholders and to
provide each individual with a significant incentive to manage the Company
from the perspective of an owner with an equity stake in the business.
The number of shares subject to each option grant was based on the
officer's level of responsibilities, relative position in, and length of
service with, the Company. Each grant allows the officer to acquire shares
of the Company's Common Stock at a fixed price per share (the market price
on the grant date) over a specified period of time (up to 10 years).
Accordingly, the option will provide a return to the executive officer only
if the market price of the shares appreciates over the option term.
CEO COMPENSATION. In setting the compensation payable to the
Company's Chief Executive Officer, Mr. Garner, the Compensation Committee
has sought to be competitive with other similarly situated companies in the
industry as referred to above, while at the same time tying a significant
percentage of such compensation to Company performance.
Mr. Garner's 1996 base salary was established based on our evaluation
of his personal performance and the objective of the Compensation Committee
to have his base salary keep pace with salaries being paid to similarly
situated chief executive officers. Over the last two fiscal years of Mr.
Garner's tenure as Chief Executive Officer, the Company has experienced an
annual compounded growth rate in revenue of 112%. While this factor has
been taken into account in the determination of Mr. Garner's base salary
for 1996, it may not be applied to the same extent in future years in
setting base salary.
The remaining components of Mr. Garner's 1996 fiscal year compensation
were entirely dependent upon the Company's financial performance and
provided no dollar guarantees. The cash bonus paid to him for the 1996
fiscal year was based on the Company's attainment of the earnings growth
targets which we established as his individual bonus plan for the year. For
Mr. Garner, a bonus, excluding the above-mentioned forfeitable bonus, equal
to 144% of base salary was earned as a result of the Company's achievement
of the established objectives. The option grants made to him during the
1996 fiscal year were based on his performance during the year and were
intended to place a significant portion of his total compensation for the
year at risk, since the options will have no value unless there is
appreciation in the value of the Company's Common Stock over the option
term. The amount of the stock option grants, 170,000 shares, was
determined in light of the Company's record performance in 1996, including
growth of 139% in revenues, profit for each of the quarters during the
year, culminating in growth in earnings per share which represented a 118%
increase over the prior year (excluding the one-time charges related to the
exercise of the Dura Delivery Systems, Inc. purchase option and the cash
contribution to Spiros Development Corporation). As a result of the
increase in the Company's earnings, as well as other factors, the Company's
market price per share in 1996 increased 184%. As indicated, it is our
objective to have an increasing percentage of Mr. Garner's total
compensation each year tied to the attainment of performance targets and
stock price appreciation on his option shares. In establishing bonus
amounts, if any, paid to Mr. Garner in future years, we may consider a
variety of Company performance factors which will include, but not be
limited to, financial performance.
We conclude our report with the acknowledgment that no member of the
Compensation Committee is a former or current officer or employee of the
Company or any of its subsidiaries.
COMPENSATION COMMITTEE
JAMES C. BLAIR
HERBERT J. CONRAD
DAVID F. HALE
31
<PAGE>
PERFORMANCE GRAPH
The following graph compares total shareholder returns since the Company
became a reporting company under the Exchange Act to the Standard & Poor's 500
Index (the "S&P 500") and a peer group comprised of the Pharmaceutical Companies
in the S&P 500. The graph is constructed on the assumption that $100 was
invested on February 7, 1992 in each (a) the Company's Common Stock, (b) the S&P
500, and (c) the Pharmaceutical Companies in the S&P 500, and that all dividends
were reinvested, although dividends have not been declared on the Company's
Common Stock. The Pharmaceutical Companies in the S&P 500 consist of the
following pharmaceutical companies: Eli Lilly and Company, Merck & Co., Inc.,
Pfizer Inc., Schering-Plough Corp. and Upjohn Co. The shareholder return shown
on the graph below is not necessarily indicative of future performance, and the
Company will not make or endorse any predictions as to future shareholder
returns.
8.163265 0.243256 0.061184
Dura S & P 500 S & P Drug Companies
---------------- ---------------- --------------------
2/7/92 100 100 100
3/31/92 67.34694 98.19991 93.34993
6/30/92 51.02041 99.2824 87.16976
9/30/92 57.14286 101.6322 84.47584
12/31/92 59.18367 105.989 84.12954
3/31/93 40.81633 109.8713 69.91532
6/30/93 44.89796 109.594 72.56641
9/30/93 46.93878 111.6374 65.87046
12/31/93 59.18367 113.4666 74.43925
3/31/94 71.42857 108.4361 61.66958
6/30/94 85.71429 108.0712 68.15506
9/30/94 91.22449 112.552 76.83582
12/31/94 118.3673 111.7201 83.60825
3/31/95 121.4286 121.8006 93.54511
6/30/95 153.551 132.5136 102.8567
9/30/95 242.8571 142.1611 119.1059
12/31/95 283.6735 149.8285 137.3056
3/31/96 405.1429 157.0216 143.2594
6/30/96 457.1429 163.1346 148.2789
9/30/96 569.3878 167.1921 152.4883
12/31/96 779.5918 180.1893 175.2671
DIRECTOR COMPENSATION
The Company does not presently pay fees to its directors, other than
reimbursement for their out-of-pocket expenses incurred in attending meetings of
the Board of Directors and its committees. In addition, each non-employee
director is entitled to receive options under the Plan in connection with his
service on the Board of Directors. See "Proposal 3, Approval of Amendments to
the Company's 1992 Stock Option Plan--Automatic Grants."
The Company entered into a one-year Consulting Agreement with Mr. Conrad in
April 1995, pursuant to which Mr. Conrad provided certain consulting services to
the Company related to marketing and licensing strategies, and for which Mr.
Conrad received compensation of $1,000 per month, plus reimbursement of out-of-
pocket expenses. Such agreement has been extended for subsequent one-year terms
and currently expires March 31, 1998.
The Company engaged Life Science Advisors, of which Mr. Cook is a
principal, in May 1995 to provide certain strategic consulting services on a
limited basis, for which it received compensation during the 1996 fiscal year of
$23,847, plus reimbursement of out-of-pocket expenses.
CERTAIN TRANSACTIONS
See "Executive Compensation and Other Information--Employment Contracts and
Change in Control Arrangements" for a discussion of the employment agreements
between the Company and Messrs. Garner and Kabakoff and the options held by
certain officers of the Company.
32
<PAGE>
Officers and directors of the Company are indemnified pursuant to certain
provisions of the California General Corporation Law and the Company's Articles
of Incorporation and Bylaws to the fullest extent permitted under California
law. In the event Proposal 2, Reincorporation of the Company in Delaware and
Related Changes to the Rights of Shareholders, is adopted by the shareholders,
the officers and directors of the Company will be similarly indemnified by the
Delaware Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities Exchange Commission ("SEC") and the Nasdaq
National Market. Officers, directors and greater than 10% beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on review of the copies of such forms furnished to the Company
or written representations from certain reporting persons that no Forms 5 were
required, the Company believes that, during the 1996 fiscal year, its officers,
directors and greater than 10% beneficial owners complied with all applicable
Section 16(a) filing requirements, with the exception of Mr. Hale, who filed one
Form 4 late solely with respect to the acquisition of a warrant to purchase
shares of the Company's Common Stock.
FORM 10-K
THE COMPANY WILL MAIL WITHOUT CHARGE, UPON WRITTEN REQUEST, A COPY OF THE
ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND LIST OF
EXHIBITS. REQUESTS SHOULD BE SENT TO THE ATTENTION OF INVESTOR RELATIONS, DURA
PHARMACEUTICALS, INC., 5880 PACIFIC CENTER BOULEVARD, SAN DIEGO, CALIFORNIA
92121-4204.
SHAREHOLDER PROPOSALS
Under the present rules of the SEC, the deadline for shareholders to submit
proposals to be considered for inclusion in the Company's Proxy Statement for
next year's Annual Meeting of Shareholders is expected to be 120 days prior to
May 28, 1998. Such proposals may be included in next year's Proxy Statement if
they comply with certain rules and regulations promulgated by the SEC. The date
by which shareholders must submit proposals is January 29, 1998.
OTHER MATTERS
The Board of Directors is not aware of any matter to be presented for
action at the Annual Meeting other than the matters set forth in this Proxy
Statement. Should any other matter requiring a vote of the shareholders arise,
the persons named as proxies on the enclosed proxy card will vote the shares
represented thereby in accordance with their best judgment in the interests of
the Company. Discretionary authority with respect to such other matters is
granted by the execution of the enclosed proxy card.
By Order of the Board of Directors
Dated: April 16, 1997 MITCHELL R. WOODBURY
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
33
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
OF
DURA PHARMACEUTICALS, INC.
(A DELAWARE CORPORATION)
AND
DURA PHARMACEUTICALS, INC.
(A CALIFORNIA CORPORATION)
THIS AGREEMENT AND PLAN OF MERGER dated as of ________________, 1997
(this "Agreement") is between Dura Pharmaceuticals, Inc., a Delaware corporation
("Dura Delaware"), and Dura Pharmaceuticals, Inc., a California corporation
("Dura California"). Dura Delaware and Dura California are sometimes referred
to herein as the "Constituent Corporations."
R E C I T A L S
A. Dura Delaware is a corporation duly organized and existing under
the laws of the State of Delaware and has a total authorized capital stock of
One Hundred Five Million (105,000,000) shares. The number of shares of
Preferred Stock authorized to be issued is Five Million (5,000,000), par value
$.001. No shares of Preferred Stock were outstanding as of the date hereof and
prior to giving effect to the transactions contemplated hereby. The number of
shares of Common Stock authorized to be issued is One Hundred Million
(100,000,000), par value $.001. As of the date hereof, and before giving effect
to the transactions contemplated hereby, _________ shares of Common Stock were
issued and outstanding, all of which were held by Dura California.
B. Dura California is a corporation duly organized and existing
under the laws of the State of California and has an authorized capital stock of
One Hundred Five Million (105,000,000) shares. The number of shares of
Preferred Stock authorized to be issued is Five Million (5,000,000), no par
value, none of which are currently outstanding. The number of shares of Common
Stock authorized to be issued is One Hundred Million (100,000,000), no par
value.
C. The Board of Directors of Dura California has determined that,
for the purpose of effecting the reincorporation of Dura California in the State
of Delaware, it is advisable and in the best interests of Dura California that
Dura California merge with and into Dura Delaware upon the terms and conditions
herein provided.
D. The respective Boards of Directors of Dura Delaware and Dura
California have approved this Agreement and have directed that this Agreement be
submitted to a vote of their respective stockholders and executed by the
undersigned officers.
E. Dura Delaware is a wholly-owned subsidiary of Dura California.
<PAGE>
NOW, THEREFORE, in consideration of the mutual agreements and
covenants set forth herein, Dura Delaware and Dura California hereby agree,
subject to the terms and conditions hereinafter set forth, as follows:
I. MERGER
1.1 MERGER. In accordance with the provisions of this Agreement, the
Delaware General Corporation Law and the General Corporation Law of the State of
California, Dura California shall be merged with and into Dura Delaware (the
"Merger"), the separate existence of Dura California shall cease and Dura
Delaware shall be, and is herein sometimes referred to as, the "Surviving
Corporation," and the name of the Surviving Corporation shall be Dura
Pharmaceuticals, Inc.
1.2 FILING AND EFFECTIVENESS. The Merger shall not become effective
until the following actions shall be completed:
(a) This Agreement and the Merger shall have been adopted and
approved by the stockholders of Dura California and the sole
stockholder of Dura Delaware in accordance with the requirements of
the Delaware General Corporation Law and the General Corporation Law
of the State of California;
(b) All of the conditions precedent to the consummation of the
Merger specified in this Agreement shall have been satisfied or duly
waived by the party entitled to satisfaction thereof;
(c) An executed Certificate of Merger or an executed counterpart
of this Agreement meeting the requirements of the Delaware General
Corporation Law shall have been filed with the Secretary of State of
the State of Delaware; and
(d) An executed counterpart of this Agreement, a Certificate of
Ownership or any other document filed with the Secretary of State of
the State of Delaware pursuant to section (c) above, shall have been
filed with the Secretary of State of the State of California.
The date and time when the Merger shall become effective as aforesaid,
is herein called the "Effective Date of the Merger."
1.3 EFFECT OF THE MERGER. Upon the Effective Date of the Merger, the
separate existence of Dura California shall cease and Dura Delaware, as the
Surviving Corporation (i) shall continue to possess all of its assets, rights,
powers and property as constituted immediately prior to the Effective Date of
the Merger, (ii) shall be subject to all actions previously taken by its and
Dura California's Board of Directors, (iii) shall succeed, without other
transfer, to all of the assets, rights, powers and property of Dura California
in the manner more fully set forth in Section 259 of the General Corporation Law
of the State of Delaware, (iv) shall continue to be subject to all of the debts,
liabilities and obligations of Dura Delaware as constituted immediately prior to
the Effective Date of the Merger, and (v) shall succeed, without other transfer,
to all of the debts, liabilities and obligations of Dura California in the same
manner as if Dura Delaware had itself incurred them, all as more fully provided
under the applicable provisions of the General Corporation Law of the State of
Delaware and the General Corporation Law of the State of California.
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<PAGE>
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
of Dura Delaware as in effect immediately prior to the Effective Date of the
Merger shall continue in full force and effect as the Certificate of
Incorporation of the Surviving Corporation until duly amended in accordance with
the provisions thereof and applicable law.
2.2 BYLAWS. The Bylaws of Dura Delaware as in effect immediately
prior to the Effective Date of the Merger shall continue in full force and
effect as the Bylaws of the Surviving Corporation until duly amended in
accordance with the provisions thereof and applicable law.
2.3 DIRECTORS AND OFFICERS. The directors and officers of Dura
Delaware immediately prior to the Effective Date of the Merger shall be the
directors and officers of the Surviving Corporation until their successors
shall have been duly elected and qualified or until as otherwise provided by
law, the Certificate of Incorporation of the Surviving Corporation or the
Bylaws of the Surviving Corporation.
III. MANNER OF CONVERSION OF STOCK
3.1 DURA CALIFORNIA COMMON SHARES. Upon the Effective Date of the
Merger, each share of Dura California Common Stock, no par value, issued and
outstanding immediately prior thereto shall by virtue of the Merger and without
any action by the Constituent Corporations, the holder of such share or any
other person, be converted into and exchanged for one (1) fully paid and
nonassessable share of Common Stock, par value $.001 per share, of the Surviving
Corporation.
3.2 DURA CALIFORNIA OPTIONS, WARRANTS AND STOCK PURCHASE RIGHTS.
Upon the Effective Date of the Merger, the Surviving Corporation shall assume
and continue the employee benefits plans (including the 401(k) Profit Sharing
Plan, the Deferred Compensation Plan and the 1992 Stock Option Plan) and all
other employee benefit plans of Dura California. Each outstanding and
unexercised option, warrant or other right to purchase Dura California Common
Stock shall become an option, warrant or right to purchase the Surviving
Corporation's Common Stock on the basis of one (1) share of the Surviving
Corporation's Common Stock for each share of Dura California Common Stock
issuable pursuant to any such option, warrant or stock purchase right on the
same terms and conditions and at an exercise price per share equal to the
exercise price per share applicable to any such Dura California option, warrant
or stock purchase right at the Effective Date of the Merger. There are no
options, warrants or purchase rights for Preferred Stock of Dura California.
A number of shares of the Surviving Corporation's Common Stock shall
be reserved for issuance upon the exercise of options, warrants and stock
purchase rights equal to the number of shares of Dura California Common Stock so
reserved immediately prior to the Effective Date of the Merger.
3.3 DURA DELAWARE COMMON STOCK. Upon the Effective Date of the
Merger, each share of Common Stock, par value $.001 per share, of Dura Delaware
issued and outstanding immediately prior thereto shall, by virtue of the Merger
and without any action by Dura Delaware, the holder of such shares or any other
person, be cancelled and returned to the
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<PAGE>
status of authorized but unissued shares.
3.4 EXCHANGE OF CERTIFICATES. After the Effective Date of the
Merger, each holder of an outstanding certificate representing shares of Dura
California Common Stock may be asked to surrender the same for cancellation to
an exchange agent, whose name will be delivered to such holders prior to any
requested exchange (the "Exchange Agent"), and each such holder shall be
entitled to receive in exchange therefor a certificate or certificates
representing the number of shares of the Surviving Corporation's Common Stock
into which the surrendered shares were converted as herein provided. Until so
surrendered, each outstanding certificate theretofore representing shares of
Dura California Common Stock shall be deemed for all purposes to represent the
number of shares of the Surviving Corporation's Common Stock into which such
shares of Dura California Common Stock were converted in the Merger.
The registered owner on the books and records of the Surviving
Corporation or the Exchange Agent of any such outstanding certificate shall,
until such certificate shall have been surrendered for transfer or conversion or
otherwise accounted for to the Surviving Corporation or the Exchange Agent, have
and be entitled to exercise any voting and other rights with respect to and to
receive dividends and other distributions upon the shares of Common Stock of the
Surviving Corporation represented by such outstanding certificate as provided
above.
Each certificate representing Common Stock of the Surviving
Corporation so issued in the Merger shall bear the same legends, if any, with
respect to the restrictions on transferability as the certificates of Dura
California so converted and given in exchange therefore, unless otherwise
determined by the Board of Directors of the Surviving Corporation in compliance
with applicable laws, or other such additional legends as agreed upon by the
holder and the Surviving Corporation.
If any certificate for shares of Dura Delaware stock is to be issued
in a name other than that in which the certificate surrendered in exchange
therefor is registered, it shall be a condition of issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer, that such transfer otherwise be proper and comply with
applicable securities laws and that the person requesting such transfer pay to
the Exchange Agent any transfer or other taxes payable by reason of issuance of
such new certificate in a name other than that of the registered holder of the
certificate surrendered or establish to the satisfaction of Dura Delaware that
such tax has been paid or is not payable.
No action need be taken by holders of Dura California Common Stock to
exchange their certificates for shares of Dura Delaware Common Stock; this will
be accomplished at the time of the next transfer by the shareholder.
Certificates for shares of Dura California will automatically represent an equal
number of shares of Dura Delaware upon the Effective Date of the Merger.
IV. GENERAL
4.1 COVENANTS OF DURA DELAWARE. Dura Delaware covenants and agrees
that it will, on or before the Effective Date of the Merger:
4.1.1 Qualify to do business as a foreign corporation in the State
of California.
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<PAGE>
4.1.2 File any and all documents with the California Franchise Tax
Board necessary for the assumption by Dura Delaware of all of the franchise tax
liabilities of Dura California.
4.1.2 Take such other actions as may be required by the General
Corporation Law of the State of California.
4.2 FURTHER ASSURANCES. From time to time, as and when required by
Dura Delaware or by its successors or assigns, there shall be executed and
delivered on behalf of Dura California such deeds and other instruments, and
there shall be taken or caused to be taken by it such further and other actions
as shall be appropriate or necessary in order to vest or perfect in or conform
of record or otherwise by Dura Delaware the title to and possession of all the
property, interests, assets, rights, privileges, immunities, powers, franchises
and authority of Dura California and otherwise to carry out the purposes of this
Agreement, and the officers and directors of Dura Delaware are fully authorized
in the name and on behalf of Dura California or otherwise to take any and all
such action and to execute and deliver any and all such deeds and other
instruments.
4.3 ABANDONMENT. At any time before the Effective Date of the
Merger, this Agreement may be terminated and the Merger may be abandoned for any
reason whatsoever by the Board of Directors of either Dura California or of Dura
Delaware, or of both, notwithstanding the approval of this Agreement by the
shareholders of Dura California.
4.4 AMENDMENT. The Boards of Directors of the Constituent
Corporations may amend this Agreement at any time prior to the filing of this
Agreement (or certificate in lieu thereof) with the Secretary of State of the
State of Delaware, provided that an amendment made subsequent to the adoption of
this Agreement by the stockholder or shareholders of either Constituent
Corporation shall not: (1) alter or change the amount or kind of shares,
securities, cash, property and/or rights to be received in exchange for or on
conversion of all or any of the shares of any class or series thereof of such
Constituent Corporation, (2) alter or change any term of the Certificate of
Incorporation of the Surviving Corporation to be effected by the Merger or
(3) alter or change any of the terms and conditions of this Agreement if such
alteration or change would adversely affect the holders of any class or series
of capital stock of any Constituent Corporation.
4.5 REGISTERED OFFICE. The registered office of the Surviving
Corporation in the State of Delaware is 30 Old Rudnick Lane, City of Dover,
County of Kent and the registered agent of the Surviving Corporation at such
address is Corp America, Inc.
4.6 AGREEMENT. Executed copies of this Agreement will be on file at
the principal place of business of the Surviving Corporation at 5880 Pacific
Center Boulevard, San Diego, CA 92121, and copies thereof will be furnished to
any stockholder or shareholder of either Constituent Corporation, upon request
and without cost.
4.7 GOVERNING LAW. This Agreement shall in all respects be
construed, interpreted and enforced in accordance with and governed by the laws
of the State of Delaware and, so far as applicable, the merger provisions of the
General Corporation Law of the State of California.
4.8 COUNTERPARTS. In order to facilitate the filing and recording of
this Agreement, the same may be executed in any number of counterparts, each of
which shall be
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<PAGE>
deemed to be an original and all of which together shall constitute one and
the same instrument.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, this Agreement having first been approved by the
resolutions of the Boards of Directors of Dura Pharmaceuticals, Inc., a
Delaware corporation, and Dura Pharmaceuticals, Inc., a California
corporation, is hereby executed on behalf of each of such two corporations
and attested by their respective officers thereunto duly authorized.
DURA PHARMACEUTICALS, INC.,
a Delaware corporation
By:
-------------------------------------------
Cam L. Garner
Chairman, President and Chief Executive
Officer
ATTEST:
- -----------------------------
Mitchell R. Woodbury
Senior Vice President,
General Counsel and Secretary
DURA PHARMACEUTICALS, INC.,
a California corporation
By:
-------------------------------------------
Cam L. Garner
Chairman, President and Chief Executive
Officer
ATTEST:
- -----------------------------
Mitchell R. Woodbury
Senior Vice President,
General Counsel and Secretary
[COUNTERPART SIGNATURE PAGE
TO AGREEMENT AND PLAN OF MERGER]
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<PAGE>
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
DURA PHARMACEUTICALS, INC.
The undersigned, a natural person (the "Sole Incorporator"), for the
purpose of organizing a corporation to conduct the business and promote the
purposes hereinafter stated, under the provisions and subject to the
requirements of the laws of the State of Delaware hereby certifies that:
ARTICLE I
The name of this corporation is Dura Pharmaceuticals, Inc.
ARTICLE II
The address of this corporation's registered office in the State of
Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent. The name of its
registered agent at such address is CorpAmerica, Inc.
ARTICLE III
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may now or hereafter be organized under the Delaware
General Corporation Law.
ARTICLE IV
(A) CLASSES OF STOCK. This corporation is authorized to issue two classes
of stock, denominated Common Stock and Preferred Stock. The Common Stock shall
have a par value of $0.001 per share and the Preferred Stock shall have a par
value of $0.001 per share. The total number of shares of Common Stock which the
Corporation is authorized to issue is One Hundred Million (100,000,000), and the
total number of shares of Preferred Stock which the Corporation is authorized to
issue is Five Million (5,000,000), which shares of Preferred Stock shall be
undesignated as to series.
(B) ISSUANCE 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, by filing one or more certificates pursuant to the Delaware General
Corporation Law (each, a "Preferred Stock Designation"), to fix or alter from
time to time the designations, powers, preferences and rights of each such
series of Preferred Stock 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; 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
<PAGE>
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.
(C) RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF COMMON STOCK.
1. DIVIDEND RIGHTS. Subject to the prior or equal rights of holders
of all classes of stock at the time outstanding having prior or equal rights as
to dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of the corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. REDEMPTION. The Common Stock is not redeemable upon demand of
any holder thereof or upon demand of this corporation.
3. VOTING RIGHTS. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of this corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE V
(A) EXCULPATION. A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law or (iv) for any transaction from which the
director derived any improper personal benefit. If the Delaware General
Corporation Law is hereafter amended to further reduce or to authorize, with
the approval of the corporation's stockholders, further reductions in the
liability of the corporation's directors for breach of fiduciary duty, then a
director of the corporation shall not be liable for any such breach to the
fullest extent permitted by the Delaware General Corporation Law as so
amended.
(B) INDEMNIFICATION. To the extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement
of expenses to) such agents (and any other persons to which Delaware law
permits this corporation to provide indemnification) through bylaw
provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law, subject only to limits created by
applicable Delaware law (statutory or non-statutory), with respect to actions
for breach of duty to the corporation, its stockholders, and others.
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<PAGE>
(C) EFFECT OF REPEAL OR MODIFICATION. Any repeal or modification of
any of the foregoing provisions of this Article V shall be prospective and
shall not adversely affect any right or protection of a director, officer,
agent or other person existing at the time of, or increase the liability of
any director of the corporation with respect to any acts or omissions of such
director occurring prior to, such repeal or modification.
ARTICLE VI
Elections of directors need not be by written ballot except and to the
extent provided in the Bylaws of the corporation. The directors shall be
classified into two classes, as nearly equal in number as possible as determined
by the Board of Directors, with the term of office of the first class to expire
at the 1998 Annual Meeting of Stockholders and the term of office of the second
class to expire at the 1999 Annual Meeting of Stockholders. At each Annual
Meeting of Stockholders, 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 Stockholders after their election. Additional
directorships resulting from an increase in the number of directors shall be
apportioned among the classes as equally as possible as determined by the Board
of Directors.
ARTICLE VII
No holder of shares of stock of the corporation shall have any preemptive
or other right, except as such rights are expressly provided by contract, to
purchase or subscribe for or receive any shares of any class, or series thereof,
of stock of the corporation, whether now or hereafter authorized, or any
warrants, options, bonds, debentures or other securities convertible into,
exchangeable for or carrying any right to purchase any share of any class, or
series thereof, of stock; but such additional shares of stock and such warrants,
options, bonds, debentures or other securities convertible into, exchangeable
for or carrying any right to purchase any shares of any class, or series
thereof, of stock may be issued or disposed of by the Board of Directors to such
persons, and on such terms and for such lawful consideration as in its
discretion it shall deem advisable or as the corporation shall have by contract
agreed.
ARTICLE VIII
The corporation is to have a perpetual existence.
ARTICLE IX
The corporation reserves the right to repeal, alter, amend or rescind
any provision contained in this Certificate of Incorporation and/or any
provision contained in any amendment to or restatement of this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on stockholders herein are granted subject to this
reservation.
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<PAGE>
ARTICLE X
The Board of Directors may from time to time make, amend, supplement or
repeal the Bylaws by the requisite affirmative vote of directors as set forth in
the Bylaws; provided, however, that the stockholders may change or repeal any
bylaw adopted by the Board of Directors by the requisite affirmative vote of
stockholders as set forth in the Bylaws; and, provided further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.
ARTICLE XI
No action shall be taken by the stockholders of the corporation except at
an annual or special meeting of stockholders called in accordance with the
Bylaws, and no action shall be taken by the stockholders by written consent.
ARTICLE XII
Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
ARTICLE XIII
The name and the mailing address of the Sole Incorporator is as follows:
NAME MAILING ADDRESS
---- ---------------
Ross L. Burningham Brobeck, Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, CA 92101
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, this Certificate of Incorporation has been signed this
_____ day of _________________, 1997 by the undersigned who affirms that the
statements made herein are true and correct.
------------------------------------------------
Ross L. Burningham, Sole Incorporator
[SIGNATURE PAGE TO CERTIFICATE OF
INCORPORATION OF DURA PHARMACEUTICALS, INC.]
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<PAGE>
EXHIBIT C
---------
BYLAWS
OF
DURA PHARMACEUTICALS, INC.,
a Delaware corporation
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office shall be in the City
of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of the stockholders for the
election of directors shall be held in the City of San Diego, State of
California, at such place as may be fixed from time to time by the Board of
Directors, or at such other place either within or without the State of
California as shall be designated from time to time by the Board of Directors
and stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
California, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the
corporation, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be:
(A) specified in the notice of meeting (or any supplement thereto) given by or
at the direction of the Board of Directors, (B) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or
(C) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation no
later than the date specified in the corporation's proxy statement released to
stockholders in connection with the previous year's annual meeting of
stockholders, which date shall be not less than one hundred twenty (120)
calendar days in advance of the date of such proxy statement; provided, however,
that in the event that no annual meeting was held in the previous year or the
date of the annual meeting has been changed by more than thirty (30) days from
the date
<PAGE>
contemplated at the time of the previous year's proxy statement, notice by
the stockholder to be timely must be so received a reasonable time before the
solicitation is made. A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's
books, of the stockholder proposing such business, (iii) the class and number
of shares of the corporation which are beneficially owned by the stockholder,
(iv) any material interest of the stockholder in such business and (v) any
other information that is required to be provided by the stockholder pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), in his or her capacity as a proponent to a stockholder proposal.
In addition to the foregoing, in order to include information with respect to
a stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act to the extent such regulations
require notice that is different from the notice required above.
Notwithstanding anything in these Bylaws to the contrary, no business shall
be conducted at any annual meeting except in accordance with the procedures
set forth in this paragraph (b) of this Section 2. The chairman of the
annual meeting shall, if the facts warrant, determine and declare at the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this paragraph (b), and, if he or she
should so determine, he or she shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the corporation may be made at a meeting of stockholders by or at the
direction of the Board of Directors or by any stockholder of the corporation
entitled to vote in the election of directors at the meeting who complies
with the notice procedures set forth in this paragraph (c). Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the
Secretary of the corporation in accordance with the provisions of paragraph
(b) of this Section 2. Such stockholder's notice shall set forth (i) as to
each person, if any, whom the stockholder proposes to nominate for election
or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment
of such person, (C) the class and number of shares of the corporation that
are beneficially owned by such person, (D) a description of all arrangements
or understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nominations are to be made by the stockholder, and (E) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the 1934 Act (including without limitation
such person's written consent to being named in the proxy statement, if any,
as a nominee and to serving as a director if elected); and (ii) as to such
stockholder giving notice, the information required to be provided pursuant
to subitems (ii), (iii) and (iv) of paragraph (b) of this Section 2. At the
request of the Board of Directors, any person nominated by a stockholder for
election as a director shall furnish to the Secretary of the corporation that
information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he or she should so determine, he or she shall so declare at
the meeting, and the defective nomination shall be disregarded.
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Section 3. NOTICE OF ANNUAL MEETING. Written notice of the annual meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten (10) nor more
than sixty (60) days before the date of the meeting.
Section 4. VOTING LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, or have prepared and made, at least ten
(10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 5. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, as amended from time to time, may only be called
as provided in this Section 5 by the Chief Executive Officer or Chairman of the
Board and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors. Such request shall state the
purpose or purposes of the proposed meeting. The place, date and time of any
special meeting shall be determined by the Board of Directors. Such
determination shall include the record date for determining the stockholders
having the right of and to vote at such meeting.
Section 6. NOTICE OF SPECIAL MEETING. Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called shall be given not less than ten (10) nor more than
sixty (60) days before the date of the meeting, to each stockholder entitled to
vote at such meeting.
Section 7. ACTION AT SPECIAL MEETING. Business transacted at any special
meeting of stockholders shall be limited to the purposes stated in the notice.
Section 8. QUORUM AND ADJOURNMENTS.
(a) The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation, as amended. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
the power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. If the adjournment is for more than thirty (30) days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
(b) When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the Certificate of Incorporation, as amended, a different vote is
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required, in which case such express provision shall govern and control the
decision of such question.
Section 9. VOTING RIGHTS. Unless otherwise provided in the Certificate of
Incorporation, as amended, each stockholder shall at every meeting of the
stockholders be entitled to one (1) vote in person or by proxy for each share of
the capital stock having voting power held by such stockholder, but no proxy
shall be voted on after three (3) years from its date, unless the proxy provides
for a longer period.
Section 10. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders of the corporation except at an annual or special meeting of
stockholders called in accordance with these Bylaws, and no action shall be
taken by the stockholders by written consent.
Section 11. INSPECTORS OF ELECTION. Before any meeting of stockholders,
the Board of Directors may appoint any persons other than nominees for office to
act as inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of any stockholder or a stockholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request
of one or more stockholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may, and upon
the request of any stockholder or a stockholder's proxy shall, appoint a person
to fill that vacancy.
These inspectors shall:
(A) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity, and effect of proxies;
(B) Receive votes, ballots, or consents;
(C) Hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(D) Count and tabulate all votes or consents;
(E) Determine when the polls shall close;
(F) Determine the result; and
(G) Do any other acts that may be proper to conduct the election or vote
with fairness to all stockholders.
ARTICLE III
DIRECTORS
Section 1. CLASSES, NUMBER, TERM OF OFFICE AND QUALIFICATION. The
directors shall be classified into two classes, as nearly equal in number as
possible as determined by the Board of Directors, with the term of office of the
first class to expire at the 1998 Annual Meeting of Stockholders and the term of
office of the second class to expire at the 1999 Annual Meeting of
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Stockholders. At each Annual Meeting of Stockholders, 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 Stockholders
after their election. Additional directorships resulting from an increase in
the number of directors shall be apportioned among the classes as equally as
possible as determined by the Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by
resolution of the Board of Directors, with the number initially fixed at nine
(9). Each director elected shall hold office until his or her successor is
elected and qualified. Directors need not be stockholders.
Section 2. VACANCIES. Vacancies may be filled only by a majority of the
directors then in office, though less than a quorum, or by a sole remaining
director. Each director so chosen shall hold office until a successor is duly
elected and shall qualify or until his or her earlier death, resignation or
removal. If there are no directors in office, then an election of directors may
be held in the manner provided by statute. If, at the time of filling any
vacancy, the directors then in office shall constitute less than a majority of
the whole Board of Directors (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies, or to replace
the directors chosen by the directors then in office.
Section 3. POWERS. The business of the corporation shall be managed by or
under the direction of its Board of Directors which may exercise all such powers
of the corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation, as amended, or by these Bylaws directed
or required to be exercised or done by the stockholders.
Section 4. REGULAR AND SPECIAL MEETINGS. The Board of Directors of the
corporation may hold meetings, both regular and special, either within or
without the State of California.
Section 5. ANNUAL MEETING. The annual meeting of each newly elected Board
of Directors shall be held without notice other than this Bylaw immediately
after, and at the same place as, the annual meeting of stockholders. In the
event the annual meeting of any newly elected Board of Directors shall not be
held immediately after, and at the same place as, the annual meeting of
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
Board of Directors.
Section 6. NOTICE OF REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
Section 7. NOTICE OF SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chief Executive Officer or President on no less
than forty-eight (48) hours notice to each director either personally, or by
telephone, mail, telegram or facsimile; special meetings shall be called by the
Chief Executive Officer, President or Secretary in like manner and on like
notice on the written request of two directors unless the Board of Directors
consists of only one director, in which case special meetings shall be called by
the Chief Executive Officer, President or Secretary in like manner and on like
notice on the written request of the sole director. A written waiver of notice,
signed by the person entitled thereto, whether before or after the time of the
meeting stated therein, shall be deemed equivalent to notice.
Section 8. QUORUM. At all meetings of the Board of Directors a majority
of the directors shall constitute a quorum for the transaction of business and
the act of a majority of the directors present at any meeting at which there is
a quorum shall be the act of the Board of Directors,
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except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation, as amended. If a quorum shall not be present
at any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present.
Section 9. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation, as amended, or these Bylaws, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
Section 10. MEETINGS BY TELEPHONE CONFERENCE CALLS. Unless otherwise
restricted by the Certificate of Incorporation, as amended, or these Bylaws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
Section 11. COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers which may require it; but no such committee shall have the power or
authority in reference to amending the Certificate of Incorporation, as amended,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
Bylaws of the corporation; and, unless the resolution or the Certificate of
Incorporation, as amended, expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board of Directors.
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
Section 12. FEES AND COMPENSATION. Unless otherwise restricted by the
Certificate of Incorporation, as amended, or these Bylaws, the Board of
Directors shall have the authority to fix the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude
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any director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
Section 13. REMOVAL. Subject to any limitations imposed by law or the
Certificate of Incorporation, as amended, the Board of Directors, or any
individual director, may be removed from office at any time only with cause by
the affirmative vote of the holders of at least a majority of shares entitled to
vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. NOTICE. Whenever, under the provisions of the statutes or of
the Certificate of Incorporation, as amended, or of these Bylaws, notice is
required to be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by mail,
addressed to such director or stockholder, at his or her address as it appears
on the records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given by telephone,
telegram and facsimile.
Section 2. WAIVER OF NOTICE. Whenever any notice is required to be given
under the provisions of the statutes or of the Certificate of Incorporation, as
amended, or of these Bylaws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. ENUMERATION. The officers of the corporation shall be chosen
by the Board of Directors and shall be a Chief Executive Officer, a Chief
Financial Officer and a Secretary. The Board of Directors may elect from among
its members a Chairman of the Board. The Board of Directors may also choose a
President, one or more Vice Presidents and one or more Assistant Secretaries.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation, as amended, or these Bylaws otherwise provide.
The compensation of all officers and agents of the corporation shall
be fixed by the Board of Directors, and no officer shall be prevented from
receiving such compensation by virtue of his or her also being a director of the
corporation.
Section 2. ELECTION OR APPOINTMENT. The Board of Directors at its first
meeting after each annual meeting of stockholders shall choose a Chief Executive
Officer, Chief Financial Officer and a Secretary and may choose a President, one
or more Vice Presidents and one or more Assistant Secretaries.
The Board of Directors may appoint such other officers and agents as
it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
Section 3. TENURE, REMOVAL AND VACANCIES. The officers of the corporation
shall hold office until their successors are chosen and qualified. Any officer
elected or appointed by the
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Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of
the corporation shall be filled by the Board of Directors.
Section 4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he or she shall be present. He or she shall have and may exercise such
powers as are, from time to time, assigned to him or her by the Board of
Directors and as may be provided by law.
Section 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the
corporation shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and the officers of
the corporation. He or she shall preside at all meetings of the stockholders
and, in the absence or nonexistence of a Chairman of the Board at all meetings
of the Board of Directors. He or she shall have the general powers and duties
of management usually vested in the Chief Executive Officer of a corporation,
including general supervision, direction and control of the business and
supervision of other officers of the corporation, and shall have such other
powers and duties as may be prescribed by the Board of Directors or these
Bylaws.
The Chief Executive Officer shall, without limitation, have the authority
to execute bonds, mortgages and other contracts requiring a seal, under the seal
of the corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 6. PRESIDENT. Subject to such supervisory powers as may be given
by these Bylaws or the Board of Directors to the Chairman of the Board or the
Chief Executive Officer, if there be such officers, the President shall have
general supervision, direction and control of the business and supervision of
other officers of the corporation, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws. In the event a
Chief Executive Officer shall not be appointed, the President shall have the
duties of such office.
Section 7. VICE PRESIDENTS. The Vice President, or if there shall be more
than one, the Vice Presidents in the order determined by the Board of Directors,
shall, in the absence or disability of the President, act with all of the powers
and be subject to all the restrictions of the President. The Vice Presidents
shall also perform such other duties and have such other powers as the Board of
Directors, the President or these Bylaws may, from time to time, prescribe.
Section 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors, all meetings of the committees thereof and all meetings of
the stockholders and record all the proceedings of the meetings in a book or
books to be kept for that purpose. Under the Chief Executive Officer's or
President's supervision, the Secretary shall give, or cause to be given, all
notices required to be given by these Bylaws or by law; shall have such powers
and perform such duties as the Board of Directors, the Chief Executive Officer,
the President or these Bylaws may, from time to time, prescribe; and shall have
custody of the seal of the corporation. The Secretary, or an Assistant
Secretary, shall have authority to affix the seal of the corporation to any
instrument requiring it and when so affixed, it may be attested by his or her
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his or her signature.
Section 9. ASSISTANT SECRETARY. The Assistant Secretary, if any, or if
there be more than
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one, the Assistant Secretaries in the order determined by the Board of
Directors, shall, in the absence, disability or refusal to act of the
Secretary, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as the Board of
Directors, the Chief Executive Officer, the President, the Secretary or these
Bylaws may, from time to time, prescribe.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
act as Treasurer and shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
He or she shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his or her transactions as Treasurer and of the financial condition of the
corporation.
If required by the Board of Directors, he or she shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of the office and for the restoration
to the corporation, in case of his or her death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in his or her possession or under his or her control belonging to
the corporation.
Section 11. OTHER OFFICERS, ASSISTANT OFFICERS AND AGENTS. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these Bylaws, shall have such authority and perform such duties
as may from time to time be prescribed by the Board of Directors, the Chief
Executive Officer or the President.
Section 12. ABSENCE OR DISABILITY OF OFFICERS. In the case of the absence
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the Board of Directors may delegate the powers and duties of such
officer to any officer or to any director, or to any other person who it may
select.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. CERTIFICATES OF STOCK. Every holder of stock in the
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the Chairman of the Board of Directors, or the President
or a Vice President and the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the corporation, certifying the number of
shares owned by him or her in the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the
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qualifications, limitations or restrictions of such preferences and/or rights
shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in Section 202
of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock,
a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
Section 2. EXECUTION OF CERTIFICATES. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
Section 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his or her legal representative, to advertise the same in such
manner as it shall require and/or to give the corporation a bond in such sum as
it may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen or
destroyed.
Section 4. TRANSFER OF STOCK. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. FIXING RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholder or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
Section 6. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
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ARTICLE VII
INDEMNIFICATION
Section 1. INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS. The
corporation shall indemnify its directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law; provided,
however, that the corporation may limit the extent of such indemnification by
individual contracts with its directors and executive officers; and, provided,
further, that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person or any proceeding by such person against the corporation or its
directors, officers, employees or other agents unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation, and (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law.
Section 2. INDEMNIFICATION OF OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS.
The corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law.
Section 3. GOOD FAITH.
(a) For purposes of any determination under this Bylaw, a director or
executive officer shall be deemed to have acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe that his or her conduct was unlawful, if his or
her action is based on information, opinions, reports and statements, including
financial statements and other financial data, in each case prepared or
presented by:
(1) one or more officers or employees of the
corporation whom the director or executive officer believed
to be reliable and competent in the matters presented;
(2) counsel, independent accountants or other persons
as to matters which the director or executive officer
believed to be within such person's professional competence;
and
(3) with respect to a director, a committee of the
Board of Directors upon which such director does not serve,
as to matters within such committee's designated authority,
which committee the director believes to merit confidence;
so long as, in each case, the director or executive officer
acts without knowledge that would cause such reliance to be
unwarranted.
(b) The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal proceeding, that
he or she had reasonable cause to believe that his or her consent was unlawful.
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(c) The provisions of this Section 3 shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth by the Delaware
General Corporation Law.
Section 4. EXPENSES. The corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 4 of this Bylaw, no advance shall be made by the corporation if a
determination is reasonably and promptly made (i) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
Section 5. ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his or her claim. The corporation shall be entitled to raise as
a defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. Neither the
failure of the corporation (including its Board of Directors, independent legal
counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, as amended, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts with
any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law.
Section 7. SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and
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shall inure to the benefit of the heirs, executors and administrators of such
a person.
Section 8. INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law, the corporation, upon approval by the Board of
Directors, may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to this Bylaw.
Section 9. AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
Section 10. SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
Section 11. CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(a) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of the testimony
in, any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative.
(b) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(c) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he or
she would have with respect to such constituent corporation if its separate
existence had continued.
(d) References to a "director," "officer," "employee," or "agent"
of the corporation shall include, without limitation, situations where such
person is serving at the request of the corporation as a director, officer,
employee, trustee or agent of another corporation, partnership, joint venture,
trust or other enterprise.
(e) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a
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manner he or she reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the corporation"
as referred to in this Bylaw.
ARTICLE VIII
LOANS TO OFFICERS
Section 1. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in this Bylaw shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
ARTICLE IX
EXCESSIVE COMPENSATION
If the Internal Revenue Service disallows as a business deduction to the
corporation any part of the salary or other compensation paid by it to any
officer, director or employee, as being excessive compensation, that part
disallowed shall be repaid to the corporation by the officer, director or
employee.
ARTICLE X
GENERAL PROVISIONS
Section 1. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
as amended, if any, may be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation, as amended.
Section 2. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
Section 3. EXECUTION OF CORPORATE INSTRUMENTS. All checks or demands for
money and notes of the corporation shall be signed by such officer or officers
or such other person or persons as the Board of Directors may from time to time
designate.
Section 4. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
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Section 5. CORPORATE SEAL. The Board of Directors may adopt a corporate
seal having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE XI
AMENDMENTS
Section 1. AMENDMENTS. Except as otherwise set forth in Section 9 of
Article VII of these Bylaws, the Bylaws may be altered or amended or new Bylaws
adopted by the affirmative vote of a majority 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"). The Board of
Directors shall also have the power, if such power is conferred upon the Board
of Directors by the Certificate of Incorporation, as amended, to adopt, amend or
repeal Bylaws by a vote of the majority of the Board of Directors unless a
greater or different vote is required pursuant to the provisions of the Bylaws,
the Certificate of Incorporation or any applicable provision of law.
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PROXY
DURA PHARMACEUTICALS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James W. Newman and Mitchell R. Woodbury,
jointly and severally, as proxies, with power to act without the other and with
power of substitution, and hereby authorizes them to represent and vote all of
the shares of Common Stock of Dura Pharmaceuticals, Inc. standing in the name of
the undersigned, as designated on the other side, with all powers which the
undersigned would possess if present at the Annual Meeting of Shareholders to be
held May 28, 1997, or any postponements or adjournments thereof, and to vote in
his discretion on such other business as may properly come before the Meeting
and any adjournments thereof.
(Continued, and to be marked, dated and signed, on the other side)
* FOLD AND DETACH HERE *
[Logo]
<PAGE>
Please mark
your votes as /X/
indicated in
this example
The Board of Directors recommends a vote FOR Items 1, 2, 3, and 4.
WITHHELD
FOR FOR ALL
ITEM 1-ELECTION OF DIRECTORS / / / /
Nominees:
Herbert J. Conrad
Gordon V. Ramseier
Charles G. Smith
Walter F. Spath
WITHHELD FOR: (write that nominee's name in the space provided below).
_______________________________________________________________________________
FOR AGAINST ABSTAIN
ITEM 2 - APPROVAL OF REINCORPORATION IN DELAWARE / / / / / /
ITEM 3 - APPROVAL OF AMENDMENTS TO 1992 STOCK
OPTION PLAN / / / / / /
ITEM 4 - RATIFICATION AND APPROVAL OF
DELOITTE & TOUCHE LLP
AS INDEPENDENT ACCOUNTANTS / / / / / /
Unless otherwise specified by the undersigned, this proxy will be voted FOR
proposals 1, 2, 3 and 4 and will be voted by the proxy-holder at his discretion
as to any other matters properly transacted at the Meeting or any adjournments
thereof. To vote in accordance with the Board of Director's recommendations,
just sign below, no boxes need to be checked.
Signature ___________________________________________________________________
Signature ___________________________________________________________________
Date ________________________________________________________________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please give
full title as such.
* FOLD AND DETACH HERE *
